<PAGE> 1
                                                                     Exhibit 4.1

                      AMENDED AND RESTATED CREDIT AGREEMENT

                  AMENDED AND RESTATED  CREDIT  AGREEMENT,  dated as of November
20, 1995, among PAYLESS  CASHWAYS,  INC., an Iowa corporation (the  "Borrower"),
the banks and other financial  institutions  parties hereto (together with their
respective  successors  and assigns,  the  "Banks"),  CANADIAN  IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY (acting through one or more of its agencies,  branches
or affiliates, "CIBC"), as Administrative Agent (in such capacity, together with
any successor  agent,  the  "Administrative  Agent") and as Collateral Agent (in
such capacity,  together with any successor agent,  the "Collateral  Agent") and
THE BANK OF NOVA  SCOTIA,  NATIONSBANK  OF  TEXAS,  N.A.,  and  BANK OF  AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as Co-Agents (in such capacity, together
with any successors and assigns, the "Co-Agents").

                              W I T N E S S E T H :

                  WHEREAS,   the   Borrower,   certain   of   the   Banks,   the
Administrative  Agent, the Collateral Agent and the Co-Agents are parties to the
Credit  Agreement,  dated as of November 18, 1994 (as amended  prior to the date
hereof, the "Existing Credit Agreement");

                  WHEREAS,  the Borrower has requested that the Existing  Credit
Agreement  be amended and  restated to (a) provide for an  additional  financial
institution  as a Bank to make Tranche B Term Loans (the "New Bank"),  (b) add a
$40,000,000  five year  senior  secured  Tranche B term  loan  facility  and (c)
otherwise amend the Existing Credit  Agreement and restate it in its entirety as
more  fully set forth  herein;  and the Banks,  the  Administrative  Agent,  the
Collateral  Agent and the Co-Agents  are willing,  upon and subject to the terms
and conditions  hereof,  to amend and restate the Existing Credit Agreement and,
in the case of the New Bank, to become a party hereto as a Bank;

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

                             SECTION 1. DEFINITIONS

                  SECTION 1.1 Definitions.  The following terms, as used herein,
have the following meanings:

                  "Absolute Rate Money Market Loan" means any Money
Market Loan made pursuant to an Absolute Rate Money Market Loan
Request.
                  "Absolute  Rate Money  Market  Loan  Request"  means any Money
Market  Loan  Request  requesting  the Banks to make  Money  Market  Loans at an
absolute fixed rate for the term of the Money Market Loan.


                                                                     


<PAGE> 2


                  "Adjusted  London  Interbank  Offered Rate" applicable to each
day during any  Interest  Period  means a rate per annum  equal to the  quotient
obtained  (rounded  upwards,  if  necessary,  to the next higher 1/100 of 1%) by
dividing (i) the  applicable  LIBOR by (ii) 1.00 minus the  Euro-Dollar  Reserve
Percentage in effect for such day.

                  "Administrative Agent" has the meaning set forth in the
first paragraph of this Agreement.

                  "Affiliate"  as  applied  to any  Person  means  (x) any other
Person  directly  or  indirectly  controlling,  controlled  by, or under  common
control  with,  that Person or (y) any other  Person that owns or controls 5% or
more of any class of equity  securities of that Person or any of its Affiliates.
For the  purposes of this  definition,  "control"  (including  with  correlative
meanings,  the terms  "controlling,"  "controlled by," and "under common control
with"), as applied to any Person, means the possession,  directly or indirectly,
of the power to direct or cause the direction of the  management and policies of
that Person,  whether through the ownership of voting  securities or by contract
or otherwise.

                  "Aggregate  Outstanding Revolving Extensions of Credit" means,
as to any Bank at any  time,  an  amount  equal to the sum of (a) the  aggregate
principal  amount of all Revolving Loans made by such Bank then  outstanding and
(b) such Bank's  Revolving  Commitment  Percentage of the L/C  Obligations  then
outstanding.

                  "Agreement" means this Credit Agreement, as amended,  modified
or supplemented from time to time in accordance with the terms hereof.

                  "Applicable Index Rate" means, in respect of any Money
Market Loan requested pursuant to an Index Rate Money Market Loan
Request, LIBOR.

                  "Applicable Margin" means:

                  (a) with  respect  to the  Revolving  Loans,  for each  Margin
Period,  the rate per annum for the relevant  Type of  Revolving  Loan set forth
below  opposite  the Debt to EBITDA Ratio of the Borrower on the last day of the
fiscal quarter to which such Margin Period relates:


                                                      
                                                                     

<PAGE> 3



Debt to EBITDA                   CIBC Alternate                  Euro-Dollar
Ratio                            Base Rate Loans                 Loans
--------------                   ---------------                 -----------

Greater than                         1.00%                           2.00%
4.25 to 1.0

Greater than                          .75%                           1.75%
3.75 to 1.0 but
less than or equal to
4.25 to 1.0

Greater than                          .50%                           1.50%
3.5 to 1.0 but
less than or equal to
3.75 to 1.0

Greater than                          .25%                           1.25%
3.0 to 1 but
less than or equal to
3.5 to 1.0

Less than                               0%                           1.00%
or equal to
3.0 to 1.0

provided,  however,  that until the Margin Period relating to the fiscal quarter
ending November 25, 1995, the Applicable Margin shall be .75% for CIBC Alternate
Base Rate Loans and 1.75% for Euro-Dollar Loans, and provided,  further, that if
at any time the Borrower shall fail to deliver the financial statements required
by  Section  8.1(a) and (b) for any fiscal  quarter  or the  related  Compliance
Certificate required by Section 8.1(c) on or before the date such statements and
Compliance  Certificate are required to be delivered  pursuant to such Sections,
the Debt to EBITDA Ratio shall be deemed for purposes of this  definition  to be
greater than 4.25 to 1.0 for the period which  commences five Domestic  Business
Days after such  required  date of  delivery  and ends on the date which is five
Domestic   Business  Days  after  such   financial   statements  and  Compliance
Certificate are actually delivered (each such period, a "Late Delivery Period"),
after which the Applicable  Margin for the remainder of such Margin Period shall
be determined in accordance with the preceding schedule (subject,  nevertheless,
to the overriding  provisions of this proviso  insofar as this proviso may apply
to any other then delinquent financial statements and/or Compliance Certificate)
and provided,  further, that if, when delivered, such statements and certificate
shall support a  determination  of an  Applicable  Margin for such Late Delivery
Period  which is less than  that  determined  therefor  in  accordance  with the
foregoing proviso,  the Applicable Margin for such period shall be retroactively
reduced to such lesser amount.


                                                      
                                                                     

<PAGE> 4

                  (b) with  respect to the Tranche B Term  Loans,  1.25% if such
Loans are CIBC Alternate Base Rate Loans and 2.25% if such Loans are Euro-Dollar
Loans.

                  "Application" means an application, in such form as the Letter
of Credit  Bank may  specify  from time to time (a copy of the  current  form of
which is attached hereto as Exhibit E),  requesting the Letter of Credit Bank to
open a Letter  of  Credit,  as such  application  may be  amended,  modified  or
supplemented from time to time.

                  "Available Revolving  Commitment" means, as to any Bank at any
time,  an amount  equal to the  excess,  if any,  of (a) such  Bank's  Revolving
Commitment over (b) such Bank's Aggregate
Outstanding Revolving Extensions of Credit.

                  "Bank  Obligations"  means all  obligations and liabilities of
the  Borrower  and its  Subsidiaries  under or in  connection  with  the  Credit
Documents,  now existing or hereafter  created,  contingent  or not, due or not,
arising by operation of law or otherwise.

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

                  "Borrowing"   means  a  borrowing   hereunder   consisting  of
Revolving  Loans or  Tranche  B Term  Loans  made to the  Borrower  by the Banks
pursuant to Section 2. A Borrowing is a "CIBC  Alternate Base Rate Borrowing" if
such Loans are CIBC Alternate  Base Rate Loans and a "Euro-Dollar  Borrowing" if
such Loans are Euro-Dollar Loans.

                  "Borrowing Date" means, any Domestic  Business Day, or, in the
case of Euro-Dollar  Loans, any Euro-Dollar  Business Day, specified in a notice
pursuant to (a) Section 2.2 or 4.2 as a date on which the Borrower  requests the
Banks to make Revolving Loans or Money Market Loans, respectively,  hereunder or
(b) Section 3.2 as a date on which the  Borrower  requests  the Letter of Credit
Bank to issue a Letter of Credit hereunder.

                  "Change  of  Control"  means 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,  shall  after the
Closing Date  purchase  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  classes of Voting
Shares of the Borrower; or (y) any Person or any Group of Persons, 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


                                                                     

<PAGE> 5


such that such  nominees so elected  (whether new or  continuing  as  directors)
shall constitute a majority of the Board of Directors of the Borrower.

                  "Charges" has the meaning set forth in Section 5.3.

                  "CIBC" has the meaning set forth in the first paragraph
of this Agreement.

                  "CIBC  Alternate  Base Rate" means on any  particular  date, a
rate of interest 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 for such date plus 1/2
                           of 1.0%.

The CIBC Alternate Base Rate is not  necessarily  intended to be the lowest rate
of interest charged by CIBC in connection with extensions of credit.

                  "CIBC Alternate Base Rate Borrowing" has the meaning set forth
in the definition of "Borrowing" in this Section.

                  "CIBC  Alternate  Base Rate Loan" means a Revolving  Loan or a
Tranche B Term Loan which bears interest as provided in Section 2.4(a).

                  "Closing  Date" means the date on which each of the conditions
precedent to the effectiveness of this Agreement  contained in Section 6.2 shall
have  been  satisfied  or  waived in  accordance  with the terms and  conditions
thereof.

                  "Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.

                  "Collateral"   means  all  personal  property   (tangible  and
intangible) in which a security interest, assignment or lien is now or hereafter
granted to the  Collateral  Agent for the benefit of the Collateral  Agent,  the
Administrative  Agent and the Banks, or which is now or hereafter  issued by the
Borrower or any of its  Subsidiaries to the Collateral  Agent for the benefit of
the Collateral  Agent, the  Administrative  Agent and the Banks, as security for
the Bank Obligations.

                  "Collateral Agent" has the meaning set forth in the
first paragraph of this Agreement.

                  "Commitment"  means, with respect to each Bank, the sum of (i)
such  Bank's  Revolving  Commitment  plus (ii) such  Bank's  Tranche B Term Loan
Commitment.


        
                                                                     

<PAGE> 6


                  "Commitment  Fee Rate"  means,  for each day during any Margin
Period,  the rate per annum set forth below opposite the Debt to EBITDA Ratio of
the Borrower on the last day of the fiscal  quarter to which such Margin  Period
relates:

                  Debt to EBITDA                          Commitment
                  Ratio                                   Fee Rate
                  --------------                          ----------

                  Greater than                               .50%
                  4.25 to 1.0

                  Less than or equal
                  to 4.25 to 1.0                             .375%

provided,  however,  that until the Margin Period relating to the fiscal quarter
ending November 25, 1995, the Commitment Fee Rate shall be .375%,  and provided,
further,  that if at any time the Borrower  shall fail to deliver the  financial
statements  required  by Section  8.1(a)  and (b) for any fiscal  quarter or the
related Compliance  Certificate required by Section 8.1(c) on or before the date
such statements and Compliance Certificate are required to be delivered pursuant
to such Sections,  the Debt to EBITDA Ratio shall be deemed for purposes of this
definition  to be greater than 4.25 to 1.0 for the period which  commences  five
Domestic Business Days after such required date of delivery and ends on the date
which is five  Domestic  Business  Days  after  such  financial  statements  and
Compliance  Certificate  are  actually  delivered  (each  such  period,  a "Late
Delivery Period"), after which the Commitment Fee Rate for the remainder of such
Margin  Period shall be determined  in  accordance  with the preceding  schedule
(subject,  nevertheless, to the overriding provisions of this proviso insofar as
this proviso may apply to any other then delinquent  financial statements and/or
Compliance  Certificate) and provided,  further,  that if, when delivered,  such
statements and  certificate  shall support a  determination  of a Commitment Fee
Rate for such Late Delivery Period which is less than that  determined  therefor
in  accordance  with the foregoing  proviso,  the  Commitment  Fee Rate for such
period shall be retroactively reduced to such lesser amount.

                  "Commitment  Transfer  Supplement" means a Commitment Transfer
Supplement substantially in the form of Exhibit I.

                  "Compliance Certificate" has the meaning set forth in
Section 8.1(c).

                  "Consolidated  Current  Liabilities" means at any date (i) the
consolidated  current liabilities (less any consolidated current tax liabilities
and any  consolidated  current Debt of the type described in clauses (i)-(iv) of
the  definition of "Debt" in this Section) of the Borrower and its  Consolidated
Subsidiaries  plus (ii) the current  liabilities  (other  than any  consolidated
current Debt of the type  described  in clauses  (i)-(iv) of the  definition  of
"Debt" in this Section) of any Person (other than

        

                                                                     

<PAGE> 7


the Borrower or a Consolidated  Subsidiary) which are Guaranteed by the Borrower
or a Consolidated Subsidiary, all determined as of such date.

                  "Consolidated  Net Worth"  means at any date the  consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries ((i) less
an amount equal to any write-up in the book carrying  value of any assets of the
Borrower or any of its  Consolidated  Subsidiaries  resulting from a revaluation
thereof  subsequent  to  November  27,  1993,  (ii)  less  an  amount  equal  to
extraordinary  gains realized by the Borrower and its Consolidated  Subsidiaries
subsequent  to the Closing Date and (iii) plus an amount equal to  extraordinary
losses realized by the Borrower and its Consolidated  Subsidiaries subsequent to
the Closing Date).

                  "Consolidated  Subsidiary" means 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 as of such date.

                  "Consolidated   Tangible   Net  Worth"   means  at  any  date,
Consolidated Net Worth after deducting therefrom the following:

                  (a) goodwill, including any amounts (however designated on the
         balance sheet) representing the cost of acquisitions of Subsidiaries in
         excess of underlying tangible assets;

                  (b)  patents, trademarks and copyrights; and

                  (c)  deferred   charges   (including,   but  not  limited  to,
         unamortized  debt  discount  and  expense,  organization  expenses  and
         experimental and development expenses, but excluding prepaid expenses).

                  "Contractual Obligation" as to any Person, means any provision
of any security  issued by such Person or of any agreement,  instrument or other
undertaking  to  which  such  Person  is a party  or by  which  it or any of its
property is bound.

                  "Credit  Documents"  means  this  Agreement,  the  Notes,  the
Applications,  the  Security  Documents,  the  Fee  Letter  and  all  documents,
instruments and agreements  executed and/or delivered in connection  herewith or
therewith.

                  "Debt" of any Person means 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 capital
leases, (v) all Debt of others

                                                      
                                                                     

<PAGE> 8


secured by a Lien on any asset of such Person  (other than Liens  arising  under
Permitted Operating Lease Transactions),  whether or not such Debt is assumed by
such  Person,  (vi)  all  Debt  of  others  Guaranteed  by  such  Person,  (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,  and (viii) 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 means the Debt of such
Person  described  in clauses (i) and (ii) of the  definition  of "Debt" in this
Section.

                  "Debt to EBITDA Ratio" means, as at the last day of any fiscal
quarter  of the  Borrower,  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
period of four consecutive fiscal quarters then ending, provided, however, that,
for the purposes of calculating such ratio in connection with any  determination
of the  Applicable  Margin or the rate at which the commitment fee is calculated
pursuant to Section 2.5, the principal  amount of the Revolving  Loans deemed to
be  outstanding  on any  such  last  day  shall  be  equal to (x) the sum of the
principal amounts of such Loans outstanding on such day and on each of the three
immediately preceding fiscal quarter end dates divided by (y) four.

                  "Default"  means any condition or event which  constitutes  an
Event of  Default  or which  with the  giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.

                  "Defaulting Bank" has the meaning set forth in the
definition of "Required Banks".

                  "Domestic  Business  Day"  means  any day  except a  Saturday,
Sunday or other day on which commercial banks in New York City are authorized by
law to close.

                  "Domestic  Lending Office" means  initially,  as to each Bank,
its office designated as such on Schedule I, and thereafter,  upon notice to the
Borrower and the  Administrative  Agent, such other office of such Bank, if any,
which shall be making or maintaining CIBC Alternate Base Rate Loans.

                  "EBITDA" means,  for any period,  the sum of (i)  consolidated
net income of the Borrower  and its  Consolidated  Subsidiaries  for such period
(excluding  extraordinary gains and losses),  plus (ii) 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 (iii)

        
                                                                     

<PAGE> 9


depreciation  and  amortization  expense of the  Borrower  and its  Consolidated
Subsidiaries  for  such  period  to the  extent  deducted  in  determining  such
consolidated  net income,  plus (iv) equity losses  attributable  to the Mexican
Joint  Venture to the extent  deducted  in  determining  such  consolidated  net
income,  minus (v) equity gains attributable to the Mexican Joint Venture to the
extent included in determining such consolidated net income.

                  "Environmental Law" has the meaning set forth in
Section 8.22(e).

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

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

                  "ERISA Event" means (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  of  the  Borrower  or any  ERISA
Affiliate of either of them from a Multiple  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  of the  Borrower or any ERISA  Affiliate  of either of them,  or the
incurrence of liability by the Borrower,  any  Subsidiary of the Borrower or any
ERISA  Affiliate  of  either  of them  under  Section  4064 of  ERISA  upon  the
termination of a Multiple  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 of
the Borrower or any ERISA Affiliate of either of them, or (e) the failure by the
Borrower,  a Subsidiary of the Borrower 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.


         
                                                                     

<PAGE> 10


                  "Euro-Dollar Borrowing" has the meaning set forth in
the definition of "Borrowing" in this Section.

                  "Euro-Dollar  Business Day" means any Domestic Business Day on
which commercial banks are open for international  business  (including dealings
in dollar deposits) in London, England.

                  "Euro-Dollar  Lending  Office"  means,  as to each  Bank,  its
office,  branch or  affiliate  designated  as such on  Schedule  I or such other
office,  branch or affiliate of such Bank as it may  hereafter  designate as its
Euro-Dollar  Lending  Office by notice to the  Borrower  and the  Administrative
Agent.

                  "Euro-Dollar  Loan" means a Revolving Loan or a Tranche B Term
Loan which bears interest as provided in Section 2.5(b).

                  "Euro-Dollar   Reference  Bank"  means  the  principal  London
offices  of CIBC or such  other  Bank as may be  appointed  pursuant  to Section
11.6A(i).

                  "Euro-Dollar  Reserve  Percentage"  means  for  any  day  that
percentage  (expressed  as a  decimal)  which  is in  effect  on  such  day,  as
prescribed  by the Board of  Governors  of the  Federal  Reserve  System (or any
successor) for determining the maximum reserve  requirement for a member bank of
the Federal Reserve System in New York City with deposits exceeding five billion
dollars  in respect of  "Eurocurrency  liabilities"  (or in respect of any other
category  of  liabilities  which  includes  deposits by  reference  to which the
interest rate on  Euro-Dollar  Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United  States office of
any Bank to United States residents). The Adjusted London Interbank Offered Rate
shall be adjusted automatically on and as of the effective date of any change in
the Euro-Dollar Reserve Percentage.

                  "Event of Default" has the meaning set forth in Section 9.1.

                  "Excess Cash Flow" means,  for any period,  an amount equal to
the  sum of (i)  consolidated  net  income  or  loss  of the  Borrower  and  its
Consolidated  Subsidiaries  for such  period,  plus (ii) an amount  equal to the
amount of depreciation expense, amortization expense (including the amortization
of goodwill),  accrued non-cash  interest expense and all other non-cash charges
deducted  in  arriving at such  consolidated  net income or loss,  plus (iii) an
amount equal to the aggregate Net Cash Proceeds of the sale, lease,  transfer or
other  disposition of assets by the Borrower and its  Consolidated  Subsidiaries
during such period  (other than sales of  inventory  in the  ordinary  course of
business) to the extent not required to be applied to mandatory  prepayments  or
payments on the Loans,  plus (iv) an amount (whether negative or positive) equal
to the change in Consolidated Current Liabilities of the Borrower and its

         
                                                                     

<PAGE> 11


Consolidated  Subsidiaries during such period, plus (v) without duplication with
other items included in this definition the amount of any tax refunds or credits
received by the Borrower and its Consolidated  Subsidiaries  during such period,
less  (vi) an amount  (whether  negative  or  positive)  equal to the  change in
non-cash  current assets of the Borrower and its  Consolidated  Subsidiaries for
such  period,  less  (vii) an amount  equal to the  aggregate  amount of capital
expenditures  of the Borrower and its  Subsidiaries  permitted to be made during
such period  pursuant to Section 8.12, less (viii) an amount equal to the sum of
all  regularly  scheduled  payments and optional and  mandatory  prepayments  of
principal  on Debt for  Borrowed  Money  of the  Borrower  and its  Consolidated
Subsidiaries (other than on the Revolving Loans and Money Market Loans) actually
made during such period to the extent permitted  hereunder,  less (ix) an amount
equal to the amount of all  payments  described  in clauses  (i) and (ii) of the
definition  of  "Restricted  Payments",  if any,  actually  made by the Borrower
during such period, less (x) an amount equal to the net gain on the sale, lease,
transfer or other  disposition  of assets by the Borrower  and its  Consolidated
Subsidiaries  during such period  (other than sales of inventory in the ordinary
course of business) to the extent included in arriving at such  consolidated net
income  or loss,  less  (xi) an  amount  equal to the  aggregate  amount  of all
Investments (other than Temporary Cash Investments),  if any, actually made with
cash by the Borrower and its Subsidiaries during such period.

                  "Exchange Act" means the  Securities  Exchange Act of 1934, as
amended.

                  "Existing  Credit  Agreement" has the meaning set forth in the
recitals to this Agreement.

                  "Federal  Funds Rate"  means,  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 Domestic  Business  Day,  for the next  preceding
Domestic Business Day) by the Federal Reserve Bank of New York, or, if such rate
is not so published for any day which is a Domestic Business Day, the average of
the quotations for such day on such transactions  received by the Administrative
Agent from three Federal funds brokers of recognized standing selected by it.

                  "Fee Letter" means the fee letter dated as of October 15, 1994
as  supplemented  by the fee letter dated as of November 20, 1995, each of which
is between the  Borrower  and the  Administrative  Agent with respect to certain
fees, as the same may be further  amended,  supplemented  or otherwise  modified
from time to time by a written instrument executed by the parties thereto.


         
                                                                     

<PAGE> 12


                  "GE Credit Program  Documents"  means the Monogram Credit Card
Bank of Georgia Program  Agreement,  dated as of November 27, 1989, by and among
the  Borrower,  Somerville  and  Monogram  Credit  Card Bank of Georgia  and the
Commercial Credit Account Purchase and Service  Agreement,  dated as of November
28,  1993,  between  the  Borrower,  Somerville  and  General  Electric  Capital
Corporation, as amended, modified or supplemented from time to time.

                  "Governmental  Authority"  means any  federal,  state,  local,
foreign  or  other   governmental  or  administrative   body,   instrumentality,
department  or agency  or any  court,  tribunal,  administrative  hearing  body,
arbitration panel, commission or other similar dispute resolving panel or body.

                  "Grid  Money  Market  Loan Note" has the  meaning set forth in
Section 4.4(a) of the Existing Credit Agreement;  collectively,  the "Grid Money
Market Loan Notes."

                  "Group"  means 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,  direct or indirect, contingent or otherwise, of such
Person (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  Substance"  has the  meaning  set forth in Section
8.22(e).

                  "Indemnified  Party"  has the  meaning  set  forth in  Section
11.10.

                  "Index Rate Money  Market  Loan"  means any Money  Market Loan
made pursuant to an Index Rate Money Market Loan Request.

                  "Index Rate Money Market Loan Request"  means any Money Market
Loan  Request  requesting  the Banks to offer to make Money  Market  Loans at an
interest rate equal to LIBOR for the applicable period plus (or minus) a margin.


         
                                                                     

<PAGE> 13


                  "Individual Money Market Loan Note" has the meaning set
forth in Section 4.4(b).

                  "Insufficiency"  means,  with respect to any Plan, the amount,
if any, of its unfunded benefit  liabilities,  as defined in Section 4001(a)(18)
of ERISA.

                  "Interest Coverage Ratio" has the meaning set forth in Section
8.17.

                  "Interest  Period"  means,  with  respect to each  Euro-Dollar
Borrowing,  (i) initially,  the period  commencing on the date of such Borrowing
and ending one, two, three or six months  thereafter,  as the Borrower may elect
in the applicable  Notice of Borrowing or notice of conversion,  as the case may
be, with respect thereto and (ii) thereafter, each period commencing on the last
day of the  next  preceding  Interest  Period  applicable  to  such  Euro-Dollar
Borrowing and ending one, two, three or six months  thereafter,  as the Borrower
may elect by irrevocable  notice received by the  Administrative  Agent prior to
11:00  A.M.,  New York  City  time,  on the day  which is not  less  than  three
Euro-Dollar  Business Days prior to the end of the then current  Interest Period
with respect thereto; provided that:

                  (a) any  Interest  Period which would  otherwise  end on a day
         which is not a  Euro-Dollar  Business Day shall be extended to the next
         succeeding  Euro-Dollar  Business Day unless such Euro-Dollar  Business
         Day falls in another calendar month, in which case such Interest Period
         shall end on the next preceding Euro-Dollar Business Day;

                  (b) any Interest  Period which begins on the last  Euro-Dollar
         Business  Day of a  calendar  month (or on a day for which  there is no
         numerically  corresponding day in the calendar month at the end of such
         Interest  Period) shall,  subject to clause (c) below,  end on the last
         Euro-Dollar Business Day of a calendar month;

                  (c) if any Interest Period would  otherwise  include a date on
         which a scheduled  payment of principal of any of the Loans is required
         to be made under this  Agreement  but does not end on such date,  then,
         subject to  Section  5.5,  (i) the  Interest  Period for the  principal
         amount (if any) of each Loan  required  to be repaid on such date shall
         end on such  date and (ii) the  remainder  (if any) of each  such  Loan
         shall have an Interest  Period  determined in accordance with the other
         provisions of this definition; and

                  (d) any Interest Period that would otherwise extend beyond the
         Revolving  Termination  Date or beyond the date final payment is due on
         the Tranche B Term Loans, as the case may be, shall, subject to Section
         5.5, end on such date.


         
                                                                     

<PAGE> 14


                  "Inter-Facility Agreement" means the inter-facility agreement,
substantially  in the form of Exhibit K to the Existing Credit  Agreement by and
among the Collateral Agent, the Administrative  Agent, the Merchandise Letter of
Credit Bank, the Borrower and Somerville, as amended,  supplemented or otherwise
modified from time to time.

                  "Investment"  means any  investment in any Person,  whether by
means of asset or share purchase,  capital  contribution,  loan,  advance,  time
deposit or  otherwise,  other than any such purchase from such Person either (i)
constituting a capital  expenditure  that is covered by Section 8.12  (including
associated  good  will)  or  (ii)  in the  ordinary  course  of the  purchaser's
business.

                  "L/C Fee Payment Date" means the last day of each March, June,
September and December.

                  "L/C  Obligations"  means, at any time, an amount equal to the
sum of (a) the aggregate  undrawn and unexpired  amount of the then  outstanding
Letters of Credit and (b) the  aggregate  amount of  drawings  under  Letters of
Credit which have not then been reimbursed pursuant to Section 3.5.

                  "L/C Participants"  means,  collectively,  with respect to any
Letter of Credit, all the Banks which have Revolving  Commitments other than the
Letter of Credit Bank which is the issuer thereof.

                  "L/C Rate"  means a rate per annum that is at all times  equal
to the Applicable  Margin for Euro-Dollar Loans that are Revolving Loans then in
effect.

                  "Lending  Office" means, as to each Bank, its Domestic Lending
Office or its Euro-Dollar Lending Office, as the context may require.

                  "Letter of Credit"  has the  meaning  set forth in  subsection
3.1(a).

                  "Letter  of  Credit   Bank"  means  CIBC  or  any  other  Bank
designated by the Borrower with the consent of such Bank and the  Administrative
Agent to replace the previous Letter of Credit Bank.

                  "LIBOR" with respect to each Interest  Period  pertaining to a
Euro-Dollar  Loan (or with  respect to each  period  during  which an Index Rate
Money Market Loan is to remain outstanding), means the rate (rounded upwards, if
necessary,  to the next higher  1/16 of 1%) per annum at which  deposits in U.S.
Dollars are offered to the  Euro-Dollar  Reference Bank in the London  interbank
market at approximately  11:00 A.M. (London time) two Euro-Dollar  Business Days
before the first day of such Interest Period (or period in respect of such Index
Rate Money Market Loan, as the

         
                                                                     

<PAGE> 15


case may be) in an amount  approximately  equal to the  principal  amount of the
Euro-Dollar Loan of the Euro-Dollar Reference Bank to which such Interest Period
is to apply (or, in the case of an Index Rate Money  Market  Loan,  in an amount
equal to $1,000,000) and for a period of time comparable to such Interest Period
(or period in respect of an Index Rate Money Market Loan, as the case may be).

                  "Lien" means,  with respect to any asset, any mortgage,  lien,
pledge, charge,  security interest or encumbrance of any kind 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.

                  "Loans" means the collective reference to the Revolving Loans,
the Tranche B Term Loans and the Money Market Loans; individually, a "Loan".

                  "Margin Period" in relation to any fiscal  quarter,  means the
period which (i) commences five Domestic  Business Days after the earlier of (x)
the date of delivery to the  Administrative  Agent of the  financial  statements
required by Section  8.1(a) or (b) for such  quarter and the related  Compliance
Certificate required by Section 8.1(c) or (y) the date by which such delivery is
required, and (ii) ends four Domestic Business Days after the earlier of (x) the
date of delivery to the  Administrative  Agent of such financial  statements and
related Compliance Certificate for the next succeeding fiscal quarter or (y) the
date by which such delivery is required.

                  "Margin Stock" has the meaning set forth in Regulation U.

                  "Materially  Adverse  Effect"  means (i) with  respect  to the
Borrower and its  Subsidiaries,  any materially  adverse change in the business,
operations,  condition  (financial  or  otherwise),  assets or  prospects of the
Borrower and its Subsidiaries taken as a whole, or (ii) any fact or circumstance
as to which,  singly or in the  aggregate,  the  Borrower  has reason to believe
there is a reasonable  possibility of (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
Credit Documents.

                  "Merchandise Letter of Credit Bank" means any bank which shall
issue  documentary  letters  of credit  under the  Merchandise  Letter of Credit
Facility, together with its successors.

                  "Merchandise  Letter of Credit  Facility"  means the Letter of
Credit Issuance and Reimbursement Agreement dated as of

         
                                                                     

<PAGE> 16


November  18,  1994  between  Commerce  Bank,  N.A.  and the  Borrower,  as such
agreement may be amended, supplemented, otherwise modified or replaced from time
to time with the consent of the Required Banks.

                  "Mexican Joint  Venture" means the joint venture  entered into
between the Borrower and Alfa S.A. de C.V., a Mexican corporation, or any of its
Subsidiaries,  pursuant  to the terms of that  certain  Shareholders'  Agreement
dated as of October 18, 1993,  as such  Shareholders'  Agreement may be amended,
supplemented or otherwise  modified from time to time in a manner not adverse to
the interests of the Banks.

                  "Minority  Investment" means any Investment  consisting of the
acquisition of ownership interests in any partnership or joint venture.

                  "Money  Market  Loan  Assignees"  has the meaning set forth in
Section 11.6B(a).

                  "Money Market Loan Assignment"  means any assignment by a Bank
to a Money Market Loan  Assignee of a Money  Market Loan and related  Individual
Money Market Loan Note;  any such Money Market Loan  Assignment to be registered
in the Register  must set forth,  in respect of the Money  Market Loan  Assignee
thereunder,  the full name of such Money Market Loan  Assignee,  its address for
notices,  its lending  office address (in each case with telephone and facsimile
transmission  numbers) and payment  instructions  for all payments to such Money
Market Loan  Assignee,  and must  contain an agreement by such Money Market Loan
Assignee to comply with the provisions of Section 11.6B and Section  11.6A(g) to
the same extent as any Bank.

                  "Money  Market Loan  Commitment  Period" means the period from
and  including  the  Closing  Date  until the date which is 15 days prior to the
Revolving Credit Termination Date.

                  "Money Market Loan  Confirmation"  means each  confirmation by
the Borrower of its  acceptance of Money Market Loan Offers,  which Money Market
Loan Confirmation shall be substantially in the form of Exhibit H-1 and shall be
delivered to the Administrative Agent in writing or by facsimile transmission.

                  "Money  Market Loan Interest  Payment Date" means,  as to each
Money Market Loan, each interest payment date specified by the Borrower for such
Money Market Loan in the related Money Market Loan Request.

                  "Money  Market  Loan  Maturity  Date"  means,  as to any Money
Market Loan, the date specified by the Borrower pursuant to Section 4.2(d)(2) in
its acceptance of the related Money Market Loan Offer.


                                                      
                                                                     

<PAGE> 17


                  "Money  Market Loan Notes" means the  collective  reference to
the Grid Money  Market Loan Notes and the  Individual  Money  Market Loan Notes;
each, individually, a "Money Market Loan Note."

                  "Money  Market Loan Offer"  means each offer by a Bank to make
Money Market Loans  pursuant to a Money Market Loan Request,  which Money Market
Loan Offer shall contain the  information  specified in Exhibit H-2 and shall be
delivered to the  Administrative  Agent by telephone,  immediately  confirmed by
facsimile transmission.

                  "Money Market Loan Request" means each request by the Borrower
for Banks to submit bids to make Money Market Loans, which request shall contain
the  information  in respect of such requested  Money Market Loans  specified in
Exhibit H-3 and shall be  delivered  to the  Administrative  Agent in writing or
facsimile  transmission,  or by  telephone,  immediately  confirmed by facsimile
transmission.

                  "Money  Market  Loans"  means  each  Money  Market  Loan  made
pursuant to Section 4.

                  "Moody's"  means 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  Administrative
Agent and the Borrower.

                  "Multiemployer  Plan" means a "multiemployer  plan" as defined
in Section  4001(a)(3)  of ERISA to which the  Borrower,  any  Subsidiary of the
Borrower  or any ERISA  Affiliate  of either  of them is making or  accruing  an
obligation to make  contributions  or has within any of the preceding three plan
years made or accrued an obligation to make contributions.

                  "Multiple Employer Plan" means an employee benefit plan, other
than a Multiemployer  Plan,  subject to Title IV of ERISA to which the Borrower,
any  Subsidiary  of the  Borrower or any ERISA  Affiliate of the Borrower or any
Subsidiary of the Borrower,  and more than one employer other than the Borrower,
any  Subsidiary  of the  Borrower or an ERISA  Affiliate  of the Borrower or any
Subsidiary  of the  Borrower,  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 of the Borrower or any ERISA Affiliate of the Borrower
or any  Subsidiary  of the  Borrower  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"  means,  with  respect to any issuance or
creation  of any  Debt or any  other  financing  or any  sale,  lease  or  other
disposition  of assets or issuance of capital  stock (other than pursuant to the
exercise  of  employee  or  director  stock  options),  (a)  the  cash  proceeds
(including, without limita-

                                                      
                                                                     

<PAGE> 18



tion,  all cash  proceeds  received  by way of  deferred  payment  of  principal
pursuant to a note or installment receivable or otherwise,  but only as and when
received) received by the Borrower or any Subsidiary of the Borrower,  minus (b)
brokerage commissions and other reasonable fees and expenses (including fees and
expenses of counsel and investment  bankers)  related to such  financing,  sale,
lease or other  disposition  or issuance,  and minus (c) in the case of any such
issuance or creation of any Debt or financing,  sale, lease or other disposition
of assets,  (i)  provisions  for all taxes  payable as a result  thereof  and in
connection  therewith,  (ii)  payments made to retire Debt (other than the Loans
and,  in the case of any sale  described  in the  second  proviso  to the second
sentence of Section 2.7(b),  the Prudential Real Estate Financing) secured by or
otherwise  relating directly to such assets being sold or otherwise  disposed of
or the assets  which are securing  such  issuance,  creation or financing  where
payment of such Debt is required in connection  therewith and (iii)  appropriate
amounts to be provided by the Borrower or any Subsidiary of the Borrower, as the
case may be, as a reserve,  in accordance  with  generally  accepted  accounting
principles  consistently  applied with those applied in the  preparation  of the
financial  statements  referred to in Section  7.9(b),  against any  liabilities
associated with such assets being sold or otherwise  disposed of and retained by
the Borrower or any  Subsidiary of the Borrower,  as the case may be, after such
sale, lease or other disposition of such assets.

                  "Note  Pledge  Agreement"  means  the note  pledge  agreement,
substantially in the form of Exhibit C to the Existing Credit Agreement, entered
into  between  the  Borrower  and the  Collateral  Agent for the  benefit of the
Collateral Agent, the Administrative Agent, the Banks and the Merchandise Letter
of Credit Bank,  as amended,  supplemented  or otherwise  modified  from time to
time.

                  "Notes" means the collective reference to the Revolving Notes,
the  Tranche B Term  Loan  Notes and the Money  Market  Notes;  individually,  a
"Note".

                  "Notice of  Borrowing"  has the  meaning  set forth in Section
2.2.

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

                  "Participants" has the meaning set forth in Section 11.6A(b).

                  "Participating  Interest" means with respect to each Letter of
Credit (i) in the case of the Letter of Credit Bank, its interest in such Letter
of Credit and any Application or time draft relating thereto after giving effect
to the granting of any participating  interests therein pursuant hereto and (ii)
in the case of each L/C Participant, its undivided participating

                                                      
                                                                     

<PAGE> 19


interest in such  Letter of Credit and any  Application  or time draft  relating
thereto.

                  "PBGC" means the Pension Benefit  Guaranty  Corporation or any
entity succeeding to any or all of its functions under ERISA.

                  "Permitted  Operating Lease  Transactions"  means an operating
lease of facilities or tangible  personal  property by the Borrower,  as lessee,
under  which the  Borrower  provides a Lien on its  interest  in the  underlying
operating lease and on its interest, if any, in the underlying leased facilities
or property.

                  "Permitted  Pad Sale" means 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 a retail store, as 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 such real property does not exceed 50% of the total acreage of such
real  property and (iii) such sale is completed  within  eighteen  months of the
acquisition of such real property.

                  "Person" means an individual, a corporation,  a partnership, a
joint  venture,  an  association,  a trust or any other entity or  organization,
including a government or political  subdivision or an agency or instrumentality
thereof.

                  "Plan"   means  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  of the Borrower or any ERISA
Affiliate  of the Borrower or any  Subsidiary  of the Borrower and is subject to
Title IV of ERISA.

                  "Pledge Agreements" means the collective reference to the Note
Pledge Agreement and the Stock Pledge Agreement.

                  "Projected Cash Flow Financial Statements" has the meaning set
forth in Section 7.9(c).

                  "Property" has the meaning set forth in Section 8.22(a).

                  "Prudential"   means  The  Prudential   Insurance  Company  of
America.

                  "Prudential  Loan Agreement"  means the Loan Agreement,  dated
June 20, 1989, by and among the Borrower,  Knox Home Centers,  Inc.,  Somerville
and Prudential, as the same may be

                                                      
                                                                     

<PAGE> 20



amended,  supplemented  or otherwise  modified  pursuant to the terms hereof and
thereof.

                  "Prudential  Real Estate  Financing"  means the  financing  by
Prudential  provided for by the  Prudential  Loan  Agreement  and other  related
documentation.

                  "Purchasing  Banks"  has the  meaning  set  forth  in  Section
11.6A(c).

                  "Register" has the meaning set forth in Section 11.6A(d).

                  "Regulation G" means Regulation G of the Board of Governors of
the Federal Reserve System (or any successor), as in effect from time to time.

                  "Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System (or any successor), as in effect from time to time.

                  "Reimbursement   Obligation"   means  the  obligation  of  the
Borrower  to  reimburse  the Letter of Credit  Bank  pursuant to Section 3.5 for
amounts  drawn under  Letters of Credit  issued by such Bank and for payments of
time drafts accepted thereunder.

                  "Remedial Work" has the meaning set forth in Section 8.22(c).

                  "Rent Expense" means all expenses related to operating leases.

                  "Required  Banks"  means at any time Banks having an aggregate
amount of the Revolving Commitments (or, after the Revolving Commitments expire,
are terminated or are fully utilized,  Revolving  Loans) and/or aggregate amount
of the  Tranche  B Term Loan  Commitments  (or,  after  the  Tranche B Term Loan
Commitments expire, are terminated or are fully utilized,  Tranche B Term Loans)
which  constitute  at least  51% of the sum of (x) the  aggregate  amount of all
Revolving   Commitments  (or,  after  the  Revolving   Commitments  expire,  are
terminated or are fully utilized,  Revolving Loans) and (y) the aggregate amount
of the  Tranche  B Term Loan  Commitments  (or,  after  the  Tranche B Term Loan
Commitments expire, are terminated or are fully utilized,  Tranche B Term Loans)
then  in  effect  or  outstanding;  provided,  that  for  the  purposes  of this
definition the Commitments and Loans of any Bank shall be disregarded if and for
so long as such Bank (each, a "Defaulting Bank") shall have not theretofore made
available  to (i)  the  Administrative  Agent  its  pro  rata  share  of a given
Borrowing in  accordance  with Section  2.2(c) or (ii) the Letter of Credit Bank
its  pro  rata  share  of  a  given  unreimbursed  reimbursement  obligation  in
accordance with Section 3.4(a).


         
                                                                     

<PAGE> 21



                  "Required  Revolving  Credit  Banks"  means at any time  Banks
having an aggregate amount of the Revolving Commitments (or, after the Revolving
Commitments expire, are terminated or are fully utilized, Revolving Loans) which
constitute  at least 51% of the aggregate  amount of all  Revolving  Commitments
(or,  after  the  Revolving  Commitments  expire,  are  terminated  or are fully
utilized, Revolving Loans) then in effect or outstanding; provided, that for the
purposes of this definition the  Commitments  and Loans of any Revolving  Credit
Bank  shall be  disregarded  if and for so long as such  Revolving  Credit  Bank
(each, a "Defaulting Bank") shall have not theretofore made available to (i) the
Administrative  Agent its pro rata share of a given Borrowing in accordance with
Section  2.2(c) or (ii) the Letter of Credit  Bank its pro rata share of a given
unreimbursed reimbursement obligation in accordance with Section 3.4(a).

                  "Required Tranche B Term Loan Banks" means at any time Tranche
B Term  Loan  Banks  having  an  aggregate  amount  of the  Tranche  B Term Loan
Commitments  (or,  after  the  Tranche  B  Term  Loan  Commitments  expire,  are
terminated  or are fully  utilized,  Tranche B Term Loans) which  constitute  at
least 51% of the aggregate  amount of the Tranche B Term Loan  Commitments  (or,
after the Tranche B Term Loan  Commitments  expire,  are terminated or are fully
utilized,  Tranche B Term Loans) then in effect or outstanding;  provided,  that
for the purposes of this  definition the  Commitments and Loans of any Tranche B
Term Loan Bank shall be  disregarded  if and for so long as such  Tranche B Term
Loan Bank (each, a "Defaulting  Bank") shall have not theretofore made available
to the  Administrative  Agent  its  pro  rata  share  of a  given  Borrowing  in
accordance with Section 2.2(c).

                  "Requirement  of Law" means 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   Payment"   means  (i)  any   dividend  or  other
distribution  on  any  shares  of  the  Borrower's   capital  stock  (common  or
preferred),  (ii) any payment (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 payment or  prepayment  of  principal  or
interest  on  account  of Debt for  Borrowed  Money  (other  than the  Loans but
including,  without  limitation,  the Senior Subordinated Note) or any purchase,
defeasance,  redemption,  retirement or acquisition of any principal or interest
on such Debt (including,  without limitation, the setting aside of assets or the
deposit of funds  therefor) or (iv) any payment of management or consulting fees
to an Affiliate of the

         
                                                                     

<PAGE> 22


Borrower;  provided,  however,  that the  conversion  into  common  stock of the
Borrower of all or any portion of the Borrower's Series A Cumulative Convertible
Preferred  Stock  shall not be deemed to result in a  Restricted  Payment;  and,
provided,  further,  that the  conversion  of shares of any class of the  common
stock of the Borrower into another  class of common stock of the Borrower  shall
not be deemed to result in a Restricted Payment.

                  "Revolving   Borrowing"   means  a  borrowing   consisting  of
Revolving Loans of the same Type made on the same day.

                  "Revolving Commitment" means as to any Bank, the obligation of
such Bank to make  Revolving  Loans to the  Borrower in an  aggregate  principal
amount at any one time  outstanding not to exceed the amount set forth under the
heading "Revolving Commitments" opposite such Bank's name on Schedule I, as such
amount may be reduced or adjusted from time to time pursuant to this Agreement.

                  "Revolving Commitment Percentage" means, as to any Bank at any
time, the percentage of the aggregate Revolving  Commitments then constituted by
such  Bank's  Revolving   Commitment  (or,  at  any  time  after  the  Revolving
Commitments  shall have expired or  terminated,  the percentage of the aggregate
principal amount of the Revolving Loans then outstanding then constituted by the
aggregate principal amount of such Bank's Revolving Loans then outstanding).

                  "Revolving  Credit Bank" means each Bank which has a Revolving
Commitment or which has made Revolving Loans.

                  "Revolving  Credit Period" means the period  commencing on the
Closing Date and ending on the Revolving  Termination  Date, or the earlier date
of termination in whole of the Revolving  Commitments pursuant to Section 2.6 or
2.7.

                  "Revolving Loans" has the meaning set forth in Section 2.1(a).

                  "Revolving  Note" means a  promissory  note of the Borrower to
the order of any Bank,  substantially  in the form of Exhibit A to the  Existing
Credit Agreement (which form is reproduced as Exhibit A hereto),  evidencing the
obligation  of the Borrower to repay the  Revolving  Loans made by such Bank, as
amended, modified, supplemented, replaced or substituted for from time to time.

                  "Revolving Termination Date" means November 18, 1999.

                  "SEC" means the Securities and Exchange Commission.

                  "Security    Agreement"    means   the   security    agreement
substantially in the form of Exhibit D to the Existing Credit Agreement  entered
into between the Borrower and the Collateral

              
                                                                     

<PAGE> 23



Agent,  and such other  security  agreements,  assignments,  pledges and similar
documents,  in form and substance  satisfactory to the Administrative  Agent, as
the Administrative Agent may request, pursuant to which the Borrower shall grant
to  the  Collateral  Agent  for  the  benefit  of  the  Collateral   Agent,  the
Administrative  Agent,  the Banks and the  Merchandise  Letter of Credit  Bank a
valid,  perfected and enforceable  first (unless  otherwise  permitted  therein)
priority lien on and security  interest in certain  tangible  and/or  intangible
assets  of  the  Borrower  (other  than  inventory),  as  amended,  modified  or
supplemented from time to time.

                  "Security   Documents"  means  the  Security  Agreement,   the
Subsidiary Security Agreement,  the Subsidiary Guarantee,  the Pledge Agreements
and all other security  agreements,  mortgages,  pledges and  assignments at any
time  delivered  by the Borrower or its  Subsidiaries  to the  Collateral  Agent
pursuant to the terms of this  Agreement,  as amended,  modified or supplemented
from time to time.

                  "Senior  Subordinated  Note  Indenture"  means  the  Indenture
between the Borrower and United  States Trust  Company of New York,  dated as of
April 20, 1993 pursuant to which the Senior  Subordinated  Notes were issued, as
the same may be amended,  supplemented  or  otherwise  modified  pursuant to the
terms hereof and thereof.

                  "Senior Subordinated Notes" means the Borrower's 9-1/8% Senior
Subordinated Notes due April 15, 2003 issued pursuant to the Senior Subordinated
Note Indenture.

                  "Somerville"  means Somerville  Lumber and Supply Co., Inc., a
Massachusetts corporation.

                  "S&P" means  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 Administrative Agent and the Borrower.

                  "Stock   Pledge   Agreement"   means  the  pledge   agreement,
substantially in the form of Exhibit G to the Existing Credit Agreement, entered
into  between  the  Borrower  and the  Collateral  Agent,  pursuant to which the
Borrower shall maintain in favor of the Collateral  Agent for the benefit of the
Collateral Agent, the Administrative Agent, the Banks and the Merchandise Letter
of Credit Bank, a valid,  perfected and  enforceable  first priority lien on and
security  interest  in  all  shares  of  stock  of the  Borrower's  Subsidiaries
identified therein, as amended,  supplemented or otherwise modified from time to
time.

                  "Subsidiary"  means any  corporation  or other entity of which
securities or other ownership  interests having ordinary voting power to elect a
majority of the board of directors or

              

                                                                     

<PAGE> 24


other  persons  performing  similar  functions  are  at  the  time  directly  or
indirectly owned by the Borrower.

                  "Subsidiary  Guarantee" means the guarantee,  substantially in
the form of Exhibit E to the  Existing  Credit  Agreement,  entered into between
Somerville and the Collateral Agent for the benefit of the Collateral Agent, the
Administrative  Agent,  the Banks and the Merchandise  Letter of Credit Bank, as
the same may be amended, supplemented or otherwise modified from time to time.

                  "Subsidiary  Security Agreement" means the security agreement,
substantially in the form of Exhibit F to the Existing Credit Agreement, made by
Somerville in favor of the Collateral  Agent,  for the benefit of the Collateral
Agent, the Administrative  Agent, the Banks and the Merchandise Letter of Credit
Bank, as the same may be amended,  supplemented or otherwise  modified from time
to time.

                  "Temporary Cash Investment" means 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,  (ii)  commercial  paper
rated in the highest grade (A1+/P1 or its equivalent) by a nationally recognized
credit rating  agency or (iii) 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,  provided in each case that such Investment matures within
one year from the date of acquisition thereof by the Borrower or a Subsidiary.

                  "Tranche B Term Loan Bank" means each Bank which has a Tranche
B Term Loan Commitment or which has made a Tranche B Term Loan.

                  "Tranche B Term Loan Commitment"  means,  with respect to each
Bank,  the amount set forth  opposite the name of such Bank on Schedule I (or in
the  Commitment  Transfer  Supplement  pursuant to which such Bank became a Bank
hereunder)  as its  "Tranche  B Term Loan  Commitment",  as such  amount  may be
adjusted pursuant to Section 11.6A.

                  "Tranche B Term Loan Commitment  Percentage"  means, as to any
Bank at any time,  the  percentage  of the  aggregate  Tranche B Term Loans then
constituted by such Bank's Tranche B Term Loans.

                  "Tranche B Term Loan Maturity Date" means November 18, 2000.

                  "Tranche B Term Loan Note" means a promissory note of
the Borrower to the order of any Bank, substantially in the form

         
         

                                                            

<PAGE> 25


of Exhibit B hereto,  evidencing  the  obligation  of the  Borrower to repay the
Tranche B Term Loans  made by such Bank,  as  amended,  modified,  supplemented,
replaced or substituted for from time to time.

                  "Tranche B Term  Loans" has the  meaning  set forth in Section
2.1(b).

                  "Transferee" has the meaning set forth in Section 11.6A(f).

                  "Type" means,  as to any Loan,  its nature as a CIBC Alternate
Base Rate Loan, a Euro-Dollar Loan or a Money Market Loan.

                  "Uniform  Customs" means 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
from time to time.

                  "Voting Shares" means,  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).

                  "Warrants"  means the warrants  issued in connection  with the
issuance of the Senior Subordinated Notes.

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

                  SECTION  1.2  Other   Definitional   Provisions.   (a)  Unless
otherwise specified therein,  all terms defined in this Agreement shall have the
defined  meanings  when used in the  Notes,  any other  Credit  Document  or any
certificate or other document made or delivered pursuant hereto.

                  (b) Unless otherwise  specified  herein,  all accounting terms
used herein and in the Notes,  any other Credit  Document and any certificate or
other document made or delivered  pursuant  hereto,  shall be  interpreted,  all
accounting  determinations hereunder shall be made, and all financial statements
required  to be  delivered  hereunder  shall be  prepared,  in  accordance  with
generally accepted accounting principles as in effect from time to time, applied
on a basis  consistent  (except for  changes  concurred  with by the  Borrower's
independent  public  accountants)  with  the  audited   consolidated   financial
statements of the Borrower and its  Consolidated  Subsidiary for the fiscal year
ended  November 26, 1994;  provided,  that it is understood  and agreed that the
reference in the terms  "Consolidated  Net Worth" and "EBITDA" to "extraordinary
gains and losses" has at all times

                                                      
                                                                     

<PAGE> 26



been  intended  to be a reference  to all gains and losses  which under GAAP are
treated as extraordinary,  unusual or non-recurring and has not been intended to
be limited only to those items which strictly meet the  requirements of GAAP for
an  extraordinary  gain or loss.  The parties  hereto  further agree that in the
event  that  any  change  in  accounting  principles  from  those  used  in  the
preparation  of the financial  statements  of the Borrower and its  Consolidated
Subsidiary for the fiscal year ended  November 26, 1994 hereafter  occasioned by
the  promulgation  of rules,  regulations,  pronouncements  and  opinions  by or
required by the Financial  Accounting  Standards Board or Accounting  Principles
Board of the American  Institute of Certified Public  Accountants (or successors
thereto or agencies with similar  functions) results in any change in the method
of  calculation  of  financial  covenants,  standards  or  terms  found  in this
Agreement,   the  Administrative   Agent  and  the  Borrower  shall  enter  into
negotiations  to amend (in  accordance  with the provisions of Section 11.5) the
financial covenants, terms or standards contained in this Agreement to equitably
reflect such change in accounting  principles  with the desired  result that the
criteria  for  evaluating  the  Borrower's  and  the  Borrower's   Subsidiaries'
financial  condition  shall be the same after such  change as if such change had
not been made. If and so long as an amendment as contemplated by the immediately
preceding  sentence is not adopted in accordance  with the provisions of Section
11.5, the affected  financial  covenants shall be computed without giving effect
to such change in accounting principles.

                  (c) The words "hereof",  "herein" and "hereunder" and words of
similar  import when used in this  Agreement  shall refer to this Agreement as a
whole  and not to any  particular  provision  of this  Agreement,  and  Section,
subsection,  Schedule  and  Exhibit  references  are to  this  Agreement  unless
otherwise specified.

                  (d) The  meanings  given  to  terms  defined  herein  shall be
equally applicable to both the singular and plural forms of such terms.

                   SECTION 2. AMOUNT AND TERMS OF COMMITMENTS

                  SECTION  2.1  Commitments  to Lend.  (a) During the  Revolving
Credit Period each Bank which has a Revolving  Commitment  severally  agrees, on
the terms and  conditions set forth in this  Agreement,  to lend to the Borrower
from  time  to  time  revolving  credit  loans  (each  a  "Revolving  Loan"  and
collectively,  the "Revolving Loans") not to exceed in the aggregate at any time
outstanding,  when added to (i) such Bank's Revolving  Commitment  Percentage of
the then  outstanding  L/C  Obligations  and (ii) an amount equal to such Bank's
Revolving  Commitment  Percentage  multiplied by the aggregate amount of all the
Money  Market  Loans  of all the  Banks  then  outstanding,  the  amount  of its
Revolving  Commitment.  Each Borrowing  under this paragraph  shall (i) be in an
aggregate  principal  amount of $5,000,000 or any larger  multiple of $1,000,000
(except that a

         
                                                                     

<PAGE> 27


CIBC Alternate  Base Rate  Borrowing may be in the aggregate  amount of the then
unused  Revolving  Commitments)  and (ii) consist of Revolving Loans of the same
Type made on the same day by the several  Banks  ratably in  proportion to their
respective Revolving Commitments.  The Borrower may borrow Revolving Loans under
this  subsection,  repay or, to the  extent  permitted  by Section  2.8,  prepay
Revolving  Loans and reborrow  Revolving  Loans at any time during the Revolving
Credit Period.

                  (b) Each Bank  which  has a  Tranche  B Term  Loan  Commitment
severally  agrees,  on the terms and conditions set forth in this Agreement,  to
make a Tranche B term loan (each a "Tranche B Term Loan" and  collectively,  the
"Tranche B Term  Loans") to the Borrower on the Closing Date in an amount not to
exceed the amount of the Tranche B Term Loan Commitment of such Borrower.

                  SECTION 2.2 Method of Borrowing.  (a) The Borrower  shall give
the  Administrative  Agent written notice in substantially the form of Exhibit D
(a  "Notice  of  Borrowing")  on the  Domestic  Business  Day of each  Revolving
Borrowing  which is a CIBC  Alternate  Base Rate  Borrowing  and at least  three
Euro-Dollar Business Days before each Revolving Borrowing which is a Euro-Dollar
Borrowing  (provided,  in the case of each  type of  Revolving  Borrowing,  such
Notice of Borrowing is received by the Administrative Agent prior to 11:00 A.M.,
New York City time, on the required date of delivery) specifying:

                  (i) the date of such  Revolving  Borrowing,  which  shall be a
          Domestic  Business  Day in the  case  of a CIBC  Alternate  Base  Rate
          Borrowing or a  Euro-Dollar  Business Day in the case of a Euro-Dollar
          Borrowing,

                  (ii) the aggregate amount of such Revolving Borrowing,

                  (iii) whether the Loans  comprising  such Revolving  Borrowing
          are to be CIBC Alternate Base Rate Loans or Euro-Dollar Loans, and

                  (iv) in the case of a Euro-Dollar  Borrowing,  the duration of
          the Interest Period applicable  thereto,  subject to the provisions of
          the definition of Interest Period.

                  (b) Upon receipt of a Notice of Borrowing,  the Administrative
Agent shall promptly notify each Bank of the contents thereof and of such Bank's
ratable share of such Revolving  Borrowing,  and such Notice of Borrowing  shall
not thereafter be revocable by the Borrower.

                  (c) Not later than 1:00 PM (New York City time) on the date of
each Revolving  Borrowing,  each Bank shall make available its pro rata share of
such Revolving Borrowing, in Federal or other funds immediately available in New
York City, to the  Administrative  Agent at its address specified in or pursuant
to

         
                                                                     

<PAGE> 28


Section  11.1.  Upon  satisfaction  of the  applicable  conditions  specified in
Section 6.1, the  Administrative  Agent will make the funds so received from the
Banks available to the Borrower at the Administrative Agent's aforesaid address.

                  (d) The Borrower shall give the Administrative  Agent a Notice
of Borrowing, which Notice of Borrowing must be received prior to 11:00 a.m. New
York City time one Domestic  Business Day prior to the anticipated  Closing Date
in the case of a CIBC  Alternate  Base  Rate  Borrowing  and  three  Euro-Dollar
Business Days prior to the anticipated Closing Date in the case of a Euro-Dollar
Borrowing, requesting that the Tranche B Term Loan Banks make the Tranche B Term
Loans on the Closing Date,  specifying (a) the amount to be borrowed and (b) the
Closing Date. Upon receipt of such Notice of Borrowing, the Administrative Agent
shall  promptly  notify  each Bank of the  contents  thereof  and of such Bank's
ratable  share  of such  Tranche  B Term  Loan  Borrowing,  and such  Notice  of
Borrowing shall not thereafter be revocable by the Borrower. Not later than 1:00
PM (New York City time) on the Closing Date,  each Bank shall make available its
pro rata share of the Tranche B Term Loan  Borrowing,  in Federal or other funds
immediately  available  in New York  City,  to the  Administrative  Agent at its
address  specified  in or pursuant to Section  11.1.  Upon  satisfaction  of the
applicable  conditions  specified in Section 6.1, the Administrative  Agent will
make the funds so  received  from the Banks  available  to the  Borrower  at the
Administrative Agent's aforesaid address.

                  SECTION 2.3 Notes.  (a) The Revolving  Loans of each Revolving
Bank shall  continue to be  evidenced  by the  Revolving  Note  delivered  to it
pursuant to the Existing Credit Agreement.

                  (b) The Revolving  Commitment of each  Revolving Bank shall be
subject to semi-annual  mandatory commitment  reductions on June 15 and December
15 of each year,  commencing on December 15, 1995; the aggregate  amount of each
Revolving Bank's Revolving  Commitment on any such date shall be reduced by such
Revolving  Bank's  Revolving  Commitment  Percentage of the amount set forth for
such date in the following schedule:

               Date                                Principal Amount
               ----                                ----------------

          December 15, 1995                           $5,000,000
          June 15, 1996                              $12,500,000
          December 15, 1996                          $12,500,000
          June 15, 1997                              $17,500,000
          December 15, 1997                          $17,500,000
          June 15, 1998                              $27,500,000
          December 15, 1998                          $27,500,000
          June 15, 1999                              $50,000,000
          November 18, 1999                          $245,000,000

provided that, such Revolving  Commitment reduction schedule shall be subject to
adjustment as provided in Sections 2.6 and 2.7.


                                                                     

<PAGE> 29


                  (c) The Tranche B Term Loans of each  Tranche B Term Loan Bank
shall be evidenced by a promissory  note of the Borrower,  substantially  in the
form of Exhibit B, with appropriate  insertions as to payee,  date and principal
amount (as amended, endorsed,  extended or otherwise modified from time to time,
a "Tranche B Term Loan Note"),  payable to the order of such Tranche B Term Loan
Bank and in a principal  amount  equal to the amount of such Tranche B Term Loan
Bank's Tranche B Term Loan.

                  (d) The Borrower hereby unconditionally promises to pay to the
Administrative  Agent for the  account  of the  Tranche  B Term  Loan  Banks the
principal  amount of the  Tranche B Term Loans made by such  Tranche B Term Loan
Banks in (i) four consecutive annual installments of $1,000,000 each, payable on
the 15th day of each December to occur in 1996 through 1999 and (ii) one payment
of $36,000,000  on the Tranche B Term Loan Maturity  Date;  provided that on the
date of any  prepayment of the Tranche B Term Loans pursuant to Section 2.8, the
amortization  shall be deemed to be amended to reflect the  application  of such
prepayment in the manner contemplated by Section 2.8.

                  (e) Upon  receipt  of each  Tranche  B Term Loan  Bank's  Note
pursuant to Section 6.2(a) the Administrative Agent shall mail such Note to such
Bank.  Each  Revolving  Bank  shall  record,  and prior to any  transfer  of its
Revolving  Notes  shall  endorse  on  the  schedules   forming  a  part  thereof
appropriate  notations  to  evidence  the  date,  amount  and  maturity  of each
Revolving  Loan made by it and the date and amount of each  payment of principal
made by the Borrower  with  respect  thereto;  provided  that the failure of any
Revolving  Bank to make any such  recordation or endorsement or any error in any
such recordation or endorsement shall not affect the obligations of the Borrower
hereunder  or  under  the  Revolving  Notes.   Each  Revolving  Bank  is  hereby
irrevocably  authorized by the Borrower so to endorse its Revolving Notes and to
attach  to and  make a part of any  Revolving  Note a  continuation  of any such
schedule as and when required.

                  SECTION 2.4 Interest Rates.  (a) Each CIBC Alternate Base Rate
Loan shall bear interest on the outstanding  principal amount thereof,  for each
day from the date such Loan is made  until it becomes  due,  at a rate per annum
equal to the sum of the Applicable  Margin plus the CIBC Alternate Base Rate for
such day. Such interest shall be payable quarterly in arrears on the last day of
each March, June, September and December and on the Revolving  Termination Date.
Any overdue  principal of and overdue  interest on any CIBC  Alternate Base Rate
Loan shall bear interest,  payable on demand,  for each day until paid at a rate
per annum equal to 2% plus the rate  otherwise  applicable  thereto for such day
(as well after as before judgment).

                  (b)  Each   Euro-Dollar   Loan  shall  bear  interest  on  the
outstanding  principal  amount  thereof,  for  the  Interest  Period  applicable
thereto,  at a rate per annum equal to the sum of the Applicable Margin plus the
applicable Adjusted London Interbank


                                                                     

<PAGE> 30


Offered  Rate.  Such interest  shall be payable for each Interest  Period on the
last day thereof and, if such Interest  Period is longer than three  months,  at
intervals of three months after the first day thereof.  Any overdue principal of
and overdue  interest on any  Euro-Dollar  Loan shall bear interest,  payable on
demand,  for each day until paid at a rate per annum equal to the greater of (i)
2% plus  the  CIBC  Alternate  Base  Rate for such day and (ii) 2% plus the rate
otherwise applicable thereto for such day (as well after as before judgment).

                  (c) The  Administrative  Agent shall  determine  each interest
rate  applicable to the Loans  hereunder.  The  Administrative  Agent shall give
prompt  notice to the Borrower and the Banks by facsimile  transmission  of each
rate  of  interest  so  determined,  and  its  determination  thereof  shall  be
conclusive in the absence of manifest error.

                  (d) The  Euro-Dollar  Reference  Bank  agrees  to use its best
efforts  to  furnish  quotations  to the  Administrative  Agent as  contemplated
hereby.  If the Euro-Dollar  Reference Bank does not furnish a timely quotation,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks,  whereupon until the Administrative  Agent notifies the Borrower that
such quotations are available on a timely basis,  the obligation of the Banks to
make Euro-Dollar Loans shall be suspended.

                  (e) Notwithstanding the foregoing  provisions of this Section,
if at any time  the rate of  interest  set  forth  above on any Loan of any Bank
exceeds the maximum  non-usurious  interest  rate  permissible  for such Bank to
charge  commercial  borrowers under applicable law (the "Maximum Rate") for such
Bank, the rate of interest  charged on such Loan of such Bank hereunder shall be
limited to the Maximum Rate for such Bank.

                  In the event any Bank ever  receives,  collects  or applies as
interest any sum in excess of the Maximum Rate for such Bank, such excess amount
shall be applied to the  reduction of the  principal  balance of its Loans or to
other amounts (other than interest) payable hereunder,  and if no such principal
is then outstanding,  such excess or part thereof remaining shall be paid to the
Borrower.

                  SECTION 2.5  Commitment  Fees.  The Borrower  shall pay to the
Administrative  Agent  for the  account  of each Bank a  commitment  fee for the
period from and  including  the Closing Date to but not  including the Revolving
Termination Date calculated at a rate per annum equal to the Commitment Fee Rate
in effect  for the  period in  respect  of which  payment  is to be made on such
Bank's average daily excess,  if any, of such Bank's  Revolving  Commitment over
such Bank's  Aggregate  Outstanding  Revolving  Extensions  of Credit during the
period  for which  such  payment  is to be made.  Such  commitment  fee shall be
payable quarterly in arrears on the last day of each March, June, September and

         
                                                                     

<PAGE> 31


December of each  calendar  year during the  Revolving  Credit Period and on the
Revolving Termination Date.

                  SECTION 2.6  Optional  Termination  or  Reduction of Revolving
Commitments.  The Borrower may, at any time subsequent to the Closing Date, upon
at least three  Domestic  Business  Days'  notice to the  Administrative  Agent,
terminate  at any  time,  or  proportionately  reduce  from  time  to time by an
aggregate amount of $5,000,000 or any integral  multiple of $1,000,000 in excess
thereof,  the unused  portions of the  Revolving  Commitments.  Any such partial
reduction  shall be deemed to adjust the table in  Section  2.3(b) by (a) in the
case of the first $35,000,000 in reductions on or subsequent to the Closing Date
(including, without limitation, the reduction referred to in subsection 6.2(m)),
applying the amount thereof to the then remaining scheduled Revolving Commitment
reductions  set forth in such table in the direct order of the dates thereof and
(b) in the case of any other reductions,  reducing the then remaining  scheduled
Revolving Commitment  reductions set forth on such Schedule on a pro rata basis.
If the Revolving  Commitments are terminated in their  entirety,  all applicable
accrued  commitment  fees and  Letter of Credit  fees  shall be  payable  on the
effective date of such termination.

                  SECTION 2.7  Mandatory Termination or Reduction of
Revolving Commitments and Mandatory Prepayments.

                  (a) The Revolving Commitments shall terminate on the Revolving
Termination  Date,  and any  Revolving  Loans then  outstanding  (together  with
accrued interest thereon) shall be due
and payable on such date.

                  (b) Unless  otherwise  agreed to in  writing  by the  Required
Banks (or all of the Banks in the case of any disposition of assets described in
clause (vii) of Section 11.5) or otherwise provided herein,  upon the receipt by
the Borrower of any Net Cash Proceeds from the sale, lease or other  disposition
of any of its assets  permitted  under  Section 8.11 (other than (i) the sale of
inventory in the ordinary  course of business,  (ii) the sale or lease of assets
subject to the Lien granted to Prudential pursuant to the documentation relating
to the Prudential Real Estate  Financing  solely to the extent that the Net Cash
Proceeds  thereof are  applied to repay the  Prudential  Real Estate  Financing,
(iii)  transfers  or sales of accounts  pursuant to any  customer  sales  charge
program of the type described in Section 8.18 and (iv) Permitted Pad Sales), the
Tranche B Term Loans shall be prepaid  and the  Revolving  Commitments  shall be
deemed to be automatically and permanently  reduced in an aggregate amount equal
to 75% of any such Net Cash Proceeds.  Any such amounts shall be applied ratably
between  the  Tranche B Term Loans and the  Revolving  Commitments  and (i) with
respect to the Tranche B Term Loans, such ratable amount shall be applied to the
then remaining  installments  of principal  thereof on a pro rata basis and (ii)
with respect to the Revolving

         
                                                                     

<PAGE> 32


Commitments,  such  ratable  amount  shall be applied on a pro rata basis to the
then remaining  scheduled Revolving  Commitment  reductions set forth in Section
2.3(b);  provided,  that in the case of any fiscal year,  the provisions of this
paragraph (b) (insofar as they relate to Net Cash  Proceeds  received in respect
of assets other than the assets described in the immediately succeeding proviso)
shall be applicable only if and to the extent that the aggregate  amount of such
Net Cash Proceeds  received in such fiscal year exceed  $5,000,000 and provided,
further, that with respect to the sale by the Borrower of its ownership interest
in  Somerville  (or the sale by Somerville or the Borrower of all or any part of
the  assets  used  in the  business  conducted  by  Somerville  in  one or  more
transactions),  (i) the first  $20,000,000  (or, if less,  the aggregate  amount
required  pursuant  to the  Prudential  Real  Estate  Financing  to be  paid  to
Prudential  in  connection  with such sale) of the  aggregate  Net Cash Proceeds
received from such sale by the Borrower  shall be applied to reduce the mortgage
loans  outstanding  under the  Prudential  Real  Estate  Financing  and (ii) the
amount, if any, by which the aggregate Net Cash Proceeds received from such sale
exceeds  $20,000,000 (or such lesser amount required  pursuant to the Prudential
Real Estate  Financing to be paid to Prudential  in  connection  with such sale)
shall be applied to the reduce the Revolving  Commitments and the Tranche B Term
Loans in the manner set forth above, up to a limit of $15,000,000.

                  (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  Administrative  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 Subsidiary  (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 for the repair or  replacement  of such property and the Borrower shall
have  furnished  to  the  Administrative  Agent  evidence  satisfactory  to  the
Administrative  Agent of such  expenditure  or  commitment),  apply,  or, to the
extent  the  Administrative  Agent is loss  payee  under any  insurance  policy,
irrevocably  direct the  Administrative  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 to the reduction of the Tranche B Term Loans
and the Revolving Commitments,  which reduction shall be applied ratably between
the Tranche B Term Loans and the  Revolving  Commitment  and (i) with respect to
the  Tranche B Term  Loans,  such  ratable  amount  shall be applied to the then
remaining  installments  of principal  thereof on a pro rata basis and (ii) with
respect to the Revolving Commitments,  such ratable amount shall be applied on a
pro rata basis to the then remaining scheduled Revolving

         
                                                                     

<PAGE> 33



Commitment  reductions set forth in Section 2.3(b);  provided that, with respect
to tangible property subject to any Lien permitted herein, no such prepayment or
reduction  would be required to the extent that this  Section  2.7(c) or Section
2.7(e) would require an application of insurance  proceeds that would violate or
breach any of the provisions of the  instruments  or documents  under which such
permitted Lien arises.

                  (d) If for any fiscal year of the  Borrower,  commencing  with
its 1995 fiscal year, there shall be Excess Cash Flow for such fiscal year, then
on the  earlier  of the date of  delivery  by the  Borrower  to the Banks of the
financial  statements  required  to be  delivered  pursuant  to  Section  8.1(a)
covering  such  fiscal year and 90 days after the end of such fiscal year of the
Borrower the Tranche B Term Loans shall be prepaid and the Revolving Commitments
shall be deemed to be  automatically  and  permanently  reduced in an  aggregate
amount equal to 50% of such Excess Cash Flow.  Any such amounts shall be applied
ratably between the Tranche B Term Loans and the Revolving Commitments,  and (i)
with respect to the Tranche B Term Loans,  such ratable  amount shall be applied
to the then  remaining  installments  thereof  on a pro rata basis and (ii) with
respect to the Revolving Commitments,  such ratable amount shall be applied in a
pro rata basis to the then remaining scheduled Revolving  Commitment  reductions
set  forth  in  Section  2.3(b).  Concurrently  with  the  making  of each  such
prepayment,  the Borrower shall deliver to the Administrative  Agent a statement
detailing  the  calculation  of Excess Cash Flow for the fiscal year as to which
such prepayment was computed.

                  (e) On  any  day  on  which  the  sum  of  (i)  the  Aggregate
Outstanding  Revolving  Extensions of Credit and (ii) the aggregate  outstanding
Money  Market  Loans  exceeds  the  Revolving  Commitments  then in effect,  the
Borrower shall first prepay the Revolving Loans in an aggregate  amount equal to
such  excess and  second,  if any  amount  remains,  apply  such  amount to cash
collateralize  the L/C  Obligations in a manner  reasonably  satisfactory to the
Letter of Credit Bank and the Administrative Agent.

                  (f)  If  at  any  time  the  Revolving  Commitments  shall  be
optionally  reduced or terminated  in  accordance  with Section 2.6, then on the
date of such  reduction  or  termination,  the  Borrower  shall  make a  ratable
prepayment of the Tranche B Term Loans,  with such ratable  amount being applied
to the then remaining installments of principal thereof on a pro rata basis.

                  (g)  If at  any  time  the  Tranche  B  Term  Loans  shall  be
optionally  prepaid in  accordance  with Section  2.8,  then on the date of such
prepayment,  the  Borrower  shall  make a  ratable  reduction  of the  Revolving
Commitments,  with such ratable  amount being applied on a pro rata basis to the
then remaining  scheduled Revolving  Commitment  reductions set forth in Section
2.3(b).

                  (h) Each  prepayment of the Loans pursuant to this Section 2.7
shall be accompanied by payment of accrued and unpaid

         
                                                                     

<PAGE> 34


interest on the amount prepaid and any amounts payable  pursuant to Section 5.5,
except that,  unless such prepayment is made in connection with a termination of
the Revolving  Commitments,  accrued and unpaid interest on Revolving Loans that
are CIBC Alternate Base Rate Loans shall be payable on the next interest payment
date under Section 2.4(a) to occur after the date of such  prepayment;  provided
that no additional  interest shall accrue on such accrued and unpaid interest on
such CIBC  Alternate  Base Rate Loans  during  the period  from the date of such
prepayment to such next interest payment date.

                  SECTION 2.8 Optional  Prepayments.  (a) The Borrower may, upon
at least one Domestic Business Days' written notice to the Administrative Agent,
prepay any CIBC Alternate Base Rate Borrowing in whole at any time, or from time
to time in part in amounts  aggregating  $5,000,000  or any larger  multiple  of
$1,000,000.  Accrued and unpaid  interest  on the amount of any such  prepayment
shall be payable (i) in the case of prepayments of Tranche B Term Loans,  on the
date of such prepayment, and (ii) in the case of prepayments of Revolving Loans,
on the next interest  payment date under Section  2.4(a) to occur after the date
of such  prepayment,  provided that no additional  interest shall accrue on such
accrued and unpaid  interest  during the period from the date of such prepayment
to such next interest  payment  date.  Each such  optional  prepayment  shall be
applied to prepay  ratably  the CIBC  Alternate  Base Rate Loans of the  several
Banks included in such Borrowing.

                  (b) The Borrower may, upon at least three Euro-Dollar Business
Days'  written  notice  to the  Administrative  Agent,  prepay  any  Euro-Dollar
Borrowing  in  whole  at any  time,  or from  time  to  time in part in  amounts
aggregating  $5,000,000  or any larger  multiple  of  $1,000,000,  by paying the
principal  amount to be prepaid  together with accrued  interest  thereon to the
date of prepayment  and any amounts  payable  pursuant to Section 5.5. Each such
optional  prepayment shall be applied to prepay ratably the Euro-Dollar Loans of
the several Banks included in such Euro-Dollar Borrowing. Within two Euro-Dollar
Business  Days  after  receipt  by  the  Administrative  Agent  of a  notice  of
prepayment  pursuant to this  subsection  (b),  the  Administrative  Agent shall
notify the Borrower of the estimated loss or expense that may be incurred by the
Banks and be required to be paid by the Borrower  under  Section 5.5 as a result
of the  prepayment of such  Euro-Dollar  Borrowing  prior to the last day of the
Interest  Period  therefor.  The Borrower may, after having been notified by the
Administrative  Agent  of  the  estimated  loss  or  cost  resulting  from  such
prepayment  and not  later  than  two  Euro-Dollar  Business  Days  prior to the
intended date of such  prepayment  stated in the notice of  prepayment  relating
thereto, notify the Administrative Agent in writing that the Borrower desires to
revoke such notice of  prepayment.  If the Borrower  shall have failed to notify
the Administrative  Agent, not later than two Euro-Dollar Business Days prior to
the intended date of such  prepayment,  that the Borrower  desires to revoke its
notice of prepayment of all or

                                                      
                                                                     

<PAGE> 35


part of such Borrowing, then such notice of prepayment shall become irrevocable.
The  Borrower  agrees  that the  calculation  of such loss or expense is only an
estimate  and shall not be  binding  on the  Administrative  Agent or any of the
Banks.

                  (c) Upon  receipt of a notice of  prepayment  pursuant to this
Section,  the  Administrative  Agent  shall  promptly  notify  each  Bank of the
contents  thereof  and of such Bank's  ratable  share of such  prepayment,  and,
except as provided in subsection (b) above,  such notice shall not thereafter be
revocable by the Borrower.  Each Bank shall  promptly  after  receiving any such
notice of prepayment with respect to a Euro-Dollar Borrowing, cooperate with the
Administrative  Agent to estimate  the loss or cost that may be incurred by such
Bank as a result of the prepayment of its Loan comprising such Borrowing.

                  SECTION  2.9  Conversion  and  Continuation  Options.  (a) The
Borrower  may  elect  from  time to time to  convert  Euro-Dollar  Loans to CIBC
Alternate Base Rate Loans by giving the Administrative Agent irrevocable written
notice,  substantially in the form of Exhibit J, of such election prior to 11:00
A.M., New York City time, on the day which is one Domestic Business Day prior to
the date of such  conversion,  provided that any such  conversion of Euro-Dollar
Loans  may only be made on the  last  day of an  Interest  Period  with  respect
thereto. The Borrower may elect from time to time to convert CIBC Alternate Base
Rate Loans to Euro-Dollar Loans by giving the  Administrative  Agent irrevocable
notice of such  election  prior to 11:00  A.M.,  New York City time,  on the day
which is three  Euro-Dollar  Business Days prior to the date of such conversion.
Any such notice of conversion to  Euro-Dollar  Loans shall specify the length of
the initial  Interest Period or Interest Periods  therefor.  Upon receipt of any
such notice the  Administrative  Agent shall promptly  notify each Bank thereof.
All or any part of  outstanding  Euro-Dollar  Loans and CIBC Alternate Base Rate
Loans may be  converted  as provided  herein,  provided  that (i) no Loan may be
converted  into a  Euro-Dollar  Loan when any  Default or Event of  Default  has
occurred and is continuing  and the  Administrative  Agent or the Required Banks
have  determined  that  such a  conversion  is not  appropriate,  (ii)  any such
conversion may only be made if, after giving effect thereto,  Section 2.10 shall
not have been  contravened and (iii) no Loan may be converted into a Euro-Dollar
Loan after the date that is one month prior to the  Revolving  Termination  Date
(in the  case of  conversions  of  Revolving  Loans)  or the  date of the  final
installment of principal of the Tranche B Term Loan.

                  (b) Any  Euro-Dollar  Loans may be  continued as such upon the
expiration  of the then  current  Interest  Period with  respect  thereto by the
Borrower  giving notice to the  Administrative  Agent,  in  accordance  with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans;  provided
that no Euro-Dollar Loan may be continued

         
                                                                     

<PAGE> 36


as such (i) when any Default or Event of Default has occurred and is  continuing
and the  Administrative  Agent or the Required Banks have determined that such a
continuation is not appropriate,  (ii) if, after giving effect thereto,  Section
2.10 would be contravened or (iii) after the date that is one month prior to the
Revolving  Termination Date (in the case of continuations of Revolving Loans) or
the date of the final  installment  of  principal  of the  Tranche B Term Loans;
provided,  further,  that if the Borrower shall fail to give any required notice
as described  above in this paragraph or if such  continuation  is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
CIBC  Alternate  Base Rate Loans on the last day of such then expiring  Interest
Period.

                  SECTION 2.10 Minimum  Amount and Maximum Number of Euro-Dollar
Borrowings. All Borrowings, conversions and continuations of Loans hereunder and
all  selections of Interest  Periods  hereunder  shall be in such amounts and be
made pursuant to such elections so that,  after giving effect  thereto,  (i) the
aggregate  principal amount of the Loans  comprising each Euro-Dollar  Borrowing
shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof
and (ii) the total number of such  Euro-Dollar  Borrowings at any one time would
not exceed ten.

                          SECTION 3. LETTERS OF CREDIT

                  SECTION  3.1 L/C  Commitment.  (a)  Subject  to the  terms and
conditions  hereof,  the Letter of Credit Bank, in reliance on the agreements of
the other Banks set forth in Section  3.4(a),  agrees to issue letters of credit
("Letters of Credit")  for the account of the Borrower on any Domestic  Business
Day during the Revolving Credit Period in such form as may be approved from time
to time by the Letter of Credit  Bank;  provided  that the Letter of Credit Bank
shall not, and shall have no obligation to, issue any Letter of Credit if, after
giving effect to such issuance and to the obligations of the Banks under Section
3.4(a),  the excess,  if any, of (i) the Available  Revolving  Commitment of any
Bank over (ii) an amount equal to such Bank's  Revolving  Commitment  Percentage
multiplied  by the aggregate  principal  amount of all the Money Market Loans of
all the Banks then outstanding  would be less than zero; and provided,  further,
that the Letter of Credit Bank shall not, and shall have no obligation to, issue
any Letter of Credit if, (i) after giving effect  thereto,  the L/C  Obligations
would exceed $25,000,000 or (ii) on or before the date immediately preceding the
issuance  date,  the  Letter of Credit  Bank  shall  have  received  a notice of
Default,  which has not been  withdrawn,  from any Bank.  Each  Letter of Credit
shall (i) be  denominated  in  Dollars  and shall be a standby  letter of credit
issued to support  obligations  of the Borrower or any of its  Subsidiaries  and
(ii)  expire no later  than the  earlier of the date which is one year after the
date of issuance thereof and the Revolving  Termination Date (provided that such
Letter of Credit may provide that it may be extended with the consent of the


                                                                     

<PAGE> 37


Letter  of  Credit  Bank for a period  of no more than one year (but in no event
beyond the Revolving Termination Date)).

                  (b) Each  Letter of Credit  shall be  subject  to the  Uniform
Customs  and,  to  the  extent  not  inconsistent  therewith,  the  laws  of the
jurisdiction  in which is located  the office of the Letter of Credit  Bank from
which such Letter of Credit is issued.

                  (c)  The  Letter  of  Credit  Bank  shall  not at any  time be
obligated  to issue any  Letter  of  Credit  hereunder  if such  issuance  would
conflict  with,  or cause such Letter of Credit Bank or any L/C  Participant  to
exceed any limits imposed by, any applicable Requirement of Law.

                  (d) The Borrower and each Bank  severally  agree that,  on the
Closing  Date,  the  letters  of  credit  outstanding  on such date set forth in
Schedule II hereof shall be deemed to be Letters of Credit under this  Agreement
for all purposes hereof, provided that all fees and interest on such outstanding
letters of credit  accruing to but not  including the Closing Date shall be paid
on such date.

                  SECTION 3.2 Procedure  for Issuance of Letters of Credit.  The
Borrower  may from time to time  request  that the Letter of Credit Bank issue a
Letter of Credit by  delivering  to the Letter of Credit Bank at its address for
notices specified herein an Application therefor,  completed to the satisfaction
of the  Letter  of  Credit  Bank  (which  completion  may  occur by means of any
electronic  system  operated  by the  Letter of  Credit  Bank),  and such  other
certificates, documents and other papers and information as the Letter of Credit
Bank may  request.  Upon receipt of any  Application,  the Letter of Credit 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 the Letter of Credit 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 the  Letter of Credit  Bank and the
Borrower.  The  Letter of Credit  Bank  shall  furnish a copy of such  Letter of
Credit to the Borrower promptly  following the issuance  thereof.  The Letter of
Credit Bank will  periodically  (but in any event no less often than  quarterly)
report to the Administrative  Agent Letter of Credit issuance activity,  and the
Administrative  Agent  will  periodically  (but in any event no less  often than
quarterly) report to the Banks Letter of Credit issuance activity.



                                                                     

<PAGE> 38


                  SECTION 3.3 Fees,  and Other  Charges.  (a) The Borrower shall
pay to the  Administrative  Agent,  for the  account  of the  Banks,  a fee with
respect to the Letters of Credit in an amount  calculated on the L/C Obligations
from time to time outstanding  during each period for which payment is made at a
rate per annum  equal to the L/C Rate then in  effect.  Such fee shall be shared
ratably among the Banks in accordance with their respective Revolving Commitment
Percentages,  shall  be  payable  in  arrears  on  each  L/C Fee  Payment  Date,
commencing  on the first of such days to occur after the date hereof,  and shall
be nonrefundable.

                  (b) In addition to the  foregoing  fees and  commissions,  the
Borrower  shall also pay to the Letter of Credit  Bank for its sole  benefit (i)
such customary fees, costs and expenses in connection with the Letters of Credit
as may be  separately  agreed to  between  such  Letter  of Credit  Bank and the
Borrower and (ii) a fronting fee  calculated  at the rate of 1/8 of 1% per annum
on the L/C  Obligations  from time to time  outstanding  during  each period for
which payment is made. Such fronting fee shall be payable in arrears on each L/C
Fee Payment  Date,  commencing on the first of such days to occur after the date
hereof, and shall be nonrefundable.

                  (c) The  Administrative  Agent shall,  promptly  following its
receipt  thereof,   distribute  to  the  Letter  of  Credit  Bank  and  the  L/C
Participants all fees received by the Administrative  Agent for their respective
accounts pursuant to this Section.

                  SECTION 3.4 L/C  Participation.  (a) The Letter of Credit Bank
irrevocably  agrees to grant and hereby grants to each L/C Participant,  and, to
induce the Letter of Credit Bank to issue Letters of Credit hereunder,  each L/C
Participant  irrevocably  severally  agrees to accept  and  purchase  and hereby
severally accepts and purchases from the Letter of Credit Bank, on the terms and
conditions  hereinafter  stated, for such L/C Participant's own account and risk
an  undivided  interest  equal to such L/C  Participant's  Revolving  Commitment
Percentage  in the Letter of Credit  Bank's  obligations  and rights  under each
Letter of Credit  issued  hereunder  by the Letter of Credit Bank and under each
time  draft  accepted  pursuant  to any  Letter of Credit and the amount of each
draft  paid by the  Letter  of  Credit  Bank  thereunder.  Each L/C  Participant
unconditionally and irrevocably severally agrees with each Letter of Credit Bank
that,  if a draft is paid  under any  Letter of Credit  for which the  Letter of
Credit Bank is not  reimbursed  in full by the Borrower in  accordance  with the
terms of this Agreement,  such L/C Participant  shall pay to the  Administrative
Agent,  for the  account  of the  Letter  of  Credit  Bank,  upon  demand at the
Administrative  Agent's address for notices  specified herein an amount equal to
such L/C  Participant's  Revolving  Commitment  Percentage of the amount of such
draft, or any part thereof, which is not so reimbursed; such amount shall be due
on the  Domestic  Business  Day upon which such demand  shall be given,  if such
demand is given at or before

         

                                                                     

<PAGE> 39


1:00 P.M.  (New York City time) on such day and, if such  demand  shall be given
later than such time, such amount shall be due on the next  succeeding  Domestic
Business Day. The Administrative  Agent shall promptly pay over to the Letter of
Credit Bank all amounts so received by it.

                  (b) If any amount  required to be paid by any L/C  Participant
to the  Letter of Credit  Bank  pursuant  to  Section  3.4(a) in  respect of any
unreimbursed  portion of any payment made by the Letter of Credit Bank under any
Letter of  Credit is paid to the  Administrative  Agent for the  account  of the
Letter of Credit Bank within three  Domestic  Business  Days after the date such
payment is due, such L/C  Participant  shall pay to the Letter of Credit Bank on
demand an amount  equal to the product of (1) such  amount,  times (2) the daily
average  Federal  Funds Rate during the period from and  including the date such
payment is required to the date on which such payment is  immediately  available
to the Letter of Credit Bank, times (3) a fraction the numerator of which is the
number of days that elapse  during such period and the  denominator  of which is
360. If any such amount required to be paid by any L/C  Participant  pursuant to
Section 3.4(a) is not in fact made available to the Administrative Agent for the
account  of the  Letter  of Credit  Bank by such L/C  Participant  within  three
Domestic  Business Days after the date such payment is due, the Letter of Credit
Bank shall be entitled to recover  from such L/C  Participant,  on demand,  such
amount with interest thereon calculated from such due date at the rate per annum
then  applicable to CIBC Alternate Base Rate Loans  hereunder.  A certificate of
the Letter of Credit Bank submitted to any L/C  Participant  with respect to any
amounts  owing under this Section shall be conclusive in the absence of manifest
error.

                  (c) Whenever,  at any time after the Letter of Credit Bank has
made payment under any Letter of Credit or any time draft drawn  thereunder  and
has  received  from any L/C  Participant  its pro rata share of such  payment in
accordance with Section  3.4(a),  the Letter of Credit Bank receives any payment
related  to the  Letter  of  Credit  (whether  directly  from  the  Borrower  or
otherwise,   including   proceeds   of   collateral   applied   thereto  by  the
Administrative  Agent or the Letter of Credit Bank),  or any payment of interest
on  account  thereof,  the  Letter of Credit  Bank will  distribute  to such L/C
Participant  its pro rata share thereof;  provided,  however,  that in the event
that any such payment received by the Letter of Credit Bank shall be required to
be returned by the Letter of Credit Bank, such L/C  Participant  shall return to
the Letter of Credit  Bank the portion  thereof  previously  distributed  by the
Letter of Credit Bank to it.

                  SECTION 3.5  Reimbursement  Obligation  of the  Borrower.  The
Borrower  agrees to reimburse  the Letter of Credit Bank,  on each date on which
the Letter of Credit  Bank  notifies  the  Borrower  of the date and amount of a
payment  by the  Letter of Credit  Bank of a draft  presented  under a Letter of
Credit


                                                                     

<PAGE> 40


(whether a sight draft or time draft),  for the amount of (a) such draft so paid
and (b) any taxes,  fees,  charges or other  costs or  expenses  incurred by the
Letter of Credit Bank in connection  with such payment.  Each such payment shall
be made to the Letter of Credit Bank at its address for notices specified herein
in lawful  money of the United  States of America and in  immediately  available
funds.  Interest shall be payable on any and all amounts remaining unpaid by the
Borrower under this Section from the date such amounts  become payable  (whether
at stated  maturity,  by acceleration or otherwise) until payment in full at the
rate which would be payable on any  outstanding  CIBC  Alternate Base Rate Loans
which were then overdue.

                  SECTION 3.6 Obligations Absolute.  The Borrower's  obligations
under  this  Section 3 shall be  absolute  and  unconditional  under any and all
circumstances  and  irrespective  of any  set-off,  counterclaim  or  defense to
payment  which the  Borrower  may have or have had  against the Letter of Credit
Bank,  any Bank or any  beneficiary  of a Letter of Credit.  The  Borrower  also
agrees with the Letter of Credit  Bank and the Banks that  neither the Letter of
Credit  Bank  nor  any  Bank  shall  be  responsible  for,  and  the  Borrower's
Reimbursement  Obligations  under  Section 3.5 shall not be affected  by,  among
other things,  the validity or genuineness  of documents or of any  endorsements
thereon, even though the documents shall in fact prove to be invalid, fraudulent
or forged,  or any dispute  between or among the Borrower and any beneficiary of
any  Letter of Credit or any other  party to which the  Letter of Credit  may be
transferred or any claims  whatsoever of the Borrower against any beneficiary of
the Letter of Credit or any such transferee. The Letter of Credit Bank shall not
be  liable  for any  error,  omission,  interruption  or delay in  transmission,
dispatch  or  delivery  of  any  message  or  advice,  however  transmitted,  in
connection with any Letter of Credit,  except for errors or omissions  caused by
the Letter of Credit Bank's gross negligence or willful misconduct. The Borrower
agrees that any action taken or omitted by the Letter of Credit Bank under or in
connection with any Letter of Credit or the related drafts or documents, if done
in the absence of gross negligence or willful  misconduct and in accordance with
the  standards  of  care  specified  in  the  Uniform  Commercial  Code  of  the
jurisdiction  in which is located  the office of the issuer  thereof  from which
such Letter of Credit is issued,  shall be binding on the Borrower and shall not
result in any liability of the Letter of Credit Bank to the Borrower.

                  SECTION 3.7 Letter of Credit  Payments.  If any draft shall be
presented  for  payment  under any Letter of Credit,  the Letter of Credit  Bank
shall  promptly  notify  the  Borrower  of the  date  and  amount  thereof.  The
responsibility  of the Letter of Credit Bank to the Borrower in connection  with
any draft  presented  to it for  payment  under any Letter of Credit  shall,  in
addition  to any payment  obligation  expressly  provided  for in such Letter of
Credit,  be limited to  determining  that the documents  (including  each draft)
delivered under such Letter of Credit in

         
                                                                     

<PAGE> 41


connection with such presentment are in conformity with such Letter of Credit.

                  SECTION 3.8  Application.  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 apply.

                  SECTION  3.9  Indemnification.  Each Bank  shall,  ratably  in
accordance  with its Revolving  Commitment  Percentage,  indemnify the Letter of
Credit Bank (to the extent not  reimbursed by the Borrower and without  limiting
the  obligation of the Borrower to do so) against any cost,  expense  (including
counsel fees of outside and in-house counsel and disbursements),  claim, demand,
action, loss, damage, penalty, judgment,  disbursement or liability (except such
as  result  from the  Letter  of  Credit  Bank's  gross  negligence  or  willful
misconduct)  that the Letter of Credit  Bank may  suffer or incur in  connection
with the  issuance of any Letter of Credit  under this  Agreement  or any action
taken or omitted by the Letter of Credit Bank hereunder.  The agreements in this
Section  shall  survive the payment of the Notes and all other  amounts  payable
hereunder.

                          SECTION 4. MONEY MARKET LOANS

                  SECTION 4.1 The Money Market  Loans.  Subject to the terms and
conditions  of this  Agreement,  the Borrower may borrow Money Market Loans from
time to time during the Money  Market  Loan  Commitment  Period on any  Domestic
Business  Day (in the case of Money  Market  Loans made  pursuant to an Absolute
Rate Money Market Loan Request) or any Euro-Dollar  Business Day (in the case of
Money  Market Loans made  pursuant to an Index Rate Money Market Loan  Request).
Money  Market  Loans shall be  borrowed in amounts  such that the sum of (i) the
Aggregate  Outstanding  Extensions of Revolving Credit of all the Banks and (ii)
the aggregate  outstanding principal amount of all Money Market Loans of all the
Banks shall not at any time exceed the aggregate  Revolving  Commitments  of all
the Banks at such time;  provided that the sum of (i) the Aggregate  Outstanding
Extensions  of  Revolving  Credit of any Bank and (ii) an  amount  equal to such
Bank's Revolving Commitment  Percentage  multiplied by the aggregate outstanding
principal  amount of all Money  Market  Loans made by all the Banks shall not at
any time exceed such Bank's Revolving Commitment at such time. Within the limits
and on the conditions  hereinafter set forth with respect to Money Market Loans,
the  Borrower  from time to time may borrow,  repay and  reborrow  Money  Market
Loans.

                  SECTION 4.2 Procedure for Money Market Loan Borrowing. (a) The
Borrower  shall  request  Money Market  Loans by  delivering a Money Market Loan
Request to the  Administrative  Agent,  not later than 12:00 Noon (New York City
time) four  Euro-Dollar  Business Days prior to the proposed  Borrowing Date (in
the case of an Index Rate Money Market Loan  Request),  and not later than 10:00
A.M. (New York City time) one Domestic Business Day prior


                                                                     

<PAGE> 42


to the  proposed  Borrowing  Date (in the case of an Absolute  Rate Money Market
Loan Request).  Each Money Market Loan Request may solicit bids for Money Market
Loans in an aggregate  principal amount of $5,000,000 or an integral multiple of
$1,000,000 in excess thereof and having not more than four alternative  maturity
dates.  The  maturity  date for each Money  Market Loan shall be not less than 7
days nor more than 180 days after the Borrowing  Date therefor (and in any event
shall be not later than the  Revolving  Termination  Date).  The  Administrative
Agent shall notify each Bank promptly by facsimile  transmission of the contents
of each Money Market Loan Request received by the Administrative Agent.

                  (b) In the case of an Index Rate Money  Market  Loan  Request,
upon  receipt of notice from the  Administrative  Agent of the  contents of such
Money Market Loan Request, each Bank may elect, in its sole discretion, to offer
irrevocably to make one or more Money Market Loans at the Applicable  Index Rate
plus or minus a margin  determined by such Bank in its sole  discretion for each
such Money Market Loan. Any such irrevocable offer shall be made by delivering a
Money Market Loan Offer to the Administrative Agent, before 10:00 A.M. (New York
City  time)  on the day that is  three  Euro-Dollar  Business  Days  before  the
proposed Borrowing Date, setting forth:

                  (1) the maximum amount of Money Market Loans for each maturity
         date and the  aggregate  maximum  amount of Money  Market Loans for all
         maturity  dates which such Bank would be willing to make (which amounts
         may,   subject  to  subsection  4.1,   exceed  such  Bank's   Revolving
         Commitment); and

                  (2) the  margin  above or below the  Applicable  Index Rate at
         which such Bank is willing to make each such Money Market Loan.

The  Administrative  Agent shall advise the Borrower  promptly but no later than
10:30 A.M. (New York City time) on the date which is three Euro-Dollar  Business
Days  before the  proposed  Borrowing  Date of the  contents  of each such Money
Market Loan Offer received by it. If the  Administrative  Agent, in its capacity
as a Bank,  shall elect, in its sole  discretion,  to make any such Money Market
Loan Offer,  it shall  advise the  Borrower of the  contents of its Money Market
Loan  Offer  before  9:45 A.M.  (New York City  time) on the date which is three
Euro-Dollar Business Days before the proposed Borrowing Date.

                  (c) In the case of an Absolute Rate Money Market Loan Request,
upon  receipt of notice from the  Administrative  Agent of the  contents of such
Money Market Loan Request, each Bank may elect, in its sole discretion, to offer
irrevocably  to make  one or  more  Money  Market  Loans  at a rate of  interest
determined by such Bank in its sole  discretion for each such Money Market Loan.
Any such irrevocable offer shall be made by delivering a Money Market Loan Offer
to the Administrative Agent before 10:00 A.M.

         

                                                                     

<PAGE> 43


(New York City time) on the proposed Borrowing Date, setting forth:

                  (1) the maximum amount of Money Market Loans for each maturity
         date, and the aggregate  maximum amount for all maturity  dates,  which
         such Bank would be  willing  to make  (which  amounts  may,  subject to
         Section 4.1, exceed such Bank's Revolving Commitment); and

                  (2) the fixed rate of  interest  at which such Bank is willing
         to make each such Money Market Loan.

The  Administrative  Agent shall  advise the  Borrower  promptly but in no event
later than 10:30 A.M. (New York City time) on the proposed Borrowing Date of the
contents  of  each  such  Money  Market  Loan  Offer  received  by  it.  If  the
Administrative  Agent,  in its  capacity  as a Bank,  shall  elect,  in its sole
discretion,  to make any such  Money  Market  Loan  Offer,  it shall  advise the
Borrower of the contents of its Money  Market Loan Offer  before 9:45 A.M.  (New
York City time) on the proposed Borrowing Date.

                  (d) Before  12:00 noon (New York City time) three  Euro-Dollar
Business  Days before the proposed  Borrowing  Date (in the case of Money Market
Loans  requested  by an Index Rate Money  Market Loan  Request) and before 11:00
A.M. (New York City time) on the proposed  Borrowing  Date (in the case of Money
Market Loans  requested  by an Absolute  Rate Money  Market Loan  Request),  the
Borrower, in its absolute discretion, shall:

                  (1)  cancel  such  Money  Market  Loan  Request  by giving the
         Administrative Agent telephone notice to that effect, or

                  (2) by giving  telephone  notice to the  Administrative  Agent
         (immediately  confirmed  by delivery to the  Administrative  Agent of a
         Money Market Loan Confirmation in writing or by fax transmission),  (i)
         subject to the provisions of Section 4.2(e),  accept one or more of the
         offers made by any Bank or Banks  pursuant to Section 4.2(b) or Section
         4.2(c),  as the case may be, of the  amount of Money  Market  Loans for
         each relevant  maturity date and (ii) reject any remaining  offers made
         by Banks pursuant to Section 4.2(b) or Section 4.2(c),  as the case may
         be.

If the  Borrower  fails to give any such notice  prior to such time,  such Money
Market Loan Request shall be deemed to have been canceled.

                  (e)  The  Borrower's  acceptance  of  Money  Market  Loans  in
response to any Money  Market  Loan  Request  shall be subject to the  following
limitations:



                                                                     

<PAGE> 44


                  (1) The  principal  amount of Money Market Loans  accepted for
         each maturity date specified by any Bank in its Money Market Loan Offer
         shall not exceed the maximum amount for such maturity date specified in
         such Money Market Loan Offer;

                  (2) the  aggregate  principal  amount  of Money  Market  Loans
         accepted  for all  maturity  dates  specified  by any Bank in its Money
         Market  Loan  Offer  shall not  exceed  the  aggregate  maximum  amount
         specified in such Money Market Loan Offer for all such maturity dates;

                  (3) the Borrower may not accept  offers for Money Market Loans
         for any maturity date in an aggregate principal amount in excess of the
         maximum  principal  amount  requested in the related  Money Market Loan
         Request;

                  (4) if the Borrower accepts any of such offers, it must accept
         offers based solely upon pricing for such  relevant  maturity  date and
         upon no other criteria whatsoever; and

                  (5) if two or more Banks submit  offers for any maturity  date
         at identical  pricing and the  Borrower  accepts any of such offers but
         does not wish to (or by reason of the  limitations set forth in Section
         4.1 or in clause (3) of this paragraph, cannot) borrow the total amount
         offered by such Banks with such identical  pricing,  the Borrower shall
         accept offers from all of such Bank in amounts allocated among them pro
         rata  according to the amounts  offered by such Banks (or as nearly pro
         rata as shall be  practicable  after giving  effect to the  requirement
         that Money  Market  Loans made by a Bank on a  Borrowing  Date for each
         relevant  maturity date shall be in a principal amount of $5,000,000 or
         an integral multiple of $1,000,000 in excess thereof).

If the bids are either  unacceptably high to the Borrower or are insufficient in
amount, the Borrower may cancel the auction.

                  (f) If the Borrower notifies the  Administrative  Agent that a
Money  Market  Loan  Request is  canceled  pursuant  to Section  4.2(d)(1),  the
Administrative Agent shall give prompt telephone notice thereof to the Banks.

                  (g) If the Borrower accepts pursuant to Section  4.2(d)(2) one
or more of the  offers  made by any  Bank or  Banks,  the  Administrative  Agent
promptly shall notify each Bank which has made such a Money Market Loan Offer of
(i) the aggregate amount of such Money Market Loans to be made on such Borrowing
Date for each maturity  date and (ii) the  acceptance or rejection of any offers
to make such Money Market  Loans made by such Bank.  Before 12:00 Noon (New York
City time) on the Borrowing Date  specified in the applicable  Money Market Loan
Request, each Bank whose Money Market Loan Offer has been accepted shall make

  
                                                                     

<PAGE> 45



available  to the  Administrative  Agent at its office set forth in Section 11.1
the  amount  of Money  Market  Loans  to be made by such  Bank,  in  immediately
available funds. The Administrative  Agent will make such funds available to the
Borrower  as soon as  practicable  on such  date at the  Administrative  Agent's
aforesaid  address.  As soon as  practicable  after  each  Borrowing  Date,  the
Administrative  Agent shall  notify each Bank of the  aggregate  amount of Money
Market Loans advanced on such  Borrowing Date and the respective  maturity dates
thereof.

                  SECTION 4.3 Money Market Loan Payments. (a) The Borrower shall
repay to the Administrative  Agent for the account of each Bank which has made a
Money Market Loan (or the Money Market Loan Assignee in respect thereof,  as the
case may be) on the  applicable  Money Market Loan Maturity Date the then unpaid
principal  amount of such Money  Market Loan.  The  Borrower  shall not have the
right to prepay any principal amount of any Money Market Loan.

                  (b) The Borrower  shall pay  interest on the unpaid  principal
amount of each Money Market Loan from the Borrowing Date to the applicable Money
Market Loan Maturity Date at the rate of interest  specified in the Money Market
Loan Offer  accepted by the Borrower in  connection  with such Money Market Loan
(calculated on the basis of a 360-day year for actual days elapsed),  payable on
each applicable Money Market Loan Interest Payment Date.

                  (c) If all or a portion of the  principal  amount of any Money
Market  Loan  shall not be paid when due  (whether  at the stated  maturity,  by
acceleration  or  otherwise),  such  overdue  principal  amount  shall,  without
limiting any rights of any Bank under this  Agreement,  bear  interest  from the
date on which  such  payment  was due at a rate per annum  which is 2% above the
rate which would otherwise be applicable  pursuant to the Money Market Loan Note
evidencing  such Money Market Loan until the stated  maturity date of such Money
Market Loan,  and for each day  thereafter at a rate per annum which is 2% above
the CIBC  Alternate Base Rate, in each case until paid in full (as well after as
before judgment).

                  SECTION  4.4 Money  Market Loan  Notes.  (a) The Money  Market
Loans made by each Bank shall be  evidenced  initially  by the Grid Money Market
Loan Note delivered to it pursuant to the Existing Credit  Agreement.  Each Bank
is hereby  authorized  to record the date and amount of each Money  Market  Loan
made by such  Bank,  the  maturity  date  thereof,  the date and  amount of each
payment of principal  thereof and the interest rate with respect  thereto on the
schedule  annexed to and  constituting  part of its Grid Money Market Loan Note,
and any such  recordation  shall constitute prima facie evidence of the accuracy
of the information so recorded;  provided, however, that the failure to make any
such  recordation  or any error in any such  recordation  shall not  affect  the
obligations of the Borrower hereunder or

                                                      
                                                                     

<PAGE> 46


under any Grid Money Market Loan Note. Each Grid Money Market Loan Note is dated
the Closing Date (as defined in the Existing Credit  Agreement),  and each Money
Market  Loan  evidenced  thereby  shall bear  interest  for the period  from and
including the Borrowing  Date of such Money Market Loan on the unpaid  principal
amount thereof from time to time  outstanding  at the applicable  rate per annum
determined as provided in, and such  interest  shall be payable as specified in,
Section 4.3(b).

                  (b) All Money Market  Loans  advanced by a Bank on a Borrowing
Date  which have the same  maturity  date and  interest  rate shall be deemed to
constitute one Money Market Loan so long as such amounts remain evidenced by the
Grid Money  Market Loan Note of such Bank.  Any Bank that wishes such amounts to
constitute  more than one Money  Market Loan and to have each such Money  Market
Loan evidenced by a separate promissory note payable to such Bank, substantially
in the form of  Exhibit  C-2 (an  "Individual  Money  Market  Loan  Note")  with
appropriate insertions as to Borrowing Date, principal amount and interest rate,
shall notify the Administrative Agent and the Borrower by facsimile transmission
of the respective principal amounts of the Money Market Loans to be evidenced by
each such Individual Money Market Loan Note, which principal amount shall not be
less than  $5,000,000 for any Individual  Money Market Loan Note. Not later than
three  Domestic  Business Days after receipt of such notice,  the Borrower shall
deliver to such Bank an  Individual  Money Market Loan Note payable to the order
of such  Bank in the  principal  amount  of each  such  Money  Market  Loan  and
otherwise conforming to the requirements of this Agreement. Upon receipt of such
Individual  Money  Market  Loan Note,  such Bank shall  endorse on the  Schedule
attached to its Grid Money  Market Loan Note the  transfer of such Money  Market
Loan from such Grid Money Market Loan Note to such Individual  Money Market Loan
Note.

                      SECTION 5. GENERAL CREDIT PROVISIONS

                  SECTION 5.1 General  Provisions  as to Payments.  The Borrower
shall  make each  payment  of  principal  of, and  interest  on,  the Loans,  of
Reimbursement  Obligations,  of commitment fees and letter of credit commissions
and of all other amounts  payable  hereunder not later than 11:00 A.M. (New York
City time) on the date when due, in Federal or other funds immediately available
in New York City,  to the  Administrative  Agent at its  address  referred to in
Section 11.1; provided,  that in the case of payments made with respect to Money
Market Loans,  such payments  shall be made directly to the Bank or Banks making
such  Money  Market  Loans at the  address  specified  for such Bank or Banks in
Schedule I hereto.  Any such payments  which are made later than 11:00 A.M. (New
York City time) shall be deemed to have been made on the next Domestic  Business
Day or Euro-Dollar  Business Day, as the case may be. The  Administrative  Agent
will  promptly  distribute  to each Bank its pro rata share of each such payment
(other than  payments in respect of Money Market  Loans,  which shall be made to
the Bank or Banks that made such Money Market

                                                      
                                                                     

<PAGE> 47



Loans only) received by the  Administrative  Agent for the account of the Banks.
Whenever any payment of principal  of, or interest on, the CIBC  Alternate  Base
Rate Loans or any Absolute Rate Money Market Loans, of Reimbursement Obligations
or of  commitment  fees and letter of credit  commissions  shall be due on a day
which is not a Domestic  Business  Day,  the date for payment  thereof  shall be
extended to the next succeeding  Domestic  Business Day. Whenever any payment of
principal  of, or  interest  on, the  Euro-Dollar  Loans or any Index Rate Money
Market Loans shall be due on a day which is not a Euro-Dollar  Business Day, the
date for payment  thereof shall be extended to the next  succeeding  Euro-Dollar
Business  Day unless such  Euro-Dollar  Business  Day falls in another  calendar
month,  in which case the date for payment  thereof shall be the next  preceding
Euro-Dollar  Business  Day. If the date for any payment of principal is extended
by operation of law or  otherwise,  interest  thereon  shall be payable for such
extended time.

                  SECTION 5.2  Computation  of Interest,  Commissions  and Fees.
Interest  payable by the  Borrower on CIBC  Alternate  Base Rate Loans  accruing
interest  at the  rate  specified  in  clause  (a) of the  definition  of  "CIBC
Alternate Base Rate" and on commitment  fees hereunder  shall be computed on the
basis of a year of 365 days (or 366 days in a leap year) and paid for the actual
number of days elapsed  (including  the first day but  excluding  the last day).
Interest payable by the Borrower on Euro-Dollar  Loans, CIBC Alternate Base Rate
Loans accruing interest at the rate specified in clause (b) of the definition of
"CIBC Alternate Base Rate",  Money Market Loans and letter of credit commissions
shall be  computed  on the  basis of a year of 360 days and paid for the  actual
number of days elapsed from and including the first day thereof to but excluding
the last day thereof.

                  SECTION  5.3  Indemnification  for  Charges.   (a)  Except  as
provided  in the  proviso to the second  sentence  of this  paragraph  (a),  all
payments  made by the  Borrower  hereunder  and under  any of the  other  Credit
Documents shall be made by the Borrower free and clear of, and without reduction
for or on  account  of,  any  present or future  income,  stamp or other  taxes,
levies,  imposts,  duties,  charges,  fees,  deductions or withholdings,  now or
hereafter imposed, levied,  collected,  withheld or assessed by any Governmental
Authority excluding,  in the case of the Administrative Agent and each Bank, net
income  taxes  and  franchise  taxes  based  upon  net  income  imposed  on  the
Administrative  Agent and such Bank by the jurisdiction  under the laws of which
the Administrative Agent or such Bank is organized or any political  subdivision
or taxing  authority  thereof or therein  or by any  jurisdiction  in which such
Bank's  Lending  Office  is  located  or any  political  subdivision  or  taxing
authority  thereof or therein (all such  non-excluded  taxes,  levies,  imposts,
deductions,  charges or withholdings being hereinafter called "Charges"). If any
Charges  are  required  to  be  withheld   from  any  amounts   payable  to  the
Administrative  Agent or any Bank hereunder or under the other Credit Documents,
the

                                                     
                                                                     

<PAGE> 48


amounts so payable to the  Administrative  Agent or such Bank shall be increased
to the extent necessary to yield to the Administrative Agent or such Bank (after
payment of all Charges) interest or any other amounts payable hereunder or under
the other  Credit  Documents  at the rates or in the amounts  specified  in this
Agreement and the other Credit Documents;  provided,  however,  that in any case
where a Bank fails to provide the forms or other  documents  to the  Borrower as
required  by  paragraph  (b) of this  Section  or if the  information  contained
therein is no longer accurate in any material  respect and the Borrower is, as a
result of such  failure or  inaccuracy,  required  to  withhold  Charges  from a
payment  hereunder or under the other Credit Documents in an amount greater than
it would have been  required to withhold if such Bank had provided such required
forms or other documents or if such information was accurate, any additional sum
payable  under this  sentence  shall be computed as if the Borrower had withheld
such lesser  amount  unless the reason for such failure to deliver such forms or
other  documents or the reason for such  inaccuracy is a change in United States
federal  income tax law  (including  any  regulation  or amendment  thereto,  or
official interpretation thereof, any modification or revocation of an applicable
tax treaty or any change in the official position  regarding the  interpretation
thereof)  occurring  after the date hereof.  Whenever any Charges are payable by
the Borrower, as promptly as possible thereafter, the Borrower shall send to the
Administrative  Agent for the  account  of such  Bank,  a  certified  copy of an
original  official receipt received by the Borrower showing payment thereof.  If
the  Borrower  fails  to pay any  Charges  when  due to the  appropriate  taxing
authority or fails to remit to the Administrative Agent the required receipts or
other  required   documentary   evidence,   the  Borrower  shall  indemnify  the
Administrative  Agent and the  Banks  for any  incremental  taxes,  interest  or
penalties that may become payable by the  Administrative  Agent or any Bank as a
result of any such failure.

                  (b) Each Bank that is not a United  States Person as such term
is  defined in ss.  7701(a)(30)  of the Code (a "United  States  Person")  shall
complete  and  deliver  to the  Borrower,  prior to the date on which  the first
payment to such Bank is due hereunder, a duly certified Internal Revenue Service
Form 1001 in duplicate  claiming that it is entitled to complete  exemption from
United  States  withholding  tax under an income  tax treaty to which the United
States is a party or a duly  certified  Internal  Revenue  Service  Form 4224 in
duplicate  claiming  that the payments to be received  under this  Agreement are
effectively  connected  with the  conduct of a trade or business of such Bank in
the United  States,  as  appropriate.  Each Bank further  agrees to complete and
deliver to the Borrower from time to time (to the extent  permissible under then
current law) any successor or  additional  form or  certificate  required by the
Internal  Revenue  Service in order to secure  complete  exemption  from  United
States  withholding tax. If for any reason during the term of this Agreement,  a
Bank becomes unable to submit the forms or certificate  referred to above or the
information or representations contained therein is no longer

                                                      
                                                                     

<PAGE> 49


accurate in any  material  respect,  such Bank shall  notify the  Administrative
Agent and the Borrower in writing to that effect.

                  (c) Each Bank  agrees  to use  reasonable  efforts  (including
reasonable  efforts to change its Lending Office) to avoid the imposition of any
Charges on payments hereunder or under other Credit Documents or to minimize any
amounts which might  otherwise be payable  pursuant to this  Section;  provided,
however,  that such efforts  shall not cause the  imposition on such Bank of any
additional  costs  or legal  or  regulatory  burden  deemed  by such  Bank to be
material.

                  (d) If the Borrower makes any  additional  payment to any Bank
pursuant to this  Section in respect of any  Charges,  and such Bank  determines
that it has received  (i) a refund of such  Charges or (ii) a credit  against or
relief or  remission  for,  or a  reduction  in the  amount of, any tax or other
governmental  charge  solely as a result  of any  deduction  or  credit  for any
Charges with respect to which it has received payments under this Section,  such
Bank shall,  to the extent that it can do so without  prejudice to the retention
of such refund, credit, relief, remission or reduction, pay to the Borrower such
amount as such Bank shall have determined to be attributable to the deduction or
withholding  of such  Charges.  If such Bank  later  determines  that it was not
entitled to such  refund,  credit,  relief,  remission  or reduction to the full
extent of any payment made pursuant to the first sentence of this paragraph, the
Borrower  shall  upon  demand of such  Bank  promptly  repay the  amount of such
overpayment.  Any  determination  made by such Bank  pursuant to this  paragraph
shall in the absence of bad faith or manifest error be  conclusive,  and nothing
in this  paragraph  shall be  construed  as  requiring  the Bank to conduct  its
business or to arrange or alter in any respect its tax or  financial  affairs so
that it is entitled to receive such a refund, credit or reduction or as allowing
any Person to inspect any records, including tax returns, of any Bank.

                  SECTION  5.4  Capital  Adequacy.  (a) If any Bank  shall  have
determined  that the adoption after the date hereof of any applicable  law, rule
or regulation  regarding capital  adequacy,  or any change after the date hereof
therein,  or  any  change  after  the  date  hereof  in  the  interpretation  or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration  thereof, or compliance
by any Bank (or its  Lending  Office)  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 made  subsequent  to the date hereof,  has or
would have the effect of reducing the rate of return on such Bank's capital as a
consequence of its  obligations  hereunder to a level below that which such Bank
could have achieved but for such  adoption,  change or  compliance  (taking into
consideration  such Bank's  policies  with  respect to capital  adequacy)  by an
amount deemed by such Bank to be material, then from time to time,

                                                      
                                                                     

<PAGE> 50



within 45 days  after  demand by such  Bank  (with a copy to the  Administrative
Agent), the Borrower shall pay to such Bank such additional amount or amounts as
will compensate such Bank for such reduction.

                  (b) Each  Bank  will  promptly  notify  the  Borrower  and the
Administrative Agent of any event of which it has knowledge, occurring after the
date  hereof,  which will  entitle  such Bank to  compensation  pursuant to this
Section. A certificate of any Bank claiming  compensation under this Section and
setting forth the additional  amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error. In determining such amount, such
Bank may use any reasonable averaging and attribution methods.

                  SECTION 5.5 Funding Losses.  If the Borrower makes any payment
of  principal  with respect to any  Euro-Dollar  Loan or Index Rate Money Market
Loan  (pursuant to Section 2.8,  2.9,  5.8, 9 or otherwise) on (i) any day other
than the last day of the Interest Period applicable  thereto or (ii) on the last
day of any Interest  Period which has been  shortened by operation of clause (c)
or (d) of the  definition  of "Interest  Period",  or if the  Borrower  fails to
borrow,  convert to or continue any Euro-Dollar  Loan or Index Rate Money Market
Loan after notice has been given to any Bank in accordance  with Section 2.2(b),
Section  2.10(a)  or (b) or  4.2(d),  as the case  may be,  the  Borrower  shall
reimburse  each Bank on demand for any  resulting  loss or  expense  (including,
without limitation,  administrative costs) incurred by it (or by any existing or
prospective participant in the related Loan), including (without limitation) any
loss  incurred  in  obtaining,  liquidating  or  employing  deposits  from third
parties,  but excluding  loss of margin for the period after any such payment or
failure  to  borrow,  convert or  continue,  provided  that such Bank shall have
delivered  to the  Borrower  a  certificate  as to the  amount  of such  loss or
expense, which certificate shall be conclusive in the absence of manifest error.
Without limiting the effect of the preceding sentence,  such reimbursement shall
include an amount  equal to the  excess,  if any,  of (i) the amount of interest
which otherwise would have accrued on the principal  amount so paid,  prepaid or
not  borrowed,  converted  or  continued  for the  period  from the date of such
payment,  prepayment,  or failure to borrow, convert or continue to the last day
of the then  current  Interest  Period (or,  in the case of an  Interest  Period
shortened  by  operation  of clause (c) or (d) of the  definition  of  "Interest
Period",  the last day of the  Interest  Period which would have applied but for
the operation of such clause (c) or (d)) for such  Euro-Dollar  Loan (or, in the
case of a failure to borrow,  convert or continue,  the Interest Period for such
Euro-Dollar  Loan or Index Rate Money Market Loan which would have  commenced on
the date  specified  for such  borrowing,  conversion  or  continuation)  at the
applicable  rate of  interest  for such  Euro-Dollar  Loan  provided  for herein
(excluding the Applicable Margin) over (ii) the interest component of the amount
such Bank (or any corporation controlling such Bank) would have

                                                      
                                                                     

<PAGE> 51


bid in the London  interbank market for U.S. Dollar deposits of leading banks in
amounts  comparable to such principal  amount and with maturities  comparable to
such period (as reasonably determined by such Bank).

                  SECTION 5.6 Right of Set-Off. Whenever any amount owing to any
Bank by the Borrower shall not be paid when due (whether at the stated  maturity
thereof,  by acceleration or otherwise),  such Bank is hereby  authorized at any
time and from time to time, to the fullest  extent  permitted by law, to set off
and apply against such overdue  amount any and all monies,  securities and other
property of the  Borrower  and the proceeds  thereof,  now or hereafter  held or
received by, or in transit to, such Bank from or for the  Borrower,  whether for
safekeeping,  custody,  pledge,  transmission,  collection  or otherwise and all
deposits (general or special, time or demand,  provisional or final) at any time
held and other  indebtedness at any time owing by such Bank to or for the credit
or the account of the Borrower. Each Bank agrees promptly to notify the Borrower
after any such  set-off and  application  made by such Bank,  provided  that the
failure to give such notice  shall not affect the  validity of such  set-off and
application. The rights of each Bank under this Section are in addition to other
rights and remedies  (including,  without  limitation,  other rights of set-off)
which such Bank may have.

                  SECTION 5.7 Basis for Determining  Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period with respect to a
Euro-Dollar Borrowing or Index Rate Money Market Loan:

                  (a) the  Administrative  Agent is advised  by the  Euro-Dollar
Reference  Bank that  deposits in dollars (in the  applicable  amounts)  are not
being offered to the Euro-Dollar  Reference Bank in the relevant market for such
Interest Period, or

                  (b) in the case of Euro-Dollar Loans, Banks having 50% or more
of the  aggregate  amount of the  Revolving  Commitments  or Tranche B Term Loan
Commitments  (or,  after  the  Tranche  B  Term  Loan  Commitments  expire,  are
terminated  or are fully  utilized,  Tranche B Term Loans),  as the case may be,
advise the Administrative  Agent that the Adjusted London Interbank Offered Rate
as determined by the Administrative Agent will not adequately and fairly reflect
the cost to such  Banks of funding  their  Euro-Dollar  Loans for such  Interest
Period (other than, in the case of any Bank, as a result of a  deterioration  in
the  creditworthiness  of such Bank), the  Administrative  Agent shall forthwith
give  notice  thereof  to the  Borrower  and  the  Banks,  whereupon  until  the
Administrative Agent notifies the Borrower that the circumstances giving rise to
such  suspension  no longer  exist,  the  obligations  of the Banks  maintaining
Revolving  Commitments or Tranche B Term Loan Commitments (or, after the Tranche
B Term Loan Commitments expire, are terminated or are

                                                      
                                                                     

<PAGE> 52


fully utilized,  Tranche B Term Loans),  as the case may be, to make Euro-Dollar
Loans  and/or  Index Rate Money  Market  Loans,  or to continue or convert  into
Euro-Dollar  Loans of the  applicable  type pursuant to Section  2.10,  shall be
suspended; provided, however, that in the case of Euro-Dollar Borrowings, unless
the Borrower  notifies the  Administrative  Agent at least two Domestic Business
Days  before  the  date of any  Euro-Dollar  Borrowing  for  which a  Notice  of
Borrowing has  previously  been given that it elects not to borrow on such date,
such Borrowing shall be made as a CIBC Alternate Base Rate Borrowing.

                  SECTION 5.8 Illegality. If the adoption after the date of this
Agreement of any  applicable  law, rule or  regulation,  or any change after the
date of this Agreement  therein,  or any change after the date of this Agreement
in the interpretation or administration  thereof by any Governmental  Authority,
central  bank  or  comparable   agency  charged  with  the   interpretation   or
administration  thereof,  or compliance by any Bank (or its Euro-Dollar  Lending
Office) with any request or  directive  (whether or not having the force of law)
of any such authority,  central bank or comparable agency made after the date of
this  Agreement  shall  make it  unlawful  or  impossible  for any  Bank (or its
Euro-Dollar  Lending Office) to make,  maintain or fund its Euro-Dollar Loans or
Index Rate Money Market  Loans and such Bank shall so notify the  Administrative
Agent, the Administrative Agent shall forthwith give notice thereof to the other
Banks and the Borrower,  whereupon until such Bank notifies the Borrower and the
Administrative  Agent that the  circumstances  giving rise to such suspension no
longer exist,  the  obligation of such Bank to make  Euro-Dollar  Loans shall be
suspended. Before giving any notice to the Administrative Agent pursuant to this
Section,  such Bank shall  designate a different  Euro-Dollar  Lending Office if
such designation will avoid the need for giving such notice and will not, in the
judgment of such Bank, be otherwise  disadvantageous  to such Bank. If such Bank
shall  determine  that it may not lawfully  continue to maintain and fund any of
its outstanding  Euro-Dollar  Loans or Index Rate Money Market Loans to maturity
and shall so specify in such notice,  the Borrower shall  immediately  prepay in
full the then  outstanding  principal  amount  of each  such  Euro-Dollar  Loan,
together  with  accrued  interest  thereon and any amounts  payable  pursuant to
Section 5.5.  Concurrently  with prepaying each such  Euro-Dollar  Loan or Index
Rate Money Market Loan,  the Borrower  shall borrow a CIBC  Alternate  Base Rate
Loan or Absolute Rate Money Market Loan, as  applicable,  in an equal  principal
amount from such Bank (on which, in the case of Euro-Dollar Loans,  interest and
principal shall be payable  contemporaneously with the related Euro-Dollar Loans
of the other Banks),  and such Bank shall make such a CIBC  Alternate  Base Rate
Loan or Absolute Rate Money Market Loan, as applicable.

                  SECTION 5.9  Increased Cost and Reduced Return.
(a)  If the adoption after the date hereof of any applicable law,
rule or regulation, or any change after the date hereof therein,

                                                      
                                                                     

<PAGE> 53


or any change  after the date  hereof in the  interpretation  or  administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank (or
its Lending  Office)  with any request or  directive  (whether or not having the
force of law) of any such  authority,  central  bank or  comparable  agency made
after the date hereof:

                        (i) shall  subject any Bank (or its  Lending  Office) to
         any tax,  duty or other charge with respect to its  Euro-Dollar  Loans,
         Index Rate Money Market Loans,  its Notes,  any Letter of Credit or its
         obligation to participate in the Letters of Credit,  any Application or
         its  obligation  to make  Euro-Dollar  Loans or Index Rate Money Market
         Loans,  or shall  change the basis of  taxation of payments to any Bank
         (or  its  Lending  Office)  of  the  principal  of or  interest  on its
         Euro-Dollar Loans or Index Rate Money Market Loans or any other amounts
         due under this Agreement in respect of its  Euro-Dollar  Loans or Index
         Rate Money Market Loans or its obligation to make Euro-Dollar  Loans or
         Index Rate Money Market Loans or issue or participate in the Letters of
         Credit (except for changes in the rate of tax on the overall net income
         of such Bank or its Lending Office imposed by the jurisdiction in which
         such Bank's  principal  executive office or Lending Office is located);
         or

                        (ii)  shall  impose,   modify  or  deem  applicable  any
         reserve,  special deposit or similar  requirement  (including,  without
         limitation,  any such requirement  imposed by the Board of Governors of
         the  Federal  Reserve  System,  but  excluding,  with  respect  to  any
         Euro-Dollar  Loan,  any  such  requirement  included  in an  applicable
         Euro-Dollar Reserve Percentage) against assets of, deposits with or for
         the account of, or credit extended by, any Bank (or its Lending Office)
         or shall  impose on any Bank (or its  Lending  Office) or on the London
         interbank market any other condition  affecting its Euro-Dollar  Loans,
         its Notes,  any Letter of Credit,  any Application or its obligation to
         make  Euro-Dollar  Loans  or  Index  Rate  Money  Market  Loans  or  to
         participate in the Letters of Credit;

and the result of any of the  foregoing is to increase the cost to such Bank (or
its Lending Office) of making or maintaining any Euro-Dollar  Loan or Index Rate
Money  Market  Loans or issuing  or  participating  in Letters of Credit,  or to
reduce the amount of any sum received or receivable by such Bank (or its Lending
Office)  under  this  Agreement,  under its Notes with  respect  thereto or with
respect  to such  Letters  of  Credit,  by an  amount  deemed by such Bank to be
material,  then,  within 15 days  after  demand by such Bank (with a copy to the
Administrative  Agent),  the  Borrower  shall pay to such  Bank such  additional
amount  or  amounts  as will  compensate  such Bank for such  increased  cost or
reduction.


                                                      
                                                                     

<PAGE> 54



                  (b) Each  Bank  will  promptly  notify  the  Borrower  and the
Administrative Agent of any event of which it has knowledge, occurring after the
date  hereof,  which will  entitle  such Bank to  compensation  pursuant to this
Section and will designate a different  Lending Office if such  designation will
avoid the need for, or reduce the amount of, such  compensation and will not, in
the  judgment  of such  Bank,  be  otherwise  disadvantageous  to such  Bank.  A
certificate  of any Bank  claiming  compensation  under this Section and setting
forth the  additional  amount or  amounts  to be paid to it  hereunder  shall be
conclusive in the absence of manifest  error. In determining  such amount,  such
Bank may use any reasonable averaging and attribution methods.

                  SECTION 5.10 CIBC  Alternate Base Rate Loans  Substituted  for
Affected  Euro-Dollar  Loans.  If  (i)  the  obligation  of  any  Bank  to  make
Euro-Dollar  Loans has been  suspended  pursuant to Section 5.8 or (ii) any Bank
has demanded  compensation  under Section 5.9(a),  and the Borrower shall, by at
least five  Euro-Dollar  Business  Days' prior  notice to such Bank  through the
Administrative  Agent,  have elected that the  provisions  of this Section shall
apply to such Bank, then,  unless and until such Bank notifies the Borrower that
the  circumstances  giving rise to such suspension or demand for compensation no
longer apply:

                  (a) all Loans  which would  otherwise  be made by such Bank as
Euro-Dollar  Loans shall be made instead as CIBC  Alternate  Base Rate Loans (on
which interest and principal shall be payable contemporaneously with the related
Euro-Dollar Loans of the other Banks), and

                  (b) after each of its Euro-Dollar  Loans has been repaid,  all
payments of principal which would otherwise be applied to repay such Euro-Dollar
Loans shall be applied to repay its CIBC Alternate Base Rate Loans instead.

                  SECTION   5.11   Fees.   The   Borrower   shall   pay  to  the
Administrative  Agent  and/or the  Co-Agents,  as  appropriate,  the fees in the
amounts and on the dates specified in the Fee Letter.

                         SECTION 6. CONDITIONS PRECEDENT

                  SECTION 6.1 All Loans and Letters of Credit. The obligation of
each Bank to make a Loan and the  obligation  of the  Letter  of Credit  Bank to
issue,  and the L/C  Participants  to participate  in, any Letter of Credit,  is
subject  to  the  satisfaction  of the  following  conditions  precedent  on the
relevant Borrowing Date:

                  (a)  receipt  by the  Administrative  Agent of  notice of such
Borrowing as required by Section 2.2 (in the case of a Revolving  Loan) or, with
respect  to the  issuance  of such  Letter of  Credit,  receipt by the Letter of
Credit Bank of an Application and the other materials required by Section 3.2;

                                                      
                                                                     

<PAGE> 55




                  (b)  the  fact  that,  immediately  after  such  borrowing  or
issuance, as the case may be, no Default or Event of Default shall have occurred
and be continuing; and

                  (c) the fact that the  representations  and  warranties of the
Borrower  or any of its  Subsidiaries,  as the  case may be,  contained  in this
Agreement  and the  other  Credit  Documents  shall be true and  correct  in all
material respects on and as of the date of such borrowing or issuance.

                  Each  borrowing  hereunder  and each  issuance  of a Letter of
Credit  shall be deemed to be a  representation  and warranty by the Borrower on
the date of such borrowing or issuance as to the facts  specified in clauses (b)
and (c) of this Section.

                  SECTION 6.2  Conditions to  Effectiveness  of this  Agreement,
Initial Loans and Letters of Credit.  The  effectiveness of this Agreement,  the
obligation  of each Bank to make its Loans and of the  Letter of Credit  Bank to
issue any Letter of Credit on the Closing  Date are subject to the  satisfaction
or waiver by such Bank of the following  conditions  precedent,  provided  that,
each such condition be satisfied or waived no later than November 25, 1995:

                  (a)  receipt by the  Administrative  Agent for the  account of
each Tranche B Term Loan Bank of duly executed  Tranche B Term Loan Notes,  each
dated the Closing Date, complying with the provisions of Section 2.4;

                  (b)  receipt by the  Administrative  Agent of (i) an  opinion,
dated the Closing Date, of Blackwell,  Sanders, Matheny, Weary & Lombardi, L.C.,
counsel  for the  Borrower,  substantially  in the form of Exhibit  F-1  hereto,
covering such matters  relating to the transactions  contemplated  hereby as the
Required Banks may reasonably  request,  and (ii) an opinion,  dated the Closing
Date,  of  Wachtell,  Lipton,  Rosen & Katz,  special  New York  counsel for the
Borrower,  substantially  in the form of Exhibit F-2 hereto,  and covering  such
additional  matters  relating  to the  transactions  contemplated  hereby as the
Administrative Agent may reasonably request;

                  (c)   receipt   by  the   Administrative   Agent  of   Closing
Certificates  signed by  executive  officers  of the  Borrower  and  Somerville,
substantially  in the  form of  Exhibit  G-1 and G-2  hereto,  with  appropriate
insertions  and   attachments   satisfactory   in  form  and  substance  to  the
Administrative Agent;

                  (d) receipt by the  Administrative  Agent of all  documents it
may  reasonably  request  relating  to the  existence  of the  Borrower  and its
Subsidiaries,  the corporate  authority for and the validity of this  Agreement,
the Notes and the other Credit Documents,  and any other matters relevant hereto
(including, without limitation, certified resolutions and

                                                      
                                                                     

<PAGE> 56



incumbency certificates), all in form and substance satisfactory
to the Administrative Agent;

                  (e) there shall not have  occurred  since  August 26,  1995, a
material adverse change, or development or event involving a prospective change,
which, in the reasonable  judgment of the Banks,  could have a material  adverse
effect on (i) the  assets,  liabilities,  properties,  business,  operations  or
condition,  financial  or  otherwise,  or  prospects  of the  Borrower  and  its
Subsidiaries,  taken as a whole, (ii) their ability to perform their obligations
under the Credit  Documents,  or (iii) the rights and remedies of the Collateral
Agent, the  Administrative  Agent or the Banks under the Credit  Documents,  and
none of the  Administrative  Agent or any Bank  shall have  become  aware of any
theretofore  previously  undisclosed materially adverse information with respect
to the matters described in subclause (i), (ii) or (iii) of this clause (e);

                  (f)  all   transactions   contemplated   hereby  shall  be  in
compliance  with and permitted by all  applicable  laws and  regulations  of the
United States and all laws and  regulations  of each state  (including,  without
limitation, environmental laws) except where the failure to so comply with or be
permitted by would not have a Materially Adverse Effect;

                  (g) there shall be no  actions,  suits or  proceedings  by any
Governmental  Authority or other  Person or  investigation  by any  Governmental
Authority  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 Administrative Agent or any Bank, as to which there
is a reasonable  likelihood of a Materially  Adverse Effect;  there has occurred
since the date of this Agreement no development in any action, suit, proceeding,
governmental  investigation or arbitration  disclosed to the Banks prior to such
date as to which there is a reasonable  likelihood  of such an event,  and there
shall be no judgment,  order,  injunction or other restraint  prohibiting any of
the transactions contemplated hereby;

                  (h)   receipt  by  the   Administrative   Agent  of   evidence
satisfactory  to  the  Administrative   Agent  that  all  fees  payable  to  the
Administrative  Agent and the Banks on or prior to the  Closing  Date shall have
been paid in full;

                  (i)  receipt by the  Administrative  Agent and the  Collateral
Agent of this  Agreement  duly executed and  delivered by all of the Banks,  the
Borrower and, with respect to Section 11.15,  Somerville  (which agreement shall
be in full force and effect on the Closing Date);

                  (j)      receipt by the Administrative Agent of all
consents, in form and substance satisfactory to the
Administrative Agent, from third parties, necessary to permit the

                                                      
                                                                     

<PAGE> 57



execution, delivery and performance by the Borrower and
Somerville of their obligations under the Credit Documents;

                  (k) to the extent not  previously  provided under the Existing
Credit  Agreement,  receipt  by the  Administrative  Agent  of  certificates  of
insurance and loss payee and additional insured insurance endorsements,  in form
and substance  satisfactory  to the  Administrative  Agent,  with respect to the
insurance  coverage  required  pursuant  to  Section  8.3  and of  the  schedule
described in Section 8.3(c);

                  (l) receipt by the Administrative  Agent of evidence,  in form
and substance  satisfactory to the Administrative Agent, that the Borrower shall
then have a Consolidated Net Worth (excluding the book value of the Warrants and
common  stock  subject to puts and calls to the  extent  either is  included  in
stockholders' equity) in an amount equal to at least $400,000,000;

                  (m) receipt by the Administrative  Agent of a notice delivered
in accordance with Section 2.6 of the Existing Credit Agreement  providing for a
reduction in the Revolving Commitments by $35,000,000 on the Closing Date; and

                  (n)  receipt  by  the  Administrative   Agent  of  such  other
documents and  agreements as may be reasonably  requested by the  Administrative
Agent in connection with the financing contemplated hereunder.

                    SECTION 7. REPRESENTATIONS AND WARRANTIES

                  To induce the Banks to enter into this  Agreement  and to make
the  Loans,  and to  induce  the  Letter of  Credit  Bank to issue,  and the L/C
Participants  to participate  in, the Letters of Credit,  the Borrower makes the
following  representations  and  warranties,  all of  which  shall  survive  the
execution  and  delivery of this  Agreement  and the making of the Loans and the
issuance of the Letters of Credit and shall be deemed  repeated and confirmed as
of the date of the  making  of each  Loan and the  issuance  of each  Letter  of
Credit:

                  SECTION 7.1 Corporate Existence and Power. The Borrower is (a)
a corporation duly incorporated, validly existing and in good standing under the
laws of  Iowa,  and has all  corporate  powers  and all  governmental  licenses,
authorizations,  consents and approvals required to carry on its business as now
conducted  and  as  proposed  to  be  conducted,   except  for  such   licenses,
authorizations,  consents  and  approvals,  the  failure to have which could not
reasonably  be expected to have a Materially  Adverse  Effect,  and (b) has duly
qualified  and is  authorized  to do  business  and is in good  standing  in all
jurisdictions  where the failure to do so could reasonably be expected to have a
Materially Adverse Effect.


                                                      
                                                                     

<PAGE> 58



                  SECTION 7.2 Corporate  Power and  Authority.  The Borrower has
the  power  and  authority  to  execute,  deliver  and  carry  out the terms and
provisions of each of the Credit Documents (including,  without limitation,  the
granting  of any  Liens  contemplated  thereby)  to which it is,  or is to be, a
party.  The Borrower has taken all necessary  action to authorize the execution,
delivery and  performance of each of the Credit  Documents to which it is, or is
to be, a party. Each Credit Document when executed and delivered by the Borrower
will  constitute  the  legal,  valid  and  binding  obligation  of the  Borrower
enforceable in accordance  with its terms except as  enforcement  thereof may be
limited by applicable  bankruptcy,  insolvency,  reorganization,  moratorium and
other similar laws affecting the  enforceability  of creditors' rights generally
and by general principles of equity.

                  SECTION 7.3 No Violation.  Neither the execution,  delivery or
performance  by the  Borrower of any of the Credit  Documents to which it either
is, or is to be, a party  nor  compliance  with any of the terms and  provisions
thereof,  nor the consummation of any of the transactions  contemplated  therein
(a) has contravened or will contravene any provision of any law,  statute,  rule
or regulation,  including,  without limitation,  Rule 13e-3 under the Securities
Exchange Act of 1934, as amended, or any other law, statute,  rule or regulation
or any order, writ,  injunction or decree of any other  Governmental  Authority,
(b) has conflicted or been inconsistent with or will conflict or be inconsistent
with,  or has  resulted  in or will  result in any  breach of, any of the terms,
covenants,  conditions or provisions of, or has  constituted or will  constitute
(with  or  without  notice  or  lapse  of time or  both) a  default  under,  any
indenture,  mortgage,  deed of trust, agreement or other instrument to which the
Borrower  or any of its  Subsidiaries  is a party,  or any of their  property or
assets are bound or to which any of them may be  subject,  in each such case the
contravention  with which could  reasonably  be  expected  to have a  Materially
Adverse Effect or (c) result in the creation or imposition of (or the obligation
to  create  or  impose),  any Lien  upon any of the  property  or  assets of the
Borrower  or any of its  Subsidiaries  pursuant  to the terms of any  indenture,
mortgage,  deed of trust, agreement or other instrument to which the Borrower or
any of its  Subsidiaries is a party or by which they or any of their property of
assets  are  bound  or to  which  any of  them  may be  subject  (other  than as
contemplated by the Security  Documents) or (d) has violated or will violate any
provision of the Restated  Articles of  Incorporation or by-laws of the Borrower
or any of its Subsidiaries.

                  SECTION 7.4 Margin Regulations. No part of the proceeds of the
Loans  will be used to  purchase  or carry  any  Margin  Stock in  violation  of
Regulation U or  Regulation G or to extend  credit for the purpose of purchasing
or carrying  any Margin Stock in violation  of  Regulation  U or  Regulation  G.
Neither the making of any Loan hereunder, nor the use of the

                                                      
                                                                     

<PAGE> 59



proceeds  thereof,  will  violate  or be  inconsistent  with the  provisions  of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System.

                  SECTION  7.5  Approvals.   Except  for  those   registrations,
consents,  waivers,  approvals,   notices  and  actions  with  any  Governmental
Authority or other Person which have been obtained,  given, filed or taken prior
to the date hereof  (complete and correct copies of which have been delivered to
each Bank),  the  execution,  delivery  and  performance  by the Borrower of the
Credit  Documents  to which  it is,  or is to be,  a party  (including,  without
limitation,  the  application  of the proceeds of the Loans) did not, do not and
will not require any  registration  with,  consent or waiver or approval  of, or
notice to, or other action to, with or by, any (i) federal or Iowa  Governmental
Authority or (ii) other  Governmental  Authority or any other Person,  where the
failure so to obtain,  give, file or take could reasonably be expected to have a
Materially Adverse Effect.

                  SECTION 7.6 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 or the issuance of any Letter of Credit to
be made 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  other  Credit
Document.

                  SECTION  7.7  True  and  Complete  Disclosure.  All  financial
information  heretofore  or  contemporaneously  furnished by or on behalf of the
Borrower or any  Subsidiary and all  information  contained in any of the Credit
Documents  and the  exhibits  and  schedules  thereto  is,  and all  other  such
information hereafter furnished,  including, without limitation, all information
contained in any of the Credit  Documents,  including  any exhibits or schedules
thereto,  by or on behalf of the Borrower or any  Subsidiary  to or on behalf of
any Bank will be, true and accurate in all  material  respects on the date as of
which  such  information  is  dated or  certified  (except  for any  projections
included therein,  which projections shall have provided reasonable  estimations
of future performance for the periods covered thereby subject to the uncertainty
and approximation inherent in any projections) and not incomplete by omitting to
state anything  necessary to make such  information  not misleading at such time
except to the extent later  information  could  reasonably have been expected to
supersede earlier  information.  There is nothing of which the Borrower is aware
which could reasonably be expected to have a Materially Adverse Effect which has
not been disclosed pursuant to the terms of this

                                                      
                                                                     

<PAGE> 60



Agreement. All statements of fact and representations concerning the present and
anticipated   business,   operations   and  assets  of  the   Borrower  and  its
Subsidiaries,  the Credit Documents and the transactions referred to therein and
in the opinions,  memoranda and rulings contained therein,  are true and correct
in all material  respects,  and all assumptions  with respect thereto  contained
therein  are  reasonable  in all  material  respects,  each as of the date  such
information is dated or certified.

                  SECTION 7.8  Subsidiaries.  Schedule 7.8 hereto, as amended by
the  Borrower  from  time  to  time,  contains  a  true,  correct  and  complete
description  of  each  Subsidiary  of  the  Borrower,  its  capitalization,  its
jurisdiction  of  incorporation  and its  ownership  (by holder  and  percentage
interest).  Each Subsidiary of the Borrower is a corporation duly  incorporated,
validly  existing,  and in good standing under the laws of its  jurisdiction  of
incorporation  and has  all  corporate  powers  and  all  material  governmental
licenses,  authorizations,  consents  and  approvals  required  to  carry on its
business as now conducted and as proposed to be conducted,  and each  Subsidiary
has duly  qualified  and is authorized to do business and is in good standing in
all  jurisdictions  where the failure to do so could  reasonably  be expected to
have a Materially  Adverse Effect. On the date of this Agreement,  Somerville is
the only  active  Subsidiary  of the  Borrower  and the only  Subsidiary  of the
Borrower with any substantial assets.

                  SECTION 7.9  Acknowledgement of Obligations;  No Claims. As of
the date of this Agreement,  the aggregate principal  outstanding balance of the
Revolving  Loans is  $298,000,000  and the aggregate  amount of the  outstanding
Letters of Credit is $10,089,645.99, and neither the Borrower nor Somerville has
(i) any defense,  set-off or counterclaim  against the Bank  Obligations or (ii)
any claim against the Administrative  Agent,  Collateral Agent, Letter of Credit
Bank or any other Bank arising out of or related to the Bank  Obligations or the
Existing Credit Agreement.

                  SECTION  7.10  Financial  Condition;   Financial   Statements;
Projections. (a) The Borrower is not entering into the arrangements contemplated
hereby with actual intent to hinder,  delay or defraud  either present or future
creditors.  On and as of the  Closing  Date on a pro forma  basis  after  giving
effect to all Debt (including,  without limitation, the Loans and the Letters of
Credit) incurred, or to be created in connection therewith:

                         (i) no final  judgments  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 the  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);

                                                      
                                                                     

<PAGE> 61



         the cash available after taking into account all other anticipated uses
         of the cash of such Person is  anticipated  to be sufficient to pay all
         such judgments promptly in accordance with their terms;

                        (ii) the  present  fair  salable  value of the assets of
         each of the  Borrower  and its  Subsidiaries  will exceed the  probable
         liability  of each of the Borrower  and its  Subsidiaries  on its debts
         (including its contingent obligations);

                       (iii)  neither the Borrower  nor any of its  Subsidiaries
         will have incurred or intends to, or believes that it will, incur debts
         (including its contingent  obligations)  beyond its ability to pay such
         debts as such debts mature  (taking into account the timing and amounts
         of cash to be received  by such Person from any source,  and of amounts
         to be payable on or in respect of debts of such  Person and the amounts
         referred  to in clause  (i));  the cash  available  to each such Person
         after  taking into  account all other  anticipated  uses of the cash of
         such Person, is anticipated to be sufficient to pay all such amounts on
         or in respect of debts of such  Person,  when such amounts are required
         to be paid; and

                        (iv) 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 paragraph "debt" means any liability on a
claim,  and  "claim"  means (A) right to payment  whether or not such a right is
reduced to  judgment,  liquidated,  unliquidated,  fixed,  contingent,  matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (B)
right to an equitable remedy for breach of performance if such breach gives rise
to a payment,  whether or not such  right to an  equitable  remedy is reduced to
judgment, fixed, contingent,  matured, unmatured, disputed, undisputed, secured,
or unsecured.

                  (b)  There  has  heretofore  been  delivered  to the Banks the
audited  balance  sheet of the Borrower  and its  Consolidated  Subsidiary  on a
consolidated  basis,  as  of  August  26,  1995  and  the  related  consolidated
statements  of income and cash flows for the year then ended  accompanied  by an
unqualified  opinion of KPMG Peat  Marwick.  Such  financial  statements  fairly
present, in conformity with generally accepted accounting  principles applied on
a consistent basis, the consolidated  financial position of the Borrower and its
Consolidated  Subsidiary  as of such  date and  their  consolidated  results  of
operations  and cash flows for such fiscal  year.  Neither the  Borrower nor its
Subsidiary had as of the date of the foregoing financial statements any material
contingent obligation, contingent liability or liability for

                                                      
                                                                     

<PAGE> 62



taxes,  long-term lease or unusual forward or long-term  commitment which is not
disclosed in the foregoing financial statements or the notes thereto.

                  (c) There  have  heretofore  been  delivered  to the Banks pro
forma  consolidated  income  projections  for the Borrower and its  Consolidated
Subsidiaries,  pro forma consolidated balance sheet projections for the Borrower
and  its  Consolidated   Subsidiaries  and  pro  forma  consolidated  cash  flow
projections  for the Borrower  and its  Consolidated  Subsidiaries,  all for the
fiscal years ending 1995 through 2000, inclusive,  each of which was prepared on
a cash flow basis  ("Projected Cash Flow Financial  Statements").  The Projected
Cash Flow Financial Statements have been prepared consistent with the Borrower's
past practices in its internal  planning,  the assumptions made in preparing the
Projected  Cash Flow  Financial  Statements  are  reasonable,  and all  material
assumptions with respect to the Projected Cash Flow Financial Statements are set
forth therein;  provided that the Projected Cash Flow Financial  Statements have
not been prepared in accordance with generally accepted  accounting  principles.
The Projected Cash Flow Financial  Statements provide reasonable  estimations of
future performance on a cash basis, subject to the uncertainty and approximation
inherent in any projections.

                  (d) Since August 26, 1995,  there has been no material adverse
change in the business,  financial position,  results of operations or prospects
of the Borrower and its  Subsidiaries,  considered  as a whole.  The most recent
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks pursuant to Sections 8.1(a) and (b) fairly  present,  in accordance
with generally accepted accounting principles applied on a consistent basis, the
consolidated   financial   position  of  the  Borrower   and  its   Consolidated
Subsidiaries as of the date thereof and their consolidated results of operations
for the period covered by such financial statements.

                  SECTION 7.11 Tax Returns and  Payments.  The Borrower and each
of its  Subsidiaries  has filed all  federal  income tax  returns  and all other
material tax returns and reports,  domestic and foreign, required to be filed by
it and has 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 has paid, or has 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  Materially  Adverse  Effect.  Other than the
fiscal year ended November 1986, which fiscal year remains open, the last closed
tax year of the Borrower and its  Consolidated  Subsidiaries  is the fiscal year
ended November 1990.


                                                      
                                                                     

<PAGE> 63



                  SECTION 7.12  Litigation;  Adverse Facts.  There is no action,
suit, proceeding or investigation by any Governmental  Authority or other Person
pending or known by the Borrower to be threatened  with respect to the Borrower,
any of its Subsidiaries or any of their Affiliates or any of their assets or any
of the  Credit  Documents  or any of the  transactions  contemplated  hereby  or
thereby as to which there is a reasonable  likelihood  of a  Materially  Adverse
Effect and there has occurred no  development in any action,  suit,  proceeding,
governmental  investigation or arbitration previously disclosed to the Banks, as
to which there is a reasonable possibility of such an effect.

                  SECTION  7.13  Compliance  with  Laws and  Charter  Documents.
Neither the  Borrower  nor any of its  Subsidiaries  is (i) in  violation of its
charter or by-laws or (ii) in violation of any law, statute,  rule,  regulation,
order, writ,  injunction or decree of any Governmental  Authority  applicable to
any of them or any of their  respective  properties or assets,  which  violation
under this clause (ii),  individually or in the aggregate,  could  reasonably be
expected to have a Materially Adverse Effect.

                  SECTION  7.14  Certain  Fees.  Except for fees  payable to the
Administrative  Agent and the Banks,  no broker's or finder's fee or  commission
will be payable  with  respect to the  transactions  contemplated  by the Credit
Documents,  or hereby,  and the Borrower hereby  indemnifies the  Administrative
Agent and the Banks  against  and  agrees  that it will hold the  Administrative
Agent  and the Banks  harmless  from any  claim,  demand  or  liability  for any
broker's  or  finder's  fees or  commissions  alleged to have been  incurred  in
connection with any such offer, issue and sale, or any of the other transactions
contemplated  hereby or by the other Credit Documents and any expenses including
reasonable  legal fees,  arising in  connection  with any such claim,  demand or
liability.

                  SECTION  7.15  ERISA.  (a) No ERISA  Event has  occurred or is
reasonably  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 of
the Borrower 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  reasonably  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
Banks,  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 there has been no change in such funding  status or
financial condition that

                                                      
                                                                     

<PAGE> 64



could  reasonably  be  expected  to  have a  Materially  Adverse  Effect  on the
operations,   properties,   performance  or  prospects  of  the  Borrower  taken
individually or the Borrower and its Subsidiaries taken as a whole.

                  (c) Neither the Borrower,  any  Subsidiary of the Borrower nor
any ERISA Affiliate of either of them has incurred, or is reasonably 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,  any  Subsidiary of the Borrower 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  reasonably  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  of the
Borrower or any Subsidiary of the Borrower in any fiscal year of the Borrower in
excess of $3,000,000 in the aggregate for the Borrower and its Subsidiaries.

                  (e) With  respect to each Plan which is an  "employee  pension
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 this Agreement or
by any Plan  constitute  a  prohibited  transaction  as such term is  defined in
Section 406 of ERISA or Section 4975 of the Code.

                  SECTION  7.16 Good Title to  Properties.  Each of the Borrower
and  its  Subsidiaries  has  good  and  marketable  title  to all  its  material
properties and assets, including, without limitation, the Collateral, subject to
no Liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except such as would be permitted under Section 8.10.

                  SECTION 7.17  Trademarks,  Patents,  etc. Each of the Borrower
and its  Subsidiaries  possesses all the  trademarks,  trade names,  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.


                                                      
                                                                     

<PAGE> 65



                  SECTION  7.18 Labor  Matters.  Neither  the  Borrower  nor any
Subsidiary of the Borrower has experienced any strike,  labor dispute,  slowdown
or work stoppage due to labor  disagreements  which could reasonably be expected
to have a Materially  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 of the Borrower.

                  SECTION  7.19  Environmental  Matters.  To  the  best  of  the
Borrower's knowledge, except as set forth on Schedule 7.18:

                  (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, Environmental Law except in either case
insofar as such  violation or  liability,  or any  aggregation  thereof,  is not
reasonably likely to result in a Materially 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 is reasonably  likely to
result in a Materially Adverse Effect.

                  (c)  Neither  the  Borrower  nor any of its  Subsidiaries  has
received any notice of violation, alleged violation,  non-compliance,  liability
or  potential  liability  regarding  environmental  matters or  compliance  with
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 is or are reasonably  likely to result in a
Materially 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, Environmental Law, nor have
any Hazardous Substances been generated,  treated,  stored 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, is not reasonably likely to result in a Materially Adverse Effect.

                  (e) No judicial  proceedings or governmental or administrative
action is pending, or, to the knowledge of the Borrower,  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

                                                      
                                                                     

<PAGE> 66


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, is not reasonably likely to result in a Materially Adverse
Effect.

                  (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  Environmental  Law except
insofar as any such violation or liability referred to above, or any aggregation
thereof, is not reasonably likely to result in a Materially Adverse Effect.

                  SECTION  7.20 No Default.  Neither the Borrower nor any of its
Subsidiaries  is in default in the payment or performance of any of its or their
Contractual  Obligations  in any respect  which could  reasonably be expected to
have  a  Materially  Adverse  Effect.  Neither  the  Borrower  nor  any  of  its
Subsidiaries is in default under any order,  award or decree of any Governmental
Authority or arbitrator  binding upon or affecting it or them or by which any of
its or their  properties or assets may be bound or affected in any respect which
could  reasonably  be expected to have a Materially  Adverse  Effect and no such
order, award or decree could reasonably be expected to have a Materially Adverse
Effect on the ability of the Borrower and its  Subsidiaries  taken as a whole to
carry on their  businesses  as presently  conducted or the ability of any Credit
Party to perform  its  obligations  under any Credit  Document  to which it is a
party.

                              SECTION 8. COVENANTS

                  The  Borrower  agrees  that,  so  long  as any  Bank  has  any
Revolving Commitment hereunder,  any Letter of Credit or any time draft accepted
under any Letter of Credit remains  outstanding or any amount payable  hereunder
or under any Note or under any other Credit Document remains unpaid:

                  SECTION 8.1 Information.  The Borrower will deliver to each of
the Banks:

                  (a) as soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the related  consolidated  statements of income and statements of cash flows for
such fiscal year, setting forth in each case in comparative form the figures for
the previous fiscal year, all audited in a manner  acceptable to the SEC by KPMG
Peat Marwick or other independent  public  accountants of nationally  recognized
standing;

                                                      
                                                                     

<PAGE> 67


                  (b) as soon as available and in any event within 45 days after
the end of each of the first three quarters of each fiscal year of the Borrower,
a consolidated  balance sheet of the Borrower and its Consolidated  Subsidiaries
as of the end of such quarter and the related consolidated  statements of income
and  statements  of cash  flows  for such  quarter  and for the  portion  of the
Borrower's  fiscal year ended at the end of such quarter,  setting forth in each
case in  comparative  form the  figures  for the  corresponding  quarter and the
corresponding  portion of the  Borrower's  previous  fiscal year,  all certified
(subject  to  normal  year-end  adjustments)  as to  fairness  of  presentation,
generally accepted accounting  principles and consistency by the chief financial
officer or the chief accounting officer of the Borrower;

                  (c) 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 or the chief accounting officer of the Borrower  substantially
in the form of Exhibit K hereto (a "Compliance  Certificate")  (i) setting forth
in  reasonable  detail (x) the  calculations  required to establish  whether the
Borrower  was  in  compliance  with  the  requirements  of  Sections  8.12  (the
calculations  with respect to compliance  with such Section 8.12 to be delivered
only with the delivery of the financial  statements to be delivered under clause
(a) above), 8.16, 8.17 and 8.26 on the date of such financial statements and (y)
the  calculation  of "Excess Cash Flow" for the fiscal year ended on the date of
such  financial  statements  (the  calculation  of such  Excess  Cash Flow to be
delivered  only with the delivery of the  financial  statements  to be delivered
under clause (a) above) and (ii) stating whether any Default or Event of Default
exists on the date of such  certificate  and, if any Default or Event of Default
then exists,  setting forth the reasonable  details thereof and the action which
the Borrower is taking or proposes to take with respect thereto;

                  (d) simultaneously  with the delivery of each set of financial
statements  referred  to in  clause  (a)  above,  a  statement  of the  firm  of
independent  public  accountants  which  reported on such  statements  (i) as to
whether  anything has come to their  attention to cause them to believe that any
Default or Event of  Default  existed  on the date of such  statements  and (ii)
confirming the  calculations  set forth in the officer's  certificate  delivered
simultaneously therewith pursuant to clause (c) above;

                  (e) forthwith  upon the  occurrence of any Default or Event of
Default,  a certificate of the chief financial  officer or the chief  accounting
officer of the Borrower  setting forth the details  thereof and the action which
the Borrower is taking or proposes to take with respect thereto;


                                                      
                                                                     

<PAGE> 68


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

                  (g)  promptly   upon  the  filing   thereof,   copies  of  all
registration  statements  (other than the exhibits  thereto and any registration
statements on Form S-8 or its  equivalent)  and reports on Forms 10-K,  10-Q and
8-K (or their equivalents) which the Borrower shall have filed with the SEC;

                  (h) 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 Administrative 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  capital  assets  which  do  not  constitute
extraordinary gains or losses under generally accepted accounting principles and
for which the sale price or book value for such asset at time of sale is greater
than $3,000,000;

                  (i)  forthwith  upon becoming  aware of (i) any  litigation or
other  proceeding  as to which there is a reasonable  likelihood of a Materially
Adverse Effect or (ii) any default with respect to any contractual obligation or
any event or condition  which could have a  Materially  Adverse  Effect,  notice
thereof;

                  (j) not later than forty-five  days after the  commencement of
each fiscal year of the Borrower, a one-year forecast of the financial condition
and results of  operations  of the Borrower for each such year, in all instances
in form, scope and detail satisfactory to the Administrative Agent;

                  (k)  promptly  upon  becoming  aware of any  material  adverse
change in the business,  financial position,  results of operations or prospects
of the  Borrower  and its  Subsidiaries  considered  as a whole since August 26,
1995, notice thereof;

                  (l)    (i) promptly and in any event within thirty days after
         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;

                        (ii) promptly and in any event within fifteen 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 of the Borrower or any ERISA Affiliate of either of them
         proposes to take with respect thereto;


                                                      
                                                                     

<PAGE> 69



                       (iii)  promptly  and in any event  within  five  Domestic
         Business Days after receipt  thereof by the Borrower or any  Subsidiary
         of the Borrower or any ERISA  Affiliates  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;

                        (iv)  promptly  and in any  event  within  ten  Domestic
         Business Days after receipt  thereof by the Borrower or any  Subsidiary
         of the  Borrower  or any  ERISA  Affiliate  of  either of them from the
         sponsor of a Multiemployer  Plan, a copy of each notice received by the
         Borrower or any  Subsidiary  of the Borrower or any ERISA  Affiliate of
         either of them 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 of the Borrower or any ERISA  Affiliate of either of
         them in connection with any event described in clause (1) or (2) above;
         and

                  (m)  from  time  to  time  with  reasonable  promptness,  such
additional  information  regarding  the  financial  position  or business of the
Borrower and its Subsidiaries as the Administrative Agent, at the request of any
Bank, may reasonably request.

                  SECTION 8.2 Payment of Obligations.  The Borrower will pay and
discharge,  and will cause each Subsidiary of the Borrower to pay and discharge,
at  or  before  maturity,   all  their  respective   material   obligations  and
liabilities,  including,  without limitation,  material tax liabilities,  except
where the same may be contested in good faith by  appropriate  proceedings  (and
with respect to taxes, only if the failure to make such payment shall not result
in a  Lien  on any  Collateral  or  such  Lien  will  not  attach  to any of the
Collateral in a manner which would have priority over the Lien of the Collateral
Agent thereon or risk the sale of or foreclosure on such  Collateral),  and will
maintain,  and will cause the  Borrower and each  Subsidiary  of the Borrower to
maintain,   in  accordance  with  generally  accepted   accounting   principles,
appropriate reserves for the accrual of any of the same.

                  SECTION  8.3  Maintenance  of  Property;  Insurance.  (a)  The
Borrower will keep, and will cause each  Subsidiary of the Borrower to keep, all
material property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.

                  (b) The  Borrower  will  maintain,  and will cause each of its
Subsidiaries  to  maintain,  with  financially  sound  and  reputable  insurance
companies  insurance  on all its  property in at least such  amounts  (including
deductibles) and against at least

                                                      
                                                                     

<PAGE> 70



such risks as are usually  insured against in the same general area by companies
engaged in the same or a similar  business,  provided that such insurance  shall
(i) insure the property of the Borrower and its  Subsidiaries  (other than motor
vehicles)  against all risk of physical damage  including,  without  limitation,
loss by fire,  explosion,  theft and such other  casualties as may be reasonably
satisfactory to the Administrative Agent, but in no event in an amount less than
the  replacement  cost  value  thereof,  and  (ii)  insure  the  Borrower,   its
Subsidiaries,  the  Collateral  Agent,  the  Administrative  Agent and the Banks
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 for
personal  injury,  bodily injury and property  damage relating to the Borrower's
and its Subsidiaries' property and operations,  such policies to be in such form
and amounts and having such  coverage as may be reasonably  satisfactory  to the
Administrative  Agent. All such insurance shall (i) contain a breach of warranty
clause in favor of the Collateral Agent, the Administrative Agent, and the Banks
in all physical  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  Administrative
Agent thereof,  (iii) name the  Administrative  Agent as loss payee for physical
damage  insurance  with  respect to property as to which a Lien has been granted
(provided, that (a) 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 (b) the
proceeds of any such physical  damage  insurance  shall be applied in the manner
set forth in Section 2.8(c)) and name the Collateral  Agent, the  Administrative
Agent and the Banks as additional insureds for liability  insurance,  (iv) state
that  neither the  Administrative  Agent or the  Collateral  Agent nor the Banks
shall be  responsible  for premiums,  commissions,  club calls,  assessments  or
advances,  (v) shall  contain a waiver of all rights of  set-off,  counterclaim,
deduction or subrogation against the Administrative Agent and the Banks and (vi)
be reasonably  satisfactory in all other respects (including deductibles) to the
Administrative Agent with respect to physical damage exposures.

                  (c) The  Borrower  will  furnish to the  Administrative  Agent
prior to the Closing Date, with a copy for each Bank, a schedule  describing all
insurance maintained by the Borrower and its Subsidiaries,  which schedule shall
set forth for each insurance  policy the policy  number,  the scope of coverage,
the policy limits and  deductibles,  the insurer (and reinsurer,  if applicable)
and the expiration date.

                  (d) The  Borrower  will furnish to the  Administrative  Agent,
with a copy  for  each  Bank,  original  certificates  of  insurance  containing
signatures of duly authorized

                                                      
                                                                     

<PAGE> 71



representatives of the insurer at the Closing Date and prior to
policy termination, cessation or cancellation.

                  SECTION 8.4 Conduct of Business and  Maintenance of Existence.
The Borrower will  continue,  and will cause each  Subsidiary of the Borrower to
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  8.11(b)(5)(z)  and Section
8.11(g), will cause each Subsidiary of the Borrower to preserve,  renew and keep
in full  force  and  effect,  their  respective  corporate  existence  and their
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 Materially  Adverse
Effect.

                  SECTION 8.5  Compliance  with Laws.  The Borrower will comply,
and cause each  Subsidiary of the Borrower to 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 or where the failure to comply with could not reasonably be expected
to have a Materially Adverse Effect.

                  SECTION 8.6  Inspection  of Property,  Books and Records.  The
Borrower  will keep,  and will cause each  Subsidiary  of the  Borrower to keep,
proper books of record and account in which full, true and correct entries shall
be made of all  dealings  and  transactions  in  relation  to its  business  and
activities;  and will permit,  and will cause each Subsidiary of the Borrower to
permit, representatives or designees of any Bank at such Bank's expense and upon
notice to the Borrower to visit and inspect any of their respective  properties,
to examine and make abstracts from any of their respective books and records and
to discuss their respective affairs, finances and accounts with their respective
officers,  employees and independent public accountants,  all at such reasonable
times and as often as may reasonably be desired.

                  SECTION 8.7 Restricted Payments. The Borrower will not declare
or make,  or permit any  Subsidiary  of the  Borrower  to  declare or make,  any
Restricted Payment, except:

                         (i)  regular,   scheduled  or  mandatory   payments  or
         prepayments  of principal and interest on Debt for Borrowed  Money (but
         as to  payments,  if  any,  of  principal  of and  interest  on  Senior
         Subordinated  Notes, only regularly  scheduled  payments thereof to the
         extent such payments are permitted,  if at all, under the subordination
         provisions  of the  documents  governing  such Debt as in effect on the
         date of execution  thereof or as amended with the prior written consent
         of the Required Banks);


                                                      
                                                                     

<PAGE> 72



                        (ii) so long as there shall not exist a Default or Event
         of Default,  the  payment by the  Borrower of cash in lieu of shares of
         capital  stock of the  Borrower  upon  the  exercise  of stock  options
         pursuant to and in  accordance  with the 1988  Payless  Cashways,  Inc.
         Employee Stock Plan, the 1992 Payless Cashways  Incentive Stock Program
         and the Payless Cashways Director Option Plan in each case as in effect
         on the date hereof or as amended, modified or supplemented from time to
         time, provided, that the aggregate cash paid by the Borrower in lieu of
         shares of capital  stock of the  Borrower as  permitted  by this clause
         (ii) shall not exceed $2,000,000 subsequent to November 18, 1994;

                       (iii)        transactions with Affiliates as expressly
         permitted under Section 8.15;

                        (iv)        payments to the Borrower by a Subsidiary or
         payments to a Subsidiary by the Borrower on account of Debt
         permitted under Section 8.8(v); and

                         (v)  additional  Restricted  Payments  made  during any
         fiscal year of the Borrower  commencing with the Borrower's 1995 fiscal
         year;  provided,  that  such  payments  may be made only so long as the
         Borrower maintains  investment grade status from either S&P or Moody's;
         provided,  further,  that the amount of such  Restricted  Payments made
         during any such fiscal  year,  when added to (i) the amount of Minority
         Investments  made during such fiscal year  pursuant to Section  8.9(ix)
         and (ii) the  amount of capital  expenditures  made and  capital  lease
         obligations  incurred  during such  fiscal  year  pursuant to the first
         proviso  to  Section  8.12  (namely,  those  that  would  not have been
         permitted  during  such  fiscal  year  but  for the  operation  of said
         proviso),  shall not exceed  Excess Cash Flow for the  previous  fiscal
         year of the Borrower  calculated on a cumulative  basis,  such that any
         amounts  authorized by this proviso,  but not actually  utilized in the
         year authorized, may be carried forward to succeeding fiscal years; and
         provided,  finally,  that,  notwithstanding the foregoing proviso,  the
         aggregate amount of such payments made during any one fiscal year, when
         added to the aggregate amount of Minority  Investments made during such
         fiscal year pursuant to Section 8.9(ix), shall not exceed $5,000,000.

                  SECTION  8.8 Debt.  The  Borrower  will not  incur,  assume or
suffer to exist,  or permit any  Subsidiary of the Borrower to incur,  assume or
suffer to exist, any Debt, except:

                         (i)   the Loans and the Letters of Credit;

                        (ii)   the Senior Subordinated Notes;

                       (iii)   Debt secured by Liens permitted by Section 8.10;


                                                      
                                                                     

<PAGE> 73



                        (iv) Debt  existing  on the date  hereof as set forth in
         Schedule 8.8 hereto (including,  without  limitation,  Debt incurred in
         connection  with the  Prudential  Real Estate  Financing),  but not the
         increase,  refunding,  or extension of maturity  thereof in whole or in
         part;

                         (v) So long as  Somerville  shall  be a  subsidiary  or
         Somerville shall not have sold all or substantially  all of its assets,
         debt of the Borrower to Somerville, and any Debt owing by Somerville to
         the Borrower  representing  advances made by the Borrower to Somerville
         to  enable   Somerville  to  make  capital   expenditures  and  to  pay
         obligations  with  respect  to capital  leases to the extent  expressly
         permitted by Section  8.12,  provided  that no such Debt payable to the
         Borrower  shall at any time be evidenced by an  instrument  unless such
         instrument  shall have been pledged to the  Collateral  Agent,  for the
         benefit of the Collateral Agent, the  Administrative  Agent, the Banks,
         and the  Merchandise  Letter of Credit Bank pursuant to a supplement to
         the  Note  Pledge  Agreement  which  shall  be in  form  and  substance
         satisfactory to the Administrative Agent;

                        (vi)        Debt of the Borrower and its Subsidiaries as
         lessees under capital leases to the extent expressly
         permitted under Section 8.12;

                       (vii)        up to $30,000,000 in merchandise letters of
         credit issued under the Merchandise Letter of Credit Facility;

                      (viii)        Debt incurred under the GE Credit Program
         Documents and other agreements permitted under Section 8.18;
         and

                        (ix)  Debt of the  Borrower  and its  Subsidiaries  (not
         permitted by any of clauses (i) through  (viii) of this  Section) in an
         aggregate  principal  amount not to exceed  $1,000,000  at any one time
         outstanding.

                  SECTION  8.9  Investments.  The  Borrower  will  not  make  or
acquire,  and will not permit any Subsidiary of the Borrower to make or acquire,
any Investment in any Person, except:

                         (i)        Investments existing on the date hereof in 
         the capital stock of Subsidiaries;

                        (ii) Temporary Cash Investments, provided, however, that
         while any Loans  are  outstanding  such  Investments  shall not  exceed
         $20,000,000 in the aggregate outstanding at any one time;

                       (iii)  Investments in promissory  notes  representing the
         non-cash purchase price for the sales of assets permitted under Section
         8.11,  provided that such promissory  notes are pledged by the Borrower
         to the Collateral Agent for the

                                                      
                                                                     

<PAGE> 74



         benefit of the Collateral  Agent, the  Administrative  Agent, the Banks
         and  the  Merchandise  Letter  of  Credit  Bank  pursuant  to a  Pledge
         Agreement Supplement,  substantially in the form of Annex A to the Note
         Pledge Agreement;

                        (iv)        Investments existing on the date hereof as
         set forth in Schedule 8.9 hereto, but not the increase in amount
         thereof;

                         (v)        civic or charitable type guarantees and
         Investments not to exceed subsequent to November 18, 1994,
         $500,000 in aggregate amount;

                        (vi) Investments in the National Equity Fund,  provided,
         that (A) the tax  characteristics  of  investments  in such fund are no
         less  advantageous to the Borrower as such  characteristics  are on the
         date hereof and (B) new Investments therein shall not exceed $1,100,000
         in the aggregate during each calendar year;

                       (vii)        Investments made in connection with the 
         incurrence of Debt permitted by Section 8.8(v);

                      (viii)        Investments in the Mexican Joint Venture not
         to exceed $10,200,000 during the Borrower's 1995 fiscal year;

                        (ix)   Minority   Investments,   in  addition  to  those
         permitted  under any other  clause of this  Section,  made  during  any
         fiscal year of the Borrower  commencing with the Borrower's 1995 fiscal
         year; provided that the amount of such Minority Investments made during
         any such  fiscal  year,  when  added to (i) the  amount  of  Restricted
         Payments  made during such fiscal year  pursuant to Section  8.7(v) and
         (ii)  the  amount  of  capital  expenditures  made  and  capital  lease
         obligations  incurred  during such  fiscal  year  pursuant to the first
         proviso  to  Section  8.12  (namely,  those  that  would  not have been
         permitted  during  such  fiscal  year  but  for the  operation  of said
         proviso),  shall not exceed  Excess Cash Flow for the  previous  fiscal
         year of the Borrower  calculated on a cumulative  basis,  such that any
         amounts  authorized by this proviso,  but not actually  utilized in the
         year authorized, may be carried forward to succeeding fiscal years; and
         provided,  further,  that,  notwithstanding the foregoing proviso,  the
         aggregate  amount of such  Minority  Investments  made  during  any one
         fiscal year, when added to the aggregate amount of Restricted  Payments
         made  during such fiscal  year  pursuant to Section  8.7(v),  shall not
         exceed $5,000,000; and

                         (x)  Investments  (not  permitted by any of clauses (i)
         through (ix) of this Section) in an amount not exceeding  $1,000,000 in
         the aggregate outstanding at any one time.

                  SECTION 8.10  Negative Pledge.  The Borrower will not

                                                      
                                                                     

<PAGE> 75



create,  assume or suffer to exist,  or permit any Subsidiary of the Borrower to
create,  assume or suffer to exist, any Lien on any asset now owned or hereafter
acquired by it, except:

                         (i)  existing  Liens set forth on Schedule  8.10 hereto
         (including,  without  limitation,  Liens granted in connection with the
         Prudential Real Estate  Financing),  but not any increase in the amount
         thereof  (except  for  increases  in the  amounts  secured by the Liens
         relating  to  accounts  under  the  GE  Credit  Program   Documents  in
         accordance with the terms of such documents);

                        (ii)        Liens for taxes, assessments or governmental
         charges or claims the payment of which is not at the time
         required by Section 8.2;

                       (iii) statutory Liens of landlords and Liens of carriers,
         warehousemen,  mechanics,  materialmen  and other Liens  imposed by law
         incurred in the ordinary course of business for sums not yet delinquent
         or being contested in good faith, if such reserve or other  appropriate
         provision,   if  any,  as  shall  be  required  by  generally  accepted
         accounting principles shall have been made therefor;

                        (iv) with respect to assets other than Collateral, Liens
         (other than any Lien imposed by ERISA) incurred or deposits made in the
         ordinary course of business in connection  with workers'  compensation,
         unemployment insurance and other types of social security, or to secure
         the  performance  of  tenders,  statutory  obligations,  bids,  leases,
         government contracts, performance, surety and return-of-money bonds and
         other similar obligations  (exclusive of obligations for the payment of
         borrowed money);

                         (v)  easements,   rights-of-way,   restrictions,  minor
         defects  or  irregularities  in title  and  other  similar  charges  or
         encumbrances on real property and improvements owned by the Borrower or
         any such  Subsidiary not  interfering in any material  respect with the
         ordinary conduct of the business of the Borrower or such Subsidiary;

                        (vi) purchase  money  mortgages or other  purchase money
         Liens or security  interests by the Borrower or any of its Subsidiaries
         (including,  without  limitation,  capital  leases)  upon any  fixed or
         capital assets  hereafter  acquired,  so long as (i) any such mortgage,
         Lien or security  interest  does not extend to or cover any other asset
         of the  Borrower  or such  Subsidiary,  (ii)  such  security  interest,
         mortgage or Lien secures the  obligation  to pay the purchase  price of
         such asset (or the obligation under such capital lease) only, and (iii)
         the  aggregate  Debt secured by all such  purchase  money  mortgages or
         other  purchase money Liens or security  interests  (other than capital
         leases) shall not exceed in

                                                      
                                                                     

<PAGE> 76



         the aggregate for the Borrower and its Subsidiaries
         $2,000,000 outstanding at any time;

                       (vii) in  addition to other  Liens  permitted  under this
         Section,  Liens by the  Borrower  on its  partnership  interest  in the
         National Equity Fund to secure the Borrower's  investments in such fund
         to the extent permitted under Section 8.9(vi);

                      (viii)  purchase  money  Liens  by the  Borrower  and  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 at any one time;

                        (ix)        judgment Liens to the extent that the
         related judgement does not constitute an Event of Default under
         Section 9.1(k);

                         (x)        Liens securing the Merchandise Letters of
         Credit as contemplated by the Merchandise Letter of Credit
         Facility;

                        (xi) Liens granted  pursuant to any Permitted  Operating
         Lease  Transaction,  provided  that such Liens may  extend  only to the
         underlying  lease  and to  the  specific  assets  being  leased  to the
         Borrower pursuant to such Permitted Operating Lease Transaction; and

                       (xii) Liens (in addition to other Liens  permitted  under
         this Section) on assets not constituting Collateral;  provided that the
         aggregate fair value of all such assets shall not at any time exceed 5%
         of Consolidated Tangible Net Worth.

                  SECTION 8.11 Consolidations,  Mergers and Sales of Assets. The
Borrower  will not, and will not permit any  Subsidiary  of the Borrower to, (i)
consolidate  or merge with or into any other Person or enter into a  partnership
or joint venture with another  Person,  provided that the Borrower or any of its
Subsidiaries  may acquire  interests in other  partnerships or joint ventures to
the extent  permitted by Section 8.9, or (ii) sell,  lease,  assign or otherwise
transfer  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 8.18; (b) sales or transfers  (not  permitted by any other  provision of
this Section) of any assets of the Borrower to any Person,  provided that (1) if
the sale price  thereof is equal to or greater  than  $5,000,000  then such sale
price  shall not be less than the fair  market  value of each such  asset at the
time of sale  thereof as  determined  in good faith by the Board of Directors of
the Borrower,  (2) prior to or  concurrently  with each such sale which requires
that the sale

                                                      
                                                                     

<PAGE> 77



price  therefor  be not less  than  the fair  market  value of such  asset,  the
Borrower shall deliver evidence to the  Administrative  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 50% of
the sale price for each such asset  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  which  shall  be  pledged  to the
Collateral  Agent as  provided  in Section  8.9(iii),  (5) no such sale shall be
permitted unless (x) the asset so sold shall be listed on Schedule 8.11 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 or subclause (z) immediately  below) previously
sold under this clause (b) in the same fiscal year of the Borrower in which such
asset is being sold, shall not exceed $5,000,000 or (z) such sale is the sale of
the Borrower's  ownership  interest in Somerville (or, the sale by Somerville or
the Borrower of all or any part of the assets used in the business  conducted by
Somerville)  and (6) if such sale is to an  Affiliate  it is made in  compliance
with Section 8.15;  (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  Collateral  Agent,  by the
Borrower to any of its Subsidiaries which has executed a guaranty  substantially
in the form of the  Subsidiary  Guarantee 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 Collateral Agent, by the Subsidiaries of the Borrower
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 in Schedule 8.11
hereto 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
$40,000,000 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) sales of assets
pursuant to sale/lease-back  transactions  permitted under Section 8.21; and (g)
the merger of any wholly owned  Subsidiary  of the Borrower into the Borrower or
the  consolidation  of any wholly  owned  Subsidiary  of the  Borrower  with the
Borrower in which the Borrower shall be the surviving

                                                      
                                                                     

<PAGE> 78



corporation. The Borrower shall deliver to the Administrative Agent no less than
three  Domestic  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 (e) of this
Section 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.

                  SECTION 8.12  Capital  Expenditures  and Leases.  The Borrower
will not make or accrue,  and will not permit any of its Subsidiaries to make or
accrue,  directly or indirectly,  any  expenditures  for fixed or capital assets
(including,  but not limited to (x) payments on account of any mortgages,  Liens
or security  interests  permitted  pursuant to Section 8.10(vi) and (y) goodwill
associated with any capital  expenditure that would constitute an Investment but
for the  application  of clause (i) of the  definition  of such  term),  and the
Borrower  will not incur any  obligations  in  respect  of, or permit any of its
Subsidiaries to incur any  obligations in respect of, capital leases,  in excess
in the aggregate for the Borrower and its Subsidiaries for all such expenditures
and leases, of the following amounts during the periods set forth below:

               Period                                    Amount
               ------                                    ------

          1995 fiscal year
          of the Borrower                             $70,000,000

          1996 fiscal year
          of the Borrower                             $55,000,000

          1997 fiscal year
          of the Borrower                             $35,000,000

          1998 fiscal year
          of the Borrower                             $30,000,000

          1999 and each subsequent
          fiscal year of the Borrower                 $65,000,000

provided, however, that the amount of such expenditures and leases permitted for
any fiscal year of the  Borrower  shall be increased  by an amount  which,  when
added to (i) the amount of  Minority  Investments  made  during such fiscal year
pursuant to Section  8.9(ix)  and (ii) the amount of  Restricted  Payments  made
during such fiscal year pursuant to Section 8.7(v),  equals Excess Cash Flow for
the previous fiscal year of the Borrower  calculated on a cumulative basis, such
that any increased amounts authorized by this proviso, but not actually utilized
in the year  authorized,  may be carried  forward to  succeeding  fiscal  years;
provided,  further,  that if the aggregate  amount of all such  expenditures and
leases  during any fiscal year of the Borrower  (after the  application  of such
expenditures and leases first to

                                                      
                                                                     

<PAGE> 79


amounts available for such expenditures and leases for such fiscal year pursuant
to the operation of this proviso) shall be less than the amount set forth in the
table above for such fiscal year then the amount of the  permitted  expenditures
and leases for the immediately  succeeding  fiscal year shall be increased by an
amount  equal to such  difference.  In the event that the Borrower or any of its
Subsidiaries  shall sell, or shall receive insurance proceeds in connection with
the destruction  of, a fixed or capital asset owned by it and shall,  within six
months after the sale or twenty-four  months after the destruction of such fixed
or  capital  asset,  purchase  or enter into a capital  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,  as the
case may be, 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 and  provided,  further,  that if the  aggregate  Net Cash Proceeds
received from the sale by the Borrower of its  ownership  interest in Somerville
or the sale by  Somerville or the Borrower of all or any part of the assets used
in the business conducted by Somerville exceeds $35,000,000,  an amount equal to
such  excess  shall be applied to  increase  the  Borrower's  permitted  capital
expenditure  amount  for the  fiscal  year in which  such sale  takes  place and
provided,  finally,  that if in connection  with any such sale by Somerville the
purchaser  does not purchase  any or all of the  inventory  of  Somerville,  the
Borrower's  permitted  capital  expenditure  amount for the fiscal year in which
such sale takes place shall be increased by an amount equal to the book value of
the inventory not purchased.  Notwithstanding anything to the contrary contained
in this Section, there shall be excluded from the determination of the amount of
capital  expenditures  made by the Borrower  expenditures made during any fiscal
year to the extent of an amount equal to the net cash  proceeds of Permitted Pad
Sales  during such fiscal  year of  portions  of real  property  acquired by the
Borrower  after  November  1,  1994.  For  purposes  of  this  Section,  (i) all
obligations incurred under a capital lease shall be deemed to have been incurred
on the date of  execution  of such  lease and (ii) the amount of  incurrence  of
obligations  with  respect to a capital  lease on such date of  execution of the
lease shall be the  capitalized  amount  thereof  determined in accordance  with
generally accepted accounting principles.

                  SECTION 8.13 No Negative  Pledges.  The Borrower will not, and
will not permit any  Subsidiary  of the Borrower  to,  enter into any  agreement
(other  than  the  Prudential  Loan  Agreement  and the  documents  executed  in
connection therewith) (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 Collateral

                                                      
                                                                     

<PAGE> 80


Agent, the Administrative Agent or the Banks, 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, or (b) requiring, if any obligations
of the Borrower to the Administrative  Agent or the Banks are secured,  that the
Borrower or any  Subsidiary  also secure  another  obligation  (except as may be
provided in the Senior Subordinated Note Indenture).

                  SECTION 8.14  Termination of Plans. The Borrower will not, and
will not permit any  Subsidiary  of the Borrower to take any action to terminate
any of its Plans which could  result in a material  liability of the Borrower to
any Person.

                  SECTION 8.15 Transactions  with Affiliates.  The Borrower will
not,  and will not  permit  any  Subsidiary  of the  Borrower  to,  directly  or
indirectly, enter into any transaction, whether or not in the ordinary course of
business,  with any  Affiliate  other than on terms and  conditions  at least as
favorable to the Borrower,  or the affected  Subsidiary,  as those that would be
obtained through an arm's length  negotiation with an unaffiliated  third party;
provided  that  nothing  herein  shall  preclude  (i)  transactions  between the
Borrower  and/or its  Subsidiaries  and  employees  of the  Borrower  and/or its
Subsidiaries  which  are  authorized  by  the  non-management  directors  of the
Borrower,  (ii) transactions between the Borrower and the Mexican Joint Venture,
so long as such transactions relate to information transfers or to the provision
of intellectual  property,  goods (so long as the Borrower is fully  compensated
for such  transactions)  or management,  consulting or advisory  services by the
Borrower,  or (iii) the  performance  by the  Borrower  of that  certain  Supply
Agreement,  dated as of  August  4,  1988,  between  Masco  Corporation  and the
Borrower, as in effect on the date hereof.

                  SECTION 8.16  Consolidated  Net Worth.  At the last day of any
fiscal  quarter,  beginning  the first fiscal  quarter of fiscal year 1995,  the
Borrower shall not permit  Consolidated Net Worth to be less than  $400,000,000;
provided,  however, that such minimum amount shall be increased by (i) an amount
equal to 75% of  positive  net income for each  fiscal  quarter  (other than any
fiscal  quarter  in  respect  of which  the  Borrower  experienced  a net  loss)
commencing  on or after  November 26, 1994 and ending on or before such last day
of such fiscal quarter and (ii) an amount equal to 100% of the Net Cash Proceeds
of any equity issued by the Borrower subsequent to the Closing Date.

                  SECTION 8.17  Interest Coverage.  The Interest Coverage
Ratio (as defined below) shall not, for any period of four

                                                      
                                                                     

<PAGE> 81


consecutive fiscal quarters ending in any of the months set forth below, be less
than the ratio set forth opposite such month below:

                 Period                                     Amount
                 ------                                     ------

          Month In Which Four
          Consecutive Fiscal Quarters End                   Ratio
          -------------------------------                   -----

          November 1995, February,
          May and August 1996                            1.85 : 1.00

          November 1996, February,
          May and August 1997                            2.00 : 1.00

          November 1997 and February,
          May and August 1998                            2.00 : 1.00

          November 1998 and February,
          May and August 1999                            2.15 : 1.00

          November 1999 and February,
          May and August 2000                            2.25 : 1.00

          Each November, February,
          May and August thereafter                      2.35 : 1.00

For purposes of this Section, "Interest Coverage Ratio" means, for any period of
the  Borrower,  the ratio of (x) the sum of (i) EBITDA for such period plus (ii)
Rent Expense of the Borrower and its  Consolidated  Subsidiaries for such period
plus  (iii)  cash  interest   income  of  the  Borrower  and  its   Consolidated
Subsidiaries  for  such  period  to (y) the  sum of (i)  cash  interest  expense
(without  deduction of any cash  interest  income) plus (ii) Rent Expense of the
Borrower and its Consolidated Subsidiaries for such period.

                  SECTION 8.18 Customer Charge Sales. The Borrower will continue
to  maintain  a  "Project  Card" and  commercial  credit  receivables  sales and
administration  program  with  Monogram  Credit Card Bank of Georgia and General
Electric Capital  Corporation  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
the terms and  conditions of which are, in the  aggregate,  no less favorable to
the Borrower than those  provided for in the GE Credit  Program  Documents as in
effect on the Closing Date.

                  SECTION 8.19  Accounting  Changes.  The Borrower will not, and
will not permit any of its Subsidiaries  to, make any significant  change in its
accounting  treatment or financial  reporting  practices  except as permitted or
required by generally

                                                      
                                                                     

<PAGE> 82



accepted  accounting  principles in effect from time to time.  The Borrower will
not change its fiscal year or the calculation of its fiscal quarter ends.

                  SECTION 8.20 Amendment and Modification of Certain  Documents.
The Borrower shall not, directly or indirectly, amend, modify, supplement, waive
compliance  with, or assent to  noncompliance  with, (i) any term,  provision or
condition of the Restated  Articles of Incorporation of the Borrower or (ii) any
term, provision or condition of any of the documents governing or evidencing the
Senior  Subordinated Notes which, (A) in the case of either clause (i) or clause
(ii), the Administrative  Agent deems material  (including,  without limitation,
relating to events of  default,  acceleration  rights,  interest  rates,  tenor,
subordination, covenants, prohibitions against amending the Credit Documents and
the definitions with respect thereto (including, without limitation, definitions
of "Senior  Indebtedness" and "Permitted  Indebtedness"))  or (B) in the case of
clause (ii), places any further restrictions on the Borrower or its Subsidiaries
or  increases  the  obligations  of the  Borrower  thereunder  or confers on the
holders thereof any additional rights.  The  Administrative  Agent and the Banks
agree  that  if  any  of  the  documents  governing  or  evidencing  the  Senior
Subordinated  Notes must comply with the Trust Indenture Act of 1939 and the SEC
requires  that  certain  changes be made to such  documents  to comply with such
statute, then such changes shall be permitted so long as (A) such changes do not
relate to covenants, events of default, tenor, rights of acceleration,  interest
rates, subordination,  prohibitions against amending the Credit Documents or the
definitions with respect thereto (including, without limitation,  definitions of
"Senior Indebtedness" and "Permitted  Indebtedness") and (B) such changes do not
place any further  restrictions on the Borrower or its  Subsidiaries or increase
the obligations of the Borrower  thereunder or confer on the holders thereof any
additional  rights.  The Borrower  shall not, and shall not permit or suffer any
Subsidiary  to,  directly  or  indirectly,   amend,  modify,  supplement,  waive
compliance  with,  or assent to  noncompliance  with,  any  term,  provision  or
condition  of the  Prudential  Loan  Agreement  or any  of the  other  documents
governing or evidencing the Prudential Real Estate Financing as in effect on the
date  hereof  (A) which the  Administrative  Agent  deems  material  (including,
without limitation, relating to events of default, acceleration or other rights,
substitution of collateral, the non-recourse nature of such financing, covenants
and  prohibitions  against  amending  the  Credit  Documents)  or (B)  which the
Administrative  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.

                  SECTION 8.21 Sale/Lease-Backs. The Borrower will not, and will
not permit any  Subsidiary  of the  Borrower  to,  enter into any  arrangements,
directly or indirectly, with any Person,

                                                      
                                                                     

<PAGE> 83


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;
provided that the Borrower and its  Subsidiaries may sell the St. Cloud property
(store  number  257) and any  other  property  acquired  after  the date  hereof
pursuant to a sale/lease-back  transaction so long as the economic terms of such
transaction are fair and reasonable.

                  SECTION 8.22 Environmental Matters. (a) The Borrower will not,
and will not permit any of its  Subsidiaries  to,  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  neither the Borrower nor
any of its  Subsidiaries  has any control  (such as a lease of a small number of
parking  places  in a  large  parking  lot))  by  the  Borrower  or  any  of its
Subsidiaries (such owned or leased real property, the "Property"),  or transport
to or from the Property,  any Hazardous Substance (as defined below), or (to the
extent within the  Borrower's  or such  Subsidiary's  control)  permit any other
Person to do so,  where such could  reasonably  be expected to have a Materially
Adverse Effect.

                  (b) The Borrower  shall keep and maintain and shall cause each
Subsidiary of the Borrower to keep and maintain, the Property in compliance with
any  Environmental  Law (as  defined  below)  where the  failure  to do so could
reasonably be expected to have a Materially 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 the  Property is required to be
performed by the Borrower or any of its Subsidiaries under any applicable local,
state or federal law or regulation,  any judicial order, or by any  governmental
entity  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
Materially  Adverse Effect,  the Borrower or such  Subsidiary  shall, as soon as
practicable,  commence and thereafter  diligently  prosecute to completion,  all
such Remedial Work.

                  (d) The Borrower will defend,  indemnify and hold harmless the
Administrative  Agent,  the Collateral Agent and the Banks, and their respective
employees, agents, officers and directors, from and against any claims, demands,
penalties,  fines,  liabilities,  settlements,  damages,  costs and  expenses of
whatever kind or nature known or unknown,  contingent or otherwise,  arising out
of, or in any way relating to the violation of,  noncompliance with or liability
under any

                                                      
                                                                     

<PAGE> 84


Environmental Law applicable to the operations of the Borrower or any Subsidiary
or  the  Property,  or any  orders,  requirements  or  demands  of  Governmental
Authorities  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 out of the gross  negligence  or willful  misconduct  of the party seeking
indemnification therefor. This indemnity shall continue in full force and effect
regardless of the  termination of this  Agreement,  the payment of the Notes and
all other amounts payable hereunder.

                  (e) 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,  industrial hygiene,  or the environmental  conditions on,
under or about the Property, 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.ss. 9601 et seq., the Resource  Conservation and Recovery Act of 1976,
42 U.S.C. ss.ss. 6901 et seq. and the Hazardous Materials Transportation Act, 49
U.S.C. ss.ss. 1801 et seq., and in the regulations  promulgated pursuant to said
laws,  and such  other  substances,  materials  and  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 8.23  Business  Segments.  The Borrower  will not, and
will not permit any  Subsidiary  of the Borrower to,  suspend the operation of a
segment material to the operation of its business as presently conducted,  which
suspension  would  materially  impair the  operations  of the  Borrower  and its
Subsidiaries taken as a whole.

                  SECTION 8.24  Subsidiary  Guarantee.  The Borrower  will cause
each Subsidiary of the Borrower which at any time has a net payable owing to the
Borrower in excess of $10,000,000 to execute and deliver to the Collateral Agent
a guarantee of the Bank  Obligations,  and such other  documents and opinions in
connection  therewith as the Administrative  Agent shall reasonably  request, in
form and substance  satisfactory to the Administrative Agent. Such guarantee and
such other  documents  shall be delivered to the Collateral  Agent no later than
thirty days after the date on which such Subsidiary has such a net payable owing
to the Borrower.

                  SECTION 8.25 Further  Assurances.  The Borrower  shall, at its
cost and expense,  upon request of the  Administrative  Agent,  duly execute and
deliver,  or cause to be duly executed and delivered,  such further  instruments
and do and cause to be done

                                                      
                                                                     

<PAGE> 85


such further acts as may be necessary or proper in the reasonable opinion of the
Administrative  Agent to carry out more  effectually the provisions and purposes
of this Agreement.

                  SECTION  8.26 Debt to EBITDA  Ratio.  The  Borrower  shall not
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
                   -----                              -----

               November 1995                      4.40 to 1.00
               February 1996                      4.75 to 1.00
               May 1996                           4.55 to 1.00
               August 1996                        4.30 to 1.00
               November 1996                      3.80 to 1.00
               February 1997                      4.10 to 1.00
               May 1997                           4.00 to 1.00
               August 1997                        3.85 to 1.00
               November 1997                      3.65 to 1.00
               February 1998                      3.90 to 1.00
               May 1998                           3.75 to 1.00
               August 1998                        3.45 to 1.00
               November 1998                      3.20 to 1.00
               February 1999                      3.50 to 1.00
               May 1999                           3.30 to 1.00
               August 1999                        3.15 to 1.00
               November 1999                      3.00 to 1.00
               February 2000                      3.25 to 1.00
               May 2000                           3.10 to 1.00
               August 2000                        2.85 to 1.00
               November 2000                      2.70 to 1.00

                  SECTION  8.27   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. DEFAULTS

                  SECTION 9.1 Events of Default. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:

                  (a) the Borrower  shall fail to pay when due any  principal of
or interest on any Loan or any Reimbursement  Obligation,  any fees or any other
amount  payable  hereunder  (including,   without  limitation,  any  prepayments
required to be made by Section 2.8) or under the Notes,  the  Applications,  the
Security Documents or the Fee Letter;

                                                      
                                                                     

<PAGE> 86


                  (b) the Borrower shall fail to observe or perform any covenant
contained in Section 8 hereof (other than Sections 8.1(a) and (b), 8.2,  8.3(a),
8.4 and 8.6),  or shall fail to observe or perform  any  covenant  contained  in
Section  8.1(a) or (b) for 5 days,  or shall  fail to  observe  or  perform  any
covenant  contained  in  Section  8.3(a)  or 8.6 for 10 days,  or shall  fail to
observe or perform  any  covenant  contained  in Section  8.2 or 8.4 for 30 days
after   written   notice   thereof  has  been  given  to  the  Borrower  by  the
Administrative Agent at the request of any Bank;

                  (c) the Borrower or any  Subsidiary  of the  Borrower,  as the
case may be,  shall  fail to  observe  or  perform  any  covenant  or  agreement
contained  in this  Agreement  (other  than  those  covered by clause (a) or (b)
above) or any other Credit Document for 30 days after written notice thereof has
been given to the  Borrower  by the  Administrative  Agent at the request of any
Bank;

                  (d) any representation,  warranty,  certification or statement
made by the Borrower or any of its  Subsidiaries  in this  Agreement,  any other
Credit  Document or in any  certificate,  financial  statement or other document
delivered  pursuant to this Agreement  shall prove to have been incorrect in any
material respect when made (or deemed made);

                  (e) the Borrower or any  Subsidiary of the Borrower shall fail
to make any payment in respect of any Debt aggregating $3,000,000 or more (other
than the Notes) when due or within any  applicable  grace period or any event or
condition  shall occur which results in the  acceleration of the maturity of any
Debt  aggregating  $3,000,000  or more of the Borrower or any  Subsidiary of the
Borrower or the  termination  of any commitment to lend any Debt or enables (or,
with the giving of notice or lapse of time or both,  would enable) the holder of
such  Debt or any  Person  acting on such  holder's  behalf  to  accelerate  the
maturity thereof or terminate any commitment to lend such Debt;

                  (f) the  Borrower  or any  Subsidiary  of the  Borrower  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 fail
generally  to pay its debts as they  become  due,  or shall  take any  corporate
action to authorize any of the foregoing;

                  (g) an involuntary case or other proceeding shall be commenced
against the  Borrower or any  Subsidiary  of the Borrower  seeking  liquidation,
reorganization  or other  relief  with  respect  to it or its  debts  under  any
bankruptcy, insolvency or other

                                                      
                                                                     

<PAGE> 87


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 of the Borrower
under the federal bankruptcy laws as now or hereafter in effect;

                  (h) any ERISA Event shall have occurred with respect to a Plan
and, 30 days after notice  thereof  shall have been given to the Borrower by the
Administrative  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;

                  (i) the Borrower,  any Subsidiary of the Borrower or any ERISA
Affiliate  of either  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 of
the Borrower or any ERISA  Affiliate of either 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;

                  (j) the Borrower,  any Subsidiary of the Borrower or any ERISA
Affiliate  of either  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 of the Borrower and the ERISA Affiliates of either of
them 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;

                  (k) a judgment  or order for the payment of money in excess of
$5,000,000  shall be rendered  against the  Borrower  or any  Subsidiary  of the
Borrower and such judgment or order shall continue  unsatisfied and unstayed for
a period of 20 days or an attachment or execution against any of the property of
the  Borrower  or any  Subsidiary  of the  Borrower  for an  amount in excess of
$5,000,000 shall remain unstayed or undismissed for a period of 20 days;

                                                      
                                                                     

<PAGE> 88


                  (l) this Agreement or any of the Credit  Documents shall cease
for any reason to be in full force and effect other than by reason of any action
or inaction of the Collateral Agent, the  Administrative  Agent or the Banks, or
the  Borrower  or any of its  Subsidiaries  shall so assert in  writing,  or the
security  interests  created  by  the  Security  Documents  shall  cease  to  be
enforceable or shall not have the priority purported to be created thereby;

                  (m) there shall occur the loss, theft,  substantial  damage to
or  destruction  of any property of the Borrower or its  Subsidiaries  not fully
covered by insurance, which by itself or with other such losses, thefts, damages
or  destructions  could  reasonably be expected to render the Borrower unable to
perform its material obligations  hereunder or under the other Credit Documents,
or there shall occur the exercise of the right of condemnation or eminent domain
for any  property of the  Borrower or its  Subsidiaries  which by itself or with
other  such  exercises  of the right of  condemnation  or eminent  domain  could
reasonably  be expected to render the  Borrower  unable to perform its  material
obligations hereunder or under the other Credit Documents; or

                  (n) a Change of Control  shall  have  occurred;  then,  and in
every  such  event,  the  Administrative  Agent  shall (i) if  requested  by the
Required  Banks, by notice to the Borrower  terminate the Revolving  Commitments
and they shall thereupon terminate, and (ii) if requested by the Required Banks,
by notice to the Borrower  declare the Notes  (together  with  accrued  interest
thereon)  and  all  other  Bank  Obligations  and  liabilities  of the  Borrower
hereunder and under the other Credit Documents  (including,  without limitation,
all amounts of L/C  Obligations,  whether or not the  beneficiaries  of the then
outstanding  Letters  of Credit  shall have  presented  the  documents  required
thereunder) to be, and the Notes and all other Bank  Obligations and liabilities
of the  Borrower  hereunder  and under the other  Credit  Documents  (including,
without  limitation,  all  amounts  of  L/C  Obligations,  whether  or  not  the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents  required  thereunder)  shall  thereupon  become,  immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower;  provided  that,  without any notice to
the Borrower or any other act by the  Administrative  Agent or the Banks, in the
case of the  occurrence of (x) any of the Events of Default  specified in clause
(f) or (g) above with  respect to the  Borrower  or any of the Events of Default
specified  in clause  (e) above  with  respect  to the  Prudential  Real  Estate
Financing as to which Prudential  either  accelerates the maturity of any of the
Debt owing by the Borrower or any of its Subsidiaries to Prudential with respect
thereto or  otherwise  exercises  any of its rights or  remedies  to  liquidate,
realize or foreclose upon any  collateral  securing such Debt, or (y) any of the
Events of  Default  specified  in  clause  (e) above  with  respect  to the Debt
evidenced or governed by the

                                                      
                                                                     

<PAGE> 89


Senior  Subordinated  Notes,  and the  receipt by the  trustee  under the Senior
Subordinated  Note  Indenture  of a notice from the  Administrative  Agent under
Section 1303 thereof,  the Revolving  Commitments shall thereupon  terminate and
the Notes (together with accrued interest thereon) and all other obligations and
liabilities  of the  Borrower  hereunder  and under the other  Credit  Documents
(including,  without limitation, all amounts of L/C Obligations,  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
without presentment,  demand,  protest or other notice of any kind, all of which
are hereby waived by the Borrower.

                  With  respect to all Letters of Credit  with  respect to which
presentment  for honor shall not have  occurred  at the time of an  acceleration
pursuant to the preceding paragraph,  the Borrower shall at such time deposit in
a cash collateral account opened by the Collateral Agent an amount equal to 103%
of the aggregate  then undrawn and  unexpired  amount of such Letters of Credit.
Amounts  held  in  such  cash  collateral   account  shall  be  applied  by  the
Administrative Agent to the payment of drafts drawn under such Letters of Credit
and of such time drafts at the  respective  maturities  thereof,  and the unused
portion  thereof  after all such  Letters of Credit  shall have  expired or been
fully drawn upon and all such time drafts shall have been paid, if any, shall be
applied to repay other Bank Obligations of the Borrower  hereunder and under the
Notes and the other  Credit  Documents.  After all such  Letters of Credit shall
have expired or been fully drawn upon,  all such time drafts shall have matured,
all   Reimbursement   Obligations  shall  have  been  satisfied  and  all  other
obligations  of the Borrower  hereunder and under the Notes and the other Credit
Documents  shall  have  been paid in full,  the  balance,  if any,  in such cash
collateral account shall be returned to the Borrower.

                  SECTION 9.2  Application Of Proceeds.  After the occurrence of
an Event of Default and  acceleration of the Bank  Obligations,  the proceeds of
the  Collateral and all other  payments  received under this Agreement  shall be
applied by the  Administrative  Agent to payment of the Bank  Obligations in the
following order unless a court of competent jurisdiction shall otherwise direct:

                         (i) FIRST,  to payment of all costs and expenses of the
         Administrative   Agent,  the  Collateral  and  the  Banks  incurred  in
         connection  with the  preservation,  collection and  enforcement of the
         Bank Obligations or of the security interests granted to the Collateral
         Agent   pursuant  to  the  Security   Documents,   including,   without
         limitation,  any amounts  advanced  by the  Administrative  Agent,  the
         Collateral Agent or the Banks to protect or preserve the Collateral;

                         (ii)  SECOND,  to payment  of that  portion of the Bank
         Obligations constituting accrued and unpaid

                                                     
                                                                     

<PAGE> 90



         interest  and fees  ratably  amongst the  Administrative  Agent and the
         Banks in accordance with the proportion  which the accrued interest and
         fees  constituting  the Bank  Obligations  owing to the  Administrative
         Agent and each such Bank at such time bears to the aggregate  amount of
         accrued interest and fees  constituting  the Bank Obligations  owing to
         the  Administrative  Agent and all of the Banks at such time until such
         interest and fees shall be paid in full;

                         (ii)  THIRD,  to payment of the  principal  of the Bank
         Obligations (including the face amount of and Reimbursement Obligations
         in respect  of the  Letters of  Credit)  ratably  amongst  the Banks in
         accordance with the proportion  which the principal  amount of the Bank
         Obligations  owing to each such Bank bears to the  aggregate  principal
         amount of the Bank  Obligations  owing to all of the Banks  until  such
         principal of the Bank Obligations shall be paid in full;

                         (iii)  FOURTH,   to  the  payment  of  all  other  Bank
         Obligations ratably amongst the Banks in accordance with the proportion
         which the amount of such other Bank Obligations owing to each such Bank
         bears to the aggregate  principal amount of such other Bank Obligations
         owing to all of the Banks  until such other Bank  Obligations  shall be
         paid in full; and

                        (iv) FIFTH,  the balance,  if any, after all of the Bank
         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 the amount of the proceeds of the
Collateral  and  all  other  payments  received  under  this  Agreement  and the
aggregate  amount of the sums  referred to in the first through  fourth  clauses
above.

                           SECTION 10.  THE ADMINISTRATIVE AGENT AND
                              THE COLLATERAL AGENT

                  SECTION  10.1   Appointment  and   Authorization.   Each  Bank
irrevocably appoints and authorizes the Administrative Agent to take such action
as agent on its behalf and to exercise such powers, under this Agreement and the
Notes and the other  Credit  Documents as are  delegated  to the  Administrative
Agent and the  Collateral  Agent,  as the case may be,  by the  terms  hereof or
thereof, together with all such powers as are reasonably incidental thereto.

                  SECTION  10.2  Administrative  Agent,   Collateral  Agent  and
Affiliates.  CIBC shall have the same rights and powers under this  Agreement as
any other Bank and may exercise or refrain from exercising the same as though it
were not the Administrative

                                                      
                                                                     

<PAGE> 91



Agent or the Collateral  Agent,  and CIBC 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
Administrative Agent or the Collateral Agent.

                  SECTION  10.3  Action  by  Agents.   The  obligations  of  the
Administrative  Agent and the  Collateral  Agent  hereunder  and under the other
Credit Documents are only those expressly set forth herein and therein.  Without
limiting the generality of the foregoing,  neither the Administrative  Agent nor
the  Collateral  Agent shall be required to take any action with  respect to any
Default,  except as expressly provided with respect to the Administrative  Agent
in Section 9 hereof and with  respect to the  Collateral  Agent in the  Security
Documents and except that the Administrative  Agent and the Collateral Agent, as
the case may be, shall take such action with respect to such Default or Event of
Default as shall be  reasonably  directed by the Required  Banks,  provided that
unless and until the  Administrative  Agent or the Collateral Agent, as the case
may be, shall have received such directions,  the  Administrative  Agent and the
Collateral  Agent,  as the case may be, may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the Banks.

                  SECTION  10.4   Consultation   with   Experts.   Each  of  the
Administrative  Agent and the  Collateral  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 10.5  Liability of Agents.  Notwithstanding  any other
provision,  express or implied,  to the contrary in this  Agreement or any other
Credit Document,  neither the  Administrative  Agent or the Collateral Agent nor
any of their directors,  officers,  agents, or employees shall be liable for any
action taken or not taken by them in connection  herewith or in connection  with
any other Credit Document (i) with the consent or at the request of the Required
Banks or, in the case of any  matter  for which the  consent of all the Banks is
required to effect an amendment  pursuant to Section  11.5,  with the consent of
all the Banks or (ii) in the  absence of their own gross  negligence  or willful
misconduct.  Neither the Administrative Agent or the Collateral Agent nor any of
their directors,  officers, agents or employees 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 Credit 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 6 (except where the satisfaction

                                                      
                                                                     

<PAGE> 92


of the  Administrative  Agent is specifically  required);  or (iv) the validity,
effectiveness or genuineness of this Agreement, the Notes, any Letter of Credit,
any other  Credit  Document  or any other  instrument  or writing  furnished  in
connection  herewith  or  therewith.  Neither the  Administrative  Agent nor the
Collateral  Agent  shall  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  10.6  Indemnification.  Each Bank  shall,  ratably in
accordance with the amount of its Tranche B Term Loan Commitments (or, after the
Tranche B Term Loan  Commitments  expire,  are terminated or are fully utilized,
outstanding  Tranche B Term Loans) and its Revolving  Commitments  indemnify the
Administrative  Agent and the Collateral  Agent (to the extent not reimbursed by
the  Borrower  and without  limiting  the  obligation  of the Borrower to do so)
against any cost,  expense (including  counsel fees and  disbursements),  claim,
demand,  action,  loss,  damage,  penalty,  judgment,  disbursement or liability
(except such as result from the Administrative Agent's or the Collateral Agent's
gross  negligence or willful  misconduct) that the  Administrative  Agent or the
Collateral  Agent may suffer or incur in connection  with this  Agreement or any
other Credit Document or any action taken or omitted by the Administrative Agent
or the Collateral Agent hereunder or thereunder.  The agreements in this Section
shall survive the payment of the Notes and all other amounts payable hereunder.

                  SECTION 10.7 Credit Decision. Each Bank expressly acknowledges
that neither the  Administrative  Agent or the Collateral Agent nor any of their
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any  representations  or warranties to it and that no act by the  Administrative
Agent  hereinafter  taken,  including any review of the affairs of the Borrower,
shall  be  deemed  to  constitute   any   representation   or  warranty  by  the
Administrative Agent or the Collateral Agent to any Bank. Each Bank acknowledges
that it has,  independently and without reliance upon the Administrative  Agent,
the  Collateral  Agent  or any  other  Bank,  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 Bank also acknowledges that it will,
independently and without reliance upon the Administrative Agent, the Collateral
Agent or any other Bank, 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 Banks by
the Administrative  Agent hereunder,  neither the  Administrative  Agent nor the
Collateral Agent shall have any duty or  responsibility to provide any Bank with
any credit or other information concerning the business,  operations,  property,
condition (financial or

                                                      
                                                                     

<PAGE> 93


otherwise),  prospects or  creditworthiness  of the Borrower which may come into
the possession of the Administrative Agent, the Collateral Agent or any of their
officers, directors, employees, agents, attorneys-in-fact or Affiliates.

                  SECTION  10.8  Successor  Agents.  Each of the  Administrative
Agent and the  Collateral  Agent may resign at any time by giving written notice
thereof to the Banks and the Borrower.  Upon any such resignation,  the Required
Banks  shall  have the right to  appoint  a  successor  Administrative  Agent or
Collateral  Agent, as the case may be. If no successor  Administrative  Agent or
Collateral  Agent,  as the case may be,  shall  have  been so  appointed  by the
Required Banks, and shall have accepted such  appointment,  within 30 days after
the retiring  agent's giving of notice of  resignation,  then the retiring agent
may,  on  behalf  of the  Banks,  appoint a  successor  Administrative  Agent or
Collateral Agent, as the case may be, which shall be a Bank or 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 at least  $100,000,000.  Upon the
acceptance of its appointment as  Administrative  Agent or Collateral  Agent, as
the case may be,  hereunder by a successor  Administrative  Agent or  Collateral
Agent, as the case may be, such successor  agent shall thereupon  succeed to and
become  vested  with all the rights and  duties of the  retiring  Administrative
Agent or  Collateral  Agent,  as the case may be, and,  upon such  acceptance of
appointment,  the  retiring  agent  shall  be  discharged  from its  duties  and
obligations  hereunder.  After any  retiring  agent's  resignation  hereunder as
Administrative  Agent or  Collateral  Agent,  the  provisions of this Section 10
shall inure to its benefit as to any actions  taken or omitted to be taken by it
while it was Administrative Agent or Collateral Agent, as the case may be.

                            SECTION 11. MISCELLANEOUS

                  SECTION  11.1  Notices.   All  notices,   requests  and  other
communications to any party hereunder shall be in writing  (including bank wire,
telecopy or similar  writing) and shall be given to such party at its address or
telecopy number set forth on Schedule I hereof or such other address or telecopy
number as such  party may  hereafter  specify  for the  purpose by notice to the
Administrative  Agent and the  Borrower.  Each  such  notice,  request  or other
communication shall be given (i) by hand delivery, (ii) by nationally recognized
courier  service  or (iii)  by  telecopy,  receipt  confirmed,  except  that the
delivery of the  financial  statements  required  under  Section  8.1(a) and (b)
(together  with all other  certificates  to be delivered  therewith) may also be
made by first class mail. Each such notice,  request or  communication  shall be
effective (i) if delivered by hand or by nationally  recognized courier service,
when  delivered  at the  address  specified  in this  Section,  (ii) if given by
telecopy,  when such telecopy is transmitted to the telecopy number, as the case
may be, specified in this Section and the appropriate

                                                      
                                                                     

<PAGE> 94


answerback or confirmation  is received,  and (iii) with respect to the delivery
of the aforesaid  financial  statements  and other  certificates  by first class
mail, when mailed.

                  SECTION  11.2 No  Waivers.  No course of dealing  between  the
Administrative  Agent any Bank and the  Borrower  or any failure or delay by the
Administrative  Agent or any Bank in  exercising  any right,  power or privilege
hereunder or under any Note or other Credit  Document  shall operate as a waiver
of any right,  power or  privilege  hereunder  or under any Note or other Credit
Document, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.

                  SECTION 11.3 Expenses;  Documentary Taxes.  Whether or not any
Loans are made or Letters of Credit are issued hereunder, the Borrower shall pay
(i) all out-of-pocket  expenses of the  Administrative  Agent and the Collateral
Agent,  including,  without  limitation,  reasonable fees and  disbursements  of
Simpson  Thacher  &  Bartlett,  counsel  for the  Administrative  Agent  and the
Collateral  Agent,  in connection with the preparation of this Agreement and the
other  Credit  Documents,  any waiver or consent  hereunder or  thereunder,  any
amendment  hereof or thereof,  any Default or alleged Default  hereunder and the
protection,  maintenance and preservation of the Collateral and (ii) if an Event
of Default occurs,  all out-of-pocket  expenses  incurred by the  Administrative
Agent, the Collateral Agent and the Banks, including,  without limitation,  fees
and disbursements of counsel (including, without limitation, the allocated costs
of in-house  counsel),  in connection  with such Event of Default and collection
and other  enforcement  proceedings  resulting  therefrom.  The  Borrower  shall
indemnify and hold harmless the  Administrative  Agent, the Collateral Agent and
each  Bank  against  any  transfer  taxes,  excise  taxes,   documentary  taxes,
assessments  or  charges  made by any  Governmental  Authority  by reason of the
execution  and  delivery  of this  Agreement,  the  Notes  or any  other  Credit
Document, any modifications thereof or in connection with the Collateral.

                  SECTION 11.4 Sharing of Set-Offs.  Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise,  receive
payment of a proportion  of the  aggregate  amount of principal and interest due
with respect to the Notes held by it or the  Reimbursement  Obligations owing to
it which is greater than the proportion received by any other Bank in respect of
the  aggregate  amount of  principal  and interest due with respect to the Notes
held by such other Bank and the Reimbursement  Obligations owing to it, the Bank
receiving such proportionately greater payment shall purchase such participation
in the Notes held by the other Banks and/or the Reimbursement  Obligations owing
to them,  and such other  adjustments  shall be made, as may be required so that
all such payments of principal

                                                      
                                                                     

<PAGE> 95


and interest  with  respect to the Notes held by the Banks or the  Reimbursement
Obligations  owing to them shall be shared by the Banks pro rata;  provided that
nothing in this Section shall impair the right of any Bank 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 Reimbursement  Obligations owing to it. Each
Bank  further  agrees that if it shall hold a Revolving  Note and a Money Market
Loan Note,  any payment in respect of such Notes  resulting from its exercise of
any right  described in this  Section  shall be applied  first to the  aggregate
amount owing under its Revolving Note and second,  to the aggregate amount owing
under its Money Market Loan Note. The Borrower agrees,  to the fullest extent it
may  effectively do so under  applicable law, that any holder of a participation
in a Note or Reimbursement Obligations,  whether or not acquired pursuant to the
foregoing arrangements, may exercise rights of set-off or counterclaim and other
rights  with  respect  to such  participation  as fully as if such  holder  of a
participation  were a direct  creditor  of the  Borrower  in the  amount of such
participation.

                  SECTION 11.5  Amendments  and Waivers.  Any  provision of this
Agreement,  the Notes or the other Credit Documents (other than the Money Market
Loan Notes) may be amended or waived if, but only if, such  amendment  or waiver
is in writing and is signed by the Borrower and the Required  Banks (and, (i) if
the rights or duties of the  Administrative  Agent or the  Collateral  Agent are
affected thereby,  by the  Administrative  Agent or the Collateral Agent, as the
case may be, and (ii) if the  rights or duties of the Letter of Credit  Bank are
affected thereby,  by the  Administrative  Agent or the Collateral Agent and the
Letter of Credit Bank); provided, that no such amendment or waiver shall, unless
signed by all the Banks  (other  than  Defaulting  Banks)  affected  thereby (i)
increase  or  decrease  the  Revolving  Commitment  or the  Tranche  B Term Loan
Commitment  of any Bank or  subject  any Bank to any  additional  obligation  to
extend credit hereunder, (ii) reduce the principal of or rate of interest on any
Loan or any fees  hereunder,  (iii)  postpone any of the  semi-annual  mandatory
commitment  reductions  referred to in Section  2.3(b) or the date fixed for any
payment of  principal  of or  interest on any Loan or any fees  hereunder,  (iv)
change the definition of "Required  Banks",  (v) amend or waive any provision of
this Section, (vi) change the percentage of the Tranche B Term Loan Commitments,
the Revolving  Commitments or the aggregate unpaid principal amount of the Notes
or the number of Banks which shall be required for the Administrative Agent, the
Banks  or any of them  to take  any  action  under  this  Section  or any  other
provision of this Agreement, (vii) substitute,  discharge,  release or surrender
all or  substantially  all of the  Collateral  except as permitted in the Credit
Documents or (viii) release any Guarantee of the Bank Obligations; and provided,
further,  that no such amendment or waiver shall change the ratable  nature,  as
between the Tranche B Term Loans, on the one hand, and the Revolving

                                                      
                                                                     

<PAGE> 96


Commitments,  on the other, of the application of amounts towards  prepayment of
the  Tranche  B  Term  Loans  and  reduction  of  the   Revolving   Commitments,
respectively,  provided for in paragraphs  (b), (c), (d), (f) and (g) of Section
2.7 unless  signed by the  Required  Tranche B Term Loan  Banks or the  Required
Revolving Credit Banks, whichever is adversely affected thereby.

                  SECTION  11.6A.   Successors   and  Assigns;   Participations;
Purchasing Banks.

                  (a) This  Agreement  shall be  binding  upon and  inure to the
benefit of the Borrower,  the Banks,  the  Administrative  Agent, the Collateral
Agent, all future holders of the Notes and the Participating Interests and their
respective  successors  and assigns,  except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Bank.

                  (b) Any Bank may,  in the  ordinary  course of its  commercial
banking  business and in accordance with applicable law, at any time sell to one
or more banks or other entities ("Participants")  participating interests in any
Loan owing to such Bank, any Note held by such Bank, any Revolving Commitment of
such  Bank or any other  interest  of such  Bank  hereunder  and under the other
Credit  Documents,  including,  without  limitation,  its  interest  in the  L/C
Obligations.  In the event of any such sale by a Bank of participating interests
to a  Participant,  such Bank's  obligations  under this  Agreement to the other
parties to this Agreement shall remain unchanged,  such Bank shall remain solely
responsible  for the performance  thereof,  such Bank shall remain the holder of
any such  Note for all  purposes  under  this  Agreement  and the  other  Credit
Documents,  and the Borrower and the Administrative Agent shall continue to deal
solely and directly  with such Bank in  connection  with such Bank's  rights and
obligations  under this Agreement and the other Credit  Documents.  The Borrower
agrees that if amounts outstanding under this Agreement,  the Notes or any other
Credit  Document  are due or unpaid,  or shall have been  declared or shall have
become  due and  payable  upon  the  occurrence  of an Event  of  Default,  each
Participant  shall be  deemed to have the  right of  setoff  in  respect  of its
participating  interest  in amounts  owing  under this  Agreement  and the other
Credit  Documents  to the same  extent  as if the  amount  of its  participating
interest were owing  directly to it as a Bank under this  Agreement or the other
Credit Documents,  provided that such Participant shall only be entitled to such
right of setoff if it shall have  agreed in the  agreement  pursuant to which it
shall  have  acquired  its  participating  interest  to share with the Banks the
proceeds thereof as provided in Section 11.4. The Borrower also agrees that each
Participant shall be entitled to the benefits of Sections 5.3, 5.4, 5.5, 5.9 and
11.10 with respect to its  participation  in the Revolving  Commitments  and the
Loans  outstanding  from time to time;  provided,  that no Participant  shall be
entitled to receive  any  greater  amount  pursuant  to such  Sections  than the
transferor Bank would have

                                                      
                                                                     

<PAGE> 97


been  entitled  to  receive  in  respect  of the  amount  of  the  participation
transferred by such  transferor  Bank to such  Participant  had no such transfer
occurred.  Each  Bank  agrees  that  any  agreement  between  such  Bank and any
Participant  in respect of such  participating  interest shall not restrict such
Bank's  right to agree to any  amendment,  supplement  or  modification  to this
Agreement or the other Credit  Documents  except (to the extent such Participant
would be affected  thereby) in connection with the matters  specified in clauses
(i) through (viii) of Section 11.5.

                  (c) Any Bank may,  in the  ordinary  course of its  commercial
banking  business and in accordance with applicable law, at any time sell to any
Bank or any affiliate thereof and, with the consent of the Borrower (which shall
not be unreasonably withheld or delayed but shall not be required to be obtained
after the occurrence and during the continuance of an Event of Default),  to one
or  more  additional  banks,  mutual  funds  or  other  financial   institutions
("Purchasing  Banks") all or a portion of its interests,  rights and obligations
under  this  Agreement  and  the  other  Credit  Documents  (including,  without
limitation, all or a portion of its Commitment and the same portion of the Loans
at the time  owing to it and the Notes held by it, but  excluding  interests  in
Money Market Loans and Money Market Loan Notes,  which are  addressed in Section
11.6B);  provided,  however, that each Assignment shall be of a constant,  not a
varying,  percentage of all of the assigning Bank's rights and obligations under
this Agreement;  provided,  further,  that the Commitments purchased by any such
Purchasing  Bank  shall  be  equal  to at  least  $10,000,000  in the  case of a
Purchasing  Bank that is not then a Bank  (unless the  Commitments  so purchased
constitute 100% of the Commitments of the transferor  Bank).  Each sale pursuant
to  this  paragraph  shall  be  effected  pursuant  to  a  Commitment   Transfer
Supplement,  substantially in the form of Exhibit I, executed by such Purchasing
Bank,  such  transferor  Bank (and, in the case of a Purchasing Bank that is not
then a Bank or an affiliate  thereof,  by the  Borrower  and the  Administrative
Agent)  and  delivered  to the  Administrative  Agent  for  its  acceptance  for
recording  in the  Register.  Upon  such  execution,  delivery,  acceptance  and
recording,  from and after  the  Transfer  Effective  Date (as  defined  in such
Commitment Transfer  Supplement),  (x) the Purchasing Bank thereunder shall be a
party hereto and, to the extent provided in such Commitment Transfer Supplement,
have the rights and  obligations  of a Bank hereunder and under the other Credit
Documents  with a Commitment as set forth therein,  and (y) the transferor  Bank
thereunder shall, to the extent provided in such Commitment Transfer Supplement,
be released from its  obligations  under this  Agreement  (and, in the case of a
Commitment  Transfer  Supplement  covering  all or the  remaining  portion  of a
transferor Bank's rights and obligations  under this Agreement,  such transferor
Bank shall cease to be a party  hereto).  Such  Commitment  Transfer  Supplement
shall be deemed to amend this  Agreement to the extent,  and only to the extent,
necessary to reflect the addition of such Purchasing Bank and the resulting

                                                      
                                                                     

<PAGE> 98


adjustment  of  Commitment   Percentages  arising  from  the  purchase  by  such
Purchasing  Bank of all or a  portion  of the  rights  and  obligations  of such
transferor Bank under this Agreement, the Notes (excluding the Money Market Loan
Notes) and the other Credit  Documents.  On or prior to the  Transfer  Effective
Date determined pursuant to such Commitment Transfer  Supplement,  the Borrower,
at its own expense,  shall  execute and deliver to the  Administrative  Agent in
exchange for the  surrendered  Notes,  new Notes to the order of such Purchasing
Bank in an  amount  equal  to the  Commitment  assumed  by it  pursuant  to such
Commitment  Transfer  Supplement  and,  if the  transferor  Bank has  retained a
Commitment hereunder, new Notes to the order of the transferor Bank in an amount
equal to the Commitment retained by it hereunder.  Such new Notes shall be dated
the  Closing  Date and  shall  otherwise  be in the form of the  Notes  replaced
thereby.  The Notes  surrendered by the transferor Bank shall be returned by the
Administrative Agent to the Borrower marked "cancelled".

                  (d) The  Administrative  Agent  shall  maintain at its address
referred to in Section 11.1 a copy of each  Commitment  Transfer  Supplement and
each  Money  Market  Loan  Assignment  delivered  to  it  and  a  register  (the
"Register")  for the recordation of (a) the names and addresses of the Banks and
the  Commitment  of,  and  principal  amount  of the  Loans  owing  to  and  the
Participating  Interest  of, each Bank from time to time and (b) with respect to
each Money Market Loan Assignment  delivered to the  Administrative  Agent,  the
name and address of each Money Market Loan Assignee and the principal  amount of
each Money Market Loan owing to such Money Market Loan Assignee.  The entries in
the Register  shall be  conclusive,  in the absence of manifest  error,  and the
Borrower,  the  Administrative  Agent and the Banks may treat each Person  whose
name is  recorded  in the  Register  as the  owner of the Loan or  Participating
Interests  recorded  therein for all  purposes of this  Agreement  and the other
Credit Documents. The Register shall be available for inspection by the Borrower
or any Bank or Money Market Loan Assignee at any  reasonable  time and from time
to time upon reasonable prior notice.

                  (e) Upon  its  receipt  of a  Commitment  Transfer  Supplement
executed  by a  transferor  Bank  and  Purchasing  Bank  (and,  in the case of a
Purchasing  Bank  that  is not  then  a Bank  or an  affiliate  thereof,  by the
Borrower)  together with payment to the  Administrative  Agent of a registration
and processing fee of $3,500 for each such transfer,  the  Administrative  Agent
shall (i) promptly  accept such Commitment  Transfer  Supplement and (ii) on the
Transfer  Effective Date  determined  pursuant  thereto  record the  information
contained  therein  in the  Register  and give  notice  of such  acceptance  and
recordation  to the Banks and the  Borrower.  Upon its receipt of a Money Market
Loan Assignment  executed by a transferor Bank and a Money Market Loan Assignee,
together  with  payment  to  the  Administrative  Agent  of a  registration  and
processing  fee of $3,500,  the  Administrative  Agent promptly shall (i) accept
such Money Market Loan Assignment, (ii) record the

                                                      
                                                                     

<PAGE> 99


information  contained  therein in the  Register  and (iii) give  notice of such
acceptance  and  recordation  to the  transferor  Bank,  the Money  Market  Loan
Assignee and the Borrower.

                  (f) The  Borrower  authorizes  each  Bank to  disclose  to any
Participant,   Purchasing   Bank  or  Money  Market  Loan  Assignee   (each,   a
"Transferee")  and any  prospective  Transferee  any and all financial and other
information in such Bank's possession concerning the Borrower and its affiliates
which has been  delivered to such Bank by or on behalf of the Borrower  pursuant
to this  Agreement  or which had been  delivered to such Bank by or on behalf of
the Borrower in connection  with such Bank's  credit  evaluation of the Borrower
and its affiliates prior to becoming a party to this Agreement.

                  (g)  If,  pursuant  to  this  Section,  any  interest  in this
Agreement  or any Note or the  other  Credit  Documents  is  transferred  to any
Transferee which is not a United States Person,  the transferor Bank shall cause
such Transferee,  concurrently with the  effectiveness of such transfer,  (i) to
represent to the transferor  Bank (for the benefit of the  transferor  Bank, the
Administrative Agent and the Borrower) that under applicable law and treaties no
taxes will be required to be withheld by the Administrative  Agent, the Borrower
or the  transferor  Bank  with  respect  to any  payments  to be  made  to  such
Transferee in respect of the Loans, (ii) to furnish to the transferor Bank (and,
in  the  case  of  any  Purchasing   Bank   registered  in  the  Register,   the
Administrative Agent and the Borrower) either U.S. Internal Revenue Service Form
4224 or U.S.  Internal Revenue Service Form 1001 (wherein such Transferee claims
entitlement  to complete  exemption  from U.S.  federal  withholding  tax on all
interest  payments  hereunder)  and  (iii) to  agree  (for  the  benefit  of the
transferor  Bank,  the  Administrative  Agent and the  Borrower)  to provide the
transferor  Bank (and,  in the case of any  Purchasing  Bank  registered  in the
Register,  the  Administrative  Agent and the  Borrower) a new Form 4224 or Form
1001 upon the expiration or  obsolescence  of any previously  delivered form and
comparable  statements in accordance  with  applicable U.S. laws and regulations
and  amendments  duly executed and completed by such  Transferee,  and to comply
from time to time with all applicable U.S. laws and  regulations  with regard to
such withholding tax exemption.

                  (h) Nothing  herein shall  prohibit any Bank from  pledging or
assigning  any Note to any Federal  Reserve Bank in accordance  with  applicable
law.

                  (i) If the Euro-Dollar  Reference Bank assigns its Notes to an
unaffiliated  institution,  the Administrative Agent shall, in consultation with
the Borrower and with the consent of the Required Banks, appoint another Bank to
act as the Euro-Dollar Reference Bank hereunder.


                                                      
                                                                     

<PAGE> 100


                  SECTION 11.6B.  Transfers of Money Market Loans. (a) Any Bank,
in the ordinary course of its commercial banking business and in accordance with
applicable  law, at any time may assign to one or more banks or other  financial
institutions ("Money Market Loan Assignees") any Money Market Loan owing to such
Bank and any Individual Money Market Loan Note held by such Bank evidencing such
Money Market Loan,  pursuant to a Money Market Loan  Assignment  executed by the
transferor Bank and the Money Market Loan Assignee.

                  (b) Upon such execution, from and after the date of such Money
Market Loan Assignment,  the Money Market Loan Assignee shall be deemed,  to the
extent of the assignment  provided for in such Money Market Loan  Assignment and
subject to the  provisions  of Sections  11.6B(c)  and 11.6B(d) to have the same
rights and benefits of payment and enforcement  with respect to the principal of
and interest on such Money Market Loan and Individual Money Market Loan Note and
the same rights of setoff and obligation to share pursuant to Section 11.4 as it
would have had if it were a Bank hereunder.

                  (c) Unless such Money Market Loan  Assignment  shall otherwise
specify  and a copy of  such  Money  Market  Loan  Assignment  shall  have  been
delivered to the  Administrative  Agent for its  acceptance and recording in the
Register in  accordance  with Section  11.6A(d),  the  assignor  under the Money
Market Loan Assignment  shall act as collection  agent for the Money Market Loan
Assignee thereunder, and the Administrative Agent shall pay all amounts received
from the  Borrower  which are  allocable  to the  assigned  Money Market Loan or
Individual  Money  Market  Loan  Note  directly  to such  assignor  without  any
liability to such Money Market Loan Assignee.

                  (d) A Money  Market Loan  Assignee  under a Money  Market Loan
Assignment shall not, by virtue of such Money Market Loan  Assignment,  become a
party to this  Agreement  or have any  rights  to  consent  to or  refrain  from
consenting to any amendment,  waiver or other  modification  of any provision of
this  Agreement or any related  document;  provided that (1) the assignor  under
such Money Market Loan  Assignment  and such Money Market Loan  Assignee may, in
their  discretion,  agree  between  themselves  upon the  manner  in which  such
assignor will exercise its rights under this Agreement and any related document,
and (2) if a copy of such Money Market Loan Assignment shall have been delivered
to the Administrative  Agent for its acceptance and recording in the Register in
accordance with Section 11.6A(d),  neither the principal amount of, the interest
rate on, nor the  maturity  date of any Money  Market Loan or  Individual  Money
Market Loan Note assigned to the Money Market Loan Assignee  thereunder  will be
modified without the written consent of such Money Market Loan Assignee.

                  (e) If a Money Market Loan  Assignee has caused a Money Market
Loan  Assignment  to be recorded  in the  Register in  accordance  with  Section
11.6A(d), such Money Market Loan Assignee

                                                      

                                                                     

<PAGE> 101


may  thereafter,  in the ordinary  course if its business and in accordance with
applicable law,  assign such  Individual  Money Market Loan Note to any Bank, to
any  affiliate or  subsidiary of such Money Market Loan Assignee or to any other
financial institution that has total assets in excess of $1,000,000,000 and that
in the ordinary  course of its business  extends credit of the type evidenced by
such  Individual  Money Market Loan Note,  and the foregoing  provisions of this
subsection  shall apply,  mutatis  mutandis,  to any such  assignment by a Money
Market Loan Assignee.  Except in accordance with the preceding  sentence,  Money
Market Loans and Individual  Money Market Loan Notes may not be further assigned
by a Money Market Loan Assignee,  subject to any legal or regulatory requirement
that the Money Market Loan Assignee's assets must remain under its control.

                  SECTION 11.7  Collateral.  Each of the Banks represents to the
Administrative  Agent and each of the other  Banks  that it in good faith is not
relying upon any "margin  stock" (as defined in  Regulation  U) as collateral in
the extension or maintenance of the credit provided for in this Agreement.

                  SECTION 11.8 New York Law. THIS  AGREEMENT AND EACH NOTE SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED THEREIN.

                  SECTION 11.9 Counterparts;  Integration;  Effectiveness.  This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same  instrument.  This  Agreement,  the other Credit  Documents and the Fee
Letter  constitute  the entire  agreement  and  understanding  among the parties
hereto and supersedes any and all prior agreements and  understandings,  oral or
written,  relating to the subject  matter hereof.  This  Agreement  shall become
effective when the Administrative Agent shall have received  counterparts hereof
signed by all of the parties hereto.

                  SECTION 11.10 Indemnity.  The Borrower agrees to indemnify and
hold harmless the  Administrative  Agent, the Collateral Agent and the Banks and
their directors,  officers, Affiliates and agents (each, an "Indemnified Party")
from and  against  all costs,  expenses  (including  fees and  disbursements  of
counsel,  including without limitation, the allocated costs of in-house counsel)
and liabilities  arising out of or relating to any investigation,  litigation or
other  proceedings  (regardless  of  whether  an  Indemnified  Party  is a party
thereto)  which  relate  to the  Loans,  any  Letter of  Credit,  the use of the
proceeds of the Loans by the Borrower,  the use of the Letters of Credit, or the
Collateral including,  without limitation,  the financing and other transactions
contemplated  hereby,  or any transactions  connected with any of the foregoing,
but excluding any such losses, liabilities, claims, damages or expenses incurred
by reason of (i) the gross negligence or willful misconduct of the Indemnified

                                                      
                                                                     

<PAGE> 102


Party,  or (ii)  claims  of one  Bank  against  another  not  involving  acts or
omissions of the Borrower.  This indemnity shall survive the termination of this
Agreement and payment of the Loans.

                  SECTION 11.11 Waiver of Jury Trial;  Consent to  Jurisdiction.
The Borrower,  the  Administrative  Agent,  the Collateral  Agent, the Letter of
Credit Bank and each Bank 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  Credit  Documents  and  the  Collateral,  or the
validity, protection, interpretation,  collection or enforcement thereof, or any
other claim or dispute howsoever arising, between the Borrower, on the one hand,
and the Administrative Agent, the Collateral Agent and/or any one or more of the
Banks,  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 located in the City of
New York in connection with any action or proceeding  arising out of or relating
to any  one or  more of the  Credit  Documents  or any  document  or  instrument
delivered  pursuant  to this  Agreement  or any  other  Credit  Document  or the
Collateral.  The Borrower hereby waives the defenses of forum non conveniens and
improper venue.

                  SECTION  11.12  Survival  of  Obligations  Under  Fee  Letter.
Notwithstanding  anything herein or in any other agreement to the contrary,  the
execution  and  delivery  of this  Agreement  shall  not be  deemed to impair or
otherwise  affect  any  obligations  of any party  thereto  under the Fee Letter
except to the extent that such  obligations  are satisfied by this Agreement and
the other Credit Documents.

                  SECTION 11.13 Invalidity. 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.  If, however,  any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation, it
shall be deemed  modified to conform to the minimum  requirements of such law or
regulation  or, if for any  reason it is not  deemed  so  modified,  it shall be
ineffective  and invalid only to the extent of such  prohibition  or  invalidity
without  the  remainder  thereof  or any of the  remaining  provisions  of  this
Agreement being prohibited or invalid.

                  SECTION 11.14 Substitution of Banks. In the event that (i) the
Borrower shall at any time be required under Section 5.3 to withhold any Charges
in respect of any amount  payable to any Bank under this  Agreement or under any
other Credit Document, (ii) the Borrower shall be required to pay any amounts to
any Bank (but not the other  Banks)  pursuant to Section 5.4 or 5.9 or (iii) the
obligation of any Bank (but not the other Banks) to make Euro-Dollar Loans shall
be suspended  pursuant to Section 5.8, then the Borrower may substitute  another
bank or trust company acceptable to the Required Banks to assume

                                                      
                                                                     

<PAGE> 103


the  Commitments  and/or  the Loans of such Bank and to  purchase  the Notes and
other obligations owing by the Borrower to such Bank under the Credit Documents,
without  recourse  to or  warranty  by, or expense  to, such Bank for a purchase
price equal to the  outstanding  principal/face  amount of the Bank  Obligations
payable  to  such  Bank  plus  any  accrued  but  unpaid  interest  on the  Bank
Obligations  and accrued  but unpaid  fees and other  amounts in respect of that
Bank's  Commitment  and Loans plus any amount that would be payable to such Bank
pursuant  to Section  5.5 hereof if its Bank  Obligations  were  prepaid on such
date. Upon such purchase such Bank shall no longer be a party hereto or have any
rights or benefits hereunder (except for rights or benefits that such Bank would
retain  hereunder and under the other Credit  Documents  upon payment in full of
all of the Bank Obligations) and, subject to Section 11.6A or 11.6B hereof,  the
replacement  bank  shall  succeed  to the  rights  and  benefits  of  such  Bank
hereunder.  The  Administrative  Agent and the Banks  shall  cooperate  with the
Borrower to amend the Credit Documents to reflect such substitution.

                  SECTION  11.15  Effect of  Amendment  and  Restatement  of the
Existing Credit Agreement;  Confirmation of Security  Documents.  On the Closing
Date, the Existing Credit Agreement shall be amended and restated to read as set
forth herein.  The Borrower and, by its execution of this Agreement in the space
provided below,  Somerville,  as applicable,  acknowledge and agree that (i) the
Liens and security  interests as granted under the Security  Documents  securing
payment of the Bank Obligations are in all respects continuing and in full force
and effect and secure  the  payment of the Bank  Obligations  and that the Notes
outstanding under the Existing Credit Agreement are replaced by the Notes issued
hereunder,  (ii) the term "Credit  Agreement" as used in the Security  Documents
shall  hereafter  mean this Agreement and (iii) upon the  effectiveness  of this
Agreement all outstanding  letters of credit under the Existing Credit Agreement
will be converted into Letters of Credit hereunder,  in each case upon the terms
and conditions set forth in this Agreement.


                                                      
                                                                     

<PAGE> 104


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

                              PAYLESS CASHWAYS, INC.


                              By: \s\ Stephen A. Lightstone
                                  --------------------------------------------
                                  Name:
                                  Title:Senior Vice President - Finance


                              CANADIAN IMPERIAL BANK OF COMMERCE,
                                NEW YORK AGENCY, as Administrative
                                Agent and Collateral Agent


                              By: \s\ David McGowan
                                  -------------------------------------------- 
                                  Title: Director


                              CIBC INC.


                              By: \s\ David McGowan
                                  --------------------------------------------
                                  Title: Director


                              BANK OF AMERICA NATIONAL TRUST
                                AND SAVINGS ASSOCIATION, as
                                Co-Agent and Bank


                              By: \s\ Patricia DelGrande
                                  --------------------------------------------
                                  Title: Managing Director


                              THE BANK OF NOVA SCOTIA,
                                  as Co-Agent and Bank


                              By: \s\ F.C.H. Ashby
                                  --------------------------------------------
                                  Title: Sr. Manager Loan
                                         Operations


                              NATIONSBANK OF TEXAS, N.A.,
                                as Co-Agent and Bank
                              By: \s\ Perry B. Stephenson
                                  --------------------------------------------
                                  Title: Senior Vice President



                                                      
                                                                     

<PAGE> 105



                              BANK OF MONTREAL


                              By: \s\ Thomas E. McGraw
                                  --------------------------------------------
                                  Title: Manager


                              THE BANK OF NEW YORK


                              By: \s\ Natalie Egleston
                                  --------------------------------------------
                                  Title: Vice President,
                                    Retailing Division


                              BOATMEN'S FIRST NATIONAL
                                BANK OF KANSAS CITY


                              By: \s\ Thomas J. Butkus
                                  --------------------------------------------
                                  Title: Vice President


                              DAI-ICHI KANGYO BANK
                                LTD., CHICAGO BRANCH


                              By: \s\ R. Yamauchi
                                  --------------------------------------------
                                  Title: Senior Vice President


                              FIRST BANK NATIONAL
                                ASSOCIATION


                              By: \s\ Merri B. Bernhardson
                                  --------------------------------------------
                                  Title: Vice President


                              THE INDUSTRIAL BANK OF
                                JAPAN, LTD.


                              By: \s\ Jennifer Bailey
                                  --------------------------------------------
                                  Title: Joint General Manager


                              NATIONAL CITY BANK, INDIANA


                              By: \s\ Michael J. Stewart
                                  --------------------------------------------
                                  Title: Vice President



                                                      
                                                                     

<PAGE> 106



                              THE SUMITOMO BANK, LIMITED


                              By: \s\ H. Iwami
                                  --------------------------------------------
                                  Title: Joint General Manager


                              UNION BANK


                              By: \s\ James P. Johnson
                                  --------------------------------------------
                                  Title: Vice President


                              ABN AMRO BANK, N.V.


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


                              VAN KAMPEN MERITT PRIME RATE
                                INCOME TRUST


                              By: \s\ Jeffrey W. Maillet
                                  --------------------------------------------
                                  Title: Sr. Vice Pres. -
                                         Portfolio Manager


Acknowledged and Accepted:


SOMERVILLE LUMBER AND
  SUPPLY CO., INC.



By: \s\ Stephan A. Lightstone
    ------------------------------
    Title:





                                                      
                                                                     

<PAGE> 107










                                  $420,000,000


                      AMENDED AND RESTATED CREDIT AGREEMENT


                                   Dated as of

                                November 20, 1995


                                      among


                             PAYLESS CASHWAYS, INC.,


                            THE BANKS LISTED HEREIN,


              CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY,
                  as ADMINISTRATIVE AGENT AND COLLATERAL AGENT,



                            THE BANK OF NOVA SCOTIA,
                         NATIONSBANK OF TEXAS, N.A., and
                       BANK OF AMERICA NATIONAL TRUST AND
                              SAVINGS ASSOCIATION,
                                  as CO-AGENTS



<PAGE> 108



                               TABLE OF CONTENTS*

                                                                      Page

                             SECTION 1. DEFINITIONS

    SECTION 1.1  Definitions.............................................1
    SECTION 1.2  Other Definitional Provisions..........................25
    

                   SECTION 2. AMOUNT AND TERMS OF COMMITMENTS

    SECTION 2.1  Commitments to Lend....................................26
    SECTION 2.2  Method of Borrowing....................................27
    SECTION 2.3  Notes..................................................28
    SECTION 2.4  Interest Rates.........................................29
    SECTION 2.5  Commitment Fees........................................30
    SECTION 2.6  Optional Termination or Reduction of
                                Revolving Commitments...................31
    SECTION 2.7  Mandatory Termination or Reduction of
                                Revolving Commitments and Mandatory
                                Prepayments.............................31
    SECTION 2.8  Optional Prepayments...................................34
    SECTION 2.9  Conversion and Continuation Options....................35
    SECTION 2.10  Minimum Amount and Maximum Number of
                                Euro-Dollar Borrowings..................36


                          SECTION 3. LETTERS OF CREDIT

    SECTION 3.1  L/C Commitment.........................................36
    SECTION 3.2  Procedure for Issuance of Letters of
                                Credit..................................37
    SECTION 3.3  Fees, and Other Charges................................38
    SECTION 3.4  L/C Participation......................................38
    SECTION 3.5  Reimbursement Obligation of the Borrower...............39
    SECTION 3.6  Obligations Absolute...................................40
    SECTION 3.7  Letter of Credit Payments..............................40
    SECTION 3.8  Application............................................41
    SECTION 3.9  Indemnification........................................41


                          SECTION 4. MONEY MARKET LOANS

    SECTION 4.1  The Money Market Loans.................................41
    SECTION 4.2  Procedure for Money Market Loan Borrowing..............41
    SECTION 4.3  Money Market Loan Payments.............................45
    SECTION 4.4  Money Market Loan Notes................................45


--------
*    The Table of Contents is not a part of this Agreement.


                                      
                                                                     

<PAGE> 109


                                                                      Page

                      SECTION 5. GENERAL CREDIT PROVISIONS

    SECTION 5.1  General Provisions as to Payments......................46
    SECTION 5.2  Computation of Interest, Commissions and
                                Fees....................................47
    SECTION 5.3  Indemnification for Charges............................47
    SECTION 5.4  Capital Adequacy.......................................49
    SECTION 5.5  Funding Losses.........................................50
    SECTION 5.6  Right of Set-Off.......................................51
    SECTION 5.7  Basis for Determining Interest Rate
                                Inadequate or Unfair....................51
    SECTION 5.8  Illegality.............................................52
    SECTION 5.9  Increased Cost and Reduced Return......................52
    SECTION 5.10  CIBC Alternate Base Rate Loans
                 Substituted for Affected Euro-Dollar
                                Loans...................................54
    SECTION 5.11  Fees..................................................54


                         SECTION 6. CONDITIONS PRECEDENT

    SECTION 6.1  All Loans and Letters of Credit........................54
    SECTION 6.2  Conditions to Effectiveness of this
                 Agreement, Initial Loans and Letters
                                of Credit...............................55


                    SECTION 7. REPRESENTATIONS AND WARRANTIES

    SECTION 7.1  Corporate Existence and Power..........................57
    SECTION 7.2  Corporate Power and Authority..........................58
    SECTION 7.3  No Violation...........................................58
    SECTION 7.4  Margin Regulations.....................................58
    SECTION 7.5  Approvals..............................................59
    SECTION 7.6  Investment Company Act; etc. ..........................59
    SECTION 7.7  True and Complete Disclosure...........................59
    SECTION 7.8  Subsidiaries...........................................60
    SECTION 7.9  Acknowledgement of Obligations; No Claims..............60
    SECTION 7.10  Financial Condition; Financial
                                Statements; Projections.................60
    SECTION 7.11  Tax Returns and Payments..............................62
    SECTION 7.12  Litigation; Adverse Facts.............................63
    SECTION 7.13  Compliance with Laws and Charter
                                Documents...............................63
    SECTION 7.14  Certain Fees..........................................63
    SECTION 7.15  ERISA.................................................63
    SECTION 7.16  Good Title to Properties..............................64
    SECTION 7.17  Trademarks, Patents, etc. ............................64
    SECTION 7.18  Labor Matters.........................................65
    SECTION 7.19  Environmental Matters.................................65
    SECTION 7.20  No Default............................................66


          
                                                                     

<PAGE> 110


                                                                      Page

                         SECTION 8. COVENANTS

    SECTION 8.1  Information............................................66
    SECTION 8.2  Payment of Obligations.................................69
    SECTION 8.3  Maintenance of Property; Insurance.....................69
    SECTION 8.4  Conduct of Business and Maintenance of
                                Existence...............................71
    SECTION 8.5  Compliance with Laws...................................71
    SECTION 8.6  Inspection of Property, Books and Records..............71
    SECTION 8.7  Restricted Payments....................................71
    SECTION 8.8  Debt...................................................72
    SECTION 8.9  Investments............................................73
    SECTION 8.10  Negative Pledge.......................................74
    SECTION 8.11  Consolidations, Mergers and Sales of
                                Assets..................................76
    SECTION 8.12  Capital Expenditures and Leases.......................78
    SECTION 8.13  No Negative Pledges...................................79
    SECTION 8.14  Termination of Plans..................................80
    SECTION 8.15  Transactions with Affiliates..........................80
    SECTION 8.16  Consolidated Net Worth................................80
    SECTION 8.17  Interest Coverage.....................................80
    SECTION 8.18  Customer Charge Sales.................................81
    SECTION 8.19  Accounting Changes....................................81
    SECTION 8.20  Amendment and Modification of Certain
                                Documents...............................82
    SECTION 8.21  Sale/Lease-Backs......................................82
    SECTION 8.22  Environmental Matters.................................83
    SECTION 8.23  Business Segments.....................................84
    SECTION 8.24  Subsidiary Guarantee..................................84
    SECTION 8.25  Further Assurances....................................84
    SECTION 8.26  Debt to EBITDA Ratio..................................85
    SECTION 8.27  Independence of Covenants.............................85


                          SECTION 9. DEFAULTS

    SECTION 9.1  Events of Default......................................85
    SECTION 9.2  Application Of Proceeds................................89


                    SECTION 10. THE ADMINISTRATIVE AGENT AND
                              THE COLLATERAL AGENT

    SECTION 10.1  Appointment and Authorization.........................90
    SECTION 10.2  Administrative Agent, Collateral Agent
                                and Affiliates..........................90
    SECTION 10.3  Action by Agents......................................91
    SECTION 10.4  Consultation with Experts.............................91
    SECTION 10.5  Liability of Agents...................................91
    SECTION 10.6  Indemnification.......................................92
    SECTION 10.7  Credit Decision.......................................92
    SECTION 10.8  Successor Agents......................................93

          
          

<PAGE> 111


                                                                      Page


                            SECTION 11. MISCELLANEOUS

    SECTION 11.1  Notices...............................................93
    SECTION 11.2  No Waivers............................................94
    SECTION 11.3  Expenses; Documentary Taxes...........................94
    SECTION 11.4  Sharing of Set-Offs...................................94
    SECTION 11.5  Amendments and Waivers................................95
    SECTION 11.6A.  Successors and Assigns; Participations;
                                  Purchasing Banks......................96
    SECTION 11.6B.  Transfers of Money Market Loans....................100
    SECTION 11.7  Collateral...........................................101
    SECTION 11.8  New York Law.........................................101
    SECTION 11.9  Counterparts; Integration; Effectiveness.............101
    SECTION 11.10  Indemnity...........................................101
    SECTION 11.11  Waiver of Jury Trial; Consent to
                                 Jurisdiction..........................102
    SECTION 11.12  Survival of Obligations Under Fee
                                 Letter................................102
    SECTION 11.13  Invalidity..........................................102
    SECTION 11.14  Substitution of Banks...............................102
    SECTION 11.15  Effect of Amendment and Restatement of
                             the Existing Credit Agreement;
                                 Confirmation of Security Documents....103


                                     
                                                                     

<PAGE>  112


SCHEDULES


Schedule I                     Commitments, Lending Offices, Notices
Schedule II                    Existing Standby Letters of Credit
Schedule 7.8                   Subsidiaries
Schedule 7.18                  Environmental Matters
Schedule 8.8                   Debt
Schedule 8.9                   Investments
Schedule 8.10                  Liens
Schedule 8.11                  Certain Assets and Leased Property


EXHIBITS

Exhibit A                      Revolving Note
Exhibit B                      Tranche B Term Loan Note
Exhibit C-1                    Grid Money Market Loan Note
Exhibit C-2                    Individual Money Market Loan Note
Exhibit D                      Notice of Borrowing
Exhibit E                      Letter of Credit Application
Exhibit F-1                    Opinion of Blackwell, Sanders, Matheny,
                                 Weary & Lombardi
Exhibit F-2                    Opinion of Wachtell, Lipton, Rosen & Katz
Exhibit G-1                    Borrower Closing Certificate
Exhibit G-2                    Subsidiary Guarantor Closing Certificate
Exhibit H-1                    Money Market Loan Confirmation
Exhibit H-2                    Money Market Loan Offer
Exhibit H-3                    Money Market Loan Request
Exhibit I                      Commitment Transfer Supplement
Exhibit J                      Notice of Continuation/Conversion
Exhibit K                      Compliance Certificate