Exhibit 10.37



                  MULTICURRENCY REVOLVING CREDIT FACILITY

                              CREDIT AGREEMENT


                                by and among


                    BORDERS GROUP, INC., BORDERS, INC.,

    WALDEN BOOK COMPANY, INC., BGP (UK) LIMITED and BORDERS (UK) LIMITED


                                    and


                         THE LENDERS PARTY HERETO,


                                    and


          PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent,


                   PNC CAPITAL MARKETS, INC., as Arranger


                                    and


                FLEET NATIONAL BANK, as Documentation Agent



                          Dated as of July 9, 1999


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ARTICLE I
      CERTAIN DEFINITIONS                                                    1
      1.01      Certain Definitions                                          1
      1.02      Construction                                                26
      1.03      Accounting Principles                                       27

ARTICLE II
      REVOLVING CREDIT AND SWING LOAN FACILITIES                            27
      2.01      (a)   Commitments                                           27
                (b)   Increase in Commitments                               28
                (c)   Swing Loan Facility                                   28
      2.02      Nature of Lenders' Obligations with Respect to Revolving
                Credit Loans                                                29
      2.03      Fees                                                        29
                (a)   Revolving Credit Facility Fee                         29
                (c)   Calculation of Fees                                   29
      2.04      Reduction of Commitment                                     29
      2.05      (a)   Revolving Credit Loan Requests                        30
                (b)   Swing Loan Requests                                   31
      2.06      (a)   Making Revolving Credit Loans                         31
                (b)   Making Swing Loans                                    31
      2.07      (a)   Borrowings to Repay Swing Loans                       32
                (b)   Irrevocable Obligation                                32
      2.08      (a)   Evidence of Revolving Credit Obligations              32
                (b)   Evidence of Swing Loan Obligations                    33
                (c)   Promissory Notes                                      33
      2.09      Utilization of Commitments in Optional Currencies           33
                (a)   Periodic Computations of Dollar Equivalent Amounts
                      of Loans and Letters of Credit Outstanding            33
                (b)   Notices from Lenders That Optional Currencies Are
                      Unavailable to Fund New Loans                         33
                (c)   Notices From Lenders That Optional Currencies Are
                      Unavailable to Fund Renewals of the Euro-Rate Option  34
                (d)   Requests for Additional Optional Currencies           34
      2.10      Currency Repayments                                         35
      2.11      Optional Currency Amounts                                   35
      2.12      European Monetary Union                                     35
      2.13.     Extension of Expiration Date                                36

ARTICLE III
      INTEREST RATES                                                        38
      3.01      Interest Rate Options on Revolving Credit Loans             38
                (a)   Selection of Interest Rate Options                    38
                (b)   Interest Rate Options Available                       38
      3.02      Rate Quotations                                             39
      3.03      Euro-Rate Unascertainable; Illegality; Increased Costs;
                Deposits Not Available                                      39
      3.04      Selection of Interest Rate Options                          40
      3.05      Interest Rates Payable on Swing Loans                       40
      3.06      Interest After Default                                      41
      3.07      Maximum Interest Rate                                       41

ARTICLE IV
      PAYMENTS                                                              41
      4.01      Payments                                                    41
      4.02      Pro Rata Treatment of Lenders                               42
      4.03      Interest Payment Dates                                      42
      4.04      Prepayments                                                 42
      4.05      Mandatory Prepayments                                       44
                (a)   Currency Fluctuations                                 44
                (b)   Application Among Interest Rate Options               44
      4.06      Additional Compensation in Certain Circumstances            45
                (a)   Increased Costs or Reduced Return Resulting From
                      Taxes, Reserves, Capital Adequacy Requirements,
                      Expenses, Etc.                                        45
                (b)   Indemnity                                             45
                (c)   Taxes                                                 46
                (d)   Survival                                              47
      4.07      Interbank Market Presumption                                47
      4.08      Judgment Currency                                           47
                (a)   Currency Conversion Procedures for Judgments          47
                (b)   Indemnity in Certain Events                           47

ARTICLE V
      REPRESENTATIONS AND WARRANTIES                                        48
      5.01      Representations and Warranties                              48
                (a)   Organization and Qualification                        48
                (b)   Capitalization and Ownership                          48
                (c)   Subsidiaries                                          48
                (d)   Power and Authority                                   49
                (e)   Validity and Binding Effect                           49
                (f)   No Conflict                                           49
                (g)   Litigation                                            49
                (h)   Title to Properties                                   49
                (i)   Financial Statements                                  50
                (j)   Use of Proceeds; Margin Stock; Section 20
                      Subsidiaries                                          50
                (k)   Full Disclosure                                       51
                (l)   Taxes                                                 51
                (m)   Consents and Approvals                                52
                (n)   No Event of Default; Compliance with Instruments      52
                (o)   Patents, Trademarks, Copyrights, Licenses, Etc.       52
                (p)   Insurance                                             52
                (q)   Compliance with Laws                                  52
                (r)   Material Contracts                                    52
                (s)   Investment Companies                                  53
                (t)   Plans and Benefit Arrangements                        53
                (u)   Employment Matters                                    54
                (v)   Environmental Matters                                 54
                (w)   Senior Debt Status                                    55
                (x)   Solvency                                              55
      5.02      Updates to Schedules                                        55

ARTICLE VI
      CONDITIONS OF LENDING                                                 56
      6.01      Closing Date                                                56
      6.02      Each Additional Loan                                        58
      6.03      Subsequent Effective Date                                   58

ARTICLE VII
      COVENANTS                                                             60
      7.01      Affirmative Covenants                                       60
                (a)   Preservation of Existence, etc.                       60
                (b)   Payment of Liabilities, Including Taxes, etc.         60
                (c)   Maintenance of Insurance                              61
                (d)   Maintenance of Properties                             61
                (e)   Maintenance of Patents, Trademarks, etc.              61
                (f)   Visitation Rights                                     61
                (g)   Keeping of Records and Books of Account               61
                (h)   Plans and Benefit Arrangements                        62
                (i)   Compliance with Laws                                  62
                (j)   Use of Proceeds                                       62
                (k)   Subsequent Credit Terms                               62
                (l)   Subsidiary Guaranties                                 63
                (m)   Clean Down                                            63
      7.02      Negative Covenants                                          63
                (a)   Indebtedness                                          63
                (b)   Liens                                                 65
                (c)   Contingent Obligations                                65
                (d)   Loans and Investments                                 66
                (e)   Dividends and Related Distributions                   68
                (f)   Liquidations, Mergers, Consolidations                 69
                (g)   Dispositions of Assets or Subsidiaries                69
                (h)   Affiliate Transactions                                69
                (i)   Subsidiaries, Partnerships and Joint Ventures         70
                (j)   Continuation of or Change in Business                 70
                (k)   Plans and Benefit Arrangements                        70
                (l)   Fiscal Year                                           70
                (m)   Issuance of Stock                                     70
                (n)   Changes in Organizational Documents                   71
                (o)   Minimum Fixed Charge Coverage Ratio                   71
                (p)   Maximum Leverage Ratio                                71
                (q)   Minimum Tangible Net Worth                            71
                (r)   Modifications of Other Documents                      71
                (s)   Prepayment of Note Put Agreement Obligations          71
                (t)   Lease Financing Payments                              71
                (u)   Foreign Activities                                    72
                (v)   Inconsistent Agreements                               72
      7.03      Reporting Requirements                                      73
                (a)   Quarterly Financial Statements                        73
                (b)   Annual Financial Statements                           73
                (c)   Certificates of the Company                           73
                (d)   Notice of Default                                     74
                (e)   Notice of Litigation                                  74
                (f)   Certain Events                                        74
                (g)   Other Reports and Information                         74
                (h)   Notices Regarding Benefit Arrangements.               75
                (i)   Access to the Company's Auditors                      75
                (j)   Notices Regarding Lease Financing Agreements          75
                (k)   Notices Regarding Repurchases of Stock                76

ARTICLE VIII
      GUARANTIES                                                            76
      8.01      Guaranty of Payment and Performance of Guaranteed
                Obligations                                                 76
      8.02      Certain Waivers of the Guarantors                           76
      8.03      Obligations Unconditional                                   76
      8.04      Waiver of Subrogation                                       78
      8.05      Actions with Respect to Collateral                          78
      8.06      Effect of Bankruptcy; Revival                               78
      8.07      Survival of Guaranty                                        79
      8.08      Right of Set-Off                                            79
      8.09      Limitation on Amount of Guaranty                            79

ARTICLE IX
      DEFAULT                                                               80
      9.01      Events of Default                                           80
      9.02      Consequences of Event of Default                            82

ARTICLE X
      THE AGENTS                                                            84
      10.01     Appointment                                                 84
      10.02     Delegation of Duties                                        85
      10.03     Nature of Duties; Independent Credit Investigation          85
      10.04     Actions in Discretion of Agents; Instructions from the
                Lenders                                                     85
      10.05     Exculpatory Provisions                                      86
      10.06     Reimbursement and Indemnification of Agents by Lenders      86
      10.07     Reliance by Agents                                          87
      10.08     Notice of Default                                           87
      10.09     Notices                                                     87
      10.10     Lenders in Their Individual Capacities                      87
      10.11     [RESERVED]                                                  87
      10.12     Equalization of Lenders                                     87
      10.13     Successor Agents                                            88
      10.14     Availability of Funds                                       88
      10.15     Calculations                                                89
      10.16     Beneficiaries                                               89

ARTICLE XI
      MISCELLANEOUS                                                         89
      11.01     Modifications, Amendments or Waivers                        89
      11.02     No Implied Waivers; Cumulative Remedies; Writing Required   90
      11.03     Reimbursement and Indemnification by the Borrowers; Taxes   91
                (a)   Reimbursement and Indemnification of Agents           91
                (b)   Reimbursement and Indemnification of Lenders          92
      11.04     Holidays                                                    92
      11.05     Funding by Branch, Subsidiary or Affiliate                  92
                (a)   Notional Funding                                      92
                (b)   Actual Funding                                        93
      11.06     Notices; Lending Offices                                    93
      11.07     Severability                                                93
      11.08     Governing Law                                               94
      11.09     Prior Understanding                                         94
      11.10     Duration; Survival                                          94
      11.11     Successors and Assigns                                      94
                (a)   Assignment                                            94
                (b)   Participations                                        95
                (c)   Other Provisions                                      95
                (d)   Federal Reserve Bank Transfer                         95
      11.12     Confidentiality                                             95
                (b)   Sharing Information With Affiliates of the Lenders    96
      11.13     Counterparts                                                96
      11.14     Agent's or Lender's Consent                                 96
      11.15     Exceptions                                                  96
      11.16     CONSENT TO FORUM; WAIVER OF JURY TRIAL                      96
      11.17     Waivers by Borrowers                                        97
      11.18     Tax Withholding Forms                                       97



<PAGE>







                        LIST OF SCHEDULES AND EXHIBITS


SCHEDULE 1.01(A)        --     EURO-RATE MARGIN, BASE RATE MARGIN,
                              FACILITY FEE RATE
SCHEDULE 1.01(B)        --     COMMITMENTS OF LENDERS
SCHEDULE 1.01(C)        --     EXISTING LIENS
SCHEDULE 5.01(a)        --     QUALIFICATIONS TO DO BUSINESS
SCHEDULE 5.01(b)        --     OPTIONS ON COMPANY STOCK
SCHEDULE 5.01(c)        --     SUBSIDIARIES; RIGHTS TO PURCHASE SUBSIDIARY
                              SHARES
SCHEDULE 5.01(h)       --     OWNED AND LEASED REAL PROPERTY
SCHEDULE 5.01(l)       --     TAX ARRANGEMENTS WITH KMART
SCHEDULE 5.01(m)       --     CONSENTS AND APPROVALS
SCHEDULE 5.01(p)       --     INSURANCE POLICIES
SCHEDULE 5.01(t)       --     EMPLOYEE BENEFIT PLAN DISCLOSURES
SCHEDULE 5.01(v)       --     ENVIRONMENTAL DISCLOSURES
SCHEDULE 7.02(a)       --     EXISTING INDEBTEDNESS

EXHIBIT 1.01(A)         --     ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 2.05(a)         --     REVOLVING CREDIT LOAN REQUEST
EXHIBIT 2.05(b)         --     SWING LOAN REQUEST
EXHIBIT 6.01(e)(i)      --     OPINIONS OF COUNSEL
EXHIBIT 7.03(c)         --     COMPLIANCE CERTIFICATE















<PAGE>





                         MULTICURRENCY CREDIT AGREEMENT

     THIS MULTICURRENCY CREDIT AGREEMENT is dated as of July 9, 1999 and is made
by and among BORDERS GROUP,  INC. (the "Company"),  Borders,  Inc.  ("Borders"),
Walden Book Company,  Inc.  ("Walden"),  BGP (UK) Limited ("Books  Holding") and
Borders  (UK) Limited  ("Borders  (UK)")(the  Company,  Borders,  Walden,  Books
Holding and Borders (UK) hereinafter referred to individually as a "Borrower" or
jointly as the  "Borrowers"),  each of the Guarantors (as hereinafter  defined),
the LENDERS (as hereinafter  defined),  PNC BANK, NATIONAL  ASSOCIATION,  in its
capacity  as   administrative   agent  for  the  Lenders  under  this  Agreement
(hereinafter  referred to in such capacity as the "Administrative  Agent"),  PNC
CAPITAL  MARKETS,  INC.,  in its capacity as arranger for the Lenders under this
Agreement (hereinafter referred to in such capacity as the "Arranger") and FLEET
NATIONAL BANK, in its capacity as documentation agent for the Lenders under this
Agreement  (hereinafter  referred  to in  such  capacity  as the  "Documentation
Agent").

                                   WITNESSETH:

     WHEREAS,  the Borrowers  have  requested the Lenders to provide a revolving
credit facility to the Borrowers in an aggregate  principal amount not to exceed
$130,000,000; and

     WHEREAS,  the Lenders are willing to provide such credit upon the terms and
conditions hereinafter set forth;

     NOW,  THEREFORE,  the parties  hereto,  in  consideration  of their  mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:


                                 ARTICLE I
                            CERTAIN DEFINITIONS

     1.01 Certain Definitions.  In addition to words and terms defined elsewhere
in this  Agreement,  the  following  words and terms  shall  have the  following
meanings, respectively, unless the context hereof clearly requires otherwise:

          ADMINISTRATIVE  AGENT shall mean PNC Bank, National  Association,  and
its successors and assigns.

          AFFILIATE  as to any  Person  shall  mean any other  Person  (i) which
directly or indirectly  controls,  is controlled  by, or is under common control
with such Person,  (ii) which beneficially owns or holds 5% or more of any class
of the voting or other equity  interests of such Person,  or (iii) 5% or more of
any class of voting interests or other equity interests of which is beneficially
owned or held, directly or indirectly,  by such Person. Control, as used in this
definition,  shall mean the possession,  directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise,  including
the power to elect a majority of the directors or trustees of a  corporation  or
trust, as the case may be.

          AGENTS  shall mean the  Administrative  Agent,  the  Arranger  and the
Documentation Agent.

          AGREEMENT shall mean this  Multicurrency  Credit Agreement as the same
may be  supplemented  or amended from time to time  including  all schedules and
exhibits.

          ARRANGER shall mean PNC Capital Markets,  Inc., and its successors and
assigns.

          ASSIGNEE  LENDER shall mean a financial  institution  which  becomes a
party to this Agreement by executing an Assignment and Assumption Agreement.

          ASSIGNMENT  AND  ASSUMPTION  AGREEMENT  shall mean an  Assignment  and
Assumption Agreement by and among a Purchasing Lender, the Transferor Lender and
the Administrative Agent, as Administrative Agent and on behalf of the remaining
Lenders,  substantially  in the form of Exhibit 1.01(A) or in such other form as
may be acceptable to the Administrative Agent.

          ASSIGNOR   LENDER  shall  mean  the  selling  Lender  pursuant  to  an
Assignment and Assumption Agreement.

          AUTHORIZED OFFICER shall mean the Chief Executive Officer,  President,
Chief Operating Officer,  Chief Financial Officer, Vice  President-Finance,  any
Vice Chairman, Vice President, Planning or Treasurer of any Borrower.

          BASE RATE shall mean the  greater of (i) the  interest  rate per annum
announced from time to time by the Administrative  Agent at its Principal Office
as its then prime rate, which rate may not be the lowest rate then being charged
commercial  borrowers by the  Administrative  Agent,  or (ii) the Federal  Funds
Effective   Rate  plus  1/2%  per  annum.   Such   interest  rate  shall  change
automatically  from  time to time  effective  as of the  effective  date of each
change, as determined by the Administrative Agent in its sole discretion.

          BASE RATE BORROWING TRANCHE shall mean a Borrowing Tranche  consisting
of all Revolving Credit Loans to which a Base Rate Option applies.

          BASE  RATE  OPTION  shall  mean the  option of the  Borrowers  to have
Revolving  Credit  Loans  bear  interest  at the rate and  under  the  terms and
conditions set forth in Section 3.01(a)(i).

          BBA shall have the meaning  assigned to that term in the definition of
Euro-Rate.

          BENEFIT ARRANGEMENT shall mean at any time an "employee benefit plan,"
within  the  meaning  of  Section  3(3) of ERISA,  which is neither a Plan nor a
Multiemployer Plan and which is maintained,  sponsored or otherwise  contributed
to, by the Company or any of its Subsidiaries.

          BOOKS  HOLDING shall mean BGP (UK) Limited,  company  number  3434045,
organized and existing under the laws of the United  Kingdom,  and its permitted
successors and assigns.

          BORDERS shall mean Borders, Inc., a corporation organized and existing
under  the laws of the  State of  Colorado,  and its  permitted  successors  and
assigns.

          BORDERS' NOTE shall mean that certain  promissory note in the original
principal  amount of $192,114,261,  dated May 23, 1995,  executed by Borders and
payable to Walden and which has been assigned to WPI.

          BORDERS (UK) shall mean Borders (UK) Limited,  company number 1580771,
organized and existing under the laws of the United  Kingdom,  and its permitted
successors and assigns.

          BORROWERS shall mean  collectively  and Borrower shall mean separately
the  Company,  Borders,  Walden,  Books  Holding,  Borders  (UK) and,  after the
Subsequent Effective Date, UK Superstore.

          BORROWING DATE shall mean,  with respect to any Loan, the date for the
making  thereof or the renewal or conversion  thereof to the same or a different
Interest Rate Option, which shall be a Business Day.

          BORROWING  TRANCHE shall mean specified  portions of Loans outstanding
to each Borrower as follows:  (i) any Loans to one Borrower to which a Euro-Rate
Option applies and which have the same Interest Period and which are denominated
in the same currency shall  constitute one Borrowing  Tranche and (ii) all Loans
to which a Base Rate Option applies shall constitute one Borrowing Tranche.

          BPI shall mean Borders Properties,  Inc., a corporation  organized and
existing under the laws of the State of Delaware,  and its permitted  successors
and assigns.

          BUSINESS  DAY shall mean any day other than a Saturday  or Sunday or a
legal holiday on which  commercial banks are authorized or required to be closed
for business in Pittsburgh,  Pennsylvania or Chicago,  Illinois,  and (i) if the
applicable  Business  Day  relates  to any Loan to which  the  Euro-Rate  Option
applies,  such day must also be a day on which  dealings  are  carried on in the
London Interbank market,  and (ii) with respect to advances or payments of Loans
or any other matters relating to Loans denominated in an Optional Currency, such
day also shall be a day on which (a) deposits in the relevant  Optional Currency
are carried on in the applicable  interbank market, and (b) all applicable banks
into which Loan  proceeds  may be  deposited  are open for  business and foreign
exchange markets are open for business in the principal  financial center of the
country of such Optional Currency.

          CAPITALIZED  LEASE OF A PERSON  means  any lease of  property  by such
Person as lessee which would be  capitalized  on a balance  sheet of such Person
prepared in accordance with GAAP.

          CAPITALIZED  LEASE  OBLIGATIONS  OF A PERSON  means the  amount of the
obligations  of such Person under  Capitalized  Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with GAAP.

          CAPITALIZED  RENT EXPENSE shall mean an amount equal to four times the
sum of Rent Expense and Lease Financing Rent Expense.

          CHANGE IN CONTROL shall mean (a) the direct or indirect acquisition or
ownership  by any Person or any  syndicate or other group formed or existing for
the purpose of  acquiring,  holding or  disposing of  securities  of the Company
within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 of
stock of the Company  having in the aggregate  more than 30% of the voting power
in the general election of directors (including securities  convertible by their
terms  into  stock  having  such  voting  power) or (b)  during any period of 12
consecutive calendar months,  commencing on the date of this Agreement, an event
or  circumstance  as a  result  of  which  those  individuals  (the  "Continuing
Directors")  who (i) were directors of the Company on the first day of each such
period or (ii)  subsequently  became  directors of the Company and whose initial
election or initial nomination for election subsequent to that date was approved
by a majority of the Continuing  Directors then on the Board of Directors of the
Company,  cease to  constitute  a  majority  of the  Board of  Directors  of the
Company.

          CLEAN DOWN  PERIOD  shall have the  meaning  assigned  to that term is
Section 7.01(m).

          CLOSING DATE shall mean the date of closing of this  Agreement,  which
shall occur on July 9, 1999 or, if all the conditions specified in Sections 6.01
and 6.02 have not been satisfied or waived by such date, not later than July 16,
1999, as designated by the Company by at least three (3) Business  Days' advance
notice to the  Administrative  Agent,  or such other date as the Company and the
Lenders agree. The closing shall take place at 10:00 A.M.,  Chicago time, on the
Closing  Date at the offices of Schiff  Hardin & Waite,  6600 Sears  Tower,  233
South Wacker Drive, Chicago,  Illinois 60606, or at such other time and place as
the parties agree.

          COMMITMENT  shall mean as to any Lender at any date, the obligation of
such Lender at such date to (a) make Revolving  Credit Loans and (b) participate
in Swing Loans, in an aggregate principal amount at any one time outstanding not
to exceed the  amount set forth  opposite  its name on  Schedule  1.01(B) in the
column  labeled  "Amount  of  Commitment,"  as such  Schedule  may be amended or
supplemented  from time to time in  accordance  with the  provisions of Sections
2.01(b) and 11.11 hereof,  and Commitments shall mean the aggregate  Commitments
of all of the  Lenders,  in  either  case  as such  amounts  may be  reduced  or
terminated  pursuant to Section 2.04 hereof or canceled pursuant to Section 9.02
hereof.

          COMPANY shall mean Borders  Group,  Inc., a corporation  organized and
existing under the laws of the State of Michigan,  and its permitted  successors
and assigns.

          COMPUTATION  DATE  shall  have the  meaning  assigned  to that term in
Section 2.09(a).

          CONSOLIDATED CASH FLOW FROM OPERATIONS for any period of determination
shall mean the sum of  Consolidated  Net  Income  (excluding  (i)  extraordinary
gains, but not losses and (ii) income or loss of any Person in which the Company
owns less than 50% of the  shares of capital  stock,  partnership  interests  or
membership  interests),  depreciation,   amortization,  interest  expense,  Rent
Expense,  Lease  Financing Rent Expense and income tax expense,  in each case of
the Company and its Subsidiaries for such period  determined and consolidated in
accordance  with GAAP;  provided,  however,  that  there  shall be  excluded  in
calculating Consolidated Net Income any losses attributable to the use of a fair
value  methodology for recognition and measurement of impairment of goodwill not
identified with impaired assets in accordance with Accounting  Principles  Board
Opinion No. 17.

          CONSOLIDATED  FUNDED  INDEBTEDNESS  shall  mean  as  of  any  date  of
determination,  the aggregate of the  Indebtedness for borrowed money (including
any Capitalized Lease  Obligations and any Contingent  Obligations in respect of
borrowed money or Capitalized Lease Obligations of third Persons) of the Company
and its  Subsidiaries,  all as determined and  consolidated  in accordance  with
GAAP,  plus the amount of the  Contingent  Obligations  arising  under the Lease
Financing Guarantee.

          CONSOLIDATED NET INCOME shall mean for any period the aggregate of the
net income of the Company and its  Subsidiaries  for such period  determined and
consolidated in accordance with GAAP.

          CONSOLIDATED TANGIBLE NET WORTH shall mean as of any
date of  determination  total  stockholders'  equity  less  intangible
assets of the Company and its  Subsidiaries as of such date determined
and consolidated in accordance with GAAP.

          CONSOLIDATED  TOTAL CAPITAL shall mean as of any date of determination
the sum of (a) total stockholders' equity of the Company and its Subsidiaries as
of such date  determined  and  consolidated  in accordance  with GAAP,  plus (b)
Consolidated Funded Indebtedness.

          CONTINGENT  OBLIGATION of any Person shall mean any obligation of such
Person guaranteeing or in effect guaranteeing any liability or obligation of any
other Person (other than, if the first Person is a Borrower,  another  Borrower)
in  any  manner,  whether  directly  or  indirectly,  including  any  agreement,
undertaking or arrangement to indemnify or hold harmless any other Person (other
than, if the first Person is a Borrower, another Borrower), any performance bond
or other suretyship arrangement, any contingent agreement to purchase or provide
funds for such  liability or obligation,  any comfort  letter,  any  take-or-pay
contract,  and any other form of assurance against loss, except  endorsements of
negotiable or other instruments for deposit or collection in the ordinary course
of business.

          DISTRIBUTIONS  shall have the meaning assigned to such term in Section
7.02(e).

          DOCUMENTATION AGENT shall mean Fleet National Bank, and its successors
and assigns.

          DOLLAR, DOLLARS, U.S. DOLLARS and the symbol $ shall mean lawful money
of the United States of America.

          DOLLAR  EQUIVALENT  shall  mean,  with  respect  to any  amount of any
currency, the Equivalent Amount of such currency expressed in Dollars.

          DOMESTIC  JOINT VENTURE  shall mean  individually  and Domestic  Joint
Ventures shall mean collectively any corporation, partnership, limited liability
company, joint venture or other entity (i) organized under the laws of any state
of the United States of America for the purpose of doing  business  primarily in
the United States of America and (ii) in which the Company and its  Subsidiaries
own less  than  50% of the  capital  stock,  partnership  interests,  membership
interests or other ownership interests.

          DOMESTIC  PURCHASE  means any  transaction,  or any  series of related
transactions,  consummated on or after the date of this Agreement,  by which the
Company  or any of its  Subsidiaries  (a)  acquires  (i)  any  ongoing  business
organized  under the laws of any state of the United  States of America  for the
purpose of doing business  primarily in the United States of America or (ii) all
or  substantially  all of the assets of any  Person or  division  thereof  which
assets are located  primarily in the United States of America,  whether  through
purchase of assets, merger or otherwise,  or (b) directly or indirectly acquires
(in  one  transaction  or  as  the  most  recent  transaction  in  a  series  of
transactions)  all  or  substantially  all of the  securities  of a  corporation
organized  under the laws of any state of the United  States of America  for the
purpose of doing  business  primarily  in the United  States of  America,  which
securities have ordinary voting power for the election of directors  (other than
securities  having such power only by reason of the happening of a  contingency)
or all or substantially  all (by percentage and voting power) of the outstanding
partnership  interests of a  partnership  or  membership  interests of a limited
liability company, in either case which partnership or limited liability company
is organized under the laws of any state of the United States of America for the
purpose of doing  business  primarily in the United States of America.  Domestic
Subsidiary  shall  mean  individually  and  Domestic   Subsidiaries  shall  mean
collectively,  except as otherwise  expressly  provided in clause (i) of Section
7.02(d), any Subsidiary of any Borrower organized under the laws of any state of
the United States of America for the purpose of doing business  primarily in the
United States of America.

          ENVIRONMENTAL  COMPLAINT shall mean any written  complaint  (including
but not limited to any complaint  alleging a cause of action for personal injury
or property  damage or natural  resource  damage or  equitable  relief),  order,
notice of violation,  citation,  request for information  issued pursuant to any
Environmental Laws by an Official Body,  subpoena or other written notice of any
type relating to, arising out of, or issued pursuant to any of the Environmental
Laws or any Environmental Conditions, as the case may be.

          ENVIRONMENTAL CONDITIONS shall mean any conditions of the environment,
including  the work place,  the ocean,  natural  resources  (including  flora or
fauna),  soil,  surface water,  ground water,  any actual or potential  drinking
water supply sources,  substrata or the ambient air,  relating to or arising out
of, or caused by the use, handling, storage, treatment,  recycling,  generation,
transportation,  release,  spilling,  leaking, pumping,  emptying,  discharging,
injecting,  escaping,  leaching,  disposal, dumping, threatened release or other
management or mismanagement of Regulated Substances.

          ENVIRONMENTAL  LAWS shall mean all federal,  state,  local and foreign
Laws  and  regulations,  including  permits,  licenses,  authorizations,  bonds,
orders,  judgments,  consent decrees issued, or entered into,  pursuant thereto,
relating to  pollution  or  protection  of human  health or the  environment  or
employee safety in the work place.

          EQUIVALENT  AMOUNT  shall  mean,  at any time,  as  determined  by the
Administrative  Agent (which  determination  shall be conclusive absent manifest
error),  with respect to an amount of any currency  (the  "Reference  Currency")
which is to be  computed  as an  equivalent  amount  of  another  currency  (the
"Equivalent  Currency"):  (i) if  the  Reference  Currency  and  the  Equivalent
Currency are the same,  the amount of such  Reference  Currency,  or (ii) if the
Reference  Currency and the Equivalent  Currency are not the same, the amount of
such  Equivalent   Currency  converted  from  such  Reference  Currency  at  the
Administrative  Agent's  spot  selling  rate  (based on the  market  rates  then
prevailing  and  available  to the  Administrative  Agent)  for the sale of such
Equivalent  Currency for such  Reference  Currency at a time  determined  by the
Administrative Agent on the second Business Day immediately  preceding the event
for which such calculation is made.

          EQUIVALENT  CURRENCY  shall have the meaning  assigned to that term in
the definition of Equivalent Amount.

          ERISA shall mean the Employee  Retirement Income Security Act of 1974,
as the same may be amended or supplemented  from time to time, and any successor
statute of similar  import,  and the rules and regulations  thereunder,  as from
time to time in effect.

          ERISA GROUP shall mean, at any time,  the Borrowers and all members of
a controlled group of corporations and all trades or businesses  (whether or not
incorporated)  under common control and all other entities which,  together with
the  Borrowers,  are  treated  as a single  employer  under  Section  414 of the
Internal Revenue Code.

          EURO-RATE shall mean the following:

          (A)  with  respect  to  the  Dollar  Loans  comprising  any  Euro-Rate
Borrowing  Tranche  for  any  Interest  Period,  the  interest  rate  per  annum
determined  by the  Administrative  Agent by dividing  (the  resulting  quotient
rounded upward to the nearest  1/100th of 1% per annum) (i) the rate of interest
determined by the  Administrative  Agent in accordance with its usual procedures
(which  determination  shall be  conclusive  absent  manifest  error)  to be the
average of the London  interbank  offered  rates for  Dollars  quoted by British
Bankers'  Association  ("BBA") as set forth on Dow Jones Market Service  display
page  3750 (or  appropriate  successor  or,  if BBA or its  successor  ceases to
provide  such quotes,  a comparable  replacement)  at  approximately  11:00 a.m.
London time two (2) Business Days prior to the first day of such Interest Period
for an amount  comparable to such Borrowing  Tranche and having a Borrowing Date
and a maturity comparable to such Interest Period by (ii) a number equal to 1.00
minus the Euro-Rate Reserve Percentage.  Such Euro-Rate may also be expressed by
the following formula:

                           Average of London  interbank  offered rates
                           on Dow Jones  Market  Service  display page
                           3750
quoted
            Euro-Rate =    by BBA or appropriate successor
                           1.00 - Euro-Rate Reserve Percentage

The  Euro-Rate  shall  be  adjusted  with  respect  to  any  Euro-Rate
Borrowing  Tranche  outstanding on the effective date of any change in
the  Euro-Rate  Reserve  Percentage  as of such  effective  date.  The
Administrative  Agent shall give prompt notice to the Borrowers of the
Euro-Rate as  determined  or adjusted in  accordance  herewith,  which
determination shall be conclusive absent manifest error.

          (B) with respect to Optional  Currency Loans  comprising any Euro-Rate
Borrowing  Tranche  for  any  Interest  Period,  the  interest  rate  per  annum
determined  by the  Administrative  Agent by dividing  (the  resulting  quotient
rounded  upward to the  nearest  1/100th of 1 percent per annum) (i) the rate of
interest per annum  ("LIBO  Rate")  determined  by the  Administrative  Agent in
accordance with its usual procedures  (which  determination  shall be conclusive
absent  manifest error) to be the rate of interest per annum for deposits in the
relevant  Optional Currency quoted by BBA as set forth on the relevant Dow Jones
Market  Service  display page (or, if no such quotation is available on such Dow
Jones  Market  Service  display  page,  on the  appropriate  Reuters  Screen) at
approximately  9:00 a.m., Eastern time, two (2) Business Days prior to the first
day of such Interest Period for an amount  comparable to such Borrowing  Tranche
and having a Borrowing Date and a maturity comparable to such Interest Period by
(ii) a  number  equal to 1.00  minus  the  Euro-Rate  Reserve  Percentage.  Such
Euro-Rate may also be expressed by the following formula:

                                          LIBO Rate
            Euro-Rate =
                             1 - Euro-Rate Reserve Percentage

The Euro-Rate  shall be adjusted with respect to any Euro-Rate  Option
outstanding  on the  effective  date of any  change  in the  Euro-Rate
Reserve Percentage as of such effective date. The Administrative Agent
shall  give  prompt  notice  to  the  Borrower  of  the  Euro-Rate  as
determined or adjusted in  accordance  herewith,  which  determination
shall be conclusive absent manifest error. The Euro-Rate for any Loans
shall be based upon the Euro-Rate for the currency in which such Loans
are requested.

          EURO-RATE  BORROWING TRANCHE shall mean a Borrowing Tranche consisting
of all  Revolving  Credit  Loans to one Borrower to which the  Euro-Rate  Option
applies and which have the same Interest Period.

          EURO-RATE  MARGIN shall mean, at any time,  for any  Revolving  Credit
Loans  accruing  interest at the  Euro-Rate  Option,  a percentage  equal to the
"Euro-Rate Margin" set forth in Schedule 1.01(A) opposite the then-current Fixed
Charge Coverage Ratio.

          EURO-RATE  OPTION  shall  mean the  option  of the  Borrowers  to have
Revolving  Credit  Loans  bear  interest  at the rate and  under  the  terms and
conditions set forth in Section 3.01(b)(ii).

          EURO-RATE  RESERVE   PERCENTAGE  shall  mean  the  maximum  percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the  Administrative  Agent which is in effect during any relevant period, (i)
as  prescribed by the Board of Governors of the Federal  Reserve  System (or any
successor) for determining  the reserve  requirements  (including  supplemental,
marginal  and  emergency  reserve  requirements)  with  respect to  eurocurrency
funding (currently  referred to as "Eurocurrency  Liabilities") of a member bank
in such  System;  or (ii) to be  maintained  by a Lender as required for reserve
liquidity, special deposit, or a similar purpose by any governmental or monetary
authority of any country or political subdivision thereof (including any central
bank),  against  (A) any  category  of  liabilities  that  includes  deposits by
reference  to which a  Euro-Rate  is to be  determined,  or (B) any  category of
extension of credit or other assets that includes Loans or Borrowing Tranches to
which a Euro-Rate applies.

          EVENT OF DEFAULT shall mean any of the Events of Default  described in
Section 9.01.

          EXPIRATION DATE shall mean, with respect to the  Commitments,  July 7,
2000, or such later date to which the Expiration  Date may be extended  pursuant
to Section  2.13,  or such earlier date as of which the  Commitments  shall have
been terminated  pursuant to Section 2.04 hereof or canceled pursuant to Section
9.02 hereof.

          FACILITY FEE shall mean the fee referred to in Section 2.03(a).

          FACILITY FEE RATE shall mean at any time a rate per annum equal to the
"Facility  Fee Rate" set forth on Schedule  1.01(A)  opposite  the  then-current
Fixed Charge Coverage Ratio.

          FEDERAL FUNDS EFFECTIVE RATE for any day shall mean the rate per annum
(based on a year of 360 days and actual days  elapsed and rounded  upward to the
nearest 1/100 of 1%)  announced by the Federal  Reserve Bank of New York (or any
successor)  on such day as being the weighted  average of the rates on overnight
Federal  funds  transactions  arranged by Federal  funds brokers on the previous
trading  day, as computed and  announced  by such  Federal  Reserve Bank (or any
successor)  in  substantially  the same  manner  as such  Federal  Reserve  Bank
computes and announces the weighted  average it refers to as the "Federal  Funds
Effective  Rate" as of the date of this  Agreement;  provided,  if such  Federal
Reserve  Bank (or its  successor)  does not  announce  such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.

          FEE LETTERS shall mean those certain letter  agreements  dated July 2,
1999,  between the Company  and any or all of the Agents,  and all other  letter
agreements  between  the Company  and any party  hereto  under which the parties
thereto  designate  that such letter  agreement  is a fee letter for purposes of
this Agreement,  as the same may be supplemented or amended from time to time in
accordance therewith.

          FEES shall mean the  Facility  Fee, the  Utilization  Fee and the fees
payable under the Fee Letters.

          FINANCED  LEASE shall mean a lease of real property,  improvements  on
real property or real property and improvements thereon by the Company or any of
its Subsidiaries entered into pursuant to the Participation Agreement.

          FISCAL QUARTER shall mean the 13/14 week period  commencing on the day
after the last day of the  preceding  Fiscal  Quarter  and  ending on the Sunday
preceding the last  Wednesday in each of April (first),  July (second),  October
(third) and January (fourth) of each Fiscal Year.

          FISCAL  YEAR shall mean the 52/53 week  period  commencing  on the day
after  the last  day of the  preceding  Fiscal  Year and  ending  on the  Sunday
preceding the last Wednesday in January.  By way of illustration,  the Company's
1998 Fiscal Year ended January 24, 1999.  Fixed Charge Coverage Ratio shall mean
the ratio of Consolidated Cash Flow from Operations to Fixed Charges.

          FIXED  CHARGES shall mean for any period of  determination  the sum of
interest  expense,  Rent  Expense,  Lease  Financing  Rent Expense and scheduled
principal  installments  on  Indebtedness  (as  adjusted  for  prepayments,  and
including  amortization  payments under Capitalized Leases), in each case of the
Company and its  Subsidiaries  for such period  determined and  consolidated  in
accordance with GAAP.

          FOREIGN  JOINT  VENTURE  shall mean  individually  and  Foreign  Joint
Ventures shall mean collectively any corporation, partnership, limited liability
company,  joint  venture  or other  entity (i)  organized  under the laws of any
jurisdiction  other  than a state of the  United  States  of  America  or formed
primarily  for the  purpose of doing  business  outside of the United  States of
America and (ii) in which the Company and its  Subsidiaries own less than 50% of
the  capital  stock,  partnership  interests,   membership  interests  or  other
ownership interests.

          FOREIGN  PURCHASE  means any  transaction,  or any  series of  related
transactions,  consummated on or after the Effective  Date, by which the Company
or any of its Subsidiaries (a) acquires (i) any ongoing business organized under
the laws of any jurisdiction  other than a state of the United States of America
or formed  primarily for the purpose of doing business outside the United States
of  America  or (ii) all or  substantially  all of the  assets of any  Person or
division  thereof are  located  outside  the United  States of America,  whether
through purchase of assets,  merger or otherwise,  or (b) directly or indirectly
acquires (in one  transaction  or as the most recent  transaction in a series of
transactions)  all  or  substantially  all of the  securities  of a  corporation
organized  under the laws of any  jurisdiction  other than a state of the United
States of America or formed  primarily for the purpose of doing business outside
the United States of America,  which  securities  have ordinary voting power for
the  election  of  directors  (other than  securities  having such power only by
reason  of the  happening  of a  contingency)  or all or  substantially  all (by
percentage  and voting  power) of the  outstanding  partnership  interests  of a
partnership or membership  interests of a limited liability  company,  in either
case which  partnership or limited liability company is organized under the laws
of any jurisdiction other than a state of the United States of America or formed
primarily  for the  purpose  of doing  business  outside  the  United  States of
America.

          FOREIGN SUBSIDIARY shall mean individually and
Foreign  Subsidiaries  shall mean  collectively  any Subsidiary of the
Company  organized  under the laws of any  jurisdiction  other  than a
state of the  United  States of America  or formed  primarily  for the
purpose of doing business outside the United States of America.

          FULFILLMENT  shall  mean  Borders  Fulfillment,  Inc.,  a  corporation
organized  and  existing  under  the  laws of the  State  of  Delaware,  and its
permitted successors and assigns.

          FUNDING  OFFICE  shall  mean,  with  respect to Loans  denominated  in
Dollars,  the main lending  office of the  Administrative  Agent in  Pittsburgh,
Pennsylvania and, with respect to Loans denominated in Optional Currencies, such
lending office,  affiliate or correspondent bank of the Administrative  Agent as
may be  designated  by the  Administrative  Agent with  respect to any  Optional
Currency.

          GAAP shall mean  generally  accepted  accounting  principles as are in
effect  in the  United  States of  America  from  time to time,  subject  to the
provisions  of  Section  1.03,  and  applied  on a  basis  consistent  with  the
Historical Statements both as to classification of items and amounts.

          GOVERNMENTAL  ACTS shall  have the  meaning  assigned  to that term in
Section 2.10(i).

          GUARANTEED OBLIGATIONS shall have the meaning assigned to that term in
Section 8.01.

          GUARANTORS shall mean collectively and Guarantor shall mean separately
the Company,  Borders,  Walden, Books Holding, Planet, BPI, WPI, OnLine, Outlet,
Fulfillment,  Library,  and any new Subsidiary which executes a letter agreement
pursuant to the provisions of this Agreement.

          HISTORICAL  STATEMENTS shall have the meaning assigned to that term in
Section 5.01(i)(i).

          INDEBTEDNESS  shall  mean as to any  Person at any  time,  any and all
indebtedness,   obligations  or  liabilities   (whether  matured  or  unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or  several)  of such  Person for or in respect  of: (i)  borrowed  money,  (ii)
amounts  raised  under  or  liabilities  in  respect  of any  note  purchase  or
acceptance credit facility,  (iii) reimbursement or repurchase obligations under
any  letter  of  credit,  note or  accounts  receivable  financing  arrangement,
currency swap  agreement,  interest rate swap, cap, collar or floor agreement or
other interest rate management device,  (iv) Capitalized Lease Obligations,  (v)
obligations,  whether or not assumed,  secured by Liens on or payable out of the
proceeds or production  from Property now or hereafter owned or acquired by such
Person,  (vi)  any  other  transaction   (including  forward  sale  or  purchase
agreements and conditional sales  agreements)  having the commercial effect of a
borrowing  of money  entered  into by such Person to finance its  operations  or
capital  requirements  (but not including  trade  payables and accrued  expenses
incurred in the  ordinary  course of  business  which are not  represented  by a
promissory  note or other evidence of  indebtedness  and which are not more than
thirty (30) days past due),  or (vii) any  Contingent  Obligation  in respect of
borrowed money or Capitalized Lease Obligations of another Person.

          INELIGIBLE   SECURITY  shall  mean  any  security  which  may  not  be
underwritten  or dealt in by member  banks of the Federal  Reserve  System under
Section  16 of the  Banking  Act of 1933 (12 U.S.C.  Section  24,  Seventh),  as
amended.

          INSOLVENCY  PROCEEDING  shall mean, with respect to any Person,  (a) a
case,  action or proceeding  with respect to such Person (i) before any court or
any other  Official Body under any  bankruptcy,  insolvency,  reorganization  or
other similar Law now or hereafter in effect,  or (ii) for the  appointment of a
receiver, liquidator,  assignee, custodian, trustee,  sequestrator,  conservator
(or similar  official)  of the Company or any of its  Subsidiaries  or otherwise
relating to the liquidation,  dissolution,  winding-up or relief of such Person,
or (b)  any  general  assignment  for the  benefit  of  creditors,  composition,
marshaling of assets for creditors,  or other similar  arrangement in respect of
such Person's  creditors  generally or any substantial  portion of its creditors
undertaken under any Law.

          INTEREST  PAYMENT DATE shall mean each date  specified for the payment
of interest in Section 4.03.

          INTEREST  PERIOD  shall  mean with  respect to a  Euro-Rate  Borrowing
Tranche,  a period of one, two, three or six months commencing on a Business Day
selected by the Company  pursuant to this Agreement.  Such Interest Period shall
end on (but  exclude) the day which  corresponds  numerically  to such date one,
two, three or six months thereafter; provided, however, that if there is no such
numerically  corresponding day in such next,  second,  third or sixth succeeding
month,  such  Interest  Period shall end on the last  Business Day of such next,
second,  third or sixth succeeding  month. If an Interest Period would otherwise
end on a day which is not a Business Day, such Interest  Period shall end on the
next succeeding  Business Day; provided,  however,  that if said next succeeding
Business Day falls in a new calendar  month,  such Interest  Period shall end on
the immediately preceding Business Day.

          INTEREST  RATE  OPTION  shall mean any  Euro-Rate  Option or Base Rate
Option.

          INTERIM  STATEMENTS  shall have the  meaning  assigned to that term in
Section 5.01(i)(i).

          INTERNAL REVENUE CODE shall mean the Internal Revenue Code of 1986, as
the same may be amended or  supplemented  from time to time,  and any  successor
statute of similar  import,  and the rules and regulations  thereunder,  as from
time to time in effect.

          INVESTMENTS  shall have the  meaning  assigned to such term in Section
7.02(d).

          JOINT VENTURE  shall mean any Foreign Joint Venture or Domestic  Joint
Venture,  and Joint  Ventures shall mean all Foreign Joint Ventures and Domestic
Joint Ventures.

          KMART  shall mean  Kmart  Corporation,  a  corporation  organized  and
existing under the laws of the State of Michigan.

          KMART   AGREEMENTS   shall  mean  the  Kmart   Indemnity,   the  Kmart
Intercompany  Agreement,  the Kmart Registration  Rights Agreement and the Kmart
Tax  Agreement.

          KMART    INDEMNITY   shall   mean   that   certain   Lease   Guaranty,
Indemnification and Reimbursement Agreement, dated May 24, 1995, entered into by
the  Company  and/or one or more of the other  Borrowers,  on the one hand,  and
Kmart,  on the other hand,  as such  document may be from time to time  amended,
supplemented, restated or otherwise modified subject to Section 7.02(r).

          KMART  INTERCOMPANY  AGREEMENT  shall mean that  certain  Intercompany
Agreement, dated May 24, 1995, entered into by the Company, on the one hand, and
Kmart,  on the other hand,  as such  document may be from time to time  amended,
supplemented, restated or otherwise modified subject to Section 7.02(r).

          KMART   REGISTRATION   RIGHTS   AGREEMENT   shall  mean  that  certain
Registration Rights Agreement,  dated May 24, 1995, entered into by the Company,
on the one hand, and Kmart, on the other hand, as such document may be from time
to time amended, supplemented, restated or otherwise modified subject to Section
7.02(r).

          KMART  TAX  AGREEMENT  shall  mean that  certain  Tax  Allocation  and
Indemnification  Agreement,  dated May 24, 1995, entered into by the Company, on
the one hand, and Kmart, on the other hand, as such document may be from time to
time amended,  supplemented,  restated or otherwise  modified subject to Section
7.02(r).

          LABOR  CONTRACTS  shall  mean all  employment  agreements,  employment
contracts,  collective  bargaining  agreements and other agreements  between the
Company or Subsidiary of the Company and its employees.

          LAW shall mean any law (including common law), constitution,  statute,
treaty,   regulation,   rule,  ordinance,   opinion,   release,  ruling,  order,
injunction, writ, decree or award of any Official Body.

          LEASE  CREDIT  AGREEMENT  shall mean the Amended and  Restated  Credit
Agreement,  dated as of November 22, 1995 and amended and restated as of October
17, 1997, among Wilmington Trust Company (not in its individual capacity, except
as expressly  stated  therein,  but solely as owner  trustee) as  borrower,  the
Lenders  parties  thereto,  PNC Bank,  National  Association  in its capacity as
Administrative  Agent for such Lenders from time to time  parties  thereto,  The
First National Bank of Chicago in its capacity as Syndication  Agent  thereunder
and Bankers Trust Company, as Real Estate  Administrative  Agent thereunder,  as
the same may be amended, modified or supplemented from time to time.

          LEASE  FINANCING   GUARANTEE  shall  mean  the  Amended  and  Restated
Guarantee  Agreement,  dated as of November 22, 1995 and amended and restated as
of October 17, 1997, by and among Borders,  Walden,  the Company,  Planet,  BPI,
WPI, Books Holding, OnLine, Outlet,  Fulfillment,  and Library executed in favor
of PNC Bank,  National  Association,  as  Administrative  Agent for the  several
lenders from time to time parties to the Lease Credit Agreement, as the same may
be amended, modified or supplemented from time to time.

          LEASE  FINANCING  PAYMENT shall mean any payment by the Company or any
of its  Subsidiaries  (i) under the Lease  Financing  Guarantee  in  respect  of
Contingent Obligations described in Section 7.02(c)(viii) (other than in respect
of Basic Rent (as  defined in the Lease  Credit  Agreement,  (ii) to purchase or
otherwise  acquire all or any portion of any  Property  subject to any  Financed
Lease, including,  without limitation,  all payments pursuant to the exercise by
the Company or any of its  Subsidiaries  of any Purchase Option (as defined in a
Financed Lease) or (iii) that constitutes a payment of the Termination  Value or
the Maximum Residual Guarantee Amount (as each such term is defined in the Lease
Credit Agreement).

          LEASE  FINANCING RENT EXPENSE shall mean all Basic Rent (as defined in
the Lease  Credit  Agreement)  payable by the Company and its  Subsidiaries,  as
lessee or sublessee under a Financed Lease.

          LENDERS shall mean the banks and financial
institutions named on Schedule 1.01(B) and their respective successors
and  assigns as  permitted  hereunder,  each of which is  referred  to
herein as a Lender.

          LENDING OFFICE shall mean, with respect to each Lender,  the office(s)
specified  for such Lender in Schedule  1.01(B) or such other  office(s) as such
Lender may specify in writing to the Administrative Agent.

          LEVERAGE  RATIO shall mean the ratio  (expressed as a  percentage)  of
Consolidated Funded Indebtedness to Consolidated Total Capital.

          LIBRARY  shall mean The Library,  Ltd., a  corporation  organized  and
existing under the laws of the State of Missouri,  and its permitted  successors
and assigns.

          LIEN shall mean any mortgage,  deed of trust,  pledge,  lien, security
interest,  charge or other  encumbrance  or security  arrangement  of any nature
whatsoever,   whether   voluntarily  or  involuntarily   given,   including  any
conditional  sale or title retention  arrangement,  and any assignment,  deposit
arrangement or lease intended as, or having the effect of, security.

          LOAN DOCUMENTS  shall mean this  Agreement,  the Fee Letters,  and any
other  instruments,  certificates  or documents  delivered or contemplated to be
delivered hereunder or thereunder or in connection herewith or therewith, as the
same may be supplemented or amended from time to time in accordance  herewith or
therewith, and Loan Document shall mean any of the Loan Documents.

          LOANS  shall mean  collectively  and Loan shall  mean  separately  all
Revolving  Credit  Loans and Swing Loans or any  Revolving  Credit Loan or Swing
Loan.

          MATERIAL  ADVERSE EFFECT shall mean (a) a material adverse effect upon
the validity or enforceability of this Agreement or any other Loan Document, (b)
a  material  adverse  effect  on the  business,  properties,  assets,  financial
condition or results of operations of the Company and its Subsidiaries  taken as
a whole, (c) a material impairment of the ability of any Borrower or the Company
and its Subsidiaries  taken as a whole to duly and punctually pay or perform its
or their Indebtedness, or (d) a material impairment of the ability of any of the
Agents or any of the  Lenders,  to the extent  permitted,  to enforce  its legal
remedies pursuant to this Agreement or any other Loan Document.

          MULTIEMPLOYER  PLAN shall  mean any  employee  benefit  plan that is a
"multiemployer  plan" within the meaning of Section  4001(a)(3)  of ERISA and to
which the Company or any member of the ERISA Group is then making or accruing an
obligation to make  contributions  or at any time in the past has made or had an
obligation to make such contributions.

          MULTIPLE  EMPLOYER  PLAN  shall  mean a Plan  which  has  two or  more
contributing  sponsors  (including the Company or any member of the ERISA Group)
at least two of whom are not under common  control,  as such a plan is described
in Sections 4063 and 4064 of ERISA.

          NOTE PUT AGREEMENTS shall mean those certain Note Put Agreements dated
as of November 10, 1994, by and among Kmart, Borders and National Tenant Finance
Corporation,  as such documents may be from time to time amended,  supplemented,
restated or otherwise modified subject to Section 7.02(r).

          NOTICES shall have the meaning assigned to that term in Section 11.06.

          OBLIGATION  shall  mean  any  obligation  or  liability  of any of the
Borrowers to any of the Agents or any of the Lenders, howsoever created, arising
or  evidenced,  whether  direct or  indirect,  absolute  or  contingent,  now or
hereafter  existing,  or due or to become due, under or in connection  with this
Agreement or any other Loan Document.

          OFFICIAL BODY shall mean any national,  federal, state, local or other
government or political subdivision or any agency,  authority,  bureau,  central
bank,  commission,  department  or  instrumentality  of  either,  or any  court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.

          ONLINE shall mean Borders  OnLine,  Inc., a corporation  organized and
existing under the laws of the State of Delaware,  and its permitted  successors
and assigns.

          OPTIONAL  CURRENCY  shall mean,  subject to  availability,  any of the
following  currencies:  Australian  Dollars  ("AUD"),  British  Pounds  Sterling
("GBP"),  Canadian Dollars ("CAD"),  Deutsche Mark ("DEM"),  the European common
currency ("Euro"), French Francs ("FRF"), Italian Lira ("ITL"), New Zealand Kiwi
("NZK"),  Spanish  Pesetas  ("ESP"),  Japanese  Yen  ("JPY"),  Singapore  Dollar
("SGD"), and any other currency approved pursuant to Section 2.09(d).

          ORIGINAL  CURRENCY  shall have the  meaning  assigned  to such term in
Section 4.08(a).

          OTHER CURRENCY shall have the meaning assigned to such term in Section
4.08(a).

          OUTLET shall mean Borders  Outlet,  Inc., a corporation  organized and
existing under the laws of the State of Colorado,  and its permitted  successors
and assigns.

          OVERNIGHT  RATE shall mean for any day with respect to any Loans in an
Optional  Currency,  the  rate  of  interest  per  annum  as  determined  by the
Administrative Agent at which overnight deposits in such currency,  in an amount
approximately  equal to the  amount  with  respect  to which  such rate is being
determined, would be offered for such day in the offshore interbank market.

          PARTICIPATION   AGREEMENT   shall  mean  the  Amended   and   Restated
Participation  Agreement  dated as of November 22, 1995 and amended and restated
as of October 17, 1997,  among  Wilmington  Trust Company (not in its individual
capacity,  except as expressly stated therein, but solely as owner trustee), PNC
Bank, National Association, as Administrative Agent for the several lenders from
time to time parties to the Lease Credit  Agreement,  The First National Bank of
Chicago in its capacity as Syndication Agent  thereunder,  Bankers Trust Company
in its capacity as Real Estate Administrative Agent thereunder,  and Sam Project
Funding Corp. I, as the same may be amended,  modified or supplemented from time
to time.

          PARTNERSHIP  INTERESTS  shall have the  meaning  given to such term in
Section 5.01(c).

          PBGC shall mean the Pension Benefit Guaranty  Corporation  established
pursuant to Subtitle A of Title IV of ERISA or any successor.

          PERMITTED INVESTMENTS shall mean:

          (i) Investments in direct  obligations of the United States of America
or,  with  respect to Foreign  Subsidiaries,  of the central  government  of the
applicable  jurisdiction,  or any agency  thereof,  maturing in twelve months or
less from the date of acquisition thereof and which are backed by the full faith
and  credit  of  the  United   States  of  America  or  such  other   applicable
jurisdiction, as aforesaid, provided that such direct obligations of any central
government  other  than the  United  States of  America  or of any agency of any
central  government  other than the United  States of America have ratings of at
least A-1 by S&P or P-1 by Moody's,  or the equivalent  thereof,  on the date of
acquisition;

          (ii)  commercial  paper  maturing  in 180 days or less rated not lower
than A-1 by Standard & Poor's  Corporation or P-1 by Moody's Investors  Service,
Inc. on the date of acquisition;

          (iii)  demand  deposits,  time  deposits  or  certificates  of deposit
maturing  within one year in any Lender or any commercial  bank organized  under
the laws of the United States of America or any state  thereof whose  commercial
paper  (or that of its  parent  corporation)  is  rated  not  lower  than A-1 by
Standard & Poor's Corporation or P-1 by Moody's Investors  Service,  Inc. on the
date of acquisition;

          (iv)  adjustable  rate  preferred  stock with an express (or  implied)
rating  not  lower  than A by  Standard  & Poor's  Corporation  or A by  Moody's
Investors Service, Inc. on the date of acquisition;

          (v)  investments  in  any  investment  company  registered  under  the
Investment  Company  Act of 1940,  as amended (or any series  thereof)  (A) that
prices its shares in  accordance  with Rule 2a-7 under such Act, (B) which holds
at least ninety percent (90%) of its assets in the  investments  itemized in (i)
through (iv) above, and (C) which has net asset value exceeding  $100,000,000 on
the date of acquisition; and

          (vi)  demand  deposits,  time  deposits  or  certificates  of  deposit
maturing  within one year issued by any commercial bank organized under the laws
of any jurisdiction other than the United States of America or any state thereof
and whose short-term  deposit rating at the time of such Investment is either of
the two (2)  highest  ratings  then  accorded  by Moody's or another  comparable
rating service.

          PERMITTED JOINT VENTURE  ACTIVITY shall mean (i) any Investment by the
Company or any  Unrestricted  Subsidiary  which is a Domestic  Subsidiary in any
Joint Venture or any Contingent  Obligations of the Company or any  Unrestricted
Subsidiary which is a Domestic  Subsidiary in respect of any Indebtedness of any
Joint Venture,  provided that the aggregate  amount of all such  Investments and
Contingent  Obligations does not at any time exceed 15% of Consolidated Tangible
Net Worth,  determined  as of the last day of the Fiscal  Quarter most  recently
ended,  and (ii) any Contingent  Obligations of the Company or any  Unrestricted
Subsidiary which is a Domestic Subsidiary, or Indebtedness of the Company or any
Unrestricted   Subsidiary   which   is  a   Domestic   Subsidiary   constituting
reimbursement  obligations under letters of credit, relating to leases executed,
as lessee,  by a Joint Venture,  provided,  that the portion of such  Contingent
Obligations and Indebtedness which constitute current liabilities determined and
consolidated in accordance with GAAP is limited to lease payments  (whether such
amounts  are  fixed  or  percentage  rent,  fees,  costs,   accelerated  payment
requirements  or otherwise)  not in excess of an aggregate of $15,000,000 in any
Fiscal Year with respect to all Joint Ventures.

          PERMITTED  LEASE  CONTINGENT  OBLIGATIONS  shall mean all  guarantees,
sureties or other forms of secondary liability in
respect of real property  leases which have been assigned  (which term
shall also include new leases  entered into between the landlord and a
third Person in respect of real  property  being vacated by any of the
Borrowers)  by any of the  Borrowers or any  Subsidiary  of any of the
Borrowers to any Person  (other than any of the  Borrowers or any such
Subsidiary),  the terms of which assignment, or the landlord's consent
therefor,  or of any such  guarantee,  surety  or other  agreement  or
instrument,  require any of the Borrowers or such Subsidiary to remain
liable  for rent and other  performance  in  respect  of the  assigned
lease.

          PERMITTED LIENS shall mean:

          (i) Liens for taxes, assessments,  or similar charges, incurred in the
ordinary course of business and which are not yet due and payable;

          (ii) pledges or deposits  made in the  ordinary  course of business to
secure  payment  of  worker's  compensation,  or to  participate  in any fund in
connection with worker's compensation,  unemployment insurance, old-age pensions
or other social security programs;

          (iii) Liens of mechanics, materialmen,
warehousemen,  carriers,  or other like  Liens,  securing  obligations
incurred in the ordinary  course of business  that are not yet due and
payable  and  Liens of  landlords  securing  obligations  to pay lease
payments that are not yet due and payable or in default;

          (iv) pledges or deposits  made in the  ordinary  course of business to
secure performance of bids, tenders,  contracts (other than for the repayment of
Indebtedness)  or leases,  not in excess of the aggregate amount due thereunder,
or to secure statutory obligations, or surety, appeal, indemnity, performance or
other similar bonds required in the ordinary course of business;

          (v) encumbrances consisting of zoning restrictions, easements or other
restrictions on the use of real Property,  none of which materially  impairs the
use of such Property or the value thereof,  and none of which is violated in any
material respect by existing or proposed structures or land use;

          (vi) Liens on Property  leased by the Company or any Subsidiary of the
Company under Capital Leases permitted under this Agreement securing obligations
of the Company or any such Subsidiary to the lessor under such Capital Leases;

          (vii) any Lien existing on the date of this Agreement and described on
Schedule  1.01(C);  provided that the principal  amount  secured  thereby is not
hereafter increased and no additional assets become subject to such Lien;

          (viii) Purchase Money Security Interests;

                             (ix)   the following, (A) if the validity or
amount  thereof is being  contested in good faith by  appropriate  and
lawful proceedings  diligently conducted so long as levy and execution
thereon  have been stayed and  continue to be stayed or (B) if a final
judgment is entered and such judgment is discharged within thirty (30)
days of entry,  and in either case  individually  or in the aggregate,
they could not  reasonably  be  expected  to have a  Material  Adverse
Effect;

            (1) Liens for taxes,  assessments  or similar  charges due
and payable and  subject to  interest  or penalty,  provided  that the
Borrower  maintains such reserves or other  appropriate  provisions as
shall be  required  by GAAP and pays all such  taxes,  assessments  or
charges  forthwith upon the  commencement  of proceedings to foreclose
any such Lien;

            (2)  Liens  upon,  and  defects  of  title  to,  Property,
including  any  attachment of Property or other legal process prior to
adjudication of a dispute on the merits; or

            (3)  Liens  of   mechanics,   materialmen,   warehousemen,
carriers, or other statutory nonconsensual Liens;

                             (x)    Liens on assets of the Borrowers securing
indebtedness of the Company and its Subsidiaries incurred to refinance
the Contingent Obligations arising under the Lease Financing Guarantee
as  permitted by Section 7.02  (c)(vii);  provided,  however that such
Liens  may only  attach  to the  property  previously  subject  to the
Financed Lease being refinanced; and

                             (xi)   Liens on assets of the Company and its
Subsidiaries not otherwise permitted by clauses (i) through (x) above,
so long as any  Indebtedness  secured  thereby is permitted  under the
terms of Section  7.02(a),  and the aggregate fair market value of all
property  secured  by such  Liens  does not at any time  exceed  5% of
Consolidated  Tangible Net Worth (determined as of the last day of the
Fiscal Quarter most recently ended).

          PERMITTED RESTRICTED SUBSIDIARY ACTIVITY shall mean (i) any Investment
by the Company or any Unrestricted  Subsidiary which is a Domestic Subsidiary in
any Restricted  Subsidiary or any  Contingent  Obligations of the Company or any
Unrestricted  Subsidiary  which  is a  Domestic  Subsidiary  in  respect  of any
Indebtedness  of any  Restricted  Subsidiary,  provided  that (a) the  aggregate
amount of all such  Investments and Contingent  Obligations does not at any time
exceed 20% of Consolidated Tangible Net Worth,  determined as of the last day of
the Fiscal Quarter most recently ended, and (b) the aggregate amount of all such
Investments and Contingent  Obligations  made by the Company or any Unrestricted
Subsidiary  which  is a  Domestic  Subsidiary  with  respect  to any  Restricted
Subsidiary  which is a Foreign  Subsidiary  does not exceed 15% of  Consolidated
Tangible  Net Worth,  determined  as of the last day of the Fiscal  Quarter most
recently  ended,  and (ii) any  Contingent  Obligations  of the  Company  or any
Unrestricted  Subsidiary which is a Domestic Subsidiary,  or Indebtedness of the
Company  or  any  Unrestricted   Subsidiary  which  is  a  Domestic   Subsidiary
constituting  reimbursement  obligations  under  letters of credit,  relating to
operating  leases  executed,   as  lessee,  by  a  non-wholly-owned   Restricted
Subsidiary,  provided,  that,  the portion of such  Contingent  Obligations  and
Indebtedness which constitutes current  liabilities  determined and consolidated
in accordance  with GAAP is limited to operating  lease  payments  (whether such
amounts  are  fixed  or  percentage  rent,  fees,  costs,   accelerated  payment
requirements  or otherwise)  not in excess of an aggregate of $15,000,000 in any
Fiscal Year with respect to all non-wholly-owned Restricted Subsidiaries.

          PERMITTED SUTRO  REFINANCING  INDEBTEDNESS  shall mean Indebtedness of
the Company or any other Borrower which is incurred solely to pay obligations of
Borders under Section 2.2 of any of the Note Put Agreements.

          PERSON shall mean any individual,  corporation,  partnership,  limited
liability  company,  association,  joint-stock  company,  trust,  unincorporated
organization,  joint  venture,  government  or political  subdivision  or agency
thereof, or any other entity.

          PLAN  shall  mean  at  any  time  an  employee  pension  benefit  plan
(including  a Multiple  Employer  Plan but not a  Multiemployer  Plan)  which is
covered  by Title IV of ERISA or is  subject to the  minimum  funding  standards
under  Section 412 of the Internal  Revenue Code and either (i) is maintained by
any member of the ERISA Group for employees or former employees of any member of
the ERISA  Group or (ii) has at any time  within the  preceding  five years been
maintained  by any entity which was at such time a member of the ERISA Group for
employees  or former  employees of any entity which was at such time a member of
the ERISA Group.

          PLANET shall mean Planet  Music,  Inc., a  corporation  organized  and
existing  under  the  laws of the  State of North  Carolina,  and its  permitted
successors and assigns.

          POTENTIAL DEFAULT shall mean any event or condition which with notice,
passage of time or a determination by the  Administrative  Agent or the Required
Lenders,  or any  combination  of the  foregoing,  would  constitute an Event of
Default.

          PRINCIPAL   OFFICE  shall  mean  the  main   lending   office  of  the
Administrative Agent in Pittsburgh, Pennsylvania.

          PRIOR   CREDIT   AGREEMENT   shall  mean  the  Amended  and   Restated
Multicurrency  Credit  Agreement  dated as of March  28,  1995 and  amended  and
restated as of October 17, 1997,  among the Company,  Borders,  Walden and Books
Holding as borrowers,  the lenders  party  thereto,  PNC Bank as  administrative
agent,  The First National Bank of Chicago,  as syndication  agent,  and Bankers
Trust Company, as real estate administrative agent.

          PROHIBITED  TRANSACTION  shall  mean  any  prohibited  transaction  as
defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for
which neither an individual nor a class  exemption has been issued by the United
States Department of Labor.

          PROPERTY  shall mean any and all  property,  whether  real,  personal,
tangible, intangible or mixed, both owned and leased pursuant to Capital Leases,
of any Person.

          PURCHASE means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement,  by which the Company or any
of its  Subsidiaries  (a) acquires any ongoing  business or all or substantially
all of the assets of any Person or division thereof, whether through purchase of
assets,  merger or  otherwise,  or (b) directly or  indirectly  acquires (in one
transaction or as the most recent  transaction in a series of transactions)  all
or substantially  all of the securities of a corporation,  which securities have
ordinary  voting  power for the  election of  directors  (other than  securities
having such power only by reason of the  happening of a  contingency)  or all or
substantially   all  (by  percentage  and  voting  power)  of  the   outstanding
partnership  interests of a  partnership  or  membership  interests of a limited
liability company.

          PURCHASE  MONEY  SECURITY  INTEREST  shall mean  Liens  upon  tangible
personal  Property securing loans to any Borrower or Subsidiary of a Borrower or
deferred  payments  by such  Borrower  or  Subsidiary  for the  purchase of such
tangible personal Property.

          RATABLE  SHARE shall mean the  proportion  that a Lender's  Commitment
bears to the Commitments of all of the Lenders.

          REFERENCE CURRENCY shall have the meaning assigned to that term in the
definition of Equivalent Amount.

          REGISTER  shall  have the  meaning  assigned  to that term in  Section
11.11.

          REGULATED  SUBSTANCES  shall mean any substance,  including any solid,
liquid, semisolid,  gaseous, thermal, thoriated or radioactive material, refuse,
garbage,  wastes,  chemicals,  petroleum  products,   by-products,   coproducts,
impurities,  dust,  scrap,  heavy metals,  any substance defined as a "hazardous
substance,"  "pollutant,"   "pollution,"   "contaminant,"  "hazardous  or  toxic
substance,"  "extremely  hazardous  substance," "toxic chemical," "toxic waste,"
"hazardous  waste,"   "industrial   waste,"  "residual  waste,"  "solid  waste,"
"municipal waste," "mixed waste," "infectious waste,"  "chemotherapeutic waste,"
"medical waste," "regulated  substance" or any related materials,  substances or
wastes as now or  hereafter  defined  pursuant to any  Environmental  Laws,  the
generation,  manufacture,  extraction,  processing,   distribution,   treatment,
storage,  disposal,  transport,  recycling,  reclamation,  use, reuse, spilling,
leaking, dumping, injection,  pumping, leaching,  emptying,  discharge,  escape,
release  or other  management  or  mismanagement  of which is  regulated  by the
Environmental Laws.

          REGULATION U shall mean  Regulation  U, T or X as  promulgated  by the
Board of Governors of the Federal Reserve System, as amended from time to time.

          RENT EXPENSE shall mean all fixed rents payable by the Company and its
Subsidiaries, as lessee or sublessee under a lease of Property (other than rents
payable under Financed  Leases),  but shall be exclusive of any amounts required
to be paid by the Company and its  Subsidiaries  (whether or not  designated  as
rents or additional rents) on account of maintenance, repairs, insurance, taxes,
assessments,  utilities,  operating and labor costs, and similar charges.  Fixed
rents under any so-called  "percentage  leases"  shall be computed  based on the
actual amount of rent paid, and not on the basis of the minimum  rents,  if any,
required to be paid by the lessee  regardless of sales volume or gross revenues.
The term  Rent  Expense  shall  exclude  any  payments  made in  respect  of any
Capitalized Lease.

          REPORTABLE  EVENT shall mean a reportable  event  described in Section
4043 of ERISA and regulations thereunder with respect to a Plan or Multiemployer
Plan.

          REPURCHASE  AMOUNT shall mean (a) $100,000,000  plus (b) the aggregate
amount  paid to the  Company  (whether  in cash or in  shares  of the  Company's
stock),  from time to time and at any time since  October 17, 1997, by officers,
employees or directors of the Company or any of its  Subsidiaries  in connection
with the exercise of options to purchase shares of the Company's stock, plus (c)
the realized tax benefit (as calculated by the Company in a manner  satisfactory
to the  Administrative  Agent), for tax periods after October 17, 1997 resulting
from the exercise of such options or resulting from the lapse of restrictions on
(and vesting of rights in) certain shares of the Company's  stock subject to the
Management  Stock  Purchase  Plan from time to time and at any time since May 1,
1995. For purposes of calculating the Repurchase Amount, to the extent shares of
the  Company's  stock are  delivered  to the Company in payment of the  exercise
price of options, or in payment of taxes associated with the exercise of options
or the vesting of  restricted  shares,  such  delivered  shares are deemed to be
repurchased  by the  Company at fair market  value (as defined in the  Company's
stock option plan) on the date of delivery to the Company.  Such delivered share
repurchases will serve to reduce the available Repurchase Amount.

          REQUIRED LENDERS shall mean (i) Lenders whose Commitments aggregate at
least 51% of the  Commitments of all of the Lenders,  or (ii) if the Commitments
shall have been terminated,  Lenders whose  outstanding Loans aggregate at least
51% of the  total  principal  amount of the  outstanding  Loans  hereunder.  For
purposes  of  this  definition,  as  provided  in  Section  9.02(c),  after  the
occurrence  and  during  the  continuation  of an Event of  Default,  and  after
termination of the  Commitments,  each Lender shall have voting rights hereunder
in the proportion the outstanding balance of all of its Loans hereunder bears to
the total outstanding amount of all Loans hereunder.

          RESTRICTED   SUBSIDIARY   shall  mean   individually   and  Restricted
Subsidiaries  shall mean  collectively any Subsidiary of the Company (other than
Unrestricted Subsidiaries).

          REVOLVING  CREDIT  LOAN  REQUEST  shall mean a request  for  Revolving
Credit Loans made in accordance with Section 2.05(a).

          REVOLVING  CREDIT LOANS shall mean  collectively  and Revolving Credit
Loan shall mean  separately all Revolving  Credit Loans or any Revolving  Credit
Loan made by the  Lenders or one of the  Lenders to the  Borrowers  pursuant  to
Section  2.01 or 2.10(d).  Revolving  Facility  Usage shall mean at any time the
Dollar Equivalent amount of the Revolving Credit Loans outstanding.

          SECTION 20  SUBSIDIARY  shall mean the  Subsidiary of the bank holding
company  controlling any Lender,  which Subsidiary has been granted authority by
the  Federal  Reserve  Board  to  underwrite  and  deal  in  certain  Ineligible
Securities.

          SHARES  shall  have  the  meaning  assigned  to that  term in  Section
5.01(b).

          SOLVENT shall mean,  with respect to any Person on a particular  date,
that on such date (i) the fair value of the  Property  of such Person is greater
than the total amount of liabilities,  including, without limitation, contingent
liabilities,  of such Person, (ii) the present fair saleable value of the assets
of such  Person is not less than the  amount  that will be  required  to pay the
probable  liability  of such  Person on its debts as they  become  absolute  and
matured,  (iii) such Person is able to realize upon its assets and pay its debts
and other  liabilities,  contingent  obligations  and other  commitments as they
mature in the normal  course of  business,  (iv) such Person does not intend to,
and does not  believe  that it will,  incur  debts or  liabilities  beyond  such
Person's  ability  to pay as such  debts and  liabilities  mature,  and (v) such
Person is not engaged in business or a  transaction,  and is not about to engage
in business or a transaction,  for which such Person's property would constitute
unreasonably  small capital  after giving due  consideration  to the  prevailing
practice  in the  industry in which such Person is  engaged.  In  computing  the
amount  of  contingent  liabilities  at  any  time,  it is  intended  that  such
liabilities  will be computed at the amount which, in light of all the facts and
circumstances  existing at such time,  represents the amount that can reasonably
be expected to become an actual or matured liability.

          SUBSEQUENT  EFFECTIVE  DATE  shall  mean  the  date  on  which  (i) UK
Superstore becomes an Unrestricted Subsidiary, (ii) the Administrative Agent has
received all  deliveries  from UK Superstore  required by Section 6.03 in a form
reasonably  satisfactory to the  Administrative  Agent and its counsel and (iii)
all of the conditions in Section 6.03 have been satisfied.

          SUBSIDIARY OF ANY PERSON at any time shall mean (i) any corporation or
trust of which  50% or more (by  number  of  shares  or  number of votes) of the
outstanding  capital stock or shares of beneficial interest normally entitled to
vote for the election of one or more  directors or trustees  (regardless  of any
contingency  which does or may  suspend or dilute the voting  rights) is at such
time owned directly or indirectly by such Person or one or more of such Person's
Subsidiaries, or any partnership of which such Person is a general partner or of
which  50% or more of the  partnership  interests  is at the  time  directly  or
indirectly owned by such Person or one or more of such Person's Subsidiaries, or
any limited liability  company of which 50% or more of the membership  interests
is at the time  directly  or  indirectly  owned by such Person or one or more of
such Person's Subsidiaries or (ii) any corporation, trust, partnership,  limited
liability  company  or other  entity  which is  controlled  or  capable of being
controlled by such Person or one or more of such Person's Subsidiaries.

          SUBSIDIARY  SHARES  shall have the  meaning  assigned  to that term in
Section 5.01(c).

          SWING  LENDERS  shall mean PNC Bank,  National  Association  and Fleet
National Bank, in their capacity as Lenders of Swing Loans,  and their permitted
successors and assigns.

          SWING  LOAN  FACILITY  shall  mean a  discretionary  line  of  credit,
available in Dollars,  offered to the  Borrowers  by the Swing  Lenders in equal
shares in an aggregate principal amount not to exceed $10,000,000.

          SWING  LOAN  REQUEST  shall  mean a request  for Swing  Loans  made in
accordance with Section 2.05(b) hereof.

          SWING  LOANS  shall  mean  collectively  and  Swing  Loan  shall  mean
separately  all Swing  Loans or any Swing Loan made by the Swing  Lenders to the
Borrowers pursuant to Section 2.01(c) hereof.

          TOTAL  FACILITY  USAGE  shall  mean at any time  the sum of  Revolving
Facility Usage and the Swing Loans outstanding.

          UK SUPERSTORE shall mean the Subsidiary of the Company organized under
the laws of the  United  Kingdom  and  designated  by the  Company  to  become a
Borrower under this Agreement on the Subsequent Effective Date.

          UTILIZATION FEE shall mean the fee referred to in Section 2.03(b).

          UTILIZATION  FEE RATE shall mean at any time a rate per annum equal to
the  "Utilization  Fee Rate" set forth on  Schedule  1.01(A)  opposite  the then
current Fixed Charge Coverage Ratio.

          UNRESTRICTED  SUBSIDIARY  shall  mean  individually  and  Unrestricted
Subsidiaries  shall mean collectively any Subsidiary of the Company (i) of which
80% or more of the outstanding shares of capital stock, partnership interests or
membership  interests are owned by the Company (whether  directly or through one
or more  Subsidiaries  of the Company) and (ii) that has executed and  delivered
this  Agreement as a Borrower or a Guarantor  or has  executed  and  delivered a
letter agreement in form and substance  satisfactory to the Administrative Agent
under which such  Subsidiary  agrees to be bound by this Agreement as a Borrower
or by the  provisions of Article VIII hereof as a Guarantor,  together with such
legal opinions and other documents and instruments as the  Administrative  Agent
may  request.

          WALDEN shall mean Walden Book Company,  Inc., a corporation  organized
and  existing  under  the  laws of the  State  of  Colorado,  and its  permitted
successors and assigns.

          WHOLLY-OWNED  SUBSIDIARY  shall  mean  individually  and  Wholly-owned
Subsidiaries  shall mean collectively any Subsidiary of the Company of which all
of the outstanding  voting equity interests and  substantially all of the equity
interests  are owned by the  Company  (whether  directly  or through one or more
Wholly-owned Subsidiaries of the Company).

          WPI shall mean Waldenbooks  Properties,  Inc., a corporation organized
and  existing  under  the  laws of the  State  of  Delaware,  and its  permitted
successors and assigns.

     1.02 Construction.  Unless the context of this Agreement  otherwise clearly
requires,  the following rules of construction shall apply to this Agreement and
each of the other Loan Documents:

          (a)  references to the plural  include the singular,  the plural,  the
part and the whole;  "or" has the inclusive  meaning  represented  by the phrase
"and/or," and "including" has the meaning  represented by the phrase  "including
without limitation";

          (b) references to "determination" of or by the Administrative Agent or
the  Lenders   shall  be  deemed  to  include   good  faith   estimates  by  the
Administrative Agent or the Lenders (in the case of quantitative determinations)
and good faith beliefs by the  Administrative  Agent or the Lenders (in the case
of qualitative determinations) and such determination shall be conclusive absent
manifest error;

          (c) the words "hereof,"  "herein,"  "hereunder,"  "hereto" and similar
terms in this  Agreement or any other Loan Document  refer to this  Agreement or
such other Loan Document as a whole and not to any particular  provision of this
Agreement or such other Loan Document;

          (d) the section and other headings contained in this Agreement or such
other Loan Document and the Table of Contents (if any)  preceding this Agreement
or such  other  Loan  Document  are for  reference  purposes  only and shall not
control or affect the construction of this Agreement or such other Loan Document
or the interpretation thereof in any respect;

          (e)  article,  section,  subsection,   clause,  schedule  and  exhibit
references  are to this  Agreement or other Loan  Document,  as the case may be,
unless otherwise specified;

          (f)  reference to any Person  includes such  Person's  successors  and
assigns but, if applicable, only if such successors and assigns are permitted by
this  Agreement or other Loan  Document,  as the case may be, and reference to a
Person in a particular capacity excludes such Person in any other capacity;

          (g) reference to any agreement (including this Agreement and any other
Loan  Document  together  with the  schedules  and exhibits  hereto or thereto),
document or instrument means such agreement,  document or instrument as amended,
modified, replaced, substituted for, superseded or restated;

          (h) relative to the  determination of any period of time, "from" means
"from and including," "to" means "to but excluding" and "through" means "through
and including"; and

          (i)  references  to "shall"  and "will" are  intended to have the same
meaning.

     1.03 Accounting Principles. Except as otherwise provided in this Agreement,
all computations and  determinations  as to accounting or financial  matters and
all financial  statements to be delivered  pursuant to this  Agreement  shall be
made and prepared in accordance with GAAP (including principles of consolidation
where  appropriate),  and all  accounting  or  financial  terms  shall  have the
meanings ascribed to such terms by GAAP; provided,  however,  that if any change
in GAAP or the application thereof occurs hereafter,  or if the Company adopts a
change  to its  accounting  principles  or  methods  with the  agreement  of its
independent certified public accountants, and such change results in a change in
the calculation of any financial covenant or restriction set forth herein,  then
the parties hereto agree to enter into and  diligently  pursue  negotiations  in
order to amend such financial covenant or restriction so as to equitably reflect
such  change,  with the desired  result that the  criteria  for  evaluating  the
financial   condition   and  results  of  operations  of  the  Company  and  its
Subsidiaries  shall be the same after such change as if such change had not been
made.  Pending the resolution of any such  negotiations,  the Borrowers agree to
provide to each of the Lenders  such  unaudited  financial  information  and pro
forma  statements  using  the  accounting  methods  and  principles  used in the
preparation  of the  audited  financial  statements  for the  fiscal  year ended
January 24, 1999,  as are  necessary to enable the Lenders to test the financial
covenants contained herein.


                                 ARTICLE II
                REVOLVING CREDIT AND SWING LOAN FACILITIES

     2.01 (a)  Commitments.  Subject  to the terms and  conditions  hereof and
relying upon the  representations  and warranties  herein set forth, each Lender
severally agrees to make Revolving Credit Loans in either Dollars or one or more
Optional  Currencies  to the  Borrowers  at any time or from  time to time on or
after  the  Closing  Date  to,  but not  including,  the  Expiration  Date in an
aggregate Dollar Equivalent  principal amount not to exceed at any one time such
Lender's Commitment minus, in the case of each Swing Lender, such Swing Lender's
Swing Loans outstanding, provided, however, that in no event shall the aggregate
Dollar  Equivalent  amount of all Revolving  Credit Loans made to Books Holding,
Borders (UK) and, after the Subsequent Effective Date, UK Superstore, under this
Agreement and the Prior Credit  Agreement (other than loans made under the Prior
Credit   Agreement  to  fund  the  purchase  of  Borders  (UK))  exceed  10%  of
Consolidated  Tangible  Net Worth  (determined  as of the last day of the Fiscal
Quarter most recently  ended).  After giving effect to any such Revolving Credit
Loans and any other Loans made on or before the Borrowing Date of such Revolving
Credit Loans,  the aggregate amount of the Total Facility Usage shall not exceed
the aggregate amount of the  Commitments.  Within such limits of time and amount
and subject to the other provisions of this Agreement, the Borrowers may borrow,
repay and reborrow pursuant to this Section 2.01.

          (b) Increase in  Commitments.  For a period of 90 days  following  the
Closing Date, the Arranger (in consultation  with the  Documentation  Agent) and
the Company shall have the right to solicit additional financial institutions to
become  Lenders for purposes of this  Agreement,  or to encourage  any Lender to
increase its  Commitment,  provided  that (i) each  financial  institution  that
becomes a Lender  shall agree to become  party to, and shall assume and agree to
be bound by, this Agreement,  subject to all terms and conditions  hereof;  (ii)
the  Administrative  Agent shall not have any  obligation to the Borrowers or to
any Lender to solicit additional  financial  institutions or any increase in the
Commitment of any Lender pursuant to this Section 2.01(b); (iii) no Lender shall
have an obligation to the Borrowers,  the Agents or any other Lender to increase
its Commitment or its Ratable Share;  and (iv) in no event shall the addition of
any Lender or Lenders or the increase in the  Commitment of any Lender  increase
the Commitments to an amount greater than $130,000,000. Upon the addition of any
Lender, or the increase in the Commitment of any Lender,  Schedule 1.01(B) shall
be  amended  by the  Administrative  Agent and the  Borrowers  to  reflect  such
addition or such  increase,  and the  Administrative  Agent shall deliver to the
Lenders and the Company a copy of revised Schedule 1.01(B). If, at any time that
the  Commitments  are  increased  pursuant to this  Section  2.01(b),  there are
Revolving  Credit Loans then  outstanding,  each new Lender,  and each  existing
Lender that has increased its Commitment,  shall purchase Revolving Credit Loans
from each other Lender in an amount such that, after such purchase or purchases,
the amount of  outstanding  Revolving  Credit Loans from each Lender shall equal
such  Lender's  respective  Ratable  Share,  as  modified to give effect to such
increase,   multiplied  by  the  aggregate  amount  of  Revolving  Credit  Loans
outstanding  from all  Lenders.  To the extent  that any  outstanding  Revolving
Credit Loans bear interest at the Euro-Rate Option,  the Borrowers shall pay any
additional costs described in Section 4.06(b) incurred by any Lender.

          (c) Swing Loan Facility.  Subject to the terms and  conditions  hereof
(including  fulfillment  of  those  conditions  set  forth  in  Article  VI,  as
applicable)  and relying  upon the  representations  and  warranties  herein set
forth,  and in order to  facilitate  loans  and  repayments,  each of the  Swing
Lenders may, at its option,  cancelable  at any time for any reason  whatsoever,
make  Swing  Loans to the  Borrowers  at any time or from time to time after the
Closing  Date to,  but not  including,  the  Expiration  Date,  in an  aggregate
principal  amount not to exceed  $10,000,000,  subject to  reduction as provided
herein,  to be made in accordance with the following  provisions,  and provided,
that no Swing  Lender's  Swing  Loans  outstanding  hereunder  shall  exceed its
Commitment  minus the  Dollar  Equivalent  amount of its  outstanding  Revolving
Credit  Loans.  Within  such  limits of time and amount and subject to the other
provisions  of this  Agreement,  the  Borrowers  may borrow,  repay and reborrow
pursuant to this Section 2.01(c).

     2.02 Nature of Lenders' Obligations with Respect to Revolving Credit Loans.
Each Lender  shall be  obligated to  participate  in each request for  Revolving
Credit  Loans in  accordance  with  its  Ratable  Share.  The  aggregate  Dollar
Equivalent amount of each Lender's Revolving Credit Loans outstanding  hereunder
to the  Borrowers at any time shall never exceed its  Commitment,  minus for any
Swing  Lender its Swing  Loans  outstanding,  subject to  Section  4.05(a).  The
obligations of each Lender  hereunder are several.  The failure of any Lender to
perform  its  obligations  hereunder  shall not  affect the  Obligations  of the
Borrowers to any other party nor shall any other party be liable for the failure
of such Lender to perform its obligations  hereunder.  The Lenders shall have no
obligation to make Revolving  Credit Loans  hereunder on or after the Expiration
Date.

     2.03 Fees.

          (a) Revolving  Credit  Facility Fee. The Borrowers agree to pay to the
Administrative Agent in Dollars for the account of each Lender, as consideration
for such Lender's Commitment, a nonrefundable facility fee calculated on a daily
basis by multiplying the Facility Fee Rate by such Lender's  Commitment (whether
used or  unused).  All  Facility  Fees  shall be  payable in arrears on the last
Business Day of each March, June,  September and December after the Closing Date
and on the Expiration Date or upon acceleration of the Obligations. The Facility
Fee Rate shall be subject to  adjustment  quarterly  to the highest  percentage,
based on the Fixed Charge Coverage Ratio, as set forth on Schedule 1.01(A). Each
adjustment  in the Facility  Fee Rate shall be effective on the second  Business
Day  next  following  delivery  to the  Administrative  Agent  of the  financial
statements or  certificate  required to be delivered by the Company  pursuant to
Section  7.03(a) showing the basis for such  adjustment.  In the event that such
financial  statements  or  certificate  shall  not have  been  delivered  to the
Administrative  Agent on the date required for such delivery pursuant to Section
7.03(a),  then on the second  Business Day following such date, the Facility Fee
Rate shall be increased  to the highest  Facility Fee Rate set forth on Schedule
1.01(A),   provided  that  after  delivery  of  such  financial   statements  or
certificate  (effective two Business Days  following  delivery) the Facility Fee
Rate shall be adjusted to the Facility  Fee Rate that would have been  effective
had such financial statements or certificate been timely delivered.

          (b) During any period in which the Total Facility Usage exceeds 50% of
the  Commitments,  the  Borrowers  agree to pay to the  Administrative  Agent in
Dollars  for  the  account  of  each  Lender  a  nonrefundable  utilization  fee
calculated  daily during such period by multiplying  the Utilization Fee Rate by
the Total Facility Usage.  All  Utilization  Fees shall be payable in arrears on
the last  Business Day of each March,  June,  September  and December  after the
Closing Date and on the Expiration Date or upon acceleration of the Obligations.

          (c)  Calculation of Fees. All Fees shall be calculated on the basis of
a year of 360 days and the actual number of days elapsed.

     2.04 Reduction of Commitment.  The Company shall have the right at any time
and from time to time upon five (5) Business  Days' prior written  notice to the
Administrative  Agent to permanently reduce, in whole multiples of $5,000,000 of
principal, or to terminate the Commitments without penalty or premium, except as
set forth in Section 4.06(b)(i), provided that any such reduction or termination
shall be  accompanied by (a) the payment in full of any Fees then accrued on the
amount of such reduction or termination,  (b) prepayment of the Revolving Credit
Loans  and/or Swing  Loans,  together  with the full amount of interest and Fees
accrued on the  principal  sum to be prepaid  (and all  amounts  referred  to in
Section 4.06 hereof),  to the extent that the Total  Facility  Usage exceeds the
Commitments  as so reduced or  terminated.  If at any time the  Commitments  are
reduced to an amount which is less than the Swing Loan  Facility then in effect,
the Swing Loan  Facility  shall  automatically,  without  notice of any kind, be
reduced to the amount of the Commitments then in effect.

     2.05 (a)  Revolving  Credit Loan  Requests.  Except as  otherwise  provided
herein,  the Company may from time to time prior to the Expiration  Date request
the Lenders to make Revolving  Credit Loans, or to renew or convert the Interest
Rate Option applicable to existing  Revolving Credit Loans, by delivering to the
Administrative  Agent,  not later  than 10:00  A.M.  Eastern  time (i) three (3)
Business Days prior to the proposed Borrowing Date with respect to the making of
Revolving  Credit Loans in Dollars to which the Euro-Rate  Option applies or the
date of conversion to or the renewal of the Euro-Rate Option for any such Loans,
(ii) four (4) Business Days prior to the proposed Borrowing Date with respect to
making  of  Revolving  Credit  Loans  in an  Optional  Currency  or the  date of
conversion to or renewal of the Euro-Rate  Option for Revolving  Credit Loans in
an  Optional  Currency;  and (iii) one (1)  Business  Day prior to the  proposed
Borrowing Date with respect to the making of Revolving Credit Loans to which the
Base Rate Option applies of a duly completed  request therefor  substantially in
the form of Exhibit 2.05(a) or a request by telephone  immediately  confirmed in
writing by letter,  facsimile or telex in such form (each,  a "Revolving  Credit
Loan Request"),  it being understood that the  Administrative  Agent may rely on
the authority of any  individual  making such a telephonic  request  without the
necessity of receipt of such written  confirmation.  Each Revolving  Credit Loan
Request shall be irrevocable and shall specify (i) the proposed  Borrowing Date;
(ii) the currency in which such  Revolving  Credit Loans shall be funded;  (iii)
the aggregate  amount of the proposed  Revolving  Credit Loans (expressed in the
currency  in which such  Revolving  Credit  Loans  shall be funded and also as a
Dollar  Equivalent if such Revolving Credit Loans shall be funded in an Optional
Currency)  comprising each Borrowing  Tranche,  (A) the amount of which for each
Euro-Rate   Borrowing  Tranche  (I)  in  the  case  of  Revolving  Credit  Loans
denominated  in Dollars,  shall be in integral  multiples of $1,000,000  and not
less than $1,000,000, and (II) in the case of Revolving Credit Loans denominated
in  Optional  Currencies,  shall  be in an  amount  of  such  Optional  Currency
reasonably comparable to the minimum amount specified for Revolving Credit Loans
denominated  in Dollars in the  foregoing  clause (I) as shall be advised by the
Administrative   Agent  in  light  of  the  prevailing   market  conditions  and
conventions  at the time of such  Borrowing and (B) for each Base Rate Borrowing
Tranche,  shall  not be less  than the  lesser of  $1,000,000  (and in  integral
multiples of $1,000,000 in excess  thereof) or the maximum amount  available for
borrowing;  (iv) the Borrower  which is to receive the proceeds of the Revolving
Credit Loans;  (v) whether the Euro-Rate  Option or Base Rate Option shall apply
to the proposed  Revolving  Credit Loans comprising the Borrowing  Tranche;  and
(vi) in the case of a  Euro-Rate  Borrowing  Tranche,  an  appropriate  Interest
Period  for the  proposed  Revolving  Credit  Loans  comprising  such  Borrowing
Tranche.

          (b) Swing Loan  Requests. Except as otherwise  provided  herein,  the
Company  may from time to time prior to the  Expiration  Date  request the Swing
Lenders to make Swing Loans by delivery  to the  Administrative  Agent not later
than 11:00 A.M. Eastern time on the proposed  Borrowing Date of a duly completed
request  therefor  substantially  in the form of  Exhibit  2.05(b)  hereto  or a
request by telephone  immediately  confirmed in writing by letter,  facsimile or
telex  (each,  a  "Swing  Loan   Request"),   it  being   understood   that  the
Administrative  Agent may rely on the authority of any individual  making such a
telephonic   request   without  the   necessity   of  receipt  of  such  written
confirmation. Each Swing Loan Request shall be irrevocable and shall specify the
proposed  Borrowing  Date, the aggregate  amount of the proposed Swing Loans and
the Borrower which is to receive the proceeds of such Swing Loans. The aggregate
amount of Swing Loans  requested  shall not be less than $1,000,000 and shall be
in integral multiples of $500,000.

     2.06 (a) Making  Revolving Credit Loans.  The  Administrative  Agent shall,
promptly  after  receipt by it of a Revolving  Credit Loan  Request  pursuant to
Section 2.05(a), notify the Lenders of its receipt of such Revolving Credit Loan
Request  specifying:  (i) the proposed Borrowing Date and the time and method of
disbursement of such Revolving Credit Loans; (ii) the aggregate amount, type and
currency of such Revolving  Credit Loans and the applicable  Interest Period (if
any);  (iii) if the  Revolving  Credit Loan will be  denominated  in an Optional
Currency,  the designated  Funding Office for such Revolving Credit Loans,  (iv)
the apportionment  among the Lenders of the Revolving Credit Loans as determined
by the  Administrative  Agent in accordance with each Lender's Ratable Share and
(iv) the  Borrower  which is to receive  the  proceeds of the  Revolving  Credit
Loans.  Each Lender shall remit the principal  amount of each  Revolving  Credit
Loan to be made by it to the  Administrative  Agent  at the  designated  Funding
Office  such that the  Administrative  Agent is able to, and the  Administrative
Agent shall,  to the extent the Lenders have made funds available to it for such
purpose,  fund  such  Revolving  Credit  Loans  to the  designated  Borrower  in
immediately  available funds at the designated Funding Office prior to 2:00 P.M.
local time on the  Borrowing  Date,  provided  that if any Lender fails to remit
such funds to the  Administrative  Agent in a timely  manner the  Administrative
Agent may elect in its sole  discretion to fund with its own funds the Revolving
Credit  Loan of such  Lender  on the  Borrowing  Date and such  Lender  shall be
subject to the repayment obligation in Section 10.14.

          (b) Making Swing  Loans.  So long as the Swing  Lenders  elect to make
Swing Loans, the Administrative  Agent shall,  promptly after receipt by it of a
Swing Loan Request pursuant to Section 2.05(b),  notify the Swing Lenders of its
receipt of such Swing Loan Request  specifying:  (i) the proposed Borrowing Date
and the time and method of disbursement of such Swing Loans;  (ii) the aggregate
amount of such Swing Loans;  (iii) the apportionment  among the Swing Lenders of
the Swing Loans as determined by the Administrative  Agent and (iv) the Borrower
which is to receive the  proceeds of the Swing  Loans.  Each Swing  Lender shall
remit its Swing Loan to the  Administrative  Agent such that the  Administrative
Agent is able to, and the  Administrative  Agent shall,  to the extent the Swing
Lenders have made funds available to it for such purpose,  fund such Swing Loans
to the designated  Borrower in Dollars and  immediately  available  funds at the
Principal Office prior to 2:00 P.M. Eastern time on the Borrowing Date.

     2.07 (a)  Borrowings  to Repay Swing Loans.  The Swing Lenders may at their
option,  exercisable at any time,  demand  repayment of the Swing Loans and each
Lender shall make a Revolving  Credit Loan in an amount  equal to such  Lender's
Ratable Share of the aggregate  principal amount of the outstanding Swing Loans,
plus, if the Swing Lenders so request,  accrued interest thereon,  provided that
no Lender  shall be  obligated  in any event to make  Revolving  Credit Loans in
excess of its  Commitment.  In the event any Swing  Loans  shall be repaid  with
Revolving  Credit Loans,  such Revolving Credit Loans shall bear interest at the
Base  Rate  Option  and  shall be deemed  to have  been  properly  requested  in
accordance  with Section  2.05(a)  without regard to any of the  requirements of
that  provision.  The  Administrative  Agent shall provide notice to the Lenders
(which may be a telephonic or written notice by letter, facsimile or telex) that
such  Revolving  Credit  Loans are to be made under this Section 2.07 and of the
apportionment  among  the  Lenders,  and the  Lenders  shall be  unconditionally
obligated to fund such  Revolving  Credit Loans  (whether or not the  conditions
specified in Section  6.02 are then  satisfied)  by the time the  Administrative
Agent so  requests,  which shall not be earlier  than 12:00 noon Eastern time on
the Business Day next  succeeding  the date the  Administrative  Agent gives the
demand  notice to the  Lenders.  If for any reason a Lender is  prohibited  from
funding its  Ratable  Share of  Revolving  Credit  Loans to repay the  principal
amount  of  the  Swing  Loans   outstanding,   such  Lender  shall   purchase  a
participation  in the Swing Loans equal to its  Ratable  Share of the  principal
amount of Swing Loans outstanding.

          (b)  Irrevocable  Obligation . Each  Lender's  obligation  to make its
Ratable  Share of Revolving  Credit Loans to repay the  principal  amount of the
Swing Loans outstanding or to purchase its Ratable Share of the principal amount
of the  Swing  Loans  shall be  irrevocable  and  shall  not be  subject  to any
qualification or exception whatsoever and shall be made under all circumstances,
including without limitation any of the following circumstances: (i) any lack of
validity or enforceability of this Agreement or any of the Loan Documents;  (ii)
the existence of any claim,  setoff,  defense or other right which the Borrowers
may have at any time  against  any Agent,  any Swing  Lender,  any Lender or any
other  Person,  whether in  connection  with this  Agreement,  the  transactions
contemplated  herein or any unrelated  transactions;  or (iii) the occurrence of
any Event of Default,  Potential  Default,  or termination of the Commitments or
this  Agreement.

     2.08 (a) Evidence of Revolving Credit  Obligations.  The Obligations of the
Borrowers to repay the aggregate unpaid principal amount of the Revolving Credit
Loans made to them by each Lender,  together  with  interest  thereon,  shall be
recorded by each such  Lender  from time to time on a ledger or other  record of
such  Lender,  or such Lender  shall  record such  information  in its  computer
systems;  provided  that any  failure  to make any such  record  shall in no way
detract from the  Borrowers'  Obligations.  The  aggregate  unpaid amount of the
Revolving  Credit Loans shown on the records of such Lender shall be  rebuttably
presumptive evidence of the principal amount owing and unpaid.

          (b)  Evidence  of  Swing  Loan  Obligations.  The  Obligations  of the
Borrowers to repay the aggregate unpaid principal amount of the Swing Loans made
to them by each Swing Lender,  together with interest thereon, shall be recorded
by each such Swing  Lender from time to time on a ledger or other record of such
Swing Lender, or such Swing Lender shall record such information in its computer
systems;  provided  that any  failure  to make any such  record  shall in no way
detract from the  Borrowers'  Obligations.  The  aggregate  unpaid amount of the
Swing  Loans  shown on the  records of such  Swing  Lender  shall be  rebuttably
presumptive evidence of the principal amount owing and unpaid.

          (c) Promissory Notes. Any Lender may request that any Loans made by it
to any Borrower be evidenced by a promissory note. In such event,  such Borrower
shall prepare,  execute and deliver to such Lender a promissory  note payable to
the order of such Lender (or, if requested  by such  Lender,  to such Lender and
its  registered  assigns) and in a form  approved by the  Administrative  Agent.
Thereafter,  the Loans evidenced by such  promissory  note and interest  thereon
shall at all times (including after assignment  pursuant to Section 12.11(a)) be
represented by one or more promissory notes in such form payable to the order of
the payee named therein (or, if such  promissory  note is a registered  note, to
such payee and its registered assigns).

     2.09 Utilization of Commitments in Optional Currencies.

          (a) Periodic  Computations of Dollar  Equivalent  Amounts of Loans and
Letters of Credit  Outstanding.  The  Administrative  Agent will  determine  the
Dollar  Equivalent  amount  of  (i)  proposed   Revolving  Credit  Loans  to  be
denominated in an Optional  Currency as of the requested  Borrowing Date or date
of  issuance,  as the case  may be,  (ii)  outstanding  Revolving  Credit  Loans
denominated  in an Optional  Currency as of the last Business Day of each month,
and (iii) outstanding Revolving Credit Loans denominated in an Optional Currency
as of the end of each Interest  Period (each such date under clauses (i) through
(iii), a "Computation Date").

          (b) Notices from Lenders That Optional  Currencies Are  Unavailable to
Fund New Loans.  The Lenders  shall be under no obligation to make the Revolving
Credit  Loans  requested  by the Company  which are  denominated  in an Optional
Currency  if the  Required  Lenders  notify  the  Administrative  Agent  (or the
Administrative  Agent  determines in its own  discretion) by 5:00 p.m.  (Eastern
time) four (4)  Business  Days prior to the  Borrowing  Date for such  Revolving
Credit  Loans  that  the  Optional  Currency  requested  by the  Company  is not
available to fund such Revolving  Credit Loans. In the event the  Administrative
Agent  timely  receives  a  notice  from  the  Required   Lenders,   or  if  the
Administrative  Agent  makes  such  determination,  pursuant  to  the  preceding
sentence,  the Administrative  Agent will notify the Company no later than 12:00
noon (Eastern time) three (3) Business Days prior to the Borrowing Date for such
Revolving Credit Loans that the Optional Currency is not then available for such
Revolving Credit Loans, and the Administrative  Agent shall promptly  thereafter
notify the Lenders of the same.  If the Company  receives a notice  described in
the preceding sentence,  the Company may, by notice to the Administrative  Agent
not later than 5:00 p.m.  (Eastern  time) three (3)  Business  Days prior to the
Borrowing Date for such Revolving  Credit Loans,  withdraw the Revolving  Credit
Loan Request for such  Revolving  Credit Loans.  If the Company  withdraws  such
Revolving  Credit Loan Request,  the  Administrative  Agent will promptly notify
each Lender of the same and the  Lenders  shall not make such  Revolving  Credit
Loans.  If the Company  does not  withdraw  such  Revolving  Credit Loan Request
before such time,  (i) the Company  shall be deemed to have  requested  that the
Revolving Credit Loans referred to in its Revolving Credit Loan Request shall be
made in  Dollars  in an amount  equal to the  Dollar  Equivalent  amount of such
Revolving  Credit Loans and shall bear interest under the Base Rate Option,  and
(ii) the  Administrative  Agent shall  promptly  deliver a notice to each Lender
stating: (A) that such Revolving Credit Loans shall be made in Dollars and shall
bear  interest  under the Base Rate  Option,  (B) the  aggregate  amount of such
Revolving  Credit Loans,  and (C) such Lender's  Ratable Share of such Revolving
Credit Loans.

          (c) Notices From Lenders That Optional  Currencies Are  Unavailable to
Fund  Renewals of the  Euro-Rate  Option.  If the  Company  delivers a Revolving
Credit Loan Request  requesting that the Lenders renew the Euro-Rate Option with
respect  to  an  outstanding   Borrowing   Tranche  of  Revolving  Credit  Loans
denominated in an Optional Currency, the Lenders shall be under no obligation to
renew such Euro-Rate  Option if the Required  Lenders notify the  Administrative
Agent (or the  Administrative  Agent  determines in its own  discretion) by 5:00
p.m.  (Eastern  time) four (4)  Business  Days prior to  effective  date of such
renewal that the Optional Currency  requested by the Company is not available to
fund  Revolving  Credit  Loans  in such  Optional  Currency.  In the  event  the
Administrative  Agent timely  receives a notice from the Required  Lenders or if
the  Administrative  Agent makes such  determination  pursuant to the  preceding
sentence,  the Administrative  Agent will notify the Company no later than 12:00
noon  (Eastern  time) three (3) Business Days prior to the renewal date that the
renewal of such  Revolving  Credit Loans in such  Optional  Currency is not then
available,  and the  Administrative  Agent shall promptly  thereafter notify the
Lenders of the same.  If the  Administrative  Agent shall have so  notified  the
Company  that any  such  continuation  of  Optional  Currency  Loans is not then
available, any notice of renewal with respect thereto shall be deemed withdrawn,
and such Optional Currency Loans shall be redenominated  into Base Rate Loans in
Dollars with effect from the last day of the Interest Period with respect to any
such Optional Currency Loans. The Administrative  Agent will promptly notify the
Company  and the Lenders of any such  redenomination,  and in such  notice,  the
Administrative  Agent will state the aggregate Dollar  Equivalent  amount of the
redenominated  Optional  Currency Loans as of the Computation  Date with respect
thereto and such Lender's Ratable Share thereof.

          (d)  Requests  for  Additional  Optional  Currencies.  The Company may
deliver to the  Administrative  Agent a written  request that  Revolving  Credit
Loans hereunder also be permitted to be made in any other lawful currency (other
than  Dollars),  in addition to the  currencies  specified in the  definition of
"Optional  Currency" herein provided that such currency must be freely traded in
the offshore  interbank foreign exchange markets,  freely  transferable,  freely
convertible  into  Dollars  and  available  to the  Lenders  in  the  applicable
interbank market. The  Administrative  Agent will promptly notify the Lenders of
any such request promptly after the Administrative  Agent receives such request.
The requested  currency shall be approved as an Optional Currency hereunder only
if the  Administrative  Agent and the Required  Lenders approve of the Company's
request.  The  Administrative  Agent will  promptly  notify  the  Company of the
acceptance or rejection of the Company's request.

     2.10 Currency Repayments.  Notwithstanding anything contained herein to the
contrary,  the entire amount of principal of and interest on any Loan made in an
Optional  Currency  shall be repaid in the same Optional  Currency in which such
Loan was made,  provided,  however,  that if it is impossible or illegal for the
Borrowers  to effect  payment of a Loan in the  Optional  Currency in which such
Loan was made, or if the Borrowers  default on their  obligations  to do so, the
Required  Lenders may at their option  permit such payment to be made (i) at and
to  a  different  location,  subsidiary,   affiliate  or  correspondent  of  the
Administrative Agent, or (ii) in the Equivalent Amount of Dollars or (iii) in an
Equivalent  Amount of such other currency  (freely  convertible into Dollars) as
the  Required  Lenders  may solely at their  option  designate.  Upon any events
described in (i) through (iii) of the preceding  sentence,  the Borrowers  shall
make such payment and the Borrowers  agree to hold each Lender harmless from and
against any loss incurred by any Lender  arising from the cost to such Lender of
any  premium,  any costs of  exchange,  the cost of  hedging  and  covering  the
Optional Currency in which such Loan was originally made, and from any change in
the value of  Dollars,  or such other  currency,  in  relation  to the  Optional
Currency that was due and owing.  Such loss shall be  calculated  for the period
commencing  with  the  first  day of the  Interest  Period  for  such  Loan  and
continuing  through  the  date of  payment  thereof.  Without  prejudice  to the
survival of any other  agreement  of any  Borrower  hereunder,  such  Borrower's
obligations under this Section 2.10 shall survive termination of this Agreement.

     2.11 Optional Currency Amounts.  Notwithstanding  anything contained herein
to the contrary,  the  Administrative  Agent may, with respect to notices by the
Company for Loans in an Optional Currency or voluntary  prepayments of less than
the full amount of an Optional Currency Borrowing Tranche,  engage in reasonable
rounding of the Optional Currency amounts requested to be loaned or repaid; and,
in such event,  Administrative  Agent shall promptly  notify the Company and the
Lenders of such  rounded  amounts  and the  Company's  request  or notice  shall
thereby be deemed to reflect such rounded amounts.

     2.12 European Monetary Union.

          (a) If, as a result of the  implementation  of the  European  monetary
union,  (i) any  Optional  Currency  ceases to be lawful  currency of the nation
issuing the same and is replaced by the Euro or (ii) any  Optional  Currency and
the Euro are at the same time  recognized by any  governmental  authority of the
nation  issuing  such  currency  as  lawful  currency  of  such  nation  and the
Administrative  Agent  or the  Required  Lenders  shall so  request  in a notice
delivered  to the  Borrowers,  then any amount  payable  hereunder  by any party
hereto in such  Optional  Currency  shall instead be payable in the Euro and the
amount so payable shall be determined by translating  the amount payable in such
Optional  Currency to the Euro at the exchange  rate  recognized  on the date of
such  request by the  European  Central  Bank for the  purpose  of  implementing
European  monetary  union.  Prior  to the  occurrence  of the  event  or  events
described in clause (i) or (ii) of the preceding  sentence,  each amount payable
hereunder in any Optional  Currency will,  except as otherwise  provided herein,
continue to be payable only in that Optional Currency.

          (b) The  Borrowers  agree,  at the request of any Lender to compensate
such Lender for any loss, cost,  expense or reduction in return that such Lender
shall  reasonably  determine  shall be incurred or sustained by such Lender as a
result of the  implementation of European monetary union and that would not have
been  incurred or sustained  but for the  transactions  provided  for herein.  A
certificate  of any Lender  setting  forth such  Lender's  determination  of the
amount or amounts  necessary to compensate such Lender shall be delivered to the
Borrowers  and  shall  be  conclusive  absent  manifest  error  so  long as such
determination is made on a reasonable basis. The Borrowers shall pay such Lender
the amount  shown as due on any such  certificate  within 10 days after  receipt
thereof.

          (c) The parties hereto agree,  at the time of or at any time following
the  implementation  of European  monetary union,  to use reasonable  efforts to
enter  into an  agreement  amending  this  Agreement  in  order to  reflect  the
implementation  of such  monetary  union,  to permit (if  feasible)  the Euro to
qualify as an Optional Currency under the terms and conditions of the definition
of such term and to place the parties hereto in the position with respect to the
settlement  of payments of the Euro as they would have been with  respect to the
settlement of the Currencies it replaced.

     2.13. Extension of Expiration Date.

          (a) The  Company  may  request,  in a written  notice  given as herein
provided  to the  Administrative  Agent  and  each  of  the  Lenders,  that  the
Expiration  Date be extended for 364 days,  which  notice shall  specify the new
Expiration  Date  to be in  effect  following  such  extension  (the  "Requested
Expiration Date") provided that the Requested  Expiration Date shall not be more
than 364 days from the date on which such  request is to become  effective  (the
"Extension  Effective  Date").  The Company's  request shall be delivered to the
Administrative  Agent at least 40 but no more than 45 days prior to the proposed
Extension  Effective Date. Each Lender shall,  not less than 20 days and no more
than 30 days prior to the Extension  Effective Date, notify the Borrower and the
Administrative  Agent in writing of its  election to extend or not to extend the
Expiration  Date with respect to its pro rata share of the Commitment  (based on
such Lender's Commitment as a percentage of the aggregate Commitments of all the
Lenders  immediately  prior to the Extension  Effective Date). The Borrower may,
not later than 30 days prior to the Extension Effective Date, revoke its request
to extend the  Expiration  Date.  If on the date 20 days prior to the  Extension
Effective Date the Required Lenders and the Administrative Agent elect to extend
the  Expiration  Date with respect to their pro rata share of the Commitment and
the Borrower has not revoked its request to extend the  Expiration  Date,  then,
subject to the  provisions of this Section 2.13,  the  Expiration  Date shall be
extended  for 364 days.  Any Lender  which  shall not notify the Company and the
Administrative  Agent of its election to extend the Expiration  Date on or prior
to the date 20 days  prior to the  Extension  Effective  Date shall be deemed to
have  elected  not to extend the  Expiration  Date with  respect to its pro rata
share of the Commitment.

          (b) Provided  that the Required  Lenders  shall have elected to extend
their pro rata share of the  Commitment as provided in this Section 2.13, if any
Lender shall timely notify the Borrower and the Administrative Agent pursuant to
paragraph  (a) of this  Section  2.13 of its election not to extend its pro rata
share of the  Commitment,  or shall be deemed to have  elected not to extend its
pro rata share of the  Commitment  (any such Lender being called a  "Terminating
Lender"),  then the remaining Lenders (the "Continuing  Lenders") or any of them
shall have the right (but not the  obligation),  upon notice to the Borrower and
the  Administrative  Agent  not  later  than 15  days  preceding  the  Extension
Effective Date to increase their pro rata share of the Commitments, by an amount
up to in the aggregate the pro rata share of the  Commitment of any  Terminating
Lenders.  If Continuing Lenders have elected to increase their pro rata share of
the Commitment  pursuant to the preceding  sentence by an aggregate amount which
exceeds  the  aggregate  pro rata  share of the  Commitment  of the  Terminating
Lenders,  then the proposed  increase in the Commitment of each such  Continuing
Lender (as specified in the notice referred to in the preceding  sentence) shall
be decreased pro rata so that the aggregate  increase in the Commitments of such
Continuing Lenders is equal to the aggregate pro rata share of the Commitment of
the Terminating Lenders.  Each increase in the Commitment of a Continuing Lender
shall be evidenced by a written  instrument  executed by such Continuing Lender,
the  Borrower  and the  Administrative  Agent,  and  shall  take  effect  on the
Extension Effective Date.

          (c) In the event the aggregate pro rata share of the Commitment amount
of the  Terminating  Lenders  shall  exceed  the  aggregate  amount by which the
Continuing Lenders have agreed to increase their Commitments pursuant to Section
21.8(b),  the Company shall have the right to, designate,  at its option, one or
more  other  lending  institutions  willing  to  extend  Commitments  until  the
Requested  Expiration Date in an aggregate  amount not greater than such excess.
Any such lending institution (an "Additional  Lender") shall, on or prior to the
Extension  Effective  Date,  execute  and  deliver  to  the  Borrowers  and  the
Administrative Agent an Assignment and Acceptance Agreement, satisfactory to the
Borrowers  and the  Administrative  Agent,  setting  forth  the  amount  of such
Additional  Lender's  Commitment and containing its agreement to become,  and to
perform all the obligations of, a Lender  hereunder,  and the Commitment of such
Additional Lender shall become effective on the Extension Effective Date.



<PAGE>


          (d) If the  Required  Lenders  shall have  elected to extend their pro
rata  share  of the  Commitment  as  provided  in this  Section  2.13,  then (i)
effective on the Extension  Effective  Date the  Commitments  of the  Continuing
Lenders  (including any increase pursuant to Section 2.13(b)) and any Additional
Lenders  equal to their pro rata share of the  Commitments  as  provided in this
Section 2.13 shall continue until the Requested Expiration Date specified in the
notice from the Company,  and as to such Lenders the term "Expiration  Date", as
used herein,  shall mean such Requested Expiration Date; (ii) the Commitments of
any  Terminating  Lender shall continue until the Extension  Effective Date, and
shall then terminate (as to any Terminating  Lender, the term "Expiration Date",
as  used  herein,  shall  mean  the  Extension  Effective  Date)  and  any  such
Terminating  Lender shall receive payment in full of the  outstanding  principal
amount,  together with accrued  interest to such date and any other amounts owed
by the Borrower to such  Terminating  Lender pursuant to this Agreement,  of the
Loans of such  Terminating  Lender;  and  (iii)  from and  after  the  Extension
Effective  Date,  the term  "Lenders"  shall be deemed to include the Additional
Lenders.  On the Extension  Effective  Date the Borrower  shall make payments of
Revolving  Credit  Loans and request new  Revolving  Credit  Loans to the extent
necessary so that the aggregate principal amount of outstanding Revolving Credit
Loans of each Lender is equal to its Applicable Percentage of the Commitments.


                                   ARTICLE III
                                 INTEREST RATES

     3.01 Interest Rate Options on Revolving Credit Loans.

          (a)  Selection  of Interest  Rate  Options.  The  Borrowers  shall pay
interest in respect of the outstanding  unpaid principal amount of the Revolving
Credit  Loans as  selected  by the  Company  from the Base  Rate  Option  or the
Euro-Rate  Option set forth below  applicable to the Revolving  Credit Loans, it
being understood that, subject to the provisions of this Agreement,  the Company
may select  different  Interest Rate Options and different  Interest  Periods to
apply   simultaneously  to  the  Revolving  Credit  Loans  comprising  different
Borrowing Tranches and may convert to or renew one or more Interest Rate Options
with respect to all or any portion of the Revolving  Credit Loans comprising any
Borrowing Tranche;  provided that there shall not be at any one time outstanding
more than five (5)  Borrowing  Tranches,  and  provided  further  that until the
earlier of (i) such time as the  Commitments  shall equal  $100,000,000  or (ii)
three months from the Closing Date, Revolving Credit Loans shall be made only at
(A) the Base Rate Option or (B) at the Euro-Rate  Option with an Interest Period
of one month.  Interest on the principal amount of each Loan made in an Optional
Currency shall be paid by the Borrowers in such Optional Currency.

          (b) Interest  Rate Options  Available.  The  Borrowers  shall have the
right to select from the  following  Interest  Rate  Options  applicable  to the
Revolving  Credit Loans,  except that the Borrowers may not select the Base Rate
to apply to a Loan to be made in an Optional Currency:

               (i) Base Rate Option:  A fluctuating  rate per annum (computed on
the  basis of a year of 365 or 366 days,  as the case may be,  and  actual  days
elapsed) equal to the Base Rate;

               (ii) Euro-Rate Option: A rate per annum (computed on the basis of
a year of 360 days and actual days elapsed,  provided that, for Loans made in an
Optional  Currency  for  which a  365-day  basis  is the  only  market  practice
available to the  Administrative  Agent,  such rate shall be  calculated  on the
basis  of a year of 365 or 366  days,  as the case  may be for the  actual  days
elapsed) equal to the Euro-Rate plus the Euro-Rate Margin.  The Euro-Rate Margin
shall be subject to adjustment  quarterly to the percentage,  based on the Fixed
Charge Coverage Ratio, as set forth on Schedule 1.01(A).  Each adjustment in the
Euro-Rate  Margin shall be effective on the second  Business Day next  following
delivery to the Administrative  Agent of the financial statements or certificate
required to be delivered by the Company  pursuant to Section 7.03(a) showing the
basis for such  adjustment.  In the  event  that such  financial  statements  or
certificate  shall not have been  delivered to the  Administrative  Agent on the
date required for such delivery pursuant to Section 7.03(a),  then on the second
Business Day following such date, the Euro-Rate Margin shall be increased to the
highest  Euro-Rate  Margin set forth on Schedule  1.01(A),  provided  that after
delivery of such  financial  statements or  certificate  (effective two Business
Days following delivery) the Euro-Rate Margin shall be adjusted to the Euro-Rate
Margin  that  would  have  been  effective  had  such  financial  statements  or
certificate been timely delivered.  Each Euro-Rate  Borrowing Tranche shall bear
interest  from and  including  the first day of the Interest  Period  applicable
thereto,  but not including,  the last day of such Interest Period.  No Interest
Period may end after the Expiration Date.

     3.02 Rate Quotations.  The Company may call the Administrative  Agent on or
before the date on which a Revolving  Credit Loan  Request is to be delivered to
receive an indication of the interest rates and the applicable currency exchange
rates then in effect,  but it is acknowledged  that such projection shall not be
binding  on the  Administrative  Agent or the  Lenders  nor  affect  the rate of
interest or the calculation of Equivalent  Amounts which thereafter are actually
in effect when the election is made.

     3.03 Euro-Rate Unascertainable;  Illegality;  Increased Costs; Deposits Not
Available.

          (a) If on any date on which a Euro-Rate would otherwise be determined,
the Administrative Agent shall have determined that:

               (i) adequate and reasonable  means do not exist for  ascertaining
such Euro-Rate, or

               (ii) a contingency  has occurred  which  materially and adversely
affects the London interbank market or any other  applicable  interbank  market,
the Administrative Agent shall have the rights specified in Section 3.03(c).

          (b) if at any time any Lender shall have determined that:

               (i) the making,  maintenance  or funding of any Revolving  Credit
Loan to which a Euro-Rate Option applies has been made impracticable or unlawful
by compliance by such Lender in good faith with any Law or any interpretation or
application thereof by any Official Body or with any request or directive of any
such Official Body (whether or not having the force of Law), or

               (ii) such Euro-Rate Option will not adequately and fairly reflect
the  cost to  such  Lender  of the  establishment  or  maintenance  of any  such
Revolving Credit Loan, or

               (iii)  after  making  all  reasonable  efforts,  deposits  of the
relevant  amount in Dollars or in the Optional  Currency(as  applicable)for  the
relevant Interest Period for a Revolving Credit Loan to which a Euro-Rate Option
applies are not available to such Lender in the London  interbank  market at the
effective cost of funding of a proposed Euro-Rate Loan, the Administrative Agent
shall have the rights specified in Section 3.03(c).

          (c) In the case of any event specified in Section  3.03(a) above,  the
Administrative  Agent  shall  promptly  so notify the  Lenders  and the  Company
thereof and in the case of an event  specified in Section  3.03(b)  above,  such
Lender  shall  promptly  so  notify  the  Administrative  Agent  and  enclose  a
certificate with such notice as to the specific circumstances of such notice and
the  Administrative  Agent  shall  promptly  send  copies  of  such  notice  and
certificate  to the other  Lenders and the  Company.  Upon such date as shall be
specified  in such notice  (which shall not be earlier than the date such notice
is given) the  obligation of (A) the Lenders in the case of such notice given by
the Administrative  Agent or (B) such Lender in the case of such notice given by
such Lender,  to allow the Borrowers to select,  convert to or renew a Euro-Rate
Option or select an Optional  Currency (as applicable)  shall be suspended until
the  Administrative  Agent shall have later  notified the Company or such Lender
shall  have later  notified  the  Administrative  Agent,  of the  Administrative
Agent's  or  such  Lender's,   as  the  case  may  be,  determination  that  the
circumstances giving rise to such previous  determination no longer exist. If at
any time the Administrative  Agent makes a determination under subsection (a) or
(b)  of  this  Section  3.03  and  the  Company  has  previously   notified  the
Administrative  Agent  of  its  selection  of,  conversion  to or  renewal  of a
Euro-Rate  Option and such Euro-Rate  Option has not yet gone into effect,  such
notification  shall be deemed to provide  for  selection  of,  conversion  to or
renewal of the Base Rate Option. If any Lender notifies the Administrative Agent
of a  determination  under  subsection  (b) of this Section 3.03,  the Borrowers
shall,  subject to the  Borrowers'  indemnification  Obligations  under  Section
4.06(b),  as to any  Revolving  Credit  Loan of the Lender to which a  Euro-Rate
Option  applies,  on the date specified in such notice either (i) as applicable,
convert  such  Loan to the Base  Rate  Option  or  select a  different  Optional
Currency or Dollars or (ii) prepay such Loan in  accordance  with Section  4.04.
Absent due notice from the Company of conversion or prepayment,  such Loan shall
automatically be converted to the Base Rate Option and or into a Dollar Loan, as
appropriate, upon such specified date.

     3.04 Selection of Interest Rate Options.  Revolving  Credit Loans for which
the Company has selected the Base Rate Option shall  continue as such unless and
until the Company chooses to convert such Revolving  Credit Loans to a Euro-Rate
Borrowing  Tranche.  If the  Borrowers  fail to select a new Interest  Period to
apply to any Borrowing  Tranche at the expiration of an existing Interest Period
applicable to such Euro-Rate Borrowing Tranche in accordance with the provisions
of  Section  2.05(a),  the  Borrowers  shall be  deemed to have  converted  such
Euro-Rate Borrowing Tranche to the Base Rate Option commencing upon the last day
of the existing Interest Period.

     3.05  Interest  Rates  Payable  on Swing  Loans.  The  Borrowers  shall pay
interest in respect of the outstanding unpaid principal amount of any Swing Loan
at a fluctuating  rate per annum  (computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed) equal to the Base Rate.

     3.06  Interest  After  Default.  To the extent  permitted by Law,  upon the
occurrence  of an Event of  Default  and until  such time such  Event of Default
shall have been cured or waived:

          (a) the rate of interest for each Loan otherwise  applicable  pursuant
to Section 2.10 or Section  3.01,  or 3.05 shall be increased by 2.0% per annum;
and

          (b) each other  Obligation  hereunder  if not paid when due shall bear
interest  at a rate  per  annum  equal  to the  sum of the  Base  Rate  plus  an
additional 2.0% per annum from the time such Obligation  becomes due and payable
and until it is paid in full.

          (c) The Borrowers acknowledge that such increased rates reflect, among
other  things,  the  fact  that  such  Loans  or  other  amounts  have  become a
substantially  greater risk given their default  status and that the Lenders are
entitled to additional  compensation for such risk; and, all such interest shall
be payable by the Borrowers upon demand by Administrative Agent.

     3.07 Maximum Interest Rate.  If at any time the designated  rate applicable
to any Loan made by any Lender  exceeds such Lender's  highest  lawful rate, the
rate of interest on such Lender's Loan shall be limited to such Lender's highest
lawful rate.


                                   ARTICLE IV
                                    PAYMENTS

     4.01 Payments.   All  payments  and  prepayments  to be made in  respect of
principal,  interest,  Fees or other  amounts due from the  Borrowers  hereunder
shall be payable prior to 11:00 A.M. (Eastern time) on the date when due without
presentment,  demand,  protest  or notice of any kind,  all of which are  hereby
expressly  waived by the Borrowers,  and without  setoff,  counterclaim or other
deduction of any nature, and an action therefor shall immediately  accrue.  Such
payments shall be made to the  Administrative  Agent at the Principal  Office in
Dollars  except that payments as principal or interest on Loans made in Optional
Currencies shall be made in the applicable  Optional  Currency to the designated
Funding Office, and in immediately available funds, and the Administrative Agent
shall promptly distribute such amounts in immediately  available funds, provided
that in the event  payments  are  received by 11:00 A.M.  (Eastern  time) by the
Administrative  Agent  and such  payments  are not  distributed  on the same day
received by the  Administrative  Agent, the  Administrative  Agent shall pay the
Federal  Funds  Effective  Rate in the case of loans  or  other  amounts  due in
Dollars,  or the Overnight  Rate in the case of Loans or other amounts due in an
Optional  Currency with respect to the amount of such payments for each day held
by  the   Administrative   Agent  and  not  distributed  to  the  Lenders.   The
Administrative  Agent's and each Lender's statement of account,  ledger or other
relevant  record shall,  in the absence of manifest  error, be conclusive as the
statement  of the amount of  principal  of and  interest  on the Loans and other
amounts owing under this Agreement and the Fee Letters (including the Equivalent
Amounts of the applicable  currencies  where such  computations are required)and
shall be deemed an  "account  stated."  Unless  the  Interest  Period in respect
thereof is continued or converted in accordance with Section 3.02, all Revolving
Credit Loans to which a Euro-Rate Option applies shall be due and payable on the
last  day of the  applicable  Interest  Period.  All  Loans  outstanding  on the
Expiration Date shall be due and payable in full on the Expiration Date.

     4.02 Pro Rata  Treatment of Lenders.  Each  borrowing  of Revolving  Credit
Loans shall be allocated to each Lender according to its Ratable Share, and each
selection  of,  conversion  to or renewal of any  Interest  Rate Option and each
payment or  prepayment by the  Borrowers  with respect to  principal,  interest,
Fees, or other  amounts due with respect to the  Revolving  Credit Loans (except
for Fees payable  under the Fee Letters,  any payments with respect to the Swing
Loans,  and except as provided in Section  3.03(b),  4.04(b) or 11.03)  shall be
made in proportion to the applicable  Revolving  Credit Loans  outstanding  from
each  Lender and if no such Loans are then  outstanding,  in  proportion  to the
Ratable Share of each Lender.

     4.03  Interest  Payment  Dates.  Interest  on Loans to which  the Base Rate
Option  applies shall be due and payable in arrears on the first Business Day of
each  month  after  the  Closing  Date  and  on  the  Expiration  Date  or  upon
acceleration of the Obligations. Interest on Loans to which the Euro-Rate Option
applies  shall be due and payable in the currency in which such loan was made on
the last day of each  Interest  Period for those Loans and, if any such Interest
Period is longer  than three  months,  also on the last day of every third month
during such  Interest  Period.  Interest on mandatory  prepayments  of principal
under Sections 2.04 or 4.05 shall be due on the date such  mandatory  prepayment
is due.  Interest on the principal amount of each Loan or other Obligation shall
be due and payable on demand  after such  principal  amount or other  Obligation
becomes due and payable (whether on the stated maturity date, upon  acceleration
or otherwise).

     4.04 Prepayments.

          (a) The  Borrowers  shall have the right at their  option from time to
time to prepay the Loans in whole or part without  premium or penalty (except as
provided in subsection (b) below or in Section 4.06) to the  designated  Funding
Office in the currency in which such Loan was made:

               (i) at any time with  respect  to any Loan to which the Base Rate
Option applies;

               (ii) on the  last  day of the  applicable  Interest  Period  with
respect to Revolving Credit Loans to which a Euro-Rate Option applies,

               (iii) on the date specified in a notice by any Lender pursuant to
Section 3.03(b) with respect to any Loan to which a Euro-Rate Option applies.

     Whenever the Borrowers  desire to prepay any part of the  Revolving  Credit
Loans, the Company shall provide a prepayment notice to the Administrative Agent
at least one (1) Business Day prior to the date of  prepayment  of the Revolving
Credit Loans setting forth the following information:

          (w) the Borrower which intends to make the proposed prepayment;

          (x) the date,  which shall be a Business  Day,  on which the  proposed
prepayment is to be made;

          (y) a statement  indicating the application of the prepayment  between
the Revolving Credit Loans and Swing Loans; and

          (z) the total principal  amount and currency of such  prepayment,  the
Dollar Equivalent amount of which shall not be less than $1,000,000.

     All prepayment  notices shall be irrevocable.  The principal  amount of the
Loans for which a prepayment  notice is given,  together  with  interest on such
principal  amount,  except  with  respect to Loans to which the Base Rate Option
applies,  shall be due and  payable  on the date  specified  in such  prepayment
notice  as the  date  on  which  the  proposed  prepayment  is to be made in the
currency in which such Loan was made. If the Borrowers prepay a Loan but fail to
specify the applicable  Borrowing Tranche which is being prepaid, the prepayment
shall be applied (i) first to Swing Loans and then to  Revolving  Credit  Loans;
and (ii) after giving effect to the  allocations  in clause (i) above and in the
preceding  sentence,  first to Loans to which the Base Rate  Option  applies and
then to  Loans to which  the  Euro-Rate  Option  applies,  and then to  Optional
Currency  Loans.  Any  prepayment  hereunder  shall be subject to the Borrowers'
Obligation to indemnify the Lenders under Section 4.06(b).

          (b) In the event any Lender (i) gives notice under Section  3.03(b) or
Section 4.06(a), (ii) does not fund Revolving Credit Loans because the making of
such Loans would  contravene any Law  applicable to such Lender,  (iii) does not
approve any action as to which  consent of the Required  Lenders is requested by
the Borrowers and obtained  hereunder or (iv) becomes  subject to the control of
an Official Body (other than normal and customary supervision),  then, unless an
Event of Default shall have occurred and be continuing, the Borrowers shall have
the right at their option,  with the consent of the Administrative  Agent, which
shall not be unreasonably  withheld, to prepay the Loans of such Lender in whole
together  with  all  interest   accrued  thereon  and  terminate  such  Lender's
Commitment,  within ninety (90) days after (w) receipt of such  Lender's  notice
under  Section  3.03(b) or 4.06(a),  (x) the date such Lender has failed to fund
Revolving  Credit Loans because the making of such Loans would  contravene a Law
applicable  to such  Lender,  (y) the date of obtaining  the consent  which such
Lender  has not  approved  or (z) the date such  Lender  became  subject  to the
control of an Official  Body, as applicable;  provided that the Borrowers  shall
also pay to such  Lender at the time of such  prepayment  any  amounts  required
under  Section 4.06 and any accrued  interest due on such amount and any related
Fees; and provided further,  that the remaining Lenders shall have no obligation
hereunder to increase their  Commitments.  Notwithstanding  the  foregoing,  the
Administrative Agent may only be replaced subject to the requirements of Section
10.13.

          (c) In the event any  Lender  does not  approve  any  increase  in the
aggregate  Commitments as to which increase the Company has obtained the consent
of all other  Lenders  whose  Commitments  will not  otherwise  be  prepaid  and
terminated  pursuant to this Section 4.04(c),  then,  unless an Event of Default
shall have occurred and be  continuing,  the  Borrowers  shall have the right at
their option,  with the consent of the Administrative  Agent, which shall not be
unreasonably withheld, to prepay the Loans of such Lender in whole together with
all interest accrued thereon and terminate such Lender's Commitment (or Lenders'
Commitments) within ninety (90) days after the date the Company has obtained the
consent  of all such  other  Lenders;  provided,  that the  termination  of such
Lender's Commitment (or Lenders'  Commitments)  pursuant to this Section 4.04(c)
shall only be permitted if the Borrowers  have  identified  one or more Assignee
Lenders  acceptable  to the  Administrative  Agent which  Assignee  Lenders have
agreed to the increase in the  aggregate  Commitments  and such  termination  is
accomplished by means of an assignment  pursuant to Section 11.11 which does not
reduce  the  aggregate  amount of the  Commitments  after  giving  effect to the
addition of any such Assignee Lenders; and provided further,  that the remaining
Lenders shall have no obligation hereunder to increase their Commitments.

          (d) Each Lender  agrees that upon the  occurrence  of any event giving
rise to increased  costs or other  special  payments  under Section 3.03 or 4.06
with respect to such Lender, it will if requested by the Company, use reasonable
efforts (subject to overall policy  considerations  of such Lender) to designate
another  Lending  Office  for any Loans or Letters  of Credit  affected  by such
event, provided that such designation is made on such terms that such Lender and
its Lending  Office  suffer no economic,  legal or regulatory  disadvantage,  as
determined by such Lender,  with the object of avoiding the  consequence  of the
event  giving rise to the  operation  of such  Section.  Nothing in this Section
4.04(d) shall affect or postpone any of the  Obligations  of any Borrower or the
rights of any Agent or any Lender provided in this Agreement.

     4.05 Mandatory Prepayments.

          (a)  Currency  Fluctuations.   If on any  Computation  Date the  Total
Facility  Usage is equal to or greater than 105% of the  Commitments as a result
of a change in exchange  rates between one (1) or more Optional  Currencies  and
Dollars, then the Administrative Agent shall notify the Company of the same. The
Company  shall  pay  or  prepay  Loans  (subject  to  the  Company's   indemnity
obligations  under  Sections  4.04 and 4.06)  within one (1)  Business Day after
receiving  such notice such that the Total  Facility  Usage shall not exceed the
aggregate Commitments after giving effect to such payments or prepayments.

          (b) Application Among Interest Rate Options.  All prepayments required
pursuant to this  Section 4.05 shall first be applied  among the  Interest  Rate
Options to the  principal  amount of the Loans  subject to the Base Rate Option,
then to Dollar Loans subject to a Euro-Rate Option and then to Optional Currency
Loans subject to the Euro-Rate Option.  In accordance with Section 4.06(b),  the
Company  shall  indemnify  the Lenders  and any  Lending  Office for any loss or
expense, including loss of margin, incurred with respect to any such prepayments
applied  against Loans  subject to a Euro-Rate  Option on any day other than the
last day of the applicable Interest Period.


     4.06 Additional Compensation in Certain Circumstances.

          (a) Increased Costs or Reduced Return Resulting From Taxes,  Reserves,
Capital  Adequacy  Requirements,   Expenses,  Etc.  If  any  Law,  guideline  or
interpretation  or any  change  in  any  Law,  guideline  or  interpretation  or
application  thereof by any Official  Body charged  with the  interpretation  or
administration  thereof or compliance with any request or directive  (whether or
not having the force of Law) of any central bank or other Official Body:

               (i)  subjects  any Agent or any Lender to any tax or changes  the
basis of taxation with respect to this Agreement,  the other Loan Documents, the
Loans or  payments by the  Borrowers  of  principal,  interest,  Fees,  or other
amounts  due from the  Borrowers  hereunder  or under the other  Loan  Documents
(except for taxes on the net income of any such Agent, any Lender or any Lending
Office of any Lender),

               (ii) imposes,  modifies or deems applicable any reserve,  special
deposit or similar  requirement  against credits or commitments to extend credit
extended  by, or assets  (funded or  contingent)  of,  deposits  with or for the
account  of, or other  acquisitions  of funds by, any  Agent,  any Lender or any
Lending Office of any Lender, or

               (iii) imposes,  modifies or deems applicable any capital adequacy
or similar  requirement (A) against assets (funded or contingent) of, or letters
of credit,  other  credits or  commitments  to extend  credit  extended  by, any
Lender, or (B) otherwise  applicable to the obligations of any Agent, any Lender
or any Lending Office of any Lender under this Agreement,  and the result of any
of the foregoing is to increase the cost to, reduce the income receivable by, or
impose any  additional  expense  (including  loss of  margin)  upon any Agent or
Lender or its Lending  Office  with  respect to this  Agreement,  the other Loan
Documents or the making, maintenance or funding of any part of the Loans (or, in
the case of any capital adequacy or similar  requirement,  to have the effect of
reducing the rate of return on any Agent's or any Lender's capital,  taking into
consideration  such  Agent's or  Lender's  customary  policies  with  respect to
capital adequacy) by an amount which such Agent or Lender in its sole discretion
deems to be  material,  such Agent or Lender  shall from time to time notify the
Company  and the  Administrative  Agent of the amount  determined  in good faith
(using any averaging  and  attribution  methods  employed in good faith) by such
Agent or Lender to be  necessary  to  compensate  such  Agent or Lender for such
increase in cost,  reduction of income or additional expense.  Such notice shall
set forth in  reasonable  detail the basis for such  determination.  Such amount
shall be due and  payable  by the  Borrowers  to such  Agent or Lender  ten (10)
Business Days after such notice is given.

          (b) Indemnity.  In addition to the compensation required by subsection
(a) of this Section 4.06, the Borrowers  shall indemnify each Lender against all
liabilities,  losses or expenses  (including loss of margin, any loss or expense
incurred in liquidating or employing deposits from third parties and any loss or
expense  incurred  in  connection  with  funds  acquired  by a Lender to fund or
maintain  Loans subject to the Euro-Rate  Option) which such Lender  sustains or
incurs as a consequence of any:

               (i)  payment,  prepayment,  conversion  or renewal of any Loan to
which the  Euro-Rate  Option  applies  on a day  other  than the last day of the
corresponding  Interest  Period  (whether or not such payment or  prepayment  is
mandatory,  voluntary or  automatic,  through  acceleration  or  otherwise,  and
whether or not such payment or prepayment is then due),

               (ii)  attempt by the  Borrowers  to revoke  (expressly,  by later
inconsistent  notices or otherwise)  in whole or part any Revolving  Credit Loan
Request under Section 2.05 or, conversion/continuation notice under Section 2.05
or prepayment notice under Section 4.04, or

               (iii) default by the Borrowers in the  performance  or observance
of any  covenant or  condition  contained  in this  Agreement  or any other Loan
Document,   including  any  failure  of  the  Borrowers  to  pay  when  due  (by
acceleration or otherwise) any principal,  interest, Fee or any other amount due
hereunder.

     If any  Lender  sustains  or incurs  any such loss or expense it shall from
time to time notify the Company of the amount  determined  in good faith by such
Lender (which  determination may include such assumptions,  allocations of costs
and expenses  and  averaging  or  attribution  methods as such Lender shall deem
reasonable)  to be necessary to indemnify  such Lender for such loss or expense.
Such  notice  shall  set  forth  in   reasonable   detail  the  basis  for  such
determination.  Such amount  shall be due and payable by the  Borrowers  to such
Lender ten (10) Business Days after such notice is given.

          (c) Taxes.  Any and all payments  made by the  Borrowers  hereunder or
under  the Loan  Documents  shall be made,  in  accordance  with the  provisions
hereof,  free and clear of and  without  deduction  for any and all  present  or
future taxes,  levies,  imposts,  deductions,  charges or withholdings,  and all
liabilities with respect  thereto,  excluding,  in the case of each Agent,  each
Lender and each Lending  Office,  taxes on the overall net income of such entity
imposed by the jurisdiction  under the Laws of which such entity is organized or
any taxing authority thereof or therein (all of such non-excluded taxes, levies,
imposts,  deductions,  charges,  withholdings and liabilities  being hereinafter
referred to as "Taxes"). If the Borrowers shall be required by Law to deduct any
Taxes  from or in  respect  of any sum  payable  hereunder  or  under  any  Loan
Document,  (i) the sum payable  shall be  increased as may be necessary so that,
after  making  all  required  deductions  (including  deductions  applicable  to
additional sums payable under this Section 4.06(c)),  such Lender or such Agent,
as the case may be,  receives an amount equal to the sum it would have  received
had no such deductions been made, (ii) the Borrowers shall make such deductions,
and (iii) the  Borrowers  shall pay the full  amount  deducted  to the  relevant
taxation  authority or other  authority in accordance  with  applicable  Law. In
addition,  the  Company  agrees to pay any  present or future  stamp,  transfer,
recording,  filing or  documentary  taxes,  fees or any other excise or property
taxes, charges, or similar levies which arise from any payment made hereunder or
from the execution,  delivery, or registration of, or otherwise with respect to,
this Agreement.  All such Taxes shall be paid by the Borrowers prior to the date
on which penalties attach thereto or interest accrues thereon;  provided that if
any  penalties or interest  become due, the  Borrowers  may make prompt  payment
thereof to the appropriate governmental authority. The Borrowers shall indemnify
each  Lender and each Agent for the full  amount of such  Taxes  (including  any
taxes on amounts payable under this Section 4.06(c)) paid by such Lender or such
Agent and any liability  (including  penalties,  interest and expenses)  arising
therefrom or with respect  thereto,  whether or not such Taxes were correctly or
legally asserted.  Any indemnification  payment shall be due and payable to such
Lender or such Agent ten (10)  Business  Days after the date such Lender or such
Agent  makes  written  demand  therefor.  Within  30 days  after the date of any
payment of any Taxes by the Company, the Company shall furnish to such Lender or
such Agent, at its address referred to herein,  the original or a certified copy
of a receipt evidencing  payment thereof.  If no Taxes are payable in respect of
any  payment by the  Company,  the Company  shall,  if so  requested,  provide a
certificate of an Authorized Officer of the Company to that effect.

          (d) Survival . The  Obligations  of the  Borrowers  under this Section
4.06 shall survive and continue in full force and effect notwithstanding (i) the
execution and delivery of this Agreement and the other Loan Documents,  (ii) the
making of the Loans,  (iii) the repayment of the Loans, (iv) the payment in full
of all interest,  Fees and all other  Obligations and (v) the termination of all
obligations  of the  Agents  and the  Lenders  to the  Borrowers  under all Loan
Documents.

     4.07 Interbank Market Presumption.  For all purposes of this Agreement with
respect to any aspects of the Euro-Rate,  any Loan under the Euro-Rate Option or
any  Optional  Currency,  each  Lender  and the  Administrative  Agent  shall be
presumed to have obtained rates, funding currencies,  deposits,  and the like in
the applicable  interbank market regardless  whether it did so or not; and, each
Lender's and the Administrative  Agent's determination of amounts payable under,
and  actions  required  or  authorized  by,  Section  3.03  and  4.06  shall  be
calculated,  at each Lender's and the  Administrative  Agent's option, as though
each Lender and the  Administrative  Agent funded all Loans under the  Euro-Rate
Option   through  the   purchase  of  deposits  of  the  types  and   maturities
corresponding  to the deposits used as a reference in accordance  with the terms
hereof in determining  the Euro-Rate  applicable to such Loans,  whether in fact
that is the case.

     4.08 Judgment Currency.

          (a) Currency Conversion Procedures for Judgments.  If for the purposes
of  obtaining  judgment  in any  court  it is  necessary  to  convert  a sum due
hereunder in any currency (the "Original  Currency") into another  currency (the
"Other Currency"),  the parties hereby agree, to the fullest extent permitted by
Law, that the rate of exchange  used shall be that at which in  accordance  with
normal banking  procedures each Lender could purchase the Original Currency with
the Other  Currency  after any premium and costs of exchange on the Business Day
preceding that on which final judgment is given.

          (b) Indemnity in Certain  Events.  The  obligation of the Borrowers in
respect  of  any  sum  due  from  Borrowers  to  any  Lender   hereunder  shall,
notwithstanding  any  judgment  in an  Other  Currency,  whether  pursuant  to a
judgment or otherwise,  be  discharged  only to the extent that, on the Business
Day following receipt by any Agent or by any Lender of any sum adjudged to be so
due in such Other  Currency,  such Agent or Lender may in accordance with normal
banking procedures purchase the Original Currency,  with such Other Currency. If
the amount of the Original Currency so purchased is less than the sum originally
due to such Agent or Lender in the Original Currency,  the Borrowers agree, as a
separate  obligation  and  notwithstanding  any such  judgment  or  payment,  to
indemnify such Agent or Lender against such loss.


                                    ARTICLE V
                         REPRESENTATIONS AND WARRANTIES

     5.01 Representations and Warranties. The Borrowers,  jointly and severally,
represent and warrant to the Agents and each of the Lenders as follows:

          (a)  Organization  and  Qualification.  The  Company  and  each of its
Subsidiaries is a corporation or partnership,  duly organized,  validly existing
and in good standing under the laws of its  jurisdiction  of  organization.  The
Company and each of its  Subsidiaries  has the lawful  power to own or lease its
properties  and to engage in the business it  presently  conducts or proposes to
conduct.  The Company and each of its Subsidiaries is duly licensed or qualified
and in good standing in each jurisdiction  listed on Schedule 5.01(a) and in all
other  jurisdictions  where the property  owned or leased by it or the nature of
the business  transacted  by it or both makes such  licensing  or  qualification
necessary,  except  where the failure to be so  licensed,  qualified  or in good
standing  individually  or in the aggregate  could not reasonably be expected to
have a Material Adverse Effect.

          (b)  Capitalization  and Ownership.  All of the issued and outstanding
shares of capital  stock of the Company have been  validly  issued and are fully
paid  and  nonassessable.  There  are  no  options,  warrants  or  other  rights
outstanding  to purchase any shares of capital  stock of the Company  except any
options,  warrants or other rights issued  pursuant to stock  purchase or option
programs established by the Board of Directors of the Company for the benefit of
any of its employees, officers or directors or as indicated on Schedule 5.01(b).

          (c)  Subsidiaries.  Schedule  5.01(c)  states  the name of each of the
Company's  Subsidiaries,  its  jurisdiction  of  incorporation,  its  authorized
capital  stock,  the issued and  outstanding  shares  (referred to herein as the
"Subsidiary  Shares")  and the  owners  thereof if it is a  corporation  and its
outstanding  partnership  interests  (the  "Partnership  Interests")  if it is a
partnership.  The Company and each of its  Subsidiaries  has good and marketable
title to all of the Subsidiary  Shares and Partnership  Interests it purports to
own,  free  and  clear in each  case of any  Lien.  All  Subsidiary  Shares  and
Partnership  Interests have been validly  issued and all  Subsidiary  Shares are
fully paid and nonassessable.  All capital contributions and other consideration
required to be made or paid in connection  with the issuance of the  Partnership
Interests  have been  made or paid,  as the case may be.  There are no  options,
warrants or other rights  outstanding to purchase any such Subsidiary  Shares or
Partnership  Interests  except as indicated on Schedule  5.01(c).

          (d) Power and  Authority.  Each Borrower has full power to enter into,
execute,  deliver and carry out this  Agreement and the other Loan  Documents to
which  it is a  party,  to  incur  the  Indebtedness  contemplated  by the  Loan
Documents and to perform its Obligations under the Loan Documents to which it is
a party  and all  such  actions  have  been  duly  authorized  by all  necessary
proceedings on its part  (including  any required  consent or  authorization  of
stockholders).

          (e)  Validity and Binding  Effect.  This  Agreement  has been duly and
validly  executed and delivered by each  Borrower,  and each other Loan Document
which any  Borrower  is  required to execute and deliver on or after the Closing
Date will have been duly executed and delivered by such Borrower on the required
date of  delivery  of such Loan  Document.  This  Agreement  and each other Loan
Document  constitutes or will constitute the legal, valid and binding obligation
of each  Borrower  which is or will be a party  thereto on and after its date of
delivery  thereof,  enforceable  against such  Borrower in  accordance  with its
terms, except to the extent that enforceability of any of such Loan Document may
be  limited  by  bankruptcy,  insolvency,  reorganization,  moratorium  or other
similar laws  affecting the  enforceability  of creditors'  rights  generally or
limiting the right of specific performance.

          (f) No Conflict.  Neither the execution and delivery of this Agreement
or the  other  Loan  Documents  by any  Borrower  nor  the  consummation  of the
transactions   herein  or  therein   contemplated  nor  the  incurrence  of  the
Indebtedness  contemplated  by the Loan  Documents nor the  compliance  with the
terms and provisions hereof or thereof will conflict with,  constitute a default
under or result in any breach of (i) the terms and conditions of the certificate
of incorporation,  by-laws or other organizational  documents of any Borrower or
(ii) any Law or any agreement or instrument or order, writ, judgment, injunction
or  decree  to  which  any  Borrower  is a party  or by  which  it or any of its
Properties may be subject or bound,  or result in the creation or enforcement of
any Lien,  charge or encumbrance  whatsoever upon any Property (now or hereafter
acquired) of any Borrower.

          (g)  Litigation.   There  are  no  actions,   suits,   proceedings  or
investigations pending or, to the knowledge of any Borrower,  threatened against
the Company or any of its Subsidiaries at law or equity before any Official Body
or  arbitrator  which  individually  or in the  aggregate  could  reasonably  be
expected to have a Material  Adverse  Effect.  None of the Company or any of its
Subsidiaries is in violation of any order, writ, injunction or any decree of any
Official  Body  which  individually  or in the  aggregate  could  reasonably  be
expected to have a Material Adverse Effect.

          (h)  Title to  Properties.  The real  property  owned or leased by the
Company and its Subsidiaries is described on Schedule  5.01(h).  The Company and
its Subsidiaries have good and marketable title to or valid leasehold  interests
in all  Properties  and other rights which they purport to own or lease or which
are  reflected as owned or leased on their books and records,  free and clear of
all Liens and encumbrances  except Permitted Liens, and subject to the terms and
conditions of the applicable leases, except to the extent that the failure to do
so  individually  or in the aggregate could not reasonably be expected to have a
Material  Adverse  Effect.  All  leases  of  Property  of the  Company  and  its
Subsidiaries  are in full force and effect without the necessity for any consent
which has not previously  been obtained upon  consummation  of the  transactions
contemplated hereby.

          (i) Financial Statements.

               (i) Historical  Statements.  The Company has delivered to each of
the Lenders copies of its audited consolidated year-end financial statements for
and as of the end of the  Fiscal  Year  ended  January  24,  1999  (the  "Annual
Statements").  In  addition,  the Company has  delivered  to each of the Lenders
copies of its unaudited consolidated interim financial statements for the Fiscal
Quarter ended April 25, 1999 (the "Interim  Statements") (the Annual and Interim
Statements being collectively referred to as the "Historical  Statements").  The
Historical Statements were compiled from the books and records maintained by the
Company's  management,  are  correct  and  complete  and  fairly  represent  the
consolidated financial condition of the Company and its Subsidiaries as of their
dates and the results of operations  for the fiscal  periods then ended and have
been prepared in accordance with GAAP consistently  applied (except as disclosed
in such financial  statements),  subject (in the case of the Interim Statements)
to normal year-end audit adjustments.

               (ii) Absence of Undisclosed Liabilities.  Neither the Company nor
any of its Subsidiaries has any material  liabilities,  contingent or otherwise,
or  forward or  long-term  commitments  that are not  disclosed  in the  audited
year-end  financial  statements  delivered to the Lenders pursuant to subsection
(i) above or Section 7.03(b) or in the notes thereto,  other than as incurred in
the ordinary  course of business  after the date of such  statements.  Except as
disclosed  therein  or on the  Schedules  hereto,  there  are no  unrealized  or
anticipated  losses from any commitments of the Company or any Subsidiary of the
Company which  individually or in the aggregate could  reasonably be expected to
have a  Material  Adverse  Effect.  Since  the date of the most  recent  audited
year-end  financial  statements  delivered to the Lenders pursuant to subsection
(i) above or Section  7.03(b),  no  circumstances  or events have occurred which
could reasonably be expected to have a Material Adverse Effect.

          (j) Use of Proceeds; Margin Stock; Section 20 Subsidiaries.

               (i) the  Borrowers  intend  to use the  proceeds  of the Loans in
accordance with Section 7.01(j);

               (ii) neither the Company nor any of its  Subsidiaries  engages or
intends to engage  principally,  or as one of its important  activities,  in the
business of  extending  credit for the  purpose,  immediately,  incidentally  or
ultimately,  of  purchasing  or  carrying  margin  stock  (within the meaning of
Regulation  U). No part of the proceeds of any Loan has been used,  immediately,
incidentally  or  ultimately,  to purchase or carry any margin stock (other than
common stock of the Company  repurchased in accordance with Section  7.02(e)) or
to extend  credit to others for the purpose of purchasing or carrying any margin
stock or to refund Indebtedness originally incurred for such purpose, or for any
purpose  which  entails  a  violation  of or  which  is  inconsistent  with  the
provisions of the  regulations of the Board of Governors of the Federal  Reserve
System. Neither the Company nor any of its Subsidiaries holds or intends to hold
margin stock in such amounts that more than 25% of the  reasonable  value of the
assets of the Company or any of its  Subsidiaries  are or will be represented by
margin stock; and

               (iii)  the  Borrowers  do not  intend to use any  portion  of the
proceeds of the Loans,  directly or  indirectly  (i)  knowingly  to purchase any
Ineligible  Securities  from a Section 20 Subsidiary  during any period in which
such Section 20 Subsidiary  makes a market in such Ineligible  Securities,  (ii)
knowingly to purchase  during the  underwriting or placement  period  Ineligible
Securities being underwritten or privately placed by a Section 20 Subsidiary, or
(iii) to make  payments  of  principal  or  interest  on  Ineligible  Securities
underwritten or privately placed by a Section 20 Subsidiary and issued by or for
the benefit of any Borrower or any Affiliate of any Borrower.

          (k) Full Disclosure.  On the Closing Date,  neither this Agreement nor
any other Loan  Document,  nor any  certificate,  statement,  agreement or other
documents  furnished  to the  Administrative  Agent or any Lender in  connection
herewith or therewith, contains any untrue statement of a material fact or omits
to state a material  fact  necessary in order to make the  statements  contained
herein and therein,  in light of the  circumstances  under which they were made,
not  misleading.  On the Closing  Date,  there is no fact known to any  Borrower
which could  reasonably be expected to have a Material  Adverse Effect and which
has not been set forth in this  Agreement  or in the  certificates,  statements,
agreements or other documents  furnished in writing to the Administrative  Agent
and  the  Lenders  prior  to or on the  Closing  Date  in  connection  with  the
transactions contemplated hereby.

          (l) Taxes. All federal, state, local and other tax returns required to
have been filed with  respect to the Company and each of its  Subsidiaries  have
been filed and  payment or adequate  provision  has been made for the payment of
all taxes, fees,  assessments and other  governmental  charges which have or may
become due pursuant to said  returns or to  assessments  received  except to the
extent that such taxes, fees,  assessments and other charges are being contested
in good faith by appropriate proceedings diligently conducted and for which such
reserves or other appropriate  provisions,  if any, as shall be required by GAAP
shall have been made. There are no agreements or waivers extending the statutory
period of limitations applicable to any federal income tax return of the Company
and its Subsidiaries for any period.  No tax liens have been filed and no claims
are pending or, to the knowledge of the  Borrowers,  threatened  with respect to
taxes which could reasonably be expected to have a Material Adverse Effect.  The
charges,  accruals and reserves on the books of the Company and its Subsidiaries
in  respect  of any  taxes or  other  governmental  charges  are  maintained  in
accordance  with GAAP.  Except as  disclosed on Schedule  5.01(l),  there are no
agreements or other  arrangements  with any Person whereby the Company or any of
its  Subsidiaries has any obligation to such Person in respect of the payment of
any taxes or other  governmental  charges.  For  purposes of this  Section,  the
Borrowers make no  representations  with respect to (i) any tax returns filed by
Kmart, (ii) the payment of any fees,  assessments or other governmental  charges
which have or may become due  pursuant to said  returns by Kmart or  assessments
received by Kmart and (iii) any  agreements  or waivers  extending the statutory
period of limitations applicable to any said returns of Kmart.

          (m) Consents and Approvals. No consent, approval,  exemption, order or
authorization  of, or a  registration  or filing with any  Official  Body or any
other  Person  is  required  by Law or any  agreement  in  connection  with  the
execution  and delivery of this  Agreement  and the other Loan  Documents by any
Borrower, the incurrence of the Indebtedness contemplated by the Loan Documents,
the  consummation of the  transactions  herein and therein  contemplated and the
compliance with the terms and provisions hereof and thereof, except as listed on
Schedule  5.01(m),  all of which shall have been obtained or made on or prior to
the Closing Date except as otherwise indicated on Schedule 5.01(m).

          (n) No Event of  Default;  Compliance  with  Instruments.  No Event of
Default or Potential Default has occurred and is continuing. Neither the Company
nor any of its  Subsidiaries  is in violation of (i) any term of its certificate
of  incorporation,  by-laws,  or  other  organizational  documents  or (ii)  any
agreement or instrument or order, writ, judgment,  injunction or decree to which
it is a party or by which it or any of its  Properties  may be  subject or bound
where such  violation  individually  or in the  aggregate  could  reasonably  be
expected to have a Material Adverse Effect.

          (o) Patents,  Trademarks,  Copyrights,  Licenses, Etc. The Company and
each of its Subsidiaries owns or possesses all the material patents, trademarks,
service marks, trade names,  copyrights,  licenses,  registrations,  franchises,
permits and rights  necessary to own and operate its  properties and to carry on
its business as presently  conducted  and planned to be conducted by the Company
or such Subsidiary, without known conflict with the rights of others.

          (p) Insurance.  Schedule 5.01(p) describes all insurance  policies and
other bonds to which the Company or any of its  Subsidiaries is a party,  all of
which are valid and in full force and effect.  No notice has been given or claim
made and no grounds exist to cancel or avoid any of such policies or bonds or to
reduce the coverage provided  thereby.  Such policies and bonds provide adequate
coverage from reputable and financially sound insurers in amounts  sufficient to
insure the  assets  and risks of the  Company  and each of its  Subsidiaries  in
accordance with prudent business practice in the industry of the Company and its
Subsidiaries.

          (q)  Compliance  with Laws.  The Company and its  Subsidiaries  are in
compliance in all respects with all  applicable  Laws (other than  Environmental
Laws which are specifically addressed in subsection (v)) in all jurisdictions in
which the  Company  or any of its  Subsidiaries  is  presently  or will be doing
business  except  where the failure to do so  individually  or in the  aggregate
could not reasonably be expected to have a Material Adverse Effect.

          (r)  Material  Contracts.  All  contracts  which are  material  to the
business  operations of the Company and its Subsidiaries are valid,  binding and
enforceable  upon the  Company  and each such  Subsidiary  and each of the other
parties  thereto in  accordance  with their  respective  terms,  and there is no
default thereunder,  to the Borrowers' knowledge,  with respect to parties other
than the Company or its Subsidiaries.

          (s)  Investment  Companies.   Neither  the  Company  nor  any  of  its
Subsidiaries is an "investment  company" registered or required to be registered
under  the  Investment  Company  Act  of  1940  or  under  the  "control"  of an
"investment  company" as such terms are defined in the Investment Company Act of
1940 and none of them shall  become such an  "investment  company" or under such
"control." None of the Borrowers or any  Subsidiaries of any Borrower is subject
to any other  federal or state  statute or  regulation  limiting  its ability to
incur Indebtedness for borrowed money.

          (t) Plans and  Benefit  Arrangements.  Except as set forth on Schedule
5.01(t):

               (i) The Company and each of its  Subsidiaries is in compliance in
all material  respects with any  applicable  provisions of ERISA with respect to
all Benefit Arrangements.  There has been no Prohibited Transaction with respect
to  any  Benefit  Arrangement  that  individually  or  in  the  aggregate  could
reasonably be expected to have a Material Adverse Effect.

               (ii) Neither the Company nor any of its Subsidiaries maintains or
contributes to any Plan, Multiemployer Plan or Multiple Employer Plan.

               (iii) To the extent that any Benefit Arrangement is insured,  the
Company and all of its Subsidiaries  have paid when due all premiums required to
be  paid  for all  periods  except  where  the  failure  to  make  such  payment
individually  or in the  aggregate  could not  reasonably  be expected to have a
Material  Adverse Effect.  To the extent that any Benefit  Arrangement is funded
other than with  insurance,  the Company and all of its  Subsidiaries  have made
when due all contributions  required to be paid for all periods except where the
failure to make such  contribution  individually  or in the aggregate  could not
reasonably be expected to have a Material Adverse Effect.

               (iv)  All  Benefit   Arrangements   have  been   administered  in
accordance with their terms and applicable Law except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect.

               (v) Neither the Company nor any of its Subsidiaries  maintains or
contributes  to or otherwise  has any  liability  under any Benefit  Arrangement
under which  benefits are provided to former  employees of the Company or any of
its Subsidiaries.

               (vi) No claims or lawsuits  are pending or, to the  knowledge  of
the Borrowers,  threatened with respect to any Benefit  Arrangement,  other than
normal claims for benefits.

               (vii) As of the Closing  Date  neither the Company nor any member
of the ERISA Group maintains, sponsors or contributes to any Plan, Multiemployer
Plan or Multiple Employer Plan.

          (u) Employment Matters. The Company and each Subsidiary of the Company
is in compliance with the Labor Contracts and all applicable federal,  state and
local labor and  employment  Laws  including  those related to equal  employment
opportunity and affirmative  action,  labor relations,  minimum wage,  overtime,
child labor,  medical insurance  continuation,  worker adjustment and relocation
notices,  immigration controls and worker and unemployment  compensation,  where
the failure to comply  individually  or in the  aggregate  could  reasonably  be
expected to have a Material Adverse Effect. There are no outstanding grievances,
arbitration  awards or appeals  therefrom  arising out of the Labor Contracts or
current or threatened strikes, picketing, handbilling or other work stoppages or
slowdowns at facilities of any of the Borrowers which, in any case, individually
or in the  aggregate  could  reasonably  be expected to have a Material  Adverse
Effect.

          (v) Environmental Matters. Except as disclosed on Schedule 5.01(v):

               (i) Neither the  Company  nor any  Subsidiary  of the Company has
received any  Environmental  Complaint  from any Official Body or private Person
alleging  that  it or  any  prior  or  subsequent  owner  of its  Property  is a
potentially  responsible party under the Comprehensive  Environmental  Response,
Cleanup  and  Liability  Act,  42  U.S.C.  ss.  9601,  et seq.,  and none of the
Borrowers has any reason to believe that such an  Environmental  Complaint might
be received.  There are no pending or, to the Borrowers'  knowledge,  threatened
Environmental  Complaints  relating  to the  Company  or any  Subsidiary  of the
Company or, to the Borrowers' knowledge,  any prior or subsequent owner of their
Property pertaining to, or arising out of, any Environmental Conditions.

               (ii)  Except  for   conditions,   violations  or  failures  which
individually  or in the  aggregate  could not  reasonably  be expected to have a
Material  Adverse  Effect,  there  are no  circumstances  at,  on or  under  the
Company's  and  its  Subsidiaries'  Property  that  constitute  a  breach  of or
non-compliance  with any of the  Environmental  Laws,  and  there are no past or
present  Environmental  Conditions  at,  on or under  such  Property  or, to the
Borrowers' knowledge, at, on or under adjacent property, that prevent compliance
with the  Environmental  Laws at such Property or that  otherwise  would require
that any removal,  remediation  or other  corrective  action or cleanup be taken
with respect to such Property or any adjacent property.

               (iii)  Neither the  Property of the Company and its  Subsidiaries
nor any structures, improvements,  equipment, fixtures, activities or facilities
thereon or thereunder  contain or use Regulated  Substances except in compliance
with Environmental Laws or under  circumstances where any failure to comply with
Environmental  Laws could not  reasonably  be expected,  individually  or in the
aggregate,   to  have  a  Material  Adverse  Effect.  There  are  no  processes,
facilities,  operations,  equipment or any other activities at, on or under such
Property,  or, to the Borrowers'  knowledge,  at, on or under adjacent property,
that have  resulted or are  currently  resulting  in the  release or  threatened
release of Regulated  Substances  onto such Property,  except to the extent that
such  releases or  threatened  releases are not a breach of or  otherwise  not a
violation  of  the  Environmental  Laws,  and  except  where  such  releases  or
threatened  releases  individually  or in the aggregate  could not reasonably be
expected  to have a  Material  Adverse  Effect.  (iv)  There are no  aboveground
storage tanks,  underground  storage tanks or underground piping associated with
such tanks, used for the management of Regulated  Substances at, on or under the
Property  of the  Company  and  its  Subsidiaries  that  (a) do not  have a full
operational  secondary containment system in place, and (b) are not otherwise in
compliance  with all  Environmental  Laws.  There are no  abandoned  underground
storage tanks or underground piping associated with such tanks,  previously used
for the  management of Regulated  Substances  at, on or under such Property that
have not either been closed in place in accordance  with  Environmental  Laws or
removed  in  compliance   with  all   applicable   Environmental   Laws  and  no
contamination associated with the use of such tanks exists on such Property.

               (v) The Company and each  Subsidiary  of the Company has obtained
all permits, licenses,  authorizations,  plans and approvals necessary under the
Environmental Laws for the conduct of its business as presently conducted except
where the failure to do so individually or in the aggregate could not reasonably
be expected to have a Material  Adverse Effect.  The Company and each Subsidiary
of the Company has submitted all notices,  reports and other filings required by
the Environmental Laws to be submitted to an Official Body which pertain to past
and  current  operations  on their  Property  except  where the failure to do so
individually  or in the  aggregate  could not  reasonably  be expected to have a
Material Adverse Effect.

               (vi) Except for violations which individually or in the aggregate
could not reasonably be expected to have a Material Adverse Effect, all past and
present  on-site  generation,   storage,   processing,   treatment,   recycling,
reclamation, disposal or other use or management of Regulated Substances at, on,
or under the  Property  of the  Company and its  Subsidiaries  and all  off-site
transportation, storage, processing, treatment, recycling, reclamation, disposal
or other use or management of Regulated  Substances  has been done in accordance
with the Environmental Laws.

          (w) Senior Debt Status.  The  Obligations  of each Borrower under this
Agreement  and each of the other Loan  Documents  to which it is a party do rank
and will  rank at least  pari  passu  in  priority  of  payment  with all  other
Indebtedness of such Borrower except Indebtedness of such Borrower to the extent
secured by Permitted Liens.  There is no Lien upon or with respect to any of the
properties or income of any Borrower or Subsidiary of any Borrower which secures
indebtedness or other obligations of any Person except for Permitted Liens.

          (x) Solvency.  After giving effect to each  incurrence of Indebtedness
hereunder,  and the payment of all Fees,  costs and expenses  payable by each of
the Borrowers hereunder, each of the Borrowers is Solvent.

     5.02 Updates to Schedules.  Should any of the  information  or  disclosures
provided on any of the Schedules attached hereto become outdated or incorrect in
any material  respect,  the Company shall  promptly  provide the  Administrative
Agent in writing  with such  revisions  or updates  to such  Schedule  as may be
necessary or  appropriate to update or correct same;  provided that,  except for
the amendment of Schedule  1.01(B) as  contemplated by Section 2.01(b) and 11.11
and the amendment of Schedule  5.01(c) in connection  with any new Subsidiary of
the  Company  as  permitted  herein,  no  Schedule  shall be deemed to have been
amended,  modified or superseded by any such correction or update, nor shall any
breach  of  warranty  or   representation   resulting  from  the  inaccuracy  or
incompleteness of any such Schedule be deemed to have been cured thereby, unless
and until the Required  Lenders,  in their sole and absolute  discretion,  shall
have accepted in writing such revisions or updates to such Schedule.


                                   ARTICLE VI
                             CONDITIONS OF LENDING

     The obligation of each Lender to make Revolving  Credit Loans  hereunder is
subject to the  performance  by each of the Borrowers of its  Obligations  to be
performed  hereunder  at or prior to the  making  of any such  Loans  and to the
satisfaction of the following further conditions:

     6.01 Closing Date. On the Closing Date:

          (a) The  representations  and  warranties  of  each  of the  Borrowers
contained  in Article V shall be true and accurate on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of such date  (except  representations  and  warranties  which  relate
solely to an earlier date or time, which representations and warranties shall be
true and correct on and as of the specific  dates or times referred to therein);
no Event of  Default  or  Potential  Default  under  this  Agreement  shall have
occurred and be continuing  or shall exist;  and there shall be delivered to the
Administrative Agent for the benefit of each Lender a certificate of each of the
Borrowers, dated the Closing Date and signed by an Authorized Officer of each of
the Borrowers, to each such effect;

          (b)  There  shall be  delivered  to the  Administrative  Agent for the
benefit of each Lender a  certificate  dated the Closing  Date and signed by the
Secretary or an  Assistant  Secretary of each of the  Borrowers,  certifying  as
appropriate as to:

               (i) all  corporate  action taken by such  Borrower in  connection
with this Agreement and the other Loan Documents  (which shall include copies of
all Board of Directors and stockholder resolutions);

               (ii) the names of the officer or officers authorized to sign this
Agreement and the other Loan  Documents and the true  signatures of such officer
or officers and specifying the Authorized Officers permitted to act on behalf of
such  Borrower for purposes of this  Agreement  and the true  signatures of such
officers,  on which the  Administrative  Agent and each Lender may  conclusively
rely; and

               (iii)  copies  of its  organizational  documents,  including  its
certificate  of  incorporation  and  bylaws  as in effect  on the  Closing  Date
certified by the appropriate  state official where such documents are filed in a
state office together with  certificates from the appropriate state officials as
to the  continued  existence  and good  standing of such  Borrower in each state
where organized or where its principal executive office is located.

          (c) There shall have been  delivered to the  Administrative  Agent for
the benefit of each Lender a certificate dated the Closing Date and signed by an
Authorized Officer of the Company containing calculations in detail satisfactory
to the  Administrative  Agent showing the Fixed Charge  Coverage Ratio as of the
end of the most recently ended Fiscal Quarter and the Consolidated  Tangible Net
Worth as of the Closing Date.

          (d) The  Agreement and the other Loan  Documents  shall have been duly
executed  and  delivered  to the  Administrative  Agent for the  benefit  of the
Lenders.

          (e)  There  shall be  delivered  to the  Administrative  Agent for the
benefit of each Lender a written opinion of Dickinson, Wright, Moon, Van Dusen &
Freeman,  counsel for the Borrowers  and the  Guarantors,  a written  opinion of
Baker &  McKenzie,  U.K.  counsel to the  Borrowers  and the  Guarantors,  and a
written  opinion of the General  Counsel of the Company,  dated the Closing Date
and in form and substance satisfactory to the Agents and their counsel:

               (i) as to the matters set forth in Exhibit 6.01(e)(i); and

               (ii)  as to  such  other  matters  incident  to the  transactions
contemplated herein as the Agents may reasonably request.

          (f)  All  legal  details  and   proceedings  in  connection  with  the
transactions contemplated by the Agreement and the other Loan Documents shall be
in form and substance  satisfactory to the Administrative  Agent and counsel for
the Administrative  Agent, and the Administrative  Agent shall have received all
such other counterpart  originals or certified or other copies of such documents
and  proceedings  in connection  with such  transactions,  in form and substance
satisfactory to the Administrative Agent and said counsel, as the Administrative
Agent or said counsel may reasonably request.

          (g) The Borrowers shall pay or cause to be paid to the  Administrative
Agent  for  itself  and for the  account  of the  Lenders  (to  the  extent  not
previously  paid) the Fees, and all other fees accrued  through the Closing Date
and the costs and  expenses for which the Agents and the Lenders are entitled to
be reimbursed.

          (h) All material  consents  required to  effectuate  the  transactions
contemplated hereby as set forth on Schedule 5.01(m) shall have been obtained.

          (i) The making of the Loans shall not contravene any Law applicable to
any Borrower, any Agent or any of the Lenders.

          (j) No action,  proceeding,  investigation,  regulation or legislation
shall  have  been   instituted,   threatened  or  proposed   before  any  court,
governmental agency or legislative body to enjoin,  restrain or prohibit,  or to
obtain  damages  in  respect  of  this  Agreement  or  the  consummation  of the
transactions  contemplated  hereby or which, in the Administrative  Agent's sole
discretion,   would  make  it  inadvisable   to  consummate   the   transactions
contemplated by this Agreement or any of the other Loan Documents.

          (k) The Lenders  shall have received  copies of the Annual  Statements
and the  Interim  Statements  each in form  and  substance  satisfactory  to the
Lenders.

          (l) The Administrative Agent shall have received a copy of a letter to
the Company from the independent  certified public  accountants of the Borrowers
acknowledging  that the Company has advised such accountants that the Agents and
the  Lenders  are  relying on the  financial  statements  of the Company and its
Subsidiaries and such accountants' audit reports thereon.

          (m) The  Administrative  Agent shall have received a duly executed and
completed Loan Request for any Loans to be advanced on the Closing Date.

          (n) The Administrative  Agent shall have received such other documents
as any Lender or its counsel may have reasonably requested.

     6.02 Each  Additional  Loan. At the time of making any Loans other than any
Loans  made on the  Closing  Date  hereunder,  and  after  giving  effect to the
proposed  borrowings:  the  representations  and  warranties  of  the  Borrowers
contained in Article V shall be true on and as of the date of such Loan with the
same effect as though such  representations  and warranties had been made on and
as of such date (except  representations  and warranties  which expressly relate
solely to an earlier date or time, which representations and warranties shall be
true and correct on and as of the specific  dates or times referred to therein);
no Event of Default or Potential  Default  shall have occurred and be continuing
or shall exist; the making of such Loans shall not contravene any Law applicable
to the Company or any of its Subsidiaries,  any Agent or any of the Lenders; the
Company  shall have  delivered to the  Administrative  Agent a duly executed and
completed Loan Request.

     6.03 Subsequent  Effective Date. On the Subsequent Effective Date and prior
to the Lenders making any Loans to UK Superstore:

          (a)  There  shall be  delivered  to the  Administrative  Agent for the
benefit of each  Lender a letter  agreement  from UK  Superstore  agreeing to be
bound by this  Agreement  as a Borrower  (but not as a  Guarantor)  and a letter
agreement  from each  Subsidiary of UK  Superstore  agreeing to be bound by this
Agreement as a Guarantor only in respect of the obligations of UK Superstore.

          (b) The  representations  and  warranties  of  each  of the  Borrowers
contained in Article V shall be true and accurate  with respect to UK Superstore
on and as of the  Subsequent  Effective Date with the same effect as though such
representations  and  warranties  had been made on and as of such  date  (except
representations  and warranties  which relate solely to an earlier date or time,
which  representations and warranties shall be true and correct on and as of the
specific dates or times  referred to therein);  no Event of Default or Potential
Default  under this  Agreement  shall have  occurred and be  continuing or shall
exist; and there shall be delivered to the Administrative  Agent for the benefit
of each Lender a certificate  of UK Superstore,  dated the Subsequent  Effective
Date and signed by an Authorized Officer of UK Superstore, to each such effect;

          (c)  There  shall be  delivered  to the  Administrative  Agent for the
benefit of each Lender a certificate  dated the  Subsequent  Effective  Date and
signed by the Secretary or an Assistant  Secretary of UK Superstore,  certifying
as appropriate as to:

               (i) all  corporate  action taken by UK  Superstore  in connection
with this Agreement and the other Loan Documents  (which shall include copies of
all Board of Directors and stockholder resolutions);

               (ii) the names of the officer or officers authorized to sign this
Agreement and the other Loan  Documents and the true  signatures of such officer
or officers and specifying the Authorized Officers permitted to act on behalf of
UK Superstore  for purposes of this  Agreement  and the true  signatures of such
officers,  on which the  Administrative  Agent and each Lender may  conclusively
rely; and

               (iii)  copies  of its  organizational  documents,  including  its
certificate of incorporation and bylaws (or equivalent  thereof) as in effect on
the Subsequent  Effective Date certified by the appropriate  government official
where such documents are filed in a government office together with certificates
from the appropriate government officials as to the continued existence and good
standing of UK  Superstore  in the  jurisdiction  where  organized  or where its
principal executive office is located.

          (d)  There  shall be  delivered  to the  Administrative  Agent for the
benefit of each Lender a written opinion of Dickinson, Wright, Moon, Van Dusen &
Freeman,  counsel for the Borrowers  and the  Guarantors,  a written  opinion of
Baker &  McKenzie,  U.K.  counsel to the  Borrowers  and the  Guarantors,  and a
written  opinion of the General  Counsel of the  Company,  dated the  Subsequent
Effective  Date and in form and  substance  satisfactory  to the  Administrative
Agent and its counsel:

               (i) as to the matters set forth in Exhibit 6.01(e)(i); and

               (ii)  as to  such  other  matters  incident  to the  transactions
contemplated herein as the Administrative Agent may reasonably request.

          (e)  All  legal  details  and   proceedings  in  connection  with  the
transactions contemplated by the Agreement and the other Loan Documents shall be
in form and substance  satisfactory to the Administrative  Agent and its counsel
and the  Administrative  Agent shall have  received  all such other  counterpart
originals  or certified or other copies of such  documents  and  proceedings  in
connection  with such  transactions,  in form and substance  satisfactory to the
Administrative  Agent  and said  counsel,  as the  Administrative  Agent or said
counsel may reasonably request.

          (f) The making of the Loans shall not contravene any Law applicable to
UK Superstore, any Agent, the Issuing Bank or any of the Lenders.

          (g) The  Administrative  Agent shall have received a duly executed and
completed  Loan  Request for any Loans to be advanced  to UK  Superstore  on the
Subsequent Effective Date.

          (h) The Administrative  Agent shall have received such other documents
as any Lender or its counsel may have reasonably requested.


                                   ARTICLE VII
                                   COVENANTS

     7.01 Affirmative Covenants. The Borrowers, jointly and severally,  covenant
and  agree  that  until  payment  in full of the  Loans  and  interest  thereon,
satisfaction of all of the Borrowers'  Obligations  under the Loan Documents and
termination of the Commitments, the Borrowers shall comply at all times with the
following affirmative covenants:

          (a)  Preservation of Existence,  etc. Each Borrower  shall,  and shall
cause each of its  Subsidiaries  to maintain  its  corporate  existence  and its
license or  qualification  and good standing in each  jurisdiction  in which its
ownership or lease of property or the nature of its business  makes such license
or  qualification   necessary;   provided  that  (i)  Borrowers  may  engage  in
transactions permitted by Section 7.02(f), and (ii) with respect to Subsidiaries
of the Borrowers (other than Borrowers  themselves),  such Subsidiaries may fail
to do so to the extent that such failure  individually or in the aggregate could
not reasonably be expected to have a Material Adverse Effect.

          (b) Payment of Liabilities, Including Taxes, etc. Each Borrower shall,
and  shall  cause  each of its  Subsidiaries  to,  duly  pay and  discharge  all
liabilities to which it is subject or which are asserted against it, promptly as
and when the same shall become due and payable, including all taxes, assessments
and  governmental  charges upon it or any of its Properties,  income or profits,
prior to the date on which penalties  attach thereto,  except to the extent that
such liabilities,  including taxes,  assessments or charges, are being contested
in good faith and by appropriate and lawful proceedings diligently conducted and
for which such  reserve or other  appropriate  provisions,  if any,  as shall be
required by GAAP shall have been made,  and except to the extent that failure to
discharge  any such  liabilities  individually  or in the  aggregate  could  not
reasonably  be expected to have a Material  Adverse  Effect;  provided  that the
Borrowers and their  Subsidiaries  will pay all such liabilities  forthwith upon
the commencement of proceedings to foreclose any Lien which may have attached as
security therefor.

          (c)  Maintenance of Insurance.  Each Borrower  shall,  and shall cause
each of its  Subsidiaries  to, insure its  Properties  against loss or damage by
fire and such other  insurable  hazards  as such  assets  are  commonly  insured
(including fire,  extended  coverage,  property damage,  worker's  compensation,
public  liability and business  interruption  insurance) and against other risks
(including  errors and  omissions)  in such  amounts as similar  properties  and
assets are insured by prudent  companies  in similar  circumstances  carrying on
similar businesses, and with reputable and financially sound insurers, including
self-insurance  to the extent  customary,  all as  reasonably  determined by the
Administrative  Agent. At the request of the  Administrative  Agent, the Company
shall deliver from time to time a summary schedule indicating all insurance then
in force with respect to each of the Borrowers.

          (d) Maintenance of Properties.  Each Borrower  shall,  and shall cause
each  of its  Subsidiaries  to,  maintain  in good  repair,  working  order  and
condition  (ordinary  wear and tear  excepted)  in  accordance  with the general
practice of other businesses of similar  character and size, all Property useful
or necessary to its  business,  and from time to time,  each such  Borrower will
make or cause to be made  all  appropriate  repairs,  renewals  or  replacements
thereof  except to the extent that the failure to do so  individually  or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.

          (e) Maintenance of Patents,  Trademarks, etc. Each Borrower shall, and
shall cause each of its  Subsidiaries  to, maintain in full force and effect all
patents, trademarks, trade names, copyrights,  licenses, franchises, permits and
other authorizations necessary for the ownership and operation of its properties
and  business,  except to the extent that the  failure so to  maintain  the same
individually  or in the  aggregate  could not  reasonably  be expected to have a
Material Adverse Effect.

          (f) Visitation  Rights.  Each Borrower shall,  and shall cause each of
its  Subsidiaries  to,  permit any of the  officers or  authorized  employees or
representatives of the  Administrative  Agent or any of the Lenders to visit and
inspect any of its  properties  and to examine and make  excerpts from its books
and records and discuss its business  affairs,  finances  and accounts  with its
officers,  all in such  detail  and at such  times  and as  often  as any of the
Lenders may  reasonably  request.  Each Lender shall provide the Company and the
Administrative  Agent with  reasonable  notice prior to any visit or inspection;
provided that no such notice shall be required  after the  occurrence and during
the continuation of a Potential Default or an Event of Default. In the event any
Lender  desires to conduct an audit of any  Borrower,  such Lender  shall make a
reasonable effort to conduct such audit  contemporaneously  with any audit to be
performed by the Administrative Agent.

          (g) Keeping of Records and Books of Account.  The Company  shall,  and
shall cause each Subsidiary of the Company to, maintain and keep proper books of
record and  account  which  enable the  Company  and its  Subsidiaries  to issue
financial  statements  in  accordance  with GAAP and as  otherwise  required  by
applicable Laws or any Official Body having jurisdiction over the Company or any
Subsidiary of the Company,  and in which full, true and correct entries shall be
made in all material  respects of all its  dealings  and business and  financial
affairs. (h) Plans and Benefit Arrangements . The Company shall, and shall cause
each of its  Subsidiaries  to, comply with ERISA,  the Internal Revenue Code and
other applicable Laws applicable to Benefit Arrangements except where failure to
comply individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect. Without limiting the generality of the foregoing, the
Company  shall make,  and cause each of its  Subsidiaries  to make,  in a timely
manner, all contributions due to Benefit Arrangements.

          (h) Plans and Benefit Arrangements. The Company shall, and shall cause
each of its  Subsidiaries  to, comply with ERISA,  the Internal Revenue Code and
other applicable Laws applicable to Befefit Arrangements except where failure to
comply individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect. Without limiting the generality of the foregoing, the
Company  shall make,  and cause each of its  Subsidiaries  to make,  in a timely
manner, all contributions due to Benefit Arrangements.

          (i) Compliance with Laws. Each Borrower shall, and shall cause each of
its   Subsidiaries   to,  comply  with  all  applicable   Laws,   including  all
Environmental Laws, in all respects,  provided that it shall not be deemed to be
a violation of this Section  7.01(i) if any failure to comply with any Law would
not result in fines, penalties,  remediation costs, other similar liabilities or
injunctive  relief which  individually or in the aggregate  could  reasonably be
expected to have a Material Adverse Effect.

          (j) Use of Proceeds.  The Borrowers will use the proceeds of the Loans
only for seasonal working capital and general corporate purposes,  and Purchases
and  Investments  as  permitted  by this  Agreement,  and such  uses  shall  not
contravene  any applicable Law or any other  provision  thereof.  No part of the
proceeds  of any Loan has been or will be  used,  immediately,  incidentally  or
ultimately,  to purchase or carry any margin  stock  (other than common stock of
the Company  repurchased in accordance with Section 7.02(e)) or to extend credit
to others for the  purpose of  purchasing  or  carrying  any margin  stock or to
refund  Indebtedness  originally  incurred for such purpose,  or for any purpose
which entails a violation of or which is inconsistent with the provisions of the
regulations  of the Board of Governors of the Federal  Reserve  System.  No more
than 25% of the  reasonable  value of the  assets of the  Company  or any of its
Subsidiaries  will be represented by margin stock.  The Borrowers  shall not use
any portion of the proceeds of the Loans,  directly or indirectly  (i) knowingly
to purchase any Ineligible  Securities  from a Section 20 Subsidiary  during any
period in which such  Section 20  Subsidiary  makes a market in such  Ineligible
Securities,  (ii)  knowingly to purchase  during the  underwriting  or placement
period Ineligible Securities being underwritten or privately placed by a Section
20 Subsidiary,  or (iii) to make payments of principal or interest on Ineligible
Securities  underwritten  or privately  placed by as Section 20  Subsidiary  and
issued by or for the benefit of any Borrower or any Affiliate of any Borrower.

          (k)   Subsequent   Credit   Terms.   The  Company   shall  notify  the
Administrative  Agent in writing not less than ten (10)  Business  Days prior to
any Borrower entering into any credit agreement or any amendment or modification
to  any  existing  credit  agreement  in  either  case  as  otherwise  permitted
hereunder, pursuant to which any Borrower agrees to representations,  warranties
or covenants which are more restrictive, as determined in the sole discretion of
the  Administrative  Agent,  than the  representations,  warranties or covenants
hereof  (the "More  Restrictive  Provisions").  Upon the  execution  of such new
credit agreement,  amendment or modification, the corresponding covenants, terms
and  conditions  of  this  Agreement   shall  be  and  shall  be  deemed  to  be
automatically  and  immediately  amended  to  conform  with and to  include  the
applicable More Restrictive  Provisions of such new credit agreement,  amendment
or modification;  provided,  that the foregoing shall not be applicable to or be
deemed to affect any  provision of this  Agreement if any new credit  agreement,
amendment or  modification  is less  restrictive.  Each of the Borrowers  hereby
agrees  promptly  to  execute  and  deliver  any  and  all  such  documents  and
instruments  and to take all such further  actions as the  Administrative  Agent
may, in its sole  discretion,  deem  necessary or  appropriate to effectuate the
provisions of this Section 7.01(k).

          (l) Subsidiary  Guaranties.  If (i) any Restricted  Subsidiary's total
assets  determined  in  accordance  with GAAP at the end of any  Fiscal  Quarter
constitute  more than 10% of Consolidated  Tangible Net Worth  determined at the
end of such  Fiscal  Quarter  or (ii) any  Restricted  Subsidiary's  net  income
determined in accordance  with GAAP for any rolling four Fiscal  Quarter  period
exceeds  10% of  Consolidated  Net Income  for such four  Fiscal  Quarters,  the
Company  shall  cause  such  Restricted  Subsidiary  to agree to be bound by the
provisions  of Article  VIII  hereof and to execute a letter  agreement  to such
effect in form and substance  satisfactory  to the  Administrative  Agent and to
deliver  such  legal  opinions  and  other  documents  and  instruments  as  the
Administrative Agent may request.

          (m) Clean Down.  During the period  beginning on the last Business Day
in December and ending 60 days  thereafter  each year (the "Clean Down Period"),
the  Borrowers  shall cause the aggregate  amount of Revolving  Credit Loans and
Swing Loans outstanding to be $0. Notwithstanding the foregoing,  in calculating
the  Revolving  Credit  Loans  outstanding  during  any Clean Down  Period,  the
Borrowers may exclude any Revolving Credit Loans made to Books Holding,  Borders
(UK) and, after the Subsequent  Effective Date, UK Superstore only to the extent
the  Commitments  (as defined in the Prior  Credit  Agreement)  exceed the Total
Facility Usage (as defined in the Prior Credit Agreement) under the Prior Credit
Agreement.

     7.02 Negative Covenants. The Borrowers, jointly and severally, covenant and
agree that until payment in full of the Loans and interest thereon, satisfaction
of all of the Borrowers' Obligations under the Loan Documents and termination of
the  Commitments,  the  Borrowers  shall comply at all times with the  following
negative covenants:

          (a)  Indebtedness.  Each of the  Borrowers  shall  not,  and shall not
permit any of its Subsidiaries to, at any time create,  incur,  assume or suffer
to exist any Indebtedness, except:

               (i) Indebtedness under the Loan Documents;

               (ii)  Indebtedness  existing on the Closing  Date as set forth on
Schedule 7.02(a) (including any extensions or renewals thereof provided there is
no  increase  in the  amount  thereof or other  significant  change in the terms
thereof unless otherwise specified on Schedule 7.02(a));

               (iii) Capitalized Lease Obligations;

               (iv) interest rate swap, cap, collar or floor agreements or other
interest  rate  management  devices  with any Lender,  referencing  an aggregate
notional amount not to exceed,  based on the reasonable business judgment of the
Company,   the  maximum  principal  amount   outstanding  at  any  time  of  all
Indebtedness of the Company and its Subsidiaries on a consolidated basis plus an
amount  equal to 50% of  Capitalized  Rent  Expense,  with  such  interest  rate
management  devices to be entered  into for  hedging  purposes  only and not for
speculation;

               (v) Indebtedness secured by Purchase Money Security Interests, so
long as the amount of such  Indebtedness  does not exceed the purchase  price of
the property which is subject to such Purchase Money Security Interests;

               (vi)  Indebtedness  of  an  Unrestricted  Subsidiary  which  is a
Domestic  Subsidiary  to  another  Unrestricted  Subsidiary  which is a Domestic
Subsidiary or to the Company;

               (vii)  Indebtedness of the Company to an Unrestricted  Subsidiary
which is a Domestic Subsidiary so long as such Indebtedness is unsecured;

               (viii)  Contingent  Obligations  as and to the  extent  permitted
under Section 7.02(c);

               (ix) Indebtedness of the Company and its Domestic Subsidiaries in
addition to Indebtedness  otherwise permitted by clause (i) to (viii) above with
an aggregate principal Dollar Equivalent amount outstanding not to exceed 20% of
Consolidated  Tangible  Net Worth  (determined  as of the last day of the Fiscal
Quarter most recently ended);

               (x) unsecured  Indebtedness of Foreign Subsidiaries which are not
Borrowers with an aggregate  principal Dollar Equivalent amount  outstanding not
to  exceed  (A)  $10,000,000  in the  first  or  second  Fiscal  Quarter  or (B)
$20,000,000 in the third or fourth Fiscal Quarter; or unsecured  Indebtedness of
one Foreign Subsidiary to another Foreign Subsidiary;

               (xi) Permitted Sutro Refinancing Indebtedness, so long as (A) the
aggregate principal amount of any such Indebtedness  outstanding does not exceed
$36,000,000,  (B)  the  aggregate  principal  amount  of any  such  Indebtedness
incurred,  at the date of  incurrence,  is at least 85% of the face value of the
amount of "Notes" (as defined in the Note Put  Agreements)  purchased by Borders
as  required  by  Section  2.2 of the  Note  Purchase  Agreements,  (C) any such
Indebtedness is incurred no sooner than the relevant  "Tenant Purchase Date" (as
defined in the Note Put  Agreements),  (D) the  representations,  warranties and
covenants  contained in the documentation  with respect to any such Indebtedness
are no more  restrictive,  as  determined  in the  reasonable  discretion of the
Administrative Agent, than the representations,  warranties or covenants hereof,
(E) the  maturity of any such  Indebtedness  is not less than two years from the
date of incurrence,  and (F) on or before the date of incurrence,  the Borrowers
shall have delivered to the Lenders pro forma financial statements,  in form and
substance  satisfactory  to the Lenders,  showing that,  during the term of such
Indebtedness,  based on reasonable  projections of the financial  performance of
the  Borrowers,  the Borrowers  will not be in violation of any of the financial
covenants contained in Section 7.02;

               (xii)  Indebtedness  of the Borrowers  under the Lease  Financing
Guarantee, so long as the conditions specified in Section 7.02(c)(vii) have been
satisfied,   or  any  refinancing  of  any  or  all  of  such   Indebtedness  on
substantially  the terms described in Section 21.1 of the Form of Lease attached
as Exhibit G to the Participation Agreement; and

               (xiii) Indebtedness under the Prior Credit Agreement.

          (b) Liens.  Each of the Borrowers  shall not, and shall not permit any
of its Subsidiaries to, at any time create, incur, assume or suffer to exist any
Lien on any of its Property now owned or hereafter acquired,  or agree or become
liable to do so, except Permitted Liens.

          (c) Contingent Obligations. Each of the Borrowers shall not, and shall
not permit any of its  Subsidiaries  to, at any time,  directly  or  indirectly,
become or be liable in respect of any Contingent Obligations, except for:

               (i)  Contingent  Obligations  of the Company or any  Unrestricted
Subsidiary  which is a Domestic  Subsidiary  in respect  of  obligations  of the
Company or any Unrestricted Subsidiary which is a Domestic Subsidiary;

               (ii) Permitted Lease  Contingent  Obligations,  provided that the
portion of all such Permitted  Lease  Contingent  Obligations  which  constitute
current liabilities determined and consolidated in accordance with GAAP (whether
such amounts are fixed or percentage rent, fees, costs,  accelerated payments or
otherwise),  shall not exceed Fifteen Million Dollars  ($15,000,000)  at any one
time;

               (iii)  Contingent   Obligations   arising  by  operation  of  any
applicable law which  individually  or in the aggregate  could not reasonably be
expected to have Material Adverse Effect;

               (iv)  any  Contingent  Obligations  arising  under  the  Note Put
Agreements;

               (v) any Contingent  Obligations arising under any computer leases
with  respect to which Kmart is the lessee and any of the  Borrowers is the user
of such computer equipment;

               (vi) any  Contingent  Obligations  arising under any of the Kmart
Agreements;

               (vii)  Contingent  Obligations  arising under the Lease Financing
Guarantee,   provided,   however,   that  the  aggregate  amount  of  Contingent
Obligations permitted thereunder shall not exceed $250,000,000;

               (viii)  Contingent  Obligations  constituting  a Permitted  Joint
Venture Activity, provided no Event of Default or Potential Default has occurred
and is continuing or would result therefrom and subject to Section 7.02(u);

               (ix) Contingent  Obligations  constituting a Permitted Restricted
Subsidiary  Activity,  provided  no Event of Default or  Potential  Default  has
occurred  and is  continuing  or would result  therefrom  and subject to Section
7.02(u);

               (x)  Contingent  Obligations  of the Company or any  Unrestricted
Subsidiary  which is a Domestic  Subsidiary in respect of all obligations of any
Unrestricted  Subsidiary  which  is a  Foreign  Subsidiary  or any  wholly-owned
Restricted Subsidiary which is a Foreign Subsidiary,  other than operating lease
obligations, subject to Section 7.02(u);

               (xi)  Contingent  Obligations of the Company or any  Unrestricted
Subsidiary  which  is a  Domestic  Subsidiary  in  respect  of  operating  lease
obligations of any Unrestricted  Subsidiary which is a Foreign Subsidiary or any
wholly-owned Restricted Subsidiary which is a Foreign Subsidiary;  provided that
the  portion  of all  such  Contingent  Obligations  which  constitutes  current
liabilities  determined and  consolidated  in accordance with GAAP is limited to
lease payments  (whether such amounts are fixed or percentage rent, fees, costs,
accelerated  payments or otherwise) not in excess of an aggregate of $50,000,000
in any Fiscal  Year with  respect  to all  Unrestricted  Subsidiaries  which are
Foreign Subsidiaries and wholly-owned  Restricted Subsidiaries which are Foreign
Subsidiaries; and

               (xii) Contingent Obligations of any Unrestricted Subsidiary which
is a Foreign  Subsidiary  in respect  of  obligations  of  another  Unrestricted
Subsidiary which is a Foreign Subsidiary.

          (d) Loans and Investments.  Each of the Borrowers shall not, and shall
not  permit  any of its  Subsidiaries  to,  at any time make or suffer to remain
outstanding  any loan or  advance  to, or  purchase,  acquire  or own any stock,
bonds,  notes or securities of, or any partnership  interest (whether general or
limited)  in, or any  other  investment  or  interest  in,  or make any  capital
contribution to, any other Person,  or agree,  become or remain liable to do any
of the foregoing (collectively, "Investments"), except:

               (i) trade  credit  extended on usual and  customary  terms in the
ordinary course of business;

               (ii)  advances to  employees  to meet  expenses  incurred by such
employees in the ordinary course of business;

               (iii) Permitted Investments;

               (iv)  Investments by the Company in any  Unrestricted  Subsidiary
which is a Domestic  Subsidiary  or by any  Unrestricted  Subsidiary  which is a
Domestic  Subsidiary  in the Company or an  Unrestricted  Subsidiary  which is a
Domestic Subsidiary, so long as any loans or advances are unsecured;

               (v)  Investments  by the Company or any  Unrestricted  Subsidiary
which is a Domestic Subsidiary in any Unrestricted Subsidiary which is a Foreign
Subsidiary, so long as any loans or advances are unsecured;  provided,  however,
that  any such  Investments  permitted  by this  clause  (v)  plus  any  Foreign
Purchases pursuant to clause (viii) below may not exceed in the aggregate 15% of
Consolidated  Tangible  Net Worth  (determined  as of the last day of the Fiscal
Quarter most recently ended) and subject to Section 7.02(u);

               (vi) Domestic  Purchases  (a) so long as no Potential  Default or
Event of Default has occurred and is continuing or would result  therefrom,  (b)
so long as the  assets or  business  subject  to such  Domestic  Purchase  is in
substantially  the same or a similar  type of  business  as the  Company and its
Subsidiaries, (c) so long as the Board of Directors of any Person to be acquired
has approved the terms of the Purchase,  and (d) so long as the Company delivers
to the  Lenders  on or  before  the date on which it or any of its  Subsidiaries
agrees to or consummates any Domestic  Purchase pro forma financial  statements,
in form and substance  satisfactory to the Administrative Agent, showing that no
Event of  Default  or  Potential  Event of Default  will  occur  under  Sections
8.02(o), (p) or (q) over the 12 month period following the effective date of the
Purchase,  based on reasonable  projections of the financial  performance of the
Borrowers;

               (vii) Foreign  Purchases  (a) so long as no Potential  Default or
Event of Default has occurred and is continuing or would result  therefrom,  (b)
so long as the  assets  or  business  subject  to such  Foreign  Purchase  is in
substantially  the same or a similar  type of  business  as the  Company and its
Subsidiaries, (c) so long as the Board of Directors of any Person to be acquired
has approved  the terms of the Foreign  Purchase,  (d) so long as the  aggregate
purchase  amount  payable in cash for all Foreign  Purchases  permitted  by this
clause (viii) plus all Investments  pursuant to clause (v) above does not exceed
15% of  Consolidated  Tangible Net Worth  (determined  as of the last day of the
Fiscal Quarter most recently ended) and subject to Section  7.02(u);  and (e) so
long as the Company delivers to the Lenders on or before the date on which it or
any of its Subsidiaries  agrees to or consummates any Foreign Purchase pro forma
financial statements,  in form and substance  satisfactory to the Administrative
Agent, showing that no Event of Default or Potential Event of Default will occur
under  Sections  7.02(o),  (p) or (q)  over the 12 month  period  following  the
effective date of the Purchase, based on reasonable projections of the financial
performance of the Borrowers;

               (viii) loans and advances,  in addition to those  permitted under
Section 7.02(d)(ii), to employees in an aggregate principal amount not to exceed
$10,000,000;

               (ix) Investments constituting Permitted Joint Venture Activities,
provided no Event of Default or Potential Default has occurred and is continuing
or would result  therefrom and subject to Section  7.02(u),  and for purposes of
this clause (ix) Section  7.02(d) the reference to "Domestic  Subsidiary" in the
definition of Permitted  Joint  Venture  Activity  shall include any  Subsidiary
organized  under the laws of Canada or any  province  thereof;  (x)  Investments
constituting  Permitted Restricted Subsidiary  Activities,  provided no Event of
Default or  Potential  Default has occurred  and is  continuing  or would result
therefrom and subject to Section 7.02(u);

               (xi) repurchases of the Company's common stock in accordance with
Section 7.02(e); and

               (xii)  Investments by one Foreign  Subsidiary in another  Foreign
Subsidiary.

          (e)  Dividends and Related  Distributions.  The Company shall not, and
shall not permit any of its  Subsidiaries to, make or pay, or agree to become or
remain liable to make or pay, any dividend or other  distribution  of any nature
(whether in cash, property, securities or otherwise) on account of or in respect
of its shares of capital  stock or  partnership  interests  or on account of the
purchase,  redemption,  retirement or acquisition of its shares of capital stock
(or  warrants,  options  or rights  therefor)  (collectively,  "Distributions"),
except:

               (i) the Company may make open market repurchases of shares of its
common  stock,  and it may receive  shares of its common stock as payment of the
exercise price of options,  or as payment of taxes  associated with the exercise
of options or the vesting of restricted shares,  which such delivered shares are
deemed to be  repurchased by the Company at fair market value (as defined in the
Company's stock option plan) on the date of delivery to the Company,  so long as
the  aggregate  amount paid by the Company with respect to all such  repurchases
(including  all  such  deemed  repurchases)  does  not at any  time  exceed  the
Repurchase  Amount  in  effect  from  time to time and no Event  of  Default  or
Potential Default has occurred and is continuing or would result therefrom;

               (ii) the Company may engage in stock  splits  (including  reverse
stock splits) or pay dividends in stock;

               (iii)  Wholly-owned  Subsidiaries  may make  Distributions to the
Company or another Wholly-owned Subsidiary;

               (iv) Subsidiaries  other than Wholly-owned  Subsidiaries may make
Distributions so long as (a) the aggregate  amount of Distributions  made by any
such  Subsidiary  to any Person  other than the Company or a  Subsidiary  of the
Company in any Fiscal Year does not exceed 50% of such  Person's  pro rata share
(based  on the  percentage  of  stock or other  equity  interests  owned by such
Person) of such  Subsidiary's  net income for such Fiscal Year as  determined in
accordance  with  GAAP and (b) no later  than  ten (10)  days  prior to any such
Distribution, the Company shall have given written notice to the Lenders and the
Agents thereof, together with calculations  demonstrating that such Distribution
complies with this clause (iv); and

               (v) the Company may pay dividends on its preferred  stock so long
as the dividend  rate on such  preferred  stock  (after  taking into account all
other  fees and  amounts  payable  on such  preferred  stock)  is less  than the
interest rate payable on the Loans.

          (f) Liquidations, Mergers, Consolidations. Each of the Borrowers shall
not, and shall not permit any of its  Subsidiaries  to,  dissolve,  liquidate or
wind-up its affairs, or become a party to any merger or consolidation,  provided
that any Borrower (other than the Company) may consolidate or merge into another
Borrower  and any  Subsidiary  of a Borrower may  consolidate  or merge into any
Borrower  or any  Wholly-owned  Subsidiary  of a  Borrower  so  long  as (i) the
Borrower or a  Wholly-owned  Subsidiary  is the  surviving  corporation  of such
consolidation  or merger and (ii) no Event of Default shall have occurred and be
continuing or result therefrom.

          (g)  Dispositions  of Assets or  Subsidiaries  . Each of the Borrowers
shall not,  and shall not  permit  any of its  Subsidiaries  to,  sell,  convey,
assign,  lease,  abandon or  otherwise  transfer or dispose of,  voluntarily  or
involuntarily,  any of its Property  (including  sale,  assignment,  discount or
other  disposition of accounts,  contract  rights,  chattel paper,  equipment or
general  intangibles  with or without  recourse or any shares of capital  stock,
shares of beneficial  interest or partnership  interests of a Subsidiary of such
Borrower), except:

               (i) transactions  involving the sale of inventory in the ordinary
course of business;

               (ii) any sale,  transfer or lease of Property,  including without
limitation any store  closures,  in the ordinary course of business which are no
longer  necessary or required in the conduct of the  Borrower's or  Subsidiary's
business;

               (iii) any sale or transfer  of Property in order to  concurrently
or  subsequently  lease  as  lessee  such  Property,  so long as such  sale  and
leaseback occurs in the ordinary course of business;

               (iv) any sale,  transfer or lease of Property,  by any Subsidiary
of an  Unrestricted  Subsidiary  to such  Unrestricted  Subsidiary or to another
Unrestricted Subsidiary which is a Domestic Subsidiary;

               (v) any  sale,  transfer  or lease of  Property  in the  ordinary
course of business which is replaced by substitute Property; and

               (vi) any transfers to Kmart of  "Premises"  pursuant to the Kmart
Indemnity  (as such term is defined  therein) if and to the extent that any such
transfer does not cause an Event of Default under Section 9.01(f) hereof.

          (h) Affiliate Transactions. Each of the Borrowers shall not, and shall
not permit any of its  Subsidiaries  to, enter into or carry out any transaction
(including  purchasing property or services from or selling property or services
to any Affiliate of any Borrower (other than another  Borrower) or other Person)
unless such transaction (i) is not otherwise prohibited by this Agreement,  (ii)
is entered  into in the  ordinary  course of business  upon fair and  reasonable
arm's-length   terms  and   conditions   which  are  fully   disclosed   to  the
Administrative Agent and (iii) is in accordance with all applicable Law.

          (i)  Subsidiaries,  Partnerships  and  Joint  Ventures.  Each  of  the
Borrowers shall not, and shall not permit any of its  Subsidiaries to, become or
agree to become a general or limited  partner,  joint  venturer or member in any
partnership,  joint venture or limited  liability  company,  as the case may be,
provided  that the Company or any of its  Wholly-owned  Subsidiaries  may own or
create (A) any Wholly-owned Subsidiary, (B) any Unrestricted Subsidiary, (C) any
Restricted  Subsidiary  so long as (1) the  aggregate  of all  Purchases  by the
Company  and  its  Subsidiaries  of or  Investments  in or  to  such  Restricted
Subsidiary is otherwise permitted by this Agreement,  and (2) no such Restricted
Subsidiary  shall have  Indebtedness  which is recourse to or  guaranteed by the
Company or any of its  Subsidiaries  except as  otherwise  permitted  under this
Agreement  and (D) any Foreign Joint Venture so long as (1) the aggregate of all
Purchases by the Company and its  Subsidiaries  of or Investments by the Company
and its Subsidiaries in or to any such Joint Ventures is otherwise  permitted by
this Agreement,  and (2) no such Joint Venture shall have Indebtedness  which is
recourse to or  guaranteed by the Company or any of its  Subsidiaries  except as
otherwise permitted by this Agreement.

          (j) Continuation of or Change in Business. Each of the Borrowers shall
not,  and shall not permit any of its  Subsidiaries  to,  engage in any business
other than (a) with respect to the  Borrowers,  substantially  as conducted  and
operated by such Person  during the Fiscal Year 1997 and (b) with respect to any
Subsidiary of a Borrower,  substantially as conducted and operated by a Borrower
or in a  business  reasonably  incidental  and  complementary  thereto  or in an
education-related retail business.

          (k) Plans and Benefit  Arrangements.  Each of the Borrowers shall not,
and shall not permit any of its Subsidiaries to:

               (i) adopt,  sponsor,  maintain or make contributions to any Plan,
any  Multiemployer  Plan,  any Multiple  Employer Plan or except as set forth on
Schedule 5.01(t), any Benefit Arrangement that provides benefits to retirees; or

               (ii)  engage  in  a  Prohibited   Transaction  with  any  Benefit
Arrangement which,  alone or in conjunction with any other  circumstances or set
of  circumstances  resulting  in liability  under  ERISA,  would have a Material
Adverse Effect.

          (l) Fiscal Year. Each of the Borrowers shall not, and shall not permit
any of its Subsidiaries to, change its Fiscal Quarter or change its Fiscal Year.

          (m) Issuance of Stock.  Each of the Borrowers  (other than the Company
and any  Unrestricted  Subsidiary)  shall  not,  and shall not permit any of its
Subsidiaries  (other than  Unrestricted  Subsidiaries)  to, issue any additional
shares of its capital stock or any options,  warrants or other rights in respect
thereof,  except  to the  Company  or  any  Wholly-owned  Subsidiary,  provided,
however,  that the  Company  shall not  issue any  preferred  stock  unless  the
dividend rate thereon is permitted by Section 7.02(e)(v).

          (n) Changes in Organizational  Documents.  Each of the Borrowers shall
not, and shall not permit any of its  Subsidiaries  to, amend in any respect its
certificate of incorporation  (including any provisions or resolutions  relating
to capital stock),  by-laws or other organizational  documents in the event such
change would be adverse to the Lenders.

          (o) Minimum  Fixed Charge  Coverage  Ratio.  The  Borrowers  shall not
permit the Fixed Charge Coverage Ratio,  calculated as of the end of each Fiscal
Quarter for the previous four Fiscal  Quarters then ended,  to be less than 1.50
to 1.0.

          (p)  Maximum  Leverage  Ratio.  The  Borrowers  shall not  permit  the
Leverage  Ratio (i)  calculated  as of the end of the third  and  fourth  Fiscal
Quarter of Fiscal  Year 1999 to exceed 55% or (ii)  calculated  as of the end of
each Fiscal Quarter thereafter to exceed 50%.

          (q) Minimum  Tangible Net Worth.  The Borrowers  shall not at any time
permit  Consolidated  Tangible  Net  Worth  to be  less  than  the  sum  of  (i)
$453,450,000  plus  (ii) 50% of the  Consolidated  Net  Income  for each  Fiscal
Quarter in which net income was earned (with no deduction for a net loss) during
the  period  from April 26,  1999  through  the last day of the  Fiscal  Quarter
immediately preceding the date of determination, plus (iii) 100% of the net cash
proceeds to the Company of any public or private issuance of equity  securities,
minus  (iv)  the  aggregate  amount  paid by the  Company  with  respect  to any
repurchase of its common stock.

          (r)  Modifications of Other Documents.  The Borrowers shall not permit
or otherwise  consent to any  amendment to or  modification  of any of the Kmart
Agreements,  the Lease Credit  Agreement,  the Lease  Financing  Guarantee,  the
Participation Agreement, any Financed Lease or any other Operative Agreement (as
defined in the Lease Credit Agreement),  or any of the Note Put Agreements which
could reasonably be expected to have a Material Adverse Effect, which would have
the  effect of  materially  increasing  the  obligations  of or  burdens  on the
Borrowers or any of their Subsidiaries thereunder or which would have the effect
of shortening or deleting any notice or cure period provided for therein.

          (s)  Prepayment  of  Note  Put  Agreement  Obligations.  Each  of  the
Borrowers shall not, and shall not permit any of its  Subsidiaries  to, make any
payment or prepayment in respect of Borders'  obligations  under any of the Note
Put  Agreements  at any time before a "Tenant  Purchase  Date" as defined in the
Note Put Agreements.

          (t) Lease  Financing  Payments.  Each of the Borrowers  shall not, and
shall not permit any of its  Subsidiaries  to, directly or indirectly,  make any
Lease Financing  Payment,  provided,  however,  that a Borrower may make a Lease
Financing  Payment  if (i) both  before  and after  giving  effect to such Lease
Financing  Payment,  no Event of Default or  Potential  Default  exists or would
exist and the representations and warranties contained in Article V are and will
be true and correct,  and the Company shall have delivered to the Administrative
Agent an officer's certificate to both such effects, (ii) the notice required by
Section 7.03(j)(i) of this Agreement has been given to the Administrative  Agent
and  each  of the  Lenders,  (iii)  the  Company  shall  have  delivered  to the
Administrative  Agent no later  than ten (10) days prior to the date of any such
Lease Financing  Payment cash flow  projections for the twelve months  following
such Lease Financing Payment, in form and substance  reasonably  satisfactory to
the  Administrative  Agent,  (a) showing  that the  Borrowers'  working  capital
requirements  and borrowing needs are not and will not be adversely  affected by
such Lease  Financing  Payment and (b)  containing  calculations  in  sufficient
detail to  demonstrate  on a pro forma  basis  compliance  as of the end of each
Fiscal  Quarter  within such twelve  month period with all  financial  covenants
contained  in Section  7.02,  (iv) after giving  effect to such Lease  Financing
Payment,  the  aggregate  amount of all  Lease  Financing  Payments  made by the
Borrowers as permitted by this Section 7.02(t) is less than  $20,000,000 and (v)
the Lease  Financing  Payment is  otherwise  permitted  by this  Agreement.  For
purposes  of  clause  (iv) of this  Section  7.02(t),  the  amount  of any Lease
Financing  Payment  made by the  Borrowers to purchase  Property  subject to any
Financed  Lease shall not be included in  determining  the  aggregate  amount of
Lease Financing Payments made by the Borrowers once all of such Property is sold
by such Borrower to any Person that is not an Affiliate of the Company.

          (u) Foreign Activities. Notwithstanding anything in this Section 7.02,
the Company shall not, and shall not permit any of its Subsidiaries to (i) incur
any Contingent  Obligation  permitted under Section  7.02(c)(ix) or (x), or (ii)
make any Investment  permitted under Section 7.02(d)(v)  [Foreign  Investments],
Section 7.02(d)(vii)  [Foreign  Purchases],  Section 7.02(d)(ix) in respect of a
Foreign Joint Venture [Foreign Joint Venture Activities],  Section 7.02(d)(x) in
respect  of a  Foreign  Restricted  Subsidiary  [Foreign  Restricted  Subsidiary
Activities] if immediately after incurring such Contingent  Obligation or making
such  Investment,  the aggregate  amount of all such Contingent  Obligations and
Investments would exceed 25% of Consolidated  Tangible Net Worth,  determined as
of the last day of the Fiscal Quarter most recently ended.  For purposes of this
Section  7.02(u),  the term "Foreign  Joint  Venture" shall not include any such
corporation,  partnership,  limited  liability  company,  joint venture or other
entity organized under the laws of Canada or any province thereof.

          (v)  Inconsistent  Agreements.  Each of the  Borrowers  shall not, and
shall not permit any of its  Subsidiaries  to,  become or remain  subject to any
dividend restriction either in its organizational  documents or in any agreement
or contract to which it is a party (other than  restrictions  in Section 7.02(e)
and in the Lease  Financing  Guarantee),  nor shall any of them  enter  into any
indenture,  agreement,  instrument or other  arrangement  which, (a) directly or
indirectly  prohibits  or  restrains,  or  has  the  effect  or  prohibiting  or
restraining,  or could  reasonably  be  expected  to impose  materially  adverse
conditions upon, the incurrence of the Obligations under the Loan Documents, any
provisions of this Agreement  (including without limitation Article VIII hereof)
or the amending of any of the Loan  Documents,  or (b)  contains  any  provision
which would be violated or breached by the making of Loans to any Borrower,  the
incurrence of Indebtedness by any Borrower  hereunder,  or by the performance by
any Borrower or any of its Subsidiaries of any of its obligations under any Loan
Document.

     7.03 Reporting Requirements. The Borrowers, jointly and severally, covenant
and  agree  that  until  payment  in full of the  Loans  and  interest  thereon,
satisfaction of all of the Borrowers'  Obligations  under the Loan Documents and
termination  of the  Commitments,  the  Borrowers  will  furnish  or cause to be
furnished to the Administrative Agent and each of the Lenders:

          (a) Quarterly  Financial  Statements.  As soon as available and in any
event within  forty-five  (45)  calendar days after the end of each of the first
three Fiscal Quarters in each Fiscal Year,  consolidated financial statements of
the Company and its Subsidiaries,  consisting of a consolidated balance sheet as
of the end of such Fiscal Quarter and related consolidated statements of income,
stockholders'  equity and cash flows for the Fiscal  Quarter  then ended and the
Fiscal Year through that date, all in reasonable  detail and certified  (subject
to normal year-end audit adjustments) by an Authorized Officer of the Company as
having been prepared in accordance with GAAP,  consistently applied, and setting
forth  in  comparative  form  the  respective   financial   statements  for  the
corresponding  date and period in the previous Fiscal Year. As soon as available
and in any event  within  forty-five  (45)  calendar  days after the end of each
Fiscal Year of the Company, a certificate of the Company signed by an Authorized
Officer  of the  Company  setting  forth the  calculation  of the  Fixed  Charge
Coverage Ratio as of the end of such Fiscal Year.

          (b) Annual Financial Statements. As soon as available and in any event
within  ninety  (90) days  after  the end of each  Fiscal  Year of the  Company,
consolidated financial statements of the Company and its Subsidiaries consisting
of a  consolidated  balance sheet as of the end of such Fiscal Year, and related
consolidated  statements of income,  stockholders' equity and cash flows for the
Fiscal  Year  then  ended,  all  in  reasonable  detail  and  setting  forth  in
comparative form the financial statements as of the end of and for the preceding
Fiscal Year,  and  certified by  independent  certified  public  accountants  of
nationally  recognized  standing  satisfactory to the Administrative  Agent. The
certificate or report of accountants shall be free of qualifications (other than
any consistency  qualification  that may result from a change in the method used
to prepare the  financial  statements as to which such  accountants  concur) and
shall not  indicate  the  occurrence  or  existence  of any event,  condition or
contingency which would materially impair the prospect of payment or performance
of any covenant, agreement or duty of any of the Borrowers under any of the Loan
Documents.

          (c)  Certificates  of the  Company.  Concurrently  with the  financial
statements  of the  Company  furnished  to the  Administrative  Agent and to the
Lenders pursuant to Sections  7.03(a) and 7.03(b),  a certificate of the Company
signed by an Authorized Officer of the Company,  in the form of Exhibit 7.03(c),
(i) to the effect that,  the  representations  and  warranties  of the Borrowers
contained in Article V are true on and as of the date of such  certificate  with
the same effect as though such  representations  and warranties had been made on
and as of such date  (except  representations  and  warranties  which  expressly
relate  solely to an earlier date or time),  the  Borrowers  have  performed and
complied with all covenants and  conditions  hereof,  and no Event of Default or
Potential  Default exists and is continuing on the date of such  certificate and
(ii) containing  calculations in sufficient detail to demonstrate  compliance as
of the date of the financial  statements with all financial  covenants contained
in Section 7.02 and (iii)  describing  any Permitted  Joint Venture  Activity or
Permitted  Restricted  Subsidiary  Activity  engaged in, or any  Purchase  made,
during the period covered by such financial statements.

          (d) Notice of Default.  Promptly after any officer of any Borrower has
learned  of the  occurrence  of an Event of  Default  or  Potential  Default,  a
certificate  signed by an  Authorized  Officer of the Company  setting forth the
details of such Event of Default or  Potential  Default and the action which the
Borrowers propose to take with respect thereto.

          (e) Notice of  Litigation.  Promptly after the  commencement  thereof,
notice of all actions,  suits,  proceedings or  investigations  before or by any
Official Body, arbitrator or any other Person against any Borrower or Subsidiary
of any  Borrower  which  involve  a claim or  series  of  claims  in  excess  of
$10,000,000  or which if adversely  determined  could  reasonably be expected to
have a Material Adverse Effect.

          (f) Certain Events. Written notice of:

               (i) promptly  after the adoption  thereof,  any  amendment to the
organizational documents of any Borrower;

               (ii)  promptly,  the enactment or adoption of any Law which could
reasonably be expected to have a Material Adverse Effect;

               (iii)  promptly,  and in any event within two (2)  Business  Days
after any  Borrower's  receipt  thereof,  a copy of any notice  received  by the
Borrowers that a default  (whether  matured or unmatured) has occurred under the
Kmart Indemnity (as distinct from a request for reimbursement under Section 2(a)
thereof); and

               (iv)  promptly,  and in any event  within two (2)  Business  Days
after any  Borrower's  receipt  thereof,  a copy of any notice  received  by the
Borrowers under any of the Note Put Agreements.

          (g) Other  Reports  and  Information.  Promptly  upon  their  becoming
available to the Company:

               (i) any reports  including  management  letters  submitted to the
Company by  independent  accountants in connection  with any annual,  interim or
special audit;

               (ii)  any  reports,   notices  or  proxy   statements   generally
distributed by the Company to its  stockholders on a date no later than the date
supplied to the stockholders;

               (iii) regular or periodic reports, including Forms 10-K, 10-Q and
8-K,  registration  statements and  prospectuses,  filed by the Company with the
Securities and Exchange Commission; and

               (iv) such other reports and  information  as the Lenders may from
time to time reasonably request.

          (h) Notices  Regarding  Benefit  Arrangements.  Promptly upon becoming
aware of the occurrence thereof,  notice (including the nature of the event and,
when known,  any action taken or threatened by the Internal  Revenue  Service or
the PBGC with respect thereto) of:

               (i) any  Reportable  Event with  respect to the Company or any of
its Subsidiaries (regardless of whether the obligation to report said Reportable
Event to the PBGC has been waived),

               (ii) any Prohibited Transaction that could subject the Company or
any of its Subsidiaries to a civil penalty  assessed  pursuant to Section 502(i)
of ERISA or a tax  imposed  by  Section  4975 of the  Internal  Revenue  Code in
connection with any Benefit Arrangement or any trust created thereunder,

               (iii)  any  change  in the  coverage  or  terms  of  any  Benefit
Arrangement,  where the  effect of such  change is to  materially  increase  the
unfunded  liability of any of the Borrowers or any of their  Subsidiaries  under
such Benefit Arrangement, or

               (iv) any claim or lawsuit is  commenced  or, to the  knowledge of
any of the Borrowers, threatened with respect to any Plan, Multiemployer Plan or
Benefit Arrangement,  which, if successful, could result in a material liability
of the Company or any of its Subsidiaries.

          (i) Access to the Company's  Auditors.  The Company hereby irrevocably
authorizes  all  accountants  and third  parties to disclose  and deliver to the
Lenders,  upon the  reasonable  request of the  Administrative  Agent and at the
Company's expense, all financial  information,  books and records,  work papers,
management  reports and other  information in their  possession  relating to the
financial  condition  of the  Company  and its  Subsidiaries  (other  than those
subject  to  attorney-client  privilege  or written  confidentiality  agreements
furnished to the Administrative Agent).

          (j) Notices Regarding Lease Financing Agreements.

               (i)  promptly  upon the  occurrence  of any event  requiring  the
Company or any Subsidiary of the Company,  or any election by the Company or any
Subsidiary of the Company, to make any Lease Financing Payment, and in any event
not less  than  ten (10)  days  prior  to the date of any such  Lease  Financing
Payment, written notice thereof setting forth the details thereof; and

               (ii)  promptly,  and in any event  within five (5) days after the
occurrence thereof, written notice of any matured or unmatured default under the
Lease  Credit  Agreement,  the  Lease  Financing  Guarantee  or any  matured  or
unmatured default under any Financed Lease.

          (k) Notices  Regarding  Repurchases  of Stock .  Promptly,  and in any
event within five (5) Business Days,  after the repurchase by the Company of any
its  common  stock,  written  notice  thereof  (including  the  number of shares
repurchased,  the amount paid by the Company with respect to such repurchase and
the date of such repurchase).


                                  ARTICLE VIII
                                   GUARANTIES

     8.01 Guaranty of Payment and Performance of Guaranteed Obligations. Subject
to  Section  8.10  hereof,  each  Guarantor,   jointly  and  severally,   hereby
absolutely, irrevocably and unconditionally guarantees prompt, full and complete
payment when due,  whether at stated maturity,  upon  acceleration or otherwise,
and at all times thereafter, of (a) the principal of and interest (including any
interest which accrues after the  commencement  of any Insolvency  Proceeding or
would accrue but for the  operation of Law,  whether or not allowed or allowable
as a claim in such  Insolvency  Proceeding)  on all Loans made by the Lenders to
each of the  Borrowers  (or,  in the case of a  Guarantor/Borrower,  each of the
other  Borrowers) and all other  Obligations and (b) all other amounts from time
to time owing to the Lenders,  the Swing  Lenders or the Agents by the Borrowers
(or,  in the case of a  Guarantor/Borrower,  the  other  Borrowers)  under  this
Agreement and the other Loan Documents (the "Guaranteed Obligations"),  it being
the intent of each  Guarantor  that the  guaranty  set forth  herein  shall be a
guaranty of payment and not of collection.

     8.02 Certain Waivers of the Guarantors. Each Guarantor waives notice of the
acceptance  of its guaranty  hereunder and of the extension or incurrence of the
Guaranteed  Obligations or any part thereof.  Each Guarantor  further waives all
setoffs and counterclaims  and presentment,  protest,  notice,  filing of claims
with a court in the event of receivership,  bankruptcy or  reorganization of any
Borrower (or, in the case of a Guarantor/Borrower,  any other Borrower),  demand
or action on delinquency  in respect of the  Guaranteed  Obligations or any part
thereof,  including any right to require any of the Agents, the Swing Lenders or
any  Lenders  to sue or  collect  any of the  Guaranteed  Obligations  from  any
Borrower  (or, in the case of a  Guarantor/Borrower,  any other  Borrower),  any
other  Guarantor or any other person  obligated  with respect to the  Guaranteed
Obligations or any part thereof or otherwise to enforce  payment thereof against
any collateral securing the Guaranteed Obligations or any part thereof.

     8.03 Obligations  Unconditional.  Each Guarantor hereby agrees that, to the
fullest extent permitted by Law, its obligations  hereunder shall be continuing,
absolute and  unconditional  under any and all  circumstances and not subject to
any  reduction,  limitation,   impairment,   termination,  defense  (other  than
indefeasible  payment in full),  setoff,  counterclaim or recoupment  whatsoever
(all of which are hereby  expressly waived by it to the fullest extent permitted
by Law), whether by reason of any claim of any character whatsoever,  including,
without  limitation,  any claim of waiver,  release,  surrender,  alteration  or
compromise.  The validity and  enforceability  of the guaranty of each Guarantor
hereunder  shall not be impaired or  affected by any of the  following:  (a) any
extension,  modification  or  renewal  of, or  indulgence  with  respect  to, or
substitution  for,  the  Guaranteed  Obligations  or  any  part  thereof  or any
agreement  relating  thereto at any time; (b) any failure or omission to perfect
or maintain any Lien on, or preserve rights to, any security or collateral or to
enforce any right, power or remedy with respect to the Guaranteed Obligations or
any part thereof or any agreement relating thereto,  or any collateral  securing
the  Guaranteed  Obligations  or any part thereof;  (c) any waiver of any right,
power or remedy or of any default with respect to the Guaranteed  Obligations or
any part  thereof  or any  agreement  relating  thereto  or with  respect to any
collateral  securing the  Guaranteed  Obligations  or any part thereof;  (d) any
release,   surrender,   compromise,   settlement,   waiver,   subordination   or
modification,  with or without  consideration,  of any  collateral  securing the
Guaranteed Obligations or any part thereof, any other guaranties with respect to
the Guaranteed  Obligations or any part thereof, or any other obligations of any
Person with respect to the Guaranteed  Obligations or any part thereof;  (e) the
unenforceability or invalidity of the Guaranteed Obligations or any part thereof
or the lack of  genuineness,  unenforceability  or  invalidity  of any agreement
relating  thereto or with  respect to any  collateral  securing  the  Guaranteed
Obligations or any part thereof;  (f) the application of payments  received from
any source to the payment of Indebtedness other than the Guaranteed Obligations,
any part  thereof  or amounts  which are not  covered  by the  guaranty  of each
Guarantor  hereunder  even though the Agents,  the Lenders and the Swing Lenders
might  lawfully  have  elected to apply such  payments to any part or all of the
Guaranteed  Obligations  or to amounts  which are not covered by the guaranty of
each  Guarantor  hereunder;  (g) any change of ownership of any Borrower (or, in
the  case  of a  Guarantor/Borrower,  any  other  Borrower)  or the  insolvency,
bankruptcy  or any other change in the legal status of any Borrower  (or, in the
case of a  Guarantor/Borrower,  any other  Borrower);  (h) any change in, or the
imposition of, any Law, decree,  regulation or other governmental act which does
or might impair, delay or in any way affect the validity,  enforceability or the
payment when due of the Guaranteed Obligations;  (i) the failure of any Borrower
(or, in the case of a  Guarantor/Borrower,  any other  Borrower)  to maintain in
full  force,  validity  or  effect  or to  obtain  or renew  when  required  all
governmental  and other approvals,  licenses or consents  required in connection
with the Guaranteed Obligations or the guaranty of each Guarantor hereunder,  or
to take any other action  required in  connection  with the  performance  of all
obligations  pursuant  to the  Guaranteed  Obligations  or the  guaranty of each
Guarantor  hereunder;  (j) the  existence  of any claim,  setoff or other rights
which any  Guarantor  may have at any time against any Borrower (or, in the case
of  a  Guarantor/Borrower,  any  other  Borrower)  or  any  other  Guarantor  in
connection  herewith or with any  unrelated  transaction;  (k) the Agents',  the
Lenders' or the Swing Lenders'  election,  in any case or proceeding  instituted
under chapter 11 of the United States  Bankruptcy  Code, of the  application  of
Section 1111(b)(2) of the United States Bankruptcy Code; (l) any borrowing,  use
of cash collateral,  or grant of a security interest by any Borrower (or, in the
case of a  Guarantor/Borrower,  any other  Borrower),  as debtor in  possession,
under  Section  363 or 364  of  the  United  States  Bankruptcy  Code;  (m)  the
disallowance  of all or any portion of any of the  Agents',  the Lenders' or the
Swing Lenders' claims for repayment of the Guaranteed  Obligations under Section
502 or 506 of the  United  States  Bankruptcy  Code;  or (n) any  other  fact or
circumstance  which might otherwise  constitute grounds at law or equity for the
discharge  or release  of any  Guarantor  from its  obligations  hereunder,  all
whether or not such  Guarantor  shall have had notice or knowledge of any act or
omission referred to in the foregoing clauses (a) through (n) of this paragraph.
It is agreed that each  Guarantor's  liability  hereunder is  independent of any
other guaranties or other  obligations at any time in effect with respect to the
Guaranteed  Obligations or any part thereof and that each Guarantor's  liability
hereunder may be enforced regardless of the existence,  validity, enforcement or
non-enforcement  of any  such  other  guaranties  or  other  obligations  or any
provision of any applicable Law purporting to prohibit  payment by any Guarantor
of the Guaranteed  Obligations  in the manner agreed upon among the Agents,  the
Lenders,   the  Swing  Lenders  and  the  Borrowers   (or,  in  the  case  of  a
Guarantor/Borrower, any other Borrower).

     8.04  Waiver  of  Subrogation.  Until  payment  in full  of the  Guaranteed
Obligations,  satisfaction of all of the Borrowers'  Obligations  under the Loan
Documents and termination of the Commitments,  each Guarantor hereby agrees that
it shall have no right of subrogation with respect to the Guaranteed Obligations
and  hereby  waives  any right to  enforce  any  remedy  which the Agents or the
Lenders or the Swing Lenders now have or may  hereafter  have against any of the
Borrowers (or, in the case of a  Guarantor/Borrower,  any other  Borrower),  any
endorser  or  any  other  Guarantor  of  all  or  any  part  of  the  Guaranteed
Obligations,  and each Guarantor  hereby waives any benefit of, and any right to
participate in, any security or collateral given to the Agents or the Lenders or
the Swing Lenders to secure  payment of the  Guaranteed  Obligations or any part
thereof  or any other  liability  of any of the  Borrowers  to the Agents or the
Lenders or the Swing Lenders.

     8.05 Actions with Respect to  Collateral.  Each  Guarantor  authorizes  the
Agents,  the  Lenders and the Swing  Lenders to take any action or exercise  any
remedy with respect to any collateral  from time to time securing the Guaranteed
Obligations,  which the Agents,  the Lenders and the Swing Lenders in their sole
discretion  shall determine,  without notice to such Guarantor.  Notwithstanding
any  reference  herein  to  any  collateral   securing  any  of  the  Guaranteed
Obligations,  it is  acknowledged  that,  on  the  Closing  Date,  none  of  the
Guarantors nor any of their  Subsidiaries has granted,  or has any obligation to
grant,  any  Lien  on  any  of its  Property  as  security  for  the  Guaranteed
Obligations.  In the event the Agents, the Lenders or the Swing Lenders in their
sole  discretion  elect  to  give  notice  of any  action  with  respect  to any
collateral  securing  the  Guaranteed  Obligations  or  any  part  thereof,  the
Administrative  Agent shall give ten (10) days written  notice to each Guarantor
in accordance with the provisions of Section 11.06. Each Guarantor  consents and
agrees that none of the Agents nor the Lenders  nor the Swing  Lenders  shall be
under any obligation to marshal any assets in favor of such Guarantor or against
or in payment of any or all of the Guaranteed Obligations.

     8.06 Effect of Bankruptcy;  Revival.  In the event that acceleration of the
time  for  payment  of any of the  Guaranteed  Obligations  is  stayed  upon the
insolvency,  bankruptcy or  reorganization of any Borrower (or, in the case of a
Guarantor/Borrower,  any other Borrower),  or otherwise,  all such amounts shall
nonetheless   be  payable  by  any  Guarantor   forthwith  upon  demand  by  the
Administrative  Agent to such Guarantor.  Each Guarantor further agrees that, to
the extent that any Borrower (or, in the case of a Guarantor/Borrower, any other
Borrower)  makes a payment or payments  to any of the Lenders on the  Guaranteed
Obligations,  or the Agents or the  Lenders  or the Swing  Lenders  receive  any
proceeds of collateral  securing the  Guaranteed  Obligations,  which payment or
receipt of proceeds or any part thereof is subsequently invalidated, declared to
be fraudulent or preferential, set aside or required to be returned or repaid to
such Borrower (or, in the case of a Guarantor/Borrower, any other Borrower), its
estate,  trustee,  receiver,  debtor in possession or any other party (including
without  limitation any Guarantor) under any Law or equitable cause, then to the
extent of such  payment,  return or  repayment,  the  obligation or part thereof
which has been paid, reduced or satisfied by such amount shall be reinstated and
continued  in full  force and effect as of the date when such  initial  payment,
reduction or satisfaction occurred.

     8.07  Survival of Guaranty.  Subject to  provisions  of Section  8.06,  the
guaranty of each Guarantor  hereunder  shall continue in effect until payment in
full  of the  Guaranteed  Obligations,  satisfaction  of  all of the  Borrowers'
Obligations  under the Loan  Documents,  termination of the  Commitments and the
other  conditions  of  the  guaranty  of  each  Guarantor  hereunder  have  been
satisfied.

     8.08  Right  of  Set-Off.  If an  Event  of  Default  shall  occur  and  be
continuing,  the Agents,  any Lender or Swing Lender to whom any  obligation  is
owed by any  Guarantor  hereunder  or  under  any  other  Loan  Document  or any
participant  of such  Lender,  or Swing Lender which has agreed in writing to be
bound by the provisions of Section 10.12 and any branch, Subsidiary or Affiliate
of such Lender, Swing Lender or participant anywhere in the world shall have the
right,  in addition to all other  rights and remedies  available to it,  without
notice to such  Guarantor,  to  set-off  against  and  apply to the then  unpaid
balance of all the Guaranteed Obligations any debt owing to, and any other funds
held in any manner for the  account  of, any of the  Guarantors  by such  Agent,
Lender, Swing Lender or participant or by such branch,  Subsidiary or Affiliate,
including all funds in all deposit accounts (whether time or demand,  general or
special,  provisionally  credited  or finally  credited,  or  otherwise)  now or
hereafter  maintained  by any of the  Guarantors  for its own  account  (but not
including  funds held in custodian or trust  accounts) with such Agent,  Lender,
Swing Lender or participant or such branch,  Subsidiary or Affiliate. Such right
shall exist  whether or not any Agent,  Lender,  or Swing Lender shall have made
any demand under this Agreement, whether or not such debt owing to or funds held
for the  account of any of the  Guarantors  is or are matured or  unmatured  and
regardless of the existence or adequacy of any collateral, guaranty or any other
security, right or remedy available to any Agent, Lender or Swing Lender.

     8.09  Limitation  on Amount of  Guaranty.  If in any  action or  proceeding
involving  any state,  federal or foreign  bankruptcy,  insolvency  or other law
affecting the rights of creditors generally, the guaranty of any Guarantor would
be held or determined  to be void,  invalid or  unenforceable  on account of the
amount of the aggregate liability under such guaranty, then, notwithstanding any
other  provision of this Article VIII to the contrary,  the aggregate  amount of
such liability shall, without any further action of the Agents, the Lenders, the
Swing Lenders or any other Person,  be automatically  limited and reduced to the
highest  amount which is valid and  enforceable  as determined in such action or
proceeding.  An  acknowledgment  of such  limit may be  contained  in the letter
agreement  executed  after  the  Closing  Date by any  additional  Guarantor  if
required by applicable Law.

     8.10 Limitation on Scope of Certain Guarantees. Notwithstanding anything in
this Article VIII to the contrary,  on and after the Subsequent  Effective Date,
the Guaranteed Obligations of the Subsidiaries of UK Superstore under the letter
agreements  which they will  execute  and deliver on such  Subsequent  Effective
Date, will only be those Obligations of UK Superstore and not any Obligations of
other Borrowers hereunder.


                                   ARTICLE IX
                                    DEFAULT

     9.01 Events of Default.  An Event of Default  shall mean the  occurrence or
existence of any one or more of the following events or conditions (whatever the
reason therefor and whether  voluntary,  involuntary or effected by operation of
Law):

          (a) Any of the  Borrowers (i) shall fail to pay when due any principal
of any Loan  (including  scheduled  installments,  mandatory  prepayments or the
payment due at maturity),  or (ii) shall fail to pay any interest on any Loan or
any other amount  owing  hereunder  or under the other Loan  Documents  within 5
Business Days after such interest or other amount becomes due in accordance with
the terms hereof or thereof;

          (b) Any  representation or warranty made or deemed made at any time by
any of the  Borrowers  herein  or by any of  the  Borrowers  in any  other  Loan
Document,  or in  any  certificate,  other  instrument  or  statement  furnished
pursuant to the provisions hereof or thereof,  shall prove to have been false or
misleading  in any material  respect as of the time it was made,  deemed made or
furnished;

          (c)  Any  of  the  Borrowers   shall  default  in  the  observance  or
performance of any covenant contained in Section 7.01(j),  7.01(m), Section 7.02
or 7.03(d);

          (d)  Any  of  the  Borrowers   shall  default  in  the  observance  or
performance of any other covenant, condition or provision hereof or of any other
Loan Document and such default shall continue unremedied for a period of fifteen
(15) Business Days after any  Authorized  Officer or the General  Counsel of any
Borrower  becomes  aware of the  occurrence  thereof  (such  grace  period to be
applicable  only in the event such default can be remedied by corrective  action
of  the  Borrowers  as  determined  by the  Administrative  Agent  in  its  sole
discretion);

          (e) A default  or event of default  shall  occur at any time under the
terms of any other agreement involving borrowed money or the extension of credit
or any other Indebtedness under which any Borrower or Subsidiary of any Borrower
may be obligated as a borrower or guarantor in excess of $5,000,000 (or to Kmart
in respect of the Kmart Indemnity in excess of $1,000,000) in the aggregate, and
such breach,  default or event of default consists of the failure to pay (beyond
any period of grace permitted with respect  thereto,  whether waived or not) any
Indebtedness when due (whether at stated maturity, by acceleration or otherwise)
or if  such  breach  or  default  permits  or  causes  the  acceleration  of any
Indebtedness  (whether  or  not  such  right  shall  have  been  waived)  or the
termination of any commitment to lend;

          (f) Any of the  following  occurs:  (i) an Event of Default shall have
occurred  under  the  Kmart  Indemnity  such  that  Kmart  shall  have the right
thereunder to exercise the rights granted to it pursuant to Sections 3(c)(ii) or
3(c)(iii)  thereof  in respect  of more than two (2)  Premises  (as such term is
defined  therein),  (ii) a Triggering Event shall have occurred under any of the
Note Put Agreements  (other than a Triggering  Event which is "a Rating Decline"
or a  "Restructuring  Event"  (as  such  terms  are  defined  in  the  Note  Put
Agreements)) and such Triggering Event shall continue unremedied for a period of
sixty (60) days or (iii) any of the  Borrowers  shall receive a "Put Notice" (as
defined in the Note Put Agreements)  which states the occurrence of a Triggering
Event that is a "Lease/Lease Guaranty Default" or a "Lease Guaranty Termination"
(as such  terms  are  defined  in the Note Put  Agreements),  or (iv) any of the
Borrowers  shall  receive a Put Notice which states the  occurrence  solely of a
Rating Decline or a Restructuring  Event,  and, within five (5) Business Days of
receipt of such Put Notice,  the  Borrowers  shall have failed to deliver to the
Lenders  documentation  satisfactory  to the Required  Lenders  showing that the
Notes as to which the Put Notice was received  will be  refinanced on the Tenant
Purchase  Date  with  Permitted  Sutro  Refinancing  Indebtedness  on the  terms
permitted under Section 7.02(a)(xi) hereof;

          (g) Any final  judgments  or orders for the payment of money in excess
of  $5,000,000  in the  aggregate  shall be  entered  against  all or any of the
Borrowers by a court having  jurisdiction in the premises (other than a judgment
or order  as to which  such  Borrower's  insurance  company  has  accepted  full
liability in writing)  which  judgment is not  discharged,  satisfied,  vacated,
bonded or stayed  pending  appeal  within a period of thirty  (30) days from the
date of entry;

          (h) Any of the Loan  Documents  shall  cease to be a legal,  valid and
binding  agreement  enforceable  against  the party  executing  the same or such
party's  successors  and  assigns (as  permitted  under the Loan  Documents)  in
accordance  with the respective  terms thereof or shall in any way be terminated
(except in accordance  with its terms) or become or be declared  ineffective  or
inoperative  in any  material  respect  or  shall  in any way be  challenged  or
contested or cease to give or provide the respective rights, titles,  interests,
remedies, powers or privileges intended to be created thereby;

          (i) Any  Borrower  or  Guarantor  ceases  to be  Solvent  or admits in
writing its inability to pay its debts as they mature;

          (j) Any of the following occurs:  (i) any Reportable Event,  which the
Administrative  Agent  determines  in good  faith  constitutes  grounds  for the
termination  of any  Plan  by  the  PBGC  or the  appointment  of a  trustee  to
administer or liquidate any Plan,  shall have occurred and be  continuing;  (ii)
proceedings  shall have been  instituted  or other action taken to terminate any
Plan,  or a  termination  notice shall have been filed with respect to any Plan;
(iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the
PBGC shall give notice of its intent to institute  proceedings  to terminate any
Plan or Plans or to appoint a trustee to administer  or liquidate any Plan;  (v)
any  Borrower  or  its   Subsidiary   adopts,   sponsors,   maintains  or  makes
contributions to any Plan, any Multiemployer Plan, any Multiple Employer Plan or
any Benefit  Arrangement  that  provides  benefits  to retirees  (other than the
Benefit  Arrangement of Walden described on Schedule 5.01(t));  and, in the case
of each occurrence of (i), (ii),  (iii), (iv) above or any occurrence under such
Benefit Arrangement of Walden, the Administrative Agent determines in good faith
that the amount of the liability of the Company and its  Subsidiaries in respect
thereof could  reasonably be expected to individually or in the aggregate have a
Material Adverse Effect;

          (k) Any  Borrower  or  Guarantor  ceases to conduct  its  business  as
contemplated or such Borrower or Guarantor is enjoined, restrained or in any way
prevented  by  court  order  from  conducting  all or any  material  part of its
business  and  such  injunction,  restraint  or  other  preventive  order is not
dismissed within thirty (30) days after the entry thereof;

          (l) Any Change in Control shall occur;

          (m) Any  circumstances or events shall occur which  individually or in
the aggregate could reasonably be expected to have a Material Adverse Effect;

          (n)  A  proceeding  shall  have  been  instituted  in a  court  having
jurisdiction in the premises  seeking a decree or order for relief in respect of
any  Borrower  or  Guarantor  in  an  involuntary   case  under  any  applicable
bankruptcy, insolvency,  reorganization or other similar law now or hereafter in
effect, or for the appointment of a receiver,  liquidator,  assignee, custodian,
trustee,  sequestrator,  conservator  (or similar  official)  of any Borrower or
Guarantor for any  substantial  part of its property,  or for the  winding-up or
liquidation  of its affairs,  and such  proceeding  shall remain  undismissed or
unstayed  and in effect  for a period of thirty  (30)  consecutive  days or such
court shall enter a decree or order  granting  any of the relief  sought in such
proceeding; or

          (o) Any Borrower or Guarantor  shall  commence a voluntary  case under
any applicable bankruptcy,  insolvency,  reorganization or other similar law now
or hereafter in effect,  shall consent to the entry of an order for relief in an
involuntary  case under any such law,  or shall  consent to the  appointment  or
taking  possession  by a receiver,  liquidator,  assignee,  custodian,  trustee,
sequestrator,  conservator  (or  other  similar  official)  of itself or for any
substantial  part of its  property  or shall make a general  assignment  for the
benefit of  creditors,  or shall fail  generally to pay its debts as they become
due, or shall take any action in furtherance of any of the foregoing; or

          (p) Any matured  default  shall have  occurred  under the Lease Credit
Agreement or any Financed Lease, whether or not any obligations  thereunder have
been accelerated.

     9.02 Consequences of Event of Default.

          (a) If an Event of Default  specified  under  subsections  (a) through
(h),  (j)  through  (m) or  subsection  (p) of Section  9.01 shall  occur and be
continuing,  the Lenders and the Agents shall be under no further  obligation to
make Loans and (i) the  Administrative  Agent may,  and upon the  request of the
Required   Lenders  shall,  by  written  notice  to  the  Company,   cancel  the
Commitments,  and (ii) the Administrative Agent may, and upon the request of the
Required  Lenders shall,  by written  notice to the Company,  declare the unpaid
principal  amount of the Revolving Credit Loans and Swing Loans then outstanding
and all interest accrued thereon,  any unpaid Fees and all other  Obligations of
the  Borrowers to the  Lenders,  and the Swing  Lenders to be forthwith  due and
payable,  and the same shall thereupon become and be immediately due and payable
without  presentment,  demand,  protest or any other notice of any kind,  all of
which are hereby expressly waived; and

          (b) If an Event of Default specified under subsections (i), (n) or (o)
of Section 9.01 shall occur, the Commitments shall  automatically  terminate and
be of no further force and effect, the Agents, the Lenders and the Swing Lenders
shall be under no further  obligations  to make Loans  hereunder  and the unpaid
principal amount of the Loans then outstanding and all interest accrued thereon,
any unpaid Fees and all other  Obligations  of the Borrowers to the Agents,  the
Lenders and the Swing  Lenders  shall be  immediately  due and payable,  without
presentment,  demand,  protest  or notice of any kind,  all of which are  hereby
expressly waived; and

          (c) If an Event of Default shall occur and be continuing,  the Agents,
any  Lender  or Swing  Lender  to whom any  Obligation  is owed by any  Borrower
hereunder or under any other Loan  Document or any  participant  of such Lender,
Swing  Lender  which has  agreed in  writing  to be bound by the  provisions  of
Section  10.12 and any branch,  Subsidiary or Affiliate  (including  any Lending
Office) of such Lender,  Swing Lender or participant anywhere in the world shall
have the right,  in addition to all other rights and  remedies  available to it,
without notice to such Borrower, to set-off against and apply to the then unpaid
balance of all the Loans and all other  Obligations  of the Borrowers  under any
Loan  Document any debt owing to, and any other funds held in any manner for the
account of, the Borrowers by such Lender, Swing Lender or participant or by such
branch,  Subsidiary  or Affiliate,  including all funds in all deposit  accounts
(whether time or demand,  general or special,  provisionally credited or finally
credited,  or otherwise) now or hereafter maintained by any of the Borrowers for
its own account (but not  including  funds held in custodian or trust  accounts)
with such Lender,  Swing Lender or  participant  or such branch,  Subsidiary  or
Affiliate.  Such right  shall  exist  whether or not any Agent,  Lender or Swing
Lender  shall  have made any  demand  under  this  Agreement  or any other  Loan
Document, whether or not such debt owing to or funds held for the account of any
of the  Borrowers is or are matured or unmatured,  regardless of any  difference
between the currency of the Loans or other  Obligations and the currency of such
debt owing to or funds held for the account of the Borrowers,  and regardless of
the  existence or adequacy of any  collateral,  guaranty or any other  security,
right or remedy available to any Agent, Lender or Swing Lender; and

          (d) If an Event of Default shall occur and be continuing,  and whether
or not the Administrative Agent shall have accelerated the maturity of Revolving
Credit Loans and Swing Loans to the  Borrowers  pursuant to any of the foregoing
provisions of this Section 9.02,  any Agent,  or any Lender or any Swing Lender,
if owed any amount with respect to the Loans, may proceed to protect and enforce
its rights by suit in equity, action at law and/or other appropriate proceeding,
whether for the specific  performance of any covenant or agreement  contained in
this  Agreement  or  any  of the  Loan  Documents,  including  as  permitted  by
applicable Law the obtaining of the ex parte appointment of a receiver,  and, if
such  amount  shall have become due, by  declaration  or  otherwise,  proceed to
enforce the payment  thereof or any other legal or equitable right of such Agent
or such Lender or such Swing Lender; and

          (e) From and  after  the date on which  the  Administrative  Agent has
taken any action  pursuant to this Section 9.02 and until all Obligations of the
Borrowers  have  been  paid  in  full,  any  and all  proceeds  received  by the
Administrative  Agent  from the  exercise  of any  remedy by the  Administrative
Agent, shall be applied as follows:

               (i) first, to reimburse the  Administrative  Agent, the Arranger,
the Documentation  Agent and the Lenders for out-of-pocket  costs,  expenses and
disbursements,  including  reasonable  attorneys' and paralegals' fees and legal
expenses,  incurred by the Administrative Agent, the Arranger, the Documentation
Agent and the Lenders in connection  with the  collection of any  Obligations of
any of the Borrowers under any of the Loan Documents;

               (ii) second,  to the repayment of all  Indebtedness  then due and
unpaid of the  Borrowers  to the  Agents,  the  Lenders  and the  Swing  Lenders
incurred  under  this  Agreement  or any  of  the  Loan  Documents,  whether  of
principal,  interest,  fees,  expenses  or  otherwise,  in  such  manner  as the
Administrative Agent may determine in its discretion; and

               (iii) the balance, if any, as required by Law.

          (f) In addition to all of the rights and  remedies  contained  in this
Agreement or in any of the other Loan Documents,  the Administrative Agent shall
have all of the rights and remedies  under  applicable  Law, all of which rights
and remedies shall be cumulative and  non-exclusive,  to the extent permitted by
Law. The Administrative  Agent may, and upon the request of the Required Lenders
shall,  exercise all post-default rights granted to the Administrative Agent and
the Lenders under the Loan Documents or applicable Law.


                                    ARTICLE X
                                   THE AGENTS

     10.01 Appointment. Each Lender hereby irrevocably designates,  appoints and
authorizes PNC Bank,  National  Association to act as  Administrative  Agent for
such Lender under this  Agreement and to execute and deliver or accept on behalf
of each of the Lenders the other Loan Documents.  Each Lender hereby irrevocably
designates,  appoints  and  authorizes  PNC  Capital  Markets,  Inc.  to  act as
Arranger.  Each  Lender  hereby  irrevocably  authorizes,  and each  assignee or
participant  of any  Lender  shall  be  deemed  irrevocably  to  authorize,  the
Administrative  Agent to take such action on its behalf under the  provisions of
this  Agreement  and the other  Loan  Documents  and any other  instruments  and
agreements  referred to herein,  and to exercise such powers and to perform such
duties  hereunder  as  are   specifically   delegated  to  or  required  of  the
Administrative  Agent by the terms  hereof,  together  with  such  powers as are
reasonably  incidental thereto. Each Lender hereby irrevocably  authorizes,  and
each  assignee  or  participant  of any Lender  shall be deemed  irrevocably  to
authorize,  the Arranger to take such action on its behalf under the  provisions
of this  Agreement and the other Loan  Documents and any other  instruments  and
agreements  referred to herein,  and to exercise such powers and to perform such
duties hereunder as are specifically delegated to or required of the Arranger by
the terms  hereof,  together  with  such  powers  as are  reasonably  incidental
thereto.  PNC Bank  agrees to act as the  Administrative  Agent and PNC  Capital
Markets,  Inc.  agrees to act as Arranger on behalf of the Lenders to the extent
provided in this Agreement.

     10.02  Delegation  of  Duties.  Each of the  Administrative  Agent  and the
Arranger  may  perform  any of its  duties  hereunder  by or  through  agents or
employees  (provided such delegation does not constitute a relinquishment of its
duties as Agent) and, subject to Sections 10.05 and 10.06,  shall be entitled to
engage and pay for the advice or services of any attorneys, accountants or other
experts  concerning all matters  pertaining to its duties  hereunder and to rely
upon any advice so obtained.

     10.03 Nature of Duties; Independent Credit Investigation. The Documentation
Agent  identified  in this  Agreement  shall have no duties or  responsibilities
hereunder,  other than as a Lender.  The  Administrative  Agent and the Arranger
shall have no duties or  responsibilities  except those  expressly  set forth in
this Agreement and no implied covenants,  functions,  responsibilities,  duties,
obligations,  or  liabilities  shall be read into this  Agreement  or  otherwise
exist.  The  duties  of the  Administrative  Agent  and the  Arranger  shall  be
mechanical  and  administrative  in  nature;  the  Administrative  Agent and the
Arranger  shall  not have by  reason  of this  Agreement  a  fiduciary  or trust
relationship in respect of any Lender; and nothing in this Agreement,  expressed
or  implied,  is  intended  to or shall be so  construed  as to impose  upon the
Administrative  Agent any  obligations  in respect of this  Agreement  except as
expressly set forth herein.  Without  limiting the  generality of the foregoing,
the use of the  term  "agent"  in  this  Agreement  with  the  reference  to the
Administrative Agent or the Arranger is not intended to connote any fiduciary or
other  implied (or express)  obligations  arising  under agency  doctrine of any
applicable law.  Instead,  such term is used merely as a matter of market custom
and is intended to create or reflect only an administrative relationship between
independent  contracting  parties.  Each Lender expressly  acknowledges (i) that
neither the Administrative  Agent nor the Arranger has made any  representations
or warranties to it and that no act by the Administrative  Agent or the Arranger
hereafter  taken,  including any review of the affairs of any of the  Borrowers,
shall be deemed to constitute  any  representation  or warranty by such Agent to
any Lender;  (ii) that it has made and will continue to make,  without  reliance
upon  the   Administrative   Agents  or  the  Arranger,   its  own   independent
investigation  of the  financial  condition and affairs and its own appraisal of
the  creditworthiness of each of the Borrowers in connection with this Agreement
and the making  and  continuance  of the Loans  hereunder;  and (iii)  except as
expressly  provided  herein,  that  neither  the  Administrative  Agent  nor the
Arranger  shall  have  any  duty or  responsibility,  either  initially  or on a
continuing  basis,  to provide any Lender  with any credit or other  information
with respect  thereto,  whether coming into its possession  before the making of
any Loan or at any time or times thereafter.

     10.04 Actions in Discretion of Agents;  Instructions from the Lenders. Each
of the Administrative Agent and the Arranger agrees, upon the written request of
the  Required  Lenders,  to take or refrain  from  taking any action of the type
specified as being  within such Agent's  rights,  powers or  discretion  herein,
provided that neither the Administrative Agent nor the Arranger nor any of their
directors,  officers,  employees,  agents,  attorneys  or  Affiliates  shall  be
required  to take any action  which  exposes  such  Agent or any such  Person to
personal  liability  or which is  contrary to this  Agreement  or any other Loan
Document or applicable Law. In the absence of a request by the Required Lenders,
each of the Administrative  Agent and the Arranger shall have authority,  in its
sole discretion,  to take or not to take any such action,  unless this Agreement
specifically requires the consent of the Required Lenders or all of the Lenders.
Any action taken or failure to act pursuant to such  instructions  or discretion
shall be  binding on the  Lenders,  subject  to  Section  10.05.  Subject to the
provisions of Section 10.05, no Lender shall have any right of action whatsoever
against the  Administrative  Agent or the  Arranger as a result of such  Agent's
acting or refraining from acting  hereunder in accordance with the  instructions
of the Required Lenders, or in the absence of such instructions, in the absolute
discretion of such Agent.

     10.05  Exculpatory  Provisions.  Neither the  Administrative  Agent nor the
Arranger nor any of their directors,  officers,  employees, agents, attorneys or
Affiliates  shall (a) be liable to any Lender for any action taken or omitted to
be taken by it or them hereunder,  or in connection  herewith including pursuant
to any Loan  Document,  unless  caused by its or their own gross  negligence  or
willful  misconduct,  (b) be responsible in any manner to any of the Lenders for
the effectiveness, enforceability, genuineness, validity or the due execution of
this Agreement or any other Loan  Documents or for any recital,  representation,
warranty, document, certificate, report or statement herein or made or furnished
under or in connection with this Agreement or any other Loan  Documents,  or (c)
be under any  obligation  to any of the Lenders to ascertain or to inquire as to
the  performance  or  observance  of any of the terms,  covenants or  conditions
hereof  or  thereof  on the  part  of any of  the  Borrowers,  or the  financial
condition of any of the Borrowers, or the existence or possible existence of any
Event of Default or Potential Default.  Neither the Administrative Agent nor the
Arranger  nor  any  Lender  nor any of  their  respective  directors,  officers,
employees,  agents,  attorneys  or  Affiliates  shall  be  liable  to any of the
Borrowers for  consequential  or punitive  damages  resulting from any breach of
contract, tort or other wrong in connection with the negotiation, documentation,
administration or collection of the Loans or any of the Loan Documents.

     10.06 Reimbursement and  Indemnification of Agents by Lenders.  Each Lender
agrees to  reimburse  and  indemnify  each of the  Administrative  Agent and the
Arranger (to the extent not reimbursed by the Borrowers and without limiting the
Obligation  of the  Borrowers to do so) in  proportion to its Ratable Share from
and against all liabilities,  obligations,  losses, damages, penalties, actions,
judgments,  suits, or reasonable out-of-pocket costs, expenses or disbursements,
of any kind or  nature  whatsoever  which  may be  imposed  on,  incurred  by or
asserted against the  Administrative  Agent or the Arranger,  in its capacity as
such, in any way relating to or arising out of this  Agreement or any other Loan
Documents  or any action  taken or omitted  by the  Administrative  Agent or the
Arranger  hereunder or  thereunder,  provided that no Lender shall be liable for
any  portion  of such  liabilities,  obligations,  losses,  damages,  penalties,
actions,  judgments,  suits,  costs,  expenses or disbursements  (a) if the same
results from the gross  negligence or willful  misconduct of the  Administrative
Agent,  or (b) if such Lender was not given notice of the subject  claim and the
opportunity to participate in the defense  thereof,  at its expense (except that
such Lender shall  remain  liable to the extent such failure to give notice does
not  result  in a loss  to the  Lender),  or (c)  if  the  same  results  from a
compromise  and  settlement  agreement  entered into without the consent of such
Lender,  which shall not be  unreasonably  withheld.  In  addition,  each Lender
agrees  promptly upon demand to reimburse each of the  Administrative  Agent and
the Arranger (to the extent not reimbursed by the Borrowers and without limiting
the Obligation of the Borrowers to do so) in proportion to its Ratable Share for
all amounts due and payable by the  Borrowers to such Agent in  connection  with
such  Agent's  periodic  audit of the  Borrowers'  books,  records and  business
properties.

     10.07 Reliance by Agents. Each of the Administrative Agent and the Arranger
shall be entitled to rely upon any writing, telegram, telex or teletype message,
resolution, notice, consent, certificate, letter, cablegram, statement, order or
other document or  conversation  by telephone or otherwise  believed by it to be
genuine and correct and to have been signed,  sent or made by the proper  Person
or Persons,  and upon the advice and opinions of counsel and other  professional
advisers  selected  by the  Administrative  Agent or the  Arranger.  Each of the
Administrative  Agent and the  Arranger  shall be fully  justified in failing or
refusing to take any action  hereunder  unless it shall first be  indemnified to
its  satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.

     10.08 Notice of Default.  Neither the Administrative Agent nor the Arranger
shall be deemed to have  knowledge or notice of the  occurrence of any Potential
Default or Event of Default unless such Agent has received written notice from a
Lender or the Borrowers  referring to this Agreement,  describing such Potential
Default  or Event of  Default  and  stating  that such  notice  is a "notice  of
default."

     10.09 Notices.  The Administrative Agent shall promptly send to each Lender
a copy of all notices received from the Borrowers  pursuant to the provisions of
this Agreement or the other Loan Documents  promptly upon receipt  thereof.  The
Administrative  Agent shall promptly notify the Company and the other Lenders of
each change in the Base Rate and the effective date thereof.

     10.10  Lenders  in  Their  Individual  Capacities.   With  respect  to  its
Commitments,  the  Revolving  Credit  Loans and the Swing  Loans made by it, the
Administrative  Agent and the  Arranger  shall  have the same  rights and powers
hereunder as any other Lender and may exercise the same as though it were not an
Agent, and the term "Lenders"  shall,  unless the context  otherwise  indicates,
include the Administrative  Agent and the Arranger in their individual capacity.
PNC Bank, PNC Capital Markets, Inc. and their Affiliates and each of the Lenders
and their  respective  Affiliates may, without  liability,  except as prohibited
herein, make loans to, accept deposits from, discount drafts for, act as trustee
under  indentures  of,  and  generally  engage in any kind of  banking  or trust
business  with,  the  Borrowers  and  their  Affiliates,  in  the  case  of  the
Administrative Agent and the Arranger,  as though they were not acting as Agents
hereunder  and in the case of each  Lender,  as though  such  Lender  were not a
Lender hereunder.

     10.11 [RESERVED].

     10.12  Equalization  of  Lenders.  The  Lenders  and  the  holders  of  any
participations  in any Revolving  Credit Loans agree among themselves that, with
respect to all  amounts  received by any Lender or by any  participant,  whether
received by voluntary payment, by realization upon security,  by the exercise of
the right of set-off or banker's lien, by  counterclaim  or by any other non-pro
rata  source,  equitable  adjustment  will be made in the  manner  stated in the
following  sentence so that, in effect,  all such excess  amounts will be shared
ratably among the Lenders and such participants in proportion to their interests
in payments under the Revolving  Credit Loans,  except as otherwise  provided in
Sections  3.03(b),  4.04(b),  4.06 or 11.03. The Lenders or any such participant
receiving any such amount shall purchase for cash from each of the other Lenders
or  participants  an interest in such  Revolving  Credit Loans in such amount as
shall result in a ratable participation by the Lenders and each such participant
in the aggregate unpaid amount under the Revolving  Credit Loans,  provided that
if all or any portion of such excess  amount is  thereafter  recovered  from the
Lender or the participant making such purchase, such purchase shall be rescinded
and the purchase price  restored to the extent of such  recovery,  together with
interest or other amounts, if any, required by law (including court order) to be
paid by the Lender or the participant making such purchase.

     10.13  Successor  Agents.  The  Administrative  Agent  (i)  may  resign  as
Administrative  Agent or (ii) shall resign if such  resignation  is requested by
the  Required   Lenders  (if  the   Administrative   Agent  is  a  Lender,   the
Administrative   Agent's  Loans  and  its  Commitment  shall  be  considered  in
determining  whether the Required  Lenders have requested such  resignation)  or
required  by Section  4.04(b),  in either case of (i) or (ii) by giving not less
than thirty (30) days' prior written notice to the Company. The Arranger (i) may
resign as Arranger or (ii) shall resign if such  resignation is requested by the
Required  Lenders (if the  Arranger is a Lender,  the  Arranger's  Loans and its
Commitment shall be considered in determining  whether the Required Lenders have
requested such  resignation) or required by Section  4.04(b),  in either case of
(i) or (ii), by giving not less than thirty (30) days' prior  written  notice to
the Company. If the Administrative Agent or the Arranger shall resign under this
Agreement,  then either (a) the Required  Lenders  shall  appoint from among the
Lenders a successor agent for the Lenders, subject to the consent of the Company
(unless and until an Event of Default has occurred and is continuing after which
no  consent  of  the  Company  shall  be  required),  such  consent  not  to  be
unreasonably withheld, or (b) if a successor agent shall not be so appointed and
approved within the thirty (30) day period  following such Agent's notice to the
Lenders of its resignation,  then such Agent shall appoint,  with the consent of
the Company (unless and until an Event of Default has occurred and is continuing
after which no consent of the Company shall be required), such consent not to be
unreasonably withheld, a successor agent who shall serve as Administrative Agent
or Arranger, as applicable,  until such time as the Required Lenders appoint and
the  Company  consents  to  the  appointment  of a  successor  agent.  Upon  its
appointment  pursuant to either clause (a) or (b) above,  such  successor  agent
shall  succeed  to the  rights,  powers  and  duties of such  Agent and the term
"Administrative  Agent" or "Arranger" shall mean such successor agent, effective
upon its appointment,  and the former Agent's rights, powers and duties as Agent
shall be terminated without any other or further act or deed on the part of such
former Agent or any of the parties to this  Agreement.  After the resignation of
the  Administrative  Agent or the Arranger  hereunder,  the  provisions  of this
Article X shall inure to the benefit of such former  Agent and such former Agent
shall not by reason of such  resignation be deemed to be released from liability
for any  actions  taken or not  taken by it  while  it was an Agent  under  this
Agreement.

     10.14  Availability of Funds.  Unless the  Administrative  Agent shall have
been notified by a Lender or Swing Lender prior to the date upon which a Loan is
to be made that such Lender or Swing Lender does not intend to make available to
the  Administrative  Agent in the  applicable  currency  such  Lender's or Swing
Lender's  portion of such Loan,  the  Administrative  Agent may assume that such
Lender or Swing  Lender  has made or will make such  proceeds  available  to the
Administrative  Agent on such date and the Administrative Agent may, in reliance
upon such  assumption  (but shall not be required  to),  make  available  to the
Borrowers  a  corresponding   amount  in  the  applicable   currency.   If  such
corresponding  amount is not in fact made available to the Administrative  Agent
by such Lender or Swing Lender in the applicable  currency,  the  Administrative
Agent  shall be  entitled  to recover  such amount on demand from such Lender or
Swing  Lender  (or,  if such  Lender or Swing  Lender  fails to pay such  amount
forthwith upon such demand from the Borrowers)  together with interest  thereon,
in respect of each day during the period  commencing on the date such amount was
made available to the Borrowers and ending on the date the Administrative  Agent
recovers such amount, at a rate per annum equal to the applicable  Federal Funds
Effective  Rate if  recovered  from such Lender or Swing  Lender or equal to the
applicable interest rate in respect of the Loan if recovered from the Borrowers.

     10.15  Calculations.   In  the  absence  of  gross  negligence  or  willful
misconduct,  the  Administrative  Agent  shall  not be  liable  for any error in
computing  the amount  payable to any Agent,  Lender or Swing Lender  whether in
respect of the Loans,  Fees or any other amounts due to the Agents,  the Lenders
or the Swing  Lenders under this  Agreement.  In the event an error in computing
any  amount  payable  to  any  Agent,  Lender  or  Swing  Lender  is  made,  the
Administrative  Agent,  the Borrowers and each affected  Agent,  Lender or Swing
Lender shall,  forthwith upon discovery of such error,  make such adjustments as
shall be required to correct such error, and any  compensation  therefor will be
calculated at the Federal  Funds  Effective  Rate or the Overnight  Rate if such
computation relates to a Loan made in an Optional Currency.

     10.16 Beneficiaries. Except as expressly provided herein, the provisions of
this  Article X are solely  for the  benefit of the  Administrative  Agent,  the
Arranger,  the Lenders,  the Swing Lenders, and the Borrowers shall not have any
rights to rely on or enforce any of the provisions  hereof.  In performing their
functions  and duties under this  Agreement,  the  Administrative  Agent and the
Arranger  shall act solely as agent of the  Lenders  and do not assume and shall
not be deemed to have assumed any obligation toward or relationship of agency or
trust with or for any of the Borrowers.


                                   ARTICLE XI
                                 MISCELLANEOUS

     11.01 Modifications, Amendments or Waivers. With the written consent of the
Required Lenders, the Administrative Agent, acting on behalf of all the Lenders,
and the  Company  on behalf of the  Borrowers  may from time to time  enter into
written  agreements  amending or changing any provision of this Agreement or any
other Loan Document or the rights of the Lenders or the  Borrowers  hereunder or
thereunder, or may grant written waivers or consents to a departure from the due
performance  of the  Obligations of the Borrowers  hereunder or thereunder.  Any
such  agreement,  waiver or  consent  made with such  written  consent  shall be
effective to bind all the Lenders and the Borrowers; provided, that, without the
written consent of each Lender, no such agreement, waiver or consent may be made
which will:

          (a) increase the amount of the Commitment of such Lender
hereunder or extend the Expiration Date with respect to such Lender;

          (b) increase the aggregate amount of the Commitments of the Lenders to
an amount greater than $200,000,000;

          (c) release any Guarantor the assets of which  represent 5% or more of
the consolidated total assets of the Company and its Subsidiaries;

          (d)  whether  or not any Loans are  outstanding,  extend  the time for
payment of  principal or interest of any Loan made or to be made by such Lender,
the  Facility  Fee or any other  fee  payable  to such  Lender,  or  reduce  the
principal amount of or the rate of interest borne by any Loan made or to be made
by such  Lender or reduce  the  Facility  Fee or any other fee  payable  to such
Lender, or otherwise affect the terms of payment of the principal of or interest
of any Loan made or to be made by such Lender,  or the Facility Fee or any other
fee payable to such Lender; or

          (e) amend Sections 4.02,  7.01(m),  10.05 or 10.12, this Section 11.01
or Section  11.11,  alter any provision  regarding the pro rata treatment of the
Lenders,  change the definition of Required  Lenders,  or change any requirement
providing for the Lenders or the Required Lenders to authorize the taking of any
action hereunder.

     No agreement, waiver or consent which would modify the interests, rights or
obligations of the Administrative  Agent in its capacity as Administrative Agent
shall be effective without the written consent of the  Administrative  Agent. No
Agreement,  waiver or  consent  which  would  modify  the  interests,  rights or
obligations  of the  Arranger in its  capacity as  Arranger  shall be  effective
without the written  consent of the Arranger.  Any provision of a Fee Letter may
be amended, supplemented or waived by written consent of the parties thereto. No
agreement,  waiver or  consent  which  would  modify  the  interests,  rights or
obligations of the  Documentation  Agent in its capacity as Documentation  Agent
shall be effective  without the written consent of the  Documentation  Agent. No
Agreement,  waiver or  consent  which  would  modify  the  interests,  rights or
obligations  of any  Swing  Lender  in its  capacity  as Swing  Lender  shall be
effective without the written consent of such Swing Lender.

     11.02 No Implied Waivers;  Cumulative Remedies; Writing Required. No course
of dealing and no delay or failure of the  Administrative  Agent,  the Arranger,
the Documentation Agent, any Swing Lender or any Lender in exercising any right,
power,  remedy or privilege under this Agreement  (including  without limitation
Article VIII hereof) or any other Loan Document shall affect any other or future
exercise thereof or operate as a waiver thereof; nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
right,  power,  remedy or privilege  preclude any further exercise thereof or of
any other  right,  power,  remedy or  privilege.  The rights and remedies of the
Administrative  Agent,  the Arranger,  the  Documentation  Agent and the Lenders
under this Agreement  (including without limitation Article VIII hereof) and any
other Loan  Documents are cumulative and not exclusive of any rights or remedies
which they would otherwise have. Any waiver,  permit, consent or approval of any
kind or character on the part of any Lender of any breach or default  under this
Agreement  (including without limitation Article VIII hereof) or any such waiver
of any provision or condition of this Agreement  (including  without  limitation
Article  VIII  whereof)  must be in writing and shall be  effective  only to the
extent specifically set forth in such writing.

     11.03 Reimbursement and Indemnification by the Borrowers; Taxes.

          (a)  Reimbursement  and  Indemnification  of  Agents  . The  Borrowers
unconditionally  agree to pay or  reimburse  each of the Agents and save each of
the Agents  harmless  against (i)  liability  for the payment of all  reasonable
out-of-pocket costs, expenses and disbursements,  including fees and expenses of
counsel and  consultants,  incurred by each of the Agents (A) in connection with
the development,  negotiation, preparation, printing, execution, administration,
syndication, interpretation and performance of this Agreement and the other Loan
Documents (subject to the limitations  agreed in the Fee Letters),  (B) relating
to any  requested  amendments,  waivers or consents  pursuant to the  provisions
hereof,  (C) in connection  with the  enforcement of this  Agreement  (including
without limitation Article VIII hereof) or any other Loan Document or collection
of amounts due  hereunder or  thereunder  or the proof and  allowability  of any
claim arising under this Agreement  (including  without  limitation Article VIII
hereof)  or any other  Loan  Document,  whether in  bankruptcy  or  receivership
proceedings or otherwise, and (D) in any workout, restructuring or in connection
with the protection,  preservation,  exercise or enforcement of any of the terms
hereof  or of any  rights  hereunder  or under  any other  Loan  Document  or in
connection with any foreclosure,  collection or bankruptcy proceedings, and (ii)
all liabilities,  obligations,  losses, damages, penalties,  actions, judgments,
suits, costs,  expenses (including fees and expenses of counsel and consultants)
or  disbursements  of any kind or nature  whatsoever  which may be  imposed  on,
incurred by or asserted  against any of the Agents,  in its capacity as such, in
any  way  relating  to or  arising  out of  this  Agreement  (including  without
limitation  Article VIII hereof) or any other Loan Documents or any action taken
or omitted by any of the  Agents  hereunder  or  thereunder,  provided  that the
Borrowers  shall not be liable to an Agent for any portion of such  liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses  or  disbursements  (A) if the same  results  from such  Agent's  gross
negligence or willful misconduct,  or (B) if the Borrowers were not given notice
of the subject claim and the opportunity to participate in the defense  thereof,
at their expense  (except that the  Borrowers  shall remain liable to the extent
such  failure  to give  notice  does not  result in any  additional  loss to the
Borrowers), or (C) if the same results from a compromise or settlement agreement
entered into without the consent of the  Borrowers,  which  consent shall not be
unreasonably withheld. In addition, the Borrowers agree to reimburse and pay all
reasonable  out-of-pocket  expenses of each of the Agents' regular employees and
agents engaged  periodically to perform audits of the Borrowers' books,  records
and business properties.

          (b) Reimbursement and Indemnification of Lenders . The Borrowers agree
unconditionally  upon demand to pay or reimburse to each Lender and to save such
Lender  harmless  against  (i)  liability  for  the  payment  of all  reasonable
out-of-pocket costs, expenses and disbursements  (including fees and expenses of
counsel for each Lender ) incurred  by such  Lender (A) in  connection  with the
enforcement of this Agreement (including without limitation Article VIII hereof)
or any other Loan Document, or collection of amounts due hereunder or thereunder
or the  proof  and  allowability  of any  claim  arising  under  this  Agreement
(including  without  limitation Article VIII hereof) or any other Loan Document,
whether in bankruptcy or receivership  proceedings or otherwise,  and (B) in any
workout,  restructuring  or in  connection  with the  protection,  preservation,
exercise or enforcement of any of the terms hereof or of any rights hereunder or
under any other Loan Document or in connection with any foreclosure,  collection
or  bankruptcy  proceedings,  and (ii)  all  liabilities,  obligations,  losses,
damages,  penalties,  actions, judgments, suits, costs, expenses (including fees
and expenses of counsel) or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against such Lender , in its capacity
as such,  in any way  relating  to or arising out of this  Agreement  (including
without  limitation  Article  VIII and Section  10.06  hereof) or any other Loan
Documents or any action taken or omitted by such Lender hereunder or thereunder,
provided  that  the  Borrowers  shall  not be  liable  for any  portion  of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses or  disbursements  (A) if the same results  from such  Lender's
gross negligence or willful  misconduct,  or (B) if the Borrowers were not given
notice of the subject claim and the  opportunity  to  participate in the defense
thereof,  at their expense (except that the Borrowers shall remain liable to the
extent such failure to give notice does not result in any additional loss to the
Borrowers), or (C) if the same results from a compromise or settlement agreement
entered into without the consent of the  Borrowers,  which  consent shall not be
unreasonably  withheld.  The  Lenders  will  attempt  to  minimize  the fees and
expenses of legal counsel for the Lenders which are subject to  reimbursement by
the Borrowers  hereunder by  considering  the usage of one law firm to represent
the Lenders and the Agents if appropriate under the circumstances.

     11.04  Holidays.  Whenever  any  payment  or  action  to be made  or  taken
hereunder  shall be stated to be due on a day which is not a Business  Day, such
payment  or action  shall be made or taken on the next  following  Business  Day
(except as provided in the definition of "Interest Period"),  and such extension
of time shall be included in computing  interest or fees,  if any, in connection
with such payment or action.

     11.05 Funding by Branch, Subsidiary or Affiliate.

          (a)  Notional  Funding.  Each Lender shall have the right from time to
time,  without  notice  to the  Borrowers,  to deem any  branch,  Subsidiary  or
Affiliate  (which  for the  purposes  of  this  Section  11.05  shall  mean  any
corporation or association  which is directly or indirectly  controlled by or is
under direct or indirect  common  control with any  corporation  or  association
which directly or indirectly  controls such Lender) of such Lender to have made,
maintained  or funded any Loan in Dollars or in any  Optional  Currency to which
the Euro-Rate Option applies at any time,  provided that  immediately  following
(on the assumption  that a payment was then due from the Borrowers to such other
office)  and as a result of such  change  the  Borrowers  would not be under any
greater financial  obligation  pursuant to Sections 3.03 or 4.06 than they would
have  been in the  absence  of such  change.  Notional  funding  offices  may be
selected by each Lender without regard to the Lender's actual methods of making,
maintaining  or funding the Loans or any sources of funding  actually used by or
available to such Lender.

          (b) Actual Funding. Each Lender shall have the right from time to time
to make or maintain any Loan by arranging for a branch,  Subsidiary or Affiliate
of such Lender to make or  maintain  such Loan  subject to the last  sentence of
this Section 11.05(b). If any Lender causes a branch, Subsidiary or Affiliate to
make or maintain any part of the Loans  hereunder,  all terms and  conditions of
this Agreement shall,  except where the context clearly requires  otherwise,  be
applicable  to such part of the Loans to the same  extent as if such  Loans were
made or maintained by such Lender,  provided that in no event shall any Lender's
use of such a branch,  Subsidiary  or  Affiliate to make or maintain any part of
the Loans hereunder cause such Lender or such branch, Subsidiary or Affiliate to
incur any cost or expenses  payable by the  Borrowers  hereunder  or require the
Borrowers to pay any other  compensation  to any Lender  (including any expenses
incurred or payable pursuant to Sections 3.03 or 4.06) which would otherwise not
be incurred.

     11.06 Notices; Lending Offices. All notices, requests,  demands, directions
and other communications (as used in this Section 11.06 collectively referred to
as  "notices")  given to or made upon any party hereto under the  provisions  of
this Agreement shall be by telephone or in writing (including telex or facsimile
communication)  unless  otherwise  expressly  permitted  hereunder  and shall be
delivered  or sent by  telex  or  facsimile  to the  respective  parties  at the
addresses  and numbers set forth under their  respective  names on the signature
pages hereto, on Schedule 1.01(B) or in accordance with any subsequent unrevoked
written  direction from any party to the others.  All notices  shall,  except as
otherwise  expressly herein  provided,  be effective (a) in the case of telex or
facsimile,  when received,  (b) in the case of hand-delivered  notice, when hand
delivered,  (c) in the case of telephone,  when telephoned,  provided,  however,
that in order to be effective,  telephonic  notices must be confirmed in writing
no later than the next day by letter,  facsimile or telex, (d) if given by mail,
four (4) days after such  communication  is deposited in the United States mails
with first class postage prepaid, return receipt requested,  and (e) if given by
any other means  (including  by air courier),  when  delivered;  provided,  that
notices to the Administrative  Agent shall not be effective until received.  Any
Lender  giving  any  notice to any  Borrower  shall  simultaneously  send a copy
thereof to the Administrative Agent, and the Administrative Agent shall promptly
notify the other  Lenders  of the  receipt  by it of any such  notice.  Schedule
1.01(B)  lists the Lending  Offices of each  Lender.  Each Lender may change its
Lending Office by written notice to the other parties hereto.

     11.07  Severability.  The  provisions of this  Agreement are intended to be
severable.  If any  provision  of  this  Agreement  shall  be  held  invalid  or
unenforceable in whole or in part in any  jurisdiction  such provision shall, as
to such  jurisdiction,  be  ineffective  to the  extent  of such  invalidity  or
unenforceability  without in any manner affecting the validity or enforceability
thereof in any other  jurisdiction  or the  remaining  provisions  hereof in any
jurisdiction.

     11.08  Governing Law. This Agreement shall be deemed to be a contract under
the Laws of the State of Illinois and for all purposes  shall be governed by and
construed  and enforced in  accordance  with the  internal  laws of the State of
Illinois without regard to its conflict of laws principles.

     11.09 Prior Understanding.  This Agreement and the Loan Documents supersede
all prior  understandings  and agreements,  whether written or oral, between the
parties hereto and thereto relating to the transactions  provided for herein and
therein, including any prior confidentiality agreements and commitments.

     11.10  Duration;  Survival.  All  representations  and  warranties  of  the
Borrowers  contained  herein or made in  connection  herewith  shall survive the
making of Loans and shall not be waived by the  execution  and  delivery of this
Agreement,  any investigation by the Agents, the Lenders, the making of Loans or
payment in full of the Loans.  All  covenants  and  agreements  of the Borrowers
contained herein relating to the payment of principal, interest, Fees, premiums,
additional  compensation  or expenses and  indemnification,  including those set
forth in Article IV and  Section  11.03,  shall  survive  payment in full of the
Loans and termination of the Commitments.

     11.11  Successors  and Assigns.  This  Agreement  shall be binding upon and
shall inure to the benefit of the Lenders,  the Agents,  the Borrowers and their
respective successors and assigns,  except that none of the Borrowers may assign
or transfer any of its rights and Obligations  hereunder or any interest herein.
Each Lender may, at its own cost, make assignments of or sell  participations in
all or any  part  of its  Commitment  and  the  Loans  made by it to one or more
Lenders or other Persons, subject to the terms set forth herein:

          (a) Assignment. In the case of an assignment,  (i) without the consent
of any party, any Lender may assign to any of its Affiliates or to any Person in
accordance  with the  provisions  of  Section  2.01(b),  or to any other  Lender
(subject to the further  clauses  below),  all or any portion of its Commitment;
(ii) any Lender may assign to any other Person  (subject to the further  clauses
below)  with the prior  consent  of the  Administrative  Agent  and the  Company
(unless and until an Event of Default has occurred and is continuing after which
no  consent  of the  Company  shall  be  required),  which  consent  may  not be
unreasonably withheld,  all or any portion of its Commitment;  (iii) any partial
assignment  shall not be less than  $5,000,000 and in multiples of $1,000,000 in
excess thereof;  (iv) if an assignment is made of any Lender's Commitment,  such
Assignor  Lender must  simultaneously  assign the same proportion of each of its
Revolving  Credit  Loans  then  outstanding;  (v)  any  assignment  must be made
pursuant to an Assignment and Assumption Agreement, and (vi) the Assignor Lender
shall pay to the Administrative  Agent a service fee in the amount of $3,500 for
each assignment.  Upon acceptance by the Administrative  Agent of the Assignment
and Assumption Agreement,  the Assignee Lender shall have, to the extent of such
assignment (unless otherwise provided  therein),  the same rights,  benefits and
obligations as it would have if it had been a signatory  Lender  hereunder,  the
Commitments reflected on Schedule 1.01(B) shall be adjusted accordingly, and the
Administrative Agent shall deliver a revised Schedule 1.01(B) to the Company and
the Lenders.  The Administrative  Agent shall maintain a copy of each Assignment
and Assumption  Agreement delivered to it, and a register for the recordation of
the names and addresses of the Lenders,  the Commitments of the Lenders, and the
principal  amount of the Revolving  Credit Loans  outstanding  from time to time
(the  "Register").  Entries in the Register  shall be conclusive and binding for
all purposes, absent manifest error, and the Borrowers, the Administrative Agent
and the Lenders may treat each Person  whose name is recorded in the Register as
a Lender for all purposes of this  Agreement and each other Loan  Document.  The
Register shall be available for inspection by the Borrowers or any Lender at any
reasonable time and from time to time upon reasonable prior notice.

          (b)  Participations.   In  the  case  of  a  participation,   (i)  the
participant's  rights against such Lender in respect of such participation shall
be those  set forth in the  agreement  executed  by such  Lender in favor of the
participant relating thereto, and (ii) such agreement shall include an agreement
to be bound by the provisions of Section 10.12, and shall not include any voting
rights  except with  respect to changes of the type  referenced  in clauses (a),
(b), (c) or (d) under Section 11.01. All of such Lender's obligations under this
Agreement  or any other Loan  Document  shall remain  unchanged  and all amounts
payable by any Borrower  hereunder or thereunder  shall be determined as if such
Lender had not sold such  participation.  Such Lender  shall remain the owner of
any  such  participated  interest  for  all  purposes  of  this  Agreement.  The
Borrowers,  the Agents and the other Lenders  shall  continue to deal solely and
directly  with  such  Lender  in  connection   with  such  Lender's  rights  and
obligations under this Agreement. All such participants shall be entitled to the
benefit of the provisions of Sections  3.03,  4.06,  8.08,  9.02(c) and Sections
11.03(b).

          (c)  Other  Provisions.  Any  assignee  or  participant  which  is not
incorporated  under the Laws of the United  States of America or a state thereof
shall  deliver  to the  Borrowers  and  the  Administrative  Agent  the  form of
certificate   described  in  Section  11.18   relating  to  federal  income  tax
withholding  and the Lender  who makes an  assignment  or sells a  participation
shall cause the assignee or participant to comply with the provisions of Section
11.18. Each Lender may furnish any publicly available information concerning the
Company or its Subsidiaries and any other information  concerning the Company or
its Subsidiaries in the possession of such Lender from time to time to assignees
and participants  (including  prospective  assignees or participants),  provided
that such  assignees  and  participants  agree to be bound by the  provisions of
Section 11.12.

          (d) Federal  Reserve Bank  Transfer.  Notwithstanding  anything to the
contrary,  any  Lender may at any time  assign all or any  portion of its rights
under this Agreement and the other Loan Documents to a Federal Reserve Bank, and
no such  assignment  shall release such  assigning  Lender from its  obligations
hereunder.

     11.12  Confidentiality.

          (a) The Agents and the  Lenders  each agree to keep  confidential  all
information  obtained  from  the  Company  or any of its  Subsidiaries  which is
nonpublic and  confidential or proprietary in nature  (including any information
the Company or any of its Subsidiaries specifically designates as confidential),
except as provided below,  and to use such  information  only in connection with
their   respective   capacities  under  this  Agreement  and  for  the  purposes
contemplated  hereby.  Any Agent or Lender shall be  permitted to disclose  such
information  (i) to  Affiliates,  outside legal counsel,  accountants  and other
professional  advisors who need to know such  information in connection with the
administration  and enforcement of this Agreement,  subject to agreement of such
Persons to maintain  the  confidentiality,  (ii) to assignees  and  participants
(including  prospective  assignees and  participants) as contemplated by Section
11.11,  (iii) to the extent requested by any bank regulatory  authority or, with
notice  to the  Company,  as  otherwise  required  by  applicable  Law or by any
subpoena or similar legal process,  or in connection with any  investigation  or
proceeding arising out of the transactions  contemplated by this Agreement, (iv)
if it  becomes  publicly  available  other  than as a result of a breach of this
Agreement or becomes  available  from a source not known to such Agent or Lender
to be subject to confidentiality  restrictions, or (v) if the Company shall have
consented to such disclosure.

          (b) Sharing Information With Affiliates of the Lenders.  Each Borrower
acknowledges that from time to time financial  advisory,  investment banking and
other  services  may be offered or provided to the Company or one or more of its
Affiliates (in connection  with this Agreement or otherwise) by any Lender or by
one or more  Subsidiaries or Affiliates of such Lender and each of the Borrowers
hereby authorizes each Lender to share any information  delivered to such Lender
by the Company and its Subsidiaries pursuant to this Agreement, or in connection
with the  decision  of such  Lender to enter  into this  Agreement,  to any such
Subsidiary  or  Affiliate  of such  Lender,  it being  understood  that any such
Subsidiary or Affiliate of any Lender receiving such information  shall be bound
by the  provisions  of  Section  11.12  as if it were a Lender  hereunder.  Such
authorization shall survive the repayment of the Loans and other Obligations and
the termination of the Commitments.

     11.13  Counterparts.  This  Agreement may be executed by different  parties
hereto on any number of separate  counterparts,  each of which, when so executed
and delivered,  shall be an original,  and all such counterparts  shall together
constitute one and the same instrument.

     11.14 Agent's or Lender's Consent.  Whenever any Agent's or any Lender's or
the Issuing  Bank's  consent is required to be obtained  under this Agreement or
any of the  other  Loan  Documents  as a  condition  to  any  action,  inaction,
condition  or event,  each Agent and each Lender and the  Issuing  Bank shall be
authorized to give or withhold such consent in its sole and absolute  discretion
(unless such consent is not to be  unreasonably  withheld)  and to condition its
consent upon the giving of collateral, the payment of money or any other matter.

     11.15 Exceptions.  The representations,  warranties and covenants contained
herein   shall  be   independent   of  each  other  and  no   exception  to  any
representation,  warranty or covenant  shall be deemed to be an exception to any
other  representation,  warranty or covenant  contained  herein unless expressly
provided,  nor shall any such  exceptions  be  deemed  to permit  any  action or
omission that would be in contravention of applicable Law.

     11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.

          (a) EACH  BORROWER  HEREBY  IRREVOCABLY  CONSENTS TO THE  NONEXCLUSIVE
JURISDICTION  OF THE CIRCUIT COURT OF COOK COUNTY AND THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF ILLINOIS,  AND WAIVES PERSONAL SERVICE OF ANY
AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH BORROWER AT THE ADDRESSES PROVIDED
FOR IN SECTION  11.06 AND SERVICE SO MADE SHALL BE DEEMED TO BE  COMPLETED  UPON
ACTUAL RECEIPT  THEREOF.  EACH BORROWER WAIVES ANY OBJECTION TO JURISDICTION AND
VENUE OF ANY ACTION  INSTITUTED  AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO
ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE.

          (b) EACH  BORROWER,  EACH  AGENT,  EACH OF THE LENDERS AND THE ISSUING
BANK HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT,  PROCEEDING OR COUNTERCLAIM
OF ANY KIND  ARISING  OUT OF OR  RELATED  TO THIS  AGREEMENT  OR ANY OTHER  LOAN
DOCUMENT TO THE FULL EXTENT PERMITTED BY LAW.

     11.17  Waivers  by  Borrowers.  Except as  otherwise  provided  for in this
Agreement  and the  other  Loan  Documents,  each of the  Borrowers  waives  (i)
presentment,  demand and protest and notice of  presentment,  protest,  default,
non-payment,  maturity, release, compromise, settlement, extension or renewal of
any or all commercial paper, accounts, contract rights, documents,  instruments,
chattel  paper and  guaranties at any time held by any of the Borrowers on which
such Borrower may in any way be liable and hereby ratifies and confirms what the
Administrative  Agent may do in this regard;  (ii) the benefit of all valuation,
appraisement and exemption laws; and (iii) any right such Borrower may have upon
payment in full of its  Obligations to require the  Administrative  Agent or any
Lender to terminate its security interest in any property of the Borrowers until
termination of this Agreement in accordance  with its terms and the execution by
the  Administrative  Agent and each of the  Borrowers,  and by any Person  whose
loans to the Borrowers are used in whole or in part to satisfy the  Obligations,
of an agreement  indemnifying the Agents and the Lenders from any loss or damage
the Agents or the Lenders may incur as the result of dishonored  checks or other
items of payment  received by the Agents from the  Borrowers  and applied to the
Obligations.

     11.18 Tax  Withholding  Forms.  Each Lender or assignee or participant of a
Lender that is not  incorporated  under the Laws of the United States of America
or a state  thereof  agrees that it will  deliver to each of the Company and the
Administrative  Agent  two (2)  duly  completed  copies  of the  following:  (i)
Internal  Revenue  Service  Form W-9,  4224 or 1001,  or other  applicable  form
prescribed  by the  Internal  Revenue  Service,  certifying  that  such  Lender,
assignee or participant is entitled to receive payments under this Agreement and
the other Loan Documents  without  deduction or withholding of any United States
federal  income  taxes,  or is  subject  to such tax at a reduced  rate under an
applicable  tax  treaty,  or (ii)  Internal  Revenue  Service  Form W-8 or other
applicable  form  or a  certificate  of  the  Lender,  assignee  or  participant
indicating  that no such  exemption or reduced rate is allowable with respect to
such  payments.  Each  assignee  or  participant  shall  deliver  such  form  or
certificate on or before the effective date of such assignment or participation.
Each Lender,  assignee or participant which so delivers a Form W-8, W-9, 4224 or
1001 further undertakes to deliver to each of the Company and the Administrative
Agent two (2) additional  copies of such form (or a successor form) on or before
the date that such form expires or becomes  obsolete or after the  occurrence of
any event  requiring a change in the most recent  form so  delivered  by it, and
such amendments  thereto or extensions or renewals  thereof as may be reasonably
requested by the Company or the  Administrative  Agent,  either  certifying that
such Lender,  assignee or participant is entitled to receive payments under this
Agreement and the other Loan Documents  without  deduction or withholding of any
United States  federal  income taxes or is subject to such tax at a reduced rate
under an applicable tax treaty or stating that no such exemption or reduced rate
is  allowable.  The  Administrative  Agent shall be entitled to withhold  United
States  federal  income  taxes at the full  withholding  rate unless the Lender,
assignee or  participant  establishes  an  exemption  or that it is subject to a
reduced rate as established pursuant to the above provisions.





<PAGE>




     IN WITNESS WHEREOF,  the parties hereto,  by their officers  thereunto duly
authorized,  have  executed  this  Agreement  as of the day and year first above
written.


                                  BORDERS GROUP, INC., as Borrower and
                                  as Guarantor under Article VIII


                                  By:    /s/ Bruce A. Quinnell
                                  Title: Vice Chairman

                                  Address for Notices:

                                  100 Phoenix Drive
                                  Ann Arbor, Michigan  48108

                                  Telecopier No. (734) 477-1370
                                  Attention:  Thomas D. Carney
                                  Telephone No. (734) 477-1977


                                  BORDERS, INC., as Borrower and
                                  as Guarantor under Article VIII


                                  By:   /s/ Bruce A. Quinnell
                                  Title: Vice Chairman

                                  Address for Notices:

                                  c/o Borders Group, Inc.
                                  100 Phoenix Drive
                                  Ann Arbor, Michigan  48108

                                  Telecopier No. (734) 477-1370
                                  Attention:  Thomas D. Carney
                                  Telephone No. (734) 734-1977



<PAGE>




                                  WALDEN BOOK COMPANY, INC., as
                                  Borrower and as Guarantor under
                                  Article VIII

                                  By:   /s/ Robert F. DiRomualdo
                                  Title: Chairman and CEO

                                  Address for Notices:

                                  c/o Borders Group, Inc.
                                  100 Phoenix Drive
                                  Ann Arbor, Michigan  48108

                                  Telecopier No. (734) 477-1370
                                  Attention:  Thomas D. Carney
                                  Telephone No. (734) 477-1977


                                  BGP (UK) LIMITED, as Borrower and
                                  as Guarantor under Article VIII

                                  By:   /s/ Robert F. DiRomualdo
                                  Title: Director

                                  Address for Notices:

                                  c/o Borders Group, Inc.
                                  100 Phoenix Drive
                                  Ann Arbor, Michigan  48108

                                  Telecopier No. (734) 477-1370
                                  Attention:  Thomas D. Carney
                                  Telephone No. (734) 477-1977


                                  BORDERS (UK) LIMITED, as Borrower

                                  By:   /s/ Robert F. DiRomualdo
                                  Title: Director

                                  Address for Notices:

                                  c/o Borders Group, Inc.
                                  100 Phoenix Drive
                                  Ann Arbor, Michigan  48108

                                  Telecopier No. (734) 477-1370
                                  Attention:  Thomas D. Carney
                                  Telephone No. (734) 477-1977


<PAGE>






                                  PLANET MUSIC, INC., as
                                  Guarantor under Article VIII


                                  By: /s/ Bruce A. Quinnell
                                  Title:

                                  Address for Notices:

                                  c/o Borders Group, Inc.
                                  100 Phoenix Drive
                                  Ann Arbor, Michigan  48108

                                  Telecopier No. (734) 477-1370
                                  Attention:  Thomas D. Carney
                                  Telephone No. (734) 477-1977


                                  BORDERS PROPERTIES, INC., as
                                  Guarantor under Article VIII


                                  By: /s/ Bruce A. Quinnell
                                  Title:

                                  Address for Notices:

                                  c/o Borders Group, Inc.
                                  100 Phoenix Drive
                                  Ann Arbor, Michigan  48108

                                  Telecopier No. (734) 477-1370
                                  Attention:  Thomas D. Carney
                                  Telephone No. (734) 477-1977


                                  WALDENBOOKS PROPERTIES, INC. as
                                  Guarantor under Article VIII


                                  By: /s/ Bruce A. Quinnell
                                  Title:

                                  Address for Notices:

                                  c/o Borders Group, Inc.
                                  100 Phoenix Drive
                                  Ann Arbor, Michigan  48108

                                  Telecopier No. (734) 477-1370
                                  Attention:  Thomas D. Carney
                                  Telephone No. (734) 477-1977


                                  BORDERS ONLINE, INC., as
                                  Guarantor under Article VIII


                                  By: /s/ Bruce A. Quinnell
                                  Title: Vice President - Finance; Treasurer

                                  Address for Notices:

                                  c/o Borders Group, Inc.
                                  100 Phoenix Drive
                                  Ann Arbor, Michigan  48108

                                  Telecopier No. (734) 477-1370
                                  Attention:  Thomas D. Carney
                                  Telephone No. (734) 477-1977




<PAGE>


                                  BORDERS OUTLET, INC., as
                                  Guarantor under Article VIII


                                  By: /s/ Bruce A. Quinnell
                                  Title: Vice Chairman

                                  Address for Notices:

                                  c/o Borders Group, Inc.
                                  100 Phoenix Drive
                                  Ann Arbor, Michigan  48108

                                  Telecopier No. (734) 477-1370
                                  Attention:  Thomas D. Carney
                                  Telephone No. (734) 477-1977


                                  BORDERS FULFILLMENT, INC., as
                                  Guarantor under Article VIII


                                  By:   /s/ Robert F. DiRomualdo
                                  Title: Chairman and CEO

                                  Address for Notices:

                                  c/o Borders Group, Inc.
                                  100 Phoenix Drive
                                  Ann Arbor, Michigan  48108

                                  Telecopier No. (734) 477-1370
                                  Attention:  Thomas D. Carney
                                  Telephone No. (734) 477-1977


                                  THE LIBRARY, LTD., as
                                  Guarantor under Article VIII


                                  By:   /s/ Bruce A. Quinnell
                                  Title:    Vice Chairman

                                  Address for Notices:

                                  c/o Borders Group, Inc.
                                  100 Phoenix Drive
                                  Ann Arbor, Michigan  48108

                                  Telecopier No. (734) 477-1370
                                  Attention:  Thomas D. Carney
                                  Telephone No. (734) 477-1977




<PAGE>


                                  PNC BANK, NATIONAL ASSOCIATION,
                                  as Administrative Agent


                                  By: /s/ Nancy Chiles
                                  Title: Vice President


                                  PNC CAPITAL MARKETS, INC.,
                                  as Arranger


                                  By:   /s/ Thomas V. Kondrak
                                  Title: Managing Director


                                  FLEET NATIONAL BANK,
                                  as Documentation Agent


                                  By: /s/ Robert T.P. Storer
                                  Title: Senior Vice President


                                  PNC BANK, NATIONAL ASSOCIATION


                                  By: /s/ Nancy Chiles
                                  Title: Vice President


                                  FLEET NATIONAL BANK


                                  By: /s/ Robert T.P. Storer
                                  Title: Senior Vice President


                                  BANQUE NATIONALE DE PARIS


                                  By: /s/ Arnaud Collin du Bocage
                                  Title: Executive Vice President & General
                                  Manager


                                  KEY BANK NATIONAL ASSOCIATION


                                  By: /s/ J.T. Taylor
                                  Title: Vice President


                                  SUNTRUST BANK, ATLANTA


                                  By: /s/ Charles C. Pick
                                  Title: Vice President


                                  WACHOVIA BANK, N.A.


                                  By: /s/ Todd J. Eagle
                                  Title: Vice President


                                  THE BANK OF NEW YORK


                                  By: /s/ Michael Flannery
                                  Title: Vice President


                                  MERCANTILE BANK NATIONAL ASSOCIATION


                                  By: /s/ Steve Reese
                                  Title: Vice President


                                  UNION BANK OF CALIFORNIA, N.A.


                                  By: /s/ Timothy P. Streb
                                  Title: Vice President