<PAGE>1

                              AMENDED AND RESTATED
                                CREDIT AGREEMENT

                          Dated as of December 2, 1997



                                     HEADING

     AMENDED AND RESTATED CREDIT AGREEMENT,  dated as of December 2, 1997, among
PAYLESS CASHWAYS,  INC., a Delaware  corporation,  as successor by merger to the
Debtor referred to below (the  "Borrower"),  each of the financial  institutions
from time to time party hereto as lenders  (together  with their  successors and
assigns,  the "Lenders"),  the Underwriters (as hereinafter  defined),  CANADIAN
IMPERIAL BANK OF COMMERCE (acting through one or more of its agencies, branches,
or affiliates,  "CIBC"),  as the issuer of standby letters of credit,  U.S. BANK
NATIONAL  ASSOCIATION,  in its capacity as the issuer of documentary  letters of
credit and CIBC, as  coordinating  and collateral  agent (in such capacity,  the
"Agent")  for the Lenders,  the Fronting  Banks (as  hereinafter  defined),  the
Underwriters and the other Secured Parties (as hereinafter defined).

                             INTRODUCTORY STATEMENT

     On July 21, 1997,  Payless Cashways,  Inc., an Iowa corporation,  as debtor
and  debtor-in-possession  (the "Debtor"),  filed a voluntary  petition with the
Bankruptcy Court initiating the Case (as hereinafter  defined) and has continued
in the possession of its assets and in the  management of its business  pursuant
to Sections 1107 and 1108 of the Bankruptcy Code (as hereinafter defined).

     On  September  5,  1997,  the  Debtor  filed  its  First  Amended  Plan  of
Reorganization with the Bankruptcy Court (as hereinafter  defined),  which First
Amended  Plan of  Reorganization  was  modified  on October 9, 1997 and  further
modified  in the  Confirmation  Order (as  hereinafter  defined)  entered by the
Bankruptcy  Court on November  19,  1997 and on the record at the  hearing  with
respect to the Confirmation  Order. The Plan of  Reorganization  (as hereinafter
defined) contemplates,  inter alia, that the Debtor will merge into the Borrower
on or before the Effective Date (as  hereinafter  defined) and that the Borrower
will obtain  post-Effective Date financing in the maximum amount of $150,000,000
as more fully described below.

     Immediately  prior to the Effective  Date,  the Debtor was obligated to (i)
certain of the Lenders (the  "Pre-Petition  Revolving  Lenders") with respect to
pre-petition  revolving  credit  loans  in the  aggregate  principal  amount  of
$109,386,210.16   (the   "Pre-Petition   Revolving   Loans")   extended  by  the
Pre-Petition  Revolving Lenders and with respect to undrawn pre-petition letters
of credit in the aggregate principal amount of $22,326,553.20 (the "Pre-Petition
Letters of  Credit")  issued  for the  account  of the  Debtor  pursuant  to the
Pre-Petition  Credit  Agreement (as  hereinafter  defined),  (ii) certain of the
Lenders (the  "Pre-Petition  Term Lenders" and,  together with the  Pre-Petition
Revolving  Lenders,  the  "Pre-Petition  Lenders") with respect to  pre-petition
"Tranche A" term loans


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in the aggregate principal amount of $155,509,892.94 (the "Pre-Petition  Tranche
A Term  Loans")  and  pre-petition  "Tranche  B"  term  loans  in the  aggregate
principal amount of $95,432,533.18 (the "Pre-Petition Tranche B Term Loans" and,
together with the  Pre-Petition  Tranche A Term Loans,  the  "Pre-Petition  Term
Loans";  the Pre-Petition Term Loans,  together with the Pre-Petition  Revolving
Loans,  the  "Pre-Petition  Loans")  extended by the  Pre-Petition  Term Lenders
pursuant to the Pre-Petition Credit Agreement, (iii) the Pre-Petition Lenders in
respect of  interest,  fees and all other  obligations  of the Debtor  under the
Pre-Petition Credit Agreement and the other  documentation  relating thereto and
(iv) certain of the Lenders (the "DIP  Lenders")  with respect to  post-petition
revolving credit loans in the aggregate  principal amount of $34,000,000.00 (the
"DIP Revolving  Credit Loans"),  post-petition  standby letters of credit in the
aggregate  principal  amount of  $2,625,000.00  (the  "DIP  Standby  Letters  of
Credit")  extended to or issued for the account of the Debtor and  post-petition
documentary letters of credit in the aggregate principal amount of $6,593,546.78
issued for the  account of the Debtor (the "DIP  Documentary  Letters of Credit"
and  together  with the DIP  Standby  Letters  of  Credit,  the "DIP  Letters of
Credit") pursuant to the DIP Credit Agreement (as hereinafter defined).

     The DIP  Lenders  were  granted  superpriority  administrative  claims  and
superpriority Liens (as hereinafter  defined) on all of the Debtor's assets with
respect to the Debtor's  obligations in respect of the DIP Obligations,  subject
only to  valid  and  perfected  prior  Liens  existing  on the  Filing  Date (as
hereinafter  defined) other than the Liens of the Pre-Petition  Lenders.  On the
Filing Date,  the  Pre-Petition  Loans and  Pre-Petition  Letters of Credit were
secured  by  substantially  all of the  Debtor's  assets  (other  than  the  UBS
Collateral  (as  hereinafter  defined)),   including,  without  limitation,  all
inventory,  vehicles and other  personal  property,  together  with certain real
property,  buildings  and  improvements  and  fixtures,  owned or  leased by the
Debtor,  notes and  capital  stock  owned by the  Debtor  and  proceeds  thereof
(collectively, the "Pre-Petition Collateral"), subject only to certain valid and
perfected  prior Liens  existing as of the Filing Date. In addition,  as part of
the  adequate  protection  ordered by the  Bankruptcy  Court,  the  Pre-Petition
Lenders were granted  Liens on the UBS  Collateral  and on all other  collateral
granted to the DIP  Lenders,  subject only to the  superpriority  administrative
claims and Liens  granted to the DIP Lenders  and to other  valid and  perfected
prior Liens existing on the Filing Date.

     The  Borrower  has  a  commitment  from  the  New  Revolving   Lenders  (as
hereinafter defined),  subject to the terms and conditions hereof, for revolving
credit and letter of credit  facilities in an aggregate  principal amount not to
exceed $150,000,000  (subject to the limitation set forth in Sections 2.1(d) and
(e) and to mandatory and optional reductions in accordance with Sections 2.9 and
2.12).

     The  proceeds of the New  Revolving  Loans will be used to provide  working
capital  for the  Borrower,  and for other  general  corporate  purposes  of the
Borrower, including for Capital Expenditures (as hereinafter defined).

     The New Revolving Lenders have consented to make the financing contemplated
hereby available on the terms and conditions contained herein. The DIP Revolving
Credit  Loans and the DIP  Letters  of  Credit,  together  with a portion of the
Pre-Petition  Revolving  Loans  and  the  Pre-Petition



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Term Loans, are being restructured as provided hereby,  the Pre-Petition  Credit
Agreement  and the DIP Credit  Agreement are being amended and restated in their
entirety  as herein set forth and the  Pre-Petition  Letters of Credit are being
treated as provided in Section 9.14(c) hereof.

     To provide  security for the repayment of the Loans,  the  reimbursement of
any  draft  drawn  under a  Letter  of  Credit  and  the  payment  of the  other
obligations of the Borrower  hereunder and under the other Loan  Documents,  the
Agent will  receive,  for its benefit and for the  benefit of the  Lenders,  the
Fronting Banks and the  Underwriters,  the following  interests in the following
collateral (as more fully described in the Security Documents, collectively, the
"Collateral"):

     (a) a first perfected Lien on all Pre-Petition Collateral;

     (b) a first  perfected Lien on all property which was  unencumbered  on the
Filing Date or was acquired by the Debtor during the Case and a first  perfected
Lien on  substantially  all  property to be acquired by the  Borrower  after the
Effective  Date;  and

     (c) a perfected Lien on all UBS  Collateral and on the collateral  securing
the  Synthetic  Lease  Obligations  (subject  to the prior  liens of UBS and the
Synthetic Lease Banks with respect  thereto).

     Accordingly,  in consideration of the mutual  agreements  herein set forth,
the parties hereto hereby agree as follows:

SECTION 1.          DEFINITIONS.

     Section 1.1.  Defined Terms

     As used in this  Agreement,  the  following  terms shall have the  meanings
specified below:

     "ABR Loan" shall mean any Loan  bearing  interest at a rate  determined  by
reference  to the  Alternate  Base Rate in  accordance  with the  provisions  of
Section 2.4(a) and Section 2.8.

     "Adjusted LIBOR Rate" shall mean, with respect to any Eurodollar  Borrowing
for any  Interest  Period,  an  interest  rate per annum  (rounded  upwards,  if
necessary,  to the next 1/100 of 1%) equal to the quotient of (a) the LIBOR Rate
in effect for such Interest  Period divided by (b) a percentage  (expressed as a
decimal) equal to 100% minus Statutory  Reserves.  For purposes hereof, the term
"LIBOR Rate" shall mean the rate (rounded  upwards,  if  necessary,  to the next
1/100 of 1%) at which dollar deposits approximately equal in principal amount to
such Eurodollar  Borrowing and for a maturity comparable to such Interest Period
are offered to the principal London office of the Agent in immediately available
funds in the London interbank market at approximately  11:00 a.m.,  London time,
two Business Days prior to the commencement of such Interest Period.



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     "Affiliate" shall mean, as to any Person, any other Person which,  directly
or  indirectly,  is in control of, is controlled  by, or is under common control
with such  Person.  For  purposes of this  definition,  a Person (a  "Controlled
Person")  shall be deemed to be "controlled  by" another Person (a  "Controlling
Person") if the Controlling Person possesses,  directly or indirectly,  power to
direct or cause the direction of the  management  and policies of the Controlled
Person whether by contract or otherwise.

     "After-Acquired Property" shall have the meaning set forth in Section 5.11.

     "Agent" shall have the meaning set forth in the Heading.

     "Agreement" shall mean this Amended and Restated Credit  Agreement,  as the
same may be amended,  amended and restated,  supplemented or otherwise  modified
from time to time.

     "Alternate  Base Rate" shall  mean,  for any day, a rate per annum equal to
the higher of (a) the rate of interest  most  recently  announced by CIBC at its
Domestic  Lending  Office as its base rate;  and (b) the  Federal  Funds Rate in
effect  on such day plus 1/2 of 1%.  If for any  reason  the  Agent  shall  have
determined (which  determination shall be conclusive absent manifest error) that
it is unable to ascertain the Federal  Funds Rate for any reason,  including the
inability or failure of the Agent to obtain sufficient  quotations in accordance
with the terms  hereof,  the  Alternate  Base Rate shall be  determined  without
regard  to  clause  (b) of the  first  sentence  of this  definition,  until the
circumstances  giving rise to such inability no longer exist.  Any change in the
Alternate  Base Rate due to a change in CIBC's  base rate or the  Federal  Funds
Rate shall be effective on the effective date of such change in CIBC's base rate
or the Federal Funds Rate, respectively.

     "Annual Budget" shall have the meaning set forth in Section 5.1(f).

     "Application"  shall  mean an  application,  in such  form as the  relevant
Fronting  Bank may  specify  from time to time (a  current  form of the  Standby
Letter of Credit  Application is attached  hereto as Exhibit J-1 or, in the case
of the Unsupported Trade Standby Letter of Credit, Exhibit J-2), requesting such
Fronting Bank to open a Letter of Credit,  as such  application  may be amended,
modified or supplemented from time to time.

     "Approved  Purposes"  shall  mean,  in the case of  Documentary  Letters of
Credit,  Inventory purchases or such other purposes as are reasonably acceptable
to the Agent and the relevant  Fronting Bank, it being  understood that issuance
of a  Documentary  Letter of Credit in favor of a single  beneficiary  acting as
agent for other trade creditors is not an Approved Purpose.

     "Assignment  and  Acceptance"  shall mean an assignment and acceptance by a
Lender  and an  Eligible  Assignee,  accepted  by the Agent and agreed to by the
Borrower to the extent required by Section 9.3(b),  substantially in the form of
Exhibit P.



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     "Available Property" shall mean all real property, buildings,  improvements
and  fixtures  owned or leased by the Borrower or any  Subsidiary  which are not
subject to a Lien as of the Effective Date,  after  recordation of the Mortgages
delivered  on such  date.  To the  extent  that  any real  property,  buildings,
improvements  and fixtures  owned or leased by the  Borrower or any  Subsidiary,
which do not constitute  Available  Property as of the Effective  Date,  become,
after the Effective Date,  unencumbered by the Lien of the Colorado Mortgages or
such other Lien as the case may be, such real property, buildings,  improvements
and fixtures shall, on the date such Lien is released, become Available Property
unless such property becomes encumbered by a Lien securing Permitted Refinancing
Debt  concurrently  with the  release  of such  Lien or  within  60 days of such
release;  provided,  that on or prior to the date  such  Lien is  released,  the
Borrower  shall  have  given  written  notice to the Agent of its  intention  to
refinance the Debt secured by such Lien with  Permitted  Refinancing  Debt.  Any
real  property,  buildings,  fixtures  or  improvements  which are leased by the
Borrower after the Effective Date shall be considered  Available Property if the
subject lease does not prohibit the granting to the Agent of a Mortgage.

     "Bankruptcy  Code"  shall  mean  The  Bankruptcy  Reform  Act of  1978,  as
heretofore and hereafter amended, and codified as 11 U.S.C. Section 101 et seq.

     "Bankruptcy  Court" shall mean the United States  Bankruptcy  Court for the
Western  District of Missouri or any other court  having  jurisdiction  over the
Case from time to time.

     "Beneficial  Ownership"  by a Person  when used with  respect to any Voting
Shares shall mean  beneficial  ownership by such Person of such Voting Shares as
defined in Rule 13d-3 of the Exchange Act.

     "Board" shall mean the Board of Governors of the Federal  Reserve System of
the United States.

     "Borrower" shall have the meaning set forth in the Heading.

     "Borrowing"  shall mean the  incurrence or refinancing of Loans of a single
Type made from all the New  Revolving  Lenders or the New Term  Lenders,  as the
case may be, on a single date and having,  in the case of  Eurodollar  Loans,  a
single  Interest  Period (with any ABR Loan made  pursuant to Section 2.15 being
considered a part of the related Borrowing of Eurodollar Loans).

     "Business  Day" shall mean any day other than a  Saturday,  Sunday or other
day on which banks in New York City are required or permitted to close (and, for
a Letter of Credit, other than a day on which the relevant Fronting Bank issuing
such Letter of Credit is required or  permitted  to close);  provided,  however,
that when used in connection  with a Eurodollar  Loan,  the term  "Business Day"
shall also  exclude any day on which  banks are not open for  dealings in dollar
deposits in the London interbank market.



<PAGE>6


     "Business  Plan"  shall  mean  the  revised  financial  projections  of the
Borrower, dated on or about June 27, 1997.

     "Capital Expenditures" shall have the meaning set forth in Section 6.4.

     "Capco Subleases" shall mean those twelve certain Sublease Agreements, each
dated as of September 1, 1982, as amended,  supplemented  or otherwise  modified
prior to and in effect on the Filing Date, between the Borrower and Capco Realty
Corp.,  a  Delaware  corporation  ("Capco"),  pursuant  to  which  the  Borrower
subleases from Capco twelve stores located at the respective sites identified on
Schedule A to such Sublease  Agreements,  which Capco in turn leases from Paycap
pursuant to twelve Master Lease Agreements  between Paycap and Capco, each dated
as of September 1, 1982.

     "Capitalized  Lease"  shall mean,  as applied to any  Person,  any lease of
property by such Person as lessee which would be  capitalized on a balance sheet
of such Person prepared in accordance with GAAP.

     "Case"  shall mean the Chapter 11 Case of the Debtor  commenced on July 21,
1997 in the Bankruptcy Court.

     "Cash Management  Agreements" shall mean the  documentation  evidencing the
cash management arrangements between the Cash Management Banks and the Borrower,
as in effect on and immediately prior to the Effective Date.

     "Cash  Management  Banks"  shall  mean Bank of America  National  Trust and
Savings  Association,  NationsBank of Texas,  N.A.,  Nationsbank  N.A. and First
Bank, and their respective  Affiliates,  if applicable,  each in its capacity as
the holder of Cash  Management  Obligations  for so long as it shall continue to
hold  such  Obligations  and any  other  Lender  which  provides  additional  or
replacement  cash  management  services to the Borrower on terms and  conditions
satisfactory to the Agent in its judgment reasonably exercised.

     "Cash Management Obligations" shall mean the obligations of the Borrower to
reimburse  each  of  the  Cash  Management   Banks  in  respect  of  overdrafts,
uncollected  funds,  returned  items and  reasonable  related  expenses  arising
pursuant to cash  management  arrangements  as in effect on the Effective  Date,
with such changes in such  arrangements  subsequent to the Effective Date as may
be acceptable to the relevant Cash  Management  Bank in its judgment  reasonably
exercised.

     "Change of Control"  shall mean the  occurrence  of either of the following
events:  (x) any Person or any Persons acting together which would  constitute a
Group,  together with any Affiliates  thereof,  after the Effective Date,  shall
acquire or hold Voting  Shares of the  Borrower  such that such Person or Group,
together with such Affiliates, have Beneficial Ownership of Voting Shares of the
Borrower  entitling  such Person or Group,  together  with such  Affiliates,  to
exercise  at least 40% of the total  voting  power of all  Voting  Shares of the
Borrower;  or (y) any Person or any Group,



<PAGE>7


together  with any  Affiliates  thereof,  shall  succeed in having a  sufficient
number  of its or  their  nominees  elected  to the  Board of  Directors  of the
Borrower (other than nominees  elected to the Board of Directors of the Borrower
pursuant  to the Plan of  Reorganization)  such that such  nominees  so  elected
(whether new or  continuing  as  directors)  shall  constitute a majority of the
Board of Directors of the Borrower.

     "CIBC" shall have the meaning set forth in the Heading.

     "CIBC  Oppenheimer"  shall mean CIBC Oppenheimer  Corp.,  formerly known as
Wood Gundy Securities Corp.

     "Closing   Certificate"  shall  have  the  meaning  set  forth  in  Section
4.1(a)(iv).

     "Code" shall mean the Internal Revenue Code of 1986, as amended.

     "Collateral"   shall  have  the  meaning  set  forth  in  the  Introductory
Statement.

     "Colorado Mortgages" shall mean, collectively, that certain Mortgage, dated
as of August 8, 1979, between Brookhart's,  Inc. and Southwestern Life Insurance
Company (as assumed by the Debtor on July 28, 1982) and that  certain  Mortgage,
dated as of August 31, 1982,  between the Debtor and Brookhart's,  Inc., each as
amended,  supplemented or otherwise  modified from time to time prior to, and in
effect on, the Filing Date.

     "Commitment"  shall mean,  with respect to each New Revolving  Lender,  its
commitment to make New Revolving Loans and purchase  Participating  Interests in
Letters  of Credit  in the  aggregate  amount  set  forth  opposite  its name on
Schedule 1.1(a) hereto or as may  subsequently be set forth in the Register from
time to time,  as the same may be reduced from time to time pursuant to Sections
2.9 and 2.12.

     "Commitment Fee" shall have the meaning set forth in Section 2.19.

     "Commitment  Letter" shall mean that certain Commitment Letter,  dated July
17, 1997, among the Agent, the Underwriters and the Debtor.

     "Commitment  Percentage"  shall mean at any time,  with respect to each New
Revolving  Lender,  the  percentage  obtained by dividing its Commitment at such
time by the Total Commitments at such time.

     "Confirmation Order" shall have the meaning set forth in Section 4.1(c).

     "Consolidated  Subsidiary" shall mean, at any date, any Subsidiary or other
entity,  the accounts of which would be consolidated  with those of the Borrower
in its  consolidated  financial  statements in  accordance  with GAAP as of such
date.



<PAGE>8


     "Credit Card Banks" shall mean General  Electric  Capital  Corporation  and
Monogram Credit Card Bank of Georgia.

     "Debt" of any Person shall mean, at any date, without duplication,  (i) all
obligations  of such Person for borrowed  money,  (ii) all  obligations  of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services,  except  trade  accounts  payable  arising in the  ordinary  course of
business,  (iv) all  obligations  of such  Person  as lessee  under  Capitalized
Leases,  (v) all Debt of others secured by (or for which the holder of such Debt
has an existing right,  contingent or otherwise, to be secured by) a Lien on any
asset  owned,  used or  operated  by such  Person,  whether  or not such Debt is
assumed  by such  Person,  (vi) all Debt of others  Guaranteed  by such  Person,
directly  or  indirectly,  or by an  instrument  having the  effect of  assuring
another's  payment or  performance  of any Debt,  (vii)  indebtedness  and other
obligations  arising  under  acceptance  facilities  and the face  amount of all
letters  of  credit  issued  for  the  account  of  such  Person  and,   without
duplication,  all drafts  drawn  thereunder  or payment  requests  honored  with
respect  thereto,  (viii) all  obligations of such Person in respect of interest
rate  protection  agreements,  foreign  currency  exchange  agreements  or other
interest or exchange rate hedging  arrangements  (other than fully paid interest
rate cap  arrangements),  (ix) all obligations of such Person under  conditional
sale or  other  title  retention  agreements  relating  to  property  or  assets
purchased by such Person,  and (x) any  withdrawal or other  liability  incurred
under ERISA by such Person (or, if such Person is the Borrower, the Borrower and
its ERISA Affiliates) to a Multiemployer Plan.

     "Debt for  Borrowed  Money" of any Person shall mean Debt of such Person of
the type  described in clauses (i) and (ii) of the  definition of "Debt" in this
Section  and Debt of such type of another  Person  which is  Guaranteed  by such
Person.

     "Debt to  EBITDA  Ratio"  shall  mean,  at any  time,  the ratio of (i) the
aggregate  amount of then  outstanding Debt of the Borrower and its Subsidiaries
described  in  clauses  (i)  through  (vi) of the  definition  of "Debt" in this
Section to (ii) EBITDA for the four  consecutive  fiscal  quarters most recently
ended.

     "Default" shall mean any condition or event which would, with the giving of
notice or lapse of time or both, become an Event of Default.

     "Defaulting  Lender"  shall mean,  at any time,  any Lender which shall not
have  theretofore  made available to (i) the Agent its pro rata share of a given
Borrowing in accordance with Section 2.2(b), (ii) the Agent its pro rata portion
of any  amounts  payable  pursuant  to Section  8.6 for which  payment  has been
requested more than forty-five days prior thereto, (iii) CIBC its pro rata share
of a given  obligation to reimburse CIBC pursuant to Section 9.14(c) or (iv) any
Fronting  Bank or the  Agent,  as the case may be, its pro rata share of a given
obligation  to reimburse  such  Fronting  Bank or the Agent  pursuant to Section
2.2(c) or 2.5(f).



<PAGE>9


     "Designated Collateral" shall mean (i) any Inventory at any time located at
the 29 stores  closed  pursuant to the Business  Plan on or after the  Effective
Date, (ii) the real estate interests at 9 of such closed stores (and the 7 other
properties  currently  held for sale) and any related  fixtures,  equipment  and
vehicles  (except items having an aggregate book value of not more than $600,000
which are  transferred by the Borrower to other stores for use in its business),
(iii) any tax refunds, including,  without limitation,  those resulting from the
Small  Business Job Retention Act of 1996 and filed for by the Debtor on October
9, 1996 and those resulting from  carrybacks of net operating  losses for fiscal
year 1997 and (iv) any other assets which the Borrower  determines are no longer
useful in its business, including, without limitation, the real estate interests
with respect to any  additional  stores which the Borrower  determines to close,
together  with the  Inventory  located in such stores and any related  fixtures,
equipment and vehicles.

     "DIP Agent" shall mean CIBC, as coordinating and collateral agent under the
DIP Credit Agreement.

     "DIP Credit  Agreement" shall mean that certain Revolving Credit Agreement,
dated  as  of  July  21,  1997,  among  the  Borrower,   the  DIP  Lenders,  the
Underwriters,  the Fronting Banks and CIBC, as coordinating and collateral agent
for the DIP  Lenders,  the  Fronting  Banks and the  Underwriters,  as  amended,
modified and supplemented from time to time.

     "DIP Documentary Letters of Credit" shall have the meaning set forth in the
Introductory Statement.

     "DIP  Financing  Order"  shall  mean the  orders  of the  Bankruptcy  Court
authorizing the Debtor to enter into the DIP Credit Agreement,  including orders
filed on July 21, 1997 and August 20, 1997.

     "DIP Fronting Banks" shall mean CIBC and First Bank in their  capacities as
"Fronting Banks", under the DIP Credit Agreement.

     "DIP  Lenders"  shall  have  the  meaning  set  forth  in the  Introductory
Statement.

     "DIP  Letters  of  Credit"   shall  have  the  meaning  set  forth  in  the
Introductory Statement.

     "DIP Obligations"  shall mean (a) the due and punctual payment of principal
of and  interest on DIP  Revolving  Credit  Loans and the  reimbursement  of all
amounts  drawn  under the DIP  Letters of Credit,  and (b) the due and  punctual
payment of all other  present  and future,  fixed or  contingent,  monetary  and
performance  obligations  of the Borrower to the DIP  Lenders,  the DIP Fronting
Banks, the Underwriters and the DIP Agent under the DIP Credit Agreement.

     "DIP  Revolving  Credit  Loans"  shall  have the  meaning  set forth in the
Introductory Statement.

     "DIP  Standby  Letters of Credit"  shall have the  meaning set forth in the
Introductory Statement.


<PAGE>10


     "Disclosure  Statement" shall mean the Borrower's First Amended  Disclosure
Statement,  filed by the Debtor in the Case on September 5, 1997, as modified on
October 9, 1997.

     "Documentary Letter of Credit" shall mean a documentary letter of credit in
form and substance customarily issued by the relevant Fronting Bank from time to
time.

     "Documentary  Letter of Credit  Fronting Bank" shall mean any Fronting Bank
which  has  issued  or has  committed  to issue  Documentary  Letters  of Credit
hereunder.

     "Documentary  Letter of Credit  Outstandings"  shall mean, at any time, the
sum of (i) the aggregate  undrawn  stated amount of all  Documentary  Letters of
Credit  then  outstanding  plus  (ii)  all  amounts   theretofore   drawn  under
Documentary Letters of Credit and not then reimbursed.

     "Documentary Reserve" shall have the meaning set forth in Section 2.5(a).

     "Dollars" and "$" shall mean lawful money of the United States of America.

     "Domestic  Lending  Office" shall mean  initially,  as to each Lender,  its
office designated on the signature pages to this Agreement, and thereafter, upon
notice to the Borrower and the Agent,  such other office of such Lender, if any,
which shall be making or maintaining ABR Loans.

     "Dual Path Capital  Expenditures"  shall mean capital  expenditures made or
accrued in connection  with the Business  Plan (or in connection  with any other
strategic initiatives  undertaken by the Borrower with the approval of the board
of directors of the  Borrower)  and  identified  as such in Section 6.4 (as such
amounts may be reduced from time to time).

     "EBITDA" shall mean, for any period,  the  consolidated  net income (or net
loss) of the Borrower and its  Consolidated  Subsidiaries for such period before
deduction of "Chapter 11 expenses" (or "administrative costs" reflecting Chapter
11 expenses) (excluding extraordinary, unusual or non-recurring gains and losses
or  (without   duplication)  special  charges),   plus  without  duplication  in
accordance with GAAP the sum of (i) interest and tax expense of the Borrower and
its  Consolidated  Subsidiaries  for  such  period  to the  extent  deducted  in
determining such consolidated net income plus (ii) depreciation and amortization
expense of the Borrower and its Consolidated Subsidiaries for such period to the
extent deducted in determining such consolidated net income, all as shown on the
consolidated   statement  of  income  for  the  Borrower  and  its  Consolidated
Subsidiaries for such period.

     "Effective  Date"  shall  mean the  first  Business  Day  after  which  the
Confirmation  Order  shall  have  become a Final  Order and on which each of the
conditions  set forth in  Section  4.1 shall  have been  satisfied  or waived in
accordance  with the terms  hereof,  which  Effective  Date  shall be as soon as
practicable,  but in no event later than  December  31,  1997,  unless such date
shall have been  extended  in writing by the Agent,  the  Required  Pre-Petition
Lenders and all of the DIP Lenders.


<PAGE>11


     "Eligible Assignee" shall mean (i) a commercial bank having total assets in
excess of $1,500,000,000 and (ii) a finance company,  insurance company or other
financial  institution or fund, in each case  acceptable to the Agent,  which in
the  ordinary  course of business  extends  credit of the type  evidenced by the
Notes and has total  assets in excess  of  $250,000,000  and whose  becoming  an
assignee  would not  constitute a prohibited  transaction  under Section 4975 of
ERISA.

     "Environmental Law" shall have the meaning set forth in Section 6.15(d).

     "Environmental  Lien"  shall  mean  a Lien  in  favor  of any  Governmental
Authority for (i) any  liability  under any  Environmental  Law, or (ii) damages
arising from or costs incurred by such  Governmental  Authority in response to a
release or threatened release of a Hazardous Substance into the environment.

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
amended from time to time, and the  regulations  promulgated  and rulings issued
thereunder.

     "ERISA  Affiliate"  shall  mean  any  trade  or  business  (whether  or not
incorporated)  which  is a  member  of a group  of  which  the  Borrower  or any
Subsidiary is a member and which is under common  control  within the meaning of
Section 414(b) or (c) of the Code and the  regulations  promulgated  and rulings
issued thereunder.

     "ERISA Event" shall mean (a) a "reportable event" as such term is described
in Section  4043 of ERISA  (other than a  "reportable  event" not subject to the
provision  for  30-day  notice  to the PBGC  under 29 C.F.R.  2615),  or (b) the
withdrawal of the Borrower,  any Subsidiary or any ERISA  Affiliate of either of
them from a Multiple  Employer Plan or a Single Employer Plan during a Plan year
in which it was a  "substantial  employer",  as such term is  defined in Section
4001(a)(2) of ERISA,  which would result in any  liability to the Borrower,  any
Subsidiary  or any  ERISA  Affiliate  of either of them,  or the  incurrence  of
liability by the Borrower,  any  Subsidiary or any ERISA  Affiliate of either of
them under  Section 4064 of ERISA upon the  termination  of a Multiple  Employer
Plan or a Single  Employer Plan, or (c) an event described in Section 4068(f) of
ERISA,  or (d) the  distribution  of a notice  of  intent  to  terminate  a Plan
pursuant to Section  4041(a)(2) of ERISA or the treatment of a Plan amendment as
a  termination  under  Section  4041  of  ERISA  where,  in  either  case,  such
termination  would result in any liability to the Borrower,  a Subsidiary or any
ERISA  Affiliate  of either  of them,  or (e) the  failure  by the  Borrower,  a
Subsidiary or any ERISA  Affiliate of either of them to make a payment to a Plan
pursuant to Section 302(f)(1) of ERISA or (f) the adoption of any amendment to a
Plan requiring the provision of security to such Plan pursuant to Section 307 of
ERISA,  or (g) the  institution  of  proceedings to terminate a Plan by the PBGC
under  Section 4042 of ERISA,  or (h) any other event or  condition  which might
constitute  grounds under Section 4042 of ERISA for the  termination  of, or the
appointment of a trustee to administer, any Plan.

     "Eurocurrency  Liabilities"  shall  have the  meaning  assigned  thereto in
Regulation D issued by the Board, as in effect from time to time.



<PAGE>12


     "Eurodollar  Borrowing"  shall mean a  Borrowing  comprised  of  Eurodollar
Loans.

     "Eurodollar Loan" shall mean any Loan bearing interest at a rate determined
by reference to the Adjusted  LIBOR Rate in  accordance  with the  provisions of
Section 2.4(b) and Section 2.8.

     "Eurodollar  Lending Office" shall mean,  initially as to each Lender,  its
office,  designated  on the  signature  pages to this  Agreement  or such  other
office,  branch or Affiliate of such Lender as it may hereafter designate as its
Eurodollar Lending Office by notice to the Borrower and the Agent.

     "Event of Default" shall have the meaning set forth in Section 7.1.

     "Excess Cash Flow" shall mean, for any fiscal year, the sum for such fiscal
year (without  duplication)  of (i) EBITDA of the Borrower and its  Consolidated
Subsidiaries  for such  fiscal  year,  plus (ii)  non-cash  charges  deducted in
arriving at such EBITDA for such fiscal year,  plus (iii) the aggregate Net Cash
Proceeds  of the sale,  lease,  transfer or other  disposition  of assets by the
Borrower or by its Consolidated Subsidiaries during such fiscal year (other than
sales of Inventory in the ordinary course of business) to the extent not applied
to the  mandatory  prepayment  or  payment  of the Loans and to the  extent  not
resulting in any mandatory  permanent  Commitment  reduction plus (iv) an amount
equal to the increase (or less an amount equal to the decrease) in  consolidated
current  liabilities of the Borrower and its  Consolidated  Subsidiaries  during
such fiscal year (other than Debt  described  in clauses (i) through (iv) of the
definition of "Debt" contained in this Section), less (v) an amount equal to the
increase (or plus an amount  equal to the  decrease)  in  consolidated  non-cash
current assets of the Borrower and its Consolidated Subsidiaries for such fiscal
year, less (vi) the aggregate amount of taxes paid in cash by the Borrower or by
its Consolidated  Subsidiaries during such fiscal year, less (vii) the aggregate
amount  of  Capital  Expenditures  of  the  Borrower  and  of  its  Consolidated
Subsidiaries  made during such fiscal year or  permitted  to be carried  forward
into the next  fiscal year  pursuant  to Section  6.4 (less any amounts  carried
forward from prior years to the extent not expended in the current  year),  less
(viii) an amount equal to the sum of all  regularly  scheduled  payments and any
mandatory or permitted optional prepayments of principal on all Debt of the type
described in clauses (i) through (iv) of the  definition of "Debt"  contained in
this Section of the Borrower and of its  Consolidated  Subsidiaries  (other than
prepayments  on the  New  Revolving  Loans  to the  extent  not  accompanied  by
commensurate  permanent  Commitment  reductions  hereunder) actually made during
such fiscal year to the extent permitted  hereunder,  less (ix) interest paid by
the Borrower or by its Consolidated  Subsidiaries  during such fiscal year, less
(x) any gains (or plus any losses)  arising  from the sale,  lease,  transfer or
other disposition of assets by the Borrower or by its Consolidated  Subsidiaries
during such fiscal year to the extent  included in EBITDA for such fiscal  year.
Excess Cash Flow shall be  calculated  by  reference  to the  audited  financial
statements  referred to in Section  5.1(a),  and such  calculation  shall be set
forth in the Excess Cash Flow Certificate.

     "Excess Cash Flow Certificate"  shall have the meaning set forth in Section
2.12(d).

     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.



<PAGE>13

     "Existing Agreements" shall mean the Pre-Petition Credit Agreement, the DIP
Credit Agreement, each of the other agreements listed on Schedule 1.1(b) hereto,
the notes  delivered  pursuant  thereto,  and all of the  agreements and the DIP
Financing  Order  granting Liens on Property and other assets of the Borrower to
the Lenders, including without limitation,  the security agreements,  mortgages,
deeds of trust and leasehold mortgages listed on Schedule 1.1(b) hereto, as each
may have been amended, amended and restated,  modified or supplemented from time
to time.

     "Federal  Funds Rate" shall mean,  for any period,  a fluctuating  interest
rate per annum equal for each day during such period to the weighted  average of
the rates on overnight  Federal funds  transactions  with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next  preceding  Business Day) by the
Federal  Reserve Bank of New York,  or, if such rate is not so published for any
day which is a Business Day, the average of the  quotations for such day on such
transactions  received  by  the  Agent  from  three  Federal  funds  brokers  of
recognized standing selected by it.

     "Fees"  shall mean,  collectively,  the  Commitment  Fees and the Letter of
Credit Fees, together with the other fees referred to in Section 2.18.

     "Fee  Letter"  shall mean the fee letter,  dated July 17,  1997,  among the
Debtor,  the Agent, the Underwriters and the New Revolving  Lenders with respect
to certain fees, as the same may be amended,  modified or supplemented from time
to time by a written instrument executed by the relevant parties thereto.

     "FIFO Value" shall mean, as to any Inventory,  the value (determined as the
lower of cost or fair market value) of such Inventory  calculated on a first in,
first out basis.

     "Filing Date" shall mean July 21, 1997.

     "Final  Order" shall mean an order or judgment of the  Bankruptcy  Court as
entered on the docket as to which the time to appeal or petition for  certiorari
has expired and as to which no appeal or petition for certiorari has been timely
filed,  or as to which any appeal or petition for certiorari that has been filed
has been  resolved  by the  highest  court to which such order or  judgment  was
timely appealed or from which certiorari was sought.

     "Financial Officer" shall mean the Chief Financial Officer,  Vice President
Finance or the Treasurer of the Borrower.

     "First Bank" shall mean U.S. Bank National Association, successor by merger
to First Bank National Association.

     "Fronting  Banks" shall mean (i) with respect to Standby Letters of Credit,
CIBC and (ii) with respect to Documentary Letters of Credit,  First Bank; or, in
each  case,   such  other  Lender  or  Lenders  or  financial   institutions  or
institutions (which other financial  institution or institutions shall have been



<PAGE>14

chosen by the Borrower with the approval of the Agent and the Majority Revolving
Lenders) as may agree to act as such.

     "GAAP" shall mean generally  accepted  accounting  principles  applied on a
basis consistent with those used in preparing the financial  statements referred
to in Section 3.4.

     "GE Credit Program  Documents" shall mean (a) the Monogram Credit Card Bank
of Georgia Program  Agreement,  dated as of July 20, 1997,  between the Borrower
and  Monogram  Credit Card Bank of Georgia,  as such  agreement  has been or may
hereafter be amended,  amended and restated,  supplemented or otherwise modified
from time to time to the extent  permitted by this Agreement,  together with any
agreements  entered  into by the  Borrower  and  Monogram  Credit  Card  Bank of
Georgia,  or any  affiliate,  in  replacement  of such  agreement  to the extent
permitted by this Agreement  (including,  without limitation,  Section 5.9); and
(b) the Commercial Credit Account Purchase and Service Program Agreement,  dated
as of  July  20,  1997,  between  the  Borrower  and  General  Electric  Capital
Corporation,  as such  agreement may hereafter be further  amended,  amended and
restated,  supplemented  or otherwise  modified  from time to time to the extent
permitted by this  Agreement,  together with any  agreement  entered into by the
Borrower  and  General  Electric  Capital  Corporation,  or  any  affiliate,  in
replacement of such agreement to the extent permitted by this Agreement.

     "Governmental  Authority" shall mean any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality or
any court, in each case whether of the United States or foreign.

     "Group"  shall mean a "group" for purposes of Section 13(d) of the Exchange
Act.

     "Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly  guaranteeing any Debt or other obligation of
any other Person and,  without  limiting the  generality of the  foregoing,  any
obligation  (i) to purchase or pay (or advance or supply  funds for the purchase
or  payment  of) such Debt or other  obligation  (whether  arising  by virtue of
partnership arrangements,  by agreement to keep-well, to purchase assets, goods,
securities  or services,  to  take-or-pay,  or to maintain  financial  statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect  such  obligee  against  loss in respect  thereof  (in whole or in
part);  provided,  that the term Guarantee  shall not include  endorsements  for
collection or deposit in the ordinary course of business.  The term  "Guarantee"
used as a verb has a corresponding meaning.

     "Hazardous Substances" shall have the meaning set forth in Section 6.15(d).

     "Hedging Agreement" shall mean that certain ISDA Master Agreement, dated as
of May 22,  1995,  between  CIBC and the  Debtor,  together  with all  Schedules
executed in connection  therewith,  as assumed by the Debtor pursuant to the DIP
Credit Agreement and by the Borrower upon the merger of the Debtor with and into
the  Borrower  as in effect on the  Effective  Date,  as  amended,  amended  and
restated, supplemented or otherwise modified from time to time.



<PAGE>15


     "Hedging Bank" shall mean CIBC in its capacity as Party A under the Hedging
Agreement and any other Lender or other  counterparty  reasonably  acceptable to
the Agent and the Majority  Revolving  Lenders  which enters into  interest rate
protection or hedging arrangements with the Borrower which are permitted by this
Agreement.

     "Hedging  Obligations"  shall mean the  obligations  of the Borrower to the
Hedging Bank under the Hedging Agreement.

     "Indemnified Party" shall have the meaning set forth in Section 9.6.

     "Insufficiency"  shall mean, with respect to any Plan, the amount,  if any,
of its unfunded benefit liabilities within the meaning of Section 4001(a)(18) of
ERISA.

     "Interest  Payment Date" shall mean (i) as to any Eurodollar Loan, the last
calendar  day of each month  during each  Interest  Period with  respect to such
Eurodollar  Loan and the last day of each such Interest  Period,  and (ii) as to
all ABR Loans, the last calendar day of each month and the date on which any ABR
Loans are refinanced with Eurodollar Loans pursuant to Section 2.11.

     "Interest  Period" shall mean, as to any Borrowing of Eurodollar Loans, the
period  commencing  on the date of such  Borrowing  (including  as a result of a
refinancing  of ABR Loans) or on the last day of the preceding  Interest  Period
applicable to such Borrowing and ending on the numerically corresponding day (or
if there is no corresponding day, the last day) in the calendar month that is 1,
2, 3 or 6 months  thereafter,  as the Borrower  may elect in the related  notice
delivered pursuant to Sections 2.2(b) or 2.11;  provided,  however,  that (i) if
any Interest  Period would end on a day which shall not be a Business  Day, such
Interest  Period  shall be extended to the next  succeeding  Business Day unless
such next  succeeding  Business Day would fall in the next  calendar  month,  in
which case such Interest Period shall end on the next preceding Business Day and
(ii) no Interest  Period shall end later than the Maturity Date for the Loans to
which such Interest Period relates.

     "Inventory"  shall mean all goods and  merchandise  now owned or  hereafter
acquired by the Borrower or any of its Subsidiaries  (wherever located,  whether
in the possession of the Borrower or any of its  Subsidiaries  or of a bailee or
other  person for sale,  storage,  transit,  processing,  use or  otherwise  and
whether consisting of whole goods, components,  supplies, materials, returned or
repossessed  goods or goods consigned by the Borrower or any of its Subsidiaries
to a third party)  which are held for sale or lease or to be furnished  (or have
been  furnished)  under any  contract  of  service  or which are raw  materials,
work-in-process, finished goods or materials used or consumed in the business of
the  Borrower or any of its  Subsidiaries  or  processed  by or on behalf of the
Borrower or any of its Subsidiaries, but expressly excluding inventory consigned
to the Borrower or its Subsidiaries by third parties.

     "Inventory  Compliance  Certificate"  shall have the  meaning  set forth in
Section 5.1(t).

     "Investments" shall have the meaning set forth in Section 6.10.



<PAGE>16


     "Lender  Obligations"  shall mean the  Revolving  Obligations  and the Term
Obligations.

     "Lenders" shall have the meaning set forth in the Heading.

     "Lending Office" shall mean, as to each Lender, its Domestic Lending Office
or its Eurodollar Lending Office, as the context may require.

     "Letter of Credit"  shall mean any  irrevocable  letter of credit issued or
outstanding under the DIP Credit Agreement and deemed issued pursuant to Section
2.5,  which  letter  of  credit  shall be (i) a  Standby  Letter  of Credit or a
Documentary Letter of Credit and (ii) denominated in Dollars except as otherwise
permitted pursuant to Section 2.5(a).

     "Letter of Credit  Accounts" shall mean (i) with respect to Standby Letters
of Credit, the account  established by the Borrower under the sole and exclusive
control  of the Agent  maintained  at the  office of the Agent at 425  Lexington
Avenue,  New York,  New York 10017  designated  as the "Payless  Cashways,  Inc.
Standby Letter of Credit  Account" and (ii) with respect to Documentary  Letters
of Credit, the account  established by the Borrower under the sole and exclusive
control of U.S.  Bank  National  Association,  maintained at the office of First
Bank at 601 2nd Avenue  South,  Minneapolis,  Minnesota  55402,  designated  the
"Payless  Cashways,  Inc.  Documentary  Letter of Credit Account," each of which
shall be used solely for the purposes set forth in Sections 2.5(a), 2.12(h), 7.1
and 7.2.

     "Letter of Credit  Fees" shall mean the fees  payable in respect of Letters
of Credit pursuant to Section 2.20.

     "Letter of Credit  Outstandings"  shall mean,  at any time,  the  aggregate
amount of all Documentary  Letter of Credit  Outstandings and all Standby Letter
of Credit Outstandings.

     "Lien" shall mean, with respect to any asset, any mortgage,  lien,  pledge,
charge,  security  interest or encumbrance of any kind  whatsoever in respect of
such asset.  For the purposes of this Agreement,  the Borrower or any Subsidiary
shall be deemed to own  subject  to a Lien any asset  which it has  acquired  or
holds subject to the interest of a vendor or lessor under any  conditional  sale
agreement,  capital lease or other title  retention  agreement  relating to such
asset.

     "Loan" shall have the meaning set forth in Section 2.1(d).

     "Loan  Documents"  shall mean this  Agreement,  the Notes,  the  Letters of
Credit,  the Security  Documents,  the Hedging  Agreement,  the Cash  Management
Agreements,  and any other  instrument  or agreement  executed and  delivered in
connection herewith,  including (without limitation)  documentation  between the
respective Fronting Banks and the Borrower with respect to Letters of Credit.

     "Lumberjack" shall mean Lumberjack Stores, Inc.


<PAGE>17


     "Majority  Lenders"  shall mean the Majority Term Lenders plus the Majority
Revolving Lenders;  provided, that for purposes of this definition, the relevant
Commitments,  Loans or Participating  Interests of a Lender shall be disregarded
if and for so long as such Lender shall be a Defaulting Lender.

     "Majority  Revolving  Lenders" shall mean New Revolving Lenders holding New
Revolving Loans or Participating  Interests representing at least 51% of the sum
of the  aggregate  principal  amount of such Loans and  Participating  Interests
outstanding (or, if no New Revolving Loans or Letters of Credit are outstanding,
New Revolving Lenders having Commitments  representing at least 51% of the Total
Commitments);  provided,  that for  purposes of this  definition,  the  relevant
Commitments,  Loans or Participating  Interests of a Lender shall be disregarded
if and for so long as such Lender shall be a Defaulting Lender.

     "Majority Term Lenders"  shall mean, at any time, New Term Lenders  holding
New Term Loans  representing at least 51% of the aggregate  principal  amount of
such Loans  outstanding;  provided,  that for purposes of this  definition,  the
Loans  of a New Term  Lender  shall  be  disregarded  if and for so long as such
Lender shall be a Defaulting Lender.

     "Material  Adverse  Effect" shall mean (i) with respect to the Borrower and
its  Subsidiaries,  any materially  adverse change in the business,  operations,
condition  (financial  or  otherwise),  properties,  assets or  prospects of the
Borrower and its Subsidiaries taken as a whole, or (ii) any fact or circumstance
which, singly or in the aggregate, could reasonably be expected to result in (a)
a materially  adverse change described in clause (i) or (b) the inability of the
Borrower  or any of its  Subsidiaries  to perform in any  material  respect  its
obligations hereunder or under the other Loan Documents.

     "Maturity Date" shall mean (i) with respect to the New Revolving Loans, May
31, 2002 or such earlier date on which the  Commitments  shall terminate or such
Loans shall become due in accordance with Section 7 and (ii) with respect to the
New Term Loans,  November  30,  2002,  or such  earlier date on which such Loans
shall become due in accordance with Section 7.

     "Maximum Rate" shall have the meaning set forth in Section 2.8(b).

     "Minority   Investment"  shall  mean  any  Investment   consisting  of  the
acquisition of non-majority ownership interests in any Person.

     "Moody's"  shall mean Moody's  Investors  Service,  Inc. or if such company
shall cease to issue ratings,  another nationally recognized  statistical rating
company  selected  in good  faith  by  mutual  agreement  of the  Agent  and the
Borrower.

     "Mortgages" shall have the meaning set forth in Section 4.1(l).

     "Multiemployer  Plan"  shall  mean a  "multiemployer  plan" as  defined  in
Section  4001(a)(3) of ERISA to which the Borrower,  any Subsidiary or any ERISA
Affiliate  is making or accruing an



<PAGE>18

obligation to make  contributions,  or has within any of the preceding five plan
years made or accrued an obligation to make contributions.

     "Multiple  Employer Plan" shall mean an employee benefit plan, other than a
Multiemployer  Plan,  subject  to Title IV of ERISA to which the  Borrower,  any
Subsidiary or any ERISA  Affiliate of the Borrower or any  Subsidiary,  and more
than one employer other than the Borrower,  any Subsidiary or an ERISA Affiliate
of the Borrower or any  Subsidiary,  is making or accruing an obligation to make
contributions  or, in the event that any such plan has terminated,  to which the
Borrower,  any  Subsidiary  or  any  ERISA  Affiliate  of  the  Borrower  or any
Subsidiary made or accrued an obligation to make contributions during any of the
five plan years preceding the date of termination of such plan.

     "Net Cash Proceeds" shall mean, with respect to any sale,  lease,  transfer
or other disposition of property or other assets: (a) the cash proceeds received
by the  Borrower or any  Subsidiary  (including,  without  limitation,  all cash
proceeds received by way of (i) deferred payment of principal pursuant to a note
or installment  receivable or otherwise,  but only as and when received and (ii)
receivables  and other  assets  retained  by the  Borrower  as part of the sales
consideration),  minus (b) reasonable and customary  brokerage  commissions  and
other  reasonable  and customary  fees and expenses  (including  reasonable  and
customary fees and expenses of counsel and investment bankers and reasonable and
customary  inventory  liquidation  costs  actually  paid by the Borrower or such
Subsidiary)  related to such  financing,  sale,  lease or other  disposition  or
issuance,  minus (c) payments made to retire Debt (other than the Loans) secured
by such assets being sold or otherwise disposed of where payment of such Debt is
required in connection with such sale or disposition.

     "New Common Stock" shall have the meaning set forth in Section 4.1(u).

     "New Revolving Lender" and "New Revolving  Lenders" shall have the meanings
set forth in Section 2.1(d).

     "New Revolving Loans" shall have the meaning set forth in Section 2.1(d).

     "New  Revolving  Notes" shall mean the  promissory  notes of the  Borrower,
substantially in the form of Exhibit A-2 hereto,  each payable to the order of a
New Revolving Lender, evidencing New Revolving Loans.

     "New Term Lender" and "New Term Lenders"  shall have the meanings set forth
in Section 2.1(a).

     "New Term Loans" shall have the meaning set forth in Section 2.1(a).

     "New  Term  Notes"  shall  mean  the  promissory  notes  of  the  Borrower,
substantially in the form of Exhibit A-1 hereto,  each payable to the order of a
New Term Lender, evidencing New Term Loans.

     "Notes" shall mean the New Revolving Notes and the New Term Notes.



<PAGE>19

     "Notice of Borrowing" shall have the meaning set forth in Section 2.2(b).

     "Other Amounts" shall have the meaning set forth in Section 2.8(b).

     "Other Taxes" shall have the meaning set forth in Section 2.17(b).

     "PBGC"  shall  mean  the  Pension  Benefit  Guaranty  Corporation,  or  any
successor agency or entity performing substantially the same functions.

     "Pad Site" shall have the meaning set forth in the definition of "Permitted
Pad Sale."

     "Participating  Interest"  shall mean with respect to each Letter of Credit
(i) in the case of a Fronting  Bank,  its  interest,  if any,  in such Letter of
Credit and any  Application or draft or payment request  relating  thereto after
giving effect to the granting of all  Participating  Interests  therein pursuant
hereto and (ii) in the case of each New Revolving Lender, its undivided interest
in such  Letter  of  Credit  and any  Application  or draft or  payment  request
relating thereto.

     "Paycap" shall mean Paycap Associates  Limited  Partnership,  a Connecticut
limited partnership.

     "Permitted  Liens"  shall  mean  (i)  Liens  imposed  by  law  (other  than
Environmental  Liens and any Lien  imposed by ERISA) for taxes,  assessments  or
charges of any Governmental  Authority for claims not yet due or which are being
contested  in good faith by  appropriate  proceedings  and with respect to which
adequate  reserves  or other  appropriate  provisions  are being  maintained  in
accordance  with GAAP;  (ii) statutory Liens of landlords and Liens of carriers,
warehousemen,  mechanics,  materialmen and other Liens (other than Environmental
Liens and any Lien  imposed  by ERISA)  imposed by law  created in the  ordinary
course of business for amounts not yet due or which are being  contested in good
faith by appropriate  proceedings and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with GAAP; (iii)
Liens  (other than any Lien imposed by ERISA)  incurred or deposits  made in the
ordinary course of business  (including,  without  limitation,  surety bonds and
appeal bonds) in connection with workers'  compensation,  unemployment insurance
and other  types of social  security  benefits or to secure the  performance  of
tenders,  bids,  leases,  contracts  (other  than for the  repayment  of  Debt),
statutory  obligations  and other similar  obligations or arising as a result of
progress payments under government contracts; (iv) easements (including, without
limitation,    reciprocal   easement   agreements   and   utility   agreements),
rights-of-way, covenants, consents, reservations,  encroachments, variations and
zoning  and  other  restrictions,   charges  or  encumbrances  (whether  or  not
recorded),  which do not interfere  materially with the ordinary  conduct of the
business of the Borrower and which do not  materially  detract from the value of
the  property to which they attach or  materially  impair the use thereof to the
Borrower;  (v) purchase money Liens granted by the Borrower or its  Subsidiaries
upon Inventory of the Borrower and its Subsidiaries  securing the purchase price
therefor not to exceed  $1,000,000 in unpaid purchase price in the aggregate for
the Borrower and its  Subsidiaries at any one time and purchase money Liens upon
or in any other property  acquired or held in the ordinary course of business to
secure the  purchase  price of such  property  or to secure  Debt  permitted  by
Section  6.2(v)  solely for the purpose


<PAGE>20

of financing the acquisition of such property and Capitalized  Leases  permitted
by Section 6.4 and true  leases on account of which  financing  statements  have
been filed; provided, that the aggregate Debt secured by all such purchase money
Liens (other than Capitalized  Leases) shall not exceed in the aggregate for the
Borrower and its Subsidiaries  $2,000,000 outstanding at any time; (vi) judgment
Liens,  but only to the extent that the related  judgment does not constitute an
Event of Default  under  Section  7.1(j);  and;  (vii)  extensions,  renewals or
replacements  of any Lien  referred  to in  paragraphs  (i)  through  (v) above,
including in  connection  with the  incurrence  of Permitted  Refinancing  Debt;
provided,  that the principal  amount of the obligation  secured  thereby is not
increased and that any such extension, renewal or replacement Lien is limited to
the property originally encumbered thereby.

     "Permitted Pad Sale" shall mean any sale of that portion (any such portion,
a "Pad Site") of any real  property  acquired  by the  Borrower in excess of the
portion  thereof  needed for the  operation of the facility  located on or to be
constructed  on such real  property,  as reasonably  determined by the Borrower;
provided,  that (i) the  acquisition of such real property was not prohibited by
any provision of this Agreement,  (ii) the aggregate acreage of all Pad Sites on
any such real  property  does not exceed  50% of the total  acreage of such real
property  and  (iii)  such  sale  is  completed  within  twelve  months  of  the
acquisition of such real property.

     "Permitted  Refinancing  Debt" shall mean Debt  incurred by the Borrower to
refinance the Real Estate Financing or Synthetic Lease Obligations (or a portion
thereof)  in a  principal  amount  not less  than the  principal  amount  of the
obligations (or the portion thereof) being  refinanced;  provided,  that (i) the
principal  amount of such Debt is not  increased and such Debt is not secured by
any  assets of the  Borrower  other  than the  assets  securing  the Debt  being
refinanced  and, in the case of a refinancing of less than the entire  principal
amount of the Real Estate  Financing or the Synthetic  Lease  Obligations,  such
Debt is not secured by any assets of the Borrower not specifically  allocated to
the portion of the Real Estate  Financing  or the  Synthetic  Lease  Obligations
being  refinanced  and,  in all cases,  any Liens on such assets in favor of the
Agent, for its benefit and the benefit of the other Secured  Parties,  remain in
full  force and effect and (ii) such Debt is  incurred  on terms and  conditions
(including  financial  and other  covenants  and events of defaults)  and with a
weighted  average tenor which,  taken as a whole,  would be no less favorable to
the Borrower than the terms,  conditions and tenor of the Debt being  refinanced
as in effect on the date hereof.

     "Person"  shall  mean  any  natural  person,  corporation,  division  of  a
corporation,   limited  liability   company,   limited  liability   partnership,
partnership, trust, joint venture, association,  company, estate, unincorporated
organization or government or any agency or political subdivision thereof.

     "Plan"  shall mean an employee  benefit  plan  (other than a  Multiemployer
Plan),  including any Multiple Employer Plan, which is or, in the event that any
such plan has been  terminated  within  five  years  after the  occurrence  of a
transaction  described in Section 4069 of ERISA, was maintained for employees of
the  Borrower,  any  Subsidiary  or any ERISA  Affiliate  of the Borrower or any
Subsidiary and is subject to Title IV of ERISA.



<PAGE>21


     "Plan of  Reorganization"  shall mean that  certain  First  Amended Plan of
Reorganization,  filed  by the  Debtor  in the Case on  September  5,  1997,  as
modified on October 9, 1997 and as further  modified in the  Confirmation  Order
and on the  record  at the  hearing  with  respect  thereto,  as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof as in effect on the date hereof.

     "Pre-Petition  Agent" shall mean CIBC,  as  administrative  and  collateral
agent for the Pre-Petition  Lenders, the letter of credit bank and the co-agents
party to the Pre-Petition Credit Agreement.

     "Pre-Petition   Collateral"  shall  have  the  meaning  set  forth  in  the
Introductory Statement.

     "Pre-Petition  Credit  Agreement"  shall  mean  that  certain  Amended  and
Restated Credit Agreement,  dated as of October 3, 1996, among Payless Cashways,
Inc., the Pre-Petition  Lenders,  the  Pre-Petition  Agent, the letter of credit
bank  and the  co-agents  named  therein,  as  amended,  amended  and  restated,
supplemented or otherwise modified prior to the Effective Date.

     "Pre-Petition L/C Obligations"  shall have the meaning set forth in Section
9.3(a)(iii).

     "Pre-Petition L/C Participant"  shall have the meaning set forth in Section
9.14(c).

     "Pre-Petition Lenders" shall have the meaning set forth in the Introductory
Statement.

     "Pre-Petition  Letters of Credit"  shall have the  meaning set forth in the
Introductory Statement.

     "Pre-Petition  Loans" shall have the meaning set forth in the  Introductory
Statement.

     "Pre-Petition   Obligations"   shall  mean  the  Pre-Petition   Loans,  the
reimbursement obligations with respect to the Pre-Petition Letters of Credit and
all  other  obligations  of  the  Debtor  to  the  Pre-Petition  Agent  and  the
Pre-Petition  Lenders  pursuant to the  Pre-Petition  Credit  Agreement  and all
documents and agreements executed in connection therewith.

     "Pre-Petition  Revolving  Lenders"  shall have the meaning set forth in the
Introductory Statement.

     "Pre-Petition  Revolving  Loans"  shall have the  meaning  set forth in the
Introductory Statement.

     "Pre-Petition  Term  Lenders"  shall  have  the  meaning  set  forth in the
Introductory Statement.

     "Pre-Petition  Term  Loans"  shall  have  the  meaning  set  forth  in  the
Introductory Statement.

         "Pre-Petition Tranche A Term Loans" shall have the meaning set forth in
the Introductory Statement.



<PAGE>22

     "Pre-Petition Tranche B Term Loans" shall have the meaning set forth in the
Introductory Statement.

     "Property" shall have the meaning set forth in Section 6.15(a).

     "Ratable  Proportion"  shall  mean,  as to each  Lender,  at any time,  the
proportion  that such  Lender's  share of the  aggregate  outstanding  principal
amount of Loans and Letter of Credit  Outstandings,  together with such Lender's
share (if any) of the Unused Total  Commitments at the time, bears to the sum of
aggregate  outstanding  principal  amount  of all  Loans  and  Letter  of Credit
Outstandings  plus the Unused  Total  Commitments  at the time,  expressed  as a
percentage.  Each Lender's Ratable Proportion on and as of the Effective Date is
set forth on Annex A.

     "Real Estate Financing" shall mean the financing by UBS provided for by the
UBS Loan Agreement and the other UBS Loan Documents.

     "Register" shall have the meaning set forth in Section 9.3(d).

     "Remedial Work" shall have the meaning set forth in Section 6.15(c).

     "Required Inventory" shall mean Inventory in the Borrower's  possession and
not  subject to any Liens  (except  Liens in favor of the Agent and other  Liens
permitted by Section 6.1) which shall have a minimum  aggregate  FIFO Value,  at
least equal to $300 million after deduction of all amounts secured by such other
Liens  permitted by Section 6.1;  provided,  that no Inventory  subject to Liens
created  pursuant  to the GE  Credit  Program  Documents  or Liens on  Inventory
subject to a purchase  money  security  interest of the type described in clause
(v) of the definition of Permitted Liens shall have any value ascribed to it for
purposes of calculating Required Inventory.

     "Required  Lenders"  shall  mean (i)  except as  provided  in clause  (iii)
hereof,  so long as any Commitments  remain in effect or any New Revolving Loans
or Letters of Credit remain outstanding, the Majority Revolving Lenders, (ii) if
no Commitments  remain in effect and no New Revolving Loans or Letters of Credit
are  outstanding,  the Majority  Term Lenders and (iii) for purposes of amending
the  definition of Required  Inventory or the form of the  Inventory  Compliance
Certificate or amending or waiving the provisions of Sections 4.2(f),  5.1(t) or
9.10(iv),  the  Majority  Revolving  Lenders  and  the  Majority  Term  Lenders;
provided, that for purposes of this definition, the relevant Commitments,  Loans
or  Participating  Interests of a Lender shall be disregarded if and for so long
as such Lender shall be a Defaulting Lender.

     "Required  Pre-Petition  Lenders"  shall  mean,  at any  time  Pre-Petition
Lenders holding Pre-Petition Obligations representing in excess of sixty-six and
two-thirds  percent  (66-2/3%)  of  the  aggregate   principal  amount  of  such
Pre-Petition  Obligations  outstanding and constituting  more than fifty percent
(50%) in number of such Pre-Petition Lenders.



<PAGE>23

     "Required Revolving Lenders" shall mean, at any time, New Revolving Lenders
holding New Revolving Loans or Participating Interests representing in excess of
66-2/3%  of the  sum  of the  aggregate  principal  amount  of  such  Loans  and
Participating  Interests outstanding or, if no New Revolving Loans or Letters of
Credit are outstanding, New Revolving Lenders having Commitments representing in
excess of 66-2/3% of the Total Commitments;  provided, that for purposes of this
definition,  the relevant  Commitments,  New  Revolving  Loans or  Participating
Interests of a New Revolving  Lender shall be  disregarded if and for so long as
such New Revolving Lender shall be a Defaulting Lender.

     "Required Term Lenders"  shall mean, at any time, New Term Lenders  holding
New Term Loans  representing  in excess of 66-2/3%  of the  aggregate  principal
amount  of  such  Loans  outstanding;   provided,  that  for  purposes  of  this
definition,  the New Term Loans of a New Term Lender shall be disregarded if and
for so long as such New Term Lender shall be a Defaulting Lender.

     "Requirement  of  Law"  shall  mean,  as to any  Person,  the  articles  or
certificate of incorporation  and by-laws or other  organizational  or governing
documents  of  such  Person,  and  any  law,  treaty,   rule  or  regulation  or
determination of an arbitrator or a court or other  Governmental  Authority,  in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.

     "Restricted  Payments" shall mean (i) any dividend or other distribution in
cash or in kind on any shares of the Borrower's  capital stock, (ii) any payment
in cash or in kind (including,  without limitation,  the setting aside of assets
or the  deposit  of funds  therefor)  on account  of the  purchase,  redemption,
retirement or acquisition  of (a) any shares of the Borrower's  capital stock or
(b) any  option,  warrant  or other  right to acquire  shares of the  Borrower's
capital  stock,  (iii)  any  issuance  of any  capital  stock  (or any  options,
warrants,  rights or other  equity  securities  relating to any  capital  stock)
except pursuant to the Plan of  Reorganization or as contemplated by Section 9.2
thereof,  (iv) any payment or  prepayment of principal or interest on account of
Debt  for  Borrowed  Money  (other  than  the  Loans)  or  the  Synthetic  Lease
Obligations or any purchase, defeasance,  redemption,  retirement or acquisition
of any  principal or interest on such Debt or  Obligations  (including,  without
limitation, the setting aside of assets or the deposit of funds therefor) or (v)
any payment of management or consulting fees to an Affiliate of the Borrower.

     "Restructured   Obligations"   shall  mean  all  of  the  Borrower's   Term
Obligations, Cash Management Obligations and Hedging Obligations.

     "Revolving  Credit  Commitment" shall mean the commitment of each Lender to
make New Revolving Loans and to purchase a Participating Interest in Documentary
Letters of Credit and Standby Letters of Credit issued,  as set forth in Section
2.1 and Section  2.2, as the same may be reduced  from time to time  pursuant to
Sections 2.9 and 2.12.

     "Revolving  Obligations"  shall  mean (a) the due and  punctual  payment of
principal of and interest on the New Revolving Loans and the New Revolving Notes
and the reimbursement of all


<PAGE>24

amounts drawn under the Letters of Credit,  and (b) the due and punctual payment
of the Fees and all other present and future, fixed or contingent,  monetary and
performance  obligations  of the  Borrower  to the New  Revolving  Lenders,  the
Fronting Banks,  the  Underwriters and the Agent under the Loan Documents (other
than the Term Obligations).

     "S&P"  shall  mean   Standard  &  Poor's   Ratings  Group  (a  division  of
McGraw-Hill,  Inc.) or, if such company  shall cease to issue  ratings,  another
nationally  recognized  statistical  rating  company  selected  in good faith by
mutual agreement of the Agent and the Borrower.

     "Secured   Obligations"  shall  mean  the  Lender  Obligations,   the  Cash
Management  Obligations and the Hedging  Obligations  and all other  obligations
owing to the Secured Parties (or any of them) in their capacities as such.

     "Secured Parties" shall mean the Agent, the Lenders, the Underwriters,  the
Fronting Banks, the Pre-Petition  Lenders,  the DIP Lenders,  the DIP Agent, the
DIP Fronting Banks,  CIBC, as issuer of the Pre-Petition  Letters of Credit, the
Hedging Bank and the Cash Management Banks.

     "Security and Pledge  Agreement"shall have the meaning set forth in Section
4.1(k).

     "Security  Documents"  shall mean the  Security and Pledge  Agreement,  all
Subsidiary Security Agreements, all Subsidiary Guarantees, the Mortgages and all
other  security  agreements,  mortgages,  pledges  and  assignments  at any time
delivered by the Borrower or any of the  Subsidiaries  to the Agent  pursuant to
the terms of this Agreement, each as amended, amended and restated, supplemented
or otherwise modified from time to time.

     "Single  Employer  Plan" shall mean a single  employer  plan, as defined in
Section  4001(a)(15)  of ERISA,  that (i) is  maintained  for  employees  of the
Borrower or an ERISA  Affiliate  or (ii) was also  maintained  and in respect of
which the Borrower could have liability under Section 4069 of ERISA in the event
such Plan has been or were to be terminated.

     "Special  Required  Lenders"  shall mean the Required Term Lenders plus New
Revolving  Lenders  holding  New  Revolving  Loans  or  Participating  Interests
representing in excess of 33-1/3% of the sum of the aggregate  principal  amount
of New Revolving Loans and  Participating  Interests  outstanding (or, if no New
Revolving  Loans or Letters of Credit are  outstanding,  New  Revolving  Lenders
having Commitments  representing in excess of 33-1/3% of the Total Commitments);
provided,  that the Ratable Proportion of such Lenders, taken together, at least
equals 51%; provided further, that for purposes of this definition, the relevant
Commitments,  Loans or Participating  Interests of a Lender shall be disregarded
if and for so long as such Lender shall be a Defaulting Lender.

     "Standby  Letter of Credit"  shall mean a standby  letter of credit in form
and substance customarily issued by the relevant Fronting Bank from time to time
and in form and substance acceptable to the Agent and the relevant Fronting Bank
and issued for such  purposes for which the

<PAGE>25

Borrower has historically  obtained standby letters of credit, or for such other
purposes as are  reasonably  acceptable  to the Agent and the relevant  Fronting
Bank.

     "Standby Letter of Credit Fronting Bank" shall mean the Fronting Bank which
has committed to issue Standby Letters of Credit hereunder.

     "Standby Letter of Credit Outstandings" shall mean, at any time, the sum of
(i) the aggregate  undrawn  stated amount of all Standby  Letters of Credit then
outstanding  plus (ii) all amounts  theretofore  drawn under Standby  Letters of
Credit and not then reimbursed.

     "Statutory Reserves" shall mean on any date the percentage  (expressed as a
decimal)  established by the Board and any other banking  authority which is the
then stated  maximum rate for all reserves  (including,  but not limited to, any
emergency,  supplemental or other marginal reserve  requirements)  applicable to
any  member  bank of the  Federal  Reserve  System in  respect  of  Eurocurrency
Liabilities (or any successor  category of liabilities under Regulation D issued
by the Board, as in effect from time to time).  Such reserve  percentages  shall
include,  without  limitation,  those imposed pursuant to said  Regulation.  The
Statutory  Reserves shall be adjusted  automatically  on and as of the effective
date of any change in such percentage.

     "Subsidiary"  shall mean, with respect to any Person (herein referred to as
the "parent"),  any  corporation,  association or other business entity (whether
now  existing  or  hereafter  organized)  of which at  least a  majority  of the
securities or other  ownership  interests  having  ordinary voting power for the
election of  directors  is, at the time as of which any  determination  is being
made,  owned or  controlled  by the  parent or one or more  subsidiaries  of the
parent or by the parent and one or more subsidiaries of the parent.

     "Subsidiary Guarantee" shall mean the guarantee,  substantially in the form
of Exhibit E hereto,  to be entered into between  each  Subsidiary  (whether now
existing or hereafter formed, purchased or otherwise acquired) and the Agent for
the benefit of the  Secured  Parties,  as the same may be  amended,  amended and
restated, supplemented or otherwise modified from time to time.

     "Subsidiary   Security   Agreement"  shall  mean  the  security  agreement,
substantially  in the form of  Exhibit F hereto,  to be made by each  Subsidiary
(whether now existing or hereafter formed,  purchased or otherwise  acquired) in
favor of the Agent, for the benefit of the Secured  Parties,  as the same may be
amended,  amended and restated,  supplemented or otherwise modified from time to
time.

     "Substantial Consummation" shall have the meaning set forth in Section 1101
of the Bankruptcy Code.

     "Survey"  shall mean a current  survey of the real property  covered by any
Mortgage  certified to the Agent and the title  insurance  company  insuring the
Mortgage  and in form and

<PAGE>26

substance  satisfactory to the Agent and the title insurance company, or in lieu
thereof,  a copy of the existing  survey and, if required by the title insurance
company insuring such Mortgage, an affidavit in form and substance  satisfactory
to such title company to remove any  exceptions in the Title Policy with respect
to the absence of a current certified survey.

     "Synthetic  Lease  Banks" shall mean the banks and  financial  institutions
party to the Synthetic Lease Loan Documents and their successors and assigns.

     "Synthetic  Lease Loan  Agreement"  shall mean that certain Loan Agreement,
dated on or about the Effective  Date,  among the Borrower,  the Synthetic Lease
Banks and BA Leasing & Capital  Corporation,  as agent for the  Synthetic  Lease
Banks,  as the  same may be  amended,  amended  and  restated,  supplemented  or
otherwise modified to the extent permitted by this Agreement.

     "Synthetic  Lease  Loan  Documents"  shall  mean the  Synthetic  Lease Loan
Agreement, the Mortgage,  Assignment of Rents and Leases, Security Agreement and
Fixture  Filing  Statement  from the  Borrower  in favor  of the  agent  for the
Synthetic  Lease  Banks for the  Borrower's  property  located  in  Bloomington,
Indiana and in Overland Park, Kansas and the Deed of Trust,  Assignment of Rents
and Leases, Security Agreement and Fixture Filing Statement from the Borrower in
favor of the agent for the  Synthetic  Lease Banks for the  Borrower's  property
located  in Las  Vegas,  Nevada  and  any  and  all  documents,  agreements  and
instruments related thereto, each as amended, amended and restated, supplemented
or otherwise modified to the extent permitted by this Agreement.

     "Synthetic  Lease  Obligations"  shall mean the obligations of the Borrower
under the Synthetic Lease Loan Documents.

     "Taxes" shall have the meaning set forth in Section 2.17.

     "Temporary  Cash  Investments"  shall  mean any  Investment  in (i)  direct
obligations  of  the  United  States  or  any  agency  thereof,  or  obligations
guaranteed  by the United  States or any agency  thereof,  in each case maturing
within one year from the date of the  acquisition  thereof by the  Borrower or a
Subsidiary,  or (ii) (x) commercial  paper rated in the highest grade (A1+/P1 or
its  equivalent)  by S&P  or  Moody's  or  (y)  time  deposits  with,  including
certificates  of deposit  issued by, any office  located in the United States of
any bank or trust  company  that has  capital,  surplus  and  undivided  profits
aggregating at least U.S.  $500,000,000,  and whose long term Debt is rated A or
higher by S&P and A2 or higher by Moody's, in each case maturing within 180 days
from the date of acquisition thereof by the Borrower or a Subsidiary.

     "Term  Obligations" shall mean the due and punctual payment of principal of
and  interest on the New Term Loans and all other  present and future,  fixed or
contingent,  monetary and performance  obligations  owed to the New Term Lenders
and the Agent under the Loan Documents with respect to the New Term Loans.

     "Title Policy" shall mean a mortgage policy of title insurance (ALTA or the
equivalent)  insuring  the first or second  priority  Lien of a Mortgage (as the
case may be) in favor of the Agent,  in form and  substance  and issued by title
insurers  satisfactory  to the Agent and  containing  no


<PAGE>27

exceptions  to  coverage  other than  matters  satisfactory  to the Agent in its
judgment reasonably exercised.

     "Total  Commitments" shall mean, at any time, the sum of the Commitments at
such time.

     "Trade  Payables"  shall mean  accounts  payable  in  respect of  Inventory
purchases by the Borrower or any Subsidiary.

     "Trademarks" shall mean (a) all trademarks,  trade names,  corporate names,
company names,  business names,  fictitious business names, service names, trade
styles,  service marks, logos and other source or business  identifiers owned by
the Borrower or any  Subsidiary,  and the  goodwill  associated  therewith,  now
existing or hereafter  adopted or acquired,  all  registrations  and  recordings
thereof,  and all  applications in connection  therewith,  whether in the United
States  Patent and  Trademark  Office or in any similar  office or agency of the
United  States,  any  State  thereof  or any  other  country  or  any  political
subdivision thereof, or otherwise and (b) all renewals thereof.

     "Transferee" shall have the meaning set forth in Section 2.17.

     "Type"  when used in respect of any Loan or  Borrowing  shall  refer to the
rate of interest  by  reference  to which  interest on such Loan or on the Loans
comprising such Borrowing is determined.  For purposes hereof, "rate" shall mean
the Adjusted LIBOR Rate and the Alternate Base Rate.

     "UBS" shall mean UBS Mortgage Finance,  Inc. (as the  successor-in-interest
to The Prudential Insurance Company of America) and UBS' successors and assigns.

     "UBS  Collateral"  shall mean the real property  listed on Schedule  1.1(c)
annexed  hereto,  together  with the  improvements,  fixtures and  appurtenances
relating thereto, which is collateral for the Real Estate Financing.

         "UBS Loan Agreement"  shall mean that certain Amended and Restated Loan
Agreement,  dated on or about the Effective Date,  between the Borrower and UBS,
as the same may be amended,  amended and  restated,  supplemented  or  otherwise
modified to the extent permitted by this Agreement.

         "UBS Loan  Documents"  shall mean the UBS Loan  Agreement,  each of the
mortgages  and  deeds of trust  heretofore  delivered  with  respect  to the UBS
Collateral,  as modified as of the Effective  Date,  and any and all  documents,
agreements  and  instruments  related  thereto,  each as  amended,  amended  and
restated,  supplemented  or otherwise  modified to the extent  permitted by this
Agreement.

     "UCC" shall mean the Uniform  Commercial  Code as in effect at the relevant
time in the relevant jurisdiction.

     "Underwriters"  shall mean CIBC  Oppenheimer,  NationsBank,  N.A.,  Goldman
Sachs Credit Partners, L.P. and Lehman Commercial Paper Inc.



<PAGE>28


     "Uniform   Customs"  shall  mean  the  Uniform  Customs  and  Practice  for
Documentary   Credits  (1993  Revision),   International   Chamber  of  Commerce
Publication No. 500, or any successor  publication,  as the same may be amended,
amended and restated, supplemented or otherwise modified from time to time.

     "Unsupported  Trade  Payables"  shall  mean  Trade  Payables  (i) which are
unsecured (whether by way of cash deposits, purchase money security interests or
otherwise),  (ii) the  payment of which is not backed by any  letters of credit,
guarantees or other forms of credit support or  enhancement  and (iii) which are
not claims as to which the obligee is entitled to reclamation rights pursuant to
the UCC or Section 546(c) of the Bankruptcy Code.

     "Unsupported  Trade  Standby  Letter of Credit"  shall have the meaning set
forth in Section 2.5.

     "Unused  Total   Commitment"  shall  mean,  at  any  time,  (i)  the  Total
Commitments less (ii) the sum of (x) the aggregate  outstanding principal amount
of all New Revolving Loans and (y) the aggregate Letter of Credit Outstandings.

     "Vehicles" shall mean all cars,  trucks,  trailers,  construction and earth
moving equipment and other vehicles covered by a certificate of title law of any
state  or  other  jurisdiction  and,  in  any  event,  shall  include,   without
limitation,  the  vehicles  listed on  Schedule  7 to the  Security  and  Pledge
Agreement  and any  Subsidiary  Security  Agreements  and all  tires  and  other
appurtenances to any of the foregoing.

     "Voting Shares" shall mean,  with respect to any Person,  shares of capital
stock of any class or classes (however  designated)  having general voting power
for the election of the board of directors,  managers or trustees of such Person
(irrespective  of whether or not at the time capital stock of any other class or
classes  shall have or might have voting power by reason of the happening of any
contingency).

     "Withdrawal  Liability"  shall have the meaning  specified  under Part I of
Subtitle E of Title IV of ERISA.

     "ZR&G" shall have the meaning set forth in Section 9.5.

     Section 1.2 Terms  Generally.  The  definitions  in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require,  any pronoun  shall  include the  corresponding  masculine,
feminine and neuter  forms.  All  references  herein to  Sections,  Exhibits and
Schedules shall be deemed  references to Sections of, and Exhibits and Schedules
to,  this  Agreement  unless the  context  shall  otherwise  require.  Except as
otherwise  expressly  provided  herein,  all accounting or financial  terms used
herein  shall be construed in  accordance  with GAAP,  as in effect from time to
time; provided,  however,  that for purposes of determining  compliance with any
covenant  set forth in Section 6, such terms shall be  construed  in  accordance
with GAAP as in effect on the date


<PAGE>29

of this Agreement applied on a basis consistent with the application used in the
Borrower's audited financial statements referred to in Section 3.4.

SECTION 2.         AMOUNT AND TERMS OF CREDIT.

     Section 2.1.  Assumption and  Restructuring of Secured  Obligations  (other
than Letters of Credit); Amortization of New Term Loans; Commitment to Lend.

          (a)  Subject  to  the  terms  and  conditions  and  relying  upon  the
representations,  warranties and covenants set forth herein, each of the parties
agrees that, as of the Effective  Date,  the  Pre-Petition  Credit  Agreement is
hereby amended and restated and a portion of the Pre-Petition Term Loans and the
Pre-Petition  Revolving Loans extended by the  Pre-Petition  Lenders pursuant to
the  Pre-Petition  Credit  Agreement  are  hereby  assumed by the  Borrower  and
restructured on the terms and conditions  contained  herein (such portion of the
Pre-Petition   Term  Loans  and   Pre-Petition   Revolving   Credit  Loans,   as
restructured,  being  hereinafter  referred  to as the "New  Term  Loans").  The
principal amount of the  Pre-Petition  Loans  restructured by each  Pre-Petition
Lender (such  Pre-Petition  Lender,  after the Effective Date, being hereinafter
referred to as a "New Term Lender" and, collectively, the "New Term Lenders") as
New Term Loans shall be  determined in  accordance  with the  definition of "New
Term Notes" contained in the Plan of Reorganization  and shall be in such amount
as is set  forth  opposite  its name on  Schedule  1.1(a)  annexed  hereto.  The
Borrower  confirms  and  agrees  that it is truly  and  justly  indebted  to the
Pre-Petition Lenders (which are the New Term Lenders) in the aggregate amount of
the Pre-Petition Loans and the Pre-Petition Letters of Credit,  without defense,
offset  or  counterclaim  of  any  kind  whatsoever.  Pursuant  to the  Plan  of
Reorganization, principal amounts outstanding on the Effective Date with respect
to the portion of the Pre-Petition  Obligations equal to the aggregate principal
amount of the New Term Loans shall be deemed to be principal amounts outstanding
with respect to the New Term Loans, as of the Effective Date.

          (b) The  outstanding  principal  amount of the New Term Loans shall be
payable in annual  installments  of  $3,000,000  on  September  15 of each year,
commencing  September 15, 1998. To the extent not previously  paid, all New Term
Loans shall be due and payable on the Maturity Date.  Each principal  payment on
the New Term Loans  pursuant to this  Section  shall be  accompanied  by accrued
interest  on the  principal  amount paid to but  excluding  the date of payment.
Without  limiting its  obligations  under the first  sentence of this Section or
Section 2.12, the Borrower  unconditionally promises to pay the unpaid principal
amount of the New Term Loans on the Maturity Date.

          (c)  Subject  to  the  terms  and  conditions  and  relying  upon  the
representations,  warranties and covenants set forth herein, each of the parties
agrees  that,  as of the  Effective  Date,  the DIP Credit  Agreement  is hereby
amended and restated and the DIP  Revolving  Credit Loans and the DIP Letters of
Credit are hereby  assumed by the  Borrower  and  restructured  as  provided  in
Section  2.5(b).  The  Borrower  confirms and agrees that it is truly and justly
indebted  to the  DIP  Lenders  (which  are the New  Revolving  Lenders)  in the
aggregate  amount  of  the  DIP  Revolving  Loans  without  defense,  offset  or
counterclaim of any kind whatsoever. Principal amounts outstanding on the


<PAGE>30

Effective  Date with  respect to the DIP  Revolving  Loans shall be deemed to be
principal amounts outstanding with respect to the New Revolving Loans, as of the
Effective Date. (1)

          (d)  Subject  to  the  terms  and  conditions  and  relying  upon  the
representations,  warranties  and covenants  set forth  herein,  each DIP Lender
(such DIP Lender,  after the Effective Date,  hereinafter  referred to as a "New
Revolving  Lender"  and  collectively,   the  "New  Revolving  Lenders")  agrees
severally and not jointly with the other New Revolving Lenders to make revolving
credit loans (each a "New Revolving Loan" and, collectively,  the "New Revolving
Loans" and,  together with the New Term Loans,  the "Loans") to the Borrower and
to participate in Letters of Credit issued by the relevant  Fronting Bank at any
time and from time to time during the period  commencing on the  Effective  Date
and  ending on the  Maturity  Date of the New  Revolving  Loans in an  aggregate
principal  amount not to exceed the Commitment of such Lender.  Without limiting
its obligations under Section 2.12, the Borrower unconditionally promises to pay
the unpaid  principal amount of the New Revolving Loans on the Maturity Date. At
no time shall the sum of the then outstanding  aggregate principal amount of the
New Revolving Loans plus the then aggregate Letter of Credit Outstandings exceed
the Total  Commitments of $150,000,000,  as the same may be reduced from time to
time  pursuant to Sections 2.9 or 2.12,  as the case may be. In addition,  at no
time shall the sum of the then  outstanding  aggregate  principal  amount of New
Revolving  Loans plus the then aggregate  Standby Letter of Credit  Outstandings
exceed an amount equal to the Total Commitments minus the Documentary Reserve.

          (e) Each  Borrowing  of New  Revolving  Loans shall be made by the New
Revolving  Lenders pro rata in  accordance  with their  respective  Commitments;
provided, that the failure of any New Revolving Lender to make any New Revolving
Loan  shall not in itself  relieve  the other  New  Revolving  Lenders  of their
obligations to lend.

          (f)  Subject  to  the  terms  and  conditions  and  relying  upon  the
representations,  warranties  and covenants  set forth herein,  each of the Cash
Management  Banks and the Borrower agree that their  respective  Cash Management
Agreements, as in effect immediately prior to the Effective Date, shall continue
in effect from and after the Effective Date in accordance with their  respective
terms and the Hedging Bank and the Borrower agree that the Hedging Agreement, as
in effect immediately prior to the Effective Date, shall continue in effect from
and after the Effective Date in accordance with its terms.

     Section 2.2. Making of Loans.

          (a) Except as  contemplated  by Section 2.8, Loans shall be either ABR
Loans  or  Eurodollar  Loans  as the  Borrower  may  request  subject  to and in
accordance with this Section; provided, that all Loans made pursuant to the same
Borrowing shall, unless otherwise  specifically provided herein, be Loans of the
same Type.  Each New  Revolving  Lender may  fulfill  its  Commitment  (and with
respect  to the  conversion  of any New Term  Loans,  each New Term  Lender  may
convert such Loans) with respect to any  Eurodollar  Loan or ABR Loan by causing
any Lending Office of such Lender to make (or convert,  as the case may be) such
Loan; provided, that any such use of a Lending


<PAGE>31

Office  shall not affect the  obligation  of the  Borrower to repay such Loan in
accordance with the terms of the applicable Note. Each Lender shall,  subject to
its overall  policy  considerations,  use  reasonable  efforts (but shall not be
obligated)  to select a Lending  Office  which will not result in the payment of
increased costs by the Borrower  pursuant to Section 2.14.  Subject to the other
provisions of this Section and the  provisions  of Section  2.11,  Borrowings of
Loans of more than one Type may be incurred at the same time; provided,  that no
more than five (5)  Borrowings of  Eurodollar  Loans may be  outstanding  at any
time.

          (b) The Borrower  shall give the Agent prior notice of each  Borrowing
hereunder of at least three Business Days for Eurodollar  Loans and one Business
Day for ABR Loans  (except as provided in the last  sentence of this Section) by
delivering a notice of borrowing in  substantially  the form of Exhibit I hereto
(a "Notice of  Borrowing"),  including with respect to the New Term Loans deemed
made on the Effective  Date.  Such Notice of Borrowing  shall be irrevocable and
shall specify the amount of the proposed Borrowing (which shall not be less than
$5,000,000  in the case of  Eurodollar  Loans and  $1,000,000 in the case of ABR
Loans) and the date thereof  (which shall be a Business  Day) and shall  contain
disbursement  instructions.  Such Notice of Borrowing, to be effective,  must be
received  by the Agent not later than  12:00  noon,  New York City time,  on the
third Business Day in the case of Eurodollar Loans and the first Business Day in
the case of ABR Loans,  preceding the date on which such Borrowing is to be made
except  as  provided  in the last  sentence  of this  Section.  Such  Notice  of
Borrowing  shall specify  whether the Borrowing then being  requested is to be a
Borrowing of ABR Loans or Eurodollar Loans and, in the case of Eurodollar Loans,
the length of the applicable  Interest Period.  If no election is made as to the
Type of Loan,  such Notice of Borrowing  shall be deemed a request for Borrowing
of ABR Loans.  The Agent shall promptly notify each Lender of its  proportionate
share of such Borrowing,  the date of such  Borrowing,  the Type of Borrowing or
Loans being  requested and the Interest  Period or Interest  Periods  applicable
thereto,  as  appropriate.  On the  borrowing  date  specified in such Notice of
Borrowing,  each Lender shall make its share of the  Borrowing  available at the
office of the Agent at 425 Lexington Avenue,  New York, New York 10017, no later
than 12:00  noon,  New York City time,  in  immediately  available  funds.  Upon
receipt  of the  funds  made  available  by the  Lenders  to fund any  Borrowing
hereunder,  the Agent shall  disburse such funds in the manner  specified in the
Notice of Borrowing  delivered by the Borrower and shall use reasonable  efforts
to make the funds so received  from the  Lenders  available  to the  Borrower no
later than 2:00 p.m. New York City time (other than as provided in the following
sentence).  With respect to ABR Loans of  $10,000,000 or less, the Lenders shall
make such  Borrowings  available to the Agent for the account of the Borrower by
4:00 p.m.,  New York City time, on the same Business Day that the Borrower gives
notice to the Agent of such Borrowing if the Agent receives such notice from the
Borrower by 12:00 noon, New York City time.

          (c) On the  date of each  New  Revolving  Loan,  the  Agent  shall  be
authorized (but not obligated except pursuant to Section 2.5(h)) to advance, for
the  account  of  each of the  New  Revolving  Lenders,  the  amount  of the New
Revolving  Loan to be made by it in accordance  with its  Commitment  hereunder.
Should the Agent do so, each of the New Revolving  Lenders  agrees  forthwith to
reimburse the Agent in immediately available funds for the amount so advanced on
its


<PAGE>32

behalf by the Agent,  together with interest at the Federal Funds Rate if not so
reimbursed  on the date due from and  including  such date but not including the
date of reimbursement.

          (d)  Any  amounts  received  by the  Agent  in  connection  with  this
Agreement  or the Notes  (other  than  amounts  to which  the Agent is  entitled
pursuant to Sections  2.18,  8.6, 9.5 and 9.6) shall be credited to the relevant
Lenders,   as  promptly  as  practicable  after  collection  by  the  Agent,  in
immediately  available funds either by wire transfer or deposit in that Lender's
correspondent  account  with the Agent,  as such Lender and the Agent shall from
time to time agree.

     Section  2.3.  Notes;  Repayment  of Loans.  The New Term Loans and the New
Revolving  Loans made by each Lender  shall be evidenced by a New Term Note or a
New Revolving Note, as the case may be, duly executed on behalf of the Borrower,
dated the  Effective  Date or the date of the  effectiveness  of the  applicable
Assignment  and  Acceptance,  as the case may be,  substantially  in the form of
Exhibits A-1 or A-2 hereto, respectively, payable to the order of such Lender in
an aggregate  principal  amount equal to the relevant New Term Lender's New Term
Loans,  in the case of its New Term Note, and in an aggregate  principal  amount
equal to the relevant New Revolving Lender's Commitment,  in the case of its New
Revolving  Note. The  outstanding  principal  balance of the New Term Loans,  as
evidenced  by the New Term Notes,  shall be payable as provided in Sections  2.1
and 2.12 and on the  Maturity  Date.  New  Revolving  Loans  may be  repaid  and
reborrowed in accordance with the provisions of this Agreement;  provided,  that
the  outstanding  principal  balance  of all  of the  New  Revolving  Loans,  as
evidenced by the New  Revolving  Notes,  shall be payable on the Maturity  Date.
Each Note shall bear interest from the date thereof on the outstanding principal
balance  thereof as set forth in Section 2.4. Each Lender  shall,  and is hereby
authorized  by the  Borrower to,  endorse on the schedule  attached to each Note
delivered to such Lender (or on a continuation of such schedule attached to such
Note and made a part thereof),  or otherwise to record in such Lender's internal
records,  an  appropriate  notation  evidencing the date and amount of each Loan
from such  Lender,  each payment and  prepayment  of principal of any such Loan,
each payment of interest on any such Loan and the other information provided for
on such  schedule;  provided,  that the  failure  of any  Lender  to make such a
notation or any error therein shall not affect the obligation of the Borrower to
repay the Loans made by such Lender and such other  amounts in  accordance  with
the terms of this Agreement and the applicable Notes.

     Section 2.4. Interest on Loans.

          (a) Subject to the provisions of Section 2.8, each ABR Loan shall bear
interest (computed on the basis of the actual number of days elapsed over a year
of 360 days) at a rate per annum equal to the Alternate Base Rate plus 1-1/2%.

          (b) Subject to the  provisions  of Section 2.8, each  Eurodollar  Loan
shall bear interest  (computed on the basis of the actual number of days elapsed
over a year of 360 days) at a rate per annum equal,  during each Interest Period
applicable  thereto,  to the  Adjusted  LIBOR Rate for such  Interest  Period in
effect for such Borrowing plus 2-1/2%.  


<PAGE>33


          (c) Accrued  interest on all Loans shall be payable in arrears on each
Interest Payment Date applicable  thereto, on the Maturity Date for the affected
Loans,  after the  Maturity  Date for the  affected  Loans on  demand,  upon the
Borrower's  optional  termination of the Total  Commitments and (with respect to
Eurodollar  Loans)  upon any  repayment  or  prepayment  thereof  (on the amount
prepaid).

     Section 2.5.  Letters of Credit.

          (a)  Subject  to  the  terms  and  conditions  and  relying  upon  the
representations,  warranties and covenants set forth herein, each of the undrawn
DIP Documentary  Letters of Credit is hereby deemed to be issued as and shall be
a Documentary  Letter of Credit as of the Effective Date in the principal amount
of such Documentary  Letter of Credit  immediately  prior to the Effective Date.
Upon the terms and subject to the conditions  herein set forth, the Borrower may
request the  Documentary  Letter of Credit  Fronting  Bank, at any time and from
time to time after the Effective  Date hereof and prior to the Maturity Date for
the New  Revolving  Loans,  to issue for Approved  Purposes,  and subject to the
terms and conditions  contained herein,  such Fronting Bank shall issue, for the
account of the Borrower  one or more  Documentary  Letters of Credit;  provided,
that no Documentary  Letter of Credit shall be issued if, after giving effect to
such issuance,  the aggregate  Documentary  Letter of Credit  Outstandings would
exceed the lesser of $15,000,000 (or, if less, the Total  Commitments as then in
effect)  or the  Documentary  Reserve  and  provided  further,  that  unless the
Documentary  Letter of Credit  Fronting Bank shall have received  written notice
from the Agent at least one Business Day prior to the date with respect to which
the Borrower has requested  issuance of a Documentary  Letter of Credit that not
all of the  conditions  to issuance of  Documentary  Letters of Credit have been
satisfied,  the  Documentary  Letter of Credit Fronting Bank may assume that all
such  conditions  have been  satisfied and may issue the  requested  Documentary
Letter of Credit for the account of the Borrower. The Borrower hereby designates
$10,000,000 as the initial  reserve for the issuance of  Documentary  Letters of
Credit (the  "Documentary  Reserve").  The Borrower may increase or decrease the
amount of the  Documentary  Reserve  in an  amount  equal to  $1,000,000  or any
integral  multiple  thereof upon ten (10) Business Days prior written  notice to
the Agent and the Documentary Letter of Credit Fronting Bank; provided,  that in
no event shall the  Documentary  Reserve exceed  $15,000,000 or be less than the
Documentary Letter of Credit Outstandings and provided further,  that (i) if any
requested  increase in the Documentary  Reserve would cause the then outstanding
aggregate  principal  amount of the New  Revolving  Loans to be in excess of the
amount  permitted  pursuant to the last  sentence of Section  2.1(d) or (ii) any
requested  decrease  would  cause the  Documentary  Reserve  to be less than the
Documentary  Letter of Credit  Outstandings,  then the Agent  shall  notify  the
Documentary  Letter of Credit Bank of either  such  result and such  increase or
decrease (as the case may be) shall not be effective until the then  outstanding
aggregate  principal  amount of the New Revolving  Loans,  or of the Documentary
Letter of Credit Outstandings (as the case may be) has been repaid to the extent
necessary and the  Documentary  Letter of Credit Fronting Bank has been notified
in writing by the Agent that such  increase or decrease  (as the case may be) is
effective. Each Documentary Letter of Credit shall (i) be denominated in Dollars
or in a foreign currency acceptable to the Documentary Letter of Credit Fronting
Bank and (ii)  expire  no later  than the  earlier  of the date that is 180 days
after the date of issuance  thereof and the date that is fourteen  days prior to
the


<PAGE>34

scheduled  Maturity Date for the New Revolving  Loans. The Borrower shall at all
times  maintain a minimum  balance  of at least  $25,000 in the Letter of Credit
Account of the  Documentary  Letter of Credit  Fronting  Bank,  and the Borrower
hereby  authorizes the Documentary  Letter of Credit Fronting Bank to debit such
Letter of Credit Account to reimburse  itself with respect to drafts drawn under
Documentary  Letters of Credit and unpaid fees,  costs and expenses  incurred by
the  Documentary  Letter  of  Credit  Fronting  Bank  in  connection   therewith
(whereupon the Borrower shall forthwith  deposit such  additional  funds in such
Letter of Credit Account,  if any, as shall be necessary to achieve such minimum
balance).

          (b)  (i) Subject to the terms and  conditions and relying upon the
representations,  warranties and covenants set forth herein, each of the undrawn
DIP  Standby  Letters  of Credit is  hereby  deemed to be issued  and shall be a
Standby  Letter of Credit as of the Effective  Date in the  principal  amount of
such Letter of Credit  immediately prior to the Effective Date (and any increase
in the principal  amount  thereof  pursuant to the provisions of such Letters of
Credit as in effect on the Effective Date shall also  constitute  Standby Letter
of Credit  Outstandings  for  purposes  of this  Agreement).  Upon the terms and
subject to the conditions herein set forth, the Borrower may request the Standby
Letter of Credit Fronting Bank, at any time and from time to time after the date
hereof and prior to the Maturity Date for the New Revolving Loans, to issue, and
subject to the terms and conditions  contained herein,  such Fronting Bank shall
issue,  for the account of the Borrower  one or more Standby  Letters of Credit;
provided,  that no  Standby  Letter  of Credit  shall be issued if after  giving
effect to such  issuance the  aggregate  Standby  Letter of Credit  Outstandings
would exceed  $25,000,000 (or, if less, the Total Commitments as then in effect)
and provided  further,  that no Standby  Letter of Credit shall be issued if the
Standby Letter of Credit Fronting Bank shall have received notice from the Agent
or the Majority  Revolving Lenders that the conditions to such issuance have not
been met;

               (ii) Notwithstanding the foregoing,  no Standby Letters of Credit
may be issued to support  Trade  Payables  except as follows:  (x) not more than
$5,000,000  of  Standby  Letters  of  Credit  in the  aggregate  at any one time
outstanding may be issued to individuals or entities supplying  Inventory to the
Borrower  or any  Subsidiary  to  support  or  otherwise  assure  their  payment
obligations  in respect of Trade  Payables owing to such suppliers (and all such
Standby Letters of Credit shall require the beneficiary thereof to certify, as a
condition to drawing under such Standby Letter of Credit,  that such beneficiary
is drawing  thereunder  in  respect of Trade  Payables  of the  Borrower  or any
Subsidiary  which are past due) and (y) a single  Standby Letter of Credit in an
amount not to exceed  $10,000,000  may be issued to an agent or trustee  for the
benefit  of the  holders  of the  Borrower's  Unsupported  Trade  Payables  (the
"Unsupported Trade Standby Letter of Credit");

               (iii) If issued,  the Unsupported  Trade Standby Letter of Credit
shall (x)  expire no later  than the first  anniversary  of the  Effective  Date
(unless prior to such first anniversary (A) the Borrower  commences a Chapter 11
Case under the Bankruptcy Code, in which case the expiry date of the Unsupported
Trade  Standby  Letter of Credit  shall be the  earliest to occur of (1) 60 days
after the  conversion  of such Chapter 11 Case to a Chapter 7 Case,  (2) 60 days
after the  confirmation  of a plan of  reorganization  in such  Chapter  11 Case
providing for the sale of all or substantially all of


<PAGE>35

the assets of the  Borrower  and (3) the date of the  consummation  of any other
plan of reorganization in such Chapter 11 Case) or (B) the board of directors of
the  Borrower  has  adopted by formal  resolution  a plan of  liquidation  which
provides for the sale of all or substantially all of the assets of the Borrower,
in which case the  Unsupported  Trade  Standby  Letter of Credit shall expire 60
days  after  the date the  board of  directors  of the  Borrower  adopts  such a
resolution;

               (iv) The  Unsupported  Trade Standby  Letter of Credit shall also
require  that  the  beneficiary  thereof  certify,  as a  condition  to  drawing
thereunder,  that (x) the  Borrower  has  commenced or is subject to a Chapter 7
Case under the Bankruptcy Code (or the Borrower has commenced or is subject to a
Chapter 11 Case under the Bankruptcy  Code which has been converted to a Chapter
7 Case) or a plan of  reorganization  in a Chapter 11 Case of the  Borrower  has
been confirmed  which provides for the sale of all or  substantially  all of the
assets of the Borrower; or the board of directors of the Borrower has adopted by
formal  resolution a plan of  liquidation  which provides for the sale of all or
substantially all of the assets of the Borrower;  or all or substantially all of
the assets of the Borrower (or the proceeds  thereof) have been  transferred  to
some  or all  of the  Secured  Parties  pursuant  to  judicial  or  non-judicial
foreclosure  proceedings,  a deed or deed in lieu of foreclosure or execution or
levy and (y) the amount of such  drawing  does not exceed 25% of the  Borrower's
Unsupported Trade Payables on the date of such drawing; and

               (v) Except as set forth in clause (iii) above with respect to the
Unsupported Trade Standby Letters of Credit, each Standby Letter of Credit shall
(x) be  denominated  in Dollars  and (y) expire no later than the earlier of the
date  which is one year after the date of  issuance  thereof  and the  scheduled
Maturity Date for the New Revolving Loans (provided,  that such Letter of Credit
(other than the Unsupported  Trade Standby Letter of Credit) may provide that it
may be extended with the consent of the Standby  Letter of Credit  Fronting Bank
for a period  of no more  than one year (but in no event  beyond  the  scheduled
Maturity Date for the New Revolving Loans)).

          (c) Each Letter of Credit shall be subject to (i) the Uniform  Customs
and (ii) as to matters  not  addressed  by the Uniform  Customs,  the law of the
State of New York (or, if a Fronting Bank so elects, the law of the jurisdiction
in which the office from which it issues its Letters of Credit is located).

          (d) No  Fronting  Bank  shall at any time be  obligated  to issue  any
Letter of Credit  hereunder if such issuance  would conflict with, or cause such
Fronting Bank or any New Revolving  Lender to exceed any limits  imposed by, any
applicable  Requirement  of Law.

          (e) The Borrower  shall pay to each Fronting Bank, in addition to such
other fees and charges as are specifically  provided for in Section 2.20 hereof,
such fees and charges in  connection  with the  issuance and  processing  of the
Letters of Credit  issued by such Fronting  Bank as are  customarily  imposed by
such  Fronting  Bank  from  time to time in  connection  with  letter  of credit
transactions  in the  amounts,  at the  times  and in such  manner  as  shall be
specified by such  Fronting  Bank in  accordance  with its  judgment  reasonably
exercised.


<PAGE>36


          (f) Drafts  drawn under each Letter of Credit shall be  reimbursed  by
the Borrower in Dollars (i) on the same day if the relevant  Fronting Bank shall
have notified the Borrower  prior to 11:00 a.m. (New York City time) and (ii) in
all other cases,  not later than the first  Business Day  following  the date of
drawing.  Drafts drawn under each Letter of Credit shall bear  interest from the
date of drawing  until the first  Business Day  following  the date of draw at a
rate per annum equal to the Alternate Base Rate plus 1-1/2% and thereafter until
reimbursed  in full at a rate per annum  equal to the  Alternate  Base Rate plus
3-1/2% (computed on the basis of the actual number of days elapsed over any year
of 360 days).  The  Borrower  shall effect such  reimbursement  (x) if such draw
occurs prior to the Maturity  Date for the New  Revolving  Loans (or the earlier
date of  termination of the Total  Commitments),  in cash or through a Borrowing
(or deemed  Borrowing) of New Revolving  Loans without  regard to whether or not
the Borrower is able to satisfy the  conditions  precedent  set forth in Section
4.2  unless  the  making  of  such  Loans  is  stayed  by a court  of  competent
jurisdiction or otherwise not permitted by, or the obligation of the Borrower to
repay the same is not enforceable under, applicable law (provided,  that if such
drawing  relates to a  Documentary  Letter of Credit,  such a  Borrowing  of New
Revolving  Loans  shall only be made if the  Documentary  Letter of Credit  Bank
notifies the Agent that it has not otherwise been  reimbursed by the Borrower in
respect of such drawing) or (y) if such drawing  occurs on or after the Maturity
Date for the New Revolving  Loans, in cash. Each New Revolving  Lender agrees to
make the Loans described in clause (x) of the preceding sentence notwithstanding
a failure to satisfy the applicable lending conditions thereto or the provisions
of Section 2.1 or the  occurrence  of the  Maturity  Date for the New  Revolving
Loans.

          (g)  Immediately  upon the  issuance  of any  Letter  of Credit by any
Fronting  Bank,  such  Fronting  Bank  shall be  deemed to have sold to each New
Revolving Lender other than such Fronting Bank and each such other New Revolving
Lender shall be deemed  unconditionally  and  irrevocably to have purchased from
such Fronting Bank,  without  recourse or warranty,  an undivided  Participating
Interest, to the extent of such Lender's Commitment  Percentage,  in such Letter
of Credit,  each drawing  thereunder  and the  obligations of the Borrower under
this Agreement with respect thereto. Upon any change in the Commitments pursuant
to Section  9.3, it is hereby  agreed that with  respect to all Letter of Credit
Outstandings,  there  shall be an  automatic  adjustment  to the  participations
hereby  created to reflect the new  Commitment  Percentages of the assigning and
assignee New Revolving  Lenders.  Any action taken or omitted by a Fronting Bank
under or in  connection  with a Letter of  Credit,  if taken or  omitted  in the
absence of gross  negligence  or willful  misconduct,  shall not create for such
Fronting Bank any resulting liability to any other New Revolving Lender.

          (h) In the event that a  Fronting  Bank  makes any  payment  under any
Letter of Credit and the Borrower shall not have  reimbursed such amount in full
to such  Fronting  Bank  pursuant  to this  Section,  such  Fronting  Bank shall
promptly  notify the Agent (and,  if the drawing  resulting  in such payment was
made after the stated  expiry date of such Letter of Credit,  shall certify that
such  Fronting  Bank  obtained  the consent of the  Borrower  to such  payment),
whereupon  the Agent shall  promptly  notify each New  Revolving  Lender of such
failure. In such case, each New Revolving Lender is authorized (and the Borrower
does hereby so authorize  each New Revolving  Lender) to and shall promptly make
an ABR Loan to the  Borrower by making the  proceeds  thereof  available  to the
Agent in the amount of such New Revolving Lender's Commitment Percentage of such
unreimbursed  amount


<PAGE>37

without  regard to whether or not the Borrower is able to satisfy the conditions
precedent  set forth in Section 4.2 unless the making of such Loans is stayed by
a court  of  competent  jurisdiction  or  otherwise  not  permitted  by,  or the
obligation  of  the  Borrower  to  repay  the  same  is not  enforceable  under,
applicable  law. If such Fronting  Bank so notifies the Agent,  and the Agent so
notifies the New Revolving Lenders,  prior to 11:00 a.m. (New York City time) on
any Business Day, each New  Revolving  Lender shall make  available to the Agent
the amounts required hereby,  and the Agent shall make available to the relevant
Fronting Bank the total  unreimbursed  amount, in each case on such Business Day
and in same day funds.  Notwithstanding  the failure of any New Revolving Lender
to make available to the Agent such New Revolving Lender's Commitment Percentage
of the total Loan to be made to the Borrower,  the Agent shall promptly remit to
the Fronting  Bank the  proceeds of such Loan in the amount of the  unreimbursed
draw, in each case in Dollars and in the same day funds.

     In the event that the making of any New Revolving Loan is stayed by a court
of  competent  jurisdiction,  or the  Majority  Revolving  Lenders and the Agent
reasonably  determine  that the making of a New Revolving  Loan is not permitted
by, or the  obligation  of the  Borrower  to repay  the same is not  enforceable
under,   applicable   law,  each  New  Revolving   Lender  shall   promptly  and
unconditionally pay to the Agent for the account of the Fronting Bank the amount
of such New Revolving Lender's Commitment Percentage of the unreimbursed payment
and the Agent shall  promptly and  unconditionally  pay to the Fronting Bank the
amount of such unreimbursed  payment in each case in Dollars and in the same day
funds.  If such Fronting  Bank so notifies the Agent,  and the Agent so notifies
the New  Revolving  Lenders,  prior to 11:00  a.m.  (New York City  time) on any
Business Day, each New Revolving  Lender shall make available to the Agent,  and
the  Agent  shall  make  available  to the  relevant  Fronting  Bank  the  total
unreimbursed amount in each case on such Business Day and in same day funds.

     If and to the  extent  such  Lender  shall not have so made its  Commitment
Percentage of the amount of any New Revolving  Loan or payment  available to the
Agent, or the Agent shall not have made the amount of such payment  available to
the relevant  Fronting  Bank,  such New  Revolving  Lender  agrees to pay to the
Agent,  and the Agent agrees to pay to such Fronting  Bank,  forthwith on demand
such amount,  together with interest thereon,  for each day from such date until
the date such amount is paid to the party entitled  thereto at the Federal Funds
Rate. The failure of any New Revolving Lender to make available to the Agent its
Commitment  Percentage of any New Revolving Loan required to be made pursuant to
this  Section or any  payment  under any Letter of Credit  shall not relieve any
other New Revolving Lender of its obligation  hereunder to make available to the
Agent its Commitment  Percentage of such New Revolving Loan or payment under any
Letter of Credit, nor shall it relieve the Agent of its obligation  hereunder to
make the amount of such payment available to the relevant Fronting Bank, in each
case on the date required, as specified above, but no New Revolving Lender shall
be  responsible  for the  failure  of any  other  New  Revolving  Lender to make
available to the Agent such other New Revolving Lender's  Commitment  Percentage
of any such  New  Revolving  Loan or such  payment.  Whenever  a  Fronting  Bank
receives a payment of a reimbursement obligation as to which it has received any
payments from the New Revolving Lenders pursuant to this Section,  such Fronting
Bank shall pay to each Lender which has paid its Commitment  Percentage


<PAGE>38

thereof, in Dollars and in same day funds, an amount equal to such New Revolving
Lender's Commitment Percentage thereof.

          (i) First Bank in its  capacity  as the  Documentary  Letter of Credit
Fronting  Bank,  may terminate its  obligation to issue  Documentary  Letters of
Credit upon sixty days' written notice to the Agent of such termination. If CIBC
resigns as Agent,  First Bank shall be deemed to have  terminated its obligation
to issue  Documentary  Letters of Credit,  effective as of the effective date of
CIBC's  resignation as Agent,  unless it otherwise notifies the Borrower and the
successor  Agent in writing of its decision to remain as  Documentary  Letter of
Credit Fronting Bank.

     Section 2.6.  Procedure for Issuance of Letters of Credit. (a) The Borrower
may from time to time request  that a Fronting  Bank issue a Letter of Credit by
delivering  to such  Fronting  Bank,  at its address for notices  referred to in
Section 9.1, an  Application  therefor,  completed to the  satisfaction  of such
Fronting  Bank (which  completion  may occur by means of any  electronic  system
operated by such  Fronting  Bank),  and such other  certificates,  documents and
other papers and information as such Fronting Bank may request. Each Application
for a Documentary Letter of Credit shall specify the documents, certificates and
any other items  required to be presented  as a condition  for  acceptance  of a
draft drawn on, or other payment  request made with respect to, the  Documentary
Letter of Credit  Fronting Bank pursuant to such  Documentary  Letter of Credit.
Upon receipt of any  Application,  the relevant  Fronting Bank will process such
Application  and the  certificates,  documents and other papers and  information
delivered  to it in  connection  therewith  in  accordance  with  its  customary
procedures,  subject to the terms and conditions hereof,  and shall,  subject to
the terms and conditions  hereof,  promptly issue the Letter of Credit requested
thereby (but in no event shall a Fronting  Bank (unless it otherwise  agrees) be
required to issue any Letter of Credit  earlier than two Domestic  Business Days
after its receipt of the Application  therefor and all such other  certificates,
documents  and other  papers and  information  relating  thereto) by issuing the
original of such Letter of Credit to the beneficiary thereof or as otherwise may
be agreed by such  Fronting  Bank and the  Borrower.  Such  Fronting  Bank shall
furnish a copy of such Letter of Credit to the Borrower  promptly  following the
issuance thereof.  Each Fronting Bank will periodically (but in any event on the
last Business Day of each month) report to the Agent regarding  Letter of Credit
issuance activity, and the Agent will periodically (but in any event on the last
Business  Day of each month)  report to the Lenders  regarding  Letter of Credit
issuance  activity.  Unless the Documentary Letter of Credit Fronting Bank shall
have received  written  notice from the Agent at least one Business Day prior to
the date  with  respect  to which  the  Borrower  has  requested  issuance  of a
Documentary  Letter of Credit  that not all of the  conditions  to  issuance  of
Documentary  Letters of Credit have been satisfied,  the  Documentary  Letter of
Credit Fronting Bank may assume that all such conditions have been satisfied.

          (b) To the extent that any provision of any Application related to any
Letter of Credit is  inconsistent  with the  provisions of this  Agreement,  the
provisions of this Agreement shall control.

     Section  2.7.  Nature  of  Letter  of  Credit  Obligations  Absolute.   The
obligations  of the  Borrower  to  reimburse  the  Fronting  Banks  and  the New
Revolving  Lenders  for  drawings  made  under


<PAGE>39

any Letter of Credit shall be  unconditional  and  irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances,
including, without limitation: (i) any lack of validity or enforceability of any
Letter of Credit;  (ii) the  existence  of any claim,  setoff,  defense or other
right  which the  Borrower  may have at any time  against a  beneficiary  of any
Letter  of  Credit  or  against  the  relevant  Fronting  Bank or any of the New
Revolving Lenders,  whether in connection with this Agreement,  the transactions
contemplated herein or any unrelated transaction;  (iii) payment by the relevant
Fronting Bank against any draft, demand, certificate or other document presented
under any Letter of Credit  which  proves to be forged,  fraudulent,  invalid or
insufficient in any respect or any statement  therein being untrue or inaccurate
in any  respect;  (iv) payment by the  relevant  Fronting  Bank of any Letter of
Credit against  presentation of a demand, draft or certificate or other document
which  does not  comply  with the terms of such  Letter  of  Credit  (including,
without  limitation,  payment by the Fronting Bank in accordance  with its usual
practices and  procedures,  subsequent to the expiry date of a Letter of Credit,
as long as the Fronting  Bank has  obtained the consent of the Borrower  thereto
and has not been notified in writing by the Agent or a New  Revolving  Lender of
the occurrence of the Maturity  Date);  (v) any other  circumstance or happening
whatsoever,  which is similar to any of the foregoing; or (vi) the fact that any
Event of Default shall have occurred and be continuing (it being understood that
any such payment by the Borrower  shall be without  prejudice  to, and shall not
constitute  a waiver of, any rights  the  Borrower  might have or might  acquire
against any party as a result of the payment by the  relevant  Fronting  Bank of
any draft or the reimbursement by the Borrower thereof).

     Section 2.8.  (Default  Interest.  (a) If the Borrower shall default in the
payment of the  principal  of or  interest  on any Loan or in the payment of any
other  amount  becoming  due  hereunder  (including,   without  limitation,  the
reimbursement  pursuant  to Section  2.5(f) of any draft drawn under a Letter of
Credit),  whether at stated  maturity,  by  acceleration or otherwise or, if any
such amount shall be  outstanding  at the time of the occurrence of any Event of
Default specified in Section 7.1(e) or (f), the Borrower shall pay interest,  to
the extent  permitted by law, on such defaulted amount up to (but not including)
the date of actual  payment  (after as well as  before  judgment)  at a rate per
annum (computed on the basis of the actual number of days elapsed over a year of
360 days) equal to (x) in the case of Borrowings consisting of Eurodollar Loans,
the Adjusted  LIBOR Rate in effect for such Borrowing plus 4-1/2% and (y) in the
case of ABR Loans,  Letter of Credit  Outstandings  and all other  amounts,  the
Alternate Base Rate plus 3-1/2%. All such interest shall be payable on demand.

          (b)  Notwithstanding  anything herein or in the Notes to the contrary,
if at any time the applicable  interest rate, together with all fees and charges
which are treated as interest  under  applicable law  (collectively,  the "Other
Amounts"),  as  provided  for  herein  or in  any  other  document  executed  in
connection herewith,  or otherwise contracted for, charged,  received,  taken or
reserved  by any Lender,  shall  exceed the  maximum  lawful rate (the  "Maximum
Rate") which may be contracted for, charged, taken, received or reserved by such
Lender in accordance with applicable law, the rate of interest payable under the
Note(s) held by such Lender,  together  with all Other  Amounts  payable to such
Lender, shall be limited to the Maximum Rate.



<PAGE>40


     Section 2.9. Optional Termination or Reduction of Commitment. Upon at least
two Business  Days' prior written  notice to the Agent,  the Borrower may at any
time in whole  permanently  terminate,  or from time to time in part permanently
reduce,  the Total  Commitments  in an amount  equal to or less than the  Unused
Total Commitment. Each such reduction of the Total Commitments,  shall be in the
principal amount of $5,000,000 or any integral multiple thereof.  Simultaneously
with each reduction or termination of the Total Commitments,  the Borrower shall
pay to the Agent for the account of each New Revolving Lender the Commitment Fee
accrued on the amount of the respective  Commitment of such New Revolving Lender
so  terminated or reduced  through the date thereof.  Any reduction of the Total
Commitments  pursuant  to this  Section  shall be applied pro rata to reduce the
Commitment of each New Revolving Lender. If, at any time, the Borrower elects to
reduce the Total  Commitments  to an amount less than the  Documentary  Reserve,
such  reduction  shall not take effect  until the Agent shall have  notified the
Documentary  Letter of Credit  Fronting Bank thereof  (whereupon the Documentary
Reserve shall be reduced by the amount  necessary so that it does not exceed the
Total Commitments as so reduced).

     Section  2.10.  Alternate  Rate  of  Interest.  In the  event,  and on each
occasion,  that on or  prior  to the  first  day of any  Interest  Period  for a
Eurodollar Loan, the Agent shall have determined (which  determination  shall be
conclusive and binding upon the Borrower  absent manifest error) that reasonable
means do not exist for  ascertaining  the  applicable  Adjusted  LIBOR Rate, the
Agent shall,  as soon as  practicable  thereafter,  give written or  telegraphic
notice of such determination to the Borrower and the Lenders, and any request by
the  Borrower  for a Borrowing  of  Eurodollar  Loans  (including  pursuant to a
refinancing  with  Eurodollar  Loans)  pursuant  to Section 2.2 or 2.11 shall be
deemed a request for a Borrowing of ABR Loans. After such notice shall have been
given and until the  circumstances  giving rise to such notice no longer  exist,
each request for a Borrowing of Eurodollar Loans shall be deemed to be a request
for a Borrowing of ABR Loans.

     Section 2.11.  Refinancing of Loans.  The Borrower shall have the right, at
any  time,  on three  Business  Days  prior  irrevocable  notice  to the  Agent,
substantially  in the form of Exhibit K hereto (which  notice,  to be effective,
must be completed and received by the Agent not later than 12:00 noon,  New York
City time, on the third Business Day preceding the date of any refinancing), (x)
to refinance  (without the satisfaction of the conditions set forth in Section 4
as a condition to such  refinancing) any outstanding  Borrowing or Borrowings of
Loans of one Type (or a portion  thereof) with a Borrowing of Loans of the other
Type or (y) to continue an  outstanding  Borrowing  of  Eurodollar  Loans for an
additional Interest Period, subject to the following:

          (a) as a condition  to the  refinancing  of ABR Loans with  Eurodollar
Loans and to the  continuation  of Eurodollar  Loans for an additional  Interest
Period,  no Default or Event of Default shall have occurred and be continuing at
the time of such refinancing;

          (b) if less than a full Borrowing of Loans shall be  refinanced,  such
refinancing shall be made pro rata among the relevant Lenders in accordance with
the respective  principal amounts of the Loans comprising such Borrowing held by
such Lenders immediately prior to such refinancing;


<PAGE>41


          (c) the aggregate  principal amount of Loans being refinanced shall be
at least  $1,000,000;  provided,  that no partial  refinancing of a Borrowing of
Eurodollar  Loans shall result in the  Eurodollar  Loans  remaining  outstanding
pursuant to such  Borrowing  being less than  $5,000,000 in aggregate  principal
amount;

          (d) each relevant Lender shall effect each refinancing by applying the
proceeds of its new Eurodollar Loan or ABR Loan, as the case may be, to its Loan
being  refinanced;

          (e) the  Interest  Period with  respect to a Borrowing  of  Eurodollar
Loans  effected by a  refinancing  or in respect to the  Borrowing of Eurodollar
Loans  being  continued  as  Eurodollar  Loans  shall  commence  on the  date of
refinancing or the expiration of the current Interest Period  applicable to such
continuing  Borrowing,  as the case may be; and

          (f) a Borrowing of Eurodollar Loans may be refinanced only on the last
day of an Interest  Period  applicable  thereto.

In the event that the Borrower  shall not give notice to refinance any Borrowing
of Eurodollar Loans, or to continue such Borrowing as Eurodollar Loans, or shall
not be entitled to refinance or continue such Borrowing as Eurodollar  Loans, in
each case as provided above,  such Borrowing shall  automatically  be refinanced
with a Borrowing of ABR Loans at the  expiration  of the  then-current  Interest
Period.  The Agent shall,  after it receives notice from the Borrower,  promptly
give each affected  Lender notice of any  refinancing,  in whole or part, of any
Loan made by such Lender.

     Section 2.12.  Commitment  Termination;  Mandatory  Prepayments;  Mandatory
Commitment Reduction; Cash Collateral.

          (a) Upon the Maturity Date, the Total  Commitments shall be terminated
in full and the Borrower shall pay the New Revolving Loans in full.

          (b) Unless otherwise provided herein,  upon receipt by the Borrower of
any Net Cash Proceeds from the sale,  lease or other  disposition  of Designated
Collateral  (including,  without  limitation,  any  payments of principal on any
Pledged Notes (as defined in the Security and Pledge  Agreement))  or any of its
other assets  permitted  under Section 6.3 (other than (x) the sale of Inventory
in the ordinary  course of business,  (y) the sale or lease of assets subject to
the Lien  granted to UBS  pursuant  to the  documentation  relating  to the Real
Estate  Financing or to the Liens granted to the Synthetic Lease Banks under the
Synthetic  Lease Loan Documents  solely to the extent that the Net Cash Proceeds
thereof are applied to repay the Real Estate  Financing or the  Synthetic  Lease
Obligations,  as the case may be and (z) transfers or sales of accounts pursuant
to any customer sales charge program of the type described in Section 5.9), then
100% of such Net Cash Proceeds  shall be  immediately  paid to the Agent for the
account of the Lenders,  and applied as provided in Section  2.12(g);  provided,
that in the case of any fiscal year, the provisions of this subsection (b) shall
be  applicable  to the  Net  Cash  Proceeds  of  assets  other  than  Designated
Collateral only if and to the extent that the aggregate  amount of such Net Cash
Proceeds received in such fiscal year exceeds $1,000,000.



<PAGE>42

          (c) The Borrower shall, from time to time until payment in full of the
Loans  and the  termination  of this  Agreement,  within 10 days  following  the
receipt  by the  Borrower  (or by the  Agent as loss  payee) of any  payment  of
proceeds of any insurance (other than business interruption  insurance) required
to be maintained  pursuant to this  Agreement on account of each separate  loss,
damage  or  injury  in excess of  $1,000,000  to any  tangible  property  of the
Borrower or any of its Subsidiaries (unless no Default or Event of Default shall
have occurred and be continuing and such proceeds (or any portion thereof) shall
have been expended or irrevocably committed by the Borrower to repair or replace
such property  within 24 months of such loss,  damage or injury and the Borrower
shall have  furnished to the Agent  evidence  satisfactory  to the Agent of such
expenditure  or  commitment  and shall  have  certified  to the Agent  that such
proceeds (or such proceeds  together with other funds available to the Borrower)
are sufficient to repair or replace such property, pending which the Agent shall
hold such  proceeds),  apply or, to the extent the Agent is loss payee under any
insurance policy, irrevocably direct the Agent to apply, an amount equal to 100%
(or such lesser  percentage  which  represents that portion of such proceeds not
expended  or  committed  pursuant  to the  immediately  preceding  parenthetical
phrase) of such  insurance  proceeds as provided in Section  2.12(g);  provided,
that if an Event of Default shall have occurred and be continuing,  all proceeds
of insurance  required to be maintained  pursuant to this Agreement  which would
otherwise  be  payable  to the  Borrower  shall be paid to the Agent and held or
applied  pursuant  to  Section  7.2;  provided,  however,  that with  respect to
tangible  property  subject to any Lien permitted under this Agreement,  no such
prepayment or reduction  shall be required to the extent that this Section would
require an application of insurance proceeds that would violate or breach any of
the  provisions of the  instruments  or documents  under which such Lien arises.


          (d) If the  Borrower  has  Excess  Cash  Flow  for  any  fiscal  year,
commencing  with the fiscal year ending on or about  November 30, 1998,  then on
the  earlier  of the date of  delivery  by the  Borrower  to the  Lenders of the
financial  statements  required  to be  delivered  pursuant  to  Section  5.1(a)
covering  such  fiscal year and 90 days after the end of such fiscal year of the
Borrower, 65% of such Excess Cash Flow shall be paid to the Agent and applied in
accordance  with  Section  2.12(g).  Concurrently  with the  making of each such
prepayment,  the Borrower shall deliver to the Agent a certificate substantially
in the form of  Exhibit  H (an  "Excess  Cash  Flow  Certificate")  of the chief
financial  officer  of the  Borrower  setting  forth in  reasonable  detail  the
calculation of Excess Cash Flow for the fiscal year as to which such  prepayment
was computed.  The remaining 35% of such Excess Cash Flow may be retained by the
Borrower.

          (e) If  the  Borrower  incurs  any  Permitted  Refinancing  Debt,  the
Borrower  shall,  not later than the second  Business  Day after the  incurrence
thereof, pay to the Agent an amount equal to the excess, if any, of the Net Cash
Proceeds of such  Permitted  Refinancing  Debt over the aggregate  amount of the
Debt so refinanced,  which excess Net Cash Proceeds shall be applied as provided
in Section 2.12(g).

          (f) If the Borrower shall  undertake any sale of equity  securities of
the  Borrower,  not later  than the  second  Business  Day after  receipt of the
proceeds of such sale, 65% of the Net Cash Proceeds thereof shall be paid to the
Agent for the account of the Lenders and applied as provided in


<PAGE>43

Section 2.12(g).  Concurrently with the making of such prepayment,  the Borrower
shall  deliver  to the  Agent  a  statement  detailing  the  calculation  of the
prepayment  due  hereunder.  The  remaining 35% of such Net Cash Proceeds may be
retained by the Borrower.

          (g) If,  contemporaneously  with the payment of any  amounts  required
under Sections 2.12(b), 2.12(c), 2.12(d), 2.12(e) or 2.12(f), the Borrower shall
have  Required  Inventory and no Default or Event of Default shall have occurred
and be  continuing,  the Borrower  shall  certify to that effect in an Inventory
Compliance  Certificate  concurrently  delivered  by the  Borrower  to the Agent
substantially  in the form of Exhibit M hereto,  and the amounts paid under such
Sections shall be applied,  first, to the prepayment of the principal of the New
Term  Loans in the  inverse  order of  maturity  and  second,  to the  permanent
prepayment  of the  principal  of the  New  Revolving  Loans  (together  with an
automatic  and  irrevocable  reduction  of the  Total  Commitments  in an  equal
amount). 

          If the  Borrower  shall not have  Required  Inventory  or a Default or
Event of Default  shall have occurred and be  continuing,  then the amounts paid
under Section 2.12(b),  2.12(c), 2.12(d), 2.12(e) or 2.12(f) shall be applied in
accordance with Section 7.2.

          (h) If at any time the sum of the aggregate  outstanding New Revolving
Loans  plus  the  aggregate  Standby  Letter  of  Credit  Outstandings  plus the
Documentary  Reserve exceed the Total  Commitments then in effect,  the Borrower
shall  immediately  first prepay the New Revolving Loans in an aggregate  amount
equal to such  excess and second  cash  collateralize  the  Letters of Credit by
depositing  into the  Letter  of Credit  Accounts  (pro rata on the basis of the
Letter of Credit Outstandings of the respective Fronting Banks), an amount equal
to 105% of the amount by which the Letters of Credit  (including  any subsequent
increases  in the  principal  amounts  thereof  pursuant to  provisions  of such
Letters of Credit as then in effect) exceed the Total Commitments and, if at any
time while any New Revolving  Loans are  outstanding,  the Inventory  Compliance
Certificate  delivered  pursuant  to  Section  2.12(g)  does not  show  that the
Borrower has Required  Inventory,  the Borrower shall prepay all outstanding New
Revolving Loans on the next Business Day.

          (i) Each  prepayment  of the Loans  pursuant to this Section  shall be
accompanied  by payment of accrued and unpaid  interest on the amount prepaid to
the date of prepayment and any amounts payable pursuant to Section 2.13. (1)

     Section 2.13. Optional Prepayment of Loans; Reimbursement of Lenders.

          (a) Subject to the prior payment in full of any New Revolving Loans at
the time  outstanding,  the  Borrower  shall have the right at any time and from
time to time to prepay any New Term Loans, in whole or in part, (x) with respect
to Eurodollar Loans, upon at least three Business Days' prior written,  telex or
facsimile  notice  to the Agent  and (y) with  respect  to ABR Loans on the same
Business  Day if  written,  telex or  facsimile  notice is received by the Agent
prior to 12:00  noon,  New York  City  time,  and  thereafter  upon at least one
Business Days prior written,  telex or facsimile notice to the Agent;  provided,
that (i) with respect to Eurodollar Loans, each such partial prepayment shall be
in integral  multiples of $5,000,000,  (ii) with respect to ABR Loans, each such
partial


<PAGE>44

prepayment shall be in integral multiples of $1,000,000,  (iii) no prepayment of
Eurodollar  Loans shall be permitted  pursuant to this Section other than on the
last day of an Interest  Period  applicable  thereto  unless the  Borrower  pays
breakage costs as provided in Section 2.13(b)(i), and (iv) no partial prepayment
of a Borrowing  of  Eurodollar  Loans shall  result in the  aggregate  principal
amount of the Eurodollar Loans remaining  outstanding pursuant to such Borrowing
being  less  than  $5,000,000.  Each  notice of  prepayment  shall  specify  the
prepayment  date,  the principal  amount of the Loans to be prepaid (and, in the
case of Eurodollar  Loans, the Borrowing or Borrowings  pursuant to which made),
shall be  irrevocable  and shall  commit the Borrower to prepay such Loan by the
amount and on the date stated therein. The Agent shall, promptly after receiving
notice from the Borrower hereunder, notify each New Term Lender of the principal
amount  of the New  Term  Loans  held by such New Term  Lender  which  are to be
prepaid, the prepayment date and the manner of application of the prepayment.

          (b) The Borrower  shall  reimburse  each Lender on demand for any loss
incurred or to be incurred by it in the  reemployment  of the funds released (i)
resulting from any prepayment  (for any reason  whatsoever,  including,  without
limitation,  refinancing  with ABR Loans) of any  Eurodollar  Loan  required  or
permitted under this  Agreement,  if such Loan is prepaid other than on the last
day of the  Interest  Period  for such Loan or (ii) in the event  that after the
Borrower  delivers  a Notice of  Borrowing  under  Section  2.2(b) in respect of
Eurodollar  Loans,  such  Loans are not made on the  first  day of the  Interest
Period  specified in such Notice of Borrowing for any reason other than a breach
by such Lender of its  obligations  hereunder.  Such loss shall be the amount as
reasonably determined by such Lender as the excess, if any, of (A) the amount of
interest  which  would have  accrued to such Lender on the amount so paid or not
borrowed at a rate of interest  equal to the Adjusted  LIBOR Rate for such Loan,
for the  period  from the date of such  payment or failure to borrow to the last
day (x) in the case of a payment or refinancing with ABR Loans other than on the
last day of the  Interest  Period for such Loan,  of the then  current  Interest
Period for such  Loan,  or (y) in the case of such  failure  to  borrow,  of the
Interest  Period for such Loan which  would have  commenced  on the date of such
failure to borrow,  over (B) the amount of interest  which would have accrued to
such  Lender on such amount by placing  such amount on deposit for a  comparable
period with  leading  banks in the London  interbank  market.  Each Lender shall
deliver to the Borrower from time to time one or more certificates setting forth
the amount of such loss as  determined by such Lender (which shall be conclusive
absent manifest error).

          (c) In the event  the  Borrower  fails to prepay  any Loan on the date
specified in any prepayment  notice delivered  pursuant to Section 2.13(a),  the
Borrower on demand by any Lender  shall pay to the Agent for the account of such
Lender any amounts  required to compensate  such Lender for any loss incurred by
such  Lender  as  a  result  of  such  failure  to  prepay,  including,  without
limitation,  any loss, cost or expenses incurred by reason of the acquisition of
deposits or other funds by such Lender to fulfill deposit  obligations  incurred
in anticipation of such prepayment,  but without duplication of any amounts paid
under  Section  2.13(b).  Each Lender shall deliver to the Borrower from time to
time  one or  more  certificates  setting  forth  the  amount  of  such  loss as
determined by such Lender (which shall be conclusive absent manifest error).



<PAGE>45

          (d) Any  partial  prepayment  of the New Term  Loans  by the  Borrower
pursuant to this Section  shall be applied to prepayment of the principal of the
New Term Loans in the inverse order of maturity.

     Section 2.14. Reserve Requirements; Change in Circumstances.

          (a)  Notwithstanding  any other provision herein, if after the date of
this   Agreement  any  change  in  applicable   law  or  regulation  or  in  the
interpretation or administration  thereof by any Governmental  Authority charged
with the  interpretation  or  administration  thereof (whether or not having the
force of law) shall  change the basis of  taxation  of payments to any Lender of
the principal of or interest on any  Eurodollar  Loan made by such Lender or any
fees or other amounts payable hereunder (other than changes in respect of Taxes,
Other  Taxes and taxes  imposed  on, or  measured  by, the net income or overall
gross receipts or franchise  taxes of such Lender by the  jurisdiction  in which
such  Lender  has its  principal  office or in which the  applicable  Eurodollar
Lending  Office  for  such  Eurodollar  Loan  is  located  or by  any  political
subdivision or taxing authority therein,  or by any other jurisdiction or by any
political  subdivision or taxing authority  therein other than a jurisdiction in
which  such  Lender  would  not be  subject  to tax but for  the  execution  and
performance of this Agreement),  or shall impose,  modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits with
or for the account of or credit extended by such Lender (except any such reserve
requirement  which is reflected  in the Adjusted  LIBOR Rate) or shall impose on
such Lender or the London  interbank  market any other condition  affecting this
Agreement or the Eurodollar Loans made by such Lender,  and the result of any of
the  foregoing  shall  be to  increase  the cost to such  Lender  of  making  or
maintaining  any Eurodollar  Loan or to reduce the amount of any sum received or
receivable  by such Lender  hereunder or under the Notes  (whether of principal,
interest or otherwise)  by an amount deemed by such Lender to be material,  then
the Borrower will pay to such Lender in accordance with paragraph (c) below such
additional  amount or amounts as will compensate such Lender for such additional
costs incurred or reduction suffered.

          (b) If any Lender shall have determined that the  applicability of any
change in any law, rule,  regulation or guideline adopted pursuant to or arising
out of the July 1988 report of the Basel  Committee on Banking  Regulations  and
Supervisory Practices entitled "International Convergence of Capital Measurement
and Capital  Standards",  or the adoption or effectiveness after the date hereof
of any law, rule,  regulation or guideline  regarding capital  adequacy,  or any
change in any of the foregoing or in the interpretation or administration of any
of the  foregoing by any  Governmental  Authority,  central  bank or  comparable
agency charged with the interpretation or administration  thereof, or compliance
by any Lender (or any Lending  Office of such  Lender) or any  Lender's  holding
company with any request or directive regarding capital adequacy (whether or not
having  the  force of law) of any such  authority,  central  bank or  comparable
agency,  has or would  have the  effect of  reducing  the rate of return on such
Lender's capital or on the capital of such Lender's holding company,  if any, as
a consequence of this Agreement,  the Loans made by such Lender pursuant hereto,
such Lender's Commitment  hereunder or the issuance of, or participation in, any
Letter of Credit by such  Lender to a level below that which such Lender or such
Lender's  holding  company could have achieved but for such adoption,  change or
compliance  (taking into account such



<PAGE>46

Lender's policies and the policies of such Lender's holding company with respect
to capital  adequacy) by an amount  deemed by such Lender to be  material,  then
from time to time the Borrower shall pay to such Lender such  additional  amount
or amounts as will compensate  such Lender or such Lender's  holding company for
any such reduction suffered.

          (c) A certificate  of each Lender setting forth such amount or amounts
as shall be  necessary  to  compensate  such  Lender or its  holding  company as
specified in paragraph (a) or (b) above,  as the case may be, shall be delivered
to the Borrower and shall be  conclusive  absent  manifest  error.  The Borrower
shall pay each Lender the amount shown as due on any such certificate  delivered
to it within 10 days after its  receipt of the same.  Any Lender  receiving  any
such payment shall  promptly  make a refund  thereof to the Borrower if the law,
regulation,  guideline or change in circumstances giving rise to such payment is
subsequently  deemed or held to be invalid or inapplicable.

          (d) Failure on the part of any Lender to demand  compensation  for any
increased costs or reduction in amounts  received or receivable or any reduction
in return on capital with respect to any period shall not constitute a waiver of
such Lender's  right to demand  compensation  with respect to such period or any
other period.  The  protection of this Section shall be available to each Lender
regardless of any possible  contention of the invalidity or  inapplicability  of
the law, rule,  regulation,  guideline or other change or condition  which shall
have occurred or been imposed.
       
     Section 2.15. Change in Legality.

          (a)  Notwithstanding  anything to the contrary contained  elsewhere in
this  Agreement,  if  (x)  any  change  in  any  law  or  regulation  or in  the
interpretation   thereof  by  any  Governmental   Authority   charged  with  the
administration thereof shall make it unlawful for a Lender to make or maintain a
Eurodollar Loan or to give effect to its obligations as contemplated hereby with
respect to a Eurodollar  Loan or (y) at any time any Lender  determines that the
making or continuance of any of its Eurodollar Loans has become impracticable as
a result of a  contingency  occurring  after  the date  hereof  which  adversely
affects  the London  interbank  market or the  position  of such  Lender in such
market,  then, by written  notice to the  Borrower,  such Lender may (i) declare
that  Eurodollar  Loans will not  thereafter  be made by such Lender  hereunder,
whereupon any request by the Borrower for a Eurodollar  Borrowing  shall,  as to
such Lender  only,  be deemed a request for an ABR Loan unless such  declaration
shall  be  subsequently  withdrawn;   and  (ii)  require  that  all  outstanding
Eurodollar  Loans made by it be converted to ABR Loans,  in which event all such
Eurodollar  Loans  shall  be  automatically  converted  to ABR  Loans  as of the
effective  date of such notice as provided in paragraph (b) below.  In the event
any Lender shall  exercise its rights under clause (i) or (ii) of this paragraph
(a), all payments and  prepayments of principal  which would otherwise have been
applied to repay the  Eurodollar  Loans that would have been made by such Lender
or the  converted  Eurodollar  Loans of such Lender shall  instead be applied to
repay  the ABR Loans  made by such  Lender  in lieu of,  or  resulting  from the
conversion of, such Eurodollar Loans.

          (b) For  purposes  of this  Section,  a notice to the  Borrower by any
Lender  pursuant to paragraph  (a) above shall be effective,  if any  Eurodollar
Loans shall then be outstanding, on the last


<PAGE>47

day of the then-current  Interest Period
for such Eurodollar Loans (if lawful); otherwise, such notice shall be effective
on the date of receipt by the Borrower.

     Section  2.16.  Pro Rata Treatment,  etc.  All payments and  repayments  of
principal  and interest in respect of the Loans  (except as provided in Sections
2.14 and 2.15) shall be made pro rata among the relevant  Lenders in  accordance
with the then  outstanding  principal  amount of the relevant Loans held by such
Lenders  hereunder and all payments of Commitment Fees and Letter of Credit Fees
(other than those  payable to a Fronting  Bank) shall be made pro rata among the
New Revolving Lenders in accordance with their Commitments.  All payments by the
Borrower hereunder and under the Notes shall be (i) net of any tax applicable to
the  Borrower  and (ii) made in Dollars in  immediately  available  funds at the
office of the Agent by 12:00 noon, New York City time, on the date on which such
payment  shall be due.  Interest in respect of any Loan  hereunder  shall accrue
from and including the date of such Loan to but excluding the date on which such
Loan is paid in full or converted to a Loan of a different Type.

     Section 2.17. Taxes.

          (a) Any and all payments by the Borrower hereunder and under the Notes
shall be made free and clear of and without deduction for any and all current or
future taxes,  levies,  imposts,  deductions,  charges or withholdings,  and all
liabilities with respect thereto,  excluding (i) taxes imposed on or measured by
the net  income or  overall  gross  receipts  of the Agent or any Lender (or any
transferee  or  assignee  thereof,  including a  participation  holder (any such
entity being called a "Transferee")) and franchise taxes imposed on the Agent or
any Lender (or  Transferee) by the United States or any  jurisdiction  under the
laws of which the Agent or any such Lender (or  Transferee)  is  organized or in
which the  applicable  Lending  Office of any such  Lender  (or  Transferee)  is
located or any political  subdivision thereof or by any other jurisdiction or by
any political  subdivision or taxing authority therein other than a jurisdiction
in which  the  Agent or such  Lender  would  not be  subject  to tax but for the
execution and  performance  of this Agreement and (ii) taxes,  levies,  imposts,
deductions,  charges  or  withholdings  ("Amounts")  with  respect  to  payments
hereunder or under the Notes to a Lender (or Transferee) in accordance with laws
in effect on the later of the date of this  Agreement  and the date such  Lender
(or Transferee)  becomes a Lender (or  Transferee,  as the case may be), but not
excluding,  with  respect to such Lender (or  Transferee),  any increase in such
Amounts solely as a result of any change in such laws occurring after such later
date or any Amounts that would not have been imposed but for actions (other than
actions contemplated by this Agreement or the Notes) taken by the Borrower after
such  later  date (all such  nonexcluded  taxes,  levies,  imposts,  deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If the Borrower  shall be required by law to deduct any Taxes from or in respect
of any sum payable  hereunder to the Lenders (or any  Transferee)  or the Agent,
(i) the sum payable  shall be  increased  by the amount  necessary so that after
making all required deductions  (including  deductions  applicable to additional
sums payable under this Section)  such Lender (or  Transferee)  or the Agent (as
the case may be) shall receive an amount equal to the sum it would have received
had no such  deductions  been made, (ii) the Borrower shall make such deductions
and (iii) the Borrower shall pay the full amount deducted to the relevant taxing
authority or other Governmental Authority in accordance with applicable law.



<PAGE>48

          (b) In  addition,  the  Borrower  agrees to pay any  current or future
stamp or  documentary  taxes or any other  excise or  property  taxes,  charges,
assessments or similar levies that arise from any payment made hereunder or from
the execution,  delivery or registration  of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").

          (c) The Borrower will  indemnify each Lender (or  Transferee)  and the
Agent  for the full  amount of Taxes and Other  Taxes  paid by such  Lender  (or
Transferee)  or the  Agent,  as the case may be,  and any  liability  (including
penalties,  interest and expenses)  arising  therefrom or with respect  thereto,
whether or not such Taxes or Other Taxes were  correctly or legally  asserted by
the  relevant   taxing   authority  or  other   Governmental   Authority.   Such
indemnification  shall be made  within  30 days  after the date any  Lender  (or
Transferee) or the Agent, as the case may be, makes written demand therefor.  If
a Lender (or  Transferee) or the Agent shall become aware that it is entitled to
receive  a refund  in  respect  of Taxes or Other  Taxes as to which it has been
indemnified by the Borrower  pursuant to this Section,  it shall promptly notify
the Borrower of the availability of such refund and shall,  within 30 days after
receipt of a request by the  Borrower,  apply for such refund at the  Borrower's
expense. If any Lender (or Transferee) or the Agent receives a refund in respect
of any Taxes or Other Taxes as to which it has been  indemnified by the Borrower
pursuant to this Section,  it shall promptly  notify the Borrower of such refund
and  shall,  within 30 days  after  receipt  of a request  by the  Borrower  (or
promptly upon receipt, if the Borrower has requested application for such refund
pursuant  hereto),  repay such refund to the  Borrower (to the extent of amounts
that have been paid by the  Borrower  under this  Section  with  respect to such
refund plus interest that is received by the Lender (or Transferee) or the Agent
as part of the  refund),  net of all  out-of-pocket  expenses of such Lender (or
Transferee) or the Agent and without additional interest thereon; provided, that
the  Borrower,  upon the  request of such Lender (or  Transferee)  or the Agent,
agrees to return such refund (plus penalties, interest or other charges) to such
Lender (or  Transferee) or the Agent in the event such Lender (or Transferee) or
the Agent is required to repay such refund. Nothing contained in this subsection
(c) shall require any Lender (or  Transferee) or the Agent to make available any
of its tax returns (or any other information relating to its taxes that it deems
to be confidential).

          (d)  Within 30 days  after the date of any  payment  of Taxes or Other
Taxes  withheld  by the  Borrower  in respect  of any  payment to any Lender (or
Transferee) or the Agent, the Borrower will furnish to the Agent, at its address
referred to on the signature pages hereof, the original or a certified copy of a
receipt evidencing payment thereof.

          (e) Without prejudice to the survival of any other agreement contained
herein,  the agreements and obligations  contained in this Section shall survive
the payment in full of the principal of and interest on all Loans made hereunder
and  all  other  amounts  due  hereunder  and  the   termination  of  the  Total
Commitments.

          (f) Each Lender (or Transferee)  that is organized under the laws of a
jurisdiction outside the United States shall, if legally able to do so, prior to
the  immediately  following  due date of any payment by the Borrower  hereunder,
deliver to the  Borrower  such  certificates,  documents or other


<PAGE>49

evidence,  as  required  by the Code or  Treasury  Regulations  issued  pursuant
thereto, including (A) Internal Revenue Service Form W-8 or W-9 and (B) Internal
Revenue Service Form 1001 or Form 4224 and any other certificate or statement of
exemption  required  by  Treasury  Regulation  Section  1.1441-1,   1.1441-4  or
1.1441-6(c) or any subsequent  version thereof or successors  thereto,  properly
completed and duly  executed by such Lender (or  Transferee)  establishing  that
such payment is (i) not subject to United States Federal  withholding  tax under
the Code because such payment is effectively  connected with the conduct by such
Lender (or  Transferee)  of a trade or  business  in the  United  States or (ii)
totally  exempt  from  United  States  Federal  withholding  tax or subject to a
reduced rate of such tax under a provision of an applicable  tax treaty.  Unless
the Borrower and the Agent have received forms or other  documents  satisfactory
to them  indicating  that  such  payments  hereunder  or under the Notes are not
subject to United States Federal withholding tax or are subject to such tax at a
rate  reduced by an  applicable  tax  treaty,  the  Borrower  or the Agent shall
withhold taxes from such payments at the  applicable  statutory  rate.

          (g) The Borrower shall not be required to pay any  additional  amounts
to any Lender (or  Transferee) in respect of United States  Federal  withholding
tax pursuant to subsection  (a) above if the  obligation to pay such  additional
amounts  would not have arisen but for a failure by such Lender (or  Transferee)
to comply with the provisions of subsection (f) above.

          (h) Any Lender (or Transferee) claiming any additional amounts payable
pursuant to this Section shall use reasonable efforts (consistent with legal and
regulatory  restrictions)  to file any certificate or document  requested by the
Borrower or to change the  jurisdiction of its applicable  Lending Office if the
making of such a filing or change  would avoid the need for or reduce the amount
of any such additional  amounts that may thereafter accrue and would not, in the
sole  determination of such Lender, be otherwise  materially  disadvantageous to
such Lender (or Transferee).

     Section 2.18.  Certain Fees. The Borrower  shall pay to the Agent,  for the
respective  accounts  of the  Agent,  the  Underwriters  and the  New  Revolving
Lenders, the fees set forth in the Fee Letter.

     Section 2.19.  Commitment  Fee. The Borrower shall pay to the New Revolving
Lenders a commitment fee (the "Commitment Fee") for the period commencing on the
Effective  Date and ending on the Maturity Date for the New  Revolving  Loans or
the earlier date of the termination in full of the Commitment,  computed (on the
basis of the actual  number of days elapsed over a year of 360 days) at the rate
of one-half of one percent  (1/2%) per annum on the average  daily  Unused Total
Commitment.  Such Commitment  Fee, to the extent then accrued,  shall be payable
(x) monthly,  in arrears,  on the last  calendar  day of each month,  (y) on the
Maturity  Date for the New  Revolving  Loans and (z) as provided in Section 2.9,
upon any reduction or termination in whole or in part of the Total Commitments.

     Section 2.20. Letter of Credit Fees. The Borrower shall pay with respect to
each Letter of Credit (i) to the Agent on behalf of the New Revolving  Lenders a
fee calculated (on the basis of the actual number of days elapsed over a year of
360 days) at the rate of (x) two and one-half  percent (2-1/2%) per annum on the
daily  average  Standby  Letter of Credit  Outstandings  and (y) one-half of one


<PAGE>50

percent  (1/2%)  per annum on the  daily  average  Documentary  Letter of Credit
Outstandings,  (ii) to each Fronting Bank,  such Fronting Bank's fees for Letter
of Credit issuance,  amendment and processing  referred to in Section 2.5(e). In
addition,  the Borrower  agrees (i) to pay the Standby Letter of Credit Fronting
Bank for its account a fronting  fee in respect of each Letter of Credit  issued
by the Standby Letter of Credit Fronting Bank, for the period from and including
the date of  issuance  of such  Letter of Credit  to and  including  the date of
termination of such Letter of Credit,  computed at a rate of 0.125% per annum on
the  daily  average  Standby  Letter  of  Credit  Outstandings  and  (ii) if the
Documentary  Letter of Credit Bank so elects,  to pay the Documentary  Letter of
Credit Fronting Bank a fronting fee in respect of Documentary Letters of Credit,
computed at a rate to be  determined  by such Fronting Bank from time to time in
its judgment reasonably  exercised.  Accrued fees described in clause (i) of the
first  sentence of this  paragraph  in respect of each Letter of Credit shall be
due and payable monthly in arrears on the last calendar day of each month and on
the Maturity Date of the New Revolving  Loans, or such earlier date as the Total
Commitments  are  terminated  and, on each such  payment  date,  the  respective
Fronting  Banks shall advise the Agent of their daily  average  Letter of Credit
Outstandings  since the previous  payment  date.  Accrued fees  described in the
second  sentence  or in clause  (ii) of the first  sentence  of this  Section in
respect of each Letter of Credit shall be payable to the Fronting Banks at times
to be  determined  by the  relevant  Fronting  Bank in its  judgment  reasonably
exercised.

     Section  2.21.  Nature of Fees.  All Fees shall be paid on the dates due in
immediately  available  funds.  Other than Fees  payable to the  Fronting  Banks
pursuant to Section 2.20, all fees shall be paid to the Agent for the respective
accounts of the Agent and the New Revolving  Lenders,  as provided herein and in
the letter  described  in  Section  2.18.  Once paid,  none of the Fees shall be
refundable under any circumstances.

     Section  2.22.  Right  of  Set-Off.  Upon the  occurrence  and  during  the
continuance  of any Event of  Default,  the Agent and each of the other  Secured
Parties is hereby  authorized  at any time and from time to time, to the fullest
extent  permitted by law, to set off and apply any and all deposits  (general or
special, time or demand,  provisional or final) at any time held and any and all
other  indebtedness at any time owing by such Secured Party to or for the credit
or the account of the  Borrower  against any and all of the  obligations  of the
Borrower now or hereafter  existing under the Loan  Documents,  irrespective  of
whether or not such  Secured  Party  shall  have made any demand  under any Loan
Document and although  such  obligations  may be  unmatured.  Each Secured Party
agrees  promptly to notify the Borrower  after any such set-off and  application
made by such Secured Party; provided, that the failure to give such notice shall
not affect the  validity  of such  set-off and  application.  Subject to Section
2.23,  the rights of each  Secured  Party under this  Section are in addition to
other rights and remedies  which such Secured Party may have upon the occurrence
and during the continuance of any Event of Default.

     Section  2.23.  Sharing of Setoffs.  Each  Secured  Party agrees that if it
shall,  through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrower or any Subsidiary, including, but not limited to, a secured
claim under  Section 506 of the  Bankruptcy  Code or other  security or interest
arising  from,  or in lieu of, such  secured  claim and received by such Secured
Party


<PAGE>51

under any applicable bankruptcy,  insolvency or other similar law, or otherwise,
obtain  payment in respect of its Secured  Obligations,  such  payment  shall be
applied as follows:  (a) if such  Secured  Party is a New  Revolving  Lender and
there are Revolving  Obligations  outstanding,  and the payment received is of a
proportion of the aggregate amount of the Revolving Obligations held by it which
is greater than that  received by any other New  Revolving  Lender in respect of
the aggregate  amount of Revolving  Obligations held by such other New Revolving
Lender, the New Revolving Lender receiving such proportionately  greater payment
shall  purchase such  participations  in the Revolving  Obligations  held by the
other New Revolving  Lenders and such other adjustments shall be made, as may be
required so that all such  payments  with respect to the  Revolving  Obligations
held by the New  Revolving  Lenders  owing to them  shall be  shared  by the New
Revolving  Lenders pro rata;  (b) if such Secured  Party is not a New  Revolving
Lender and there are Revolving  Obligations  outstanding  (other than  Revolving
Obligations  in  which  participations  have  been  purchased  pursuant  to this
Section), such Secured Party shall purchase a subordinated  participation in the
Revolving Obligations in the amount of such payment (provided, that such Secured
Party  shall  not be  entitled  to  receive  any  payments  in  respect  of such
participation until all Revolving  Obligations in which  participations have not
been purchased  pursuant to this Section shall have been paid in full) and shall
pay over the amount received to the Agent for  distribution to the New Revolving
Lenders pro rata until all amounts owing in respect of the Revolving Obligations
shall have been paid or purchased in full (and  payments  received in respect of
such  participation  shall be subject to sharing  pursuant to clause (c) of this
sentence);  and (c) if no  Revolving  Obligations  are  outstanding  (other than
Revolving  Obligations in which  participations  have been purchased pursuant to
this  Section),  and the payment  received is of a proportion  of the  aggregate
amount of principal  and interest due with respect to the New Term Loans held by
it or other Secured Obligations owing to it which is greater than the proportion
received by any other such  Secured  Party in respect of the New Term Loans held
by such other Secured Party and the other Secured  Obligations  owing to it, the
Secured Party receiving such proportionately greater payment shall purchase such
participations  in the New Term Loans held by the other Secured  Parties  and/or
the other Secured Obligations owing to them, and such other adjustments shall be
made,  as may be required so that all such  payments of  principal  and interest
with  respect to the New Term  Loans  held by the New Term  Lenders or the other
Secured  Obligations owing to the Secured Parties shall be shared by the Secured
Parties  pro rata;  provided,  that except as provided in clauses (a) and (b) of
this  Section,  nothing in this  Section  shall  impair the right of any Secured
Party to exercise any right of set-off or  counterclaim it may have and to apply
the amount  subject to such  exercise  to the  payment  of  indebtedness  of the
Borrower  other  than its  indebtedness  under the  Notes or the  other  Secured
Obligations  owing to it;  provided,  that if any such  non-pro  rata payment is
thereafter  recovered or  otherwise  set aside such  purchase of  participations
shall be rescinded (without interest);  provided further,  that  notwithstanding
anything to the contrary  contained in this  Section,  (x) each Cash  Management
Bank shall be entitled to retain any payments it receives in respect of its Cash
Management  Obligations as a result of exercising any right of set-off, (y) each
Fronting Bank shall be entitled to retain any payments it receives in respect of
unreimbursed amounts drawn under its Letters of Credit as a result of exercising
any right of set-off  against  its Letter of Credit  Account and (z) the Hedging
Bank shall be  entitled  to retain any  payments  it  receives in respect of the
Hedging Obligations as a result of exercising any right of set-off; and provided
further, that all references to "Secured Obligations" in this Section shall mean
all Secured  Obligations  other than pursuant to Sections 2.14,


<PAGE>52

2.17,  2.18, 8.6, 9.5 and 9.6 and any incremental  Secured  Obligations  arising
pursuant to Section  2.15.  The  Borrower  expressly  consents to the  foregoing
arrangements  and agrees  that any Lender  holding  (or deemed to be  holding) a
participation in the unpaid amount of a Secured  Obligation may exercise any and
all rights of banker's lien,  setoff (subject,  in each case, to the same notice
requirements  as pertain to clause (iv) of the  remedial  provisions  of Section
7.1) or counterclaim with respect to any and all moneys owing by the Borrower to
such Lender, as fully as if such Lender held a Note and was the original obligee
thereon, in the amount of such participation.

     Section 2.24. Security Interest in Letter of Credit Accounts.  The Borrower
hereby  assigns  and  pledges to the Agent,  for its benefit and for the ratable
benefit of the Secured Parties,  and hereby grants to the Agent and the Fronting
Banks, for their respective  benefits and for the ratable benefit of the Secured
Parties, a first priority security interest,  senior to all other Liens, if any,
in all of the  Borrower's  right,  title and  interest  in and to the  Letter of
Credit  Accounts and any direct  investment of the funds  contained  therein.  A
Fronting Bank's security interest in the Letter of Credit Account  maintained by
it shall be prior to the  security  interest in favor of the Agent and the other
Secured Parties, and shall not be subject to the rights of any Person other than
the Agent,  the other Secured  Parties and the Borrower so long as there are any
Letter  of Credit  Outstandings  or such  Fronting  Bank is  obligated  to issue
Letters of Credit.

     Section 2.25.  Release of Secured  Parties.  For the benefit of the Secured
Parties,  the Borrower  hereby  expressly  releases and  discharges  the Secured
Parties  and  the  Secured   Parties'  direct  and  indirect   Subsidiaries  and
Affiliates, together with each of their present and former shareholders, present
and former officers,  directors,  agents and employees and each of their present
and former  attorneys,  advisors,  consultants,  attorneys-in-fact,  experts and
other  professional  persons and  representatives  whether presently or formerly
retained  by  attorneys  for  the  Secured  Parties  or by the  Secured  Parties
themselves,  and the predecessors,  successors and assigns of all or any of them
(collectively,  the  "Releasees")  from any and all manner of  actions,  claims,
causes of action,  suits,  proceedings,  debts,  dues, sums of money,  accounts,
accountings, reckonings, demands, liabilities, losses, damages, acts, omissions,
misfeasances,  malfeasances,  promises,  breaches of contract, breaches of duty,
breaches of  relationship,  and all other  controversies  of every  type,  kind,
nature,  description  or  character  (all of the  foregoing,  collectively,  the
"Claims")  whatsoever,   whether  known  or  unknown,  foreseen  or  unforeseen,
liquidated or  unliquidated,  and whether based upon facts now known or unknown,
direct or  derivative,  in law,  admiralty,  equity or  bankruptcy,  against the
Releasees,  or any of  them,  which  the  Borrower,  its  Subsidiaries  or their
Affiliates  and the  predecessors,  successors or assigns of any or all of them,
ever jointly or  individually  had, now have or hereafter can, shall or may have
for,  upon,  or by  reason of any  matter,  cause or thing  whatsoever  from the
beginning  of the  world  to and  including  the  Effective  Date,  directly  or
indirectly  arising  from or  relating  in any way to any and all  transactions,
relationships,  or dealings relating in any way, directly or indirectly,  to the
Pre-Petition  Credit  Agreement,  the DIP Credit  Agreement and any of the other
Existing  Agreements,  the  documents  and  agreements  setting  forth  the


<PAGE>53

cash management  arrangements  with the Cash  Management  Banks and the Hedging
Agreement,  as well as any agreements entered into, or notes, or other documents
executed,  in connection with the Pre-Petition Credit Agreement,  the DIP Credit
Agreement,  any of the other Existing  Agreements,  the documents and agreements
setting forth the cash management  arrangements  with the Cash Management  Banks
and the Hedging Agreement or as an adjunct or supplement thereto,  and any prior
agreements  pursuant  to  which  the  Secured  Parties  (or any of them or their
respective  predecessors  or  successors)  made  (or  did  not  make)  loans  or
extensions  of  credit or any  services  or  accommodations  of any type or kind
whatsoever available to or on behalf of the Borrower or the Debtor.

SECTION 3.   REPRESENTATIONS AND WARRANTIES

     The  Borrower   represents   and  warrants  to  each  of  the  Agent,   the
Underwriters,  the Fronting Banks,  the Lenders and the other Secured Parties as
follows:

     Section  3.1.  Organization  and  Authority.  The  Borrower  (i)  as of the
Effective Date, is a corporation  duly organized and validly  existing under the
laws of the State of Delaware and is duly qualified as a foreign corporation and
is in good  standing  in each  jurisdiction  in which the  failure to so qualify
would have a Material Adverse Effect, (ii) has the requisite corporate power and
authority to effect the transactions  contemplated  hereby and by the other Loan
Documents to which it is a party,  and (iii) has all requisite  corporate  power
and  authority  and the legal  right to own,  pledge,  mortgage  and operate its
properties,  and to conduct  its  business  as now or  currently  proposed to be
conducted.

     Section 3.2. Due Execution. The execution,  delivery and performance by the
Borrower of each of the Loan Documents to which it is a party (i) are within the
Borrower's  corporate  powers,  have  been  duly  authorized  by  all  necessary
corporate  action  and do not (A)  contravene  the  charter  or  by-laws  of the
Borrower,  (B) violate any law (including,  without  limitation,  the Securities
Exchange Act of 1934) or regulation (including, without limitation,  Regulations
G, T, U or X of the Board,  or any order or decree of any court or  governmental
instrumentality,  (C) violate or result in a breach of, or  constitute a default
under, any material indenture,  mortgage or deed of trust entered into as of the
Effective Date or any material lease, agreement or other instrument entered into
as of the Effective Date binding on the Borrower, any of its Subsidiaries or any
of its properties, or (D) result in or require the creation or imposition of any
Lien upon any of the property of the Borrower or any of its  Subsidiaries  other
than the Liens granted  pursuant to this Agreement and the other Loan Documents;
and do not require the consent,  authorization by or approval of or notice to or
filing or registration  with any Governmental  Authority other than the entry of
the Confirmation  Order.  This Agreement has been duly executed and delivered by
the Borrower.  This  Agreement and each of the other Loan Documents to which the
Borrower is a party, on and after the Effective  Date, will be legal,  valid and
binding  obligations  of the  Borrower,  enforceable  against the  Borrower,  in
accordance with their respective terms.

     Section 3.3.  Statements  Made. The information  that has been delivered in
writing by the Borrower to any of the Secured Parties or to the Bankruptcy Court
in connection  with any Loan  Document,  and any financial  statement  delivered
pursuant  hereto or thereto  (other than to the extent that any such  statements
constitute  projections),  contains no untrue  statement of a material  fact and
does not omit to state a material  fact  necessary to make such  statements  not
misleading;   and,  to  the  extent  that  any  such   information   constitutes
projections,  such  projections  were  prepared  in good  faith


<PAGE>54


on the basis of assumptions,  methods,  data, tests and information  believed by
the Borrower to be reasonable at the time such projections were furnished.

     Section 3.4. Financial  Statements.  The Borrower has furnished the Lenders
with copies of (i) the audited consolidated financial statements of the Borrower
and its  Consolidated  Subsidiaries for the fiscal year ended November 30, 1996,
accompanied  by an  unqualified  opinion of KPMG Peat  Marwick  LLP and (ii) the
unaudited consolidated financial statements of the Borrower and its Consolidated
Subsidiaries  for the nine month period ended  August 30, 1997.  Such  financial
statements present fairly the financial condition, the results of operations and
cash flows of the Borrower and its  Consolidated  Subsidiaries on a consolidated
basis as of such dates and for such periods;  such balance  sheets and the notes
thereto disclose all liabilities,  direct or contingent, of the Borrower and its
Consolidated  Subsidiaries  as of the dates thereof  required to be disclosed by
GAAP, and such financial  statements  were prepared in a manner  consistent with
GAAP,  subject  (in the case of such nine month  statements)  to normal year end
adjustments. No Material Adverse Effect has occurred since August 30, 1997.

     Section  3.5.  Ownership.  As of the  date  hereof,  Lumberjack,  which  is
wholly-owned by the Borrower,  is the only direct or indirect  Subsidiary of the
Borrower, is inactive and has no significant assets.

     Section 3.6.  Liens.  Except for Liens  existing on the  Effective  Date as
reflected on Schedule  3.6,  there are no Liens of any nature  whatsoever on any
assets of the Borrower  other than:  (i) Liens granted  pursuant to the Existing
Agreements and the DIP Financing  Order;  (ii) Permitted  Liens; and (iii) Liens
granted under the Loan  Documents in favor of the Secured  Parties.  Neither the
Borrower nor its  Subsidiaries is a party to any contract,  agreement,  lease or
instrument  the  performance  of  which,  either  unconditionally  or  upon  the
happening  of an event,  will result in or require the creation of a Lien on any
assets of the Borrower or its Subsidiaries or otherwise result in a violation of
this Agreement  other than the Liens granted to the Secured  Parties as provided
for in this Agreement and the other Loan Documents.

     Section 3.7. Compliance with Law. Neither the Borrower nor its Subsidiaries
is, to the best of the Borrower's knowledge,  in violation of any Requirement of
Law, or in default with respect to any judgment,  writ,  injunction or decree of
any Governmental  Authority the violation of which, or a default with respect to
which, would have a Material Adverse Effect.

     Section  3.8.  Insurance.  All  policies of insurance of any kind or nature
owned by or issued to the Borrower,  including,  without  limitation,  insurance
policies  with  respect  to  life,  fire,  theft,  product  liability,  business
interruption,  public  liability,  property  damage,  other  casualty,  employee
fidelity,  workers' compensation,  employee health and welfare,  title, property
and  liability  insurance,  are in full force and effect and are of a nature and
provide  such  coverage  as is  sufficient  and  as is  customarily  carried  by
companies of the size and character of the Borrower.



<PAGE>55

     Section 3.9.  Use of Proceeds.  The proceeds of the Loans shall be used (i)
to finance the Plan of Reorganization, (ii) for general working capital purposes
of the Borrower and (ii) for other  general  corporate  purposes of the Borrower
(including,  among  such  general  corporate  purposes,  the  making of  Capital
Expenditures, subject to the limitations provided for in Section 6.4).

     Section 3.10.  Litigation.  Except as set forth on Schedule 3.10, there are
no unstayed  actions,  suits or proceedings  pending or, to the knowledge of the
Borrower,  threatened against or affecting the Borrower, its Subsidiaries or any
of its  properties,  before any court or  governmental  department,  commission,
board,  bureau,  agency  or  instrumentality,  domestic  or  foreign,  which  is
reasonably  likely  to be  determined  adversely  to  the  Borrower  and,  if so
determined adversely to the Borrower, would have a Material Adverse Effect.

     Section 3.11.  Investment Company Act; etc. Neither the Borrower nor any of
its Subsidiaries  will be after giving effect to the  transactions  contemplated
hereby  or any  Borrowing  to be made  or any  Letter  of  Credit  to be  issued
hereunder  (x)  an  "investment   company"  or  a  company  "controlled"  by  an
"investment company",  within the meaning of the Investment Company Act of 1940,
as amended or (y) subject to regulation under the Public Utility Holding Company
Act of 1935,  the Federal Power Act or any foreign,  federal or local statute or
regulation  limiting  its ability to incur  indebtedness  for money  borrowed or
guarantee such  indebtedness as contemplated  hereby or by any of the other Loan
Documents.

     Section  3.12.  Tax  Returns and  Payments.  The  Borrower  and each of its
Subsidiaries  have filed all federal  income tax returns and all other  material
tax returns and reports,  domestic  and foreign,  required to be filed by it and
have paid all material taxes,  assessments,  fees and other governmental charges
payable by it which have become due,  other than those not yet  delinquent.  The
Borrower  and each of its  Subsidiaries  have paid,  or have  provided  adequate
reserves  for the payment of, all  material  federal,  state and foreign  income
taxes  applicable  for all prior fiscal years and for the current fiscal year to
the date hereof. There is no proposed tax assessment against the Borrower or any
of its  Subsidiaries  which could,  if the assessment  were made,  reasonably be
expected  to have a Material  Adverse  Effect.  The last  closed tax year of the
Borrower and its Consolidated Subsidiaries is the fiscal year ended November 27,
1993.

     Section  3.13.  ERISA.  (a) No ERISA  Event has  occurred or is expected to
occur with  respect to any Plan in any fiscal  year of the  Borrower  that would
result in any liability of the Borrower or any  Subsidiary  in excess,  together
with the amount of all other  liabilities  of the Borrower and its  Subsidiaries
which  would  result  from all other  ERISA  Events  that have  occurred  or are
expected to occur with respect to Plans during such fiscal year, of $3,000,000.

          (b) Schedule B (Actuarial  Information to the annual report (Form 5500
series)) most recently completed with respect to each Plan, copies of which have
been filed with the Internal  Revenue  Service and  delivered  to the Agent,  is
complete and accurate in all material  respects and to the best knowledge of the
Borrower  represents a reasonable  estimate of the funding  status and financial
condition  of such Plan as of the date of such  report,  and,  since the date of
such Schedule B,


<PAGE>56

to the best  knowledge of the Borrower  there has been no change in such funding
status or  financial  condition  that could  reasonably  be  expected  to have a
Material Adverse Effect.

          (c) Neither the Borrower,  nor any Subsidiary nor any ERISA  Affiliate
of  either  of them has  incurred,  or is  expected  to  incur,  any  Withdrawal
Liability to  Multiemployer  Plans in excess in any fiscal year of the Borrower,
of $3,000,000 in the aggregate for the Borrower,  its Subsidiaries and the ERISA
Affiliates of any of them.

          (d) Neither the Borrower,  nor any Subsidiary nor any ERISA  Affiliate
of either of them has received any notification that any  Multiemployer  Plan is
in  reorganization  or has been  terminated,  within the  meaning of Title IV of
ERISA,  and to the best  knowledge of the  Borrower,  no  Multiemployer  Plan is
expected to be in reorganization or to be terminated within the meaning of Title
IV of ERISA, in either case where all such  reorganization or terminations would
result  in any  liability  in any  fiscal  year of the  Borrower  in  excess  of
$3,000,000 in the aggregate for the  Borrower,  its  Subsidiaries  and the ERISA
Affiliates of any of them.

          (e) With  respect to each Plan which is an "employee  pension  benefit
plan"  within  the  meaning of Section  3(2) of ERISA and which is  intended  to
qualify under Section 401 of the Code, a favorable determination letter has been
received from the Internal  Revenue Service stating that such Plan so qualifies,
and nothing has occurred  since the date of the  issuance of such  determination
letter which would cause such Plan to cease to qualify  under Section 401 of the
Code.

          (f) None of the transactions  contemplated by the Loan Documents or by
any Plan constitutes a prohibited transaction as such term is defined in Section
406 of ERISA or Section 4975 of the Code.

          (g) Neither the Borrower, nor any Subsidiary,  nor any ERISA Affiliate
of any of them, nor any fiduciary of any Plan, has engaged in any transaction in
violation  of Section 404 of ERISA,  which has resulted or could  reasonably  be
expected to result in any liability in excess of $3,000,000 in the aggregate for
the Borrower, its Subsidiaries and the ERISA Affiliates of any of them.

          (h) Neither the Borrower, nor any Subsidiary,  nor any ERISA Affiliate
of any of them, nor any Plan or fiduciary thereof,  is a party to any litigation
relating to or seeking  benefits from any such Plan, nor does there exist one or
more facts or events which could form the basis for any such  litigation,  where
such  litigation  could  reasonably  be expected to result in any  liability  in
excess of $3,000,000 in the aggregate for the Borrower, its Subsidiaries and the
ERISA Affiliates of any of them.

          (i) No event has occurred, in connection with which the Borrower,  any
Subsidiary  or any  ERISA  Affiliate  of any of them,  could be  subject  to any
material liability under any statute,  regulation or governmental order relating
to any Plan or pursuant to any obligation of the Borrower, any Subsidiary or any
ERISA Affiliate to indemnify any Person against any liability incurred under any



<PAGE>57

such statute,  regulation or order as they relate to any such Plan,  which could
reasonably be expected to result in any liability in excess of $3,000,000 in the
aggregate for the Borrower,  its Subsidiaries and the ERISA Affiliates of any of
them.

          (j)  Except  as set  forth in  Schedule  3.13 or as  disclosed  in the
Debtor's 1996 Annual Report, neither the Borrower,  nor any Subsidiary,  nor any
ERISA  Affiliate of any of them, nor any welfare  benefit plan maintained by the
Borrower,  any Subsidiary or any ERISA  Affiliate of any of them has any present
or future  obligation  to make any payment to or with  respect to any present or
former employee,  officer, director or agent of the Borrower, any Subsidiary, or
any ERISA Affiliate of any of them pursuant to any retiree medical benefit plan,
or other  retiree  welfare  benefit  plan (and the  aggregate  liability  of the
Borrower, its Subsidiaries and the ERISA Affiliates of any of them in respect of
all obligations disclosed on Schedule 3.13 or in the Debtor's 1996 Annual Report
does not exceed  $22,000,000),  and no condition  exists which would prevent the
Borrower,  any Subsidiary or any ERISA Affiliate of any of them from amending or
terminating any such benefit plan or welfare benefit plan.

          (k) Each welfare  benefit plan which covers or has covered  present or
former employees, officers, directors or agents of the Borrower, any Subsidiary,
or any  ERISA  Affiliate  of any of them and which is a "group  health  plan" as
defined in Section 607(1) of ERISA, has been operated at all times in compliance
with  provisions of Part 6 of Title I of ERISA and Sections  162(k) and 4980B of
the Code.

     Section  3.14.  Good  Title to  Properties.  Each of the  Borrower  and its
Subsidiaries has good and marketable  title to substantially  all its properties
and assets, including, without limitation, the Collateral,  subject to no Liens,
except such as would be permitted under Section 6.1.

     Section  3.15.  Trademarks,  Patents,  etc.  Each of the  Borrower  and its
Subsidiaries  possesses all the Trademarks,  copyrights,  patents,  licenses, or
rights in any thereof,  adequate in all material respects for the conduct of its
business  as now  conducted  and  presently  proposed to be  conducted,  without
conflict  with  the  rights  or,  to the best  knowledge  of the  Borrower,  any
presently claimed rights of others.

     Section 3.16.  Labor  Matters.  Neither the Borrower nor any Subsidiary has
experienced  any strike,  labor dispute,  slowdown or work stoppage due to labor
disagreements  which could  reasonably  be  expected to have a Material  Adverse
Effect,  and to the best  knowledge  of the  Borrower,  there is no such strike,
dispute,  slowdown  or work  stoppage  threatened  against  the  Borrower or any
Subsidiary.

     Section  3.17.  Evnvironmewntal  Matters.  To the  best  of the  Borrower's
knowledge after due inquiry, except as set forth on Schedule 3.17:

          (a) the Property does not contain any  Hazardous  Substance in amounts
or concentrations  which (i) constitute a violation of, or (ii) could reasonably
give rise to liability under,


<PAGE>58

any  Environmental  Law  except in either  case  insofar  as such  violation  or
liability,  or any  aggregation  thereof,  could not  reasonably  be expected to
result in a Material Adverse Effect;

          (b) the Property and all operations at the Property are in compliance,
and have in the last three years been in  compliance,  in all material  respects
with all  applicable  Environmental  Laws, and there is no  contamination  at or
under the Property,  or violation of any  Environmental  Law with respect to the
Property or the operations at the Property,  which could  reasonably be expected
to result in a Material Adverse Effect;

          (c) neither the Borrower nor any of its  Subsidiaries has received any
notice of violation,  alleged violation,  noncompliance,  liability or potential
liability regarding  environmental  matters or compliance with any Environmental
Law with regard to any of the Property or the  operations at the  Property,  nor
does the Borrower or such  Subsidiary  have  knowledge or reason to believe that
any such notice will be received or is being  threatened  except insofar as such
notice or threatened  notice,  or any  aggregation  thereof,  does not involve a
matter or matters  that could  reasonably  be  expected  to result in a Material
Adverse Effect;

          (d) Hazardous Substances have not been transported or disposed of from
any of the Property in violation of, or in a manner or to a location which could
reasonably give rise to liability  under,  any  Environmental  Law, nor have any
Hazardous  Substances  been  generated,  treated,  stored (other than  materials
stored in the  normal  course of its  retail  business  in  accordance  with all
applicable laws) or disposed of at, on or under any of the Property in violation
of, or in a manner  that could  reasonably  give rise to  liability  under,  any
applicable  Environmental  Law except insofar as any such violation or liability
referred to above, or any aggregation thereof,  could not reasonably be expected
to result in a Material Adverse Effect;

          (e) no judicial  proceedings or governmental or administrative  action
is pending or, to the knowledge of the Borrower  after due inquiry,  threatened,
under any Environmental Law to which the Borrower is or will be named as a party
with respect to the Property or the  operations at the  Property,  nor are there
any consent decrees or other decrees,  consent orders,  administrative orders or
other orders, or other administrative or judicial requirements outstanding under
any  Environmental  Law with respect to the Property or such  operations  except
insofar as such proceeding,  action, decree, order or other requirement,  or any
aggregation  thereof,  could not  reasonably be expected to result in a Material
Adverse Effect; and

          (f) there has been no release  or threat of  release of any  Hazardous
Substance at or from the Property,  or arising from or related to the operations
of the Property in connection  with the Property or otherwise in connection with
such  operations  in  violation  of or in  amounts  or in a  manner  that  could
reasonably give rise to liability under any Environmental Law, except insofar as
any such violation or liability  referred to above, or any aggregation  thereof,
could not reasonably be expected to result in a Material Adverse Effect.




<PAGE>59

     Section 3.18.  Location and Divisions of the Borrower.  As of the Effective
Date, all of the Borrower's stores,  warehouses,  distribution centers, offices,
headquarters and any other operating and organizational  facilities and premises
are listed on Schedule  3.18.  The Borrower uses each of the division  names set
forth on Schedule 3.18 only in the states  listed below each such name,  and the
Borrower  does not do business  under any names other than its own and the names
of such divisions.

     Section  3.19.  Solvency.  On and as of the  Effective  Date,  after giving
effect to the  restructuring  of the  Pre-Petition  Term Loans, the Pre-Petition
Revolving  Credit Loans,  the DIP Revolving  Credit Loans and the DIP Letters of
Credit  and to  all  other  debt  of  the  Borrower  pursuant  to  the  Plan  of
Reorganization  (including  the Loans incurred or to be incurred by the Borrower
and the Liens  created,  or to be created,  in  connection  therewith):  (a) the
Borrower has no reason to believe that any final judgments  against the Borrower
or any affected  Subsidiary in actions for money damages with respect to pending
or threatened  litigation  will be rendered at a time when, or in an amount such
that,  the Borrower or such  affected  Subsidiary  will be unable to satisfy any
such judgments  promptly in accordance with their terms (taking into account the
maximum reasonable amount of such judgments in any such actions and the earliest
reasonable  time at  which  such  judgments  might  be  rendered)  and the  cash
available to the Borrower  and its  Subsidiaries,  after taking into account all
other  anticipated  uses  of the  cash  of the  Borrower  and  its  Subsidiaries
(including  the  payments on or in respect of debt  referred to in clause (c) of
this  Section),  is  anticipated  to be  sufficient  to pay all  such  judgments
promptly  in  accordance  with  their  terms;  (b) the sum of the  present  fair
saleable  value of the assets of the Borrower and its  Subsidiaries  will exceed
the probable  liability of the Borrower and its Subsidiaries on their respective
debts; (c) neither the Borrower nor any of its  Subsidiaries  will have incurred
or intends to, or believes  that it will,  incur debts beyond its ability to pay
such debts as such debts  mature  (taking into account the timing and amounts of
cash to be received by the Borrower and its Subsidiaries from any source, and of
amounts  to be  payable  on or in  respect  of  debts  of the  Borrower  and its
Subsidiaries  and the amounts referred to in clause (a) of this Section) and the
cash available to the Borrower and its  Subsidiaries,  after taking into account
all other anticipated uses of the cash of the Borrower and its Subsidiaries,  is
anticipated  to be  sufficient to pay all such amounts on or in respect of debts
of the Borrower and its Subsidiaries, when such amounts are required to be paid;
and (d) the Borrower and each of its Subsidiaries  will have sufficient  capital
with which to conduct its present and proposed  business and the property of the
Borrower and each of its  Subsidiaries  does not constitute  unreasonably  small
capital with which to conduct its present or proposed business.  For purposes of
this Section,  "debt" means any liability on a claim,  and "claim" means (i) any
right to payment  whether or not such right is reduced to judgment,  liquidated,
unliquidated,  fixed,  contingent,  matured,  unmatured,  disputed,  undisputed,
legal, equitable, secured or unsecured, or (ii) any right to an equitable remedy
for breach of performance if such breach gives rise to a payment, whether or not
such right is reduced to judgment, liquidated,  unliquidated, fixed, contingent,
matured,  unmatured,   disputed,   undisputed,   legal,  equitable,  secured  or
unsecured.  On the date of each Loan and the  issuance  of each Letter of Credit
(and after giving  effect to all Loans and Letters of Credit  outstanding  as of
such date),  the  representations  set forth in this  Section  shall be true and
correct.  With respect to clauses (b) and (d) of this  Section,  with respect to
the Borrower,  such  representations  and warranties are made to the best of the
knowledge of the Borrower,  except that




<PAGE>60

such representations and warranties are made without qualification to the extent
that the untruth or  inaccuracy  of any such  representation  or warranty  would
result in a Material Adverse Effect.

SECTION 4.  CONDITIONS TO  EFFECTIVENESS  OF  REORGANIZATION  AND
            EXTENSIONS OF CREDIT

     Section 4.1.  Conditions  Precedent  to  Effectiveness  of  Reorganization,
Initial  Loans and  Initial  Letters  of  Credit  The  effectiveness  of (i) the
restructuring  of the  Borrower's  obligations  arising  under the  Pre-Petition
Credit  Agreement and the DIP Credit  Agreement and (ii) the  obligations of the
Lenders to finance the Plan of Reorganization  through the restructuring of such
obligations under the Pre-Petition Credit Agreement and the DIP Credit Agreement
and of the New Revolving  Lenders to make the initial New Revolving Loans and of
the relevant  Fronting Bank to issue the initial Letter of Credit,  in which the
New Revolving Lenders shall participate,  is subject to the following conditions
precedent,  each of which  shall  have  been  satisfied  or  waived  (except  as
otherwise  provided in this Section) by the Required  Revolving  Lenders and, in
the case of the conditions  contained in Sections  4.1(b)(i) and (ii), (c), (e),
(f), (g), (h), (i) and (j), the Required Pre-Petition Lenders and all of the DIP
Lenders,  and all of which  shall have been  satisfied  or waived on or prior to
December 31, 1997, unless the Required  Pre-Petition  Lenders and all of the DIP
Lenders shall have agreed to extend such date:

          (a)  Supporting Documents.  The Agent shall have received:

               (i)  a  copy  of the  Borrower's  certificate  of  incorporation,
                    certified  as of a recent date by the  Secretary of State of
                    Delaware;

               (ii) a certificate  of the Secretary of State of Delaware,  dated
                    as of a recent date, as to the good standing of the Borrower
                    and as to the charter documents on file in the office of the
                    Secretary of State;

               (iii)a certificate of the Secretary or an Assistant  Secretary of
                    the  Borrower,  dated the date of the  initial  Loans or the
                    initial  Letters of Credit  hereunder,  delivered as part of
                    the Closing Certificate referred to in clause (iv) below and
                    certifying (A) that attached  thereto is a true and complete
                    copy of the by-laws of the Borrower as in effect on the date
                    of such  certification,  (B) that attached thereto is a true
                    and  complete  copy of  resolutions  adopted by the Board of
                    Directors of the Borrower authorizing the restructuring, the
                    Borrowings  of New  Revolving  Loans  and  the  issuance  of
                    Letters of Credit  hereunder,  the  execution,  delivery and
                    performance  in accordance  with their  respective  terms of
                    this Agreement,  the Notes, the other Loan Documents and any
                    other  documents  required  or  contemplated   hereunder  or
                    thereunder and the granting of the security  interest in the
                    Letter of Credit Accounts  contemplated hereby, (C) that the
                    certificate  of  incorporation  of the


<PAGE>61

                    Borrower  has  not  been  amended  since  the  date  of  the
                    certificate of the Secretary of State furnished  pursuant to
                    clause  (i)  above   (other   than  by  the  filing  of  the
                    Certificate  of  Ownership  and Merger  with  respect to the
                    Borrower  by the Debtor on  December  2, 1997) and (D) as to
                    the incumbency and specimen signature of each officer of the
                    Borrower  executing this Agreement,  the Notes and the other
                    Loan  Documents  or any other  document  delivered  by it in
                    connection   herewith  or  therewith  (such  certificate  to
                    contain a  certification  by another officer of the Borrower
                    as to the  incumbency  and signature of the officer  signing
                    the certificate referred to in this clause (iii)); (1)

               (iv) receipt by the Agent of a closing  certificate  signed by an
                    executive officer of the Borrower, substantially in the form
                    of Exhibit L (the "Closing  Certificate"),  with appropriate
                    insertions  and   attachments   satisfactory   in  form  and
                    substance to the Agent; and

               (v)  receipt by the Agent of a Notice of  Borrowing  with respect
                    to the New Term Loans and any New Revolving Loans to be made
                    on the Effective  Date,  and, if applicable,  receipt by the
                    Agent and the relevant  Fronting Bank of an Application  for
                    the  issuance  of any  Letters of Credit to be issued on the
                    Effective Date.

          (b) Agreement; Notes. On or before the Effective Date, the Agent shall
have  received  (i) executed  counterparts  of this  Agreement  from each of the
parties  hereto,  (ii) New Term Notes executed on behalf of the Borrower,  dated
the  Effective  Date,  payable  to the  order of each of the New  Term  Lenders,
substantially  in the form of Exhibit  A-1  hereto,  in an  aggregate  principal
amount  equal  to such New  Term  Lender's  New  Term  Loans  as  determined  in
accordance with Section 1.55 of the Plan of  Reorganization  and in an amount at
least equal to $265 million and (iii) New Revolving  Notes executed on behalf of
the  Borrower  payable  to the  order  of  each of the  New  Revolving  Lenders,
substantially  in the form of  Exhibit  A-2  hereto  and in amount  equal to its
Commitment.

          (c) Confirmation Order. The Agent shall have received a certified copy
of an order (the "Confirmation Order") of the Bankruptcy Court, in substantially
the form of Exhibit B, which shall contain provisions providing for, inter alia,
(i) confirmation of the Plan of  Reorganization,  (ii) the release of all claims
or causes of action by or on behalf of the  Borrower or any of its  Subsidiaries
against the Secured Parties,  (iii) an injunction against the prosecution of any
such  claim or cause of  action,  (iv) the  nondischargeability  of the  Secured
Obligations to the extent set forth in the DIP Financing Order and the waiver by
the  Borrower  of any such  discharge  pursuant  to  Section  1141(d)(4)  of the
Bankruptcy  Code,  and  (v) the  continuation  of  superpriority  administrative
expense  claims until the Effective  Date and the  continuation  of the security
interests  granted  to the  respective  Secured  Parties  pursuant  to  the  DIP
Financing  Orders,  which  Confirmation  Order shall have become a Final  Order,
shall not have been amended or modified without the prior written consent of the
Agent, the


<PAGE>62


Required  Pre-Petition  Lenders and the Required Revolving Lenders and shall not
have been stayed, reversed, vacated or rescinded in any respect.

          (d)  Plan of  Reorganization  and  Disclosure  Statement.  The Plan of
Reorganization  and  Disclosure  Statement  shall be in the form  filed with the
Bankruptcy Court, and any amendments,  modifications and each of the exhibits to
the Plan of Reorganization  and/or Disclosure Statement shall be satisfactory to
the Agent, the Required  Pre-Petition Lenders and the Required Revolving Lenders
in their reasonable discretion.

          (e) Reclamation Claims. The Debtor shall not have paid during the Case
and the Borrower shall not have paid or reasonably anticipate being obligated to
pay, on or after the Effective  Date, more than $30 million in the aggregate for
all reclamation claims with legal priority.

          (f) Required Inventory. The Borrower shall have delivered an Inventory
Compliance Certificate,  dated the Effective Date,  demonstrating that it has at
least $300 million in Required Inventory.

          (g) Trade Payables. The Debtor shall have post-petition trade payables
which are not backed by letters of credit,  deposits or any other form of credit
support  of not less than  $30.6  million in the  aggregate  outstanding  on the
Effective  Date and  shall  reasonably  expect to have  access to at least  such
amount of such trade  credit from and after the  Effective  Date.

          (h) Minimum EBITDA. The Debtor shall have EBITDA during the first four
completed  fiscal  months of the Case of not less than $12.9  million or, in the
event that the  Effective  Date occurs on or prior to December 10,  1997,  shall
have EBITDA during the first three and three-quarter  completed fiscal months of
the Case of not less than $12.4 million,  together with reasonably  estimated or
projected  EBITDA  for the last week of the fourth  fiscal  month of the Case of
$0.5 million.

          (i) Debt to EBITDA Ratio. As of the Effective Date, the Borrower shall
have a Debt to EBITDA ratio of not more than 7.9 to 1 on the basis of EBITDA for
the  period  consisting  of  the  twelve  completed  fiscal  months  immediately
preceding the  Effective  Date for which  definitive  financial  information  is
available.

          (j) Projected  EBITDA.  The Debtor,  after  consultation with Houlihan
Lokey Howard & Zukin or any  successor  financial  advisor to the Debtor,  shall
have delivered financial projections to the Agent, setting forth on a reasonable
basis in good faith, aggregate EBITDA for the Borrower for the period consisting
of the two fiscal years  immediately  following the  Effective  Date of at least
$196 million  subject to adjustments  for  non-material  changes to the Business
Plan  implemented  during the Case and  approved  by the  Required  Pre-Petition
Lenders and all of the DIP Lenders.


<PAGE>63


          (k)  Security  and  Pledge  Agreement.  The  Borrower  shall have duly
executed  and  delivered  to the Agent,  for its  benefit and the benefit of the
other Secured Parties,  an Amended and Restated Security and Pledge Agreement in
substantially  the  form  of  Exhibit  C  (as  amended,  amended  and  restated,
supplemented  or otherwise  modified from time to time, the "Security and Pledge
Agreement").

          (l) Mortgages. The Borrower shall have (x) duly executed and delivered
to the Agent,  for its  benefit and the  benefit of the other  Secured  Parties,
mortgages and deeds of trust,  substantially in the form of Exhibits D-1 and D-2
hereto, respectively,  on the real properties constituting UBS Collateral and on
the real  properties  securing the Synthetic  Lease  Obligations,  together with
Title  Commitments  or Policies  as the Agent may  require and Surveys  relating
thereto,  (y) duly executed and delivered to the Agent,  for its benefit and the
benefit of the other Secured Parties,  amended and restated  mortgages and deeds
of  trust  on the  Properties  included  as  part  of  Pre-Petition  Collateral,
substantially  in the form of Exhibits D-3 and D-4 hereto (all of such mortgages
and deeds of trust  delivered  pursuant to this  subsection  (l),  collectively,
together with any mortgages and deeds of trust executed and delivered  after the
Effective Date in respect of Available Property or After-Acquired  Property,  as
amended,  amended and restated,  supplemented or otherwise modified from time to
time, the "Mortgages"),  in each case for the Agent's benefit and the benefit of
the other Secured Parties,  together with updated Title Policies with respect to
such  Properties  and (z)  provided  evidence to the Agent of the filing of such
Mortgages in the appropriate  filing or recording offices and the payment of all
taxes and recording fees relating thereto.

          (m)  Financing  Statements.  The Agent shall have  received  (i) UCC-1
and/or UCC-3 Financing  Statements executed on behalf of the Borrower for filing
in all  jurisdictions  in which it would be  necessary  or  desirable  to make a
filing in order to provide  the Agent (for its  benefit  and the  benefit of the
other Secured Parties) with a perfected  security interest in the Collateral and
evidence of the filing of such UCC-1 and/or UCC-3  Financing  Statements  in all
jurisdictions  in which it would be  necessary or desirable to provide the Agent
(for its benefit and the benefit of the other Secured  Parties) with a perfected
security interest in the Collateral;  and (ii) such UCC-11 searches as the Agent
may require  reflecting that no filings  relating to Liens on the Collateral are
of record in such jurisdictions except those permitted under the Loan Documents.


          (n) Vehicles.  To the extent not previously provided,  the Agent shall
have received  original  certificates of title for Vehicles pledged to the Agent
for its benefit and the benefit of the other  Secured  Parties  with the Lien of
the Agent noted thereon or accompanied by  documentation  required to effect the
same.

          (o) Opinion of Counsel to the Borrower. The Secured Parties shall have
received the  favorable  written  opinion of counsel to the Borrower  reasonably
acceptable to the Agent, dated the Effective Date,  substantially in the form of
Exhibits G-1 and G-2.



<PAGE>64


          (p) Payment of Fees.  The Borrower  shall have paid to the Agent,  the
Underwriters  and the Fronting  Banks the then unpaid balance of all accrued and
unpaid Fees owed under and pursuant to this Agreement and the letter referred to
in Section 2.18.

          (q)  Payment  of Other  Amounts.  The  Borrower  shall  have paid all
accrued  and unpaid  interest,  fees and other  amounts  (other  than  principal
amounts  outstanding  on  the  Effective  Date  under  the  Pre-Petition  Credit
Agreement  which are being  exchanged for New Common Stock) owing pursuant to or
in  connection  with  the  Pre-Petition  Credit  Agreement  and the  DIP  Credit
Agreement.

          (r) [Intentionally Omitted].

          (s)  Corporate  and Judicial  Proceedings.  All corporate and judicial
proceedings   and  all   instruments  and  agreements  in  connection  with  the
transactions among the Borrower, the Agent, the Fronting Banks, the Underwriters
and the Lenders contemplated by this Agreement shall be reasonably  satisfactory
in form and  substance  to the  Agent,  and the Agent  shall have  received  all
information  and  copies of all  documents  and  papers,  including  records  of
corporate  and  judicial  proceedings,  which  the  Agent  may  have  reasonably
requested in connection  therewith,  such documents and papers where appropriate
to be certified by proper corporate, governmental or judicial authorities.

          (t)  Compliance  with Laws.  The Borrower shall have granted the Agent
access  to and the right to  inspect  all  reports,  audits  and other  internal
information of the Borrower  relating to  environmental  matters,  and any third
party  verification of certain matters relating to compliance with Environmental
Laws  requested by the Agent,  and the Agent shall be reasonably  satisfied that
the Borrower and its  Subsidiaries  are in compliance  in all material  respects
with all  applicable  Environmental  Laws  and be  satisfied  with the  costs of
maintaining such compliance.

          (u) Designated  Equity.  The Borrower shall have twenty million shares
of common stock issued and  outstanding  or authorized and reserved for issuance
pursuant to the Plan of  Reorganization  (the "New Common Stock"),  of which the
New  Revolving   Lenders  shall  be  entitled  to  receive   460,000  shares  in
consideration for their Commitments,  and the New Term Lenders shall be entitled
to receive the number of shares of New Common  Stock  determined  in  accordance
with Section 3.4(a) of the Plan of Reorganization.

          (v) Post-Effective  Date Board of Directors.  The size and composition
of the new Board of Directors of the Borrower as of the Effective  Date (and the
term of each  director)  shall be  acceptable to the Agent and a majority of the
Pre-Petition Lenders.

          (w) No Material  Adverse  Change.  There shall not have occurred since
September 1, 1997, a material adverse change,  or development or event involving
a  prospective  change,  which,  in the  reasonable  judgment  of  the  Required
Revolving  Lenders,  could have a Material  Adverse  Effect or could  materially
adversely  affect  the  rights  and  remedies  of the  Agent or any of the other
Secured  Parties under the Loan  Documents,  and none of the Agent or any of the
other  Secured  Parties  shall


<PAGE>65

have become aware of any theretofore  previously  undisclosed materially adverse
information with respect to the matters described in this clause (w);

          (x)  Absence  of  Litigation.  There  shall  be no  actions,  suits or
proceedings by any  Governmental  Authority or other Person or  investigation by
any  Governmental  Authority or other Person pending or known by the Borrower to
be  threatened  with  respect  to the  Borrower  or any of its  Subsidiaries  or
(relating to the  transactions  contemplated  hereunder) the Agent or any of the
other  Secured  Parties  which could  reasonably  be expected to have a Material
Adverse Effect; there shall be no judgment, order, injunction or other restraint
prohibiting any of the transactions contemplated by any of the Loan Documents;

          (y)  Effectiveness  of  Synthetic  Lease Loan  Agreement  and UBS Loan
Agreement.  All of the UBS Loan Documents and the Synthetic Lease Loan Documents
shall have been executed and delivered in form and substance satisfactory to the
Agent,  and the Effective  Date (as defined in each of the Synthetic  Lease Loan
Agreement and the UBS Loan Agreement) shall have occurred.

          (z)  Information.  The Agent  shall  have  received  such  information
(financial  or  otherwise)  as may be  reasonably  requested by the Agent or the
Underwriters.

          (aa) Closing  Documents.  The Agent shall have  received all documents
(including  security  documents  granting  the  liens  in  favor  of  the  Agent
contemplated hereby) required by this Agreement reasonably  satisfactory in form
and  substance  to the Agent  and,  in the case of the  issuance  of a Letter of
Credit, the relevant Fronting Bank shall have received all documents it requires
in connection  with its  agreement to issue Letters of Credit  hereunder in form
and substance reasonably satisfactory to such Fronting Bank.

     Section  4.2.  Conditions  Precedent to Each Loan and Each Letter of Credit
after the Effective  Date.  After the Effective  Date, the obligation of the New
Revolving  Lenders to make each New Revolving Loan and of the relevant  Fronting
Bank to issue  each  Letter of Credit is  subject  to the  following  conditions
precedent:

          (a) Notice.  The Agent shall have received a Notice of Borrowing  with
respect to such New Revolving Loans or the Agent and the relevant  Fronting Bank
shall have received an Application  for the issuance of such Letter of Credit as
required  by  Sections  2.2(b)  or 2.6,  as the case  may be,  which  Notice  of
Borrowing  or  Application  shall  be  accompanied  by an  Inventory  Compliance
Certificate.

          (b) Representations and Warranties. All representations and warranties
contained in this  Agreement and the other Loan  Documents or otherwise  made in
writing in  connection  herewith or  therewith  shall be true and correct in all
material respects on and as of the date of each Borrowing of New Revolving Loans
or the  issuance of each Letter of Credit  hereunder  with the same effect as if
made on and as of such  date  except  to the  extent  such  representations  and
warranties expressly relate to an earlier date.


<PAGE>66


          (c)  Compliance;  No  Default.  On the date of each  Borrowing  of New
Revolving Loans hereunder or the issuance of each Letter of Credit, the Borrower
shall be in compliance  with all of the terms and provisions set forth herein to
be observed or performed, and no Default or Event of Default shall have occurred
and be continuing.

          (d) Confirmation  Order. The Confirmation Order shall be in full force
and effect and shall not have been amended or modified without the prior written
consent of the Agent,  the  Majority  Term  Lenders and the  Required  Revolving
Lenders and shall not have been  stayed,  reversed,  vacated or rescinded in any
respect.

          (e) Payment of Fees.  The Borrower  shall have paid to the Agent,  the
Fronting Banks, the Underwriters and the New Revolving Lenders,  the then unpaid
balance of all accrued and unpaid  Fees then  payable  under or pursuant to this
Agreement.

          (f) Required Inventory.  The Borrower shall have Required Inventory on
the date of each  Borrowing or the issuance of each Letter of Credit  hereunder.

     The request by the  Borrower  for, and the  acceptance  by the Borrower of,
each extension of credit  hereunder shall be deemed to be a  representation  and
warranty by the Borrower that the conditions specified in this Section have been
satisfied at that time.

SECTION 5.   AFFIRMATIVE COVENANTS

     From the date hereof and for so long as any  Commitment  shall be in effect
or any Letter of Credit shall remain  outstanding (in a face amount in excess of
the amount of cash then held in the relevant  Letter of Credit Account  pursuant
to Section  2.12(h)),  or any amount shall remain  outstanding under any Note or
unpaid under this Agreement, the Borrower agrees that it will, and it will cause
each Subsidiary to:

     Section 5.1. Financial  Statements,  Reports, etc. Deliver to the Agent and
each of the Fronting Banks and the Lenders (or, in the case of the weekly report
delivered  pursuant to Section 5.1(l),  deliver to the Agent for distribution to
the Fronting Banks and the Lenders):

          (a) as soon as available and in any event within 90 days after the end
of each fiscal  year,  the  consolidated  balance  sheet of the Borrower and its
Consolidated  Subsidiaries  as of the  end  of  such  fiscal  year  and  related
consolidated  statements of income and cash flows for such fiscal year,  setting
forth  in each  case in  comparative  form the  figures  for the  previous  year
(unless, in accordance with GAAP, such comparative  financial statements are not
prepared),  the  consolidated  statement of the  Borrower  and its  Consolidated
Subsidiaries to be audited for the Borrower by independent public accountants of
recognized  national standing acceptable to the Required Lenders and accompanied
by an opinion of such accountants  (which shall not be qualified in any material
respect);


<PAGE>67


          (b) as soon as available and in any event within 45 days after the end
of each of the first three  fiscal  quarters and within 90 days after the end of
the fourth fiscal quarter of each fiscal year of the Borrower,  the consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of
such quarter and related  consolidated  statements  of income and cash flows for
such fiscal quarter,  setting forth in each case in comparative form the figures
for the  corresponding  quarter and the  corresponding  portion of the  previous
fiscal year,  together with a comparison of such results to the relevant portion
of the Annual Budget, each certified by a Financial Officer as fairly presenting
the  financial  condition  and results of  operations  of the  Borrower  and its
Consolidated  Subsidiaries  on a  consolidated  basis in  accordance  with  GAAP
consistently  applied,  subject to normal  year-end audit  adjustments (it being
understood  that  the  Borrower  shall  also  deliver  copies  of the  financial
statements  delivered  pursuant to this clause (b) with respect to the first two
quarters  of  its  1998  fiscal  year,  together  with  copies  of  the  related
certificates  delivered  pursuant to clause (c) below,  to Arthur  Andersen LLP,
financial advisors to the Debtor's Unsecured Creditors' Committee);

          (c)  concurrently  with any  delivery of  financial  statements  under
clauses  (a)  or  (b)  above,   (i)  a  certificate  of  a  Financial   Officer,
substantially  in the form of Exhibit N hereto,  certifying  such statements (A)
stating that no Default or Event of Default has occurred, or, if such Default or
Event of Default has occurred,  specifying  the nature,  the period of existence
and extent thereof and any corrective  action taken or proposed to be taken with
respect  thereto  and  (B)  setting  forth  computations  in  reasonable  detail
satisfactory to the Agent  demonstrating  whether the Borrower was in compliance
with the  provisions of Sections 6.4, 6.7 and 6.16 on the date of such financial
statements and (ii) a certificate of such  accountants  accompanying the audited
consolidated  financial statements delivered under (a) above certifying that, in
the  course  of  the  regular  audit  of the  business  of  the  Borrower,  such
accountants have obtained no knowledge that an Event of Default has occurred and
is continuing,  or if, in the opinion of such  accountants,  an Event of Default
has occurred and is  continuing,  specifying the nature thereof and all relevant
facts with  respect  thereto;

          (d) within 15 Business  Days of the end of each  fiscal  month (or, in
the case of the last fiscal month of the Borrower in each fiscal year, within 45
days),  commencing  with  the  fiscal  month  in which  the  Effective  Date has
occurred,  a  consolidated  balance  sheet of the Borrower and its  Consolidated
Subsidiaries,  related  statement of income and cash flows showing the financial
condition of the Borrower and its  Consolidated  Subsidiaries and the results of
operations as of the close of such fiscal month and the then elapsed  portion of
the fiscal year,  setting forth in each case in comparative form the figures for
the corresponding month and the corresponding portion of the Borrower's previous
fiscal year,  together with a comparison of such results to the relevant portion
of the Annual Budget.

          (e) as soon as  practicable,  and in any  event  within 45 days of the
Effective Date, a pro forma statement of the Borrower's  financial  condition as
of the Effective Date in form, scope and detail  reasonably  satisfactory to the
Agent; 

          (f) within 45 days  after the  commencement  of each  fiscal  year,  a
forecast of the  financial  condition  and results of operations of the Borrower
and its  Consolidated  Subsidiaries,  by


<PAGE>68


month,  for the twelve  fiscal  months  commencing  with the first month of such
fiscal year (the "Annual  Budget"),  and not later than 45 days after the end of
each of the  first  three  quarters  of each  fiscal  year  of the  Borrower,  a
narrative  discussion by  management of the Borrower of the financial  condition
and results of operations of the Borrower and its Consolidated  Subsidiaries for
such period,  together with a reforecast for the balance of such fiscal year, in
all instances in form, scope and detail satisfactory to the Agent;

          (g) on the  earlier of the date of  delivery  by the  Borrower  to the
Agent, the Fronting Banks and the Lenders of the financial  statements  required
to be delivered pursuant to Section 5.1(a) covering such fiscal year and 90 days
after such  fiscal  year,  an Excess  Cash Flow  Certificate  setting  forth the
calculation of Excess Cash Flow based upon such fiscal year's audited  financial
statements  then  delivered;

          (h) promptly upon request therefor by the Agent, copies of all reports
submitted by independent  public  accountants to the Borrower in connection with
each  annual,  interim  or  special  audit of the  financial  statements  of the
Borrower and its Consolidated Subsidiaries,  including,  without limitation, any
comment letters  submitted by such  accountants to management in connection with
their  annual  audit;

          (i)  simultaneously  with  the  delivery  of  each  set  of  financial
statements  referred to in clauses (a) and (b) above, a certificate of the chief
financial officer of the Borrower, in form and substance reasonably satisfactory
to the  Agent,  describing  all  gains  and  losses  by  the  Borrower  and  its
Consolidated  Subsidiaries  for such fiscal  quarter just ended from the sale or
other disposition of their assets which do not constitute extraordinary gains or
losses  under GAAP and for which the sale  price or book value for such  capital
asset at time of sale is greater than  $3,000,000;

          (j)  forthwith  upon  becoming  aware of (i) any  litigation  or other
proceeding  which could reasonably be expected to have a Material Adverse Effect
or (ii) any default with  respect to any  obligation  of the Borrower  under any
agreement,  instrument, or other undertaking to which the Borrower or any of its
Subsidiaries  is a party or by which it or any of its properties is bound or any
event or condition  which could  reasonably  be expected to have such a material
adverse  effect,  notice  thereof;

          (k) promptly upon becoming aware of any Material  Adverse Effect since
the Effective Date, notice thereof;

          (l) within six  Business  Days of the end of each week, a flash report
reflecting  sales and gross  margins  for such  week in form,  scope and  detail
reasonably satisfactory to the Agent;

          (m) (i)  promptly  and in any event  within 30 days  after the  filing
     thereof  with the  Internal  Revenue  Service,  copies of each  Schedule  B
     (Actuarial  Information)  to the  annual  report  (Form 5500  Series)  with
     respect to each Plan;


<PAGE>69


               (ii) promptly and in any event within fifteen (15) days after the
     Borrower  knows or has reason to know that any ERISA Event has occurred,  a
     statement of the chief  financial  officer of the Borrower  describing such
     ERISA Event and the action,  if any, which the Borrower,  any Subsidiary or
     any  ERISA  Affiliate  of  either of them  proposes  to take  with  respect
     thereto;

               (iii)  promptly  and in any event within ten (10)  Business  Days
     after  receipt  thereof  by the  Borrower  or any  Subsidiary  or any ERISA
     Affiliate  of either of them,  copies of each notice from the PBGC  stating
     its  intention  to  terminate  any Plan or to have a trustee  appointed  to
     administer any Plan; and

               (iv)  promptly  and in any event  within ten (10)  Business  Days
     after  receipt  thereof  by the  Borrower  or any  Subsidiary  or any ERISA
     Affiliate  of either of them from the sponsor of a  Multiemployer  Plan,  a
     copy of each notice  concerning (1) the imposition of Withdrawal  Liability
     by a Multiemployer Plan, (2) the reorganization or termination,  within the
     meaning of Title IV of ERISA, of any  Multiemployer  Plan or (3) the amount
     of liability  incurred,  or which may be  incurred,  by the Borrower or any
     Subsidiary or any ERISA  Affiliate of either of them in connection with any
     event described in clause (1) or (2) above;

          (n) promptly upon the formation of any Subsidiary, notice thereof;

          (o)  promptly  upon the  release of any Liens or the  satisfaction  or
discharge of all or a portion of the Liens securing the Real Estate Financing or
the Liens granted under the Synthetic  Lease Loan  Documents or Liens granted to
any  other  lenders,  notice  thereof;

          (p)  promptly  upon the merger of any  Subsidiary  into the  Borrower,
notice  thereof;

          (q) promptly  upon the opening of any store or other retail  location,
notice  thereof and, to the extent such store or other  retail  location is in a
jurisdiction in which UCC-1 Financing  Statements have not been delivered to the
Agent,  promptly  deliver  executed  UCC-1  Financing  Statements  on forms then
provided by the Agent to the  Borrower;

          (r) within three (3) Business Days after any amendment,  modification,
supplement  to or  waiver  of any  provisions  of the UBS  Loan  Documents,  the
Synthetic Lease Loan Documents,  the GE Credit Program  Documents,  or any other
material credit arrangements,  notice thereof, together with a copy of each such
fully executed amendment, modification, supplement or waiver;

          (s) without limiting any of the Borrower's  other  obligations to give
notice  under the Loan  Documents,  within  fifteen (15) days of the end of each
fiscal quarter,  furnish to the Agent lists of (i) all  After-Acquired  Property
and Vehicles  acquired by the Borrower or any  Subsidiary  during such  quarter,
(ii) all  Trademarks  for  which  the  Borrower  or any  Subsidiary  has filed a
registration application during such quarter and (iii) all property which became
Available  Property during such


<PAGE>70


quarter,  setting forth in each case the date of  acquisition  or filing thereof
and otherwise  substantially  in the form of Exhibit O hereto,  all certified by
the chief financial officer of the Borrower;

          (t) on the  second  Business  Day of the first and third full weeks of
each  fiscal  month of the  Borrower,  deliver  to the Agent and each  Lender an
Inventory Compliance Certificate,  substantially in the form of Exhibit M hereto
(an "Inventory Compliance Certificate"),  certifying that the Borrower continues
to maintain Required Inventory;

          (u)  promptly,  upon the mailing  thereof to the  shareholders  of the
Borrower  generally,  copies  of all  financial  statements,  reports  and proxy
statements so mailed;

          (v) promptly,  and in any event within ten (10) Business Days prior to
the proposed closing of any purchase or refinancing by the Borrower of any notes
payable to one or more of the Synthetic  Lease Banks,  written  notice as to the
identity  of the  purchaser,  the  applicable  purchase  price and the  proposed
payment  date,  together  with  a copy  of the  proposed  purchase  and  release
documents;  and

          (w) promptly,  from time to time, such other information regarding the
operations,  business  affairs and  financial  condition  of the Borrower or its
Subsidiaries,  or  compliance  with the terms of any material  loan or financing
agreements as the Agent, any Fronting Bank or any Lender may reasonably request.


     Section 5.2.  Conduct of Business;  Maintenance  of Existence.  Continue to
engage in business of the same general type as now conducted by the Borrower and
its  Subsidiaries,  and will preserve,  renew and keep in full force and effect,
and,  except as  permitted  by Section  6.3(f),  will cause each  Subsidiary  to
preserve,  renew and keep in full force and  effect,  its  respective  corporate
existence and its respective  rights,  privileges and franchises except for such
rights,  privileges and franchises when the failure of which to preserve,  renew
and keep in full force and effect  could not  reasonably  be  expected to have a
Material Adverse Effect.

     Section  5.3.  Maintenance  of Property;  Insurance.  (a) Keep all material
property  useful  and  necessary  in its  business  in good  working  order  and
condition, ordinary wear and tear excepted.

     (b)  Keep  its  material  properties   (including  without  limitation  all
Property)  insured at all times with financially  sound and reputable  insurance
companies,  against  such risks as is  customary  for  companies  of the same or
similar size in the same or similar  businesses;  provided,  that such insurance
shall (i) insure the property (including without limitation all Property) of the
Borrower and its  Subsidiaries  (other than motor vehicles)  against all risk of
loss or damage including, without limitation, loss by fire, explosion, theft and
such other casualties as may be reasonably  satisfactory to the Agent, but in no
event in an amount less than the replacement cost value thereof, and (ii) insure
the Borrower and its  Subsidiaries,  and the Agent and the other Secured Parties
against  comprehensive  general and  automobile  liability in an amount not less
than $1,000,000 per occurrence under primary insurance  policies,  with not less
than $45,000,000 per occurrence coverage under umbrella insurance policies


<PAGE>71


for personal injury,  bodily injury and property damage relating to the property
and operations of the Borrower and its Subsidiaries, such policies to be in such
form and amounts and having such coverage as may be reasonably  satisfactory  to
the Agent. All such insurance shall, within twenty days after the Effective Date
(i)  contain  a breach  of  warranty  clause in favor of the Agent and the other
Secured Parties in all loss or damage insurance policies and have a severability
of interest  clause in all liability  insurance  policies,  (ii) provide that no
cancellation,  material  reduction  in amount  or  material  change in  coverage
thereof shall be effective  until at least 30 days after  written  notice to the
Agent  thereof,  (iii) name the Agent for the benefit of the Secured  Parties as
loss payee for physical damage  insurance with respect to property as to which a
Lien has been granted to the Agent, with the right to adjust the same (provided,
that with  respect to  property  to which a Lien  permitted  hereunder  has been
granted  to another  creditor,  such  other  creditor  may also be named as loss
payee, with payment to be made as their interests may appear) and name the Agent
and the other Secured  Parties as additional  insureds for liability  insurance,
with the Agent having the right to adjust the same,  (iv) state that neither the
Agent nor any of the other Secured  Parties shall be  responsible  for premiums,
commissions,  club calls,  assessments or advances,  (v) contain a waiver of all
rights of set-off, counterclaim,  deduction or subrogation against the Agent and
the other  Secured  Parties  and (vi) be  reasonably  satisfactory  in all other
respects (including deductibles) to the Agent.

     (c) Furnish to the Agent, on or prior to the Effective Date, a schedule,  a
copy of which is annexed as Schedule 5.3, describing all insurance maintained by
the Borrower,  which schedule shall set forth,  for each insurance  policy,  the
policy number,  the scope of coverage,  the policy limits and  deductibles,  the
insurer (and reinsurers, if applicable) and the expiration date.

     (d) Furnish to the Agent, original certificates of insurance complying with
the  requirements  of this Section set forth above and containing  signatures of
duly authorized representatives of the insurer, on or prior to the date which is
twenty  days  after  the  Effective  Date  and  at all  times  prior  to  policy
termination, cessation or cancellation.

     (e) Maintain such other  insurance or self  insurance as may be required by
law or as the Agent may reasonably request.

     Section 5.4. Compliance with Laws. Comply in all material respects with all
applicable   laws,   ordinances,   rules,   regulations,   and  requirements  of
Governmental Authorities (including, without limitation, ERISA) except where the
necessity of  compliance  therewith  is  contested in good faith by  appropriate
proceedings,  and the  Borrower or such  Subsidiary  have set aside on its books
adequate  reserves  (determined in accordance with GAAP) with respect thereto or
where the failure to comply therewith could not reasonably be expected to have a
Material Adverse Effect.

     Section  5.5.  Obligations  and  Taxes.  Pay all its  material  obligations
promptly and in accordance  with their terms and pay and discharge  promptly all
material taxes,  assessments and governmental  charges or levies imposed upon it
or upon its income or profits  or in  respect  of its  property  before the same
shall  become in  default,  as well as all  material  lawful  claims  for labor,
materials  and supplies or otherwise  which,  if unpaid,  might become a Lien or
charge upon such


<PAGE>72


properties or any part thereof; provided, that the Borrower and its Subsidiaries
shall not be required to pay and discharge or to cause to be paid and discharged
any such  tax,  assessment,  charge,  levy or claim so long as the  validity  or
amount thereof shall be contested in good faith by appropriate  proceedings  (if
the Borrower or such  Subsidiary  shall have  established  on its books adequate
reserves  therefor).  For purposes of this Section,  the term "obligation" shall
not include those obligations discharged under the Plan of Reorganization.

     Section 5.6.  Notice of Event of Default,  etc.  Promptly give to the Agent
notice in writing of any Default or Event of Default  hereunder  or under any of
the other Loan Documents.

     Section  5.7.  Access  to  Books  and  Records.  Maintain  or  cause  to be
maintained  at all times true and  complete  books and records of the  financial
operations of the Borrower and its  Subsidiaries;  and provide the Agent and its
representatives  access to all such books and records  during  regular  business
hours,  in order that the Agent may examine and make  abstracts from such books,
accounts,  records and other papers for the purpose of verifying the accuracy of
the various reports  delivered by the Borrower to the Agent,  the Fronting Banks
or  the  Lenders  pursuant  to  this  Agreement  or for  otherwise  ascertaining
compliance with this Agreement; and at any reasonable time and from time to time
during regular business hours, upon reasonable notice,  permit the Agent and any
agents or representatives (including, without limitation, appraisers) thereof to
visit  the  properties  of the  Borrower  and its  Subsidiaries  and to  conduct
examinations of and to monitor the Collateral.

     Section  5.8.  Modifications  to  Business  Plan.  As soon as  practicable,
furnish  to  the  Agent,  the  Lenders  and  the  Fronting  Banks  all  material
modifications  to the Business Plan,  and make its senior  officers and advisors
available to discuss the same with the Agent and its  advisors  upon the Agent's
reasonable request.

     Section 5.9.  Customer Charge Sales.  Continue to maintain a "Project Card"
and commercial  credit  receivables  sales and  administration  program with the
Credit  Card Banks  pursuant  to the GE Credit  Program  Documents  or a similar
program (it being understood that a program shall not be deemed to be dissimilar
solely by virtue of the fact that the Borrower shall act as the administrator or
"servicer" of the receivables  thereunder) with another Person,  in each case on
terms and conditions which are, in the aggregate,  not materially less favorable
to the Borrower nor materially more  restrictive  than those provided for in the
GE Credit  Program  Documents  as in effect on the  Effective  Date  (except for
changes in such terms and  conditions  which are acceptable to the Agent and the
Required Lenders in their judgment reasonably exercised) .

     Section 5.10. Lender  Meetings.From time to time as requested by the Agent,
the Majority Term Lenders or the Majority  Revolving Lenders,  participate,  and
cause the chief  financial  officer to be available for and to participate in, a
meeting of the Agent and the Lenders to be held,  at  reasonable  intervals,  at
locations and at times  requested by the Agent (and if applicable,  the Majority
Term  Lenders  or the  Majority  Revolving  Lenders,  as the case  may be),  and
reasonably satisfactory to the Borrower.



<PAGE>73


     Section  5.11.  Available  and  After-Acquired   Properties.  If  any  real
property, buildings,  fixtures, equipment or improvements owned or leased by the
Borrower or any Subsidiary  become  Available  Property,  or the Borrower or any
Subsidiary  acquires  any  interest  in  any  real  property  including  without
limitation a leasehold interest and any related buildings,  fixtures,  equipment
or improvements (each such property or interest, an "After-Acquired  Property"),
promptly, but in any event within 30 days, provide written notice thereof to the
Agent, setting forth with specificity a description of such property or interest
acquired,  the location of the property interest, any structures or improvements
thereon and an appraisal  or its good faith  estimate of the current fair market
value of such  property or interest.  If the Agent so requests,  the Borrower or
the  relevant  Subsidiary  shall  promptly  execute  and  deliver to the Agent a
mortgage or deed of trust,  substantially  in the form of  Exhibits  D-3 and D-4
hereto,  respectively  (with such  changes as may be deemed  appropriate  by the
Agent's local real estate counsel for the state in question), together with such
other documents or instruments as the Agent shall reasonably require,  including
(without  limitation) a Title Policy, a Survey, a Phase I environmental  report,
UCC  Financing  Statements  and an opinion  of the  Agent's  local  real  estate
counsel.  The Borrower  shall pay all  reasonable  fees and expenses,  including
attorneys'  fees  and  expenses  or  the  allocated  charges  and  premiums,  in
connection with its obligation under this Section. If at any time after the date
hereof,  any existing  Lien or  sale-leaseback  arrangement  which  prevents the
further mortgaging of any real property of the Borrower or any Subsidiary, shall
for any reason no longer  prevent such further  mortgaging,  then such  property
shall also be deemed an After-Acquired Property for purposes of this Section.

     Section 5.12. Subsidiaries;  Subsidiary Guarantees and Security Agreements.
Use its best  efforts to conduct all of its  business,  to the extent  feasible,
through  a single  corporate  entity  (i.e.,  the  Borrower)  and to  avoid  the
formation or acquisition of Subsidiaries.  Notwithstanding the foregoing, in the
event that the Borrower  determines  that it is in its best  interest to form or
acquire a  Subsidiary,  the Borrower  will,  in addition to  complying  with the
requirements of Section 6.10(iv),  cause such Subsidiary to be wholly-owned,  to
have  aggregate net payables  owing to the Borrower of less than  $10,000,000 at
all times and to execute and deliver to the Agent for the benefit of the Secured
Parties a guarantee,  substantially  in the form of Exhibit E hereto, a security
agreement  granting   collateral   security  for  the  guaranteed   obligations,
substantially  in the form of  Exhibit F hereto,  and such other  documents  and
opinions in connection  therewith as the Agent shall reasonably request,  all in
form and substance satisfactory to the Agent. Such guarantee, security agreement
and such other  documents  shall be delivered to the Agent no later than 30 days
after the date on which such Subsidiary has been formed or otherwise acquired by
the Borrower.

     Section 5.13. Further Assurances.  At the Borrower's cost and expense, upon
request of the Agent, duly execute and deliver, or cause to be duly executed and
delivered,  such  further  instruments  and do and cause to be done such further
acts as may be necessary or desirable in the opinion of the Agent or its counsel
to give effect to the  provisions  and purposes of this  Agreement and the other
Loan Documents.

     Section 5.14.  Maintenance of Cash Management System.  Maintain and, to the
extent  practicable,  cause each of its  Subsidiaries  to  maintain,  all of its
significant operating accounts and


<PAGE>74


demand deposit  accounts used for paying and receiving  purposes in the ordinary
course of its business with the Cash Management  Banks, any of the Lenders which
is a commercial  bank or any Affiliate of any Lender which is a commercial  bank
or any other  commercial bank acceptable to the Agent and the Required  Lenders,
in each case,  which  commercial  bank agrees,  if requested by the Agent, to be
bound  by the  terms  of this  Agreement  in  writing.  In  connection  with the
foregoing, the Borrower will, to the extent practicable, cause substantially all
of its available  operating  funds to be  concentrated,  on a daily basis,  in a
concentration  account  which shall at all times be  maintained  with one of the
Cash Management Banks.

     Section 5.15. Environmental Undertaking.  In the event the Agent determines
that any  representation  hereunder may be incorrect or that the Borrower or any
Subsidiary  has failed to comply with any covenant  contained in Section 6.15 in
any material respect, promptly undertake such investigations, studies, samplings
and testings relative to any Hazardous  Substance at the Property in question as
the Agent may request.

     Section 5.16. Post-Closing Matters

          (a) To the extent any  Mortgages,  Surveys or Title  Policies were not
delivered to the Agent on the Effective Date pursuant to Section  4.1(l),  cause
such Mortgages to be executed and delivered in recordable form for filing in the
appropriate  filing or recording  offices  within  fifteen days of the Effective
Date and cause any outstanding Surveys and Title Policies to be delivered to the
Agent within 60 days of the  Effective  Date or such longer period not to exceed
an  additional  30 days to which the Agent may consent.  All Title  Policies and
Surveys must be reasonably acceptable to the Agent in all respects.

          (b) To the extent that the Borrower shall not have delivered a Phase I
environmental  report  with  respect  to the real  properties  constituting  UBS
Collateral as to which Mortgages are to be delivered  pursuant to Section 4.1(l)
as of the Effective Date, upon the Agent's reasonable request, at the Borrower's
expense,  cause such a report to be  prepared  and deliver the same to the Agent
within 30 days of such request.  All such Phase I environmental  reports must be
reasonably acceptable to the Agent in all respects.

          (c) To the extent that the Borrower  shall not have  delivered  all of
the  documentation  required by Section 5.3 to the Agent on the Effective  Date,
deliver the same within the time period provided therein.

          (d) To the extent that the Borrower  shall not have  delivered  all of
the original  certificates  of title for  vehicles  pledged to the Agent for its
benefit and the  benefit of the other  Secured  Parties as required  pursuant to
Section 4.1(n) as of the Effective Date, deliver the same within sixty (60) days
of the Effective Date.



<PAGE>75


SECTION 6.   NEGATIVE COVENANTS

     From the date hereof and for so long as any  Commitment  shall be in effect
or any Letter of Credit shall remain  outstanding (in a face amount in excess of
the amount of cash then held in the relevant Letter of Credit Account,  pursuant
to Section  2.12(h)) or any amount  shall remain  outstanding  under any Note or
unpaid  under this  Agreement,  the  Borrower  will not, and will not permit any
Subsidiary to:

     Section 6.1. Liens.  Incur,  create,  assume or suffer to exist any Lien on
any asset now owned or hereafter acquired by the Borrower,  other than (i) Liens
which were existing on the  Effective  Date as reflected on Schedule 3.6 hereto,
(ii)  Liens of the  same  type as (and no more  extensive  than)  those  granted
pursuant to the GE Credit Program Documents in favor of another Person replacing
the Credit Card Banks in providing the Borrower's  "Project Card" and commercial
credit receivables sales and  administration  program in accordance with Section
5.9, (iii) Liens granted pursuant to the Security Documents;  (iv) Liens granted
on the UBS  Collateral  pursuant to the Real Estate  Financing and Liens granted
pursuant to the Synthetic Lease Loan Documents and (v) Permitted Liens.

     Section 6.2. Debt. Contract,  create,  incur, assume or suffer to exist any
Debt, except for (i) the Loans and the Letters of Credit,  (ii) Debt of the type
described in clause  (viii) of the  definition of "Debt," to the extent that the
aggregate notional or face amount of all such Debt, when taken together with all
outstanding  Hedging  Obligations,  does  not  exceed  $36,000,000,  (iii)  Debt
outstanding under the UBS Loan Documents and the Synthetic Lease Loan Documents,
each as in effect on the Effective Date, and any Permitted Refinancing Debt, but
not the increase or  refunding  of such Debt in whole or in part,  except to the
extent  the  same  constitutes  Permitted  Refinancing  Debt,  (iv)  Debt of the
Borrower and its Subsidiaries  outstanding under Capitalized Leases as in effect
on the  Effective  Date,  (v) Debt not in excess of  $2,000,000 in the aggregate
secured by Permitted Liens of the type described in clause (v) of the definition
thereof,  (vi)  Debt of the  Borrower  and its  Subsidiaries  outstanding  under
Capitalized Leases entered into after the Effective Date to the extent permitted
by  Section  6.4,  (vii)  Debt  arising  from  Investments  that  are  permitted
hereunder,  and (viii) Debt incurred under the GE Credit  Program  Documents and
any other agreements permitted under Section 5.9.

     Section 6.3.  Consolidations,  Mergers and Sales of Assets. (i) Consolidate
or merge with or into any other Person,  (ii) enter into a partnership  or joint
venture  with  another  Person  (other  than  by  the  acquisition  of  Minority
Investments  to the extent  permitted by Section  6.10),  or (iii) sell,  lease,
assign or otherwise  transfer (whether  voluntarily or involuntarily) all or any
part of its assets except:

          (a) sales of Inventory in the ordinary course of business and
customer  receivable  sales pursuant to the GE Credit  Program  Documents or any
similar program entered into in accordance with Section 5.9;

          (b) sales or  transfers of assets  described  in clauses (i),  (ii) or
(iv) of the definition of "Designated  Collateral" and sales or transfers of any
other  assets of the  Borrower  (not  permitted  by any other  provision of this
Section);  provided,  that (1) the sale price of each such asset (whether


<PAGE>76


or not part of  Designated  Collateral)  shall not be less than the fair  market
value of such asset at the time of sale thereof  (and, if the sale price thereof
is equal to or greater than $5,000,000, then the fair market value of such asset
shall be  determined in good faith and approved by the Board of Directors of the
Borrower),  (2) prior to or concurrently  with each such sale for which the sale
price is  equal to or  greater  than  $5,000,000,  the  Borrower  shall  deliver
evidence to the Agent satisfactory to it of the fair market value at the time of
sale of the asset  being sold as  determined  by the Board of  Directors  of the
Borrower,  (3) not less than 65% of the sale price for each asset sold  pursuant
to this  clause (b) shall be  payable in cash on the date of such sale,  (4) the
non-cash  portion of the sale price therefor,  if any, shall be evidenced by one
or more  promissory  notes  maturing no later than three years after the date of
such sale which shall be pledged to the Agent as provided in Section  6.10(v) or
(vii),  (5) no such sale shall be  permitted  unless (x) the asset so sold shall
constitute  Designated  Collateral  or shall be sold pursuant to a Permitted Pad
Sale or (y) the sale price of the asset so sold, together with the sale price of
all assets  (excluding  assets  described in subclause  (x)  immediately  above)
previously sold under this clause (b) in the same fiscal year of the Borrower in
which such asset is being sold, shall not exceed $2,000,000 and (6) if such sale
is to an Affiliate, it is made in compliance with Section 6.9;

          (c) the  replacement  in the  ordinary  course of  business of rolling
stock and equipment of the Borrower and its Subsidiaries;

          (d) the sale or other  disposition,  subject to the Lien of the Agent,
by the Borrower to any of its Subsidiaries in the ordinary course of business of
machinery  and  equipment  of the  Borrower no longer  necessary  for the proper
conduct of the Borrower's  business  having a value,  together with the value of
all other  property  of the  Borrower  so sold or disposed of in the same fiscal
year of the  Borrower,  of not  greater  than  $5,000,000  and the sale or other
disposition,  subject  to the  Lien of the  Agent,  by the  Subsidiaries  to the
Borrower in the ordinary  course of business of machinery  and equipment of such
Subsidiaries  no longer  necessary for the proper conduct of such  Subsidiaries'
respective  businesses  having a value,  together  with the  value of all  other
property of such  Subsidiaries so sold or disposed of in the same fiscal year of
the Borrower, of not greater than $5,000,000;

          (e) the lease by the  Borrower,  as lessor,  of those  stores and real
estate  described  on Schedule  6.3 and other real  property of the Borrower not
necessary for the operations of the Borrower or any of its Subsidiaries, in each
instance  under this clause (e) having a fair market  value of not greater  than
$5,000,000 individually, or $10,000,000 in the aggregate at any one time for all
real property leased under this clause (e); provided,  that such leases shall be
entered  into with a Person who is not an  Affiliate of the Borrower on an arms'
length basis for fair consideration and such leases shall not be capital leases;

          (f) the merger of any wholly owned Subsidiary into the Borrower or the
consolidation  of any wholly  owned  Subsidiary  with the  Borrower in which the
Borrower shall be the surviving corporation;

          (g) the transfer of a Property  acceptable to the Majority  Lenders in
their judgment  reasonably  exercised to Paycap in  substitution  for a property
subject to the terms of any of the Capco


<PAGE>77


Subleases;  provided,  that (i) at least fifteen (15) days prior to the proposed
transfer, the Borrower shall furnish current independent appraisals satisfactory
to the Agent  which  demonstrate  that the value of the  Property  subject  to a
Mortgage proposed to be transferred is reasonably equivalent to the value of the
property  subject  to such  Capco  Sublease  and  (ii)  simultaneously  with the
transfer of such Property subject to a Mortgage, such Mortgage shall be released
and such  substituted  property shall become an Available  Property and shall be
subjected to a mortgage or deed of trust,  substantially in the form of Exhibits
D-1 and D-2, respectively (with such changes as may be deemed appropriate by the
Agent's local real estate  counsel for the state in question),  and the Borrower
shall otherwise  comply with its obligations  under Section 5.11 with respect to
such substituted Available Property; and

          (h)  sales  of  assets  securing  the  Real  Estate  Financing  or the
Synthetic Lease Obligations for fair market value;  provided,  that the Net Cash
Proceeds  thereof are applied to the  repayment or prepayment of the Real Estate
Financing or the Synthetic Lease Obligations (as the case may be).

     The Borrower  shall  deliver to the Agent,  no less than three (3) Business
Days prior to the date of any expected sale or other disposition permitted under
clause (b) (but only if any such sale or disposition under such clause (b) has a
sale price of  $1,000,000  or more) or clause (e) of this Section  6.3,  written
notice of the expected date of the closing of such sale or other disposition and
the  expected  date of receipt by the  Borrower  of the Net Cash  Proceeds  with
respect  thereto;  provided,  that with  respect to any  expected  sale or other
disposition of any Property subject to Liens in favor of the Agent, the Borrower
shall deliver to the Agent,  no less than thirty (30) Business Days prior to the
closing  thereof,  (x)  written  notice  of the  identity  of the  purchaser  or
transferee,  the expected date of the closing of such sale or other  disposition
and the principal terms of the sale or other disposition and (y) the form of the
purchase agreement to be delivered at the closing thereof.

     Directly or indirectly,  make any expenditures or incur any obligations for
fixed or capital assets or in respect of Capitalized Leases,  including, but not
limited to (x) payments on account of any Debt permitted pursuant to Section 6.2
(v), and (y) goodwill  associated with any permitted  Capital  Expenditure  that
constitutes an Investment (collectively,  "Capital Expenditures"), in excess, in
the  aggregate  for the  Borrower  and its  Subsidiaries  for all  such  Capital
Expenditures (and for all such Dual Path Capital Expenditures and all such other
permitted  Capital  Expenditures),  of the  respective  amounts  set forth below
opposite each of the fiscal years set forth below:



<PAGE>78


             Fiscal Year   Total Amount  Dual Path     Other

                1998       $59,600,000   $35,700,000   $23,900,000

                1999       $52,100,000   $31,100,000   $21,000,000

                2000       $41,200,000   $20,200,000   $21,000,000

                2001       $51,300,000   $ 5,000,000   $46,300,000

                2002       $52,300,000   $ 5,000,000   $47,300,000;


provided, that if, during any fiscal year of the Borrower set forth above:

          (i)  the aggregate amount of all Dual Path Capital  Expenditures shall
               be less than the  amount  set  forth in the table  above for such
               fiscal  year  (after  the  application  of all Dual Path  Capital
               Expenditures  during such fiscal year, first to amounts available
               for such purpose for such fiscal year  pursuant to the  operation
               of this  proviso),  then  the  amount  of the Dual  Path  Capital
               Expenditures  for the next fiscal year shall be  increased  by an
               amount  equal to the  unutilized  portion  of Dual  Path  Capital
               Expenditures for such fiscal year; and

          (ii) the aggregate amount of all other permitted Capital  Expenditures
               shall be less than the  amount  set forth in the table  above for
               such fiscal year (after the  application  of all other  permitted
               Capital  Expenditures  during such fiscal year,  first to amounts
               available  for such purpose for such fiscal year  pursuant to the
               operation  of  this  proviso),  then  the  amount  of  the  other
               permitted Capital  Expenditures for the next fiscal year shall be
               increased by an amount equal to the lesser of (x) an amount equal
               to the unutilized portion of other permitted Capital Expenditures
               and (y) 50% of the amount of other permitted Capital Expenditures
               for such fiscal year;



<PAGE>79



provided  further,  that commencing with the Borrower's 1999 fiscal year, to the
extent  that  the  sum of (x)  the  interest  expense  of the  Borrower  and its
Consolidated   Subsidiaries  during  such  fiscal  year  plus  (y)  the  Capital
Expenditures  made during such fiscal year pursuant to this Section is in excess
of EBITDA for such fiscal  year,  the amount of Capital  Expenditures  permitted
pursuant to this  Section in the next fiscal year shall be reduced by the amount
of such excess on a dollar-for-dollar basis.

     In the event that the  Borrower or any of its  Subsidiaries  shall sell (or
has sold), or shall receive (or has received)  insurance  proceeds in connection
with the  destruction  of, a fixed or capital  asset  owned by it (other  than a
fixed or capital asset constituting Designated Collateral) and shall, within six
months  after  the sale or 24  months  after the  destruction  of such  fixed or
capital  asset,  purchase or enter into a  Capitalized  Lease with  respect to a
substantially  similar fixed or capital asset as a replacement  for such sold or
destroyed  fixed or capital asset,  then for purposes of determining  compliance
with this Section,  only that portion of the purchase price or Capitalized Lease
obligation paid, incurred or accrued by the Borrower or such Subsidiary for such
replacement  fixed or  capital  asset in excess of the sale  price or  insurance
proceeds,  as the case may be, of the sold or destroyed similar fixed or capital
asset shall be used in determining such compliance with this Section.

     Notwithstanding  anything to the contrary  contained in this  Section,  (x)
until the first  anniversary  of the Effective  Date,  each Capital  Expenditure
permitted  pursuant to this Section which involves  aggregate expenses in excess
of $1,000,000 or which  involves the  acquisition  (whether by purchase,  lease,
exchange or  otherwise) of any interest in real estate or any  manufacturing  or
other business or operations  shall be approved by the board of directors of the
Borrower by the  affirmative  vote of a majority of the directors then in office
(it being understood that after the first  anniversary of the Effective Date the
Borrower  shall  comply with any then  applicable  requirements  of the board of
directors  concerning the approval of Capital  Expenditures) and (y) there shall
be excluded from the determination of the amount of Capital Expenditures made in
any fiscal year,  Capital  Expenditures  made during any such fiscal year to the
extent of an amount equal to the Net Cash Proceeds  received  during such fiscal
year from any Permitted Pad Sales of real property acquired by the Borrower.

     For  purposes  of  this  Section,  (i)  all  obligations  incurred  under a
Capitalized Lease shall be deemed to have been incurred on the date of execution
of such  lease and (ii) the amount of  obligations  incurred  with  respect to a
Capitalized  Lease  on  such  date  of  execution  of  the  lease  shall  be the
capitalized amount thereof determined in accordance with GAAP.

     Section 6.5. No Negative Pledges. Enter into any agreements (a) prohibiting
(or  resulting  in a default as a result of) the creation or  assumption  of any
Lien upon the properties or assets of the Borrower or any of its Subsidiaries in
favor of the Agent for the  benefit  of the  Secured  Parties  (or any of them),
except for  restrictions  contained in any lease  prohibiting  the mortgaging of
such lease or of the property  leased  thereunder if either (i) such lease has a
fair market value on the date of execution thereof of less than $100,000 or (ii)
the Borrower or such Subsidiary shall have in good faith used reasonable efforts
to obtain the  agreement  of the lessor that is a party  thereto to exclude such
restrictions from such lease and such lessor shall have refused so to agree, (b)
requiring  that the


<PAGE>80


Borrower or any Subsidiary also secure another obligation (other than any of the
Secured  Obligations)  if any of the Secured  Obligations are further secured or
(c)  restricting  the ability of any  Subsidiary  to (i) pay  dividends  or make
capital  distributions  to  the  Borrower  or  another  Subsidiary,   (ii)  make
Investments in the Borrower or any Subsidiary or (iii) repay  Investments by the
Borrower or another Subsidiary in such Subsidiary.

     Section 6.6.  Termination of Plans. Take any action to terminate any of its
Plans  which  could  result  in a  material  liability  of the  Borrower  or any
Subsidiary to any Person.

     Section 6.7. EBITDA; Debt to EBITDA Ratio. (a) Permit cumulative EBITDA for
the four  consecutive  fiscal  quarters  ending  nearest  to the last day of the
months  listed below to be less than the amount  specified  opposite  such month
(increased,  in the case of the first  three  periods  set forth  below,  by the
amount,  if any, by which EBITDA for the fourth quarter of the  Borrower's  1997
fiscal year exceeds $11.5 million):

                      Fiscal Quarter Ending       EBITDA

                       February 1998          $ 43,200,000
                       May 1998               $ 33,600,000
                       August 1998            $ 39,200,000
                       November 1998          $ 59,300,000

                       February 1999          $ 62,400,000
                       May 1999               $ 66,500,000
                       August 1999            $ 70,600,000
                       November 1999          $ 74,500,000

                       February 2000          $ 78,800,000
                       May 2000               $ 87,000,000
                       August 2000            $ 95,700,000
                       November 2000          $101,000,000

                       February 2001          $103,000,000
                       May 2001               $106,200,000
                       August 2001            $109,100,000
                       November 2001          $113,400,000

                       February 2002          $113,700,000
                       May 2002               $113,100,000
                       August 2002            $115,800,000.



<PAGE>81


          (b) Permit the Debt to EBITDA Ratio to be more, on the last day of any
fiscal quarter of the Borrower ending during any month set forth below, than the
ratio set forth opposite the applicable month below:


                             Month           Ratio

                           February 1998   11.9 to 1
                           May 1998        15.0 to 1
                           August 1998     11.9 to 1
                           November 1998   7.2 to 1

                           February 1999   7.3 to 1
                           May 1999        6.9 to 1
                           August 1999     6.1 to 1
                           November 1999   5.6 to 1

                           February 2000   5.6 to 1
                           May 2000        4.9 to 1
                           August 2000     4.2 to 1
                           November 2000   3.7 to 1

                           February 2001   4.0 to 1
                           May 2001        3.9 to 1
                           August 2001     3.6 to 1
                           November 2001   3.3 to 1

                           February 2002   3.7 to 1
                           May 2002        3.7 to 1
                           August 2002     3.4 to 1


     Section 6.8. Restricted Payments.  Declare or make, any Restricted Payment,
except:

          (i)  (x)  regular,   scheduled  or  mandatory  payments  or  mandatory
          prepayments  of principal and interest on Debt for Borrowed  Money and
          (y) optional  prepayments of principal and interest on the Real Estate
          Financing and the Synthetic Lease  Obligations (but only to the extent
          of the net proceeds of any  Permitted  Refinancing  Debt  incurred


<PAGE>82


          for such purpose or the Net Cash  Proceeds of the sale of any Property
          or other assets subject to the Real Estate  Financing or the Synthetic
          Lease Loan Documents);

          (ii) transactions with Affiliates as expressly permitted under Section
          6.9; and

          (iii) payments to the Borrower by a Subsidiary.

     Without limiting the foregoing,  any exercise of a call with respect to the
Real Estate  Financing  which  entails the payment of a premium  (whether or not
with the net proceeds of Permitted  Refinancing  Debt or the sale of Property or
other  assets  subject to the Real  Estate  Financing)  shall  require the prior
written consent of the Majority Term Lenders and the Majority Revolving Lenders,
acting  together (or,  failing that,  Lenders  whose Ratable  Proportion,  taken
together, at least equals 66-2/3%).

     Section 6.9. Transactions with Affiliates. Sell or transfer any Property or
other assets to, or otherwise engage in any other  transactions with, any of its
Affiliates  other than in the ordinary course of business at prices and on terms
and conditions not less favorable to the Borrower,  or the affected  Subsidiary,
than could be obtained on an arm's-length basis from unrelated third parties.

     Section 6.10.  Investments,  Loans and Advances.  Purchase, hold or acquire
any capital stock,  evidences of Debt or other  securities of, make or permit to
exist any loans or advances  to, or make or permit to exist any  investment  in,
any other  Person  by the  Borrower  or any  Subsidiary  (all of the  foregoing,
"Investments"),  except,  in the case of the Borrower,  for (i) the ownership by
the  Borrower of capital  stock of any  Subsidiary  existing on the date hereof,
(ii)  Temporary  Cash  Investments;  provided  however  that  while any Loans or
Letters  of  Credit  are  outstanding  or any  Commitments  are in  effect  such
Investments  shall  not  exceed  $15,000,000  in the  aggregate  at any one time
outstanding  and  shall be  maintained  at all  times in an  investment  account
located in the United States with a Lender  pursuant to  arrangements  which are
consistent with the provisions of this Agreement, (iii) existing Investments set
forth on  Schedule  6.10,  but not any  increase  in the  amount  thereof,  (iv)
Investments in  Subsidiaries  created or acquired after the Effective Date which
constitute Dual Path Capital  Expenditures in an aggregate  amount not to exceed
$10 million for all such  Subsidiaries  at any one time  outstanding;  provided,
that the related shares of capital stock or other equity  securities are pledged
by the Borrower for the benefit of the Secured Parties pursuant to a Supplement,
substantially in the form of Annex B to the Security and Pledge  Agreement,  and
the Borrower  causes each such  Subsidiary  to comply with the  requirements  of
Section 5.11 (it being agreed that an Investment in a Subsidiary  will no longer
be deemed to be outstanding if such  Subsidiary is merged into the Borrower) and
provided further,  that all such Subsidiaries are incorporated in a jurisdiction
in the United  States  and  substantially  all of their  assets are at all times
located in the United States,  (v) Investments in promissory notes  representing
the non-cash  purchase  price for the sales of assets  permitted  under  Section
6.3(b);  provided, that such promissory notes are pledged by the Borrower to the
Agent  for  the  benefit  of  the  Secured  Parties  pursuant  to a  Supplement,
substantially in the form of Annex A to the Security and Pledge Agreement;  (vi)
Minority  Investments,  in addition to those permitted under any other clause of
this Section,  in Persons  organized or


<PAGE>83


incorporated in a jurisdiction in the United States,  substantially all of whose
assets  are  located  in  the  United  States;   provided,  that  such  Minority
Investments  constitute Dual Path Capital  Expenditures and the aggregate amount
of all  such  Minority  Investments  shall  not  exceed  $2,000,000;  and  (vii)
Investments  (not  permitted by any of clauses (i) through (vi) of this Section)
in an amount not exceeding  $1,000,000 in the aggregate  outstanding  at any one
time;  provided,  that any shares of capital stock or other equity securities or
promissory notes or other instruments comprising such Investments are pledged by
the Borrower to the Agent for the benefit of the Secured  Parties  pursuant to a
Supplement,  substantially  in the form of Annex B to the  Security  and  Pledge
Agreement.

     Section  6.11.  Business  Segments.  (i) Suspend the operation of a segment
material  to the  operation  of  its  business  as  presently  conducted,  which
suspension  could  materially  impair the  operations  of the  Borrower  and its
Subsidiaries  taken as a whole;  or (ii)  engage at any time in any  business or
business activity other than the business currently conducted by it and business
activities reasonably incidental thereto.

     Section  6.12.  Accounting  Changes.  Make any  significant  change  in its
accounting treatment or financial reporting practices except as required by GAAP
or change its fiscal year or the method of determining its fiscal quarter ends.

     Section 6.13. Amendment and Modification of Certain Documents. (a) Directly
or indirectly,  amend, modify,  supplement,  waive compliance with, or assent to
noncompliance  with any term,  provision  or  condition  of the  Certificate  of
Incorporation of the Borrower as in effect on the Effective Date which the Agent
or the Majority Revolving Lenders deem material.

          (b)  Directly  or  indirectly,   amend,  modify,   supplement,   waive
compliance  with,  or assent to  noncompliance  with,  any  term,  provision  or
condition of the UBS Loan Agreement or any of the other UBS Loan Documents as in
effect  on the  Effective  Date  hereof  (A)  which  the  Agent or the  Majority
Revolving  Lenders  deem  material   (including,   without  limitation,   terms,
provisions or conditions  relating to events of default,  acceleration rights or
other  remedies,  tenor,  interest  rates,   substitution  of  collateral,   the
non-recourse  nature  of such  financing,  covenants  and  prohibitions  against
amending any of the Loan Documents) or (B) which the Agent reasonably determines
would  place  any  further   material   restrictions  on  the  Borrower  or  its
Subsidiaries  or materially  increase the  obligations of the Borrower or any of
its  Subsidiaries  thereunder  or confer on the  holders  thereof  any  material
additional rights; and

          (c)  Directly  or  indirectly,   amend,  modify,   supplement,   waive
compliance with or assent to noncompliance with any term, provision or condition
of the Synthetic  Lease Loan  Documents as in effect on the  Effective  Date (A)
which the Agent or the  Majority  Revolving  Lenders deem  material  (including,
without  limitation,  terms,  provisions  or  conditions  relating to covenants,
events of  default,  acceleration  rights  or other  remedies,  substitution  of
collateral, interest rates, tenor, prohibitions against amending any of the Loan
Documents or requiring  prepayments with respect to store closings) or (B) which
the Agent reasonably determines would place any further material


<PAGE>84


restrictions on the Borrower or its  Subsidiaries or increase the obligations of
the Borrower or its Subsidiaries thereunder or confer on the holders thereof any
material additional rights.

     Section 6.14.  Sale/Lease-Backs.  Enter into any arrangements,  directly or
indirectly,  with any Person,  whereby the Borrower or any such Subsidiary shall
sell or transfer any property,  whether now owned or hereafter acquired, used or
useful in its business,  in connection  with the rental or lease of the property
so sold or transferred.

     Section  6.15.  Environmental  Matters.  (a)  Use,  generate,  manufacture,
produce,  store,  release,  discharge  or dispose of on, under or about any real
property owned or leased (other than any such leased property which  constitutes
a minor part of a larger  piece of property  over which the Borrower or any such
Subsidiary  has any control (such as a lease of a small number of parking places
in a large parking lot)) by the Borrower or any such  Subsidiary (all such owned
or leased real property, being hereinafter called the "Property"),  or transport
to or from the Property,  any Hazardous Substance,  or (to the extent within the
Borrower's or any such  Subsidiary's  control) permit any other Person to do so,
where such could reasonably be expected to have a Material Adverse Effect.

     (b)  Fail  to keep  and  maintain  the  Property  in  compliance  with  any
Environmental  Law where the  failure to do so could  reasonably  be expected to
have a Material Adverse Effect.

     (c) In the event  that any  investigation,  site  monitoring,  containment,
cleanup, removal,  restoration or other remedial work of any kind or nature (the
"Remedial  Work") with  respect to any portion of the Property is required to be
performed  by the  Borrower  or any of its  Subsidiaries  under  any  applicable
Requirement of Law, or by any Governmental Authority or any other Person because
of, or in connection with, any current or future presence,  suspected  presence,
release or suspected release of a Hazardous  Substance in or into the air, soil,
groundwater  or surface  water at,  on,  under or within  the  Property  (or any
portion thereof),  which could reasonably be expected to have a Material Adverse
Effect (i) fail to notify the Agent promptly in writing,  (ii) fail to commence,
as soon as practicable,  and thereafter diligently prosecute to completion,  all
such  Remedial  Work or (iii) fail to provide the Agent with the results of such
investigations, studies and samplings as may be requested by the Agent.

     (d) As used herein,  (i)  "Environmental  Law" means any federal,  state or
local  law,  statute,  ordinance,  or  regulation  now or  hereafter  in  effect
pertaining to health, safety,  industrial hygiene, or environmental  conditions,
including,  without  limitation,  regulations  promulgated  under  the  Resource
Conservation and Recovery Act (42 U.S.C.  ss.ss. 6901 et seq.) and (ii) the term
"Hazardous  Substance" means those substances included within the definitions of
"hazardous  substances",  "hazardous  materials",  "toxic  substances" or "solid
waste"  under  the  Comprehensive   Environmental  Response,   Compensation  and
Liability  Act of 1980,  as amended,  42 U.S.C.  ss.9601 et seq.,  the  Resource
Conservation  and  Recovery  Act of 1976,  42  U.S.C.  ss.6901  et seq.  and the
Hazardous  Materials  Transportation  Act, 49 U.S.C.  ss.5101 et seq., the Toxic
Substance Control Act, 15 U.S.C. ss.2601 et seq., the Clean Water Act, 33 U.S.C.
ss.1251 et seq.,  and the Clean Air Act,  42 U.S.C.  ss.7401 et seq.  and in the
regulations  promulgated  pursuant  to said  laws,  and such  other  substances,
materials and


<PAGE>85


wastes which are or become  regulated under applicable  local,  state or federal
law, or which are  classified  as hazardous or toxic under  federal,  state,  or
local  laws or  regulations  or any  other  substance  which  may  give  rise to
liability under any Environmental Laws.

     Section 6.16.  Rent  Obligations.  Create or permit any obligations for the
payment of rent or occupancy of premises with respect to operating leases in the
aggregate  for the  Borrower  and its  Subsidiaries,  in any fiscal  year of the
Borrower set forth below in an amount in excess of the amount set forth opposite
such year:

                        Fiscal Year          Rent

                          1998            $26,000,000

                          1999            $28,000,000

                          2000            $30,000,000

                          2001            $32,000,000

                          2002            $34,000,000.


SECTION 7.  EVENTS OF DEFAULT

     Section 7.1. Events of Default.  In the case of the happening of any of the
following  events and the  continuance  thereof beyond the applicable  period of
grace, if any (each, an "Event of Default"):

          (a) any material  representation  or warranty  made by the Borrower in
this  Agreement  or in any  other  Loan  Document  or in  connection  with  this
Agreement or any other Loan  Document or in  connection  with the  execution and
delivery  of this  Agreement  or any of the other Loan  Documents  or the credit
extensions  hereunder or any material  statement or  representation  made in any
report,  financial  statement,  certificate or other  document  furnished by the
Borrower to the Agent, the Underwriters, the Lenders or the Fronting Banks under
or in connection with this Agreement or any of the other Loan  Documents,  shall
prove to have been false or  misleading  in any  material  respect  when made or
delivered; or

          (b)  default  shall  be made in the  payment  of any  principal  of or
interest on the Loans or any other  amounts  payable by the  Borrower  hereunder
(including,   without   limitation,   any   Fees   or   reimbursement   or  cash
collateralization  obligations in respect of Letters of Credit), when and as the
same shall become due and payable,  whether at the due date thereof  (including,
without  limitation,  the  relevant  Maturity  Date)  or  at a  date  fixed  for
prepayment thereof or by acceleration thereof or otherwise; or


<PAGE>86


          (c) default  shall be made by the  Borrower in the due  observance  or
performance of any covenant,  condition or agreement contained in Section 6 (and
such default shall continue  unremedied after notice to the Borrower in the case
of Section 6.9) or in Section 5.11; or

          (d) default shall be made by the Borrower or any Subsidiary in the due
observance or  performance of any other  covenant,  condition or agreement to be
observed  or  performed  pursuant to the terms of this  Agreement  or any of the
other Loan Documents and such default shall continue  unremedied (w) in the case
of Section 5 (other than Sections 5.1(a),  (b) and (t), 5.2,  5.3(a),  5.5, 5.7,
5.9,  5.10,  5.14 and 5.16),  after notice to the  Borrower,  (x) in the case of
Sections 5.1(a),  (b) and (t) and 5.14, for more than five (5) days after notice
to the  Borrower,  (y) in the case of Sections 5.2 and 5.5, for more than thirty
(30) days after notice to the Borrower and (z) in all other cases, for more than
ten (10)  days  after  notice to the  Borrower;  or

          (e) the Borrower or any Subsidiary  shall commence a voluntary case or
other  proceeding  seeking  liquidation,  reorganization  or other  relief  with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or  hereafter  in  effect  or  seeking  the  appointment  of a  trustee,
receiver,  liquidator,  custodian  or  other  similar  official  of  it  or  any
substantial part of its property,  or shall consent to any such relief or to the
appointment of or taking  possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall become unable, admit in writing its inability
or fail  generally  to pay its  debts as they  become  due,  or  shall  take any
corporate action to authorize any of the foregoing; or

          (f) an involuntary case or other proceeding shall be commenced against
the Borrower or any  Subsidiary  seeking  liquidation,  reorganization  or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the  appointment of a trustee,
receiver,  liquidator,  custodian  or  other  similar  official  of  it  or  any
substantial part of its property,  and such involuntary case or other proceeding
shall remain  undismissed  and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any Subsidiary under the federal
bankruptcy  laws as now or hereafter in effect;  or

          (g) other than as provided in the Plan of Reorganization  and upon the
Substantial Consummation thereof, a Change of Control shall have occurred; or

          (h) any material provision of any Loan Document shall, for any reason,
cease to be valid and binding on the Borrower or any Subsidiary, or the Borrower
or such Subsidiary shall so assert in any pleading filed in any court; or

          (i) the  Confirmation  Order shall be reversed,  revoked or vacated in
whole or in part by a court of competent  jurisdiction,  or modified in a manner
or subjected to a stay that adversely affects the Borrower's or any Subsidiary's
ability to perform any of the Secured  Obligations  as determined by the Special
Required Lenders or the Required Revolving Lenders, as the case may be, in their
sole discretion; or


<PAGE>87


          (j) any judgment or order as to a liability or Debt for the payment of
money in excess of  $5,000,000  shall be rendered  against  the  Borrower or any
Subsidiary  and the  enforcement  thereof shall not be subject to any applicable
stay; or 

          (k) any  non-monetary  judgment or order shall be rendered against the
Borrower or any  Subsidiary  which does or would  reasonably  be expected to (i)
cause a Material  Adverse Effect,  or (ii) have a material adverse effect on the
rights and remedies of the Agent,  the  Underwriters,  the Fronting Banks or any
Lender under any Loan Document,  and there shall be any period of 10 consecutive
days during which a stay of enforcement of such judgment or order,  by reason of
a pending appeal or otherwise, shall not be in effect; or

          (l) (i) any Event of Default  occurs  under the  Synthetic  Lease Loan
Documents or the UBS Loan Documents or (ii) the Borrower or any Subsidiary shall
fail to make any payment in respect of any other Debt aggregating  $3,000,000 or
more, in each case when due or within any  applicable  grace period or any event
or condition  shall occur which (x) results in the  acceleration of the maturity
of such other Debt or the  termination  of any commitment to lend any such other
Debt or (y)  enables  (or,  with the  giving of notice or lapse of time or both,
would  enable)  the  holder  of such  other  Debt or any  Person  acting on such
holder's  behalf to accelerate the maturity  thereof or terminate any commitment
to lend such other  Debt;  or

          (m) any ERISA Event shall have occurred with respect to a Plan and, 30
days after  notice of such  occurrence  shall have been given to the Borrower by
the Agent (i) such ERISA Event shall still exist and (ii) the sum (determined as
of the date of occurrence of such ERISA Event) of the Insufficiency of such Plan
and the  Insufficiency of any and all other Plans with respect to which an ERISA
Event shall have occurred and then exist (or, in the case of a Plan with respect
to which an ERISA  Event  described  in  clauses  (b),  (c),  (e) and (f) of the
definition  of ERISA Event shall have  occurred  and then exist,  the  liability
related thereto) is equal to or greater than $3,000,000;

          (n) the Borrower, any Subsidiary or any ERISA Affiliate of any of them
shall have been  notified  by the  sponsor of a  Multiemployer  Plan that it has
incurred  Withdrawal  Liability to such  Multiemployer  Plan in an amount which,
when  aggregated  with all other  amounts  required to be paid to  Multiemployer
Plans by the Borrower,  any Subsidiary or any ERISA  Affiliate of any of them as
Withdrawal Liability  (determined as of the date of such notification),  exceeds
$5,000,000 or requires payments exceeding $2,000,000 per annum;

          (o) the Borrower, any Subsidiary or any ERISA Affiliate of any of them
shall  have been  notified  by the  sponsor  of a  Multiemployer  Plan that such
Multiemployer  Plan is in  reorganization  or is  being  terminated  within  the
meaning  of  Title  IV of  ERISA  if,  as a  result  of such  reorganization  or
termination,   the  aggregate  annual   contributions   of  the  Borrower,   the
Subsidiaries  and their ERISA  Affiliates to all  Multiemployer  Plans which are
then in  reorganization  or being terminated have been or will be increased over
the aggregate amounts contributed to such Multiemployer Plans for the respective
plan year of each such Multiemployer Plan immediately preceding the plan year in
which  the   reorganization  or  termination   occurs  by  an  amount  exceeding
$2,000,000;  or


<PAGE>88


          (p) it shall be determined  (whether by the Bankruptcy Court or by any
other judicial or  administrative  forum) that the Borrower or any Subsidiary is
liable for the  payment of claims  arising  out of any  failure to comply (or to
have complied)  with  applicable  Environmental  Laws, the payment of which will
have a Material Adverse Effect;

then, and in every such event and at any time thereafter  during the continuance
of such event, the Agent may, and at the request of the Special Required Lenders
or the Required  Revolving  Lenders (as the case may be) shall, by notice to the
Borrower,  take one or more of the following  actions,  at the same or different
times:  (i) terminate  forthwith the Total  Commitments;  (ii) declare the Loans
then outstanding to be forthwith due and payable, whereupon the principal of the
Loans,  together with accrued  interest  thereon and any unpaid accrued Fees and
all other liabilities of the Borrower accrued hereunder and under any other Loan
Document (including, without limitation, all amounts due in respect of Letter of
Credit  Outstandings,  whether or not the  beneficiaries of the then outstanding
Letters of Credit shall have presented the documents required thereunder), shall
become forthwith due and payable,  without presentment,  demand,  protest or any
other  notice  of any  kind,  all of which are  hereby  expressly  waived by the
Borrower,  anything  contained  herein  or in any  other  Loan  Document  to the
contrary  notwithstanding;  (iii)  require the Borrower upon demand to forthwith
deposit  in the  respective  Letter of Credit  Accounts  cash in the  respective
amounts equal to the sum of 105% of the then outstanding Standby and Documentary
Letters of Credit  (including any subsequent  increases in the principal amounts
thereof pursuant to provisions of such Letters of Credit as then in effect) and,
to the extent the  Borrower  shall fail to furnish such funds as demanded by the
Agent, the Agent shall be authorized to debit or cause to be debited the account
of the Borrower  maintained  with the Agent or any other  Secured  Party in such
amount;  (iv)  set-off  or cause to be  set-off  amounts in the Letter of Credit
Accounts or any other  accounts  maintained  with the Agent or any other Secured
Party and apply or cause such  amounts to be applied to the  obligations  of the
Borrower  hereunder  and under the other Loan  Documents;  and (v)  exercise and
enforce any and all remedies under the Loan  Documents and under  applicable law
available to the Agent,  the  Fronting  Banks and the  Lenders;  provided,  that
without any notice to the Borrower or any other act by the Agent or the Lenders,
in the case of the  occurrence of (x) any of the Events of Default  specified in
clauses (e) or (f) above with respect to the Borrower or any  Subsidiary  or (y)
any of the Events of Default  specified  in clause (l) above with respect to the
Real Estate Financing as to which UBS either  accelerates the maturity of any of
the Debt owing by the  Borrower or any of its  Subsidiaries  to UBS with respect
thereto or  otherwise  exercises  any of its rights or  remedies  to  liquidate,
realize or foreclose  upon any collateral  securing such Debt,  the  Commitments
shall thereupon terminate and the Notes (together with accrued interest thereon)
and all other Secured  Obligations and liabilities of the Borrower hereunder and
under the other Loan Documents (including,  without limitation,  all amounts due
in respect of Letters of Credit Outstanding, whether or not the beneficiaries of
the then  outstanding  Letters of Credit  shall  have  presented  the  documents
required  thereunder) shall become immediately due and payable as if the Letters
of Credit had been drawn in full without presentment,  demand,  protest or other
notice of any kind, all of which are hereby waived by the Borrower.  In the case
of any  exercise  of the  right of  set-off  with  respect  to  Letter of Credit
Accounts,  such right may be exercised only to pay unreimbursed draws under, and
unpaid fees,  costs and expenses  incurred in  connection  with,  any Letters of
Credit  issued  by the  Fronting  Bank in the name of which  Fronting  Bank such
Letter of Credit Account is maintained,


<PAGE>89


except to the extent that the balance of a Letter of Credit Account exceeds 105%
of the Letter of Credit Outstandings  (including any subsequent increases in the
principal  amounts  thereof  pursuant to provisions of such Letters of Credit as
then in effect) that pertain to such Letter of Credit  Account.  Any such excess
amount may be applied to other Secured Obligations.

     Section 7.2.  Application of Proceeds.  If a Default or an Event of Default
shall have occurred and be  continuing,  all proceeds of the  Collateral and all
other  payments  received  under  this  Agreement  or the other  Loan  Documents
(including  as a  result  of  or in  connection  with  a  proceeding  under  the
Bankruptcy  Code  or any  other  similar  state  law  proceeding  involving  the
Borrower) which constitute  identifiable proceeds of Collateral shall be applied
by the Agent to payment of the Secured Obligations in the following order:

          (i)     FIRST,  to payment of all  unreimbursed  costs and expenses of
                  the Agent which are payable by the Borrower pursuant to any of
                  the Loan Documents and all unreimbursed  costs and expenses of
                  the Lenders which are payable pursuant to Section 9.5;

          (ii)    SECOND,  to payment  first of the accrued and unpaid  interest
                  on, next the principal of and then all other amounts due under
                  the Loan Documents in respect of the New Revolving  Loans, any
                  other Revolving  Obligations  (including any obligation of the
                  Borrower to  reimburse  the  Fronting  Banks for  unreimbursed
                  drawings   made   under   Letters   of  Credit  and  the  cash
                  collateralization  of any  undrawn  Letters  of  Credit  in an
                  amount  equal  to  105% of the  then  undrawn  amount  thereof
                  (including any subsequent  increases in the principal  amounts
                  thereof  pursuant to  provisions  of such Letters of Credit as
                  then  in  effect)),  any  Hedging  Obligations  and  any  Cash
                  Management  Obligations remaining unpaid after the exercise of
                  any  set-off  rights  available  to the  Fronting  Banks,  the
                  Hedging Bank or the Cash Management  Banks pursuant to Section
                  2.23,  such  payment  to  be  made  ratably  amongst  the  New
                  Revolving  Lenders,  the Hedging Bank and the Cash  Management
                  Banks in accordance  with the  proportion  which the aggregate
                  principal  amount of the outstanding New Revolving Loans owing
                  to the New Revolving  Lenders,  or the aggregate amount of any
                  of  such   other   Secured   Obligations   (other   than  Term
                  Obligations), at the time bears to the principal amount of all
                  of such Revolving  Obligations,  Hedging  Obligations and Cash
                  Management  Obligations,  until such  interest,  principal and
                  other  amounts  shall  be  paid  in full  (and,  if the  Total
                  Commitments  have not already been  terminated  at the time of
                  any application of proceeds to the payment of the principal of
                  the New Revolving Loans or Letter of Credit  Outstandings,  or
                  to cash collateralize Letters of Credit, the Total Commitments
                  shall be automatically  and irrevocably  reduced by the amount
                  of such  principal  payment  or the  amount of the  Letters of
                  Credit cash collateralized, as the case may be);


<PAGE>90


          (iii)   THIRD, to payment first of the accrued and unpaid interest on,
                  next the principal of and then all other amounts due under the
                  Loan  Documents in respect of the New Term Loans and any other
                  Term  Obligations,  ratably  amongst  the New Term  Lenders in
                  accordance with the proportion  which the aggregate  principal
                  amount of the outstanding  Term  Obligations  owing to the New
                  Term  Lenders  at the time  bears to the  aggregate  principal
                  amount of such Term  Obligations  until  the  interest  on and
                  principal  of the Term  Obligations  shall be paid or provided
                  for in full;

          (iv)    FOURTH,  to  the  payment  of  any  remaining  unpaid  Secured
                  Obligations  ratably amongst the Secured Parties in accordance
                  with the  proportion  which the amount of such  other  Secured
                  Obligations  owing to each  such  Secured  Party  bears to the
                  aggregate  principal amount of such other Secured  Obligations
                  owing to all of the Secured  Parties  until such other Secured
                  Obligations shall be paid in full; and

          (v)     FIFTH,  the  balance,   if  any,  after  all  of  the  Secured
                  Obligations  have been  satisfied,  shall be  returned  to the
                  Borrower or paid over to such other  Person as may be required
                  by law.

     The Borrower  acknowledges  and agrees that it shall  remain  liable to the
extent  of  any  deficiency  between  (x)  the  amount  of the  proceeds  of the
Collateral  and all other  payments  received  under this  Agreement and applied
pursuant to this  Section to the sums  referred to in the FIRST  through  FOURTH
clauses above and (y) the aggregate  amount of the sums referred to in the FIRST
through FOURTH clauses above.

SECTION 8.   THE AGENT; THE ADMINISTRATIVE AGENT

     Section 8.1. Appointment and Authorization.  Each Secured Party irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers,  under this  Agreement and the Notes and the other Loan
Documents as are delegated to the Agent, as the case may be, by the terms hereof
or thereof, together with all such powers as are reasonably incidental thereto.

     Section 8.2. Agent and Affiliates. The Agent shall have the same rights and
powers under this Agreement as any other Lender and may exercise or refrain from
exercising  the same,  as though  it were not the  Agent,  and the Agent and its
Affiliates may accept deposits from, lend money to, and generally  engage in any
kind of  business  with the  Borrower  or any  Subsidiary  or  Affiliate  of the
Borrower as if it were not the Agent.

     Section 8.3.  Action by Agent.  The  obligations of the Agent hereunder and
under the other Loan  Documents  are only those  expressly  set forth herein and
therein.  Without  limiting the generality of the foregoing,  Agent shall not be
required to take any action with  respect to any  Default,  except


<PAGE>91


as expressly provided in Section 7 and in the Security Documents and except that
the Agent  shall  take such  action  with  respect  to such  Default as shall be
reasonably  directed by the Special Required  Lenders or the Required  Revolving
Lenders,  as the case may be;  provided,  that  unless and until the Agent shall
have  received  such  directions,  the Agent may (but shall not be obligated to)
take such  action,  or refrain  from taking such  action,  with  respect to such
Default as it shall deem advisable.

     Section 8.4.  Consultation with Expoerts.  The Agent may consult with legal
counsel (who may be counsel for the Borrower),  independent  public  accountants
and other experts selected by it and shall not be liable for any action taken or
omitted  to be taken by it in good faith in  accordance  with the advice of such
counsel, accountants or experts.

     Section  8.5.  Liability  of Agent.  Notwithstanding  any other  provision,
express  or  implied,  to the  contrary  in this  Agreement  or any  other  Loan
Document,  neither  the  Agent  nor  any of  its  directors,  officers,  agents,
employees,  attorneys-in-fact or Affiliates shall be liable for any action taken
or not taken by them in connection herewith or in connection with any other Loan
Document (i) with the consent or at the request of the  applicable  Lenders,  or
(ii) in the  absence of their own gross  negligence  or willful  misconduct,  as
determined  by a final order or judgment of a court of  competent  jurisdiction.
Neither  the  Agent  nor  any of its  directors,  officers,  agents,  employees,
attorneys-in-fact  or Affiliates  shall be  responsible  for or have any duty to
ascertain, inquire into or verify (i) any statement,  warranty or representation
made in connection with this Agreement, any other Loan Document or any Borrowing
hereunder;  (ii)  the  performance  or  observance  of any of the  covenants  or
agreements of the Borrower; (iii) the satisfaction of any condition specified in
Section 4 (except where the satisfaction of the Agent is specifically required);
or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes,
any Letter of Credit, any other Loan Document or any other instrument or writing
furnished in  connection  herewith or  therewith.  The Agent shall not incur any
liability  by  acting  in  reliance  upon  any  notice,  consent,   certificate,
statement,  or other  writing  (which  may be a bank  wire or  similar  writing)
believed  by it in good faith to be genuine or to be signed by the proper  party
or parties.

     Section 8.6.  Reimbursement and  Indemnification;  Set-Off. (a) Each Lender
agrees (i) to reimburse  (x) the Agent and the  Fronting  Banks,  on demand,  in
Ratable  Proportion,  for any  expenses  and fees  incurred  by the Agent or the
Fronting  Banks (as the case may be) for the benefit of the Lenders  under or in
connection  with  this  Agreement,  the  Notes  and  any of the  Loan  Documents
including,  without  limitation,  counsel  fees and  compensation  of agents and
employees  paid for services  rendered on behalf of the  Lenders,  and any other
expense  incurred in connection  with the  operations or  enforcement  hereof or
thereof not required to be  reimbursed by the Borrower and (y) the Agent and the
Fronting  Banks  in  Ratable  Proportion  for  any  expenses,   costs,  fees  or
disbursements  of the Agent or the Fronting  Banks (as the case may be) incurred
for the  benefit  of the  Lenders  that the  Borrower  has  agreed to  reimburse
pursuant to Section 9.5 and has failed so to reimburse and (ii) to indemnify and
hold  harmless  the Agent  and the  Fronting  Banks and any of their  respective
directors,     officers,     employees,    agents,    advisors,     consultants,
attorneys-in-fact,  experts,  other professional persons and representatives and
Affiliates,  on  demand,  in Ratable  Proportion  from and  against  any and all
penalties,  fines,  expenses,  losses,  settlements,  costs,  claims,  causes of
action, debts, dues, sums of


<PAGE>92


money, accounts, accountings, reckonings, acts, omissions, demands, liabilities,
obligations,  damages, actions,  judgments, suits, proceedings, or disbursements
of any kind or nature  whatsoever,  known or unknown,  contingent  or otherwise,
which may be imposed on, incurred by, or asserted against any of them in any way
relating to or arising out of this Agreement, the Notes or any of the other Loan
Documents  or any  action  taken  or  omitted  by it or any of them  under  this
Agreement,  the Notes or any of the  other  Loan  Documents  to the  extent  not
reimbursed  by the Borrower  (except such as shall result from their  respective
gross  negligence  or  willful  misconduct  as  determined  by a final  order or
judgment of a court of competent jurisdiction).  Without limiting the foregoing,
the agreements  contained in Section 10.6 of the  Pre-Petition  Credit Agreement
shall continue in full force and effect as to the matters covered thereby.

     (b) The Agent is hereby  authorized  at any time and from time to time,  to
the fullest  extent  permitted  by law, to set off and apply any and all amounts
received by the Agent for the account of a Defaulting Lender to the satisfaction
of the  unpaid  obligations  owing by such  Defaulting  Lender to the  Agent,  a
Fronting Bank or CIBC, as the issuer of the  Pre-Petition  Letters of Credit and
the rights of such  Defaulting  Lender with respect to all such amounts shall be
subject and subordinate to the rights of the Agent, the relevant  Fronting Bank,
and CIBC, as the issuer of the Pre-Petition  Letters of Credit,  as the case may
be, to be paid the amounts owing to it by such Defaulting Lender.

     Section 8.7. Credit  Decision.  Each Secured Party  expressly  acknowledges
that neither the Agent nor any of its directors,  officers,  employees,  agents,
advisors,  attorneys-in-fact  or  Affiliates  has  made any  representations  or
warranties to it and that no act by the Agent hereinafter  taken,  including any
review  of the  affairs  of the  Borrower,  shall be deemed  to  constitute  any
representation or warranty by the Agent to any Secured Party. Each Secured Party
acknowledges  that it has  independently  and without reliance upon the Agent or
any other Secured Party,  and based on such documents and  information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement.  Each Secured Party also acknowledges that it will  independently and
without  reliance upon the Agent or any other Secured  Party,  and based on such
documents and information as it shall deem appropriate at the time,  continue to
make its own credit  decisions  in taking or not  taking  any action  under this
Agreement. Except for notices, reports and other documents expressly required to
be furnished to the Secured Parties by the Agent hereunder,  the Agent shall not
have any duty or  responsibility to provide any Secured Party with any credit or
other  information  concerning  the business,  operations,  property,  condition
(financial or otherwise),  prospects or  creditworthiness of the Borrower or any
Subsidiary  which  may  come  into  the  possession  of the  Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.

     Section  8.8.  Notice  of  Transfer.  The Agent may deem and treat a Lender
party to this  Agreement as the owner of such Lender's  portion of the Loans for
all purposes,  unless and until a written  notice of the  assignment or transfer
thereof  executed by such Lender and its assignee in accordance with Section 9.3
shall have been accepted by the Agent.

     Section 8.9.  Successor  Agent.  The Agent may resign at any time by giving
written notice thereof to the other Secured  Parties and the Borrower.  Upon any
such resignation,  the Majority Term


<PAGE>93


Lenders and the Majority Revolving  Lenders,  acting together (or, failing that,
Lenders whose Ratable Proportion, taken together, at least equals 66-2/3%) shall
have the  right  to  appoint  a  successor  Agent,  which  shall  be  reasonably
satisfactory to the Borrower. If no successor Agent shall have been so appointed
and shall have  accepted  such  appointment,  within 30 days after the  retiring
Agent's  giving of notice of  resignation,  the retiring Agent may, on behalf of
the  Lenders,  appoint a  successor  Agent,  which  shall be a  commercial  bank
organized under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of a least  $100,000,000,  which shall
be  reasonably  satisfactory  to  the  Borrower.  Upon  the  acceptance  of  any
appointment as Agent hereunder by a successor Agent,  such successor Agent shall
thereupon succeed to and become vested with all the rights,  powers,  privileges
and duties of the retiring  Agent,  and the retiring  Agent shall be  discharged
from its duties and  obligations  under this  Agreement,  except that CIBC shall
remain  obligated to First Bank in its capacity as Documentary  Letter of Credit
Bank with respect to Documentary Letters of Credit issued during the period that
CIBC was the Agent. After any retiring Agent's  resignation  hereunder as Agent,
the  provisions  of this  Section  shall  inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.

     Section 8.10.  Concerning the  Administrative  Agent.  Notwithstanding  any
other  provision  of this  Agreement,  it is  understood  and  agreed  that  the
Administrative  Agent shall have no  obligations  or duties under this Agreement
and the other Loan  Documents  except  such as are  expressly  set forth in this
Agreement or the other Loan Documents.

SECTION 9.  MISCELLANEOUS

     Section 9.1. Notices.  Notices and other communications provided for herein
shall  be  in  writing  (including   telegraphic,   telex,  facsimile  or  cable
communication) and shall be mailed, telegraphed, telexed, transmitted, cabled or
delivered  to the Borrower at 2300 Main Street,  2 Pershing  Square,  3rd Floor,
Kansas City, MO 64108,  Attention:  Chief Financial  Officer,  to First Bank, so
long as it shall be the  Documentary  Letter of Credit  Bank,  at 601 2nd Avenue
South,  Minneapolis,   Minnesota  55402,  Attention:  Jack  Quitmeyer  (Fax  No.
612-973-2148)   and  Barbara  Engen,   Letter  of  Credit  Department  (Fax  No.
612-973-0838), and to any Lender, any other Fronting Bank or the Agent it at its
address  set  forth on the  signature  pages of this  Agreement,  or such  other
address as such party may from time to time  designate by giving  written notice
to the other parties hereunder.  All notices and other  communications  given to
any party hereto in accordance  with the provisions of this  Agreement  shall be
deemed to have been given on the fifth  Business Day after the date when sent by
registered or certified mail, postage prepaid,  return receipt requested,  if by
mail;  or when  delivered  to the  telegraph  company,  charges  prepaid,  if by
telegram; or when receipt is acknowledged,  if by any telegraphic communications
or facsimile  equipment of the sender;  in each case  addressed to such party as
provided in this  Section or in  accordance  with the latest  unrevoked  written
direction from such party;  provided,  that in the case of notices to the Agent,
notices  pursuant to the  preceding  sentence and pursuant to Section 2 shall be
effective only when received by the Agent.

     Section 9.2. Survival of Agreement,  Representations  and Warranties,  etc.
All warranties,  representations and covenants made by the Borrower herein or in
any  certificate  or  other  instrument


<PAGE>94


delivered  by it or on its behalf in  connection  with this  Agreement  shall be
considered to have been relied upon by the Secured Parties and shall survive the
making of the Loans herein  contemplated,  the issuance of the Letters of Credit
and the  issuance and  delivery to the Lenders of the Notes,  regardless  of any
investigation  made by any  Lender or  Fronting  Bank or on its behalf and shall
continue  in full  force and  effect so long as any  amount due or to become due
hereunder is outstanding  and unpaid and so long as the Total  Commitments  have
not expired or been terminated.

     Section 9.3. Successors and Assigns.

          (a) (i) This Agreement  shall be binding upon and inure to the benefit
of the Borrower,  the Agent, the Fronting Banks,  the Lenders,  the Underwriters
and the other Secured Parties and their respective  successors and assigns.  The
Borrower may not assign or transfer any of its rights or  obligations  hereunder
without the prior written  consent of all of the Lenders and, in the case of its
rights and obligations with respect to Letters of Credit,  the relevant Fronting
Bank.

               (ii) Each Lender may sell  participations to any Person in all or
part of any Loan,  or all or part of its Notes or  Commitment,  in which  event,
without  limiting the foregoing,  the provisions of Sections 2.13, 2.14 and 2.17
shall inure to the benefit of each purchaser of a participation (provided,  that
such participant shall look solely to the seller of such  participation for such
benefits,  and the Borrower's  liability,  if any, under Sections 2.13, 2.14 and
2.17 shall not be increased  as a result of the sale of any such  participation)
and the pro rata treatment of payments,  as described in Section 2.16,  shall be
determined as if such Lender had not sold such  participation.  In the event any
Lender shall sell any participation, such Lender shall retain the sole right and
responsibility  to enforce the obligations of the Borrower relating to the Loans
including, without limitation, the right to approve any amendment,  modification
or waiver of any  provision of this  Agreement  (provided,  that such Lender may
grant its  participant  the  right to  consent  to such  Lender's  execution  of
amendments, modifications or waivers which (i) reduce any Fees payable hereunder
to the Lenders, (ii) reduce the amount of any scheduled principal payment on any
Loan or reduce the principal  amount of any Loan or the rate of interest payable
hereunder or (iii) extend the maturity of the Borrower's obligations hereunder).
The sale of any such participation shall not alter the rights and obligations of
the Lender selling such participation hereunder with respect to the Borrower.

               (iii) Each  Pre-Petition L/C Participant may sell  participations
to any Person in all or a portion of its rights and  obligations  under  Section
9.14(c) of this Agreement,  together with its obligations under the Pre-Petition
Credit  Agreement  referred  to therein  (collectively,  its  "Pre-Petition  L/C
Obligations"); provided, that (x) such Pre-Petition L/C Participant shall retain
the sole right to receive payments and to approve any amendment, modification or
waiver  with  respect  to  Section  9.14(c),  if  any,   (provided,   that  such
Pre-Petition  L/C  Participant may grant its participant the right to consent to
such Pre-Petition L/C Participant's  execution of any amendments,  modifications
or  waivers)  and (y) the sale of any such  participation  shall  not  alter the
rights  and  obligations  of  the  Pre-Petition  L/C  Participant  selling  such
participation hereunder with respect to CIBC.


<PAGE>95


          (b) (i) Each  Lender  may assign to one or more  Lenders  or  Eligible
Assignees all or a portion of its interests,  rights and obligations  under this
Agreement (including, without limitation, all or a portion of its Commitment and
the same portion of the related New Revolving  Loans at the time owing to it and
the related  Note held by it);  provided,  that (w) other than in the case of an
assignment to a Person at least 50% owned by the assignor Lender, or by a common
parent of both,  or to another  Lender,  the Agent  must give its prior  written
consent,  which  consent will not be  unreasonably  withheld,  (x) the aggregate
amount of the  Commitment  and/or Loans of the assigning  Lender subject to each
such  assignment  (determined as of the date the Assignment and Acceptance  with
respect to such  assignment is delivered to the Agent) shall,  unless  otherwise
agreed to in writing  by the  Borrower  and the Agent,  in no event be less than
$5,000,000 (or $1,000,000 in the case of an assignment  between  Lenders) unless
the  Commitment  and New Revolving  Loans or the New Term Loans (as the case may
be) so assigned  constitute  100% of such  Commitment and New Revolving Loans or
New Term  Loans of the  assigning  Lender,  (y)  each  assignment  shall be of a
constant, not a varying,  percentage of all of the assigning Lender's rights and
obligations  under  this  Agreement  in respect  of (A) its  Commitment  and New
Revolving  Loans, (B) its New Term Loans or (C) its Commitment and New Revolving
Loans and its New Term Loans and (z) it shall not be necessary for any Lender to
sell the same  percentage of its Commitment and New Revolving  Loans and its New
Term Loans (as the case may be) (although each such percentage of its Commitment
and New Revolving Loans and its New Term Loans must be a constant, not a varying
percentage). The Agent shall advise the Fronting Banks that it has received such
Assignment  and  Acceptance  and  shall  provide a copy  thereof  to each of the
Fronting Banks.

               (ii) Each  Pre-Petition L/C Participant may assign to one or more
Lenders  or  Eligible  Assignees  all  or a  portion  of  its  Pre-Petition  L/C
Obligations;  provided,  that (w) other than in the case of an  assignment  to a
Person at least 50% owned by the assignor Pre-Petition L/C Participant,  or by a
common  parent of both,  or to  another  Lender,  the Agent  must give its prior
written  consent,  which  consent  will not be  unreasonably  withheld,  (x) the
aggregate  amount  of  such  Pre-Petition  L/C  Participant's  Pre-Petition  L/C
Obligations  subject  to each  such  assignment  (determined  as of the date the
Assignment  and Acceptance  with respect to such  assignment is delivered to the
Agent)  shall,  unless  otherwise  agreed to in writing by the  Borrower and the
Agent,  in no  event  be  less  than  $1,000,000  unless  the  Pre-Petition  L/C
Participant's  Pre-Petition L/C Obligations so assigned  constitute 100% of such
Pre-Petition L/C Participant's Pre-Petition L/C Obligations, (y) each assignment
shall  be of a  constant,  not a  varying,  percentage  of all of the  assigning
Pre-Petition L/C Participant's Pre-Petition L/C Obligations and (z) it shall not
be necessary for any Pre-Petition L/C Participant to sell the same percentage of
its  Pre-Petition  L/C Obligations as of its Commitments and New Revolving Loans
and/or its New Term Loans (as the case may be).

               (iii) The parties to each such  assignment  entered into pursuant
to  paragraphs  (b)(i)  and/or  (b)(ii)  above shall  execute and deliver to the
Agent,  for its acceptance and recording in the Register (as defined below),  an
Assignment and Acceptance with blanks appropriately completed, together with any
Note subject to such  assignment and a processing and  recordation fee of $3,500
(for which the Borrower shall have no liability). Upon such execution, delivery,
acceptance  and  recording,  from and after the effective date specified in each
Assignment  and  Acceptance,  which  effective date


<PAGE>96


shall be within ten Business Days after the execution  thereof (unless otherwise
agreed to in  writing  by the Agent in its sole  discretion),  (A) the  assignee
thereunder  shall  be a  party  hereto  and,  to the  extent  provided  in  such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
and (B) the Lender  thereunder  shall, to the extent provided in such Assignment
and Acceptance,  be released from its obligations  under this Agreement (and, in
the case of an Assignment and Acceptance  covering all or the remaining  portion
of an assigning  Lender's  rights and  obligations  under this  Agreement,  such
Lender shall cease to be a party hereto).

          (c) By executing  and  delivering an Assignment  and  Acceptance,  the
assigning  Lender  thereunder and the assignee  thereunder  confirm to and agree
with each  other and the other  parties  hereto as  follows:  (i) other than the
representation  and warranty  that it is the legal and  beneficial  owner of the
interest  being  assigned  thereby  free and clear of any  adverse  claim,  such
assigning   Lender   makes  no   representation   or  warranty  and  assumes  no
responsibility  with respect to any  statements,  warranties or  representations
made in or in connection  with this Agreement or any of the other Loan Documents
or the execution, legality, validity, enforceability,  genuineness,  sufficiency
or value  of this  Agreement  or any of the  other  Loan  Documents;  (ii)  such
assigning   Lender   makes  no   representation   or  warranty  and  assumes  no
responsibility  with respect to the  financial  condition of the Borrower or the
performance or observance by the Borrower of any of its  obligations  under this
Agreement or any of the other Loan Documents or any other instrument or document
furnished  pursuant hereto;  (iii) such assignee confirms that it has received a
copy of this Agreement and the other Loan Documents, together with copies of the
financial  statements  referred to in Section 3.4 and such other  documents  and
information  as it has deemed  appropriate  to make its own credit  analysis and
decision to enter into such Assignment and Acceptance;  (iv) such assignee will,
independently  and without reliance upon the Agent, such assigning Lender or any
other  Lender,  and based on such  documents  and  information  as it shall deem
appropriate at the time,  continue to make its own credit decisions in taking or
not taking action under this Agreement,  any of the other Loan Documents and any
other  instrument  or document  furnished  pursuant  thereto;  (v) such assignee
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this  Agreement,  any of the other Loan  Documents
and  any  other  instrument  or  document  furnished  pursuant  thereto,  as are
delegated to the Agent by the terms hereof or thereof, together with such powers
as are reasonably incidental thereto; and (vi) such assignee agrees that it will
perform in accordance with their terms all obligations that by the terms of this
Agreement are required to be performed by it as a Lender.

          (d) The Agent shall  maintain at its office a copy of each  Assignment
and Acceptance  delivered to it and a register for the  recordation of the names
and addresses of the Lenders and the Commitments of, and principal amount of the
Loans owing to, each Lender from time to time (the  "Register").  The entries in
the Register  shall be  conclusive,  in the absence of manifest  error,  and the
Borrower, the Agent and the Lenders shall treat each Person the name of which is
recorded  in the  Register  as a  Lender  hereunder  for  all  purposes  of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender  at any  reasonable  time and from  time to time  upon  reasonable  prior
notice.


<PAGE>97


          (e) Upon its receipt of an Assignment  and  Acceptance  executed by an
assigning Lender and the assignee thereunder,  together with any Note subject to
such assignment and the fee payable in respect thereof, the Agent shall, if such
Assignment and Acceptance has been completed with blanks  appropriately  filled:
(i) accept such Assignment and Acceptance, (ii) record the information contained
therein in the  Register  and (iii) give prompt  written  notice  thereof to the
Borrower (together with a copy thereof). Within five Business Days after receipt
of notice,  the Borrower,  at its own expense,  shall execute and deliver to the
Agent,  in exchange  for the  surrendered  Note, a new Note to the order of such
assignee  in an  amount  equal to the  Commitment  and/or  Loans  assumed  by it
pursuant to such  Assignment  and  Acceptance  and, if the assigning  Lender has
retained Commitments and/or Loans hereunder, a new Note or Notes to the order of
the assigning Lender in an amount equal to the Commitment  and/or Loans retained
by it  hereunder.  Such  new Note or Notes  shall be in an  aggregate  principal
amount  equal to the  aggregate  principal  amount of such  surrendered  Note or
Notes,  shall be dated the effective date of such  Assignment and Acceptance and
shall otherwise be in  substantially  the form of the surrendered Note or Notes.
Thereafter, such surrendered Note or Notes shall be marked canceled and returned
to the  Borrower.

          (f) Any Lender may, in connection with any assignment or participation
or proposed  assignment or participation  pursuant to this Section,  disclose to
the assignee or participant or proposed assignee or participant, any information
relating  to the  Borrower  furnished  to such  Lender  by or on  behalf  of the
Borrower;  provided,  that prior to any such  disclosure,  each such assignee or
participant  or proposed  assignee or  participant  shall agree in writing to be
bound by the provisions of Section 9.4. (1)

          (g) For  purposes of this Section 9.3 (and for no other  purpose),  in
connection with any assignment by any  Pre-Petition  L/C Participant of all or a
portion of its Pre-Petition L/C Obligations, references in this Section 9.3 to a
"Lender"  and to  "Lenders"  shall be deemed to include  such  Pre-Petition  L/C
Participant  to the  extent  the  context  of the  relevant  provision  shall so
require.

     Section 9.4.  Confidentiality.  The Agent and each Lender agree to keep any
information  delivered or made available by the Borrower to it confidential from
anyone other than  persons  employed or retained by the Agent or such Lender who
are or are expected to become engaged in evaluating,  approving,  structuring or
administering the Loans;  provided,  that nothing herein shall prevent the Agent
or any Lender from disclosing such information (i) to any other Lender,  (ii) to
any other person if reasonably  incidental to the  administration  of the Loans,
(iii)  upon the  order of any  court or  administrative  agency,  (iv)  upon the
request  or demand of any  regulatory  agency or  authority,  (v) which has been
publicly  disclosed  other than as a result of a disclosure  by the Agent or any
Lender which is not permitted by this  Agreement,  (vi) in  connection  with any
litigation to which the Agent, any Lender, or their respective Affiliates may be
a party  to the  extent  reasonably  required,  (vii) to the  extent  reasonably
required in connection with the exercise of any remedy hereunder,  (viii) to the
Agent's and such Lender's  legal  counsel,  financial  advisors and  independent
auditors,  and (ix) to any actual or proposed  participant or assignee of all or
part of its rights hereunder subject to the proviso in Section 9.3(f).


<PAGE>98


     Section 9.5. Expenses.  Whether or not the transactions hereby contemplated
shall be consummated,  the Borrower  agrees to pay all reasonable  out-of-pocket
expenses  incurred by the Agent  (including,  but not limited to, the reasonable
fees and  disbursements of Zalkin,  Rodin & Goodman LLP, special counsel for the
Agent  ("ZR&G"),  Shook Hardy & Bacon  L.L.P.,  special  local and special  real
estate counsel for the Agent,  any other counsel that the Agent shall retain and
any  third-party  consultants,  accountants  and auditors  advising the Agent or
ZR&G,  including  (without  limitation) Ernst & Young LLP, financial advisors to
ZR&G), any Fronting Bank (including, but not limited to, the reasonable fees and
disbursements  of Dorsey & Whitney LLP,  special counsel for First Bank) and any
Lender  or any  Underwriter  in  connection  with  the  preparation,  execution,
delivery  and  administration  of this  Agreement,  the Notes and the other Loan
Documents,  the making of the Loans and the  issuance  of the Letters of Credit,
the  perfection  of  the  Liens  contemplated  hereby,  the  syndication  of the
transactions contemplated hereby, any consent or waiver hereunder or thereunder,
and any  amendment  or  modification  hereof  or  thereof,  the  reasonable  and
customary  costs,  fees and expenses of the Agent in connection with its monthly
and other  periodic  field audits and  monitoring  of assets and,  following the
occurrence  of an  Event  of  Default,  all  reasonable  out-of-pocket  expenses
incurred by the Underwriters,  the Lenders,  the Fronting Banks and the Agent in
the  enforcement  or  protection  of the  rights  of  any  one  or  more  of the
Underwriters,  the Lenders,  the Fronting Banks or the Agent in connection  with
this Agreement, the Notes or the other Loan Documents including, but not limited
to, the reasonable fees and  disbursements of any counsel for the  Underwriters,
Lenders,  the Fronting Banks or the Agent (including,  without  limitation,  the
allocated costs of in-house counsel). Such payments shall be made on demand upon
delivery of a statement  setting forth such costs and  expenses.  Whether or not
the transactions hereby  contemplated shall be consummated,  the Borrower agrees
to reimburse  the Agent and the  Underwriters  for the expenses set forth in the
Commitment  Letter,   and  the  reimbursement   provisions  thereof  are  hereby
incorporated  herein by reference.  The  obligations  of the Borrower under this
Section shall survive the  termination of this Agreement  and/or the payment and
performance of the Secured Obligations.

     Section 9.6. Indemnities.  (a) The Borrower agrees to defend, indemnify and
hold  harmless the Agent,  the Lenders and the other  Secured  Parties and their
respective  directors,  officers,  employees,  agents,  advisors,   consultants,
attorneys-in-fact,  experts,  other professional persons and representatives and
Affiliates (each, an "Indemnified  Party"),  on demand, from and against any and
all penalties,  fines, expenses, losses,  settlements,  costs, claims, causes of
action, debts, dues, sums of money,  accounts,  accountings,  reckonings,  acts,
omissions,  demands,  liabilities,  obligations,  damages,  actions,  judgments,
suits,  proceedings or disbursements  incurred by such Indemnified Party, of any
kind or nature whatsoever,  known or unknown,  contingent or otherwise,  arising
out of  claims  made by any  Person  in any  way  relating  to the  transactions
contemplated hereby, including, without limitation,  attorneys' and consultants'
fees,  investigation  and  laboratory  fees,  response  costs,  court  costs and
litigation expenses, except to the extent that any of the foregoing arise solely
out of or  result  from the  gross  negligence  or  willful  misconduct  of such
Indemnified  Party,  as  determined  by a final  order or judgment of a court of
competent jurisdiction.

          (b) Without  limiting the  foregoing,  the Borrower  agrees to defend,
indemnify and hold harmless each Indemnified Party, on demand,  from and against
any and all penalties,  fines,


<PAGE>99


expenses,  losses,  settlements,  costs,  claims,  causes  of  action,  demands,
liabilities,  obligations,  damages, actions,  judgments, suits or disbursements
incurred by such Indemnified Party, of any kind or nature  whatsoever,  known or
unknown, contingent or otherwise,  arising out of, or in any way relating to the
violation  of,  noncompliance  with or  liability  under any  Environmental  Law
applicable to the  operations of the Borrower or any Subsidiary or the Property,
or any orders,  requirements or demands of Governmental Authorities or any other
Person  related  thereto,   including,   without   limitation,   attorneys'  and
consultants'  fees,  investigation  and laboratory fees,  response costs,  court
costs and  litigation  expenses,  except to the extent that any of the foregoing
arise solely out of or result from the gross negligence or willful misconduct of
such Indemnified Party, as determined by a final order or judgment of a court of
competent jurisdiction.

          (c) The  indemnities  set forth in this Section shall continue in full
force and effect regardless of the termination of this Agreement and the payment
and performance of the Secured Obligations.

     Section 9.7.  CHOICE OF LAW. THIS  AGREEMENT  AND THE OTHER LOAN  DOCUMENTS
SHALL BE  CONSTRUED IN  ACCORDANCE  WITH AND GOVERNED BY THE LAW OF THE STATE OF
NEW YORK,  WITHOUT REGARD TO CONFLICTS OF LAWS  PRINCIPLES AND BY FEDERAL LAW TO
THE EXTENT  APPLICABLE;  PROVIDED,  HOWEVER,  THAT WITH  RESPECT TO ANY MORTGAGE
FILED  IN  JURISDICTIONS  OUTSIDE  OF THE  STATE OF NEW  YORK,  THE LAWS OF SUCH
JURISDICTION WHERE SUCH MORTGAGE WAS FILED SHALL APPLY.

     Section  9.8. No Waiver.  No failure on the part of the Agent or any of the
other Secured Parties to exercise, and no delay in exercising,  any right, power
or remedy  hereunder or under the Notes or any of the other Loan Documents shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such right,  power or remedy preclude any other or further  exercise  thereof or
the exercise of any other right,  power or remedy.  All remedies  hereunder  are
cumulative and are not exclusive of any other remedies provided by law.

     Section 9.9.  Extension of Maturity.  Should any payment of principal of or
interest on the Notes or any other amount due  hereunder  become due and payable
on a day other than a Business  Day, the maturity  thereof  shall be extended to
the next succeeding  Business Day and, in the case of principal,  interest shall
be payable thereon at the rate herein specified during such extension.

     Section 9.10.  Amendments,  etc.  Unless  otherwise  specifically  provided
herein or in any other Loan Document,  no amendment,  modification  or waiver of
any provision of this Agreement, the Notes, the Security and Pledge Agreement or
the other  Loan  Documents,  and no  consent to any  departure  by the  Borrower
therefrom,  shall in any event be effective  unless the same shall be in writing
and signed by the Majority  Lenders,  and any such amendment,  waiver or consent
shall be effective  only in the specific  instance and for the purpose for which
given;  provided,  that no such amendment,  modification or waiver shall without
the written  consent of (i) all of the New  Revolving  Lenders and the  Required
Term  Lenders,  increase the Total  Commitments;  (ii) all of the New  Revolving
Lenders,  (x) reduce the principal  amount of any New Revolving Loan or the rate
of interest payable thereon,  or reduce any Fees payable hereunder in respect of
the New Revolving Loans,  (y) postpone the date


<PAGE>100


for any  Commitment  reduction  or for any  scheduled  payment or any  mandatory
prepayment of principal,  interest or Fees in respect of any New Revolving Loans
or (z)  amend,  modify  or  waive  any  provision  of this  proviso  (ii) or the
definitions of Majority Revolving Lenders or Required  Revolving Lenders;  (iii)
all of the New Term Lenders (x) reduce the principal amount of any New Term Loan
or the rate of interest payable thereon, (y) postpone the date for any scheduled
payment or any  mandatory  prepayment of principal or interest in respect of any
New Term Loans or (z) amend, modify or waive any provision of this proviso (iii)
or the  definitions of Majority Term Lenders or Required Term Lenders;  (iv) the
Required  Lenders,  change the  definition  of Required  Inventory or modify the
substance of Sections 4.2(f) and 5.1(t) or the form of the Inventory  Compliance
Certificate;  (v) the Required  Pre-Petition  Lenders,  change the definition of
Required Pre-Petition Lenders; and (vi) all of the Lenders, (w) amend, modify or
waive any provision of this Agreement  which provides for the unanimous  consent
or approval of the  Lenders,  (x) amend,  modify or waive any  provision of this
Section (other than provisos (ii), (iii), (iv) and (v) above) or the definitions
of Majority Lenders,  Ratable  Proportion,  Required Lenders or Special Required
Lenders,  (y) substitute,  discharge,  surrender or release all or substantially
all of the  Collateral  except as permitted by the Loan  Documents or (z) change
the percentage of Lenders holding Secured Obligations which may direct the Agent
to take  action  pursuant  to  Section  7.1;  and (vii)  CIBC,  as issuer of the
Pre-Petition  Letters of Credit,  and all of the Pre-Petition L/C  Participants,
amend,  modify or waive any provision of Section 9.14(c) or any provision of the
Pre-Petition   Credit  Agreement   referred  to  therein.   No  such  amendment,
modification  or waiver may adversely  affect the rights and  obligations of the
Agent or any Fronting  Bank  hereunder  without its prior  written  consent.  No
notice to or demand on the Borrower  shall  entitle the Borrower to any other or
further  notice  or demand in the same,  similar  or other  circumstances.  Each
holder  of a Note  shall be  bound by any  amendment,  modification,  waiver  or
consent  authorized  as provided  herein,  whether or not a Note shall have been
marked to indicate  such  amendment,  modification,  waiver or consent,  and any
consent by a Lender,  or any holder of a Note or any other  Secured  Obligation,
shall bind any Person subsequently acquiring a Note (whether or not such Note is
so marked) or such other  Secured  Obligations.  No amendment to this  Agreement
shall be effective against the Borrower unless signed by the Borrower.

     Section 9.11. Invalidity;  Severability.  Whenever possible, each provision
of this  Agreement  shall be  interpreted  in such manner as to be effective and
valid under all applicable laws and regulations. Any provision of this Agreement
which is prohibited  or  unenforceable  in any  jurisdiction  shall,  as to such
jurisdiction,   be   ineffective   to  the   extent  of  such   prohibition   or
unenforceability  without  invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

     Section 9.12.  Headings.  Section  headings used herein are for convenience
only and are not to affect the construction of or be taken into consideration in
interpreting this Agreement.

     Section 9.13. Execution in Counterparts;  Effectiveness. This Agreement may
be executed in any number of  counterparts,  each of which shall  constitute  an
original,  but all of which taken  together  shall  constitute  one and the same
instrument.  This  Agreement  shall become  effective  when the Agent shall have
received  counterparts  hereof signed by all of the parties  hereto and when the
conditions  contained or referred to in Section 4.1 shall have been satisfied or
waived.


<PAGE>101


     Section 9.14. Prior  Agreements.  (a) Subject to the provisions of Sections
9.14(b) and 9.14(c),  this Agreement and the other Loan Documents  represent the
entire agreement of the parties with regard to the subject matter hereof and the
terms of any letters and other  documentation  entered into between the Borrower
and any  Lender or the Agent  prior to the  execution  of this  Agreement  which
relate  to Loans to be made  hereunder  shall be  replaced  by the terms of this
Agreement;  provided,  that the obligations of the Borrower under the Commitment
Letter and the Fee Letter  shall  survive  the  execution  and  delivery of this
Agreement,  except to the extent that such obligations are satisfied pursuant to
or in connection with this Agreement.

     (b) The obligations of the Borrower under Sections 2.13,  2.14, 2.17, 5.11,
6.14,  9.5 and 9.6 of the DIP Credit  Agreement and Sections 5.3, 5.4, 5.5, 5.9,
7.13, 8.28. 11.3 and 11.10 of the Pre-Petition  Credit Agreement shall remain in
full force and effect.

     (c) For the  benefit  of CIBC,  as issuer of the  Pre-Petition  Letters  of
Credit, each New Term Lender which is also an L/C Participant (as defined in the
Pre-Petition Credit Agreement) (each, a "Pre-Petition L/C Participant"),  hereby
(i)  confirms  its  acceptance  and  purchase,  pursuant  to Section  3.4 of the
Pre-Petition  Credit  Agreement,  of an undivided  interest in the  Pre-Petition
Letters  of Credit in the amount  set forth  opposite  its name on Annex B, (ii)
acknowledges its understanding  that, upon the occurrence of the Effective Date,
the  Borrower's  reimbursement  obligations  under  Sections  3.5 and 3.6 of the
Pre-Petition  Credit  Agreement  shall  be  discharged  pursuant  to the Plan of
Reorganization  and  (iii)  agrees  that,  upon any  payment  by CIBC  under any
Pre-Petition  Letter of Credit,  such  Pre-Petition  L/C Participant will pay to
CIBC such Pre-Petition L/C Participant's  share of such payment as determined in
accordance with the provisions of the  Pre-Petition  Credit  Agreement.  Without
limiting the foregoing,  each  Pre-Petition  L/C  Participant  confirms that its
agreements  contained in Section 3.9 of the Pre-Petition  Credit Agreement shall
continue in full force and effect as to the matters covered thereby.

     In connection with the foregoing,  (i) the Borrower  acknowledges that CIBC
is holding cash collateral  pursuant to Section 9.2 of the  Pre-Petition  Credit
Agreement with respect to the Pre-Petition Letters of Credit and hereby confirms
its  grant,  assignment  and pledge to CIBC,  for its  benefit  and the  ratable
benefit of the  Pre-Petition  L/C  Participants,  of a first  priority  security
senior in all of the  Borrower's  right,  title and interest in and to such cash
collateral  and all  proceeds  thereof,  senior to all other  Liens  (including,
without  limitation,  the Liens  securing  the Secured  Obligations),  (ii) CIBC
agrees to apply  such cash  collateral  to  reimburse  itself in  respect of any
payment it makes under any  Pre-Petition  Letter of Credit  prior to  requesting
that the Pre-Petition  L/C  Participants pay to CIBC their respective  shares of
any such  payment and (iii) the Borrower  acknowledges  that the Borrower has no
ownership or other  interest of any kind  whatsoever in any amounts paid by CIBC
under any Pre-Petition Letter of Credit and that in the event a beneficiary of a
Pre-Petition  Letter of Credit  returns any such  amounts to the Borrower at any
time,  the  Borrower  will  receive  and hold the  same in trust  for,  and will
promptly pay the same to CIBC for the benefit of, CIBC and the  Pre-Petition L/C
Participants.

         (d) In the event of a conflict  between  the  provisions  of any of the
Loan Documents and the Plan of  Reorganization,  such conflict shall be governed
by the terms of the Loan Documents.


<PAGE>102


     Section 9.15.  Independence of Covenants.  All covenants hereunder shall be
given  independent  effect so that if a  particular  action or  condition is not
permitted  by any of such  covenants,  the fact that it would be permitted by an
exception to, or be otherwise  within the limitations of, another covenant shall
not avoid the  occurrence  of a Default or Event of  Default  if such  action is
taken or condition exists.

     Section 9.16.  WAIVER OF JURY TRIAL;  CONSENT TO JURISDICTION.  EACH OF THE
BORROWER,  THE AGENT,  THE FRONTING  BANKS,  THE LENDERS AND EACH OTHER  SECURED
PARTY HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN
ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION  WITH, OR ARISING OUT
OF  THE  LOAN  DOCUMENTS  OR  THE  COLLATERAL,  OR  THE  VALIDITY,   PROTECTION,
INTERPRETATION,  COLLECTION OR ENFORCEMENT HEREOF OR THEREOF, OR ANY OTHER CLAIM
OR DISPUTE  HOWSOEVER  ARISING  BETWEEN THE BORROWER,  ON THE ONE HAND,  AND THE
AGENT, THE FRONTING BANKS AND/OR ANY ONE OR MORE OF THE LENDERS OR OTHER SECURED
PARTIES,  ON THE OTHER HAND.  THE BORROWER  HEREBY  IRREVOCABLY  CONSENTS TO THE
NONEXCLUSIVE  JURISDICTION  OF THE  COURTS OF THE STATE OF NEW YORK AND,  TO THE
EXTENT  PERMITTED BY APPLICABLE  LAW, OF ANY FEDERAL COURT, IN EACH CASE LOCATED
IN NEW YORK COUNTY AND ANY APPELLATE  COURT  THEREFROM,  IN CONNECTION  WITH ANY
ACTION OR  PROCEEDING  ARISING OUT OF OR RELATING TO ANY ONE OR MORE OF THE LOAN
DOCUMENTS OR ANY DOCUMENT OR INSTRUMENT  DELIVERED PURSUANT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR THE  COLLATERAL AND EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY  AND  UNCONDITIONALLY  AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING  MAY BE HEARD AND  DETERMINED IN SUCH NEW YORK STATE COURT,
OR TO THE EXTENT  PERMITTED BY LAW, IN SUCH FEDERAL  COURT.  EACH OF THE PARTIES
HERETO AGREES THAT A FINAL  JUDGMENT IN ANY SUCH ACTION OR  PROCEEDING  SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT SHALL AFFECT ANY
RIGHT THAT THE AGENT,  ANY FRONTING  BANK, ANY LENDER OR ANY OTHER SECURED PARTY
MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING  RELATING TO THIS AGREEMENT
OR ANY OF THE OTHER LOAN DOCUMENTS OR THE COLLATERAL  AGAINST THE BORROWER,  ANY
SUBSIDIARY OR THEIR PROPERTIES OR ASSETS IN THE COURTS OF ANY JURISDICTION.  THE
BORROWER HEREBY WAIVES THE DEFENSES OF FORUM NON CONVENIENS AND IMPROPER VENUE.

     Section  9.17.  Effect of Amendment  and  Restatement  of the  Pre-Petition
Credit  Agreement  and  the  DIP  Credit  Agreement;  Confirmation  of  Security
Documents.  On the Effective Date, the Pre-Petition Credit Agreement and the DIP
Credit Agreement shall be amended and restated to read as set forth herein.  The
Borrower  acknowledges  and agrees  that (i) the Liens  securing  payment of the
Pre-Petition  Obligations and the DIP Obligations are in all respects continuing
and in full force and effect and secure the payment of the  Secured  Obligations
and that the Notes outstanding  under the Pre-Petition  Credit Agreement and the
DIP Credit  Agreement  are replaced by


<PAGE>103


the Notes issued hereunder and (ii) upon the effectiveness of this  Agreement,
all  outstanding  DIP  Letters of  Credit  will be  converted into  Letters of
Credit  hereunder,  in each  case upon the terms  and conditions set  forth in
this Agreement.

     Section 9.18.  Reproduction  of Documents.  This  Agreement,  all documents
constituting  Annexes,  Schedules or Exhibits hereto, and all documents relating
hereto received by a party hereto, including,  without limitation: (a) consents,
waivers and  modifications  that may  hereafter  be  executed;  (b) the Security
Documents  and  the  other  Loan  Documents;   and  (c)  financial   statements,
certificates,  and other  information  previously or hereafter  furnished to the
Agent,  any Lender or any other  Secured  Party may be  reproduced  by the party
receiving  the same by any  photographic,  photostatic,  microfilm,  micro-card,
miniature  photographic  or other similar  process.  Each of the parties  hereto
agrees  and  stipulates   that,  to  the  extent  permitted  by  law,  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 such party in the
regular  course of  business)  and that,  to the extent  permitted  by law,  any
enlargement,  facsimile,  or further  reproduction  of such  reproduction  shall
likewise be admissible in evidence.


<PAGE>104



     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed as of the day and the year first written.

                         PAYLESS CASHWAYS, INC.

                         By:  /s/  Stephen  A.  Lightstone
                         ----------------------------------------
                         Title: Senior Vice President

                         Two Pershing Square
                         2300 Main Street, 3rd Floor
                         Kansas City, Missouri 64108
                         Telephone: (816) 234-6000
                         Fax:       (816) 234-6077


                         CANADIAN IMPERIAL BANK OF COMMERCE,
                           as Coordinating and Collateral Agent and as the
                           Standby Letter of Credit Fronting Bank

                         By: /s/ Robert N. Greer
                         ----------------------------------------
                         Title: Assistant General Manager

                         By: /s/ Nancy  Deyirmenjian
                         ----------------------------------------
                         Title: Assistant General Manager

                         425 Lexington Avenue
                         New York, New York 10017
                         Attention: Agency Services
                         Telephone: (212) 856-3711
                         Fax:       (212) 856-3763


                         CANADIAN IMPERIAL BANK OF COMMERCE,
                           as Hedging Bank

                         By: /s/ Robert N. Greer
                         ----------------------------------------
                         Title: Assistant General Manager

                         By: /s/ Nancy Deyirmenjian
                         ----------------------------------------
                         Title: Assistant General Manager

                         161 Bay Street, 8th Floor
                         P.O. Box 500
                         Toronto, Ontario M5725A
                         Attention: Wayne Halenda
                         Telephone: (416) 594-8047
                         Fax:       (416) 594-8230



<PAGE>105


                         CIBC OPPENHEIMER CORP., formerly known as
                           CIBC Wood Gundy Securities Corp., as an
                           Underwriter and as Co-arranger

                         By: /s/ T.E. Doyle
                         ----------------------------------------
                         Title: Managing Director

                         425 Lexington Avenue, 7th Floor
                         New York, New York 10017
                         Attention: Dean Criares
                         Telephone: (212) 856-3780
                         Fax:       (212) 856-3763


                         CIBC INC., as a Pre-Petition Lender, a
                           DIP Lender, a New Term Lender and a
                           New Revolving Lender

                         By: /s/ Robert N. Greer
                         ----------------------------------------
                         Title: Executive Director

                         425 Lexington Avenue
                         New York, New York 10017
                         Attention: Robert N. Greer
                         Telephone: (212) 856-3881
                         Fax:       (212) 856-4135

                         NATIONSBANK, N.A., as a Pre-Petition Lender,
                           a DIP Lender, a New Term Lender, a New Revolving
                           Lender, an Underwriter, as Syndication Agent and
                           Co-arranger and as a Cash Management Bank

                         By: /s/ Jay T. Wampler
                         ----------------------------------------
                         Title: Senior Vice President

                         Domestic and Eurodollar Lending Offices:
                         901 Main Street, 66th Floor
                         Dallas, Texas 75202
                         Attention: Stacey Smith
                         Telephone: (214) 508-0944
                         Fax:       (214) 508-1864



<PAGE>106

                         All other notices:
                         Attention: Jay T. Wampler
                                    Senior Vice President
                         Telephone: (214) 508-3711
                         Fax:       (214) 508-3533


                         LEHMAN COMMERCIAL PAPER INC. , as a
                           Pre-Petition Lender, a DIP Lender,
                           a New Term Lender, a New Revolving
                           Lender,  an Underwriter and as
                           Documentation Agent

                         By: /s/ Dennis J. Dee
                         ----------------------------------------
                         Title: Vice President

                         3 World Financial Center, 10th Floor
                         New York, New York 10285
                         Attention: Michele Swanson
                         Telephone: (212) 526-0330
                         Fax:       (212) 528-0819


                         GOLDMAN SACHS CREDIT PARTNERS L.P.,
                           as a Pre-Petition Lender, a DIP Lender, a New Term
                           Lender, a New Revolving Lender, an Underwriter and
                           as Administrative Agent

                         By: /s/ John E. Urban
                         ----------------------------------------
                         Title: Authorized Signer

                         Domestic and Eurodollar Lending Offices:
                         85 Broad Street, 6th Floor
                         New York, New York 10004
                         Attention: Alexa Komar
                         Telephone: (212) 357-2625
                         Fax:       (212) 357-4597

                         Other  Notices:
                         85 Broad Street, 27th Floor New York,
                         New York 10004
                         Attention: Marnie Gordon
                         Telephone: (212) 902-2512
                         Fax:       (212) 902-3757


<PAGE>107


                         and

                         85 Broad Street, 28th Floor
                         New York, New York 10004
                         Attention: Jonathan Kolatch
                         Telephone: (212) 902-8469
                         Fax:       (212) 357-0922


                         CARGILL FINANCIAL SERVICES CORPORATION,
                         as a Pre-Petition Term Lender, a DIP Lender,
                         a New Term Lender and a New Revolving Lender
 
                         By: /s/ Patrick J. Halloran
                         ----------------------------------------
                         Title: Vice President

                         6000 Clearwater Drive
                         Minnetonka, Minnesota 55343
                         Attention: Susan Peterson
                         Telephone: (612) 984-3081
                         Fax:       (612) 984-3913


                         VAN KAMPEN AMERICAN CAPITAL
                         PRIME RATE INCOME TRUST, as a
                           Pre-Petition Lender, a DIP Lender, a New
                           Term Lender and a New Revolving Lender
 
                         By: /s/ Kathleen A. Zarn
                         ----------------------------------------
                         Title: Vice President

                         One Parkview Plaza, 5th Floor
                         Oak Brook Terrace, Illinois 60181
                         Attention: Jeffrey W. Maillet
                         Telephone: (630) 684-6438
                         Fax:       (630) 684-6741




<PAGE>108

                         U.S. BANK NATIONAL ASSOCIATION,
                           as a Pre-Petition Lender and a New Term
                           Lender , as the Documentary Letter of Credit
                           Fronting Bank and as a Cash Management
                           Bank

                         By: /s/ Jack L. Quitmeyer
                         ----------------------------------------
                         Title: Vice President

                         Domestic and Eurodollar Lending Offices:
                         U.S. Bank National Association
                         601 Second Avenue South
                         Minneapolis, Minnesota 55402-4302
                         Attention: Jocelyn Kirkpatrick
                         Telephone: (612) 973-2127
                         Fax:       (612) 973-2148
 
                         All other notices:
                         First Bank Place, MPFP1802
                         601 Second Avenue South
                         Minneapolis, Minnesota 55402-4302
                         Attention: Jack L. Quitmeyer
                         Fax: (612) 973-2148

                         with a copy to:
                         Joe Andersen
                         U.S. Bancorp
                         First Bank Place, MPFP2802
                         601 Second Avenue South
                         Minneapolis, Minnesota 55402-4302
                         Fax: (612) 973-3257


                         ABN AMRO BANK N.V., as a
                           Pre-Petition Lender and a New Term Lender

                         By: /s/ Steven C. Wimpenny
                         ----------------------------------------
                         Title: Senior Vice President

                         By: /s/ Steven Gutman
                         ----------------------------------------
                         Title: Senior Vice President

                         Domestic and Eurodollar Lending Offices:
                         North America Special Credits
                         10 East 53rd Street, 37th Floor
                         New York, New York l0022
                         Attention: Carol Martini
                         Telephone: (212) 891-0642
                         Fax:       (212) 891-0652


<PAGE>109

                         All other notices:
                         10 East 53rd  Street,  37th  Floor
                         New York, New York l0022
                         Attention: Steven C. Wimpenny
                         Telephone: (212) 891-0626
                         Fax:       (212) 891-0650


                         BANK OF AMERICA NATIONAL TRUST AND
                         SAVINGS ASSOCIATION, as a
                           Pre-Petition Lender, a New Term Lender
                           and as a Cash Management Bank

                         By: /s/ Lynn D. Simmons
                         ----------------------------------------
                         Title: Vice President

                         231 South LaSalle, 8th Floor
                         Chicago, Illinois 60697
                         Attention: Lynn Simmons
                         Telephone: (312) 828-8647
                         Fax:       (312) 987-0234

                         Domestic and Eurodollar Lending Offices:
                         P.O. Box 27128
                         Concord, California 94530
                         Attention: Kelsey Robinson
                         Telephone: (510) 675-7719
                         Fax:       (510) 675-7531

                         with a copy to:

                         231 South LaSalle, 8th Floor
                         Chicago, Illinois 60697
                         Attention: Linda Jordan
                         Fax: (312) 987-0234


<PAGE>110


                         THE BANK OF NOVA SCOTIA, as
                           a Pre-Petition Lender and a New Term Lender

                         By: /s/ A.T.D. Clarke
                         ----------------------------------------
                         Title: Senior Manager

                         Domestic and Eurodollar Lending Offices:
                         Suite 2700
                         600 Peachtree Street, N.E.
                         Atlanta, Georgia 30308
                         Attention: Pearl Jackson
                         Telephone: (404) 877-1539
                         Fax:       (404) 888-8998

                         All other notices:
                         l Liberty Plaza, 25th Floor
                         New York, New York 10006
                         Attention: Norman Gillespie
                         Telephone: (212) 225-6405
                         Fax:       (212) 225-5205


                         BEAR, STEARNS & CO. INC., as
                         a Pre-Petition Lender and a New Term Lender

                         By: /s/ Gregory A. Hanley
                         ----------------------------------------
                         Title: Senior Managing Director

                         Administrative Notices and Other Funding Information:
                         245 Park Avenue
                         New York, New York 10167
                         Attention: Jennifer Herskowitz
                         Telephone: (212) 272-6161
                         Fax:       (212) 272-8079

                         All other notices:
                         245 Park Avenue
                         New York, New York 10167
                         Attention: Alan J. Mintz
                         Telephone: (212) 272-9499
                         Fax:       (212) 272-8102


<PAGE>111
                         and

                         Attention: Laura L. Torrado, Esq.
                         Telephone: (212) 272-7811
                         Fax:       (212) 272-8079


                         NATIONAL CITY BANK, INDIANA, as
                           a Pre-Petition Lender and a New Term Lender

                         By: /s/ F. Richard Blankenship III
                         ----------------------------------------
                         Title: Vice President

                         101 West Washington Street
                         Suite 1040E
                         Indianapolis, Indiana 46255
                         Attention: David C. Hunt
                         Telephone: (317) 267-6290
                         Fax:       (317) 267-7088


                         MORGENS WATERFALL DOMESTIC
                         PARTNERS II, L.L.C., as a Pre-Petition
                           Lender and a New Term Lender

                         By: /s/ Stuart Brown
                         ----------------------------------------
                         Title: Authorized Agent

                         10 East 50th Street, 26th Floor
                         New York, New York 10022
                         Attention: Ken Ageloff
                         Telephone: (212) 705-0524
                         Fax:       (212) 838-5540



<PAGE>112

                         NATIONSBANK OF TEXAS, N.A., as a
                           Pre-Petition Lender and a New Term Lender

                         By: /s/ Jay T. Wampler
                         ----------------------------------------
                         Title: Senior Vice President

                         Domestic and Eurodollar Lending Offices:
                         901 Main Street, 66th Floor
                         Dallas, Texas 75202
                         Attention: Stacey Smith
                         Telephone: (214) 508-0944
                         Fax:       (214) 508-1864

                         All other notices:
                         Attention: Jay T. Wampler
                                    Senior Vice President
                         Telephone: (214) 508-3711
                         Fax:       (214) 508-3533


                         OAKTREE CAPITAL MANAGEMENT, LLC, as agent for
                           certain  funds  and  accounts,  as a  Pre-Petition
                           Lender and a New Term Lender

                         By: /s/ Matthew S. Barrett
                         ----------------------------------------
                         Title: Managing Director

                         By: /s/ Kenneth Liang
                         ----------------------------------------
                         Title: Managing Director & General Counsel

                         550 South Hope Street, 22nd Floor
                         Los Angeles, California 90071
                         Attention:
                         Telephone:
                         Fax: (213) 694-1592


                         THE SUMITOMO BANK, LIMITED, as
                           a Pre-Petition Lender and a New Term Lender

                         By: John Kemper
                         ----------------------------------------
                         Title: Senior Vice President

                         Domestic and Eurodollar Lending Offices:
                         233 South Wacker Drive, Suite 4800
                         Chicago, Illinois 60606
                         Attention: Loan Administration
                         Telephone: (312) 876-0525
                         Fax:       (312) 876-1490



<PAGE>113

                         All other notices:
                         Attention: Mr. Peter W. Prims
                         Telephone: (312) 876-6422
                         Fax:       (312) 876-6436


                         NOMURA HOLDING AMERICA INC., as
                           a Pre-Petition Lender and a New Term Lender

                         By: /s/ Dennis Dolan
                         ----------------------------------------
                         Title: Managing Director

                         2 World Financial Center, 17th Floor
                         New York, New York 10281-1198
                         Attention: Michael J. Doyle
                         Telephone: (212) 667-1964
                         Fax:       (212) 667-1708




<PAGE>i


                      AMENDED AND RESTATED CREDIT AGREEMENT
                                TABLE OF CONTENTS
                                                                       Page No.

INTRODUCTORY STATEMENT........................................................1

SECTION 1.  DEFINITIONS.......................................................3
     Section 1.1.  Defined Terms..............................................3
     Section 1.2   Terms Generally...........................................28

SECTION 2.  AMOUNT AND TERMS OF CREDIT.......................................29
     Section 2.1.  Assumption and Restructuring of Secured Obligations
                   (other than Letters of Credit); Amortization of 
                   New Term Loans; Commitment to Lend........................29
     Section 2.2.  Making of Loans...........................................30
     Section 2.3.  Notes; Repayment of Loans.................................32
     Section 2.4.  Interest on Loans.........................................32
     Section 2.5.  Letters of Credit ........................................33
     Section 2.6.  Procedure for Issuance of Letters of Credit...............38
     Section 2.7.  Nature of Letter of Credit Obligations Absolute...........38
     Section 2.8.  Default Interest..........................................39
     Section 2.9.  Optional Termination or Reduction of Commitment...........40
     Section 2.10. Alternate Rate of Interest................................40
     Section 2.11. Refinancing of Loans......................................40
     Section 2.12. Commitment Termination; Mandatory Prepayments; 
                   Mandatory Commitment Reduction; Cash Collateral...........41
     Section 2.13. Optional Prepayment of Loans; Reimbursement of Lenders....43
     Section 2.14. Reserve Requirements; Change in Circumstances.............45
     Section 2.15. Change in Legality........................................46
     Section 2.16. Pro Rata Treatment, etc...................................47
     Section 2.17. Taxes.....................................................47
     Section 2.18. Certain Fees..............................................49
     Section 2.19. Commitment Fee............................................49
     Section 2.20. Letter of Credit Fees.....................................49
     Section 2.21. Nature of Fees............................................50
     Section 2.22. Right of Set-Off.  .......................................50
     Section 2.23. Sharing of Setoffs........................................50
     Section 2.24. Security Interest in Letter of Credit Accounts............52
     Section 2.25. Release of Secured Parties................................52

SECTION 3. REPRESENTATIONS AND WARRANTIES ...................................53
     Section 3.1.  Organization and Authority................................53
     Section 3.2.  Due Execution.............................................53
     Section 3.3.  Statements Made...........................................53
     Section 3.4.  Financial Statements......................................54
     Section 3.5.  Ownership.................................................54
     Section 3.6.  Liens.....................................................54


<PAGE>ii


     Section 3.7.  Compliance with Law.......................................54
     Section 3.8.  Insurance.................................................54
     Section 3.9.  Use of Proceeds...........................................55
     Section 3.10. Litigation................................................55
     Section 3.11. Investment Company Act; etc...............................55
     Section 3.12. Tax Returns and Payments..................................55
     Section 3.13. ERISA.....................................................55
     Section 3.14. Good Title to Properties..................................57
     Section 3.15. Trademarks, Patents, etc..................................57
     Section 3.16. Labor Matters.............................................57
     Section 3.17. Environmental Matters.....................................57
     Section 3.18. Location and Divisions of the Borrower....................59
     Section 3.19. Solvency..................................................59

SECTION 4.  CONDITIONS TO EFFECTIVENESS OF REORGANIZATION AND 
            EXTENSIONS OF CREDIT.............................................60
     Section 4.1.  Conditions Precedent to Effectiveness of Reorganization,
                   Initial Loans and Initial Letters of Credit...............60
     Section 4.2.  Conditions Precedent to Each Loan and Each Letter 
                   of Credit after the Effective Date........................65

SECTION 5.  AFFIRMATIVE COVENANTS............................................66
     Section 5.1.  Financial Statements, Reports, etc........................66
     Section 5.2.  Conduct of Business; Maintenance of Existence.............70
     Section 5.3.  Maintenance of Property; Insurance........................70
     Section 5.4.  Compliance with Laws......................................71
     Section 5.5.  Obligations and Taxes.....................................71
     Section 5.6.  Notice of Event of Default, etc...........................72
     Section 5.7.  Access to Books and Records...............................72
     Section 5.8.  Modifications to Business Plan............................72
     Section 5.9.  Customer Charge Sales.....................................72
     Section 5.10. Lender Meetings...........................................72
     Section 5.11. Available and After-Acquired Properties...................73
     Section 5.12. Subsidiaries; Subsidiary Guarantees and 
                   Security Agreements.......................................73
     Section 5.13. Further Assurances........................................73
     Section 5.14. Maintenance of Cash Management System.....................73
     Section 5.15. Environmental Undertaking.................................74
     Section 5.16. Post-Closing Matters......................................74

SECTION 6.  NEGATIVE COVENANTS...............................................75
     Section 6.1.  Liens.....................................................75
     Section 6.2.  Debt......................................................75
     Section 6.3.  Consolidations, Mergers and Sales of Assets...............75
     Section 6.4.  Capital Expenditures......................................77
     Section 6.5.  No Negative Pledges.......................................79
     Section 6.6.  Termination of Plans......................................80
     Section 6.7.  EBITDA; Debt to EBITDA Ratio..............................80


<PAGE>iii


     Section 6.8.  Restricted Payments.......................................81
     Section 6.9.  Transactions with Affiliates..............................82
     Section 6.10. Investments, Loans and Advances...........................82
     Section 6.11. Business Segments.........................................83
     Section 6.12. Accounting Changes........................................83
     Section 6.13. Amendment and Modification of Certain Documents...........83
     Section 6.14. Sale/Lease-Backs..........................................84
     Section 6.15. Environmental Matters.....................................84
     Section 6.16. Rent Obligations..........................................85

SECTION 7.  EVENTS OF DEFAULT................................................85
     Section 7.1.  Events of Default.........................................85
     Section 7.2.  Application of Proceeds...................................89

SECTION 8.  THE AGENT; THE ADMINISTRATIVE AGENT..............................90
     Section 8.1.  Appointment and Authorization.............................90
     Section 8.2.  Agent and Affiliates......................................90
     Section 8.3.  Action by Agent...........................................90
     Section 8.4.  Consultation with Experts.................................91
     Section 8.5.  Liability of Agent........................................91
     Section 8.6.  Reimbursement and Indemnification; Set-Off................91
     Section 8.7.  Credit Decision...........................................92
     Section 8.8.  Notice of Transfer........................................92
     Section 8.9.  Successor Agent...........................................92
     Section 8.10. Concerning the Administrative Agent.......................93

SECTION 9.  MISCELLANEOUS....................................................93
     Section 9.1.  Notices...................................................93
     Section 9.2.  Survival of Agreement, Representations and
                   Warranties, etc...........................................93
     Section 9.3.  Successors and Assigns....................................94
     Section 9.4.  Confidentiality...........................................97
     Section 9.5.  Expenses..................................................98
     Section 9.6.  Indemnities...............................................98
     Section 9.7.  CHOICE OF LAW. ...........................................99
     Section 9.8.  No Waiver.................................................99
     Section 9.9.  Extension of Maturity.....................................99
     Section 9.10. Amendments, etc. .........................................99
     Section 9.11. Invalidity; Severability.................................100
     Section 9.12. Headings.................................................100
     Section 9.13. Execution in Counterparts; Effectiveness.................100
     Section 9.14. Prior Agreements.........................................101
     Section 9.15. Independence of Covenants................................102
     Section 9.16. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION............102
     Section 9.17. Effect of Amendment and Restatement of the 
                   Pre-Petition Credit Agreement and the DIP Credit 
                   Agreement; Confirmation of Security Documents............102
     Section 9.18. Reproduction of Documents................................103



<PAGE>iv


Annex A              Ratable Proportion
Annex B              Pre-Petition Letters of Credit

Exhibit A-1          New Term Notes
Exhibit A-2          New Revolving Notes
Exhibit B            Confirmation Order
Exhibit C            Security and Pledge Agreement
Exhibit D-1          Form of Mortgage
Exhibit D-2          Form of Deed and Trust
Exhibit D-3          Form of Amended and Restated Mortgage
Exhibit D-4          Form of Amended and Restated Deed of Trust
Exhibit E            Subsidiary Guarantee
Exhibit F            Subsidiary Security Agreement
Exhibit G-1          Opinion/Blackwell
Exhibit G-2          Opinion/Wachtell
Exhibit H            Excess Cash Flow Certificate
Exhibit I            Notice of Borrowing
Exhibit J-1          Application (Standby Letter of Credit Generally)
Exhibit J-2          Application (Unsupported Trade Standby Letter of Credit)
Exhibit K            Notice of Refinancing of Loans
Exhibit L            Closing Certificate
Exhibit M            Inventory Compliance Certificate
Exhibit N            Covenant Compliance Certificate
Exhibit O            Quarterly Certificate
Exhibit P            Assignment and Acceptance


Schedule 1.1(a)      Commitments/Loans
Schedule 1.1(b)      Existing Agreements
Schedule 1.1(c)      UBS Collateral
Schedule 3.6         Pre-Petition Liens
Schedule 3.10        Litigation
Schedule 3.13        ERISA
Schedule 3.17        Environmental Matters
Schedule 3.18        Locations and Divisions of the Borrower
Schedule 5.3         Insurance
Schedule 6.3         Disposition of Assets
Schedule 6.10        Existing Investments



<PAGE>COVER


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                              AMENDED AND RESTATED
                                CREDIT AGREEMENT

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                                      Among

                             PAYLESS CASHWAYS, INC.,

                                  as Borrower,


                          THE LENDERS, THE UNDERWRITERS
                      AND THE FRONTING BANKS PARTY HERETO,

                                       and

                       CANADIAN IMPERIAL BANK OF COMMERCE,

                      as Coordinating and Collateral Agent


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                          Dated as of December 2, 1997

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