SUPREMA SPECIALTIES, INC.





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                                 NOTE AGREEMENT

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                            DATED AS OF MARCH 9, 1998




          $10,500,000 16.5% SENIOR SUBORDINATED NOTES DUE MARCH 1, 2006




<PAGE>


                                TABLE OF CONTENTS
                             (Not Part of Agreement)

<TABLE>
<CAPTION>
                                                                                                       Page
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<S>                                                                                                     <C>
1.       PAYMENTS......................................................................................  1
         1.1      Interest Payments....................................................................  1
         1.2      Capitalized Interest Amounts.........................................................  2
         1.3      Scheduled Principal Payments.........................................................  2
         1.4      Optional Principal Payments..........................................................  3
         1.5      Offer to Pay Upon Change in Management...............................................  4
         1.6      Delivery of Subordinated Notes in Payment of Warrant Purchase Price..................  5
         1.7      Application of Payments; Payments Among Noteholders..................................  5
         1.8      Notation of Notes on Payment.........................................................  6
         1.9      No Other Payments of Principal; Acquisition of Notes.................................  7
         1.10     Manner of Payments...................................................................  7

2.       REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.................................................  8
         2.1      Registration of Notes................................................................  8
         2.2      Exchange of Notes....................................................................  8
         2.3      Replacement of Notes.................................................................  8
         2.4      Issuance Taxes.......................................................................  9

3.       GENERAL COVENANTS.............................................................................  9
         3.1      Payment of Taxes and Claims..........................................................  9
         3.2      Maintenance of Properties; Corporate Existence; etc.................................. 10
         3.3      Payment of Notes and Maintenance of Office........................................... 10
         3.4      Pension Plans........................................................................ 11
         3.5      Private Offering..................................................................... 11
         3.6      Subsidiary Guaranty.................................................................. 11

4.       FINANCIAL COVENANTS........................................................................... 12
         4.1      Mergers and Consolidations........................................................... 12
         4.2      Disposition of Assets, Subsidiary Stock.............................................. 13
         4.3      Liens................................................................................ 15
         4.4      Net Worth............................................................................ 17
         4.5      Fixed Charge Coverage................................................................ 18
         4.6      Ratio of Debt to Pro Forma Consolidated Cash Flow.................................... 18
         4.7      Incurrence of Debt................................................................... 18
         4.8      Restricted Payments, Restricted Repurchases and Restricted
                  Investments.......................................................................... 21
         4.9      Seniority to Junior Subordinated Debt................................................ 22
         4.10     Line of Business..................................................................... 22
         4.11     Transactions with Affiliates......................................................... 23

5.       REPORTING COVENANTS........................................................................... 23
         5.1      Financial and Business Information................................................... 23
         5.2      Extension of Time to File SEC Reports................................................ 26
         5.3      Officer's Certificates............................................................... 26
         5.4      Accountants' Certificates............................................................ 27
</TABLE>

                                        i

<PAGE>


                          TABLE OF CONTENTS (continued)
                             (Not Part of Agreement)

<TABLE>
<CAPTION>
                                                                                                       Page
                                                                                                       ----
<S>                                                                                                     <C>
         5.5      Inspection........................................................................... 27
         5.6      Confidential Information............................................................. 27

6.       EVENTS OF DEFAULT............................................................................. 29
         6.1      Events of Default.................................................................... 29
         6.2      Default Remedies..................................................................... 31
         6.3      Annulment of Acceleration of Notes................................................... 33

7.       SUBORDINATION................................................................................. 34
         7.1      General.............................................................................. 34
         7.2      Insolvency........................................................................... 34
         7.3      Proofs of Claim...................................................................... 34
         7.4      Payment Default in Respect of Senior Debt............................................ 35
         7.5      Significant Nonpayment Default in Respect of Senior Debt............................. 35
         7.6      Enforcement Notice................................................................... 36
         7.7      Standstill........................................................................... 36
         7.8      Turnover of Payments................................................................. 37
         7.9      Subordination Unaffected by Certain Events........................................... 37
         7.10     Waiver and Consent................................................................... 38
         7.11     Reinstatement of Subordination....................................................... 38
         7.12     Obligations Not Impaired............................................................. 38
         7.13     Payment of Senior Debt; Subrogation.................................................. 39
         7.14     Reliance of Holders of Senior Debt................................................... 39
         7.15     Identity of Holders of Senior Debt................................................... 39
         7.16     Amendments to Senior Credit Facility................................................. 39

8.       INTERPRETATION OF THIS AGREEMENT.............................................................. 40
         8.1      Terms Defined........................................................................ 40
         8.2      Other Definitions.................................................................... 62
         8.3      Accounting Principles................................................................ 62
         8.4      Directly or Indirectly............................................................... 63
         8.5      Section Headings and Table of Contents and Construction.............................. 63
         8.6      Governing Law........................................................................ 63
         8.7      General Interest Provisions.......................................................... 63

9.       MISCELLANEOUS................................................................................. 65
         9.1      Communications....................................................................... 65
         9.2      Reproduction of Documents............................................................ 65
         9.3      Survival; Entire Agreement........................................................... 66
         9.4      Successors and Assigns............................................................... 66
         9.5      Amendment and Waiver................................................................. 66
         9.6      Expenses............................................................................. 68
         9.7      Waiver of Jury Trial; Consent to Jurisdiction, etc................................... 69
         9.8      Execution in Counterpart............................................................. 70

Annex 1          --        Addresses of Purchasers; Payment Instructions
</TABLE>

                                       ii

<PAGE>


                          TABLE OF CONTENTS (continued)
                             (Not Part of Agreement)

<TABLE>
<CAPTION>
                                                                                                       Page
                                                                                                       ----

<S>                                                                                                    <C>
Annex 2          --        Address of Company
Annex 3          --        Existing Liens, Debt and Investments

Attachment A     --        Form of Note
</TABLE>




                                       iii

<PAGE>



                                 NOTE AGREEMENT


     NOTE AGREEMENT, dated as of March 9, 1998, among SUPREMA SPECIALTIES, INC.,
a  New  York  corporation   (together  with  its  successors  and  assigns,  the
"Company"),  ALBION  ALLIANCE  MEZZANINE  FUND,  L.P.,  and THE  EQUITABLE  LIFE
ASSURANCE  SOCIETY OF THE UNITED STATES (each,  together with its successors and
assigns, a "Purchaser" and collectively, the "Purchasers").

                                    RECITALS

     WHEREAS,  pursuant to the Securities  Purchase  Agreements,  the Purchasers
have agreed to purchase from the Company,  and the Company has agreed to sell to
the  Purchasers,  Ten Million Five Hundred  Thousand  Dollars  ($10,500,000)  in
aggregate principal amount of the Notes; and

     WHEREAS,  the Company and the Purchasers  wish to enter into this Agreement
to govern the terms of the Notes;

                                    AGREEMENT

     NOW, THEREFORE,  in consideration of the premises and the mutual agreements
set forth  herein,  the  parties  to this  Agreement  hereby  agree as  follows:

PAYMENTS 

Interest Payments

     Interest  (computed on the basis of a 360-day year of twelve 30-day months)
shall  accrue on the  unpaid  principal  balance  of the Notes from time to time
outstanding from and including the date thereof at the rate of sixteen and fifty
one-hundredths  percent  (16.5%) per annum,  payable monthly on the first day of
each calendar month in each year (each an "Interest  Payment Date"),  commencing
April 1, 1998,  until the  principal  thereof shall have become due and payable,
and to the extent permitted by law in respect of any Note on any overdue payment
of  principal,  any overdue  payment of interest and any overdue  payment of any
Prepayment Compensation Amount, payable, on demand, at a rate per annum equal to
the lesser of:

          (a) the highest rate allowed by applicable law; and

          (b) the greater of:

               (i) eighteen and fifty one-hundredths percent (18.5%); and

               (ii)  the sum of two  percent  (2%)  plus  the  rate of  interest
          publicly  announced from time to time by Morgan Guaranty Trust Company
          of New York in New  York,  New York as its  "base"  or  "prime"  rate.

          Capitalized Interest Amounts

     On any  Interest  Payment  Date on or prior to January 1, 2003,  in lieu of
making the entire interest payment on a Note in cash, the Company shall:


                                        1

<PAGE>



          (b) pay on such Interest  Payment  Date, in cash,  that portion of the
     interest  accrued on the outstanding  principal amount of such Note to such
     Interest  Payment Date as would have accrued at the rate of twelve  percent
     (12.00%) per annum; and

          (c) both:

               (i) pay on such Interest Payment Date, in cash, none, any part or
          all of the interest accrued on such principal to such Interest Payment
          Date  as  would   have   accrued   at  the  rate  of  four  and  fifty
          one-hundredths percent (4.50%) per annum; and

               (ii) add to the  outstanding  principal  amount of such  Notes on
          such Interest  Payment Date the portion of such interest as would have
          accrued at the rate of four and fifty  one-hundredths  percent (4.50%)
          per  annum  which  is not  paid in cash  pursuant  to the  immediately
          preceding  clause (i) (each such  addition with respect to any Note, a
          "Capitalized Interest Amount").

Interest shall begin to accrue on each Capitalized  Interest Amount beginning on
and  including  the  Interest  Payment Date on which such  Capitalized  Interest
Amount is added to the principal  amount of the related Note,  and such interest
shall accrue and be paid,  together with the interest on the remaining principal
amount of the  Note,  in  accordance  with  Section  1.1 and this  Section  1.2.

Scheduled Principal Payments

          (d) Payment of Capitalized  Interest  Amounts.  The Company shall pay,
     and there shall  become due and  payable,  a principal  amount of the Notes
     equal to the sum of all Capitalized  Interest Amounts  theretofore added to
     the  principal  amount of the Notes  pursuant  to  Section  1.2(b)(ii)  and
     remaining  unpaid at such time, on February 1, 2003, at one hundred percent
     (100%) of the principal  amount paid,  together  with interest  accrued and
     unpaid thereon to the date of payment.

          (e)  Required  Principal  Payments.  The Company  shall pay, and there
     shall become due and payable,  Three Million Five Hundred  Thousand Dollars
     ($3,500,000) in principal amount of the Notes on March 1, 2004 and March 1,
     2005, at one hundred percent (100%) of the principal amount paid,  together
     with interest accrued and unpaid thereon to the date of payment. The entire
     principal of the Notes  remaining  outstanding  on March 1, 2006,  together
     with interest accrued  thereon,  shall become due and payable on such date.
     The payments required to be made on March 1, 2004 and March 1, 2005 and the
     payment  required  to be made  at  maturity  on  March  1,  2006  are  each
     hereinafter referred to as a "Required Principal Payment."

Optional Principal Payments

          Optional  Principal  Payments with Prepayment  Compensation  AmountThe
     Company may pay the  principal  amount of the Notes in whole or in part, on
     any Interest  Payment  Date, in multiples of One Hundred  Thousand  Dollars
     ($100,000) (or, if the aggregate  outstanding principal amount of the Notes
     is less than One Hundred  Thousand  Dollars  ($100,000) at such time,  then
     such principal amount), together with:


                                        2

<PAGE>


               (i) interest on such principal  amount then being paid accrued to
          the payment date; and

               (ii) an amount equal to the Prepayment Compensation Amount due at
          such time in respect  of the  principal  amount of the Notes  being so
          paid;  provided,  however,  that any  optional  payment  of the  Notes
          pursuant to this  Section  1.4 of a  principal  amount of any Note not
          exceeding the aggregate  amount of all  Capitalized  Interest  Amounts
          theretofore  added to the  principal  amount of the Notes  pursuant to
          Section  1.2(b)(ii) and remaining unpaid at such time shall be without
          any Prepayment Compensation Amount.

          Notice  of  Optional  Payment  The  Company  will  give  notice of any
     optional  payment of the Notes pursuant to this Section  1.2(b)(ii) to each
     holder of Notes not less than  thirty  (30) days nor more than  sixty  (60)
     days before the specified payment date, stating:

               (iii) the specified payment date;

               (iv) that such  payment is to be made  pursuant  to this  Section
          1.4;

               (v) the principal amount of each Note to be paid on such date;

               (vi) the  interest  to be paid on each such Note,  accrued to the
          specified payment date;

               (vii)  the  amounts  and  the due  dates  of the  then  remaining
          Required  Principal  Payments  determined  after giving effect to such
          payment;

               (viii) the aggregate principal amount to be paid which is subject
          to payment of a Prepayment Compensation Amount; and

               (ix)  if such  payment  is made  prior  to  March  1,  2001,  the
          calculation  (with  details)  of  an  estimated  Standard   Prepayment
          Compensation  Amount, if any (calculated as if the date of such notice
          was the date of payment), due in connection with such payment; and, if
          such  payment  is  made  on or  after  March  1,  2001,  the  Modified
          Prepayment  Compensation  Amount;  in each case,  with  respect to the
          principal  amount  to be so  paid,  if any,  which is  subject  to the
          payment of such Prepayment Compensation Amount.

     Notice of payment having been so given,  the aggregate  principal amount of
     the Notes to be paid stated in such notice,  together  with the  Prepayment
     Compensation  Amount  determined as of the specified  payment date, if any,
     and interest  thereon accrued to the specified  payment date,  shall become
     due and payable on the specified payment date. If such payment is due prior
     to March 1, 2001,  then,  two (2) Business Days prior to the making of such
     payment,  the Company  shall  deliver to each holder of Notes by  facsimile
     transmission (confirmed by nationwide overnight courier) a certificate of a
     Senior Financial  Officer  specifying the details of the calculation of the
     Standard  Prepayment  Compensation Amount as of the specified payment date,
     and including a copy of the source of interest rate information used in the
     calculation thereof. 

Offer to Pay Upon Change in Management


                                        3

<PAGE>

          Offer in Respect of a Change in Management In the event of a Change in
     Management,  the Company will,  within fifteen (15) Business Days after the
     occurrence of such event,  give notice of such Change in Management to each
     holder of Notes. Such notice shall contain an irrevocable separate offer to
     each holder of Notes to repurchase all, but not less than all, of the Notes
     held by such holder on a date (the  "Change in  Management  Payment  Date")
     specified  in such  notice  that is not less than  thirty (30) days and not
     more than  ninety  (90) days after the date of such  notice,  at a purchase
     price equal to one hundred one percent  (101%) of the  aggregate  principal
     amount thereof and all interest  accrued and unpaid on the principal amount
     thereof to the Change in Management Payment Date. Each such notice shall:

               (x) be dated the date of the sending of such notice;

               (xi) be executed by a Senior Officer;

               (xii) specify,  in reasonable  detail, the nature and date of the
          Change in Management;

               (xiii) specify the Change in Management Payment Date;

               (xiv) specify the principal amount of each Note outstanding;

               (xv) specify the interest  that would be due on each Note offered
          to be paid, accrued to the Change in Management Payment Date; and

               (xvi) specify that the Notes shall be prepaid at a purchase price
          equal to one  hundred one percent  (101%) of the  aggregate  principal
          amount  thereof and all interest  accrued and unpaid on the  principal
          amount thereof to the Change in Management Payment Date.

     If the Company  shall not have  received a written  response to such notice
     from any holder of Notes  within ten (10)  Business  Days after the date of
     posting of such  notice to such  holder of Notes,  then the  Company  shall
     immediately send a second notice to each such holder of Notes.

          Acceptance,  Rejection  Each  holder of Notes shall have the option to
     accept or reject such  offered  payment.  In order to accept  such  offered
     payment,  a holder of Notes shall cause a notice of such  acceptance  to be
     delivered  to the  Company  at least  five (5) days  prior to the Change in
     Management  Payment Date. A failure to accept in writing such written offer
     of payment as provided in this Section  1.5(b),  or a written  rejection of
     such offered prepayment,  shall be deemed to constitute a rejection of such
     offer.

          Payment The offered  payment  shall be made at one hundred one percent
     (101%) of the  principal  amount of the Notes to be prepaid,  together with
     interest  accrued to and determined as of the Change in Management  Payment
     Date.

     0.1 Delivery of Subordinated Notes in Payment of Warrant Purchase Price.

     The Warrant  Agreement  provides that a holder of Warrants may tender Notes
to the  Company in partial or  complete  payment of the  purchase  price for the
shares of Common Stock

                                        4

<PAGE>



issued upon exercise of the Warrants. Promptly following the receipt of any Note
so tendered,  the Company shall  immediately  cancel and retire the same (and no
such Subordinated Note shall be reissued), and shall issue to the holder thereof
a new  Note in the  principal  amount  of such  tendered  Note  remaining  after
deduction of the  principal  amount  thereof  applied to payment of the purchase
price  for the  shares  of  Common  Stock.  For  purposes  of Rule 144 under the
Securities Act, 17 C.F.R. ss.230.144,  the Company and each Purchaser agree that
a tender of Notes in payment of the  exercise  price in respect of the  Warrants
shall not be deemed a prepayment  of the Notes,  but rather a conversion of such
Notes,  pursuant to the terms of the Warrant  Agreement and the  Warrants,  into
Common Stock. 

Application of Payments; Payments Among Noteholders

          Effect of  Partial  Payments  on  Required  Payments  Each  payment of
     principal of any Notes made pursuant to Section 1.4, Section 1.5 or Section
     1.6 shall be applied, with respect to any Note being prepaid:

               (i) first,  to reduction of the Company's  obligations  to pay on
          February 1, 2003 a principal  amount of such Note being  prepaid equal
          to the sum of all Capitalized  Interest Amounts  theretofore  added to
          the principal  amount of such Note pursuant to Section  1.2(b)(ii) and
          remaining unpaid at such time; and

               (ii)  second,  after  payment in full of all  unpaid  Capitalized
          Interest  Amounts in respect of such Note,  to reduce each of the then
          remaining  Required  Principal Payments with respect to such Note by a
          percentage equal to the quotient (expressed as a percentage) of:

                    (A) the  aggregate  principal  amount of such Note  being so
               paid; divided by

                    (B) the aggregate  principal amount of such Note outstanding
               immediately following the application of such payment pursuant to
               Section  1.7(a)(i) and immediately  prior to the payment pursuant
               to this Section 1.7(a)(ii).

     For the avoidance of doubt,  each Required  Principal  Payment of all Notes
     pursuant to Section 1.3 shall be reduced by the aggregate  amount,  for all
     Notes, of the reductions provided for in Section 1.7(a)(ii).

          (a) Application Among Noteholders.  If at the time that any payment of
     interest by the Company is made  pursuant to the  provisions of Section 1.2
     there is more than one Note  outstanding,  each of the aggregate  amount of
     the  interest  payment  made in cash and the  aggregate  amount of interest
     capitalized  pursuant to Section 1.2 shall be allocated  among the Notes at
     the  time  outstanding  pro rata in  proportion  to the  respective  unpaid
     principal  amounts of all such outstanding  Notes, such that the proportion
     of the  individual  interest  payments  in respect of each Note on the date
     such  interest is paid which is paid in cash is  identical.  If at the time
     any payment of the  principal of the Notes made  pursuant to Section 1.3 or
     Section 1.4 is due there is more than one Note  outstanding,  the aggregate
     principal  amount of each such required or optional  partial payment of the
     Notes shall be allocated  among the Notes at the time  outstanding pro rata
     in  proportion  to the  respective  unpaid  principal  amounts  of all such
     outstanding  Notes.  If, at the time any  payment of the  principal  of the
     Notes made pursuant to Section 1.5 or

                                        5

<PAGE>

     Section 1.6 is due there is more than one Note  outstanding,  the aggregate
     principal  amount of each such  payment  of the  Notes  shall be  allocated
     solely to the Note or Notes so being paid.

Notation of Notes on Payment

     Upon:

          (b) any partial payment of a Note; or

          (c) any  Capitalized  Interest  Amount  being  added to the  principal
     amount of any Note pursuant to Section 1.2(b)(ii);

the holder of such Note may (but shall not be required to), at its option:

          (i)  surrender  such Note to the  Company  pursuant  to Section 2.2 in
     exchange for a new Note in a principal amount equal to the principal amount
     remaining unpaid on the surrendered Note;

          (ii) make such Note  available to the Company for notation  thereon of
     the portion of the  principal so paid or so added to the  principal  amount
     thereof in respect of capitalized interest; or

          (iii)  mark such Note with a notation  thereon  of the  portion of the
     principal so paid or so added to the principal amount thereof in respect of
     capitalized interest.

In case the  entire  principal  amount of any Note is paid,  such Note  shall be
surrendered to the Company for  cancellation  and shall not be reissued,  and no
Note shall be issued in lieu of the paid principal  amount of any Note. 

No Other Payments of Principal; Acquisition of Notes

     Except for payments of principal  made in  accordance  with this Section 1,
the Company may not make any payment of principal  in respect of the Notes.  The
Company  will not,  and will not  permit any  Subsidiary  or any  Affiliate  to,
directly or indirectly, acquire or make any offer to acquire any Notes.

Manner of Payments

          Manner of  PaymentThe  Company  shall  pay all  amounts  payable  with
     respect to each Note (without any presentment of such Notes and without any
     notation of such payment being made thereon) by crediting, by federal funds
     bank wire  transfer,  the account of the holder  thereof in any bank in the
     United States of America as may be designated in writing by such holder, or
     in such other manner as may be reasonably directed or to such other address
     in the United States of America as may be reasonably  designated in writing
     by such holder (and as to which (absent  subsequent notice from such holder
     pursuant to this Section 1.10(a)) the Company may conclusively rely). Annex
     1 shall be  deemed to  constitute  notice,  direction  or  designation  (as
     appropriate)  by the  Purchasers to the Company with respect to payments to
     be made to the  Purchasers  as  aforesaid.  In the absence of such  written
     direction,  all amounts  payable with respect to each Note shall be paid by
     check mailed and addressed to the registered holder of such

                                        6

<PAGE>



     Note  at the  address  shown  in the  register  maintained  by the  Company
     pursuant to Section 2.1.

          Payments Due on HolidaysIf any payment due on, or with respect to, any
     Note shall fall due on a day other than a Business  Day,  then such payment
     shall be made on the first  Business  Day  following  the day on which such
     payment  shall have so fallen due;  provided  that if all or any portion of
     such  payment  shall  consist of a payment of  interest,  for  purposes  of
     calculating  such  interest,  such  payment  shall be  deemed  to have been
     originally  due on such first  following  Business Day, such interest shall
     accrue and be payable to (but not  including)  the actual  date of payment,
     and the amount of the next  succeeding  interest  payment shall be adjusted
     accordingly.

          Payments, When Received Any payment to be made to the holders of Notes
     hereunder  or under  the  Notes  shall be  deemed  to have been made on the
     Business Day such payment actually becomes  available at such holder's bank
     prior to the close of business of such bank, provided that interest for one
     (1) day at the  non-default  interest rate of the Notes shall be due on the
     amount of any such payment that actually  becomes  available to such holder
     at  such   holder's   bank  after  1:00  pm  (local  time  of  such  bank).

REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES

Registration of Notes

     The Company will keep at its office,  maintained pursuant to Section 3.3, a
register for the  registration  and  transfer of Notes.  The name and address of
each holder of one or more Notes,  each transfer thereof made in accordance with
Section  2.2 and the name and  address of each  transferee  of one or more Notes
shall be registered in such register. The Person in whose name any Note shall be
registered  shall be deemed and treated as the owner and holder  thereof for all
purposes  hereof,  and the  Company  shall  not be  affected  by any  notice  or
knowledge to the contrary, other than in accordance with Section 2.2.

Exchange of Notes

          Exchange  of Notes  Upon  surrender  of any Note at the  office of the
     Company maintained pursuant to Section 3.3, duly endorsed or accompanied by
     a written  instrument of transfer duly executed by the registered holder of
     such Note or such holder's attorney duly authorized in writing, the Company
     will execute and deliver,  at the Company's  expense (except as provided in
     Section 2.2(c)), a new Note or Notes in exchange therefor,  in an aggregate
     principal  amount equal to the unpaid  principal  amount of the surrendered
     Note. Subject to Section 2.2(b),  each such new Note shall be registered in
     the  name  of  such  Person  as  such  holder  may  request  and  shall  be
     substantially  in the form of  Attachment  A. Each  such new Note  shall be
     dated and bear  interest  from the date to which  interest  shall have been
     paid on the surrendered  Note or dated the date of the surrendered  Note if
     no interest  shall have been paid  thereon.  Each such new Note shall carry
     the same rights to unpaid interest and interest to accrue that were carried
     by the Note so exchanged or transferred.

          (d)  Restrictions  on  Transfers.  Notwithstanding  the  provisions of
     Section  2.2(a),  no holder shall be permitted to transfer any Note to (and
     the Company  shall not be required to register  any  purported or attempted
     transfer of any Note to) any Person who is not a Permitted Investor.  Notes
     shall not be  transferred in  denominations  of less than Two Hundred Fifty
     Thousand Dollars ($250,000), provided that a holder of

                                        7

<PAGE>



     Notes may transfer its entire holding of Notes  regardless of the principal
     amount of such holder's Notes.

          Costs  The  Company  will pay the cost of  delivering  to or from such
     holder's home office or custodian  bank from or to the Company,  insured to
     the reasonable  satisfaction of such holder,  the surrendered  Note and any
     Note issued in substitution  or replacement  for the surrendered  Note. The
     Company may require  payment of a sum  sufficient to cover any stamp tax or
     governmental  charge  imposed  in respect  of any such  transfer  of Notes.

     Replacement of Notes

     Upon  receipt  by the  Company  from  the  registered  holder  of a Note of
evidence reasonably satisfactory to the Company of the loss, theft,  destruction
or  mutilation  of  any  Note  (which  evidence  shall  be,  in the  case  of an
institutional  investor,  notice from such institutional  investor of such loss,
theft, destruction or mutilation), and:

          (e) in the case of loss, theft or destruction, of indemnity reasonably
     satisfactory to the Company; provided,  however, that if the holder of such
     Note is a Purchaser,  an institutional investor or a nominee of either, the
     unsecured  agreement of indemnity of such  Purchaser or such  institutional
     investor  (but  not  of  any  nominee  therefor)  shall  be  deemed  to  be
     satisfactory; or

          (f) in  the  case  of  mutilation,  upon  surrender  and  cancellation
     thereof;

the Company at its own expense  will  execute and deliver,  in lieu  thereof,  a
replacement  Note,  dated and bearing  interest from the date to which  interest
shall have been paid on such lost, stolen,  destroyed or mutilated Note or dated
the date of such lost, stolen,  destroyed or mutilated Note if no interest shall
have been paid thereon. 

Issuance Taxes

     The Company will pay all taxes (if any) due (but not, in any event,  income
taxes) in connection with and as the result of the initial  issuance and sale of
the Notes and in connection with any  modification,  waiver or amendment of this
Agreement  or the Notes and shall  save each  holder of Notes  harmless  without
limitation as to time against any and all  liabilities  with respect to all such
taxes. 

GENERAL COVENANTS

     The Company covenants that on and after the Closing Date and so long as any
of the Notes shall be outstanding: 

Payment of Taxes and Claims

     The Company will, and will cause each Subsidiary to, pay before they become
delinquent:

          (g) all taxes,  assessments and governmental charges or levies imposed
     upon it or its Property; and

          (h)  all  claims  or  demands  of  materialmen,  mechanics,  carriers,
     warehousemen,  vendors,  landlords  and other like Persons that, if unpaid,
     might result in the creation of a statutory,  regulatory or common law Lien
     upon its Property;


                                        8

<PAGE>



provided,  that items of the foregoing  description  need not be paid so long as
such  items are  being  actively  contested  in good  faith  and by  appropriate
proceedings  and  reasonable  book  reserves in  accordance  with GAAP have been
established  and  maintained  with respect  thereto.  

Maintenance of Properties; Corporate Existence; etc

     The Company will, and will cause each Subsidiary to:

          Property  maintain its Property in good  condition,  ordinary wear and
     tear  and  obsolescence   excepted,   and  make  all  necessary   renewals,
     replacements,  additions,  betterments and  improvements  (as determined in
     each case in the Company's judgment) thereto; provided,  however, that this
     Section  3.2(a)  shall not  prevent  the  Company  or any  Subsidiary  from
     discontinuing the operation and the maintenance of any of its Properties if
     such  discontinuance  is  desirable in the conduct of its business and such
     discontinuance  could not reasonably be expected to have a Material Adverse
     Effect;

          Insurance maintain, with  financially  sound and  reputable  insurers,
     insurance with respect to its Property and business against such casualties
     and contingencies, of such types and in such amounts as is customary in the
     case of  corporations of established  reputations  engaged in the same or a
     similar business and similarly situated;

          Financial Records keep  proper books of record and  account,  in which
     full and correct entries shall be made of all dealings and  transactions of
     or in relation  to the  Properties  and  business  thereof,  and which will
     permit the production of financial statements in accordance with GAAP;

          Corporate Existence  and  Rights do  or cause  to be done  all  things
     necessary  to  preserve  and keep in full force and  effect  its  corporate
     existence,   corporate   rights   (charter  and  statutory)  and  corporate
     franchises except as permitted by Section 4.1;

          Compliance with Law comply with all laws, ordinances and  governmental
     rules  and  regulations  to  which  it  is  subject   (including,   without
     limitation,  any  Environmental  Protection  Law) and obtain all  licenses,
     certificates,  permits,  franchises and other  governmental  authorizations
     necessary  to the  ownership  of its  Properties  and  the  conduct  of its
     business  except for such  violations  and failures to obtain that,  in the
     aggregate,  could not  reasonably  be expected  to have a Material  Adverse
     Effect; and

          (i)  Environmental  Liabilities  -- conduct its  business so as not to
     become  subject to any liability  under any  Environmental  Protection  Law
     that,  individually  or in the aggregate,  could  reasonably be expected to
     have a Material Adverse Effect.

Payment of Notes and Maintenance of Office

     The Company will  punctually pay, or cause to be paid, the principal of and
interest (and Prepayment Compensation Amount, if any) on, the Notes, as and when
the same shall become due  according  to the terms hereof and of the Notes,  and
will maintain an office at the address of the Company as provided in Section 9.1
where notices,  presentations  and demands in respect hereof or the Notes may be
made upon it. Such office will be  maintained at such address until such time as
the Company  notifies the holders of the Notes of any change of location of such
office,  which will in any event be located within the United States of America.
Pension Plans


                                        9

<PAGE>



          Compliance The Company will,  and will cause each ERISA  Affiliate to,
     at all  times  with  respect  to each  Plan,  comply  with  all  applicable
     provisions  of ERISA and the IRC,  except for such failures to comply that,
     in the  aggregate,  could not  reasonably  be  expected  to have a Material
     Adverse Effect.

          Prohibited Actions The Company will not, and will not permit any ERISA
     Affiliate to:

               (i)  engage  in any  "prohibited  transaction"  (as such  term is
          defined  in  section  406 of  ERISA  or  section  4975 of the  IRC) or
          "reportable  event" (as such term is defined in section 4043 of ERISA)
          that could result in the imposition of a tax or penalty;

               (ii) incur  with  respect  to any Plan any  "accumulated  funding
          deficiency" (as such term is defined in section 302 of ERISA), whether
          or not waived;

               (iii)  terminate  any Plan in a manner  that could  result in the
          imposition of a Lien on the Property of the Company or any  Subsidiary
          pursuant to section  4068 of ERISA or the  creation  of any  liability
          under section 4062 of ERISA;

               (iv) fail to make any payment required by section 515 of ERISA;

               (v) incur any withdrawal  liability  under Title IV of ERISA with
          respect to any Multiemployer  Plan or any liability as a result of the
          termination of any Multiemployer Plan; or

               (vi) incur any  liability or suffer the  existence of any Lien on
          the  Property  of the Company or any ERISA  Affiliate,  in either case
          pursuant to Title I or Title IV of ERISA or pursuant to the penalty or
          excise tax or security provisions of the IRC;

     if the  aggregate  amount of the taxes,  penalties,  funding  deficiencies,
     interest, amounts secured by Liens, and other liabilities in respect of any
     of the  foregoing  at any  time  could  reasonably  be  expected  to have a
     Material Adverse Effect.

Private Offering

     The Company will not,  and will not permit any Person  acting on its behalf
to, offer the Notes or any part thereof or any similar  securities  for issue or
sale to, or solicit any offer to acquire any of the same from,  any Person so as
to bring the issuance and sale of the Notes within the  provisions  of section 5
of the Securities Act. 

Subsidiary Guaranty

     The Company will cause each  Subsidiary  that at any time becomes liable in
respect of any Guaranty of any of the  obligations in respect of any Senior Debt
after the Closing Date to become  (simultaneously or prior to becoming liable in
respect of such  Guaranty  of any of such  obligations)  a  Guarantor  under the
Subsidiary  Guaranty  by  executing  and  delivering  to each  holder of Notes a
Joinder  Agreement in the form attached to the  Subsidiary  Guaranty as Annex 2.
Each such Joinder  Agreement shall be accompanied by copies of the  constitutive
documents  of  such   Subsidiary  and  corporate   resolutions  (or  equivalent)
authorizing such  transaction,  in each case certified as true and correct by an
appropriate officer of such Subsidiary.

                                       10

<PAGE>

FINANCIAL COVENANTS

Mergers and Consolidations

     The Company will not, and will not permit any  Subsidiary to, merge with or
into or consolidate  with any other Person,  permit any other Person to merge or
consolidate with or into it or sell all or substantially  all of its Property to
any other Person;  provided,  however,  that the foregoing  restriction does not
apply to the merger or consolidation of the Company with another  corporation or
Transfer of all or substantially all of the Property of the Company to any other
Person if:

          (j) the corporation  that results from such merger or consolidation or
     to  which  all or  substantially  all of the  Property  of the  Company  is
     Transferred  (the "Surviving  Corporation") is organized under the laws of,
     and conducts substantially all of its business and has substantially all of
     its Properties  within, the United States of America or any jurisdiction or
     jurisdictions thereof;

          (k) the due and punctual  payment of the  principal of and  Prepayment
     Compensation Amount, if any, and interest on all of the Notes, according to
     their tenor, and the due and punctual performance and observance of all the
     covenants in the Notes, this Agreement and each other Financing Document to
     be performed or observed by the Company,  are expressly assumed, or assumed
     by  operation  of  law,  by the  Surviving  Corporation  pursuant  to  such
     assumption  agreements  and  instruments in such forms as shall be approved
     reasonably by the Required Holders,  and the Company causes to be delivered
     to each holder of Notes an opinion,  satisfactory  in form and substance to
     the  Required  Holders,  of  independent  counsel to the  effect  that such
     agreements and instruments are enforceable in accordance with their terms;

          (l) no  Change  in  Management  occurs  as a  result  of such  merger,
     consolidation or Transfer; and

          (m) immediately  prior to, and immediately  after the  consummation of
     the  transaction,  and after giving effect thereto,  no Default or Event of
     Default exists or would exist.

Notwithstanding  the foregoing,  a Subsidiary may merge into the Company so long
as the Company is the Surviving Corporation,  and a Subsidiary may merge with or
into a Wholly-Owned  Subsidiary,  so long as the Wholly-Owned  Subsidiary is the
Surviving Corporation. Disposition of Assets, Subsidiary Stock

          Disposition  of Assets The  Company  will not, and will not permit any
     Subsidiary to, sell, lease as lessor,  transfer or otherwise dispose of any
     Property (collectively, "Transfers"), except:

               (i)  Transfers  of  inventory  and of  unnecessary,  obsolete  or
          worn-out  assets,  in each case in the ordinary  course of business of
          the Company or such Subsidiary;

               (ii) Transfers from a Subsidiary to the Company or a Wholly-Owned
          Subsidiary;


                                       11

<PAGE>



               (iii)  Transfers of Property by the Company or a Subsidiary  in a
          Sale-  Leaseback  Transaction  which  are  substantially   immediately
          thereafter   leased  by  the   Company   or  a   Subsidiary   in  such
          Sale-Leaseback Transaction;

               (iv) any other  Transfer at any time of any  Property to a Person
          for an Acceptable Consideration if the conditions specified in each of
          the following  clauses (A) and (B) would be satisfied  with respect to
          such Transfer:

                    (A) the sum of:

                         (I) the  book  value  of such  Property  at the time of
                    Transfer; plus

                         (II) the  aggregate  book  value of all other  Property
                    Transferred,  other than in  Excluded  Transfers,  after the
                    Closing Date:

          would not  exceed  twenty-five  percent  (25%) of  Consolidated  Total
          Assets measured as of the last day of the immediately preceding fiscal
          quarter of the Company; and

                         (B)  immediately  before and after the  consummation of
                    the Transfer, and after giving effect thereto, no Default or
                    Event of Default would exist; and

               (v) any other  Transfer of Property to the extent that the entire
          proceeds of such Transfer,  net of reasonable and ordinary transaction
          costs and expenses  incurred and actually paid in connection with such
          Transfer,  within  three  hundred  sixty-five  (365)  days  after such
          Transfer are applied by the Company or such Subsidiary:

                    (A) to purchase, or to a commitment to purchase,  productive
               tangible  Property  for use in the conduct of the business of the
               Company and the Subsidiaries as such businesses were conducted on
               the  Closing  Date,  which  Property  is  similar  in type to the
               Property Transferred; or

                    (B) to pay or  prepay  a  principal  amount  of  Debt of the
               Company or any Subsidiary (other than Junior  Subordinated  Debt)
               equal to the amount of such net proceeds; and, in connection with
               any such  payment,  the Company  shall pay all  accrued  interest
               thereon and any premium or make-whole  amount required to be paid
               in connection  therewith;  provided,  however,  that in the event
               that any Debt so  prepaid is not Senior  Debt,  then the  Company
               shall prepay, together with such prepayment of such other Debt, a
               proportional  and ratable  principal amount of the Notes pursuant
               to the provisions of Section 1.4.

          Disposition  of  Subsidiary Stock The  Company  will not, and will not
     permit any  Subsidiary  to, sell or otherwise  dispose of any shares of the
     stock or Rights  of a  Subsidiary  (such  stock and  Rights  herein  called
     "Subsidiary  Stock"),  nor will any  Subsidiary  issue,  sell or  otherwise
     dispose of any shares of, or Rights to purchase shares

                                       12

<PAGE>



     of,  its own  Subsidiary  Stock;  provided,  however,  that  the  foregoing
     restrictions do not apply to:

               (vi)  Transfers  by the  Company  or a  Subsidiary  of  shares of
          Subsidiary Stock to the Company or a Wholly-Owned Subsidiary;

               (vii)  the  issuance  by  a  Subsidiary  of  shares  of  its  own
          Subsidiary Stock to the Company or a Wholly-Owned Subsidiary;

               (viii) the  issuance by a  Subsidiary  of  directors'  qualifying
          shares;

               (ix) the issuance by a Subsidiary of shares of its own Subsidiary
          Stock in the form of a dividend  payable in such shares,  or the other
          issuance  by a  Subsidiary  of  shares  of its own  Subsidiary  Stock;
          provided,  however,  that,  in each  case,  the  Company's  direct  or
          indirect  percentage  ownership  of no class of the Voting Stock or of
          any other Subsidiary Stock of such Subsidiary is decreased as a result
          of such issuance; or

               (x) the Transfer of all of the  Subsidiary  Stock of a Subsidiary
          owned by the Company and its other Subsidiaries if:

                    (A) such  Transfer  satisfies  the  requirements  of Section
               4.2(a)(iv) or Section 4.2(a)(v);

                    (B) in connection with such Transfer,  the entire Investment
               (whether  represented by stock, Debt, claims or otherwise) of the
               Company  and  its  other   Subsidiaries  in  such  Subsidiary  is
               Transferred  to a Person  other than the Company or a  Subsidiary
               not being simultaneously disposed of; and

                    (C)  the  Subsidiary  being  disposed  of has no  continuing
               Investment  in any  other  Subsidiary  not  being  simultaneously
               disposed of or in the Company.

          For  purposes  of  determining  the book value of assets  constituting
     Subsidiary  Stock being  Transferred as provided in clause (v) above,  such
     book value shall be deemed to be the aggregate  book value of the assets of
     the Subsidiary that shall have issued such Subsidiary Stock. 

Liens

          Negative  Pledge The  Company  will  not,  and  will  not  permit  any
     Subsidiary  to, cause or permit,  or agree or consent to cause or permit in
     the future (upon the happening of a contingency or otherwise), any of their
     Property,  whether  now  owned  or  hereafter  acquired,  at any time to be
     subject to a Lien except:

          Closing  Date  Liens  Liens  in  existence  on the  Closing  Date  and
     described in Part 4.3 of Annex 3;

          Ordinary Course Business Liens


                                       13

<PAGE>



               Performance Bonds Liens incurred or deposits made in the ordinary
          course of business:

                    (I) in connection with workers'  compensation,  unemployment
               insurance, social security and other like laws; and

                    (II) to secure the  performance of letters of credit,  bids,
               tenders, sales contracts,  leases, statutory obligations,  surety
               and performance  bonds (of a type other than set forth in Section
               4.3(a)(iii)  and  other  similar   obligations  not  incurred  in
               connection with the borrowing of money, the obtaining of advances
               or the payment of the deferred purchase price of Property;

               Real  Estate Liens in the  nature  of  reservations,  exceptions,
          encroachments,   easements,   rights-of-way,   covenants,  conditions,
          restrictions,   leases  and  other   similar   title   exceptions   or
          encumbrances  affecting real property;  provided,  however,  that such
          exceptions and encumbrances do not in the aggregate materially detract
          from the value of said Properties or materially interfere with the use
          of such  Properties  in the  ordinary  conduct of the  business of the
          Company and the Subsidiaries; and

               Taxes, etc. Liens  securing  taxes,  assessments or  governmental
          charges or levies or the claims or demands of materialmen,  mechanics,
          carriers,  warehousemen,  vendors,  landlords  and other like Persons;
          provided,  however,  that  the  payment  thereof  is not  required  by
          Section 3.1;

          Judicial Liens Liens arising from judicial  attachments and judgments,
     securing appeal bonds or supersedeas  bonds, and arising in connection with
     court proceedings (including,  without limitation, surety bonds and letters
     of credit or any other  instrument  serving a similar  purpose);  provided,
     however,  that  the  execution  or  other  enforcement  of  such  Liens  is
     effectively  stayed,  that the claims  secured  thereby are being  actively
     contested  in good  faith and by  appropriate  proceedings,  that  adequate
     reserves have been made against such claims and that the  aggregate  amount
     so secured will not at any time exceed One Million Dollars ($1,000,000);

          Intergroup Liens Liens on Property of a Subsidiary; provided, however,
     that  such  Liens  secure  only  obligations  owing  to  the  Company  or a
     Wholly-Owned Subsidiary;

          (xi)  Acquisition/Purchase  Money  Liens -- any  Lien (x) on  Property
     acquired or  constructed  by the Company or any Subsidiary or leased by the
     Company  or any  Subsidiary  as lessee  under  any  Capital  Lease;  or (y)
     existing on Property  owned by any Person at the time such Person  became a
     Subsidiary or merges or consolidates with the Company  (including,  without
     limitation,  by means of a Capital  Lease);  provided,  however,  that such
     Lien:


                                       14

<PAGE>



          (A) (I) secures  Debt  incurred to pay all or a portion of the related
          purchase price or  construction  costs of such Property or the Capital
          Stock of any acquired Subsidiary and no other Debt; provided, further,
          that such purchase  price or  construction  costs shall not exceed the
          Fair Market Value of such Property or such Capital  Stock,  determined
          at the time of the creation of such Lien;

               (II) is created  contemporaneously  with,  or within one  hundred
          twenty (120) days of, such acquisition or construction;

               (III)  encumbers  only  Property  so  purchased,  constructed  or
          acquired after the Closing Date; and

               (IV) is not,  after the creation  thereof,  extended to any other
          Property; or

          (B) (I) existed on  Property of any Person at the time of  acquisition
          thereof by the Company or a  Subsidiary  or at the time such Person is
          merged  or  consolidated  into or with  the  Company  or a  Subsidiary
          (whether or not the Debt secured  thereby is assumed by the Company or
          such Subsidiary);  provided,  further,  that such Debt does not exceed
          the lesser of the  acquisition  cost or the Fair Market  Value of such
          Property, as determined at the date of the acquisition thereof; and

               (II)  shall not  extend to or cover any  Property  other than the
          Property subject to such Lien at the time of any such acquisition;

     and provided further that, in the case of each of clause (A) and clause (B)
     above,  immediately  prior to the incurrence of, and after giving effect to
     the  incurrence  of,  any Debt  secured  by the Liens  referred  to in such
     clauses, no Default or Event of Default exists or would exist; and

          Liens  Securing  Senior  Debt  Liens  securing  Senior  Debt  and  not
     otherwise permitted by clauses (i) through (v), inclusive,  of this Section
     4.3(a).

     Equal  and  Ratable  Lien;  Equitable  LienIn  case any  Property  shall be
subjected to a Lien in violation of Section  4.3(a),  the Company will forthwith
make or cause to be made, to the fullest  extent  permitted by  applicable  law,
provision  whereby  the Notes will be  secured  equally  and  ratably as to such
Property with all other obligations  secured thereby pursuant to such agreements
and  instruments as shall be approved by the Required  Holders,  and the Company
will  promptly  cause to be  delivered  to each  holder of a Note an  opinion of
independent counsel satisfactory to the Required Holders to the effect that such
agreements and instruments  are enforceable in accordance with their terms,  and
in any event the Notes shall have the benefit, to the full extent that, and with
such priority as, the holders of Notes may be entitled under  applicable law, of
an  equitable  Lien on such  Property  (and any proceeds  thereof)  securing the
Notes.  Such  violation  of Section  4.3(a)will  constitute  an Event of Default
hereunder, whether or not

                                       15

<PAGE>



     any such  provision is made or any  equitable  Lien is created  pursuant to
     this Section 4.3(a).

          Construction Nothing in this  Section 4.3 shall be construed to permit
     the  incurrence  or existence of any Debt not  otherwise  permitted by this
     Agreement.  Nothing  in this  Agreement  that  permits  the  incurrence  or
     existence  of any Debt  shall be  construed  to permit  the  incurrence  or
     existence  of a Lien  securing  such Debt unless such Lien is  permitted by
     Section 4.3(a).

Net Worth

     The Company will not at any time permit  Consolidated  Net Worth to be less
than an amount equal to the sum of:

          (n) Ten Million Dollars ($10,000,000); plus

          (o) for each fiscal  year of the Company  ending  after  December  31,
     1997, the greater of:

               (i) Zero Dollars ($0); and

               (ii) fifty percent (50%) of Consolidated Net Earnings  determined
          in respect of such fiscal year. 

Fixed Charge Coverage

     The Company will not permit at any time during any period  specified  below
the  Consolidated  Fixed Charge  Coverage  Ratio for the period of four (4) full
consecutive fiscal quarters of the Company then most recently ended, measured as
at the end of the most recently ended fiscal quarter of the Company,  to be less
than the ratio set forth opposite such period:

================================================================================
                         Period:                         Ratio:
================================================================================
From and including the Closing up to and              1.25 to 1.00
including June 30, 2001
--------------------------------------------------------------------------------
From and including July 1, 2001 up to and             1.50 to 1.00
including June 30, 2003
--------------------------------------------------------------------------------
From and including July 1, 2003 and                   2.00 to 1.00
thereafter
================================================================================

Ratio of Debt to Pro Forma Consolidated Cash Flow

     The Company will not at any time permit the ratio of:

          (p) Consolidated Total Debt as of such time; to

          (q) Pro Forma  Consolidated Cash Flow for the period consisting of the
     four (4) full  consecutive  fiscal  quarters of the Company  most  recently
     ended at such time;

to be greater than the ratio set forth opposite the relevant period during which
such time occurs as provided below:

                                       16

<PAGE>




================================================================================
                         Period:                             Ratio:
================================================================================
From the Closing Date up to and including                 5.00 to 1.00
June 30, 2001
--------------------------------------------------------------------------------
From and including July 1, 2001 up to and                 4.00 to 1.00
including June 30, 2003
--------------------------------------------------------------------------------
From and including July 1, 2003 and                       3.00 to 1.00
thereafter
================================================================================

Incurrence of Debt

          (r)  Permitted  Revolving  Credit Debt.  The Company will not incur or
     create any Debt pursuant to an Acceptable Revolving Credit Facility unless,
     at the time of and after giving effect to the incurrence thereof, both:

               (i) the  aggregate  amount  of Debt  (other  than the  Letter  of
          Credit)  outstanding  in respect of all  Acceptable  Revolving  Credit
          Facilities would not exceed the greater of:

                    (A) the Borrowing Base; and

                    (B) in the case of the Senior Credit  Facility,  a principal
               amount  which,  together  with any fees not  provided  for in the
               Senior Credit Agreement as in effect on the date hereof, does not
               exceed   Twenty-Seven   Million  Five  Hundred  Thousand  Dollars
               ($27,500,000); and

               (ii) the face  amount of the  Letter of Credit  would not  exceed
          Four Hundred Thousand Dollars ($400,000);

     provided,  however,  that the Refinancing of any Permitted Revolving Credit
     Debt with the  proceeds  of Debt  incurred  under a  Refinanced  Acceptable
     Revolving Credit Facility,  in and of itself,  shall not be deemed to be an
     incurrence or creation of Debt pursuant to this Section  4.7(a),  except to
     the  extent  that  the  principal  amount  of  Debt  under  the  Refinanced
     Acceptable  Revolving  Credit  Facility  exceeds  the  principal  amount of
     Permitted  Revolving Credit Debt so Refinanced,  and all such Debt incurred
     under a Refinanced  Acceptable  Revolving  Credit  Facility,  to the extent
     applied to the repayment of Permitted  Revolving  Credit Debt in connection
     with such  Refinancing,  shall be deemed to be Permitted  Revolving  Credit
     Debt.

          (s) Other  Permitted  Debt.  The Company will not, and will not permit
     any  Subsidiary  to,  directly  or  indirectly,   create,   incur,  assume,
     guarantee,  or otherwise become directly or indirectly  liable with respect
     to, any Debt other than:

               (i) the Notes and the Subsidiary Guaranty;

               (ii) Debt of a Subsidiary  owing to the Company or a Wholly-Owned
          Subsidiary;


                                       17

<PAGE>



               (iii)  Permitted  Revolving  Credit Debt, and (subject to Section
          3.6) Guaranties thereof by Subsidiaries;

               (iv)  Debt  incurred  or  created  to  Refinance  any of the Debt
          outstanding  on the Closing Date and listed on Part 4.7(b) of Annex 3,
          so long as:

                    (A) the  principal  amount of Debt incurred to Refinance any
               such Debt  outstanding  on the  Closing  Date does not exceed the
               principal amount of Debt being Refinanced; and

                    (B) no Lien on  Property  of the  Company or any  Subsidiary
               which  secures  such Debt  incurred  to  Refinance  any such Debt
               outstanding  on the Closing  Date shall extend to any Property of
               the  Company  or any  Subsidiary  which  was  not,  prior to such
               Refinancing,  subject  to a  Lien  securing  the  Debt  so  being
               Refinanced;

          and

               (v) any other Debt of the Company,  provided that on the date the
          Company incurs such Debt, and immediately  after giving effect thereto
          and the concurrent retirement of any other Debt, the ratio of:

                    (A) the difference of:

                         (I) Consolidated Total Debt; minus

                         (II) the aggregate  amount of all  Permitted  Revolving
                    Credit Debt actually outstanding on such date; to

                    (B)  Pro  Forma   Consolidated  Cash  Flow  for  the  period
               consisting of the four (4) full  consecutive  fiscal  quarters of
               the Company then most recently ended;

          would not be greater  than the ratio set forth  opposite  the relevant
          period as provided below:

================================================================================
                         Period:                                Ratio:
================================================================================
From the Closing Date up to and including                    2.70 to 1.00
June 30, 2001
--------------------------------------------------------------------------------
From and including July 1, 2001 up to and                    2.50 to 1.00
including June 30, 2003
--------------------------------------------------------------------------------
From and including July 1, 2003 and                          2.20 to 1.00
thereafter
================================================================================

          and provided  further,  that the Company shall have  delivered to each
          holder  of  Notes,  at least  three  (3)  Business  Days  prior to the
          incurrence thereof, a

                                       18

<PAGE>



          certificate of a Senior Financial Officer  establishing that such Debt
          may be incurred in  compliance  with the  provisions  of this  Section
          4.7(b)(v).

               For the avoidance of doubt, any incurrence or creation of Debt by
          the Company pursuant to a revolving credit or similar  agreement under
          any agreement or instrument other than an Acceptable  Revolving Credit
          Facility,  and the  incurrence  or  creation  of  Debt by the  Company
          pursuant to an Acceptable Revolving Credit Facility which, at the time
          of such incurrence or creation,  exceeds the maximum amount  permitted
          pursuant to Section 4.7(a),  shall be considered an incurrence of Debt
          for  purposes  of this  Section  4.7(b)(v)  on the date so incurred or
          created.  

     Restricted Payments, Restricted Repurchases and Restricted Investments

               Limit  on  Restricted   Payments,   Restricted   Investments  and
          Restricted  Repurchases The Company  will not,  nor will it permit any
          Subsidiary to, at any time,  declare or make or incur any liability to
          declare or make any Restricted  Payment or any Restricted  Repurchase,
          or make or authorize,  or permit any  Subsidiary to make or authorize,
          any Restricted  Investment unless,  immediately after giving effect to
          the proposed Restricted Payment or Restricted Investment:

                    (vi) no Default or an Event of Default would exist; and

                    (vii) the sum of

                         (A) the  aggregate  amount  of  Restricted  Investments
                    existing on the Closing  Date,  together  with the aggregate
                    amount of Restricted Investments made since the Closing Date
                    (valued in each case at acquisition cost); plus

                         (B) the aggregate  amount of  Restricted  Payments made
                    during the period  commencing on the Closing Date and ending
                    on the date of, and after  giving  effect to, such  proposed
                    Restricted Payment or Restricted Investment; plus

                         (C) the aggregate amount of Restricted Repurchases made
                    during the period  commencing on the Closing Date and ending
                    on the date of, and after  giving  effect to, such  proposed
                    Restricted Payment or Restricted Investment;

               would not exceed the sum of:

                         (I)  One   Million   Six   Hundred   Thousand   Dollars
                    ($1,600,000); plus

                         (II) fifty percent (50%) of  Consolidated  Net Earnings
                    in respect of the period  beginning  on the Closing Date and
                    ending  on the  last day of the  calendar  month  then  most
                    recently  ended  (or  minus one  hundred  percent  (100%) of
                    Consolidated  Net Earnings  for such period if  Consolidated
                    Net Earnings for such period is a loss); plus

                                       19

<PAGE>



                         (III)  the  aggregate   amount  of  net  cash  proceeds
                    received by the  Company  from the sale of  Specified  Stock
                    made after the Closing  Date;  provided,  however,  that the
                    amount of any such  proceeds not applied  within one hundred
                    eighty (180) days after the receipt of such  proceeds to the
                    making of a  Restricted  Payment  or  Restricted  Investment
                    shall not be counted for purposes of this clause (III); plus

                         (IV) the aggregate amount of net cash proceeds received
                    after the Closing Date by the Company or any Subsidiary from
                    the  sale  or  liquidation,  or as a  result  of  the  final
                    maturity, of any Restricted Investment.

               Special Permission for Restricted Repurchases Notwithstanding the
          provisions of Section 4.8(a), the Company or any Subsidiary may at any
          time  declare  or make or incur any  liability  to declare or make any
          Restricted Repurchase,  so long as, immediately after giving effect to
          the proposed Restricted Repurchase:

                    (viii) no Default or an Event of Default would exist; and

                    (ix) the  aggregate  amount of Restricted  Repurchases  made
               during the period  commencing  on the Closing  Date and ending on
               the date of, and after giving effect to, such proposed Restricted
               Repurchase  would not exceed One  Million  Six  Hundred  Thousand
               Dollars ($1,600,000).

               Other  Matters  For the  purpose  of  making  computations  under
          Section  4.8(a) and Section  4.8(b),  Restricted  Payments  made,  and
          Restricted  Repurchases  effected,  solely by issuance of Common Stock
          shall in each case be  excluded.  Any Person that becomes a Subsidiary
          after the  Closing  Date shall be deemed to have made,  at the time it
          becomes  a  Subsidiary,  all  Restricted  Investments  of such  Person
          existing immediately after it becomes a Subsidiary.

Seniority to Junior Subordinated Debt

     The Company will not, and will not permit any Subsidiary to, incur,  assume
or Guaranty any Debt which is subordinated in right of payment to any other Debt
of the Company or any Subsidiary  unless such Debt is also subordinated in right
of payment to the  obligations  of the  Company in respect of the Notes and this
Agreement  on terms  reasonably  acceptable  to the  Required  Holders  in their
discretion.  The Company will not, and will not permit any  Subsidiary to, incur
or create any Debt in favor of an  Affiliate or another  Subsidiary  (other than
Debt in favor of the Company or a Wholly-Owned  Subsidiary which is a Subsidiary
Guarantor)  unless  such Debt is also  subordinated  in right of  payment to the
obligations  of the Company in respect of the Notes and this  Agreement on terms
reasonably  acceptable  to the  Required  Holders in their  discretion.  

Line of Business

     The Company will not, and will not permit any  Subsidiary to, engage in any
business  if, as a result,  the  general  nature  of the  business  in which the
Company and the Subsidiaries,  taken as a whole,  would then be engaged would be
substantially  changed  from the  general  nature of the  business  in which the
Company and the Subsidiaries, taken as a whole, are engaged on the

                                       20

<PAGE>



Closing Date as described in the Confidential Private Placement Memorandum dated
October 1997, prepared by Fleet Corporate Finance.

Transactions with Affiliates

     The Company will not, and will not permit any Subsidiary to, enter into any
transaction,  including,  without  limitation,  the  purchase,  sale,  lease  or
exchange of Property or the rendering of any service, with any Affiliate, except
in the ordinary  course of and pursuant to the  reasonable  requirements  of the
Company's or such  Subsidiary's  business and upon fair and reasonable  terms no
less  favorable  to the  Company  or such  Subsidiary  than  would  obtain  in a
comparable  arm's-length  transaction with a Person not an Affiliate. 

REPORTING COVENANTS 

Financial and Business Information

     The Company shall deliver to each holder of Notes:

          Quarterly Financial  Statementsas soon as practicable after the end of
     each quarterly fiscal period in each fiscal year of the Company (other than
     the last  quarterly  fiscal  period of each such fiscal  year),  and in any
     event within forty-five (45) days thereafter:

               (x) a  consolidated  balance sheet as at the end of such quarter;
          and

               (xi)  consolidated  statements  of income and cash flows for such
          quarter  and (in the case of the  second and third  quarters)  for the
          portion of the fiscal year ending with such quarter;

     for the  Company  and the  Subsidiaries,  setting  forth in each  case,  in
     comparative form, the financial statements for the corresponding periods in
     the previous fiscal year, all in reasonable detail,  prepared in accordance
     with GAAP  applicable  to quarterly  financial  statements  generally,  and
     certified  as  complete  and  correct by a Senior  Financial  Officer,  and
     accompanied  by the  certificate  required by Section 5.3;  provided,  that
     timely  delivery of copies of the Company's  Quarterly  Report on Form 10-Q
     filed  with the SEC shall be deemed to  satisfy  the  requirements  of this
     Section 5.1(a) so long as such Quarterly  Report contains or is accompanied
     by the information specified in this Section 5.1(a);

          Annual  Financial  Statements as soon as practicable  after the end of
     each fiscal year of the Company,  and in any event within  ninety (90) days
     thereafter:

               (xii) a  consolidated  balance  sheet as at the end of such year;
          and

               (xiii) consolidated  statements of income,  stockholders'  equity
          and cash flows for such year;

     for the Company and the  Subsidiaries,  setting forth, in comparative form,
     the  financial  statement for the previous  fiscal year,  all in reasonable
     detail, prepared in accordance with GAAP, and accompanied by:

               (A) an audit  report  thereon  of  independent  certified  public
          accountants of recognized national standing,  which report shall state
          without qualification (including,  without limitation,  qualifications
          related to the scope of the audit, the

                                       21

<PAGE>



          compliance of the audit with generally accepted auditing standards, or
          the  ability  of the  Company  or a  material  subsidiary  thereof  to
          continue as a going concern), that such financial statements have been
          prepared and are in conformity with GAAP; and

               (B) the certificates required by Section 5.3 and Section 5.4;

     provided,  that timely delivery of the Company's Annual Report on Form 10-K
     for such  fiscal  year filed  with the SEC shall be deemed to  satisfy  the
     requirements  of this Section 5.1(b) so long as such Annual Report contains
     or is accompanied by the reports and other information  otherwise specified
     in this Section 5.1(b);

          (t)  Borrowing  Base  Certificate  -- promptly upon the request of any
     holder of Notes, any Borrowing Base Certificate required to be delivered or
     to have been delivered to the Senior Agent;

          SEC and Other  Reportspromptly  upon their becoming available,  and in
     any event within fifteen (15) days thereafter:

               (i) each financial statement,  report,  notice or proxy statement
          sent by the Company to stockholders generally;

               (ii)  each  regular  or  periodic  report   (including,   without
          limitation,  each Form 10-K, Form 10-Q and Form 8-K), any registration
          statement which shall have become effective, and each final prospectus
          and all amendments thereto filed by the Company or any Subsidiary with
          the SEC; and

               (iii) all press releases and other  statements  made available by
          the  Company  or any  Subsidiary  to the  public  concerning  material
          developments in the business of the Company or the Subsidiaries;

          Notice of Default or Event of Default within  two (2) Business Days of
     becoming aware:

               (iv) of the existence of any condition or event which constitutes
          a Default or an Event of Default; or

               (v) that the holder of any Note, or of any Debt, shall have given
          notice or taken any other  action with  respect to a claimed  Default,
          Event of Default or default or event of default;

     a notice specifying the nature of the claimed Default,  Event of Default or
     default or event of default and the notice  given or action  taken (if any)
     by such  holder and what  action the  Company is taking or proposes to take
     with respect thereto;

          ERISA

               (vi)  within  two (2)  Business  Days of  becoming  aware  of the
          occurrence  of any  "reportable  event"  (as such term is  defined  in
          section  4043 of ERISA) for which  notice  thereof has not been waived
          pursuant to regulations of the DOL or

                                       22

<PAGE>



          "prohibited  transaction"  (as such term is defined in section  406 of
          ERISA or section 4975 of the IRC) in  connection  with any Plan or any
          trust created thereunder, a notice specifying the nature thereof, what
          action the Company is taking or proposes to take with respect thereto,
          and, when known, any action taken by the Internal Revenue Service, the
          DOL or the PBGC with respect thereto; and

               (vii) prompt notice of and, where applicable, a description of:

                    (A) any notice from the PBGC in respect of the  commencement
               of any proceedings pursuant to section 4042 of ERISA to terminate
               any Plan or for the  appointment  of a trustee to administer  any
               Plan, and any distress  termination  notice delivered to the PBGC
               under  section  4041 of ERISA in  respect  of any  Plan,  and any
               determination of the PBGC in respect thereof;

                    (B)   the   placement   of   any   Multiemployer   Plan   in
               reorganization  status under Title IV of ERISA, any Multiemployer
               Plan  becoming  "insolvent"  (as such term is  defined in section
               4245 of ERISA)  under Title IV of ERISA,  or the whole or partial
               withdrawal  of  the  Company  or any  ERISA  Affiliate  from  any
               Multiemployer  Plan  and the  withdrawal  liability  incurred  in
               connection therewith; or

                    (C) the  occurrence of any event,  transaction  or condition
               that  could  result in the  incurrence  of any  liability  of the
               Company or any ERISA Affiliate or the imposition of a Lien on the
               Property  of the Company or any ERISA  Affiliate,  in either case
               pursuant  to Title I or Title  IV of  ERISA  or  pursuant  to the
               penalty or excise tax or security provisions of the IRC;

     provided,  however,  that the Company  shall not be required to deliver any
     such  notice  at any time  when  the  aggregate  amount  of the  actual  or
     potential  liability of the Company and the  Subsidiaries in respect of all
     such  events  at such time  could  not  reasonably  be  expected  to have a
     Material Adverse Effect;

          Auditor's Reports promptly upon receipt thereof, a copy of each report
     or  management  letter  submitted  to  the  Company  or any  Subsidiary  by
     independent  accountants in connection with any annual,  interim or special
     audit made of the books of the Company or any Subsidiary;

          Actions, Proceedings promptly  after the commencement of any action or
     proceeding relating to the Company or any Subsidiary in any court or before
     any  Governmental  Authority or  arbitration  board or tribunal as to which
     there is a reasonable  possibility of an adverse determination and that, if
     adversely  determined,  could  reasonably  be  expected  to have a Material
     Adverse  Effect,  a notice  specifying  the nature and period of  existence
     thereof  and what  action the  Company is taking or  proposes  to take with
     respect thereto;

          Other Creditors promptly  upon the reasonable request of any holder of
     Notes,  copies of any  statement,  report or  certificate  furnished to any
     holder of Debt to the extent

                                       23

<PAGE>



     that the information contained in such statement, report or certificate has
     not already been delivered to each holder of Notes;

          Rule  144A   promptly  upon  the  request  of  any  holder  of  Notes,
     information  required  to  permit  the  holder  to  comply  with 17  C.F.R.
     ss.230.144A, as amended from time to time, in connection with a transfer of
     any Note; and

          Requested Information with reasonable promptness,  such other data and
     information as from time to time may be reasonably  requested by any holder
     of Notes.

Extension of Time to File SEC Reports

     If the rules and  regulations  of the SEC  under the  Exchange  Act and the
rules and  regulations of the NASDAQ  National  Market are amended to extend the
deadline  for  delivery to the SEC and the NASDAQ  National  Market of Quarterly
Reports on Form 10-Q (or any  successor  form) beyond the  forty-five  (45) days
following  the end of each fiscal  quarter of the  Company  (other than its last
fiscal  quarter) as  currently  required,  then the  forty-five  (45) day period
within  which  quarterly  financial  statements  are required to be delivered in
accordance with the provisions of Section 5.1(a) shall be similarly extended. If
the rules and  regulations  of the SEC under the  Exchange Act and the rules and
regulations of the NASDAQ National Market are amended to extend the deadline for
delivery  to the SEC and the NASDAQ  National  Market of Annual  Reports on Form
10-K (or any  successor  form) beyond the ninety (90) days  following the end of
the Company's fiscal year as currently required, then the ninety (90) day period
within  which  annual  financial  statements  are  required to be  delivered  in
accordance with the provisions of Section 5.1(b) shall be similarly extended.

Officer's Certificates

     Each set of financial statements delivered to each holder of Notes pursuant
to Section  5.1(a) or Section  5.1(b) shall be accompanied by a certificate of a
Senior Financial Officer, setting forth:

          Covenant Compliance the   financial  information  (including  detailed
     calculations and a detailed  computation of Consolidated  Cash Flow for the
     relevant period) required in order to establish  whether the Company was in
     compliance  with the  requirements  of Section 4 (in each case  where  such
     Section  imposes  numerical  financial  requirements)  as of the end of the
     period covered by the financial  statements then being furnished (including
     with respect to such Section,  where  applicable,  the  calculations of the
     maximum  or  minimum  amount,  ratio  or  percentage,  as the  case may be,
     permissible  under the terms of such Section,  and the  calculation  of the
     amount, ratio or percentage then in existence); and

          Event of Default a statement that the signer has reviewed the relevant
     terms  hereof  and  has  made,  or  caused  to be  made,  under  his or her
     supervision or authority,  a review of the  transactions  and conditions of
     the Company  and the  Subsidiaries  from the  beginning  of the  accounting
     period covered by the income  statements  being delivered  therewith to the
     date of the  certificate  and that such review shall not have disclosed the
     existence  during such period of any condition or event that  constitutes a
     Default or an Event of Default or, if any such  condition or event  existed
     or exists,  specifying the nature and period of existence  thereof and what
     action  the  Company  shall  have taken or  proposes  to take with  respect
     thereto. 

Accountants' Certificates

                                       24

<PAGE>




     Each set of annual  financial  statements  delivered  pursuant  to  Section
5.1(b) shall be accompanied by a certificate of the accountants who were engaged
to audit  such  financial  statements,  stating  that  they have  reviewed  this
Agreement and stating further,  whether, in making their audit, such accountants
have become aware of any  condition or event that then  constitutes a Default or
an Event of Default,  and, if such accountants are aware that any such condition
or event then exists,  specifying  the nature and period of  existence  thereof.
Inspection

     The  Company  will  permit the  representatives  of each holder of Notes to
visit  and  inspect  any  of  the  Properties  of  the  Company  or  any  of the
Subsidiaries, to examine all their respective books of account, records, reports
and other papers,  to make copies and extracts  therefrom,  and to discuss their
respective  affairs,  finances  and  accounts  with their  respective  officers,
employees and independent  public accountants (and by this provision the Company
authorizes  said  accountants to discuss the finances and affairs of the Company
and the  Subsidiaries)  all at such  reasonable  times  and as  often  as may be
reasonably requested.  At all times during which there exists a Default or Event
of Default,  expenses  incurred by the holders of the Notes in  connection  with
this Section 5.5 shall be paid in accordance with Section 9.6(b).

Confidential Information

     Each  holder of  Notes,  by its  acceptance  thereof,  agrees  that it will
maintain the confidentiality of all Confidential  Information in accordance with
procedures  adopted  by  such  holder  in good  faith  to  protect  confidential
information of third parties delivered to such holder;  provided,  however, that
any holder of Notes may deliver or disclose Confidential Information to:

          (u) such holder's directors,  officers,  trustees,  employees, agents,
     attorneys and affiliates (to the extent such disclosure  reasonably relates
     to the  administration  of the investment  represented by the Notes held by
     such holder);

          (v) such holder's financial  advisors and other professional  advisors
     who agree to hold confidential the Confidential  Information  substantially
     in accordance with the terms of this Section 5.6;

          (w) any other holder of any Note;

          (x) any institutional investor to which such holder sells or offers to
     sell such Note or any part  thereof or any  participation  therein (if such
     Person  has  agreed in writing  prior to its  receipt of such  Confidential
     Information to be bound by the provisions of this Section 5.6);

          (y) any Person from which such holder  offers to purchase any security
     of the Company  (if such Person has agreed in writing  prior to its receipt
     of such  Confidential  Information  to be bound by the  provisions  of this
     Section 5.6);

          (z)  any  federal,   state  or  local   regulatory   authority  having
     jurisdiction over such holder;

          (aa)  the  National  Association  of  Insurance  Commissioners  or any
     similar  organization,  or any  nationally  recognized  rating  agency that
     requires  access to  information  about the  investment  portfolio  of such
     holder; or


                                       25

<PAGE>



          (ab) any other  Person to which such  delivery  or  disclosure  may be
     necessary or appropriate:

               (i) to effect compliance with any law, rule,  regulation or order
          applicable to such holder;

               (ii)  in  response  to  any  subpoena  or  other  legal  process;
          provided,  however, that each holder agrees to use its reasonable best
          efforts to inform the Company of the service upon it of such  subpoena
          or legal process,  and to reasonably cooperate with the Company should
          the Company wish (at the Company's expense) to seek a protective order
          or similar relief relating to such disclosure; or

               (iii) in connection  with any litigation to which such holder and
          the Company or any Subsidiary  are parties;  provided,  however,  that
          such  holder  shall  use  its  reasonable   efforts  to  preserve  the
          confidentiality  of the  Confidential  Information  to the  extent not
          necessary to prosecute or defend such litigation; or

               (iv) if an Event of Default has  occurred and is  continuing,  to
          the extent such holder may  reasonably  determine  such  delivery  and
          disclosure to be necessary or  appropriate  in the  enforcement or for
          the protection of the rights and remedies of such holder in respect of
          such holder's Notes and this Agreement.

Each  holder  of a Note,  by its  acceptance  of a Note,  will be deemed to have
agreed to be bound by and to be entitled to the  benefits of this Section 5.6 as
though it were a party to this Agreement.  On reasonable  request by the Company
in connection with the delivery to any holder of a Note of information  required
to be delivered to such holder under this  Agreement or requested by such holder
(other than a holder that is a party to this  Agreement  or its  nominee),  such
holder will enter into an agreement with the Company embodying the provisions of
this Section 5.6. 

EVENTS OF DEFAULT 

Events of Default

     An  "Event of  Default"  exists  at any time if any of the  following  both
occurs and is continuing  thereafter for any reason whatsoever (and whether such
occurrence  shall be  voluntary or  involuntary  or come about or be effected by
operation of law or otherwise):

          Payments on Notes

               Principal or Prepayment  Compensation Amount Payments the Company
          fails to make any  payment of  principal  or  Prepayment  Compensation
          Amount on any Note on or before the date such payment is due; or

               Interest  Payments the Company  fails  to  make  any  payment  of
          interest  on any Note on or before  five (5)  Business  Days after the
          date such payment is due;

          Other Defaults

               Financial  Covenant  Defaults the Company or any Subsidiary fails
          to comply with any provision of Section 4; or

                                       26

<PAGE>




               Other Defaults the Company or any Subsidiary fails to comply with
          any other provision  hereof,  and such failure continues for more than
          thirty (30) days after such  failure  shall first  become known to any
          Senior Officer;

          Warranties or  Representations any warranty,  representation  or other
     statement  by or on  behalf  of the  Company  contained  in the  Securities
     Purchase Agreements, this Agreement, the Notes, the Subsidiary Guaranty and
     any other  agreement,  certificate or instrument  executed  pursuant to the
     terms of each of the foregoing,  or in any written  amendment,  supplement,
     modification or waiver with respect to any such agreement or document or in
     any  instrument  furnished  in  compliance  herewith  or  therewith  or  in
     reference  hereto or thereto,  shall have been false or  misleading  in any
     material respect when made;

     Acceleration of Debt either:

          (v) the Company or any Subsidiary fails to make, when due, at maturity
     or otherwise, any payment or payments in respect of any Debt, which payment
     or payments  aggregate Three Million Dollars  ($3,000,000) or more, and any
     grace period provided with respect thereto shall have expired; or

          (vi) any event shall occur or any condition  shall exist in respect of
     Debt,  or under any  agreement  securing or  relating to such Debt,  and in
     either case, as a result thereof:

               (A)  the  maturity  of  such  Debt,  or  a  portion  thereof,  is
          accelerated; or

               (B) any one or more of the holders thereof or a trustee  therefor
          is permitted to require the Company or any  Subsidiary  to  repurchase
          such Debt from the  holders  thereof,  and any such  trustee or holder
          exercises such option;

     provided that the  aggregate  amount of all  obligations  in respect of all
     such Debt exceeds at such time Three Million Dollars ($3,000,000);

     Insolvency

          Involuntary Bankruptcy Proceedings

               (C) a receiver,  liquidator,  custodian or trustee of the Company
          or any Subsidiary,  or of all or any substantial  part of the Property
          of either,  is  appointed  by court  order and such  order  remains in
          effect  for more than  sixty  (60)  days;  or an order  for  relief is
          entered with respect to the Company or any Subsidiary,  or the Company
          or any Subsidiary is adjudicated a bankrupt or insolvent;

               (D) all or any substantial part of the Property of the Company or
          any Subsidiary is sequestered by court order and such order remains in
          effect for more than sixty (60) days; or


                                       27

<PAGE>



               (E) a petition is filed  against  the  Company or any  Subsidiary
          under  any  bankruptcy,   reorganization,   arrangement,   insolvency,
          readjustment   of  debt,   dissolution  or  liquidation   law  of  any
          jurisdiction, whether now or hereafter in effect, and is not dismissed
          within sixty (60) days after such filing;

          Voluntary  Petitions the Company or any Subsidiary files a petition in
     voluntary bankruptcy or seeks relief under any provision of any bankruptcy,
     reorganization,  arrangement, insolvency, readjustment of debt, dissolution
     or liquidation law of any jurisdiction, whether now or hereafter in effect,
     or consents to the filing of any petition against it under any such law; or

          Assignments for Benefit of Creditors, etc. the Company or a Subsidiary
     makes an assignment for the benefit of its creditors,  or admits in writing
     its inability,  or fails, to pay its debts generally as they become due, or
     consents to the  appointment  of a receiver,  liquidator  or trustee of the
     Company or a Subsidiary or of all or a substantial part of its Property; or

     Undischarged  Final  Judgments a final,  non-appealable  judgment or final,
non-appealable  judgments for the payment of money  aggregating in excess of One
Million Dollars  ($1,000,000)  is or are outstanding  against one or more of the
Company  and the  Subsidiaries  and any one of such  judgments  shall  have been
outstanding  for more than  sixty (60) days from the date of its entry and shall
not have been discharged in full or stayed; or

     Subsidiary  Guaranty(vii) the Subsidiary Guaranty shall cease to be in full
     force and  effect  or shall be  declared  by a court or other  Governmental
     Authority of competent  jurisdiction to be void,  voidable or unenforceable
     against any Subsidiary Guarantor,

          (viii) the  validity  or  enforceability  of the  Subsidiary  Guaranty
     against any  Subsidiary  Guarantor  shall be contested  by such  Subsidiary
     Guarantor, the Company or any Affiliate, or

          (ix) any Subsidiary Guarantor, the Company or any Affiliate shall deny
     that such  Subsidiary  Guarantor  has any further  liability or  obligation
     under the Subsidiary Guaranty.

Default Remedies

     Acceleration of Maturity of Notes

               Acceleration on Event of Default

                    Automatic  If any  Event of  Default  specified  in  Section
               6.1(e)  shall  exist,  all of the  Notes at the time  outstanding
               shall  automatically  become immediately due and payable together
               with  interest  accrued  thereon and, to the extent  permitted by
               law, the Prepayment Compensation Amount at such time with respect
               to the  principal  amount  of such  Notes,  without  presentment,
               demand,  protest  or notice of any kind,  all of which are hereby
               expressly waived.

                                       28

<PAGE>




                    By Action of Holders Subject to Section 7.6 and Section 7.7,
               if any Event of Default  other than  those  specified  in Section
               6.1(a) shall exist,  the Required Holders may exercise any right,
               power or Remedy  permitted  to such holder or holders by law, and
               shall have, in particular, without limiting the generality of the
               foregoing,  the right to declare the entire principal of, and all
               interest  accrued on, all the Notes then  outstanding  to be, and
               such Notes shall  thereupon  become,  forthwith  due and payable,
               without any presentment,  demand,  protest or other notice of any
               kind, all of which are hereby expressly  waived,  and the Company
               shall  forthwith  pay to the  holder or  holders of all the Notes
               then  outstanding the entire  principal of, and interest  accrued
               on, the Notes and, to the extent permitted by law, the Prepayment
               Compensation  Amount at such time with respect to such  principal
               amount of such Notes.

               Acceleration  on  Payment  Default  Subject  to  Section  7.6 and
          Section 7.7, during the existence of an Event of Default  described in
          Section 6.1(a), and irrespective of whether the Notes then outstanding
          shall have  become due and payable  pursuant to Section  6.2(a)(i)(B),
          any  holder  of Notes who or which  shall  have not  consented  to any
          waiver  with  respect  to such  Event of  Default  may,  at his or its
          option,  by notice in writing to the  Company,  declare the Notes then
          held by such  holder to be, and such  Notes  shall  thereupon  become,
          forthwith due and payable  together with all interest accrued thereon,
          without any presentment,  demand, protest or other notice of any kind,
          all of which  are  hereby  expressly  waived,  and the  Company  shall
          forthwith  pay to such  holder the entire  principal  of and  interest
          accrued  on such  Notes  and,  to the  extent  permitted  by law,  the
          Prepayment  Compensation  Amount  at such time  with  respect  to such
          principal amount of such Notes.

          Valuable  Rights The  Company  acknowledges,  and the  parties  hereto
     agree,  that the right of each holder to  maintain  its  investment  in the
     Notes free from  repayment  by the Company  (except as herein  specifically
     provided  for) is a valuable  right and that the provision for payment of a
     Prepayment  Compensation  Amount by the Company in the event that the Notes
     are  prepaid  or are  accelerated  as a result  of an Event of  Default  is
     intended to provide  compensation  for the  deprivation of such right under
     such circumstances.

          Other  Remedies During the  existence  of  an  Event  of  Default  and
     irrespective  of whether the Notes then  outstanding  shall  become due and
     payable pursuant to Section 6.2(a),  and irrespective of whether any holder
     of Notes then  outstanding  shall otherwise have pursued or be pursuing any
     other  rights or  Remedies,  subject to Section  7.6 and Section  7.7,  any
     holder of Notes may proceed to protect and enforce its rights hereunder and
     under such Notes by  exercising  such  Remedies  as are  available  to such
     holder in respect thereof under applicable law, either by suit in equity or
     by  action  at law,  or  both,  whether  for  specific  performance  of any
     agreement  contained  herein or in aid of the exercise of any power granted
     herein; provided,  however, that the maturity of such holder's Notes may be
     accelerated only in accordance with Section 6.2(a).

          Nonwaiver; Remedies Cumulative No course of dealing on the part of any
     holder of Notes nor any delay or failure on the part of any holder of Notes
     to exercise any right shall  operate as a waiver of such right or otherwise
     prejudice such holder's rights, powers

                                       29

<PAGE>



     and Remedies. All rights and Remedies of each holder of Notes hereunder and
     under  applicable  law are  cumulative  to, and not exclusive of, any other
     rights or Remedies any such holder of Notes would otherwise have.

          SubordinationThe  rights  of the  holders  of  the  Notes  to  receive
     payments in respect of this  Agreement  and the Notes,  and to exercise any
     Remedies, solely as between the holders of the Notes and the holders of the
     Senior Debt,  shall be subject in all respects to the provisions of Section
     7; provided,  however,  that all such rights shall remain unconditional and
     absolute as between the holders of the Notes and the Company.

Annulment of Acceleration of Notes

          (ac) Annulment at Holders'  Option.  If a declaration is made pursuant
     to  Section  6.2(a)(i)(B),  then and in every  such  case,  the  holders of
     sixty-six and two-thirds percent (66 2/3%) in principal amount of the Notes
     at the time  outstanding  (exclusive of Notes then owned by any one or more
     of the Company, any Subsidiary or any Affiliate) may, by written instrument
     filed  with the  Company,  rescind  and  annul  such  declaration,  and the
     consequences thereof; provided,  however, that at the time such declaration
     is annulled and rescinded:

               (i) no judgment or decree shall have been entered for the payment
          of any moneys due on or pursuant hereto or the Notes;

               (ii) all arrears of interest upon all of the Notes and all of the
          other sums payable hereunder and under the Notes (except any principal
          of, or interest or Prepayment  Compensation Amount on, the Notes which
          shall have become due and payable by reason of such declaration  under
          Section 6.2(a)(i)(B)) shall have been duly paid; and

               (iii) each and every  other  Default  and Event of Default  shall
          have been waived  pursuant to Section  9.5 or  otherwise  made good or
          cured;

     and provided  further that no such rescission and annulment shall extend to
     or affect  any  subsequent  Default or Event of Default or impair any right
     consequent thereon.

          (ad) Required Annulment.  If a declaration is made pursuant to Section
     6.2(a)(i)(B) arising solely out of an Event of Default described in Section
     6.1(d)  regarding  the Senior  Debt,  then and in every  such case,  if the
     holders of the Senior Debt waive such default in respect of the Senior Debt
     or such  default is cured,  and the holders of the Senior  Debt  rescind or
     annul any and all  accelerations  of the  maturity of all or any portion of
     the Senior  Debt and any  required  or  demanded  repurchase  of all or any
     portion  thereof,  then, upon written notice to the holders of the Notes of
     such events with respect to the Senior Debt, any declaration  made pursuant
     to Section 6.2(a)(i)(B),  and the consequences thereof, shall automatically
     and without any further action on the part of the holders of the Notes,  be
     annulled  and  rescinded;   provided,   however,  that  at  the  time  such
     declaration is deemed annulled and rescinded:

               (i) no judgment or decree shall have been entered for the payment
          of any moneys due on or pursuant hereto or the Notes;

               (ii) no other Default and Event of Default shall be continuing;

                                       30

<PAGE>




          and  provided  further that no such  rescission  and  annulment  shall
          extend to or affect  any  subsequent  Default  or Event of  Default or
          impair any right consequent thereon.

SUBORDINATION

General

     The Subordinated  Debt is subordinate and junior in right of payment to all
Senior Debt to the extent provided in this Section 7.

Insolvency

     In the event of:

          (ae)   any   insolvency,   bankruptcy,   receivership,    liquidation,
     reorganization,  readjustment,  composition  or  other  similar  proceeding
     relating to the Company, its creditors or its Property;

          (af)  any  proceeding  for  the  liquidation,   dissolution  or  other
     winding-up  of  the  Company,  voluntary  or  involuntary,  whether  or not
     involving insolvency or bankruptcy proceedings;

          (ag) any assignment by the Company for the benefit of creditors; or

          (ah) any other marshalling of the assets of the Company;

all Senior Debt shall first be paid in full, in cash or cash equivalents, before
any payment or  distribution,  whether in cash,  Securities  or other  Property,
shall  be  made  to any  holder  of any  Subordinated  Debt  on  account  of any
Subordinated Debt. Any payment or distribution,  whether in cash,  Securities or
other Property  (other than  Securities of the Company or any other  corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinated,  at least to the extent provided in this Section 7 with respect to
Subordinated Debt, to the payment of all Senior Debt at the time outstanding and
to  any   Securities   issued  in  respect   thereof  under  any  such  plan  of
reorganization or readjustment),  which would otherwise (but for this Section 7)
be payable or  deliverable  in  respect  of  Subordinated  Debt shall be paid or
delivered  directly  to the  holders  of  Senior  Debt in  accordance  with  the
priorities  then  existing  among such holders  until all Senior Debt shall have
been paid in full, in cash or cash equivalents.

Proofs of Claim

     If any holder of Subordinated Debt does not file a proper claim or proof of
debt  therefor  prior to twenty (20) days before the  expiration  of the time to
file such  claim or  proof,  then the  Senior  Agent is  hereby  authorized  and
empowered (but not obligated) as the agent and  attorney-in-fact for such holder
for the specific and limited  purpose set forth in this Section 7.3 to file such
claim or proof for or on  behalf of such  holder;  provided,  however,  that the
Senior  Agent shall have,  prior to taking any such action,  given  fifteen (15)
days prior written notice (which notice may be given up to sixty (60) days prior
to the expiration of the time to file such claim) to such holder of Subordinated
Debt it intends to file such claim or proof of debt.  In no event may the Senior
Agent or any holder of the Senior Debt vote any claim on behalf of any holder of
the Subordinated Debt, and such agency and appointment of attorney-in-fact shall
not extend to any such right to vote any such claim.

Payment Default in Respect of Senior Debt


                                       31

<PAGE>



     If:
          (ai) the Company  shall  default in the payment of any principal of or
     premium,  if  any,  or  interest  on any  Senior  Debt (a  "Senior  Payment
     Default") when the same becomes due and payable,  whether at maturity, at a
     date fixed for prepayment, by declaration of acceleration or otherwise; and

          (aj) the Company  receives  from the Senior  Agent  written  notice (a
     "Payment  Default Notice") of the happening of such Senior Payment Default,
     stating  that such  notice is a payment  blockage  notice  pursuant to this
     Section 7.4;

then no direct or  indirect  payment  (in cash,  Property  or  Securities  or by
set-off  or  otherwise)  shall be made or  agreed to be made on  account  of any
Subordinated Debt, or as a sinking fund for any Subordinated Debt, or in respect
of any  redemption,  retirement,  purchase,  prepayment or other  acquisition or
payment of any Subordinated  Debt,  unless and until such Senior Payment Default
shall have been cured or waived or otherwise shall have ceased to exist.

     The Company shall give prompt written notice to each holder of Subordinated
Debt of its  receipt of any  Payment  Default  Notice  under this  Section  7.4.

Significant Nonpayment Default in Respect of Senior Debt

     If:

          (ak) any Significant Nonpayment Default shall have occurred; and

          (al) the Company  receives  from the Senior  Agent  written  notice (a
     "Nonpayment   Default   Notice")  of  the  happening  of  such  Significant
     Nonpayment  Default,  stating that such notice is a payment blockage notice
     pursuant to this Section 7.5;

no direct or indirect payment (in cash,  property or Securities or by set-off or
otherwise)  shall  be  made  or  agreed  to be  made  for or on  account  of any
Subordinated Debt, or as a sinking fund for any Subordinated Debt, or in respect
of  any  redemption,  retirement,  repurchase,  prepayment,  purchase  or  other
acquisition or payment of any Subordinated  Debt, for a period (each, a "Payment
Blockage  Period")  commencing  on the date the  Nonpayment  Default  Notice  is
delivered to the Company and ending on the Payment  Blockage Period  Termination
Date; provided, however, that:

          (i) only  three (3) such  Payment  Blockage  Periods  may arise in any
     period of three hundred sixty-five (365) consecutive days;

          (ii) no more than six (6)  Payment  Blockage  Periods may arise in the
     aggregate;

          (iii) Payment  Blockage Periods may not be in effect for more than one
     hundred  fifty  (150) days  during any period of three  hundred  sixty-five
     (365)  consecutive  days, and any Payment  Blockage Period in effect on the
     one hundred  fifty-first  (151st) day (whether or not such days are or were
     consecutive) in any period of three hundred  sixty-five  (365)  consecutive
     days, such Payment Blockage Period shall terminate immediately; and

                                       32

<PAGE>




          (iv) no  Payment  Blockage  Period  may be  imposed as a result of any
     Significant  Nonpayment  Default  which  served  as  the  basis  for or was
     continuing during a previous Payment Blockage Period.

     All payments in respect of Subordinated  Debt postponed  during any Payment
Blockage Period shall be immediately  due and payable upon the Payment  Blockage
Period  Termination Date thereof  (together with such additional  interest as is
provided for herein and in the Notes for late payment of  principal,  Prepayment
Compensation Amount and interest).

     The Company shall give prompt written notice to each holder of Subordinated
Debt of its receipt of any Nonpayment Default Notice under this Section 7.5.

     0.2 Enforcement Notice.

     If, at any time during which the Senior Credit  Facility is in effect,  any
holder or holders of Notes  elect to  exercise  any  Remedies  in respect of any
Event of Default, such holder or holders shall deliver to the Company and to the
Senior Agent written notice (an  "Enforcement  Notice")  specifying the Event or
Events of Default  which are the basis for the  exercise  of such  Remedies  and
stating the holder or holders intends to exercise Remedies;  provided,  however,
that the failure to deliver  such  Enforcement  Notice to the Senior Agent shall
not affect the  validity  of the  Enforcement  Notice as between  such holder or
holders and the Company. 

Standstill

     Notwithstanding anything contained in this Agreement or any other Financing
Document to the  contrary,  for so long as any amount is  outstanding  under the
Senior  Credit  Facility,  no holder of any  Subordinated  Debt may exercise any
Remedies in respect  thereof  (and no  acceleration  or  purported  acceleration
pursuant to Section  6.2(a)(i)(B) or Section  6.2(a)(ii) shall become effective)
during  any  period (a  "Standstill  Period")  commencing  on the first date the
holders of the  Subordinated  Debt,  but for the  provisions  of this Section 7,
would have been entitled to  accelerate  the maturity of the  Subordinated  Debt
pursuant  to Section  6.2(a)(i)(B)  or Section  6.2(a)(ii)  and ending  upon the
earliest of:

          (a) the date  which is ten (10) days after the  Enforcement  Notice is
     delivered  to the Company  and the Senior  Agent  pursuant to Section  7.6;
     provided, however, that if any Payment Blockage Period is in effect on such
     tenth (10th) day after the Enforcement Notice is so delivered,  this clause
     (a) shall be ineffective to terminate such Standstill Period;

          (b) in the  event  that a  Payment  Blockage  is in effect on the date
     which is ten (10) days after the  Enforcement  Notice is  delivered  to the
     Company and the Senior Agent pursuant to Section 7.6, the Payment  Blockage
     Period  Termination  Date relating to the  Significant  Nonpayment  Default
     giving rise to such Payment Blockage Period;

          (c) the date that any holder of any Senior Debt commences the exercise
     of any Remedies in respect of such Debt; and

          (d) the first date upon  which any of the Events of Default  described
     in Section  6.1(e) shall have occurred and be continuing  beyond any period
     of grace specified therein; and, in such event, the automatic  acceleration
     of the Notes contemplated in

                                       33

<PAGE>



     respect of such Event of Default  pursuant  to Section  6.2(a)(i)(A)  shall
     occur immediately upon the termination of the Standstill Period.

Turnover of Payments

     If:

          (e) any  payment  or  distribution  shall be paid to or  collected  or
     received by any holders of Subordinated Debt in contravention of any of the
     terms of this Section 7; and

          (f) the Senior Agent shall have  notified the holders of  Subordinated
     Debt in writing,  within  thirty  (30) days after the date such  payment or
     distribution  is made,  of the  facts by reason of which  such  payment  or
     collection  or  receipt  so  contravenes this  Section  7 or constituted  a
     Significant Nonpayment Default;

then  such   holders  of   Subordinated   Debt  will  deliver  such  payment  or
distribution,  to the extent  necessary to pay all such Senior Debt in full,  in
cash or cash  equivalents,  to the Senior Agent, on behalf of the holders of the
Senior Debt,  and,  until so delivered,  the same shall be held in trust by such
holders of Subordinated Debt as the property of the holders of such Senior Debt.
If any amount is  delivered  to the Senior  Agent  pursuant to this Section 7.8,
whether or not such amounts have been applied to the payment of Senior Debt, and
the  outstanding  Senior Debt shall  thereafter be paid in full, in cash or cash
equivalents,  by the Company or  otherwise  other than  pursuant to this Section
7.8,  the holders of Senior Debt shall  return to such  holders of  Subordinated
Debt an amount  equal to the amount  delivered  to such  holders of Senior  Debt
pursuant to this  Section  7.8, so long as after the return of such  amounts the
Senior  Debt  shall  remain  paid  in  full,   in  cash  or  cash   equivalents.
Subordination Unaffected by Certain Events

     The rights set forth in this Section 7 of the holders of the Senior Debt as
against each holder of  Subordinated  Debt shall remain in full force and effect
without regard to, and shall not be impaired by:

          (g) any act or failure to act on the part of the Company;

          (h)  any  extension  or  indulgence  in  respect  of  any  payment  or
     prepayment  of the Senior Debt or any part therefor in respect of any other
     amount payable to any holder of Senior Debt;

          (i) any amendment,  modification,  restatement,  refinancing or waiver
     of, or addition or supplement to, or deletion from, or compromise, release,
     consent or other  action in respect of, any of the terms of any Senior Debt
     or any other agreement which may be relating to any Senior Debt, other than
     such as would  cause  all or any  portion  of such Debt to fail to meet the
     definition of "Senior Debt;"

          (j) any exercise or  non-exercise  by any holder of Senior Debt of any
     right, power, privilege or remedy under or in respect of any Senior Debt or
     Subordinated  Debt or any waiver of any such  right,  power,  privilege  or
     remedy or any  default in respect  of any Senior  Debt or the  Subordinated
     Debt, any dealing with or action against any collateral  security  therefor
     or any receipt by any holder of Senior Debt of any security, or any failure
     by any  holder of Senior  Debt to perfect a  security  interest  in, or any
     release by any such of Senior Debt of, any  security for the payment of any
     Senior Debt;

                                       34

<PAGE>


          (k)  any  merger  or  consolidation  of  the  Company  or  any  of the
     Subsidiaries  into  or with  any of the  Subsidiaries  or into or with  any
     Person, or any Transfer of any or all of the Property of the Company or any
     of the Subsidiaries to any other Person; or

          (l) the  absence  of any  notice  to, or  knowledge  by, any holder of
     Subordinated  Debt of the  existence or occurrence of any of the matters or
     events set forth in the  foregoing  clauses  (a)  through  (e).

Waiver and Consent

     Each  holder  of  Subordinated  Debt  waives  any  and all  notices  of the
acceptance  of the  provisions  of this Section 7 or of the  creation,  renewal,
extension or accrual, now or at any time in the future, of any Senior Debt.

Reinstatement of Subordination

     The  obligations of each holder of  Subordinated  Debt under the provisions
set forth in this Section 7 shall continue to be effective, or be reinstated, as
the case may be,  as to any  payment  in  respect  of any  Senior  Debt  that is
rescinded  or must  otherwise be returned by the holder of such Senior Debt upon
the occurrence or as a result of any bankruptcy or judicial  proceeding,  all as
though such payment had not been made. 

Obligations Not Impaired

     Nothing  contained in this Section 7 shall  impair,  as between the Company
and any holder of  Subordinated  Debt,  the  obligation of the Company to pay to
such holder the principal  thereof and Prepayment  Compensation  Amount, if any,
and  interest  thereon  as and when the same  shall  become  due and  payable in
accordance with the terms thereof and to comply with each and every provision of
the Notes and this Agreement or prevent any holder of any Subordinated Debt from
exercising all rights, powers and remedies otherwise permitted by applicable law
or under this Agreement,  all subject to the rights of the holders of the Senior
Debt to  receive  cash,  Securities  or  other  Property  otherwise  payable  or
deliverable  to the  holders  of  Subordinated  Debt.  

Payment of Senior Debt; Subrogation

     Upon the payment in full of all Senior  Debt,  the holders of  Subordinated
Debt shall be  subrogated  to all rights of any holder of Senior Debt to receive
any further  payments or  distributions  applicable to the Senior Debt until the
Subordinated   Debt  shall  have  been  paid  in  full,  and  such  payments  or
distributions  received  by the holders of  Subordinated  Debt by reason of such
subrogation, of cash, Securities or other Property which otherwise would be paid
or distributed to the holders of Senior Debt,  shall, as between the Company and
its creditors  other than the holders of Senior Debt,  on the one hand,  and the
holders of  Subordinated  Debt,  on the other hand, be deemed to be a payment by
the Company on account of Senior Debt and not on account of Subordinated Debt.

Reliance of Holders of Senior Debt

     Each holder of Subordinated Debt by its acceptance  thereof shall be deemed
to acknowledge  and agree that the foregoing  subordination  provisions are, and
are intended to be, an inducement to and a  consideration  of each holder of any
Senior Debt,  whether  such Senior Debt was created or acquired  before or after
the creation of Subordinated  Debt, to acquire and hold, or to continue to hold,
such Senior Debt, and such holder of Senior Debt shall be deemed conclusively to
have relied on such  subordination  provisions in acquiring  and holding,  or in
continuing  to hold,  such  Senior  Debt.  Each such  holder  of Senior  Debt is
intended to be, and

                                       35

<PAGE>



is, a third party  beneficiary  of this  Section 7. Each holder of  Subordinated
Debt  acknowledges  and agrees that the  provisions  set forth in this Section 7
shall be  enforceable  against  such  Persons by the holders of the Senior Debt.
Notwithstanding  anything  contained in this  Agreement  or any other  Financing
Document to the contrary,  none of the  provisions of this Section 7 (including,
without limitation,  this Section 7.14) may, directly or indirectly, be amended,
modified, supplemented or waived without the prior written consent of the Senior
Agent,  on behalf of the  holders of the  Senior  Debt.  

Identity of Holders of Senior Debt

     Upon the request of any holder of  Subordinated  Debt,  the  Company  shall
deliver to such holder a list of all holders of Senior Debt  outstanding at such
time,  providing the name and address of each such holder of Senior Debt and the
principal  amount of Senior Debt held by each such  holder;  provided,  however,
that,  if any  holder of Senior  Debt  shall  have  appointed  an agent or other
representative  with  respect to the Senior  Debt held by it,  the  Company  may
provide the name and address of such agent or representative in lieu of the name
and address of such holder of Senior Debt.

Amendments to Senior Credit Facility

     Notwithstanding  the other provisions of this Section 7, no amendment to or
Refinancing  of the Senior Debt or any agreement or instrument  related  thereto
shall be effective as to the holders of the Subordinated  Debt or be entitled to
the  benefits  of this  Section 7 without the consent of each holder of Notes to
the extent  that such  amendment  would  prohibit  directly  the  Company or any
Subsidiary from making scheduled payments in respect of the Subordinated Debt in
any manner which is not specifically  set forth in the Senior Credit  Agreement,
as in effect on the Closing Date.

INTERPRETATION OF THIS AGREEMENT

Terms Defined

     As used herein, the following terms have the respective  meanings set forth
below or set forth in the Section hereof following such term:

     Acceptable  Consideration  -- means,  with  respect to any  Transfer of any
asset of the Company or any Subsidiary, cash consideration,  promissory notes or
such other non-cash  consideration  (or any combination of the foregoing) as is,
in each case,  determined by the Board of Directors,  in its good faith opinion,
to be in the best  interests of the Company and to reflect the Fair Market Value
of such asset.

     Acceptable  Revolving  Credit  Facility  -- means and  includes a revolving
credit agreement or similar agreement:

          (a)  pursuant  to which the  lender  commits  to permit  the  Company,
     subject to the conditions  therein,  to obtain from time to time thereunder
     loans or advances  of cash,  letters of credit or bankers  acceptances  and
     periodically repay the same; and

          (b) the obligations  under which are secured by a Lien upon (among any
     other Property subject to such Lien) all or substantially all Inventory and
     Receivables  of the  Company  and the  Subsidiaries  which are  included in
     calculating the Borrowing Base.

     Affiliate -- means and  includes,  at any time,  each Person  (other than a
Subsidiary):


                                       36

<PAGE>



          (a) that  directly or  indirectly  through one or more  intermediaries
     controls,  or is  controlled  by,  or is under  common  control  with,  the
     Company;

          (b) that  beneficially  owns or holds five percent (5%) or more of any
     class of the Voting Stock of the Company;

          (c) five percent (5%) or more of the Voting Stock (or in the case of a
     Person that is not a  corporation,  five percent (5%) or more of the equity
     interest) of which is beneficially owned or held by the Company; or

          (d) that is an officer or director of the Company;

at such time; provided, however, that neither of the Purchasers nor any of their
affiliates  shall be deemed to be an "Affiliate,"  and no Person holding any one
or more of the Notes or Warrants shall be deemed to be an "Affiliate"  solely by
virtue of the ownership of such securities. As used in this definition:

          control -- means the possession,  directly or indirectly, of the power
     to  direct or cause the  direction  of the  management  and  policies  of a
     Person, whether through the ownership of voting securities,  by contract or
     otherwise.

     Agreement, this -- and references thereto shall mean this Note Agreement as
it may from time to time be amended or supplemented.

     Applicable  Interest  Law -- means any  present or future  law  (including,
without  limitation,  the laws of the State of New York and the United States of
America)  which has  application  to the interest and other charges  pursuant to
this Agreement and the Notes.

     Board of  Directors  -- means,  at any time,  the board of directors of the
Company or any or any committee  thereof  that, in the instance,  shall have the
lawful power to exercise the power and authority of such board of directors.

     Borrowing Base -- means the sum of:

          (a)  eighty  percent  (80%) of  Eligible  Receivables  aged  less than
     ninety-one days; plus

          (b) any amount of the Battaglia Receivables not exceeding Four Hundred
     Thousand Dollars ($400,000); plus

          (c) the lesser of:

               (i)  forty  percent  (40%)  of the book  value of raw  materials,
          work-in-progress  and  finished  goods  Inventory,  exclusive  of  any
          Inventory  warehoused at any  warehouse  location for which the lender
          under the  Acceptable  Revolving  Credit  Facility  has not received a
          warehouse Lien waiver in form and substance acceptable to such lender,
          subordinating the warehouseman's Lien to the Lien of such lender; and


                                       37

<PAGE>



               (ii)  fifty  percent  (50%) of the Debt  outstanding  under  such
          Acceptable Revolving Credit Facility.

So long as:

          (A) there has been no bad faith on the part of either  the  Company or
     the Senior Agent in the preparation of the Borrowing Base Certificate;

          (B) the Borrowing Base Certificate contains no manifest error;

          (C)  such  Borrowing  Base  Certificate  was  completed  no more  than
     thirty-five (35) days prior to the date of determination; and

          (D) such Borrowing Base Certificate  measures the Borrowing Base as of
     a date no more than fifty (50) days prior to the date of determination;

then the  Borrowing  Base at any time shall be deemed to be the amount set forth
on the most recent Borrowing Base Certificate  delivered to the Senior Agent. In
all other cases, the Borrowing Base shall equal the actual Borrowing Base on the
date of determination.

     Business  Day -- means a day other  than a  Saturday,  a Sunday or a day on
which  banks in the State of New York are  required or  permitted  by law (other
than a general  banking  moratorium or holiday for a period  exceeding  four (4)
consecutive days) to be closed.

     Capital  Lease -- means,  at any time, a lease of any Property with respect
to which the lessee is required to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.

     Capital  Stock -- means any  class of  preferred,  common or other  capital
stock,  share capital or similar equity interest of a Person including,  without
limitation,  any partnership  interest in any partnership or limited partnership
and any membership interest in any limited liability company.

     Capitalized Interest Amount -- Section 1.2.

     Change in  Management -- means,  at any time,  an  occurrence or event,  or
failure of an event to occur, as a result of which:

          (a) Mark Cocchiola  either:  shall fail to hold the position and title
     of President and Chief Executive Officer of the Company at such time; shall
     fail to have the  responsibilities and duties attendant to such offices and
     such  responsibilities and duties as were regularly performed by him on the
     Closing Date; or shall become unable  (including,  without  limitation,  by
     death or disability  lasting  longer than one hundred twenty (120) days) to
     perform or discharge such duties; or

          (b) Paul Lauriero either:  shall fail to hold the position or title of
     Executive  Vice  President of the Company at such time;  shall fail to have
     the   responsibilities  and  duties  attendant  to  such  office  and  such
     responsibilities  and  duties  as were  regularly  performed  by him on the
     Closing Date; or shall become unable (including, without limitation, by

                                       38

<PAGE>



     death or disability  lasting  longer than one hundred twenty (120) days) to
     perform or discharge such duties;

in each case,  regardless of the reason for such occurrence or event, or failure
of any event to occur.

     Change in Management Payment Date -- Section 1.5(a).

     Closing Date -- means the date any Notes are first sold.

     Common Stock -- means the Common  Stock,  par value $.01 per share,  of the
Company.

     Company -- the introductory paragraph.

     Confidential  Information -- means  information  delivered to any holder of
Notes by or on behalf of the Company or any  Subsidiary in  connection  with the
transactions  contemplated  by or otherwise  pursuant to this  Agreement that is
proprietary  in nature  and that was  clearly  marked or  labeled  or  otherwise
adequately  identified  when  received  by such  holder  as  being  confidential
information of the Company or such Subsidiary; provided, however, that such term
does not include information that:

          (a) was publicly known or otherwise  known to such holder prior to the
     time of such disclosure;

          (b) subsequently  becomes publicly known through no act or omission by
     such holder or any Person acting on behalf of such holder;

          (c) otherwise becomes known to such holder other than through:

               (i) disclosure by the Company or any Subsidiary; or

               (ii)  disclosure  to such holder which,  to such holder's  actual
          knowledge,  was made to such  holder by any Person in  violation  of a
          duty of confidentiality to the Company or any Subsidiary; or

          (d) constitutes  financial  statements  delivered to such holder under
     Section 5.1 that are otherwise publicly available.

     Consolidated Cash Flow -- means, for any period, the sum of:

          (a) Consolidated Net Earnings; plus

          (b) Consolidated Interest Expense; plus

          (c) Consolidated Tax Expense; plus

          (d) Consolidated Depreciation Expense; plus


                                       39

<PAGE>



          (e) all other non-cash charges (determined on a consolidated basis for
     such  period,  but only to the  extent  included  in the  determination  of
     Consolidated Net Earnings for such period); plus

          (f) for purposes of the twelve (12) month period immediately following
     the Closing Date only,  the amount of loss incurred by the Company from the
     redemption  of the  CoreStates  Securities  and  the  aggregate  amount  of
     investment  banking and legal fees paid by the Company in  connection  with
     the issuance of the Notes, in each case, solely to the extent deducted from
     revenues of the Company and the Subsidiaries in computing  Consolidated Net
     Earnings during such period;

in each case determined in respect of such period.

     Consolidated  Cash Flow Available for Fixed Charges -- means,  with respect
to any period, without duplication, the sum of:

          (a) Consolidated Cash Flow for such period; plus

          (b) Consolidated Rental Expense for such period.

     Consolidated  Depreciation  Expense -- means, for any period, the amount of
depreciation and amortization expense (including,  without limitation,  expenses
associated  with marketing  service  agreements,  retail  licensing  agreements,
sale-and-leaseback  transactions and deferred  financing charges) of the Company
and the Subsidiaries,  determined on a consolidated  basis for such period,  but
only to the extent deducted from revenues of the Company and the Subsidiaries in
computing Consolidated Net Earnings for such period.

     Consolidated  Fixed Charge  Coverage  Ratio -- means,  for any period,  the
ratio of  Consolidated  Cash Flow  Available for Fixed  Charges to  Consolidated
Fixed Charges, determined in each case in respect of such period.

     Consolidated Fixed Charges -- means, for any period, an amount equal to the
sum of:

          (a) Consolidated Interest Expense; plus

          (b) Consolidated Rental Expense;

determined in respect of such period.

     Consolidated  Interest  Expense  -- means,  for any  period,  the amount of
interest  accrued on, or with respect to,  interest  bearing  obligations of the
Company and the Subsidiaries,  including,  without  limitation,  amortization of
debt discount,  imputed interest on Capital Leases and interest on the Notes and
other Debt,  determined on a consolidated basis for such period, but only to the
extent  deducted from revenues of the Company and the  Subsidiaries in computing
Consolidated  Net  Earnings  for  such  period.   For  purposes  of  calculating
Consolidated  Interest Expense,  the Capitalized Interest Amount paid in respect
of the Notes on any Interest Payment Date shall not be included.


                                       40

<PAGE>



     Consolidated  Net  Earnings  -- means,  for any  period,  net income of the
Company and the  Subsidiaries  for such period,  as determined on a consolidated
basis in accordance with GAAP, but excluding:

          (a) any gain or loss  arising  from the sale of capital  assets or any
     write-up or  write-down  of assets,  other than in the  ordinary  course of
     business;

          (b) earnings or losses of any Subsidiary  accrued prior to the date it
     became a Subsidiary;

          (c) earnings or losses of any Person,  substantially all the assets of
     which have been acquired in any manner, realized by such other Person prior
     to the date of such acquisition;

          (d)  earnings  or losses of any Person  (other than a  Subsidiary)  in
     which the Company or any Subsidiary shall have an ownership interest unless
     such net earnings  shall have actually been received by the Company or such
     Subsidiary in the form of cash distributions;

          (e) any  portion of the net  earnings of any  Subsidiary  that for any
     reason is unavailable  for payment of dividends to the Company or any other
     Subsidiary or that cannot be freely converted into United States dollars;

          (f) the  earnings  or  losses  of any  Person  to which  assets of the
     Company shall have been sold, transferred or disposed of, or into which the
     Company shall have merged, prior to the date of such transaction;

          (g) any gain or loss arising from the acquisition of any Securities of
     the Company or any Subsidiary;

          (h) reversal of any extraordinary, unusual or nonrecurring contingency
     reserves not created during such period; and

          (i) other extraordinary gains or losses.

     Consolidated Net Worth -- means, at any time, the  stockholders'  equity as
would be  reflected  on a  balance  sheet of the  Company  and the  Subsidiaries
prepared on a consolidated basis in accordance with GAAP at such time.

     Consolidated  Rental Expense -- means,  for any period,  an amount equal to
Operating  Rental Expense of the Company and the  Subsidiaries,  determined on a
consolidated  basis for such  period,  but only to the  extent  included  in the
determination of Consolidated Net Earnings for such period.

     Consolidated  Tax  Expense  -- means,  for any  period,  the  amount of tax
expense of the  Company  and the  Subsidiaries  in respect of federal  and state
taxes  imposed on or measured by income or excess  profits,  to the extent,  but
only to the extent,  deducted from revenues of the Company and the  Subsidiaries
in computing Consolidated Net Earnings for such period.


                                       41

<PAGE>



     Consolidated  Total Assets -- means, at any time, all assets of the Company
and the  Subsidiaries  which would be shown as assets on a consolidated  balance
sheet of the Company and the Subsidiaries as of such time prepared in accordance
with GAAP.

     Consolidated  Total Debt -- means, at any time, an amount equal to all Debt
of the Company and the Subsidiaries,  determined on a consolidated basis at such
time.

     CoreStates   Securities   --  means,   collectively,   the  11.75%   senior
subordinated  notes due  September  30, 2001 and related  warrant  issued by the
Company to CoreStates Enterprise Fund.

     Debt --  with  respect  to any  Person,  means,  without  duplication,  the
liabilities of such Person with respect to:

          (a) Borrowed Money -- borrowed money;

          (b) Deferred Purchase Price of Property -- the deferred purchase price
     of Property acquired by such Person (excluding  accounts payable arising in
     the ordinary  course of business but including all  liabilities  created or
     arising under any conditional sale or other title retention  agreement with
     respect to any such Property);

          (c) Secured Liabilities -- borrowed money secured by any Lien existing
     on Property owned by such Person (whether or not such liabilities have been
     assumed);

          (d) Capital Leases -- Capital Leases of such Person;

          (e)  Letters of Credit -- letters of credit,  bankers  acceptances  or
     similar  instruments serving a similar function issued or accepted by banks
     and other financial institutions for the account of such Person (whether or
     not representing  obligations for borrowed money), other than undrawn trade
     letters of credit in the ordinary course of business;

          (f) Swaps -- Swaps of such Person; and

          (g)  Guarantees  -- any Guaranty of such Person of any  obligation  or
     liability of another Person of obligations of the type listed in clause (a)
     through clause (f) of this definition of Debt;

provided that, with respect to the Company,  Debt shall not include any unfunded
obligations which may now or hereafter exist with respect to Company's Plans.

As used in this definition,

          Swaps -- means,  with respect to any Person,  obligations with respect
     to  interest  rate  swaps  and  currency  swaps  and  similar   obligations
     obligating such Person to make payments,  whether  periodically or upon the
     happening of a contingency,  except that if any agreement  relating to such
     obligation  provides  for the  netting  of  amounts  payable by and to such
     Person  thereunder or if any such agreement  provides for the  simultaneous
     payment  of  amounts by and to such  Person,  then in each such  case,  the
     amount of such obligations  shall be the net amount thereof.  The aggregate
     net  obligation of Swaps at any time shall be the  aggregate  amount of the
     obligations of such Person under all

                                       42

<PAGE>



     Swaps assuming all such Swaps had been  terminated by such Person as of the
     end of the then most recently ended fiscal quarter of such Person.  If such
     net aggregate  obligation shall be an amount owing to such Person, then the
     amount shall be deemed to be Zero Dollars ($0).

Unless the context otherwise requires,  "Debt" means Debt of the Company or of a
Subsidiary.

     Default -- means any event which,  with the giving of notice or the passage
of time, or both, would become an Event of Default.

     DOL -- means  the  United  States  Department  of Labor  and any  successor
agency.

     Eligible  Receivables  -- has the  meaning  set forth in the Senior  Credit
Agreement,  as in effect on the date  hereof,  but  after  giving  effect to any
amendments (but only such amendment or amendments) thereto as would not have the
effect, individually or in the aggregate, of materially increasing the Borrowing
Base.

     Environmental  Protection  Law -- means  any  law,  statute  or  regulation
enacted by any  Governmental  Authority  in  connection  with or relating to the
protection or  regulation of the  environment,  including,  without  limitation,
those  laws,  statutes  and  regulations   regulating  the  disposal,   removal,
production,   storing,   refining,   handling,   transferring,   processing   or
transporting  of  Hazardous  Materials  and any  applicable  orders,  decrees or
judgments  issued by any court of competent  jurisdiction in connection with any
of the foregoing.

     ERISA -- means the Employee  Retirement  Income  Security  Act of 1974,  as
amended from time to time.

     ERISA   Affiliate   --  means  any  trade  or  business   (whether  or  not
incorporated)  that is treated as a single  employer  together  with the Company
under section 414 of the IRC.

     Event of Default -- Section 6.1.

     Exchange  Act -- means the  Securities  Exchange  Act of 1934,  as amended,
together with the rules and regulations of the SEC thereunder.

     Excluded  Transfers -- means Transfers referred to in clauses (i), (ii) and
(iii) of Section 4.2 (a).

     Fair Market Value -- means, with respect to any Property, the sale value of
such  Property  that  would be  realized  in an  arm's-length  sale at such time
between an informed and willing buyer, and an informed and willing seller, under
no compulsion to buy or sell, respectively.

     Financing  Documents -- means and includes this  Agreement,  the Securities
Purchase Agreements,  the Notes, Subsidiary Guaranty, the Warrant Agreement, the
Warrant  certificates and the other agreements,  certificates and instruments to
be  executed  pursuant  to the  terms of each of the  foregoing,  as each may be
amended, restated or otherwise modified from time to time.

     GAAP -- means  accounting  principles as  promulgated  from time to time in
statements,  opinions and  pronouncements by the American Institute of Certified
Public Accountants and the

                                       43

<PAGE>



Financial  Accounting  Standards  Board  and in such  statements,  opinions  and
pronouncements  of such other  entities with respect to financial  accounting of
for-profit  entities  as shall  be  accepted  by a  substantial  segment  of the
accounting profession in the United States.

     Governmental Authority -- means:

          (a) the government of:

               (i) the United States of America and any state or other political
          subdivision thereof; or

               (ii)  any  other   jurisdiction  in  which  the  Company  or  any
          Subsidiary  conducts all or any part of its business,  or that asserts
          any  jurisdiction  over the conduct of the affairs of, or the Property
          of, the Company or any such Subsidiary; and

          (b) any entity exercising executive, legislative, judicial, regulatory
     or administrative functions of, or pertaining to, any such government.

     Guaranty  -- means with  respect to any Person  (for the  purposes  of this
definition,  the  "Guarantor")  any  obligation  (except the  endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend
or other  obligation of any other Person (the "Primary  Obligor") in any manner,
whether  directly or  indirectly,  including,  without  limitation,  obligations
incurred through an agreement, contingent or otherwise, by the Guarantor:

          (a) to  purchase  such  indebtedness  or  obligation  or any  Property
     constituting security therefor;

          (b) to advance or supply funds

               (i) for the purchase or payment of such indebtedness, dividend or
          obligation; or

               (ii) to maintain working capital or other balance sheet condition
          or any income statement  condition of the Primary Obligor or otherwise
          to advance or make available funds for the purchase or payment of such
          indebtedness, dividend or obligation;

          (c) to lease  Property or to purchase  securities or other Property or
     services   primarily  for  the  purpose  of  assuring  the  owner  of  such
     indebtedness  or obligation  of the ability of the Primary  Obligor to make
     payment of the indebtedness or obligation; or

          (d) otherwise to assure the owner of the indebtedness or obligation of
     the Primary Obligor against loss in respect thereof.

For purposes of computing  the amount of any Guaranty,  in  connection  with any
computation of indebtedness or other liability:


                                       44

<PAGE>

          (i) in each case  where the  obligation  that is the  subject  of such
     Guaranty is in the nature of  indebtedness  for money  borrowed it shall be
     assumed  that the  amount  of the  Guaranty  is the  amount  of the  direct
     obligation then outstanding; and

          (ii) in each case  where the  obligation  that is the  subject of such
     Guaranty is not in the nature of  indebtedness  for money borrowed it shall
     be assumed  that the amount of the  Guaranty  is the amount (if any) of the
     direct obligation that is then due.

     Hazardous Material -- means all or any of the following:

          (a) substances that are defined or listed in, or otherwise  classified
     pursuant to, any  applicable  Environmental  Protection  Laws as "hazardous
     substances",  "hazardous materials", "hazardous wastes", "toxic substances"
     or any other formulation intended to define, list or classify substances by
     reason  of  deleterious  properties  such  as  ignitability,   corrosivity,
     reactivity, carcinogenicity,  reproductive toxicity, "TLCP toxicity" or "EP
     toxicity";

          (b) oil,  petroleum  or  petroleum  derived  substances,  natural gas,
     natural gas liquids or synthetic gas and drilling  fluids,  produced waters
     and other wastes associated with the exploration, development or production
     of crude oil, natural gas or geothermal resources;

          (c)  any  flammable   substances  or  explosives  or  any  radioactive
     materials;

          (d) asbestos or urea formaldehyde in any form; and

          (e) dielectric fluid containing levels of polychlorinated biphenyls in
     excess of fifty parts per million.

     Interest Payment Date -- Section 1.1.

     Investments  --  means  all  investments,  made in cash or by  delivery  of
Property, by the Company and the Subsidiaries:

          (a) in any  Person,  whether by  acquisition  of stock,  Debt or other
     obligation  or  Security,   or  by  loan,  Guaranty,   advance  or  capital
     contribution, or otherwise; or

          (b) in any Property.

     IRC -- means the Internal Revenue Code of 1986, together with all rules and
regulations promulgated pursuant thereto, as amended from time to time.

     Junior Subordinated Debt -- means any Debt of the Company or any Subsidiary
which is:

          (a)  issued  on or  after  the  date of this  Agreement  and  which is
     expressly subordinated in right of payment to any Debt of the Company; or

          (b) owing to any Subsidiary or any Affiliate.


                                       45

<PAGE>



     Lien -- means any interest in Property securing an obligation owed to, or a
claim by, a Person  other than the owner of the Property  (for  purposes of this
definition,  the  "Owner"),  whether  such  interest is based on the common law,
statute or contract, and includes but is not limited to:

          (a) the security  interest lien arising from a mortgage,  encumbrance,
     pledge,  conditional  sale or  trust  receipt  or a lease,  consignment  or
     bailment for security purposes,  and the filing of any financing  statement
     under the Uniform  Commercial Code of any jurisdiction,  or an agreement to
     give any of the foregoing;

          (b) reservations, exceptions, encroachments, easements, rights-of-way,
     covenants, conditions,  restrictions, leases and other title exceptions and
     encumbrances affecting real Property;

          (c)  stockholder   agreements,   voting  trust  agreements,   buy-back
     agreements  and all similar  arrangements  affecting the Owner's  rights in
     stock owned by the Owner; and

          (d) any  interest in any  Property  held by the Owner  evidenced  by a
     conditional sale agreement,  Capital Lease or other arrangement pursuant to
     which title to such  Property has been  retained by or vested in some other
     Person for security purposes.

The term "Lien" does not include  negative pledge clauses in loan agreements and
equal and ratable security clauses in loan agreements.

     Material Adverse Effect -- means, with respect to any event or circumstance
(either   individually   or  in  the   aggregate   with  all  other  events  and
circumstances),  an effect caused  thereby or resulting  therefrom that would be
materially adverse as to, or in respect of:

          (a)  the  business,   operations,   profits,  financial  condition  or
     Properties of the Company and the Subsidiaries, taken as a whole;

          (b) the ability of the Company and the Subsidiary Guarantors, taken as
     a whole,  to  perform  their  respective  obligations  under any  Financing
     Document to which they are a party; or

          (c) the validity or enforceability of any of the Financing Documents.

     Maximum Legal Rate of Interest -- means the maximum rate of interest that a
holder of Notes may from time to time  legally  charge the Company by  agreement
and in regard to which the Company would be prevented  successfully from raising
the claim or  defense  of usury  under  the  Applicable  Interest  Law as now or
hereafter construed by courts having appropriate jurisdiction.

     Modified  Prepayment  Compensation Amount -- means, with respect to Prepaid
Principal  and the date the  payment  thereof  is due,  an  amount  equal to the
applicable percentage set out below of the Prepaid Principal:

================================================================================
If Prepayment Occurs During
the Period Specified Below:                  Percentage of Prepaid Principal:
================================================================================


                                       46

<PAGE>




================================================================================
--------------------------------------------------------------------------------
From and including March 1, 2001 up to                      7.50%
and including February 28, 2002
--------------------------------------------------------------------------------
From and including March 1, 2002 up to                      5.00%
and including February 28, 2003
--------------------------------------------------------------------------------
From and including March 1, 2003 up to                      2.50%
and including February 28, 2004
--------------------------------------------------------------------------------
On or after March 1, 2004                                    0.0%
================================================================================

     Multiemployer Plan -- means any "multiemployer plan" (as defined in section
3(37) of ERISA) in respect of which the  Company  or any ERISA  Affiliate  is an
"employer" (as such term is defined in section 3 of ERISA).

     NASDAQ -- means the NASDAQ Stock Market, Inc., a subsidiary of the NASD.

     NASDAQ National Market -- has the meaning  ascribed thereto in Rule 4200(r)
of NASDAQ.

     Nonpayment Default Notice -- Section 7.5(b).

     Note -- means and includes each 16.5% Senior Subordinated Note due March 1,
2006 issued pursuant to this Agreement.

     Operating Lease -- means, with respect to any Person,  any lease other than
a Capital Lease.

     Operating Rental Expense -- means, for any Person for any period, all fixed
payments  which the  lessee is  required  to make by the terms of any  Operating
Lease  during such period but shall not include  amounts  required to be paid in
respect of  maintenance,  repairs,  income  taxes,  property  taxes,  insurance,
assessments or other similar  charges or additional  rentals (in excess of fixed
minimums) based upon a percentage of gross receipts.

     Payment Blockage Period -- Section 7.5.

     Payment  Blockage  Period  Termination  Date -- means,  with respect to any
Significant Nonpayment Default, the earliest of:

          (a) the passing of a number of days equal to the difference of:

               (i) one hundred fifty (150) days; minus

               (ii) the  aggregate  number  of days  during  the  three  hundred
          sixty-five  (365)  calendar days  immediately  preceding the date upon
          which the  Nonpayment  Default  Notice  relating  to such  Significant
          Nonpayment Default during which a payment blockage pursuant to Section
          7.5  has  been  in  effect  with  respect  to  any  other  Significant
          Nonpayment Default;

         since the earlier of:


                                       47

<PAGE>



                    (A) the date upon which the  Nonpayment  Default  Notice was
               given; and

                    (B) the date that any Standstill  Period arising out of such
               Significant Payment Default commenced;

               (b) the date on which such Significant  Nonpayment  Default shall
          have been  cured or waived in writing  (whether  by  amendment  of any
          provision of the Senior  Credit  Agreement or otherwise) or shall have
          ceased to exist;

               (c) the  date  such  Payment  Blockage  Period  shall  have  been
          terminated by written notice to the Company from the Senior Agent; and

               (d) the date of the repayment in full in cash or cash equivalents
          of the Senior Debt and the  termination  of any commitment to make any
          further loans or advances in respect of the Senior Debt.

     Payment Default Notice -- Section 7.4.

     PBGC -- means the Pension Benefit Guaranty Corporation, or any other Person
succeeding to the duties thereof.

     Permitted Investor -- means and includes any Person:

          (a) which is a Purchaser;

          (b) in connection with the  liquidation,  dissolution,  termination or
     other event with  respect to any holder of Notes which  requires any holder
     of Notes to distribute the Notes to the stockholders, shareholders, members
     or partners of such holder, each such stockholder,  shareholder,  member or
     partner; or

          (c) (i) which meets the criteria for an "accredited  investor," as set
          forth in either Rule 501(a)(1),  Rule 501(a)(2),  Rule 501(a)(3), Rule
          501(a)(7) or Rule 501(a)(8),  in each case,  under the Securities Act;
          and

               (ii)  which  is not  engaged  principally  in the  production  or
          distribution of dairy products.

     Permitted  Revolving  Credit Debt -- means and includes  all Debt  incurred
pursuant  to an  Acceptable  Revolving  Credit  Facility  which,  at the time of
incurrence thereof, was incurred in compliance with Section 4.7(a).

     Person -- means an individual, partnership,  corporation, limited liability
company, joint venture, trust, unincorporated  organization,  or a government or
agency or political subdivision thereof.

     Plan -- means an  "employee  benefit  plan" (as defined in section  3(3) of
ERISA) that is or,  within the preceding  five years,  has been  established  or
maintained,  or to which  contributions are or, within the preceding five years,
have been made or required to be made, by the

                                       48

<PAGE>



Company or any ERISA Affiliate or with respect to which the Company or any ERISA
Affiliate may have any liability.

     Prepaid  Principal -- means any portion of the principal amount of any Note
being paid for any reason (including, without limitation, acceleration, optional
payment  or  mandatory   payment   required  because  of  the  occurrence  of  a
contingency) prior to its regularly scheduled maturity date.

     Prepayment Compensation Amount -- at any time, means:

          (a) if such time is prior to March 1, 2001,  the  Standard  Prepayment
     Compensation Amount; and

          (b) if such time is on or after March 1, 2001, the Modified Prepayment
     Compensation Amount.

     Pro Forma  Consolidated  Cash Flow -- means,  for any period,  Consolidated
Cash Flow for such period; provided,  however, that for purposes of calculations
made under Section 4.6 or Section 4.7(b)(v), if:

          (a) the proceeds of any Consolidated Debt included in such calculation
     made under  Section 4.6 or Section  4.7(b)(v)  were  applied by the Company
     either:

               (i) to  purchase  or  acquire  all of the  Capital  Stock  of any
          Person,  or all or  substantially  all of the  Property of any Person,
          which,  as  a  result  of  such  purchase  or  acquisition,  became  a
          Subsidiary; or

               (ii) as the  consideration  paid  to the  former  holders  of the
          Capital  Stock of any Person  which is merged  into the Company or any
          Subsidiary; and

          (b) both:

               (i) audited historical  balance sheets,  statements of operations
          and  statements  of cash flows are  available  for a period of one (1)
          full fiscal year of the acquired  Person  ending not more than sixteen
          (16)  calendar  months  prior  to the  date  of such  acquisition  are
          available to the Company and the holders of the Notes; and

               (ii) either such audited historical financial statements referred
          to in clause (i) (whether or not expressly prepared in connection with
          such acquisition),  or quarterly unaudited balance sheets,  statements
          of operations and statements of cash flows for such Person prepared in
          accordance  with GAAP, in conformity  with the  accounting  principles
          applied to such audited  financial  statements of such acquired Person
          (subject to year-end adjustments) and which have been the subject of a
          review  by  such  acquired  Person's   independent   certified  public
          accountants in accordance with the provisions of Statement of Auditing
          Standards No. 71 (or any successor  standard generally accepted by the
          accounting  profession)  covering  the  period  for  which  Pro  Forma
          Consolidated  Cash  Flow is being  calculated,  are  available  to the
          Company and the holders of the Notes; and


                                       49

<PAGE>



          (c) such transaction occurred after the first day of such period;

then Pro Forma  Consolidated  Cash Flow shall be  calculated  assuming that such
transaction  occurred on the first day of such  period,  and that such  acquired
Person was a Subsidiary for the entire period.

     Property -- means any  interest  in any kind of property or asset,  whether
real, personal or mixed, and whether tangible or intangible.

     Purchasers -- the introductory paragraph.

     Refinancing  -- means and includes,  with respect to any Debt, any renewal,
extension,  replacement,  refinancing  or refunding of such Debt;  and the terms
"Refinance" and "Refinanced" have correlative meanings.

     Remedies  -- means  and  includes,  with  respect  to any Debt  (including,
without limitation, the Senior Debt and the Subordinated Debt):

          (a) the acceleration of the maturity of any of such Debt;

          (b) the  exercise of any put right or other  similar  right to require
     the Company or any  Subsidiary to repurchase  any of such Debt prior to the
     stated maturity thereof;

          (c) the collection or commencement of proceedings against the Company,
     any  Subsidiary or any other Person  obligated on such Debt or any of their
     respective Property, to enforce or collect any of such Debt;

          (d) taking  possession  of or  foreclosing  upon  (whether by judicial
     proceedings or otherwise) any Liens or other  collateral  security for such
     Debt;  or  causing a  marshalling  of any  Property  of the  Company or any
     Subsidiary;

          (e) the  making of a demand in respect  of any  Guaranty  given by the
     Company or any Subsidiary of such Debt; or

          (f)  exercising  any other  remedies  with respect to such Debt or any
     claim with respect thereto.

     Required  Holders  -- means,  at any  time,  the  holders  of not less than
sixty-six and two-thirds  percent (66 2/3%) in principal  amount of the Notes at
the time  outstanding  (exclusive  of Notes then owned by any one or more of the
Company, any Subsidiary or any Affiliate).

     Required Principal Payment -- Section 1.3(b).

     Restricted  Investment -- means,  at any time, all  Investments  except the
following:

          (a)  Property  (including,   without  limitation,  real  Property  and
     interests  therein)  to be used in the  ordinary  course  of  business  and
     current  assets arising from the sale of goods and services in the ordinary
     course of business of the Company and the Subsidiaries;


                                       50

<PAGE>



          (b) Investments in one or more  Subsidiaries  or any corporation  that
     concurrently with such Investment becomes a Subsidiary;

          (c) Investments in direct obligations of the United States of America,
     any  agency  thereof or  obligations  guaranteed  by the  United  States of
     America,  so long as such  obligations  are  backed  by the full  faith and
     credit of the United  States of  America;  provided  that such  obligations
     mature within three (3) years from the date of acquisition thereof;

          (d) Investments in any obligation of any state or municipality thereof
     given either of the two (2) highest  ratings by at least one credit  rating
     agency of recognized  national standing and maturing within three (3) years
     from the date of acquisition;

          (e)  Investments in  certificates  of deposit or banker's  acceptances
     given one (1) of the two (2) the  highest  ratings  by at least one  credit
     rating agency of recognized  national  standing,  issued by a bank or trust
     company  organized  under the laws of the  United  States of America or any
     state thereof having capital,  surplus and undivided profits aggregating at
     least One Hundred  Million Dollars  ($100,000,000)  and maturing within one
     (1) year from the date of acquisition;

          (f)  Investments  in money market  mutual funds that invest  solely in
     so-called "money market" instruments  maturing not more than one year after
     the acquisition thereof and given one of the two (2) the highest ratings by
     at least one credit rating agency of recognized national standing;

          (g)  Investments  in  commercial  paper  given  either  of the two (2)
     highest ratings by at least one credit rating agency of recognized national
     standing and maturing not more than two hundred seventy (270) days from the
     date of creation thereof; and

          (h)  Investments  outstanding  on the Closing  Date and listed on Part
     8.1RI(g) of Annex 3.

Investments  shall be valued at cost less any net return of capital  through the
sale or liquidation thereof or other return of capital thereon.

     Restricted Payment -- means and includes:

          (a) any dividend or other distribution, direct or indirect, on account
     of any shares of Capital Stock (including,  without limitation,  the Common
     Stock) or Rights of the Company, now or hereafter outstanding, except:

               (i) a dividend payable solely in shares of Common Stock; or

               (ii) a dividend or other  distribution  of Common  Stock or other
          Securities  pursuant  to  the  applicable  provisions  of  the  Rights
          Agreement, as in effect on the date hereof;

          (b) any dividend or other distribution, direct or indirect, on account
     of any  shares  of  Capital  Stock  or  Rights  of any  Subsidiary,  now or
     hereafter outstanding, except:


                                       51

<PAGE>



               (i) a dividend  payable  solely in shares of common stock of such
          Subsidiary; or

               (ii)  to the  extent  that  such  dividend  or  distribution  is,
          directly or indirectly, payable to the Company; and

          (c) any payment, whether in respect of principal,  premium,  interest,
     fees, expenses or otherwise, in respect of, or any redemption,  retirement,
     purchase  or  other  acquisition,   direct  or  indirect,  of,  any  Junior
     Subordinated Debt.

     Restricted Repurchase -- means and includes:

          (a) any redemption,  retirement, purchase or other acquisition, direct
     or indirect, of any shares of Capital Stock or Rights of the Company now or
     hereafter outstanding, except:

               (i) in the case of  Rights,  the  retirement  of such  Rights  by
          virtue of the exercise or conversion thereof into Common Stock; or

               (ii) a  redemption  of  Share  Purchase  Rights  of  the  Company
          pursuant to the redemption provisions of the Rights Agreement; or

          (b) any redemption,  retirement, purchase or other acquisition, direct
     or indirect, of any shares of Capital Stock or Rights of any Subsidiary now
     or  hereafter  outstanding,  except to the  extent  that  such  redemption,
     retirement,  purchase or other acquisition is made from, and the payment in
     respect of such redemption,  retirement,  purchase or other  acquisition is
     paid, directly or indirectly, to the Company.

     Right -- with  respect to any class of Capital  Stock  (including,  without
limitation, Common Stock) of the Company or any Subsidiary, means and includes:

          (a) any warrant (including,  without  limitation,  any Warrant) or any
     option (including,  without limitation,  employee stock options) to acquire
     any such Capital Stock;

          (b) any right issued to holders of such Capital Stock, permitting such
     holders  to  subscribe  to  shares  of any such  Capital  Stock  or  Rights
     (pursuant to a rights offering or otherwise);

          (c) any right to acquire such Capital Stock pursuant to the provisions
     of any  Security  (including,  without  limitation,  any Series A Preferred
     Stock, as and when issued)  convertible or  exchangeable  into such Capital
     Stock; and

          (d) any similar right  permitting  the holder thereof to subscribe for
     or purchase shares of such Capital Stock.

     Rights Agreement -- means the Rights Agreement,  dated as of March 6, 1996,
between the Company and  Continental  Stock Transfer & Trust Company,  as Rights
Agent.

     Sale-Leaseback  Transaction  -- means any  transaction or series of related
transactions  in which the Company or a  Subsidiary  sells or conveys any of its
Property to any Person (other

                                       52

<PAGE>



than the Company,  a Subsidiary or an Affiliate) and substantially  concurrently
with such sale or conveyance, rents or leases as lessee all or substantially all
of such Property so sold or conveyed.

     SEC -- means,  at any time, the  Securities and Exchange  Commission or any
other federal agency at such time administering the Securities Act.

     Securities  Act -- means the  Securities  Act of 1933, as amended,  and the
rules and regulations of the SEC promulgated thereunder.

     Securities  Purchase  Agreements -- means the separate  Securities Purchase
Agreements  each dated as of March 9, 1998,  between the Company and each of the
respective  Purchasers,  relating to the  offering and sale of the Notes and the
Warrants.

     Security -- means  "security" as defined by section 2(1) of the  Securities
Act.

     Senior Agent -- means, for so long as the Senior Credit  Agreement  remains
outstanding,  Fleet  Bank,  N.A.,  as  agent in  respect  of the  Senior  Credit
Agreement,  and  thereafter,  any one agent or lender in  respect  of the Senior
Credit  Facility,  or  representative  of either,  designated in writing to each
holder of Notes by the  predecessor  Senior  Agent and the  Company as being the
"Senior Agent".

     Senior Credit  Agreement -- means the Amended and Restated  Revolving Loan,
Guaranty and Security  Agreement,  dated  January 5, 1998,  between the Company,
Suprema  Specialties West, Inc., a California  corporation,  Suprema Specialties
Northeast,  a New York  corporation,  and Fleet Bank,  N.A.,  as amended by that
certain letter agreement,  dated January 28, 1998, between the Company and Fleet
Bank, N.A. and that certain letter agreement,  dated February 23, 1998,  between
the Company and Fleet Bank,  N.A., and as thereafter  amended in compliance with
the provisions of Section 7.16.

     Senior Credit Facility -- means and includes:

          (a) the Senior Credit Agreement; and

          (b)  any  Acceptable  Revolving  Credit  Facility,   which  Acceptable
     Revolving  Credit  Facility has  Refinanced the Senior Debt governed by the
     terms of a Senior  Credit  Facility  which both the  Company and the Senior
     Agent under the  predecessor  Senior Credit  Facility (or, if no such other
     agreement is then in effect,  by the Company) have designated in writing to
     each  holder  of Notes as being the  "Senior  Credit  Facility;"  provided,
     however,  that, by making such designation,  the predecessor  Senior Credit
     Facility  shall  cease  to be the  Senior  Credit  Facility  (but  any Debt
     outstanding or incurred  thereunder shall continue to be Senior Debt for so
     long as such Debt meets the definition thereof).

     Senior  Debt  --  means  and  includes  all  obligations,  liabilities  and
indebtedness  of the  Company  now  or  hereafter  existing,  whether  fixed  or
contingent,  and whether for principal,  interest  (including  interest accruing
after the  filing  of a  petition  under the  Bankruptcy  Code,  whether  or not
allowed), fees, expenses, indemnification or otherwise, in respect of:


                                       53

<PAGE>



          (a) the Senior Credit Facility,  in a principal amount which, together
     with any fees not provided for in the Senior Credit  Agreement as in effect
     on the  date  hereof,  does not  exceed  a  maximum  commitment  amount  of
     Twenty-Seven Million Five Hundred Thousand Dollars ($27,500,000);

          (b)  Debt  and  other  obligations  (including,   without  limitation,
     obligations  to make  payments of  Operating  Lease  Expense to Fleet Bank,
     N.A.,  arising out of  Operating  Leases  entered into in  connection  with
     Sale-Leaseback  Transactions  with Fleet  Bank,  N.A.)  outstanding  on the
     Closing Date and listed as "Senior Debt" on Part 4.7(b) of Annex 3

          (c) all Permitted Revolving Credit Debt; and

          (d) any other  Debt of the  Company  (including,  without  limitation,
     additional  Debt owing to the Senior Agent) other than Permitted  Revolving
     Credit Debt,  incurred in compliance with all provisions of this Agreement;
     provided,  however, that the Company shall have delivered to each holder of
     Notes, at least three (3) Business Days prior to the incurrence  thereof, a
     certificate of a Senior Financial  Officer  establishing that such Debt may
     be incurred in compliance with the provisions of Section 4.7(b)(v).

Notwithstanding  the  foregoing,  in no event shall  "Senior  Debt"  include any
Junior Subordinated Debt.

     Senior Financial  Officer -- means any one of the chief financial  officer,
the treasurer and the principal accounting officer of the Company.

     Senior  Officer -- means any one of the chairman of the board of directors,
the chief executive officer, the chief operating officer, and the president,  of
the Company.

     Senior Payment Default -- Section 7.4(a).

     Series A Preferred Stock -- means the Series A Convertible Preferred Stock,
par value $.10 per share, of the Company.

     Share  Purchase  Rights -- means the Common Stock  purchase  rights  issued
pursuant to the Rights Agreement.

     Significant Nonpayment Default -- means and includes:

          (a) an event of default under the Senior Credit Facility in respect of
     the  failure  of the  Company  to  comply  with any  material  covenant  or
     agreement in respect of the Senior  Credit  Facility  (it being  understood
     that the  provisions of Sections 10.14 through  10.21,  inclusive,  Section
     10.27 and Section 10.30 of the Senior Credit Agreement, as in effect on the
     date hereof, are "material covenants" for such purpose); and

          (b) an event of  default in  respect  of the  Senior  Credit  Facility
     arising out of any Event of Default in respect of this Agreement.

     Specified Stock -- means and includes:

                                       54

<PAGE>



          (a) the Common Stock; and

          (b) any class of Capital Stock of the Company which:

               (i) is convertible into Common Stock;

               (ii)  does  not,  pursuant  to  its  terms  or the  terms  of any
          ancillary agreement or document, require the Company or any Subsidiary
          to redeem  all or any  portion  thereof  at any time,  whether  or not
          conditioned  upon the  happening  of a  contingency,  prior to July 1,
          2006; and

               (iv)  does  not,  pursuant  to  its  terms  or the  terms  of any
          ancillary  agreement or document,  confer upon the holders thereof any
          right in respect of the failure of the Company to pay any  dividend in
          respect  thereof (other than cumulation of such dividends or the right
          to nominate or otherwise  select or participate in the selction of one
          or more directors of the Company).

     Standard  Prepayment  Compensation Amount -- means, with respect to Prepaid
Principal and the date the payment thereof is due (the "Payment Date") an amount
equal to the excess (if any) of the Present Value of the Prepaid Cash Flows over
the amount of such  Prepaid  Principal,  determined  in respect of such  Prepaid
Principal as of such Payment Date. As used in this definition:

          Present  Value of the  Prepaid  Cash  Flows  --  means  the sum of the
     present  values of the then remaining  scheduled  payments of principal and
     interest that would have been payable in respect of such Prepaid  Principal
     but that are no longer  payable  as a result of the early  payment  of such
     Prepaid Principal. In determining such present values:

               (i) the amount of interest  accrued through and including the day
          immediately  preceding  such Payment  Date on such  Prepaid  Principal
          since the scheduled  interest payment date immediately  preceding such
          Payment  Date shall be  deducted  from the first of such  payments  of
          interest; and

               (ii) a discount rate per annum equal to the  Make-Whole  Discount
          Rate  determined  with  respect  to such  Prepaid  Principal  and such
          Payment Date divided by twelve (12), and a discount  period of one (1)
          month, shall be used.

     Make-Whole Discount Rate -- means the sum of:

               (i) one (1) percent (1.00%) per annum; plus

               (ii) the per annum  percentage rate (rounded to the nearest three
          (3) decimal  places)  equal to the bond  equivalent  yield to maturity
          derived from the Bloomberg  Rate, or if the Bloomberg Rate is not then
          available, the Applicable H.15 Rate, determined as of the date that is
          two (2) Business Days prior to such Payment Date.

          Applicable  H.15 -- means,  at any time,  the  United  States  Federal
     Reserve  Statistical  Release  H.15(519)  then most recently  published and
     available to the public, or if such publication is not available,  then any
     other source of current information in

                                       55

<PAGE>



     respect of interest  rates on  securities  of the United  States of America
     that is generally available and, in the reasonable judgment of the Required
     Holders,  provides  information  reasonably  comparable  to  the  H.15(519)
     report.

          Applicable  H.15 Rate -- means,  at any  time,  the then most  current
     annual  yield  to  maturity  of the  hypothetical  United  States  Treasury
     obligation  listed in the Applicable H.15 with a Treasury Constant Maturity
     (as such term is defined in such  Applicable  H.15)  equal to the  Weighted
     Average  Life to  Maturity  of such  Prepaid  Principal.  If no such United
     States Treasury obligation with a Treasury Constant Maturity  corresponding
     exactly to such  Weighted  Average  Life to  Maturity  is listed,  then the
     yields  for  the two (2)  then  most  current  hypothetical  United  States
     Treasury   obligations  with  Treasury  Constant  Maturities  most  closely
     corresponding  to such  Weighted  Average Life to Maturity  (one (1) with a
     longer maturity and one (1) with a shorter maturity, if available) shall be
     calculated   pursuant  to  the  immediately   preceding  sentence  and  the
     Make-Whole  Discount Rate shall be interpolated  or extrapolated  from such
     yields on a straight-line basis.

          Bloomberg  Rate - means the per annum yield  reported on the Bloomberg
     Financial  Markets System at 10:00 a.m. (New York time) on the second (2nd)
     Business  Day  preceding  such Payment  Date for United  States  government
     securities having a maturity  (rounded to the nearest month)  corresponding
     to the Weighted  Average Life to Maturity of such Prepaid  Principal.  Page
     USD shall be used as the source of such yields,  or if not then  available,
     such other screen  available on the Bloomberg  Financial  Markets System as
     shall,  in  the  opinion  of  the  Required  Holders,   provide  equivalent
     information.

          Treasury  Constant  Maturity  --  has  the  meaning  specified  in the
     Applicable H.15.

          Weighted  Average  Life to  Maturity  --  means  the  number  of years
     (calculated to the nearest  one-twelfth  (1/12th)) obtained by dividing the
     Remaining Dollar-Years of such Prepaid Principal by such Prepaid Principal,
     determined as of such Payment Date.

          Remaining Dollar-Years -- means the result obtained by:

               (a)  multiplying,  in the case of each then  remaining  scheduled
          payment  of  principal  that  would  have been  payable  in respect of
          Prepaid  Principal but is no longer payable as a result of the payment
          of such Prepaid Principal;

                    (i) an amount equal to such scheduled  payment of principal;
               by

                    (ii)  the  number  of  years   (calculated  to  the  nearest
               one-twelfth)  that will elapse  between such Payment Date and the
               date  such  scheduled  principal  payment  would  be due if  such
               Prepaid Principal had not been so prepaid; and

               (b) calculating  the sum of each of the products  obtained in the
          preceding subsection (a).

     Standstill Period -- Section 7.7.


                                       56

<PAGE>



     Subordinated  Debt -- means and includes all  obligations,  liabilities and
indebtedness  of the  Company  now  or  hereafter  existing,  whether  fixed  or
contingent,  and whether for principal,  interest  (including  interest accruing
after the  filing  of a  petition  under  the  Bankruptcy  Code,  to the  extent
allowed),  fees,  expenses,  indemnification  or  otherwise,  in respect of this
Agreement and the Notes.

     Subsidiary  -- means a corporation  of which the Company owns,  directly or
indirectly,  more than fifty percent (50%) (by number of votes) of each class of
Voting Stock.

     Subsidiary  Guaranty -- means the Unconditional  Guaranty,  dated as of the
date  hereof,  entered  into by  Suprema  Specialties  West,  Inc.  and  Suprema
Specialties Northeast,  Inc., as may be amended,  restated or otherwise modified
from time to time in accordance with the terms thereof.

     Subsidiary Stock -- Section 4.2(b).

     Surviving Corporation -- Section 4.1(a).

     Transfers -- Section 4.2(a).

     Voting Stock -- means, with respect to any corporation, any shares of stock
of such corporation  whose holders are entitled under ordinary  circumstances to
vote for the election of directors of such corporation  (irrespective of whether
at the time any stock of any other  class or  classes  shall  have or might have
voting power by reason of the happening of any contingency), and, in the case of
the Company,  shall  include the Common  Stock.  Except as  otherwise  provided,
references herein to "Voting Stock" shall mean Voting Stock of the Company.

     Warrant -- means each warrant to purchase  Common Stock issued  pursuant to
the Warrant Agreement.

     Warrant  Agreement  -- means the  Warrant  Agreement,  dated as of March 9,
1998, among the Company and the Purchasers,  pursuant to which the Warrants were
issued.

     Wholly-Owned  Subsidiary -- means,  at any time, any Subsidiary one hundred
percent (100%) of all of the equity  Securities  (except  directors'  qualifying
shares)  and Voting  Stock of which are owned by any one or more of the  Company
and  the  Company's  other   Wholly-Owned   Subsidiaries  at  such  time.  Other
Definitions

     The following  terms shall have the  respective  meanings  ascribed to such
terms in the  Senior  Credit  Agreement,  as in effect on the  Closing  Date and
without giving effect to any amendment to the Senior Credit Agreement subsequent
to the date thereof:

     Battaglia Receivables                        Letter of Credit 
     Borrowing Base Certificate                   Receivables      
     Inventory                                    



Accounting Principles


                                       57

<PAGE>



          GenerallyUnless  otherwise provided herein,  all financial  statements
     delivered in connection  herewith will be prepared in accordance with GAAP.
     Where the  character  or amount of any asset or liability or item of income
     or  expense,  or any  consolidation  or  other  accounting  computation  is
     required  to be  made  for  any  purpose  hereunder,  it  shall  be done in
     accordance with GAAP;  provided,  however,  that if any term defined herein
     includes or excludes amounts,  items or concepts that would not be included
     in or  excluded  from such term if such term were  defined  with  reference
     solely  to GAAP,  such  term will be deemed  to  include  or  exclude  such
     amounts, items or concepts as set forth herein.

          ConsolidationWhenever  accounting amounts of a group of Persons are to
     be determined "on a  consolidated  basis" it shall mean that, as to balance
     sheet amounts to be determined as of a specific time, the amount that would
     appear on a consolidated  balance sheet of such Persons prepared as of such
     time,  and as to income  statement  amounts to be determined for a specific
     period, the amount that would appear on a consolidated  income statement of
     such  Persons  prepared  in respect of such  period,  in each case with all
     transactions among such Persons eliminated, and prepared in accordance with
     GAAP except as otherwise required hereby.

          CurrencyWith respect to any determination, consolidation or accounting
     computation required hereby, any amounts not denominated in the currency in
     which this  Agreement  specifies  shall be  converted  to such  currency in
     accordance with the  requirements of GAAP (as such  requirements  relate to
     such   determination,   consolidation  or  computation)  and,  if  no  such
     requirements  shall exist,  converted to such currency in  accordance  with
     normal  banking  procedures,  at the  closing  rate as reported in The Wall
     Street   Journal   published   most   recently  as  of  the  date  of  such
     determination,  consolidation or computation or, if no such quotation shall
     then be  available,  as quoted  on such  date by any bank or trust  company
     reasonably acceptable to the Required Holders. 

Directly or Indirectly

     Where any provision  herein refers to action to be taken by any Person,  or
which such Person is prohibited from taking,  such provision shall be applicable
whether such action is taken  directly or indirectly  by such Person,  including
actions  taken by or on  behalf of any  partnership  in which  such  Person is a
general partner.
Section Headings and Table of Contents and Construction

          Section Headings and Table of Contents, etc The titles of the Sections
     of this Agreement and the Table of Contents of this  Agreement  appear as a
     matter of  convenience  only, do not constitute a part hereof and shall not
     affect the construction  hereof. The words "herein," "hereof,"  "hereunder"
     and "hereto"  refer to this  Agreement as a whole and not to any particular
     Section or other subdivision.  References to Sections are, unless otherwise
     specified,  references to Sections of this Agreement. References to Annexes
     and Exhibits are,  unless  otherwise  specified,  references to Annexes and
     Exhibits attached to this Agreement.

          ConstructionEach  covenant contained herein shall be construed (absent
     an express contrary  provision  herein) as being  independent of each other
     covenant  contained herein,  and compliance with any one covenant shall not
     (absent such an express contrary  provision) be deemed to excuse compliance
     with one or more other covenants.

                                       58

<PAGE>



Governing Law

     THIS  AGREEMENT  AND THE NOTES  SHALL BE  GOVERNED  BY, AND  CONSTRUED  AND
ENFORCED IN ACCORDANCE  WITH, THE LAWS OF THE STATE OF NEW YORK,  WITHOUT REGARD
TO ANY CONFLICTS OF LAW RULES WHICH WOULD REQUIRE THE  APPLICATION OF THE LAW OF
ANY OTHER  JURISDICTION.  IN ADDITION,  THE PARTIES HERETO SELECT, TO THE EXTENT
THEY MAY  LAWFULLY  DO SO,  THE  INTERNAL  LAWS OF THE  STATE OF NEW YORK AS THE
APPLICABLE INTEREST LAW.
General Interest Provisions

          (m)  Interest  in  Respect of the Notes.  It is the  intention  of the
     Company and the Purchasers to conform  strictly to the Applicable  Interest
     Law. Accordingly,  it is agreed that, notwithstanding any provisions to the
     contrary in this Agreement or in the Notes,  the aggregate of all interest,
     and any other  charges or  consideration  constituting  interest  under the
     Applicable Interest Law that is taken, reserved, contracted for, charged or
     received   pursuant  to  this   Agreement  or  the  Notes  shall  under  no
     circumstances  exceed  the  maximum  amount  of  interest  allowed  by  the
     Applicable  Interest  Law.  If any such excess  interest  is ever  charged,
     received or collected on account of or relating to this  Agreement  and the
     Notes  (including  any  charge  or  amount  which  is  not  denominated  as
     "interest" but is legally deemed to be interest under  Applicable  Interest
     Law), then in such event:

               (i) the provisions of this Section 8.7 shall govern and control;

               (ii) the Company shall not be obligated to pay the amount of such
          interest to the extent  that it is in excess of the maximum  amount of
          interest allowed by the Applicable Interest Law;

               (iii)  any  excess  shall  be  deemed  a  mistake  and  cancelled
          automatically  and,  if  theretofore  paid,  shall be  credited to the
          principal  amount  of the  Notes by the  holders  thereof,  and if the
          principal  balance of the Notes is paid in full, any remaining  excess
          shall be forthwith paid to the Company; and

               (iv)  the  effective  rate of  interest  shall  be  automatically
          subject to reduction to the Maximum Legal Rate of Interest.

     If at any time thereafter, the Maximum Legal Rate of Interest is increased,
     then,  to the  extent  that it shall be  permissible  under the  Applicable
     Interest Law, the Company shall  forthwith pay to the holders of the Notes,
     on a pro rata basis,  all amounts of such excess  interest that the holders
     of the Notes would have been  entitled to receive  pursuant to the terms of
     this  Agreement  and the Notes had such  increased  Maximum  Legal  Rate of
     Interest been in effect at all times when such excess interest accrued.  To
     the extent  permitted  by the  Applicable  Interest  Law,  all sums paid or
     agreed to be paid to the holders of the Notes for the use,  forbearance  or
     detention  of  the  indebtedness  evidenced  thereby  shall  be  amortized,
     prorated, allocated and spread throughout the full term of the Notes.

          (n) Effect of Issuance of Notes  Together with  Warrants.  The Company
     and  the  Purchasers  agree,  to the  extent  permitted  by the  Applicable
     Interest Law, that, for

                                       59

<PAGE>



     purposes  of  computing  the  interest  in respect  of the Notes  under the
     Applicable Interest Law:

               (i) the  aggregate  purchase  price of the Notes  shall equal the
          difference of:

                    (A) Ten Million Five Hundred Thousand Dollars; minus

                    (B) the amount of original  issue discount  attributable  to
               the Notes in respect of the  issuance  of the  Warrants  together
               with the Notes (but not any original issue discount  attributable
               at any time to the  capitalization  of interest in respect of the
               Notes);

               (ii) the amount of original  issue discount  attributable  to the
          Notes in respect of the issuance of the Warrants shall be deemed to be
          the purchase price of the Warrants;

               (iii) the  Warrants  and the  Notes  shall be deemed to have been
          separately issued for the respective  purchase prices set forth above;
          and

               (iv) no  portion of the  return,  if any,  to the  holders of the
          Warrants in respect of their investment  therein shall be deemed to be
          interest in respect of the Notes.

MISCELLANEOUS
Communications

          Method;  AddressAll  communications hereunder or under the Notes shall
     be in writing and shall be delivered either by nationwide overnight courier
     or by facsimile transmission (confirmed by delivery by nationwide overnight
     courier  sent on the day of the  sending of such  facsimile  transmission).
     Communications  to the Company  shall be addressed as set forth on Annex 2,
     or at such other  address of which the  Company  shall have  notified  each
     holder of  Notes.  Communications  to the  holders  of the  Notes  shall be
     addressed as set forth on Annex 1 by such holder,  or at such other address
     of which such holder shall have notified the Company (and the Company shall
     record such address in the register  for the  registration  and transfer of
     Notes maintained pursuant to Section 2.1).

          When GivenAny communication addressed and delivered as herein provided
     shall be deemed to be received  when  actually  delivered to the address of
     the  addressee  (whether or not  delivery is  accepted)  or received by the
     telecopy machine of the recipient.  Any  communication not so addressed and
     delivered shall be ineffective.

          Service of  ProcessNotwithstanding  the  foregoing  provisions of this
     Section 9.1, service of process in any suit,  action or proceeding  arising
     out of or  relating  to  this  agreement  or  any  document,  agreement  or
     transaction  contemplated hereby, or any action or proceeding to execute or
     otherwise  enforce any judgment in respect of any breach hereunder or under
     any document or agreement  contemplated  hereby,  shall be delivered in the
     manner provided in Section 9.7(c).

Reproduction of Documents

                                       60

<PAGE>




     This  Agreement  and all  documents  relating  hereto,  including,  without
limitation,  consents, waivers and modifications that may hereafter be executed,
documents received by the Purchasers at the closing of its purchase of the Notes
(except the Notes themselves), and financial statements,  certificates and other
information  previously  or hereafter  furnished to any holder of Notes,  may be
reproduced  by the Company or any holder of Notes by means of any  photographic,
photostatic,  microfilm,  micro-card,  miniature photographic,  digital or other
similar  process and each holder of Notes may destroy any  original  document so
reproduced.  Any  such  reproduction  shall be  admissible  in  evidence  as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence  and whether or not such  reproduction  was made by the
Company  or such  holder of Notes in the  regular  course of  business)  and any
enlargement,  facsimile  or  further  reproduction  of such  reproduction  shall
likewise be admissible in evidence.  Nothing in this Section 9.2 shall  prohibit
the Company or any holder of Notes from  contesting  the accuracy or validity of
any such reproduction. 

Survival; Entire Agreement

     All warranties,  representations,  certifications  and covenants  contained
herein,  in the Securities  Purchase  Agreements or in any  certificate or other
instrument  delivered  hereunder shall be considered to have been relied upon by
the other parties hereto and shall survive the delivery to the Purchasers of the
Notes regardless of any investigation  made by or on behalf of any party hereto.
All statements in any certificate or other instrument  delivered pursuant to the
terms  hereof  or  of  the  Securities   Purchase  Agreements  shall  constitute
warranties and representations  hereunder. All obligations hereunder (other than
payment  of  the  Notes,  but  including,   without  limitation,   reimbursement
obligations in respect of costs, expenses and fees) shall survive the payment of
the Notes and the termination hereof.  Subject to the preceding  sentence,  this
Agreement,  the  Notes and the  other  Financing  Documents  embody  the  entire
agreement  and  understanding  between  the  Company  and  the  Purchasers,  and
supersede  all prior  agreements  and  understandings,  relating  to the subject
matter hereof. 

Successors and Assigns

     This  Agreement  shall  inure to the  benefit  of and be  binding  upon the
successors and assigns of each of the parties hereto.  The provisions hereof are
intended to be for the benefit of all holders,  from time to time, of Notes, and
shall be enforceable by any such holder whether or not an express  assignment to
such holder of rights  hereunder shall have been made by the Purchasers or their
respective  successors  or  assigns.  Anything  contained  in this  Section  9.4
notwithstanding, the Company may not assign any of its respective rights, duties
or obligations  hereunder or under any of the other Financing  Documents without
the prior written consent of all holders of Notes. For purposes of the avoidance
of doubt, any holder of a Note shall be permitted to pledge or otherwise grant a
Lien in and to such Note (including, without limitation, pledging such Note to a
trustee for the benefit of certain  secured  noteholders  pursuant to  documents
relating  to the  financing  of such  holder  or to one or more  banks  or other
institutions  providing financing in connection with the purchase by such holder
of such  Note);  provided,  however,  that any such  pledgee or holder of a Lien
shall not be considered a holder  hereunder  until it shall have foreclosed upon
such Note in  accordance  with  applicable  law and  informed  the  Company,  in
writing, of the same.

Amendment and Waiver

          RequirementsThis  Agreement may be amended,  and the observance of any
     term hereof may be waived,  with (and only with) the written consent of the
     Company and the Required Holders; provided, however, that no such amendment
     or waiver shall, without

                                       61

<PAGE>



     the written consent of the holders of all Notes (exclusive of Notes held by
     the Company, any Subsidiary or any Affiliate) at the time outstanding;

               (v)  change the  amount or time of any  prepayment  or payment of
          principal  or  Prepayment  Compensation  Amount or the rate or time of
          payment of interest;

               (vi) amend or waive the  provisions of Section 6.1,  Section 6.2,
          Section  6.3 or Section 7, or amend or waive any  defined  term to the
          extent used therein;

               (vii)  amend or waive the  definition  of  "Required  Holders" or
          otherwise amend the percentage of Notes required to be held by holders
          of Notes consenting to any action under this Agreement; or

               (viii)  amend or waive  this  Section  9.5 or amend or waive  any
          defined term to the extent used herein.

     The holder of any Note may specify that any such written  consent  executed
     by it shall be  effective  only with respect to a portion of the Notes held
     by it (in which case it shall  specify,  by dollar  amount,  the  aggregate
     principal  amount of Notes  with  respect to which  such  consent  shall be
     effective) and in the event of any such  specification such holder shall be
     deemed to have  executed  such  written  consent  only with  respect to the
     portion of the Notes so specified.

          No amendment,  supplement or modification of the provisions of Section
     7, or any defined  term to the extent used  therein,  shall be effective to
     any  holder  of  Senior  Debt  who has  not  consented  to such  amendment,
     supplement or modification.

          Solicitation of Noteholders

               SolicitationEach  holder of the Notes (irrespective of the amount
          of Notes then owned by it) shall be provided  by the Company  with all
          material  information  provided by the Company to any other  holder of
          Notes with respect to any  proposed  waiver or amendment of any of the
          provisions hereof or the Notes. Executed or true and correct copies of
          any amendment or waiver  effected  pursuant to the  provisions of this
          Section  9.5  shall be  delivered  by the  Company  to each  holder of
          outstanding Notes forthwith following the date on which such amendment
          or waiver becomes effective.

               PaymentThe  Company  shall  not,  nor  shall  any  Subsidiary  or
          Affiliate,  directly  or  indirectly,  pay or  cause  to be  paid  any
          remuneration,  whether by way of supplemental or additional  interest,
          fee or  otherwise,  or grant any  security,  to any holder of Notes as
          consideration  for or as an  inducement  to the  entering  into by any
          holder of Notes of any waiver or  amendment  of any of the  provisions
          hereof or of the Notes unless such remuneration is concurrently  paid,
          or security is concurrently granted, on the same terms, ratably to the
          holders of all Notes then outstanding.


                                       62

<PAGE>



               Scope of Consent Any  amendment  or waiver made  pursuant to this
          Section 9.5 by a holder of Notes that has transferred or has agreed to
          transfer its Notes to the Company, any Subsidiary or any Affiliate and
          has  provided or has agreed to provide  such  amendment or waiver as a
          condition  to such  transfer  shall be void and of no force and effect
          except  solely  as to such  holder,  and any  amendments  effected  or
          waivers  granted  that would not have been or would not be so effected
          or granted but for such  amendment  or waiver (and the  amendments  or
          waivers of all other  holders of Notes  that were  acquired  under the
          same or similar  conditions) shall be void and of no force and effect,
          retroactive  to the date such  amendment or waiver  initially  took or
          takes effect, except solely as to such holder.

          Binding EffectExcept as provided in Section 9.5(b)(iii), any amendment
     or waiver  consented to as provided in this Section 9.5 shall apply equally
     to all holders of Notes and shall be binding upon them and upon each future
     holder of any Note and upon the Company whether or not such Note shall have
     been marked to indicate  such  amendment  or waiver.  No such  amendment or
     waiver  shall  extend to or affect  any  obligation,  covenant,  agreement,
     Default or Event of Default not  expressly  amended or waived or impair any
     right consequent thereon.

Expenses

          Amendments and WaiversThe Company shall pay when billed the reasonable
     costs and expenses (including  reasonable  attorneys' fees) incurred by the
     holders of the Notes in  connection  with the  consideration,  negotiation,
     preparation or execution of any amendments,  waivers, consents,  standstill
     agreements and other similar  agreements  with respect to this Agreement or
     any other Financing Document (whether or not any such amendments,  waivers,
     consents, standstill agreements or other similar agreements are executed).

          Restructuring and Workout, InspectionsAt any time when the Company and
     the holders of Notes are conducting  restructuring or workout  negotiations
     in respect  hereof,  or a Default or Event of Default  exists,  the Company
     shall  pay  when  billed  the  reasonable  costs  and  expenses  (including
     reasonable attorneys' fees and the fees of professional  advisors) incurred
     by the holders of the Notes in connection with the assessment,  analysis or
     enforcement  of any rights or remedies  that are or may be available to the
     holders  of  Notes,  including,  without  limitation,  in  connection  with
     inspections made pursuant to Section 5.5;  provided,  however,  that at all
     other times  inspections will be at the expense of the inspecting holder of
     Notes.

          CollectionIf  the Company shall fail to pay when due any principal of,
     or  Prepayment  Compensation  Amount or interest on, any Note,  the Company
     shall pay to each holder of Notes,  to the extent  permitted  by law,  such
     amounts as shall be sufficient  to cover the costs and expenses,  including
     but not limited to reasonable  attorneys' fees,  incurred by such holder in
     collecting any sums due on such Note.

Waiver of Jury Trial; Consent to Jurisdiction, etc

          Waiver of Jury TrialTHE PARTIES HERETO  VOLUNTARILY AND  INTENTIONALLY
     WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN  RESPECT  OF ANY
     LITIGATION ARISING OUT OF, UNDER OR IN

                                       63

<PAGE>



     CONNECTION  WITH THIS  AGREEMENT  OR ANY OF THE  DOCUMENTS,  AGREEMENTS  OR
     TRANSACTIONS CONTEMPLATED HEREBY.

          Consent to  JurisdictionANY  SUIT, ACTION OR PROCEEDING ARISING OUT OF
     OR RELATING  TO THIS  AGREEMENT,  OR ANY OF THE  DOCUMENTS,  AGREEMENTS  OR
     TRANSACTIONS  CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO EXECUTE OR
     OTHERWISE  ENFORCE  ANY  JUDGMENT  IN  RESPECT  OF ANY  BREACH  UNDER  THIS
     AGREEMENT OR ANY DOCUMENT OR AGREEMENT  CONTEMPLATED  HEREBY MAY BE BROUGHT
     BY SUCH PARTY IN ANY FEDERAL DISTRICT COURT LOCATED IN NEW YORK COUNTY, NEW
     YORK, OR ANY NEW YORK STATE COURT  LOCATED IN NEW YORK COUNTY,  NEW YORK AS
     SUCH  PARTY MAY IN ITS SOLE  DISCRETION  ELECT,  AND BY THE  EXECUTION  AND
     DELIVERY  OF  THIS   AGREEMENT,   THE  PARTIES   HERETO   IRREVOCABLY   AND
     UNCONDITIONALLY  SUBMIT TO THE  NON-EXCLUSIVE  IN PERSONAM  JURISDICTION OF
     EACH SUCH COURT,  AND EACH OF THE  PARTIES  HERETO  IRREVOCABLY  WAIVES AND
     AGREES  NOT TO ASSERT IN ANY  PROCEEDING  BEFORE  ANY  TRIBUNAL,  BY WAY OF
     MOTION, AS A DEFENSE OR OTHERWISE,  ANY CLAIM THAT IT IS NOT SUBJECT TO THE
     IN  PERSONAM  JURISDICTION  OF ANY SUCH  COURT.  IN  ADDITION,  EACH OF THE
     PARTIES HERETO IRREVOCABLY  WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
     ANY OBJECTION  THAT IT MAY NOW OR HEREAFTER  HAVE TO THE LAYING OF VENUE IN
     ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
     OR ANY DOCUMENT,  AGREEMENT OR TRANSACTION  CONTEMPLATED  HEREBY BROUGHT IN
     ANY SUCH COURT, AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT,
     ACTION OR  PROCEEDING  BROUGHT  IN ANY SUCH  COURT HAS BEEN  BROUGHT  IN AN
     INCONVENIENT FORUM.

          Service of ProcessEACH  PARTY HERETO  IRREVOCABLY  AGREES THAT PROCESS
     PERSONALLY  SERVED  OR  SERVED  BY U.S.  REGISTERED  MAIL AT THE  ADDRESSES
     PROVIDED HEREIN FOR NOTICES SHALL  CONSTITUTE,  TO THE EXTENT  PERMITTED BY
     LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING  ARISING
     OUT OF OR  RELATING  TO  THIS  AGREEMENT  OR  ANY  DOCUMENT,  AGREEMENT  OR
     TRANSACTION  CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING TO EXECUTE OR
     OTHERWISE  ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR UNDER
     ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO SERVED
     SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED
     BY THE UNITED STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY SERVICE.

          Other  ForumsNOTHING  HEREIN  SHALL IN ANY WAY BE  DEEMED TO LIMIT THE
     ABILITY OF ANY HOLDER OF NOTES TO SERVE ANY WRITS,  PROCESS OR SUMMONSES IN
     ANY MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN  JURISDICTION  OVER THE
     COMPANY IN SUCH OTHER  JURISDICTION,  AND IN SUCH OTHER  MANNER,  AS MAY BE
     PERMITTED BY APPLICABLE LAW. 

Execution in Counterpart

     This  Agreement  may be executed in one or more  counterparts  and shall be
effective when at least one  counterpart  shall have been executed by each party
hereto, and each set of

                                       64

<PAGE>



counterparts  that,  collectively,  show  execution  by each party  hereto shall
constitute one duplicate original.




      [Remainder of page intentionally blank. Next page is signature page.]

                                       65

<PAGE>



         IN  WITNESS  WHEREOF,  each  of the  parties  hereto  has  caused  this
Agreement  to be duly  executed  and  delivered  by one of its  duly  authorized
officers or representatives.

                                SUPREMA SPECIALTIES, INC.



                                By:
                                   ---------------------------------------------
                                         Name:
                                         Title:


                                ALBION ALLIANCE MEZZANINE FUND,
                                L.P.
                                By:  Albion Alliance LLC, its General Partner



                                By:
                                   ---------------------------------------------
                                         Name:
                                         Title:


                                THE EQUITABLE LIFE ASSURANCE
                                SOCIETY OF THE UNITED STATES



                                By:
                                   ---------------------------------------------
                                         Name:
                                         Title:


<PAGE>



                                     ANNEX 1
                  ADDRESSES OF PURCHASERS; PAYMENT INSTRUCTIONS

<TABLE>
<S>                                       <C>
=========================================================================================================
Purchaser Name                            ALBION ALLIANCE MEZZANINE FUND, L.P.
---------------------------------------------------------------------------------------------------------
Name in which Note is                     ALBION ALLIANCE MEZZANINE FUND, L.P.
Registered
---------------------------------------------------------------------------------------------------------
Subordinated Note                         R-1: $8,500,000
Registration Number;
Principal Amount of Note
---------------------------------------------------------------------------------------------------------
Payments on Account of
Note

         Method                           Federal Funds Wire Transfer

         Account Information              Chase Manhattan Bank, N.A.
                                          New York, New York 10019
                                          ABA # 021 000 021
                                          For the Account:  Albion Alliance Mezzanine Fund, L.P.
                                          Account #910-2-795953
---------------------------------------------------------------------------------------------------------
Accompanying Information                  Name of Company:           SUPREMA SPECIALTIES, INC.

                                          Description of
                                          Security:                  16.5% Senior Subordinated Notes
                                                                     due March 1, 2006

                                          PPN:                       86859F A* 8

                                          Due Date  and  Application  (as  among
                                          principal,  premium and  interest)  of
                                          the payment being made:
---------------------------------------------------------------------------------------------------------
Address for Notices Related               Albion Alliance Mezzanine Fund, L.P.
to Payments                               c/o Alliance Capital Management, L.P.
                                          135 West 50th Street, 6th Floor
                                          New York, NY 10020
                                          Attn: Cash Operations
---------------------------------------------------------------------------------------------------------
Address for All Other                     Albion Alliance Mezzanine Fund, L.P.
Notices                                   c/o Albion Alliance LLC
                                          1345 Avenue of the Americas, 41st Floor
                                          New York, NY 10105
                                          Attention: William Gobbo, Jr.
                                                        (212) 969-1547 - Phone
                                                        (212) 969-1529 - Fax
---------------------------------------------------------------------------------------------------------
</TABLE>

                                    Annex 1-1

<PAGE>


                                     ANNEX 1
              ADDRESSES OF PURCHASERS; PAYMENT INSTRUCTIONS (Cont.)


<TABLE>
<S>                                       <C>
=========================================================================================================
Purchaser Name                            ALBION ALLIANCE MEZZANINE FUND, L.P.
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Other Instructions                        Signature Page Format:

                                          ALBION ALLIANCE MEZZANINE FUND, L.P.
                                          By:  Albion Alliance LLC, its General Partner


                                          By___________________________
                                                   Name:
                                                   Title:
---------------------------------------------------------------------------------------------------------
Tax Identification Number                 13-3975300
=========================================================================================================
</TABLE>


                                    Annex 1-2

<PAGE>


                                     ANNEX 1
              ADDRESSES OF PURCHASERS; PAYMENT INSTRUCTIONS (Cont.)

<TABLE>
<S>                                       <C>
=========================================================================================================
Purchaser Name                            THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
                                          UNITED STATES
---------------------------------------------------------------------------------------------------------
Name in which Note is                     THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
Registered                                UNITED STATES
---------------------------------------------------------------------------------------------------------
Subordinated Note                         R-2: $2,000,000
Registration Number;
Principal Amount of Note
---------------------------------------------------------------------------------------------------------
Payments on Account of
Note

         Method                           Federal Funds Wire Transfer

         Account Information              The Chase Manhattan Bank, N.A.
                                          110 West 52nd Street
                                          New York, New York 10019
                                          ABA # 021 000 021
                                          For the Account:  The Equitable Life Assurance Society of
                                          the United States
                                          Account No. 037-2-413419
---------------------------------------------------------------------------------------------------------
Accompanying Information                  Name of Company:           SUPREMA SPECIALTIES, INC.

                                          Description of
                                          Security:                  16.5% Senior Subordinated Notes
                                                                     due March 1, 2006

                                          PPN:                       86859F A* 8

                                          Due Date  and  Application  (as  among
                                          principal,  premium and  interest)  of
                                          the payment being made:
---------------------------------------------------------------------------------------------------------
Address for Notices Related               The Equitable Life Assurance Society of
to Payments                               the United States
                                          c/o Alliance Capital Management, L.P.
                                          135 West 50th Street, 6th Floor
                                          New York, NY 10020
                                          Attn: Treasury Services
---------------------------------------------------------------------------------------------------------
</TABLE>


                                 Annex 1-3

<PAGE>


                                     ANNEX 1
              ADDRESSES OF PURCHASERS; PAYMENT INSTRUCTIONS (Cont.)



<TABLE>
<S>                                       <C>
=========================================================================================================
Purchaser Name                            THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
                                          UNITED STATES
---------------------------------------------------------------------------------------------------------
Address for All Other                     The Equitable Life Assurance Society of
Notices                                   the United States
                                          c/o Alliance Capital Management, L.P.
                                          1345 Avenue of the Americas, 41st Floor
                                          New York, NY 10105
                                          Attention: Alliance Corporate Finance Group Inc.
                                                        (212) 969-1547 - Phone
                                                        (212) 969-1529 - Fax
---------------------------------------------------------------------------------------------------------
Other Instructions                        Signature Page Format:

                                          THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
                                          UNITED STATES


                                          By___________________________
                                                   Name:
                                                   Title:
---------------------------------------------------------------------------------------------------------
Tax Identification Number                 13-5570651
=========================================================================================================
</TABLE>



                                    Annex 1-4

<PAGE>



                                     ANNEX 2
                               ADDRESS OF COMPANY


Suprema Specialties
510 East 35th Street
P.O. Box 280 Park Station
Paterson, New Jersey 07543
Attn:    President


                                 Attachment 2-1

<PAGE>



                                     ANNEX 3
                      EXISTING LIENS, DEBT AND INVESTMENTS

Part 4.3; Existing Liens

[TO BE PROVIDED BY THE COMPANY]



Part 4.7(d); Existing Debt

[TO BE PROVIDED BY THE COMPANY]



Part 8.1RI(g); Existing Investments

[TO BE PROVIDED BY THE COMPANY]



                                    Annex 3-1

<PAGE>



                                                                    ATTACHMENT A
                                 [FORM OF NOTE]

THE NOTE  AGREEMENT  REFERRED  TO IN THIS NOTE  CONTAINS,  AMONG  OTHER  THINGS,
PROVISIONS  WHICH  LIMIT  THE  TRANSFER  OF THIS  SECURITY.  A COPY OF THE  NOTE
AGREEMENT IS AVAILABLE FROM THE COMPANY UPON REQUEST.

                            SUPREMA SPECIALTIES, INC.

                16.5% SENIOR SUBORDINATED NOTE DUE MARCH 1, 2006

No. R-__                                                       PPN: 86859F A* 8
$__________                                             ______________ __, ____


     SUPREMA SPECIALTIES,  INC. (together with its successors, the "Company"), a
New York  corporation,  for value received,  hereby promises to pay to ______ or
registered  assigns the  principal sum of ______  DOLLARS  ($______) on March 1,
2006,  and to pay  interest  (computed  on the basis of a 360-day year of twelve
30-day months) on the unpaid principal balance hereof from the date of this Note
at the rate of sixteen and fifty  one-hundredths  percent  (16.5%) per annum, in
arrears,  monthly  on the  first  day of  each  calendar  month  in  each  year,
commencing  on the later of April 1, 1998 and the payment  date next  succeeding
the date hereof, until the principal amount hereof shall become due and payable;
and to pay on demand  interest on any overdue  principal  (including any overdue
partial payment of principal and principal  payable at the maturity  hereof) and
Prepayment  Compensation  Amount,  if  any,  and  (to the  extent  permitted  by
applicable  law) on any overdue  installment  of interest  (the due date of such
payments to be determined without giving effect to any grace period),  at a rate
per annum equal to the lesser of (a) the highest rate allowed by applicable  law
and (b) the greater of (i) eighteen and fifty  one-hundredths  percent  (18.5%),
and (ii) two percent (2%) over the rate of interest publicly announced from time
to time by Morgan  Guaranty  Trust Company of New York in New York,  New York as
its "base" or "prime"  rate.  The  Company  may pay a portion of such  scheduled
interest payments by adding it to the outstanding principal amount of this Note,
in lieu of paying such interest in cash, all as further  provided in Section 1.2
of the Note Agreement (defined below).

     Payments of principal, Prepayment Compensation Amount, if any, and interest
shall be made in such coin or currency of the United States of America as at the
time of payment is legal  tender for the payment of public and private  debts to
the registered holder hereof at the address shown in the register  maintained by
the  Company for such  purpose,  in the manner  provided  in the Note  Agreement
(defined below).

     This Note is one of an issue of Notes of the Company issued in an aggregate
principal   amount  limited  to  Ten  Million  Five  Hundred   Thousand  Dollars
($10,500,000)  pursuant to the Note  Agreement  (as may be amended,  restated or
otherwise modified from time to time, the "Note  Agreement"),  dated as of March
9, 1998,  among the Company and the  purchasers  listed on Annex 1 thereto.  The
holder of this Note is entitled to the benefits of the Note Agreement. This Note
is subject to the terms of the Note Agreement,  and such terms are  incorporated
herein by reference.  Capitalized  terms used herein and not defined herein have
the meanings specified in the Note Agreement.


                                 Attachment A-1

<PAGE>



     As provided in the Note Agreement,  this Note is subject to prepayment,  in
whole or in part, in certain cases without a Prepayment  Compensation Amount and
in other cases with a Prepayment  Compensation  Amount, on the terms and subject
to the conditions set forth in the Note  Agreement.  The holder of this Note, on
the terms and subject to the  conditions  set forth in the Note  Agreement,  may
elect to have the  Company  prepay  the  entire  principal  amount  of this Note
(together with any applicable Prepayment Compensation Amount) in connection with
a Change in  Management.  All of the principal of this Note  (together  with any
applicable Prepayment Compensation Amount) may, under certain circumstances,  be
declared due and payable in the manner and with the effect  provided in the Note
Agreement.

     The holder of this Note is hereby  authorized  by the Company to record (in
good  faith) in its  manual or data  processing  records,  and/or on  Schedule A
annexed  to this  Note,  the date and  amount of each  addition  of  capitalized
interest  to  principal,  and the  date and  amount  of each  repayment  of such
principal and each payment of interest on account of such outstanding principal.
In the absence of manifest error,  such records and Schedule shall be conclusive
as to the outstanding  principal amount of this Note and the payment of interest
accrued hereunder; provided, that the failure to make any such record entry with
respect to any addition of  capitalized  interest to principal or any payment of
principal or interest shall not limit or otherwise affect the obligations of the
Company under this Note.

     The Notes and all other obligations of the Company under the Note Agreement
have been  unconditionally  guarantied by certain  Subsidiaries  pursuant to the
Unconditional Guaranty, dated as of March 9, 1998.

     This Note is a registered Note and is transferable only by surrender at the
principal  office  of the  Company  as  specified  in the Note  Agreement,  duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.

     THE OBLIGATIONS  EVIDENCED BY THIS NOTE ARE SUBORDINATED TO THE SENIOR DEBT
ON THE TERMS PROVIDED IN THE NOTE AGREEMENT.

     THIS NOTE AND THE NOTE  AGREEMENT  SHALL BE GOVERNED BY, AND  CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.

                                           SUPREMA SPECIALTIES, INC.



                                           By:
                                               ---------------------------------
                                                Name:

                                                Title:



                                 Attachment A-2

<PAGE>


                                           SCHEDULE A TO NOTE NO. R-___
<TABLE>
<CAPTION>
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Date of Cash            Original              Amount of            Amount of            Amount of             Aggregate
Interest Payment        Balance of            Interest Paid in     Interest Added       Principal             Unpaid
or Principal            Principal             Cash                 to Principal         Prepaid               Balance of
Addition or                                                                                                   Principal
Payment/Initials
of Person
Making Entry
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<S>                      <C>                 <C>                   <C>                  <C>                   <C>
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===================================================================================================================================
</TABLE>



                                 Attachment A-3