<PAGE>
 
                              DRYPERS CORPORATION


                                  $10,000,000


                       12% SENIOR NOTES DUE MAY 1, 1999



                              ___________________

                            NOTE PURCHASE AGREEMENT
                              ___________________



                             DATED APRIL 24, 1997
<PAGE>
 
                               TABLE OF CONTENTS


Section                                                                Page
-------                                                                ----

1.   AUTHORIZATION OF NOTES...........................................   1

2.   SALE AND PURCHASE OF NOTES.......................................   1

3.   CLOSING..........................................................   1

4.   CONDITIONS TO CLOSING............................................   2
     4.1.   Representations and Warranties............................   2
     4.2.   Performance; No Default...................................   2
     4.3.   Compliance Certificates...................................   3
     4.4.   Opinions of Counsel.......................................   3
     4.5.   Purchase Permitted By Applicable Law, etc.................   3
     4.6.   Consent of Congress.......................................   3
     4.7.   Payment of Special Counsel Fees...........................   4
     4.8.   OMITTED...................................................   4
     4.9.   Changes in Corporate Structure............................   4
     4.10.  Proceedings and Documents.................................   4

5.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................   4
     5.1.   Organization; Power and Authority.........................   4
     5.2.   Authorization, etc........................................   5
     5.3.   Disclosure................................................   5
     5.4.   Organization and Ownership of Shares of
             Subsidiaries; Affiliates.................................   6
     5.5.   Financial Statements......................................   6
     5.6.   Compliance with Laws, Other Instruments, etc..............   7
     5.7.   Governmental Authorizations, etc..........................   7
     5.8.   Litigation; Observance of Agreements,
             Statutes and Others......................................   7
     5.9.   Taxes.....................................................   7
     5.10.  Title to Property; Leases.................................   8
     5.11.  Licenses, Permits, etc....................................   8
     5.12.  Compliance with ERISA.....................................   9
     5.13.  Private Offering by the Company...........................  10
     5.14.  Use of Proceeds; Margin Regulations.......................  10
     5.15.  Existing Indebtedness; Future Liens.......................  10
     5.16.  Foreign Assets Control Regulations, etc...................  11
     5.17.  Status under Certain Statutes.............................  11
     5.18.  Environmental Matters.....................................  11



                                       i
<PAGE>
 
6.   REPRESENTATIONS OF THE PURCHASER.................................  12 
     6.1.   Purchase for Investment...................................  12 
     6.2.   Source of Funds...........................................  12 
                                                                           
7.   INFORMATION AS TO COMPANY........................................  13 
     7.1.   Financial and Business Information........................  13 
     7.2.   Officer's Certificate.....................................  16 
     7.3.   Inspection................................................  16 
                                                                           
8.   PREPAYMENT OF THE NOTES..........................................  17 
     8.1.   Required Prepayments......................................  17 
     8.2.   Optional Prepayments......................................  17 
     8.3.   Allocation of Partial Prepayments.........................  17 
     8.4.   Maturity; Surrender, etc..................................  18 
     8.5.   Purchase of Notes.........................................  18 
                                                                           
9.   COVENANT.........................................................  18 
                                                                           
10.  SUBSIDIARY GUARANTEES............................................  19 
     10.1.  Subsidiary Guarantees.....................................  19 
     10.2.  Subsidiary Guarantors May consolidate, etc.,                   
             on Certain Terms.........................................  20 
     10.3.  Releases Following Sale of Assets.........................  21 
     10.4.  Limitation of Subsidiary Guarantor's Liability............  21 
                                                                           
11.  EVENTS OF DEFAULT................................................  22 
                                                                           
12.  REMEDIES ON DEFAULT, ETC.........................................  24 
     12.1.  Acceleration..............................................  24 
     12.2.  Other Remedies............................................  25 
     12.3.  Rescission................................................  25 
     12.4.  No Waivers or Election of Remedies, Expenses, etc.........  26 
                                                                           
13.  REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES....................  26 
     13.1.  Registration of Notes.....................................  26 
     13.2.  Transfer and Exchange of Notes............................  26 
     13.3.  Replacement of Notes......................................  27 
                                                                           
14.  PAYMENTS ON NOTES................................................  27 
     14.1.  Place of Payment..........................................  27 
     14.2.  Home Office Payment.......................................  28  



                                      ii
<PAGE>
 
15.   EXPENSES, ETC...................................................  28
      15.1.  Transaction Expenses.....................................  28
      15.2.  Survival.................................................  29

16.   SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
       ENTIRE AGREEMENT...............................................  29

17.   AMENDMENT AND WAIVER............................................  29
      17.1.  Requirements.............................................  29
      17.2.  Solicitation of Holders of Notes.........................  30
      17.3.  Binding Effect, etc......................................  30
      17.4.  Notes held by Company, etc...............................  30

18.   NOTICES.........................................................  31

19.   REPRODUCTION OF DOCUMENTS.......................................  31

20.   CONFIDENTIAL INFORMATION........................................  32

21.   SUBSTITUTION OF PURCHASER.......................................  33

22.   MISCELLANEOUS...................................................  33
      22.1.  Successors and Assigns...................................  33
      22.2.  Payments Due on Non-Business Days........................  33
      22.3.  Severability.............................................  33
      22.4.  Construction.............................................  34
      22.5.  Counterparts.............................................  34
      22.6.  Governing Law............................................  34
      22.7.  Submissions to Jurisdiction..............................  34
      22.8.  WAIVER OF JURY TRIAL.....................................  34
      22.9.  Indemnity................................................  35

      SCHEDULE A     --  INFORMATION RELATING TO PURCHASERS
 
      SCHEDULE B     --  DEFINED TERMS

      SCHEDULE 4.2   --  DEFAULTS

      SCHEDULE 5.4   --  SUBSIDIARIES OF THE COMPANY AND
                         OWNERSHIP OF SUBSIDIARY STOCK


                                      iii
<PAGE>
 
     SCHEDULE 5.5     --  FINANCIAL STATEMENTS

     SCHEDULE 5.15    --  EXISTING INDEBTEDNESS
  
     SCHEDULE 5.19    --  OPTIONS

     
     EXHIBIT 1        --  Form of 12% Senior Note May 1, 1999.

     EXHIBIT 2        --  Forms of Warrants

     EXHIBIT 4.4(a)   --  Form of Opinion of Special Counsel for the Company

     EXHIBIT 4.4(b)   --  Form of Opinion of Special Counsel for the Purchaser


                                      iv

<PAGE>
 
                              DRYPERS CORPORATION
                             1415 WEST LOOP NORTH
                             HOUSTON, TEXAS 77055


                       12% Senior Notes due May 1, 1999

                                                                  April 24, 1997

TO THE PURCHASER LISTED IN 
     THE ATTACHED SCHEDULE A:

Ladies and Gentleman:

          Drypers Corporation, a Delaware corporation (the "COMPANY"), agrees 
with you as follows:

1.   AUTHORIZATION OF NOTES.

          The Company will authorize the issue and sale of $10,000,000 aggregate
principal amount of its 12% Senior Notes due May 1, 1999 (the "NOTES", such term
to include any such notes issued in substitution therefor pursuant to Section 13
of this Agreement).  The Notes shall be substantially in the form set out in 
Exhibit 1, with such changes therefrom, if any, as may be approved by you and 
the Company.  Certain capitalized terms used in the Agreement are defined in 
Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise 
specified, to a Schedule or an Exhibit attached to this Agreement.

2.   SALE AND PURCHASE OF NOTES.

          Subject to the terms and conditions of this Agreement, the Company 
will issue and sell to you and you will purchase from the Company, at the 
Closing provided for in Section 3, Notes in the principal amount specified 
opposite your name in Schedule A at the purchase price of 100% of the principal 
amount thereof.  Contemporaneously with entering into this Agreement, the 
Company is entering into a Registration Rights Agreement with you providing for 
registration of the shares of Common Stock underlying the Warrants.

3.   CLOSING.

          The Sale and purchase of the Notes to be purchased by you shall occur 
at the offices of Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New 
York, NY 10005 at 9:00 a.m., Eastern time, at a closing (the "CLOSING") on 
April 24, 1997 or on such other Business Day thereafter on or prior to May 15, 
1997 as may be agreed upon by the Company and you.  At the Closing the Company 
will deliver to you the Notes to be purchased by you in the form of two Notes 
(or such other number of Notes in denominations of at least
<PAGE>
 
$5,000,000 as you may request) together with one or more certificates evidencing
the Warrants as you request, each dated the date of the Closing, such Warrants 
completed and providing for an Initial Purchase Price Per Share equal to the 
product of 1.05 and the Current Market Price (as therein defined) in effect on 
the Business Day immediately preceding the Closing (but in any event not less 
than $4.50) and registered in your name (or in the name of your nominee), 
against delivery by you to the Company or its order of immediately available 
funds in the amount of the purchase price therefor by wire transfer of 
immediately available funds for the account of the Company to Wells Fargo Bank, 
1000 Louisiana, 3rd Fl., Houston, TX 77002, Acct. Name: Drypers Corporation 
Master Account, ABA No. 121000248, Account #4159779578.  If at the Closing the 
Company shall fail to tender such Notes to you as provided above in this Section
3, or any of the conditions specified in Section 4 shall not have been fulfilled
to your satisfaction, you shall, at your election, be relieved of all further 
obligations under this Agreement, without thereby waiving any rights you may 
have by reason of such failure or such nonfulfillment.  In consideration of your
agreement hereunder to purchase the Notes from the Company, (i) the Company has 
paid to you a fee in cash in the amount of $125,000,and (ii) the Company shall 
deliver to you as a fee its Warrant No. ING-001, immediately exercisable for 
100,000 shares of Common Shares, in substantially the form attached hereto as 
Exhibit 2.

4.   CONDITIONS TO CLOSING.

          Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at 
the Closing, of the following conditions:

4.1. REPRESENTATIONS AND WARRANTIES.

          The representations and warranties of the Company in this Agreement 
shall be correct when made and at the time of the Closing, except for such 
representations and warranties as are by their express terms limited to a 
specific date.

4.2. PERFORMANCE; NO DEFAULT.

          The Company shall have performed and complied with all agreements and 
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and after giving effect to the issue and sale 
of the Notes (and the application of the proceeds thereof as contemplated by 
Section 5.14), except as disclosed in Schedule 4.2 no Default or Event of 
Default shall have occurred and be continuing.  Neither the Company nor any 
Subsidiary shall have entered into any transaction since December 3, 1996 that 
would have been prohibited by Section 9 hereof had such Section applied since 
such date.


                                       2
<PAGE>
 
4.3.  COMPLIANCE CERTIFICATES

          (a)  Officer's Certificate.  The Company shall have delivered to you 
an Officer's Certificate, dated the date of the Closing, certifying that the 
conditions specified in Sections 4.1, 4.2, 4.6 and 4.9 have been fulfilled.

          (b)  Secretary's Certificate.  The Company shall have delivered to you
a certificate certifying as to the resolutions attached thereto and other 
corporate proceedings relating to the authorization, execution and delivery of 
the Notes and the Agreement and the Other Agreements.

4.4.  OPINIONS OF COUNSEL.

          You shall have received opinions in form and substance satisfactory 
to you, dated the date of the Closing (a) from Fulbright & Jaworski L.L.P.,
counsel for the Company, covering the matters set forth in Exhibit 4.4(a) and
covering such other matters incident to the transactions contemplated hereby as
you or your counsel may reasonably request (and the Company hereby instructs its
counsel to deliver such opinion to you) and (b) from Milbank, Tweed, Hadley &
McCloy, your special counsel in connection with such transactions, substantially
in the form set forth in Exhibit 4.4(b) and covering such other matters incident
to such transactions as you may reasonably request.

4.5.  PURCHASE PERMITTED BY APPLICABLE LAW, ETC.

          On the date of the Closing your purchase of Notes shall (i) be 
permitted by the laws and regulations of each jurisdiction to which you are 
subject, without recourse to provisions permitting limited investments by 
insurance companies without restriction as to the character of the particular 
investment, (ii) not violate any applicable law or regulation (including, 
without limitation, Regulation G, T or X of the Board of Governors of the 
Federal Reserve System) and (iii) not subject you to any tax, penalty or 
liability under or pursuant to any applicable law or regulation, which law or 
regulation was not in effect on the date hereof.  If requested by you, you shall
have received an Officer's Certificate certifying as to such matters of fact as 
you may reasonably specify to enable you to determine whether such purchase is 
so permitted.

4.6.  CONSENT OF CONGRESS.

          The Company shall have received the consent of Congress Financial 
Corporation to the transactions contemplated hereby on terms satisfactory to 
you, and such consent shall remain in full force and effect.


                                       3
<PAGE>
 
4.7.  PAYMENT OF SPECIAL COUNSEL FEES.

          Without limiting the provisions of Section 15.1, the Company shall 
have paid on or before the Closing the reasonable fees, charges and 
disbursements of your special counsel referred to in Section 4.4 to the extent 
reflected in a statement of such counsel rendered to the Company at least one 
Business Day prior to the Closing.

4.8.  OMITTED.

4.9.  CHANGES IN CORPORATE STRUCTURE.

          Except for mergers of Subsidiaries of the Company with and into the 
Company in which the Company is the survivor of such merger, the Company shall 
not have changed its jurisdiction of incorporation or been a party to any merger
or consolidation and shall not have succeeded to all or any substantial part of
the liabilities of any other entity, at any time following the date of the most
recent financial statements referred to in Schedule 5.5.

4.10. PROCEEDINGS AND DOCUMENTS.

          All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.

5.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

          The Company represents and warrants to you that:

5.1.  ORGANIZATION; POWER AND AUTHORITY.

          The Company and each Subsidiary Guarantor is a corporation duly 
organized, validly existing and in good standing under the laws of its 
jurisdiction of incorporation, and is duly qualified as a foreign corporation
and is in good standing in each jurisdiction in which such qualification is
required by law, other than those jurisdictions as to which the failure to be so
qualified or in good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. The Company and each
Subsidiary Guarantor has the corporate power and authority to own or hold under
lease the properties it purports to own or


                                       4

<PAGE>
 
hold under lease, to transact the business it transacts and proposes to 
transact, to execute and deliver this Agreement and the Other Agreements to 
which it is a party and the Notes and to perform the provisions hereof and 
thereof.

5.2.  AUTHORIZATION, ETC.

          This Agreement and the Other Agreements and the Notes have been duly 
authorized by all necessary corporate action on the part of the Company and each
Subsidiary Guarantor, and this Agreement and the Registration Rights Agreement 
constitute, and upon execution and delivery thereof each Note and Warrant will 
constitute, a legal, valid and binding obligation of the Company or such 
Subsidiary Guarantor enforceable against the Company or such Subsidiary 
Guarantor in accordance with its terms, except as such enforceability may be 
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, 
fraudulent transfer or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

5.3.  DISCLOSURE.

          The Company has delivered to you a copy of its Annual Report on Form 
10-K for the year ended December 31, 1996, as filed with the Securities and 
Exchange Commission (the "REPORT"). The Report fairly describes, in all material
respects, the general nature of the business and principal properties of the
Company and its Subsidiaries. This Agreement, the Report, the documents,
certificates or other writings delivered to you by or on behalf of the Company
in connection with the transactions contemplated hereby and the financial
statements listed in Schedule 5.5, taken as a whole, do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading in light of the circumstances under
which they were made. Except as disclosed in the Report, or in one of the
documents, certificates or other writings identified therein, or in the
financial statements listed in Schedule 5.5, since December 31, 1996, there has
been no change in the financial condition, operations, business, properties or
prospects of the Company or any Subsidiary except changes that individually or
in the aggregate could not reasonably be expected to have a Material Adverse
Effect. There is no fact known to the Company that could reasonably be expected
to have a Material Adverse Effect that has not been set forth herein or in the
Report or in the other documents, certificates and other writings delivered to
you by or on behalf of the Company specifically for use in connection with the
transactions contemplated hereby.


                                       5
<PAGE>
 
5.4.  ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES.

          (a)  Schedule 5.4 contains (except as noted therein) complete and 
correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary,
the correct name thereof, the jurisdiction of its organization, and the 
percentage of shares of each class of its capital stock or similar equity 
interests outstanding owned by the Company and each other Subsidiary, (ii) of 
the Company's Affiliates, other than Subsidiaries, and (iii) of the Company's 
directors and senior officers.

          (b)  All of the outstanding shares of capital stock or similar equity 
interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company
and its Subsidiaries have been validly issued, are fully paid and nonassessable 
and are owned by the Company or another Subsidiary free and clear of any Lien 
(except as otherwise disclosed in Schedule 5.4).

          (c)  Each Subsidiary identified in Schedule 5.4 is a corporation or 
other legal entity duly organized, validly existing and in good standing under 
the laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction 
in which such qualification is required by law, other than those jurisdictions 
as to which the failure to be so qualified or in good standing would not, 
individually or in the aggregate, reasonably be expected to have a Material 
Adverse Effect.  Each such Subsidiary has the corporate or other power and 
authority to own or hold under lease the properties it purports to own or hold 
under lease and to transact the business it transacts and proposes to transact.

          (d)  No Subsidiary is a party to or otherwise subject to any legal 
restriction or any agreement (other than this Agreement, the agreements listed
on Schedule 5.4 and customary limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of profits or
make any other similar distributions of profits to the Company or any of its
Subsidiaries that owns outstanding shares of capital stock or similar equity
interests of such Subsidiary.

5.5.  FINANCIAL STATEMENTS.

          The Company has delivered to each Purchaser copies of the financial 
statements of the Company and its Subsidiaries listed on Schedule 5.5.  All of 
said financial statements (including in each case the related schedules and 
notes) fairly present in all material respects the consolidated financial 
position of the Company and its Subsidiaries as of the respective dates 
specified in such Schedule and the consolidated results of their operations and 
cash flows for the respective periods so specified and have been prepared in all
material respects in accordance with GAAP consistently applied throughout the 
periods involved except as set forth in the notes thereto (subject, in the case 
of any interim financial statements, to normal year-end adjustments).


                                       6
<PAGE>
 
5.6.  COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.

          The execution, delivery and performance by the Company and the 
Subsidiary Guarantors of this Agreement, the Other Agreements and the Notes will
not (i) violate, result in any breach of, or constitute a default under, or
result in the creation of any Lien in respect of any property of the Company or
any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or
credit agreement, lease, corporate charter or by-laws, or any other Material
agreement or Material instrument to which the Company or any Subsidiary is bound
or by which the Company or any Subsidiary or any of their respective properties
may be bound or affected, (ii) violate or result in a breach of any of the
terms, conditions or provisions of any order, judgment, decree, or ruling of any
court, arbitrator or Governmental Authority applicable to the Company or any
Subsidiary or (iii) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company or any
Subsidiary.

5.7.  GOVERNMENTAL AUTHORIZATIONS, ETC.

          No consent, approval or authorization of, or registration, filing or 
declaration with, any Governmental Authority is required in connection with the 
execution, delivery or performance by the Company and the Subsidiary Guarantors 
of this Agreement, the Other Agreements or the Notes.

5.8.  LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.

          (a)  There are no actions, suits or proceedings pending or, to the 
knowledge of the Company, threatened against or affecting the Company or any 
Subsidiary or any property of the Company or any Subsidiary in any court or 
before any arbitrator of any kind or before or by any Governmental Authority 
that, individually or in the aggregate, would reasonably be expected to have a 
Material Adverse Effect.

          (b)  Neither the Company nor any Subsidiary is in default under any 
term of any agreement or instrument to which it is a party or by which it is 
bound, or any order, judgment, decree or ruling of any court, arbitrator or 
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any 
Governmental Authority, which default or violation, individually or in the 
aggregate, would reasonably be expected to have a Material Adverse Effect.

5.9.  TAXES.

          The Company and its Subsidiaries have filed all tax returns that are 
required to have been filed in any jurisdiction, and have paid all taxes shown 
to be due and payable on such returns and all other taxes and assessments levied
upon them or their properties, assets, income


                                       7
<PAGE>
 
or franchises, to the extent such taxes and assessments have become due and 
payable and before they have become delinquent, except for any taxes and 
assessments (i) the amount of which is not individually or in the aggregate 
Material or (ii) the amount, applicability or validity of which is currently 
being contested in good faith by appropriate proceedings and with respect to 
which the Company or a Subsidiary, as the case may be, has established adequate 
reserves in accordance with GAAP.  The Company knows of no basis for any other 
tax or assessment that could reasonably be expected to have a Material Adverse 
Effect.  The charges, accruals and reserves on the books of the Company and its 
Subsidiaries in respect of Federal, state or other taxes for all fiscal periods 
are adequate.  The Federal income tax liabilities of the Company and its 
Subsidiaries have been determined by the Internal Revenue Service and paid for 
all fiscal years up to and including the fiscal year ended December 31, 1995.

5.10.  TITLE TO PROPERTY; LEASES.

          The Company and its Subsidiaries have good and sufficient title to 
their respective properties that individually or in the aggregate are Material, 
including all such properties reflected in the most recent audited balance sheet
referred to in Section 5.5 or purported to have been acquired by the Company or 
any Subsidiary after said date (except as sold or otherwise disposed of in the 
ordinary course of business), in each case free and clear of Liens prohibited by
this Agreement.  All leases that individually or in the aggregate are Material 
are valid and subsisting and are in full force and effect in all material 
respects.

5.11.  LICENSES, PERMITS, ETC.

          (a)  The Company and its Subsidiaries own or possess all licenses, 
permits, franchises, authorizations, patents, copyrights, service marks, 
trademarks and trade names, or rights thereto, that individually or in the 
aggregate are Material, without known conflict with the rights of others;

          (b)  to the best knowledge of the Company, no product of the Company 
infringes in any material respect any license, permit, franchise, authorization,
patent, copyright, service mark, trademark, trade name or other right owned by
any other Person; and
   
          (c)  to the best knowledge of the Company, there is no Material 
violation by any Person of any right of the Company or any of its Subsidiaries 
with respect to any patent, copyright, service mark, trademark, trade name or 
other right owned or used by the Company or any of its Subsidiaries.


                                       8
<PAGE>
 
5.12.  COMPLIANCE WITH ERISA.

          (a)  The Company and each ERISA Affiliate have operated and 
administered each Plan in compliance with all applicable laws except for such 
instances of noncompliance as have not resulted in and could not reasonably be 
expected to result in a Material Adverse Effect.  Neither the Company nor any 
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee benefit 
plans (as defined in Section 3 of ERISA), and no event, transaction or condition
has occurred or exists that could reasonably be expected to result in the 
incurrence of any such liability by the Company or any ERISA Affiliate, or in 
the imposition of any Lien on any of the rights, properties or assets of the 
Company or any ERISA Affiliate, in either case pursuant to Title I or IV of 
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 
412 of the Code, other than such liabilities or Liens as would not be 
individually or in the aggregate Material.

          (b)  Neither the Company nor any Subsidiary maintains any Plan subject
to section 4001 of ERISA.

          (c)  The Company and its ERISA Affiliates have not incurred withdrawal
liabilities under section 4201 and are not subject to contingent withdrawal 
liabilities under section 4204 of ERISA in respect of Multiemployer Plans that 
individually or in the aggregate are Material.

          (d)  Neither the Company nor any Subsidiary has any postretirement 
benefit obligation (determined in accordance with Financial Accounting Standards
Board Statement No. 106, without regard to liabilities attributable to 
continuation coverage mandated by section 4980B of the Code).

          (e)  The execution and delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction that is subject to 
the prohibitions of section 406 of ERISA or in connection with which a tax could
be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation
by the Company in the first sentence of this Section 5.12(e) is made in reliance
upon and subject to (i) the accuracy of your representation in Section 6.2 as to
the sources of the funds used to pay the purchase price of the Notes to be
purchased by you and (ii) the assumption, made solely for the purpose of making
such representation, that Department of Labor Interpretive Bulletin 75-2 with
respect to prohibited transactions remains valid in the circumstances of the
transactions contemplated herein.

                                       9
<PAGE>
 
5.13. PRIVATE OFFERING BY THE COMPANY.

     Neither the Company nor anyone acting on its behalf has offered the Notes 
or any similar securities for sale to, or solicited any offer to buy any of the
same from, or otherwise approached or negotiated in respect thereof with, any
Person other than you and not more than 10 other Institutional Investors, each
of which has been offered the Notes at a private sale for investment. Neither
the Company nor anyone acting on its behalf has taken, or will take, any action
that would subject the issuance or sale of the Notes to the registration
requirements of Section 5 of the Securities Act.

5.14. USE OF PROCEEDS; MARGIN REGULATIONS.

     The Company will apply the proceeds of the sale of the Notes for working 
capital purposes, including repayment of working capital debt. No part of the 
proceeds from the sale of the Notes hereunder will be used, directly or 
indirectly, for the purpose of buying or carrying any margin stock within the 
meaning of Regulation G of the Board of Governors of the Federal Reserve System 
(12 CFR 207), or for the purpose of buying or carrying or trading in any 
securities under such circumstances as to involve the Company in a violation of 
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a 
violation of Regulation T of said Board (12 CFR 220). Margin stock does not 
constitute more than 2% of the value of the consolidated assets of the Company 
and its Subsidiaries and the Company does not have any present intention that 
margin stock will constitute more than 2% of the value of such assets. As used 
in this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" 
shall have the meanings assigned to them in said Regulation G.

5.15. EXISTING INDEBTEDNESS; FUTURE LIENS.

     (a) Except as described therein, Schedule 5.15 sets forth a complete and 
correct list of all outstanding Indebtedness of the Company and its Subsidiaries
as of the date hereof. Neither the Company nor any Subsidiary is in default and 
no waiver of default is currently in effect in the payment of any principal or 
interest on any Indebtedness of the Company or such Subsidiary and no event or 
condition exists with respect to any Indebtedness of the Company or any 
Subsidiary that would permit (or that with notice or the lapse of time, or both,
would permit) one or more Persons to cause such Indebtedness to become due and 
payable before its stated maturity or before its regularly scheduled dates of 
payment. The Company has furnished to you a true and complete copy of the 
Indenture as heretofore amended and supplemented. Except for VRG Leasing 
Corporation, no Subsidiary has executed a Guaranty under the Indenture.

     (b) Except as disclosed in Schedule 5.15, neither the Company nor any 
Subsidiary has agreed or consented to cause or permit in the future (upon the 
happening of a

                                      10
<PAGE>
 
contingency or otherwise) any of its property, whether now owned or hereafter 
acquired, to be subject to a Lien not permitted by Section 9.

5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC.

     Neither the sale of the Notes by the Company hereunder nor its use of the 
proceeds thereof will violate the Trading with the Enemy Act, as amended, or any
of the foreign assets control regulations of the United States Treasury 
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling 
legislation or executive order relating thereto.

5.17. STATUS UNDER CERTAIN STATUTES.

     Neither the Company nor any Subsidiary is subject to regulation under the 
Investment Company Act of 1940, as amended, the Public Utility Holding Company 
Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal
Power Act, as amended.

5.18. ENVIRONMENTAL MATTERS.

     Neither the Company nor any Subsidiary has knowledge of any claim or has 
received any notice of any claim, and no proceeding has been instituted raising 
any claim against the Company or any of its Subsidiaries or any of their 
respective real properties now or formerly owned, leased or operated by any of 
them or other assets, alleging any damage to the environment or violation of any
Environmental Laws, except, in each case, such as could not reasonably be 
expected to result in a Material Adverse Effect. Except as otherwise disclosed 
to you in writing,

          (a) neither the Company nor any Subsidiary has knowledge of any facts
     which would give rise to any claim, public or private, of violation of
     Environmental Laws or damage to the environment emanating from, occurring
     on or in any way related to real properties now or formerly owned, leased
     or operated by any of them or to other assets or their use, except, in each
     case, such as would not reasonably be expected to result in a Material
     Adverse Effect;

          (b) neither the Company nor any of its Subsidiaries has stored any
     Hazardous Materials on real properties now or formerly owned, leased or
     operated by any of them and has not disposed of any Hazardous Materials in
     a manner contrary to any Environmental Laws in each case in any manner that
     would reasonably be expected to result in a Material Adverse Effect; and

                                      11
<PAGE>
 
          (c) all buildings on all real properties now owned, leased or operated
     by the Company or any of its Subsidiaries are in compliance with applicable
     Environmental Laws, except where failure to comply would not reasonably be
     expected to result in a Material Adverse Effect.

5.19. CAPITAL STOCK.

     The authorized capital stock of the Company consists solely of 20,000,000 
shares of Common Stock, $.001 par value, of which 8,252,272 were outstanding as 
of February 28, 1997, and 5,000,000 shares of Series A Senior Convertible 
Cumulative 7.5% Preferred Stock, $.01 par value per share, of which 90,000 were 
outstanding as of February 28, 1997. The shares of Common Stock underlying the 
Warrants are duly authorized and when issued on exercise of the Warrants will be
validly issued, outstanding, fully paid and nonassessable. Except for the 
Warrants issued in connection with this Agreement and as disclosed in Schedule 
5.19, there are no outstanding Options with respect to the Company.

6.   REPRESENTATIONS OF THE PURCHASER.

6.1. PURCHASE FOR INVESTMENT.

     You represent and acknowledge that (i) the Notes and the Warrants have not 
been and will not be registered under the Securities Act or the laws of any 
state, and that the Company is not obligated to you so to register the Notes or 
the Warrants or specifically to enable you to comply with any exemption from 
registration, and (ii) you are purchasing the Notes and the Warrants to be 
purchased by you on the Closing Date for your own account for investment and 
with no present intention of distributing or reselling such Notes or Warrants or
any part thereof, but without prejudice, however, to your right to sell or 
otherwise dispose of all or any part of the Notes or Warrants under a 
registration statement filed under the Securities Act or in a transaction 
exempted from the registration requirements of the Securities Act. In making the
representations set forth in Sections 5.6 and 5.13, the Company is relying, to 
the extent applicable, upon your representations as aforesaid.

6.2. SOURCE OF FUNDS.

     You represent that no source of funds to be used by you to pay the purchase
price of the Notes to be purchased by you hereunder includes assets of any 
employee benefit plan, other than a plan exempt from the coverage of ERISA. As 
used in this Section 6.2, the term "EMPLOYEE BENEFIT PLAN", shall have the 
meaning assigned to such term in Section 3 of ERISA.

                                      12
<PAGE>
 
7.   INFORMATION AS TO COMPANY.

7.1. FINANCIAL AND BUSINESS INFORMATION.

     The Company shall deliver to each holder of Notes that is an Institutional 
Investor:

          (a) Quarterly Statements--within 45 days after the end of each
     quarterly fiscal period in each fiscal year of the Company (other than the
     last quarterly fiscal period of each such fiscal year), duplicate copies
     of,

               (i) a consolidated balance sheet of the Company and its 
          Subsidiaries as at the end of such quarter, and

               (ii) consolidated statements of income, changes in stockholders'
          equity and cash flows of the Company and its Subsidiaries, for such
          quarter and (in the case of the second and third quarters) for the
          portion of the fiscal year ending with such quarter,

     setting forth in each case in comparative form the figures for the
     corresponding periods in the previous fiscal year, all in reasonable
     detail, prepared in accordance with GAAP applicable to quarterly financial
     statements generally, and certified by a Senior Financial Officer as fairly
     presenting, in all material respects, the financial position of the
     companies being reported on and their results of operations and cash flows,
     subject to changes resulting from year-end adjustments, provided that
     delivery within the time period specified above of copies of the Company's
     Quarterly Report on Form 10-Q prepared in compliance with the requirements
     therefor and filed with the Securities and Exchange Commission shall be
     deemed to satisfy the requirements of this Section 7.1(a);

          (b) Annual Statements--within 90 days after the end of each fiscal 
     year of the Company, duplicate copies of,

               (i) a consolidated balance sheet of the Company and its 
          Subsidiaries, as at the end of such year, and

               (ii) consolidated statements of income, changes in shareholders'
          equity and cash flows of the Company and its Subsidiaries, for such
          year,

     setting forth in each case in comparative form the figures for the previous
     fiscal year, all in reasonable detail, prepared in accordance with GAAP,
     and accompanied

                                      13
<PAGE>
 
          (A) by an opinion thereon of independent certified public accountants
     of recognized national standing, which opinion shall state that such
     financial statements present fairly, in all material respects, the
     financial position of the companies being reported upon and their results
     of operations and cash flows and have been prepared in conformity with
     GAAP, and that the examination of such accountants in connection with such
     financial statements has been made in accordance with generally accepted
     auditing standards, and that such audit provides a reasonable basis for
     such opinion in the circumstances, and

          (B) a certificate of such accountants stating that they have reviewed
     this Agreement and stating further whether, in making their audit, they
     have become aware of any condition or event that then constitutes a Default
     or an Event of Default, and, if they are aware that any such condition or
     event then exists, specifying the nature and period of the existence
     thereof (it being understood that such accountants shall not be liable,
     directly or indirectly, for any failure to obtain knowledge of any Default
     or Event of Default unless such accountants should have obtained knowledge
     thereof in making an audit in accordance with generally accepted auditing
     standards or did not make such an audit),

provided that the delivery within the time period specified above of the 
Company's Annual Report on Form 10-K for such fiscal year (together with the 
Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3
under the Exchange Act) prepared in accordance with the requirements therefor 
and filed with the Securities and Exchange Commission, together with the 
accountant's certificate described in clause (B) above within 120 days after the
end of the fiscal year, shall be deemed to satisfy the requirements of this 
Section 7.1(b);

     (c) SEC and Other Reports--promptly upon their becoming available, one copy
of (i) each financial statement, report, notice or proxy statement sent by the 
Company or any Subsidiary to public securities holders generally, and (ii) each 
regular or periodic report, each registration statement (without exhibits except
as expressly requested by such holder and except for registration statements on 
Form S-8), and each final prospectus and all amendments thereto filed by the 
Company or any Subsidiary with the Securities and Exchange Commission and of all
press releases and other written statements by the Company or any Subsidiary to 
the public concerning developments that are Material;

     (d) Notice of Default or Event of Default--promptly, and in any event 
within five Business Days after a Responsible Officer becoming aware of the 
existence of any Default or Event of Default or that any Person has given any 
notice or taken any action with respect to a claimed default hereunder or that 
any Person has given any notice or taken any action with respect to a claimed 
default of the type referred to in Section 11(f),

                                      14
<PAGE>
 
a written notice specifying the nature and period of existence thereof and what 
action the Company is taking or proposes to take with respect thereto;

     (e) ERISA Matters--promptly, and in any event within five Business Days 
after a Responsible Officer becoming aware of any of the following, a written 
notice setting forth the nature thereof and the action, if any, that the Company
or an ERISA Affiliate proposes to take with respect thereto:

          (i) with respect to any Plan, any reportable event, as defined in
     section 4043(b) of ERISA and the regulations thereunder, for which notice
     thereof has not been waived pursuant to such regulations as in effect on
     the date hereof; or

          (ii) the taking by the PBGC of steps to institute, or the threatening
     by the PBGC of the institution of, proceedings under section 4042 of ERISA
     for the termination of, or the appointment of a trustee to administer, any
     Plan, or the receipt by the Company or any ERISA Affiliate of a notice from
     a Multiemployer Plan that such action has been taken by the PBGC with
     respect to such Multiemployer Plan; or

          (iii) any event, transaction or condition that could result in the
     incurrence of any liability by the Company or any ERISA Affiliate pursuant
     to Title I or IV of ERISA or the penalty or excise tax provisions of the
     Code relating to employee benefit plans, or in the imposition of any Lien
     on any of the rights, properties or assets of the Company or any ERISA
     Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax
     provisions, if such liability or Lien, taken together with any other such
     liabilities or Liens then existing, could reasonably be expected to have a
     Material Adverse Effect;

     (f) Notices from Governmental Authority--promptly, and in any event within 
30 days of receipt thereof, copies of any notice to the Company or any 
Subsidiary from any Federal or state Governmental Authority relating to alleged 
noncompliance with any order, ruling, statute or other law or regulation that 
would reasonably be expected to have a Material Adverse Effect; and

     (g) Requested Information--with reasonable promptness, such other data and 
information relating to the business, operations, affairs, financial condition, 
assets or properties of the Company or any of its Subsidiaries or relating to 
the ability of the Company to perform its obligations hereunder and under the 
Notes as from time to time may be reasonably requested by any such holder of 
Notes.

                                      15
<PAGE>
 
7.2. OFFICER'S CERTIFICATE.

     Each set of financial statements delivered to a holder of Notes pursuant to
Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of
a Senior Financial Officer setting forth:

          (a) Covenant Compliance--the information (including detailed
     calculations) required in order to establish whether the Company was in
     compliance with the requirements of Section 9 hereof during the quarterly
     or annual period covered by the statements then being furnished (including
     with respect to each such Section, where applicable, the calculations of
     the maximum or minimum amount, ratio or percentage, as the case may be,
     permissible under the terms of such Sections, and the calculation of the
     amount, ratio or percentage then in existence); and

          (b) Event of Default--a statement that such officer has reviewed the
     relevant terms hereof and has made, or caused to be made, under his or her
     supervision, a review of the transactions and conditions of the Company and
     its Subsidiaries from the beginning of the quarterly or annual period
     covered by the statements then being furnished to the date of the
     certificate and that such review shall not have disclosed the existence
     during such period of any condition or event that constitutes a Default or
     an Event of Default or, if any such condition or event existed or exists
     (including, without limitation, any such event or condition resulting from
     the failure of the Company or any Subsidiary to comply, in a manner that
     would reasonably be expected to have a Material Adverse Effect, with any
     Environmental Law), specifying the nature and period of existence thereof
     and what action the Company shall have taken or proposes to take with
     respect thereto.

7.3. INSPECTION.

     The Company shall permit the representatives of each holder of Notes that 
is an Institutional Investor:

          (a) No Default--if no Default or Event of Default then exists, at the
     sole expense of such holder and upon reasonable prior notice to the
     Company, to visit the principal executive office of the Company, to discuss
     the affairs, finances and accounts of the Company and its Subsidiaries with
     the Company's officers, and (with the consent of the Company, which consent
     will not be unreasonably withheld) its independent public accountants, and
     (with the consent of the Company, which consent will not be unreasonably
     withheld) to visit the other offices and properties of the Company and each
     Subsidiary, all at such reasonable times and as often as may be reasonably
     requested in writing; and

                                      16
<PAGE>
 
          (b) Default--if a Default or Event of Default then exists, at the
     reasonable expense of the Company to visit and inspect any of the offices
     or properties of the Company or any Subsidiary, to examine all their
     respective books or account, records, reports and other papers, to make
     copies and extracts therefrom, and to discuss their respective affairs,
     finances and accounts with their respective officers and independent public
     accountants (and by this provision the Company authorizes said accountants
     to discuss the affairs, finances and accounts of the Company and its
     Subsidiaries), all at such times and as often as may be reasonably
     requested.

8.   PREPAYMENT OF THE NOTES.

8.1. REQUIRED PREPAYMENTS.

     On the day 30 days following the day when the Company and its Subsidiaries 
shall have received aggregate cumulative proceeds from the issuance or sale, to 
a Person other than the Company or a Subsidiary, of their debt or equity 
securities after the date of this Agreement of $30,000,000 or more, the Company 
will prepay the Notes at par plus the Premium. The Company will give each holder
of Notes written notice of the required prepayment under this Section 8.1 30 
days prior to the date fixed for such prepayment. Such notice shall state that 
all Notes will be prepaid pursuant to this Section 8.1 and shall specify such 
date and the interest to be paid on the prepayment date.

8.2. OPTIONAL PREPAYMENTS.

     The Company may, at its option, upon notice as provided below, prepay at 
any time all, or from time to time any part of, the Notes, in an amount not less
than 50% of the aggregate principal amount of the Notes then outstanding in the 
case of a partial prepayment, at 100% of the principal amount so prepaid, plus 
the Premium. The Company will give each holder of Notes written notice of each 
optional prepayment under this Section 8.2 not less than 15 days and not more
than 60 days prior to the date fixed for such prepayment. Each such notice shall
specify such date, the aggregate principal amount of the Notes to be prepaid on
such date, the principal amount of each Note held by such holder to be prepaid
(determined in accordance with Section 8.3), and the interest to be paid on the
prepayment date with respect to such principal amount being prepaid.

8.3. ALLOCATION OF PARTIAL PREPAYMENTS.

     In the case of each partial prepayment of the Notes, the principal amount 
of the Notes to be prepaid shall be allocated among all of the Notes at the time
outstanding in

                                      17
<PAGE>
 
proportion, as nearly as practicable, to the respective unpaid principal amounts
thereof not theretofore called for prepayments.

8.4. MATURITY; SURRENDER, ETC.

     In the case of each prepayment of Notes pursuant to this Section 8, the 
principal amount of each Note to be prepaid shall mature and become due and 
payable on the date fixed for such prepayment, together with interest on such 
principal amount accrued to such date and the applicable Premium if any. From 
and after such date, unless the Company shall fail to pay such principal amount 
when so due and payable, together with the interest and Premium, if any, as 
aforesaid, interest on such principal amount shall cease to accrue. Any Note 
paid or prepaid in full shall be surrendered to the Company and cancelled and 
shall not be reissued, and no Note shall be issued in lieu of any prepaid 
principal amount of any Note.

8.5. PURCHASE OF NOTES.

     The Company will not and will not permit any Affiliate to purchase, redeem,
prepay or otherwise acquire, directly or indirectly, any of the outstanding 
Notes except that the payment or prepayment of the Notes in accordance with the 
terms of this Agreement and the Notes. The Company will promptly cancel all 
Notes acquired by it or any Affiliate pursuant to any payment, prepayment or 
purchase of Notes pursuant to any provision of this Agreement and no Notes may 
be issued in substitution or exchange for any such Notes.

9.   COVENANT.

     The Company agrees, for the benefit of the holders, to perform, comply with
and be bound by each of its covenants, agreements and obligations contained in 
Sections 4.05 through 4.07, 4.09 through 4.16, 4.18, 4.19 and Article 5 of the 
Indenture, as in effect on the date hereof and without giving effect to any 
modifications or supplements thereto, or termination thereof, after the date of 
this Agreement. Without limiting the generality of the foregoing, the 
above-mentioned provisions of the Indenture, together with related definitions 
and ancillary provisions and schedules and exhibits, are hereby incorporated by 
reference in this Agreement, as if set forth in this Agreement in full; provided
that, as incorporated in this Agreement (i) each reference to "Holders" or the 
"Trustee" shall be deemed a reference to "holders of the Notes hereunder", (ii) 
each reference to "Securities" (other than in Section 4.12) shall be deemed a 
reference to "Notes", (iii) each reference to the "Paying Agent" shall be 
deleted, (iv) notwithstanding the last paragraph of Section 4.15 of the 
Indenture, Notes accepted for payment pursuant to clause (x) thereof shall be 
paid in accordance with Section 14 thereof, (v) each reference to the 
"Indenture" shall be deemed a reference to this Agreement, and each reference to
a supplemental indenture or a Supplemental Indenture shall be deemed a reference
to an

                                      18
<PAGE>
 
amendment to this Agreement, (vi) each reference to a Default or an Event of 
Default shall mean such terms as defined hereunder and (vii) each reference to 
the "Registration Rights Agreement" shall be deemed a reference to the 
Registration Rights Agreement as defined in this Agreement. Nothing contained 
herein shall limit, prohibit or restrict the right, power or authority of the 
Company and its Subsidiaries to comply with the provisions of Section 4.12 of 
the Indenture and to redeem, repurchase or acquire the "Securities" (as defined 
in the Indenture) as required therein.

     If VRG Leasing Corporation is in existence 90 days after the date hereof or
has at any time other than nominal assets, the Company will immediately cause it
to become a Subsidiary Guarantor hereunder. The Company will forthwith cure any 
existing default under the Indenture. The Company will simultaneously with any 
Subsidiary's Guaranty of payment of the Securities (as defined in the Indenture)
cause such Subsidiary to become a Subsidiary Guarantor on the same terms.

10.   SUBSIDIARY GUARANTEES.

10.1. SUBSIDIARY GUARANTEES.

     Each of the Subsidiary Guarantors hereby, jointly and severally, 
unconditionally guarantees to each holder, regardless of the validity and 
enforceability of this Agreement, the Notes and the Other Agreements, that (i) 
the principal of and Premium and interest on the Notes will be promptly paid in 
full when due, whether at maturity, by acceleration, redemption or otherwise, 
and interest on the overdue principal of and Premium and interest on the Notes, 
if and, to the extent lawful, and all other obligations of the Company to the 
holders hereunder or thereunder will be promptly paid in full, all in accordance
with the terms hereof and thereof and (ii) in case of any extension of time of 
payment or renewal of any Notes or any of such other obligations, that the same 
will be promptly paid in full when due in accordance with the terms of the 
extension or renewal, whether at stated maturity, by acceleration or otherwise; 
subject, however, in the case of clauses (i) and (ii) above, to the limitations 
set forth in Section 10.4. Failing payment when due of any amount so guaranteed 
for whatever reason, the Subsidiary Guarantors will be jointly and severally 
obligated to pay the same immediately. Each Subsidiary Guarantor hereby waives 
diligence, presentment, demand of payment, filing of claims with a court in the 
event of insolvency or bankruptcy of the Company, any right to require a 
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that this Subsidiary Guarantee will not be discharged except by 
complete performance of the obligations contained in the Notes and this Note 
Purchase Agreement. If any holder is required by any court or otherwise to 
return to the Company or Subsidiary Guarantors, or any custodian, trustee, 
liquidator or other similar official acting in relation to either the Company or
Subsidiary Guarantors, any amount paid by either to such holder, this Subsidiary
Guarantee, to the extent

                                      19
<PAGE>
 
theretofore discharged, shall be reinstated in full force and effect. Each 
Subsidiary Guarantor agrees that it shall not be entitled to any right of 
subrogation in relation to the holders in respect of any obligations guaranteed 
hereby until payment in full of all obligations guaranteed hereby. Each 
Subsidiary Guarantor further agrees that, as between the Subsidiary Guarantors,
on the one hand, and the holders, on the other hand, (x) the maturity of the 
obligations guaranteed hereby may be accelerated as provided in Section 12 for 
the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction 
or other prohibition preventing such acceleration in respect of the obligations 
guaranteed hereby, and (y) in the event of any declaration of acceleration of 
such obligations as provided in Section 12, such obligations (whether or not due
and payable) shall forthwith become due and payable by the Subsidiary Guarantors
for the purpose of this Subsidiary Guarantee. The Subsidiary Guarantors shall 
have the right to seek contribution from any non-paying Subsidiary Guarantor so 
long as the exercise of such right does not impair the rights of the holders 
under the Subsidiary Guarantee.

10.2. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.

     (a) Except as set forth in Section 9, nothing contained in this Agreement 
or in any of the Notes shall prevent any consolidation or merger of a Subsidiary
Guarantor with or into the Company or any other Subsidiary Guarantor or shall 
prevent any transfer, sale or conveyance of the property of a Subsidiary 
Guarantor as an entirety or substantially as an entirety to the Company or any 
other Subsidiary Guarantor.

     (b) Except as set forth in Section 9, nothing contained in this Agreement 
or in any of the Notes shall prevent any consolidation or merger of a Subsidiary
Guarantor with or into any corporation or corporations other than the Company or
any other Subsidiary Guarantor (in each case, whether or not affiliated with the
Subsidiary Guarantor), or successive consolidations or mergers in which a 
Subsidiary Guarantor or its successor or successors shall be a party or parties,
or shall prevent any sale or conveyance of the property of a Subsidiary 
Guarantor as an entirety or substantially as an entirety to any corporation, the
Company or any other Subsidiary Guarantor (in each case, whether or not 
affiliated with a Subsidiary Guarantor) authorized to acquire and operate the 
same; provided, that each Subsidiary Guarantor hereby covenants and agrees that,
upon any such consolidation, merger, sale or conveyance, the Subsidiary
Guarantee and the due and punctual performance and observance of all of the
covenants and conditions of this Agreement to be performed by such Subsidiary
Guarantor shall be expressly assumed (in the event that the Subsidiary Guarantor
is not the surviving corporation in the merger) by amendment to this Agreement
satisfactory in form to the Required Holders, executed and delivered to the
holders, by the corporation formed by such consolidation, or into which the
Subsidiary Guarantor shall have been merged, or by the corporation which shall
have acquired such property. In case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor corporation, by amendment,
executed and delivered to the holders and satisfactory in form to the Required
Holders, of the Subsidiary Guarantee and the

                                      20
<PAGE>
 
due and punctual performance of all of the covenants and conditions of this 
Agreement to be performed by the Subsidiary Guarantor, such successor 
corporation shall succeed to and be substituted for the Subsidiary Guarantor 
with the same effect as if it had been named herein as a Subsidiary Guarantor. 
All the Subsidiary Guarantees so issued shall in all respects have the same 
legal rank and benefit under this Agreement as the Subsidiary Guarantees 
theretofore and thereafter issued in accordance with the terms of this Agreement
as through all of such Subsidiary Guarantees had been issued at the date of the 
execution hereof.

10.3. RELEASES FOLLOWING SALE OF ASSETS.

     Concurrently with the sale of substantially all of the assets of any 
Subsidiary Guarantor (including, if applicable, all of the Capital Stock (as 
such term is defined in the Indenture) of any Subsidiary Guarantor, in 
compliance with the terms of Section 4.12 of the Indenture as incorporated in 
this Agreement, such Subsidiary Guarantor (in the event of a sale or other 
disposition of all of the Capital Stock of such Subsidiary Guarantor) or the 
corporation acquiring the property (in the event of a sale or other disposition 
of all of the Capital Stock of such Subsidiary Guarantor) or the corporation 
acquiring the property (in the event of a sale or other disposition of all or 
substantially all of the assets of a Subsidiary Guarantor) shall be released 
from and relieved of its obligations under its Subsidiary Guarantee or Section 
10.2, as the case may be; provided that in the event of an Asset Sale (as such 
term is defined in the Indenture), the Net Proceeds (as such term is defined in 
the Indenture) from such sale or other dispositions are treated in accordance 
with the provisions of such Section 4.12. Upon delivery by the Company to the 
holders of an Officers' Certificate to the effect that such sale or other 
disposition was made by the Company in accordance with the provisions of this 
Agreement, including without limitation such Section 4.12, the holders shall 
execute any documents reasonably required in order to evidence the release of 
any Subsidiary Guarantor from its obligations under its Subsidiary Guarantee. 
Any Subsidiary Guarantor not released from its obligations under its Subsidiary 
Guarantee shall remain liable for full amount of principal of and interest on 
the Notes and for the other obligations of any Subsidiary Guarantor under this 
Agreement as provided in this Section 10.

10.4. LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY.

     Each Subsidiary Guarantor and by its acceptance hereof each holder hereby 
confirms that it is the intention of all such parties that the guarantee by such
Subsidiary Guarantor pursuant to its Guarantee not constitute a fraudulent 
transfer or conveyance for purposes of the Bankruptcy Law, the Uniform 
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar 
Federal or state law. To effectuate the foregoing intention, the holders and 
such Subsidiary Guarantor hereby irrevocably agree that the obligations of such 
Subsidiary Guarantor under the Subsidiary Guarantee shall be limited to the 
maximum amount as will, after giving effect to all other contingent and fixed 
liabilities of such Subsidiary Guarantor, result in the obligations of such 
Subsidiary Guarantor under the Subsidiary Guarantee not constituting such 
fraudulent transfer or conveyance.

                                      21
<PAGE>
 
11. EVENTS OF DEFAULT.

     An "EVENT OF DEFAULT" shall exist if any of the following conditions or 
events shall occur and be continuing:

          (a) the Company defaults in the payment of any principal or Premium,
     if any, on any Note when the same becomes due and payable, whether at
     maturity or at a date fixed for prepayment or by declaration or otherwise;
     or

          (b) the Company defaults in the payment of any interest on any Note 
     for more than five Business Days after the same becomes due and payable; or

          (c) the Company or any Subsidiary Guarantor defaults in the
     performance of or compliance with any term contained in Sections 7.1(d), 9
     (except insofar as Section 9 incorporates by reference Sections 4.05
     through 4.07 of the Indenture) or 10 of this Agreement, or

          (d) the Company defaults in the performance of or compliance with any
     term contained herein (other than those referred to in paragraphs (a), (b)
     and (c) of this Section 11) and such default is not remedied within 60 days
     after the earlier of (i) a Responsible Officer obtaining actual knowledge
     of such default and (ii) the Company receiving written notice of such
     default from any holder of a Note (any such written notice to be identified
     as a "notice of default" and to refer specifically to this paragraph (d) of
     Section 11); or

          (e) any representation or warranty made in writing by or on behalf of
     the Company or by any officer of the Company in this Agreement or in any
     writing furnished in connection with the transactions contemplated hereby
     proves to have been false or incorrect in any material respect on the date
     as of which made; or

          (f) (i) the Company or any Subsidiary is in default (as principal or
     as guarantor or other surety) in the payment of any principal of or premium
     or make-whole amount or interest on any Indebtedness that is outstanding in
     an aggregate principal amount of at least $1,000,000 beyond any period of
     grace provided with respect thereto, or (ii) the Company or any Subsidiary
     is in default in the performance of or compliance with any term of any
     evidence of any Indebtedness in an aggregate outstanding principal amount
     of at least $1,000,000 or of any mortgage, indenture or other agreement
     relating thereto or any other condition exists, and as a consequence of
     such default or condition such Indebtedness has become, or has been
     declared (or one or more Persons are entitled to declare such Indebtedness
     to be), due and payable before its stated maturity or before its

                                      22
<PAGE>
 
regularly scheduled dates of payment, or (iii) as a consequence of the 
occurrence or continuation of any event or condition (other than the passage of 
time or the right of the holder of Indebtedness to convert such Indebtedness 
into equity interests), (x) the Company or any Subsidiary has become obligated 
to purchase or repay Indebtedness before its regular maturity or before its 
regularly scheduled dates of payment in an aggregate outstanding principal 
amount of at least $1,000,000, or (y) one or more Persons have the right to 
require the Company or any Subsidiary so to purchase or repay such Indebtedness,
in either case other than pursuant to Section 4.12 of the Indenture; or

     (g) the Company or any Subsidiary (i) is generally not paying, or admits in
writing its inability to pay, its debts as they become due, (ii) files, or 
consents by answer or otherwise to the filing against it of, a petition for 
relief or reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency, reorganization, 
moratorium or other similar law of any jurisdiction, (iii) makes an assignment 
for the benefit of its creditors, (iv) consents to the appointment of a 
custodian, receiver, trustee or other officer with similar powers with respect 
to it or with respect to any substantial part of its property, (v) is 
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or

     (h) a court or governmental authority of competent jurisdiction enters an 
order appointing, without consent by the Company or any of its Subsidiaries, a 
custodian, receiver, trustee or other officer with similar powers with respect 
to it or with respect to any substantial part of its property, or constituting 
an order for relief or approving a petition for relief or reorganization or any 
other petition in bankruptcy or for liquidation or to take advantage of any 
bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any of its Subsidiaries, or any such
petition shall be filed against the Company or any of its Subsidiaries and such
petition shall not be dismissed within 60 days; or

     (i) a final judgment or judgments for the payment of money aggregating in 
excess of $1,000,000 are rendered against one or more of the Company and its 
Subsidiaries and which judgments are not, within 60 days after entry thereof, 
bonded, discharged or stayed pending appeal, or are not discharged within 60 
days after the expiration of such stay; or

     (j) if (i) any Plan shall fail to satisfy the minimum funding standards of 
ERISA or the Code for any plan year or part thereof or a waiver of such 
standards or extension of any amortization period is sought or granted under 
section 412 of the Code, (ii) a notice of intent to terminate any Plan shall 
have been or is reasonably expected to be

                                      23
<PAGE>
 
     filed with the PBGC or the PBGC shall have instituted proceedings under
     ERISA section 4042 to terminate or appoint a trustee to administer any
     Plan or the PBGC shall have notified the Company or any ERISA Affiliate
     that a Plan may become a subject of any such proceedings, (iii) the
     aggregate "amount of unfunded benefit liabilities" (within the meaning of
     section 4001(a)(18) of ERISA) under all Plans, determined in accordance
     with Title IV of ERISA, shall exceed $1,000,000, (iv) the Company or any
     ERISA Affiliate shall have incurred or is reasonably expected to incur any
     liability pursuant to Title I or IV of ERISA or the penalty or excise tax
     provisions of the Code relating to employee benefit plans, (v) the Company
     or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the
     Company or any Subsidiary establishes or amends any employee welfare
     benefit plan that provides post-employment welfare benefits in a manner
     that would increase the liability of the Company or any Subsidiary
     thereunder; and any such event or events described in clauses (i) through
     (vi) above, either individually or together with any other such event or
     events, could reasonably be expected to have a Material Adverse Effect.

As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE 
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms 
in Section 3 of ERISA.

12.   REMEDIES ON DEFAULT, ETC.

12.1. ACCELERATION.

     (a) If an Event of Default with respect to the Company described in 
paragraph (g) or (h) of Section 11 (other than an Event of Default described in 
clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by 
virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has
occurred, all the Notes then outstanding shall automatically become immediately 
due and payable.

     (b) If any other Event of Default has occurred and is continuing, any 
holder or holders of 50% or more in principal amount of the Notes at the time 
outstanding may at any time at its or their option, by notice or notices to the 
Company, declare all the Notes then outstanding to be immediately due and 
payable.

     (c) If any Event of Default described in paragraph (a) or (b) of Section 11
has occurred and is continuing, any holder or holders of Notes at the time 
outstanding affected by such Event of Default may at any time, at its or their 
option, by notice or notices to the Company, declare all the Notes held by it or
them to be immediately due and payable.

                                      24
<PAGE>
 
     Upon any Notes becoming due and payable under this Section 12.1, whether 
automatically or by declaration, such Notes will forthwith mature and the entire
unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest 
thereon and (y) the Premium (to the full extent permitted by applicable law), 
shall all be immediately due and payable, in each and every case without 
presentment, demand, protest or further notice, all of which are hereby waived. 
The Company acknowledges, and the parties hereto agree, that each holder of a 
Note has the right to maintain its investment in the Notes free from repayment 
by the Company (except as herein specifically provided for) and that the 
provision for payment of a Premium by the Company in the event that the Notes 
are prepaid or are accelerated as a result of an Event of Default is intended to
provide compensation for the deprivation of such right under such circumstances.

12.2. OTHER REMEDIES.

     If any Default or Event of Default has occurred and is continuing, and 
irrespective of whether any Notes have become or have been declared immediately 
due and payable under Section 12.1, the holder of any Note at the time 
outstanding may proceed to protect and enforce the rights of such holder by an 
action at law, suit in equity or other appropriate proceeding, whether for the 
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid 
of the exercise of any power granted hereby or thereby or by law or otherwise.

12.3. RESCISSION.

     At any time after any Notes have been declared due and payable pursuant to 
clause (b) or (c) of Section 12.1, the holders of not less than 51% in principal
amount of the Notes then outstanding, by written notice to the Company, may 
rescind and annul any such declaration and its consequences if (a) the Company 
has paid all overdue interest on the Notes, all principal of and Premium, if 
any, on any Notes that are due and payable and are unpaid other than by reason 
of such declaration, and all interest on such overdue principal and Premium, if
any, and (to the extent permitted by applicable law) any overdue interest in 
respect of the Notes, at the Default Rate, (b) all Events of Default and 
Defaults, other than non-payment of amounts that have become due solely by 
reason of such declaration, have been cured or have been waived pursuant to 
Section 17, and (c) no judgment or decree has been entered for the payment of 
any monies due pursuant hereto or to the Notes. No rescission and annulment 
under this Section 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.

                                      25
<PAGE>
 
12.4.  NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.

          No course of dealing and no delay on the part of any holder of any 
Note in exercising any right, power or remedy shall operate as a waiver thereof 
or otherwise prejudice such holder's rights, powers or remedies.  No right, 
power or remedy conferred by this Agreement or by any Note upon any holder 
thereof shall be exclusive of any other right, power or remedy referred to 
herein or therein or now or hereafter available at law, in equity, by statute or
otherwise.  Without limiting the obligations of the Company under Section 15, 
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder incurred in 
any enforcement or collection under this Section 12, including, without 
limitation, reasonable attorneys' fees, expenses and disbursements.

13.    REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

13.1.  REGISTRATION OF NOTES. 

          The Company shall keep at its principal executive office a register 
for the registration and registration of transfers of Notes.  The name and 
address of each holder of one or more Notes, each transfer thereof and the name 
and address of each transferee of one or more Notes shall be registered in such 
register.  Prior to due presentment for registration of transfer, the Person in 
whose name any Note shall be registered shall be deemed and treated as the owner
and holder thereof for all purposes hereof, and the Company shall not be 
affected by any notice or knowledge to the contrary.  The Company shall give to 
any holder of a Note that is an Institutional Investor promptly upon request 
therefor a complete and correct copy of the names and addresses of all 
registered holders of Notes.

13.2.  TRANSFER AND EXCHANGE OF NOTES.

          Upon surrender of any Note at the principal executive office of the 
Company for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written 
instrument of transfer duly executed by the registered holder of such Note or 
his attorney duly authorized in writing and accompanied by the address for 
notices of each transferee of such Note or part thereof), the Company shall 
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) in exchange therefor, in an 
aggregate principal amount equal to the unpaid principal amount of the 
surrendered Note.  Each such new Note shall be payable to such Person as such 
holder may request and shall be substantially in the form of Exhibit 1.  Each 
such new Note shall be dated and bear interest from the date to which interest 
shall have been paid on the surrendered Note or dated the date of the 
surrendered Note if no interest shall


                                      26
<PAGE>
 
have been paid thereon.  The Company may require payment of a sum sufficient to 
cover any stamp tax or governmental charge imposed in respect of any such 
transfer of Notes. Notes shall not be transferred in denominations of less than
$5,000,000, provided that if necessary to enable the registration of transfer by
a holder of its entire holding of Notes, one Note may be in a denomination of
less than $5,000,000. Any transferee, by its acceptance of a Note registered in
its name (or the name of its nominee), shall be deemed to have made the
representation set forth in Section 6.2.

13.3.  REPLACEMENT OF NOTES.

          Upon receipt by the Company of evidence reasonably satisfactory to it 
of the ownership of and the loss, theft, destruction or mutilation of any Note 
(which evidence shall be, in the case of an Institutional Investor, notice from 
such Institutional Investor of such ownership and such loss, theft, destruction 
or mutilation), and

          (a)  in the case of loss, theft or destruction, of indemnity
     reasonably satisfactory to it (provided that if the holder of such Note is,
     or is a nominee for, an original Purchaser or another holder of a Note with
     a minimum net worth of at least $5,000,000, such Person's own unsecured
     agreement of indemnity shall be deemed to be satisfactory), or

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

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

14.    PAYMENTS ON NOTES.

14.1.  PLACE OF PAYMENT.

          Subject to Section 14.2, payments of principal, Premium, if any, and 
interest becoming due and payable on the Notes shall be made in New York, New 
York at the principal office of ING Bank in such jurisdiction.  The Company may 
at any time, by notice to each holder of a Note, change the place of payment of 
the Notes so long as such place of payment shall be either the principal office 
of the Company in such jurisdiction or the principal office of a bank or trust 
company in such jurisdiction.


                                      27
<PAGE>
 

14.2  HOME OFFICE PAYMENT.

        So long as you or your nominee shall be the holder of any Note, and 
notwithstanding anything contained in Section 14.1 or in such Note to the 
contrary, the Company will pay all sums becoming due on such Note for principal,
Premium, if any, and interest by the method and at the address specified for 
such purpose below your name in Schedule A, or at such other address as you 
shall have from time to time specified to the Company in writing for such 
purpose, without the presentation or surrender of such Note or the making of any
notation thereon, except that upon written request of the Company made 
concurrently with or promptly after payment or prepayment in full of any such 
request, to the Company at its principal executive office or at the place of 
payment most recently designated by the Company pursuant to Section 14.1. Prior
to any sale or other disposition of any Note held by you or your nominee you
will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Company in exchange for a now Note or Notes pursuant to Section
13.2. The Company will afford the benefits of this Section 14.2 to any
Institutional Investor that is the direct or indirect transferee of any Note
purchased by you under this Agreement and that has made the same agreement
relating to such Note as you have made in this Section 14.2.

15. EXPENSES, ETC.

15.1. TRANSACTION EXPENSES

        Whether or not the transactions contemplated hereby are consummated, the
Company will pay all reasonable costs and expenses (including reasonable 
attorneys' fees of a special counsel and, if reasonably required, local or other
counsel) incurred by you and each holder of a Note in connection with such 
transactions and in connection with any amendments, waivers or consents under or
in respect of this Agreement, the Other Agreements or the Notes (whether or not 
such amendment, waiver or consent becomes effective), including, without 
limitation: (a) the reasonable costs and expenses incurred in enforcing or 
defending (or determining whether or how to enforce or defend) any rights under 
this Agreement, the Other Agreements or the Notes or in responding to any 
subpoena or other legal process or informal investigative demand issued in 
connection with this Agreement, the Other Agreements or the Notes, or by reason 
of being a holder of any Note, and (b) the reasonable costs and expenses, 
including financial advisors' fees, incurred in connection with the insolvency 
or bankruptcy of the Company or any Subsidiary or in connection with any 
work-out or restructuring of the transactions contemplated hereby and by the 
Notes. The Company will pay, and will save you and each other holder of a Note 
harmless from, all claims in respect of any fees, costs or expenses if any, of 
brokers and finders (other than those retained by you).

                                      28






<PAGE>
 


15.2  SURVIVAL.

        The obligations of the Company under this Section 15 will survive the 
payment or transfer of any Note, the enforcement, amendment or waiver of any 
provision of this Agreement, the Other Agreements or the Notes, and the 
termination of this Agreement or the Other Agreements.

16    SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

        All representations and warranties contained herein shall survive the 
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Notes or portion thereof or interest therein and the payment of 
any Note, and may be relied upon by any subsequent holder of a Note, regardless 
of any investigation made at any time by or on behalf of you or any other holder
of a Note. All statements contained in any certificate or other instrument 
delivered by or on behalf of the Company pursuant to this Agreement shall be 
deemed representations and warranties of the Company under this Agreement. 
Subject to the preceding sentence, this Agreement, the Other Agreements, and the
Notes embody the entire agreement and understanding between you, the Company and
the Subsidiary Guarantors and supersede all prior agreements and understandings 
relating to the subject matter hereof.

17.   AMENDMENT AND WAIVER.

17.1  REQUIREMENTS.

        This Agreement and the Notes may be amended, and the observance of any 
term hereof or of the Notes may be waived (either retroactively and 
prospectively), with (and only with) the written consent of the Company and the 
Required Holders, except that (a) no amendment or waiver of any of the 
provisions of Section 1, 2, 3, 4, 5, 6, 10 or 21 hereof, or any defined term (as
it is used therein), will be effective as to you unless consented to by you in 
writing, and (b) no such amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding affected thereby, (i) subject to
the provisions of Section 12 relating to acceleration or rescission, change the 
amount or time of any prepayment or payment of principal of, or reduce the rate 
or change the time of payment or method of computation of interest or of the 
Premium on, the Notes, (ii) change the percentage of the principal amount of the
Notes the holders of which are required to consent to any such amendment or 
waiver, or (iii) amend any of Sections 8, 11(a), 12, 17 or 20.

                                      29


<PAGE>
 
17.2. SOLICITATION OF HOLDERS OF NOTES.

     (a) Solicitation. The Company will provide each holder of the Notes 
(irrespective of the amount of Notes then  owned by it) with sufficient 
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to 
any proposed amendment, waiver or consent in respect of any of the provisions 
hereof or of the Notes. The Company will deliver executed or true and correct 
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.

    (b) Payment. The Company will not directly or indirectly pay or cause to be 
paid any remuneration, whether by way of supplemental or additional interest, 
fee or otherwise, or grant any security, to any holder of Notes as consideration
for or as an inducement to the entering into by any holder of Notes or any
waiver or amendment of any of the terms and provisions hereof unless such
remuneration is concurrently paid, or security is concurrently granted, on the
same terms, ratably to each holder of Notes then outstanding even if such holder
did not consent to such waiver of amendment.

17.3. BINDING EFFECT, ETC.

    Any amendment or waiver consented to as provided in this Section 17 applies 
equally to all holders of Notes and is binding upon them and upon each future 
holder of any Note and upon the Company without regard to whether such Note has
been marked to indicate such amendment or waiver. No such amendment or waiver 
will extend to or affect any obligation, covenant, agreement, Default or Event 
of Default not expressly amended or waived or impair any right consequent 
thereon. No course of dealing between the Company and the holder of any Note nor
any delay in exercising any rights hereunder or under any Note shall operate as 
a waiver of any rights of any holder of such Note. As used herein, the term 
"THIS AGREEMENT" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.

17.4. NOTES HELD BY COMPANY, ETC.

    Solely for the purpose of determining whether the holders of the requisite 
percentage of the aggregate principal amount of Notes then outstanding approved 
or consented to any amendment, waiver or consent to be given under this 
Agreement or the Notes, or have directed the taking of any action provided 
herein or in the Notes to be taken upon the direction of the holders of a 
specified percentage of the aggregate principal amount of Notes then 
outstanding, Notes directly or indirectly owned by the Company or any of its 
Affiliates shall be deemed not to be outstanding.

                                      30
<PAGE>
 
18. NOTICES.

    All notices and communications provided for hereunder shall be in writing
and sent (a) by telecopy if the sender on the same day sends a confirming copy
of such notice by a recognized overnight delivery service (charges prepaid), or
(b) by registered or certified mail with return receipt requested (postage
prepaid), or (c) by a recognized overnight delivery service (with charges
prepaid). Any such notice must be sent:

         (i)  if to you or your nominee, to you or it at the address specified
    for such communications in Schedule A, or at such other address as you or it
    shall have specified to the Company in writing,

         (ii)  if to any other holder of any Note, to such holder at such
    address as such other holder shall have specified to the Company in writing,
    or

         (iii) if to the Company, to the Company at its address set forth at the
    beginning hereof to the attention of Chief Financial Officer, or at such
    other address as the Company shall have specified to the holder of each Note
    in writing.

Notices under this Section 18 will be deemed given only when actually received.

19. REPRODUCTION OF DOCUMENTS.

    This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be 
executed, (b) documents received by you at the Closing (except the Notes and the
Warrants themselves), and (c) financial statements, certificates and other 
information previously or hereafter furnished to you, may be reproduced by you 
by any photostatic, microfilm, microcard, miniature photographic or other 
similar process. The Company agrees and stipulates that, to the extent permitted
by applicable law, any such reproduction (other than the Notes or the Warrants) 
shall be admissible in evidence as the original itself in any judicial or 
administrative proceeding (whether or not the original is in existence and 
whether or not such reproduction was made by you in the regular course of 
business) and any enlargement, facsimile or further reproduction of such 
reproduction shall likewise be admissible in evidence. This Section 19 shall 
not prohibit the Company or any other holder of Notes from contesting any such 
reproduction to the same extent that it could contest the original, or from 
introducing evidence to demonstrate the inaccuracy of any such reproduction.



                                      31

<PAGE>
 
20. CONFIDENTIAL INFORMATION.

    For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means 
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified when received by you as being confidential
information of the Company or such Subsidiary, provided that such term does not
include information that (a) was publicly known or otherwise known to you prior
to the time of such disclosure, (b) subsequently becomes publicly known through
no act or omission by you or any person acting on your behalf, (c) otherwise
becomes known to you other than through disclosure by the Company or any
Subsidiary or (d) constitutes financial statements delivered to you under
Section 7.1 that are otherwise publicly available. You will maintain the
confidentiality of such Confidential Information in accordance with procedures
adopted by you in good faith to protect confidential information of third
parties delivered to you, provided that you may deliver or disclose Confidential
Information to (i) your directors, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably related to the
administration of the investment represented by your Notes), (ii) your financial
advisors and other professional advisors who agree to hold confidential the
Confidential Information substantially in accordance with the terms of this
Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor
to which you sell or offer to sell such Notes or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this Section
20), (v) any Person from which you offer to purchase any security of the Company
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (vi) any federal
or state regulatory authority having jurisdiction over you, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognize4d rating agency that requires access to information about
our investment portfolio or (viii) any other (person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to you, (x) in response to any
subpoena or other legal process, (y) in connection with any litigation to which
you are a party or (z) if an Event of Default has occurred and is continuing, to
the extent you may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights
and remedies under your Notes and this Agreement. Each holder of a Note, by its
acceptance of a Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section 20 as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any holder of a Note of information required to be delivered to such holder
under this Agreement holder of a Note of information required to be delivered to
such holder under this Agreement or requested by such holder (other than a
holder that is a party to this Agreement or its nominee), such holder will enter
into an agreement with the Company embodying the provisions of this Section 20.


                                      32

<PAGE>
 
 
21. SUBSTITUTION OF PURCHASER.

    You shall have the right to substitute any one of your Affiliates as the 
purchaser of the Notes that you have agreed to purchase hereunder, by written 
notice to the Company, which notice shall be signed by both you and such 
Affiliate, shall contain such Affiliate's agreement to be bound by this 
Agreement and shall contain a confirmation by such Affiliate of the accuracy 
with respect to it of the representations set forth in Section 6. Upon receipt 
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu 
of you. In the event that such Affiliate is so substituted as a purchaser 
hereunder and such Affiliate thereafter transfers to you all of the Notes then 
held by such Affiliate, upon receipt by the Company of notice of such transfer, 
wherever the word "you" is used in this Agreement (other than in this Section 
21), such word shall no longer be deemed to refer to such Affiliate, but shall 
refer to you, and you shall have all the rights of an original holder of the 
Notes under this Agreement.

22. MISCELLANEOUS.

22.1. SUCCESSORS AND ASSIGNS.

    All covenants and other agreements contained in this Agreement by or on 
behalf of any of the parties hereto bind and inure to the benefit of their 
respective successors and assigns (including, without limitation, any 
subsequent holder of a Note) whether so expressed or not.

22.2 PAYMENTS DUE ON NON-BUSINESS DAYS.

    Anything in this Agreement or the Notes to the contrary notwithstanding, any
payment of principal of or Premium or interest on any Note that is due on a date
other than a Business Day shall be made on the next succeeding Business Day 
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day.

23.3. SEVERABILITY.

    Any provision of this Agreement that is prohibited or unenforceable in any 
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of 
such prohibition or unenforceability without invalidating the remaining 
provisions hereof, and any such prohibition or unenforceability in any 
jurisdiction shall (to the full extent permitted by law) not invalidate or 
render unenforceable such provision in any other jurisdiction.

                                      33

<PAGE>
 
22.4. CONSTRUCTION.

    Each covenant contained herein shall be construed (absent express provision 
to the contrary) as being independent of each other covenant contained herein, 
so that compliance with any one covenant shall not (absent such an express 
contrary provision) be deemed to excuse compliance with any other covenant. 
Where any provision herein refers to action to be taken by any Person, or which 
such Person is prohibited from taking, such provision shall be applicable 
whether such action is taken directly or indirectly by such Person.

22.5. COUNTERPARTS.

    This Agreement may be executed in any number of counterparts, each of which 
shall be an original but all of which together shall constitute one instrument. 
Each counterpart may consist of a number of copies hereof, each signed by less 
than all, but together signed by all, of the parties hereto.

22.6. GOVERNING LAW.

    This Agreement shall be construed and enforced in accordance with, and the 
rights of the parties shall be governed by, the law of the State of New York 
excluding choice-of-law principles of the law of such State that would require 
the application of the laws of a jurisdiction other than such State.

22.7. Submission to Jurisdiction.

    The Company and each Subsidiary Guarantor hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of 
New York and of any New York state court sitting in New York City for the 
purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby. The Company and each Subsidiary
Guarantor irrevocably waives, to the fullest extent permitted by applicable law,
any objection that it may now or hereafter have to the laying of the venue of
any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.

22.8. WAIVER OF JURY TRIAL.

    THE COMPANY, EACH SUBSIDIARY GUARANTOR AND EACH HOLDER HEREBY IRREVOCABLY 
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO 
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS 
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

                                      34
<PAGE>
 
22.9. INDEMNITY.

    The Company shall indemnify the Purchaser, each Holder and each of their 
Affiliates, as well as each director, officer, employee, agent and advisor of 
any of the foregoing Persons (each such Person being called an "Indemnitee"), 
against, and hold each Indemnitee harmless from, any and all losses, claims, 
damages, liabilities and related expenses, including the reasonable fees, 
charges and disbursements of any counsel for any Indemnitee, incurred by or 
asserted against any Indemnitee arising out of, in connection with, or as a 
result of (i) the execution or delivery of this Agreement or any agreement or 
instrument contemplated hereby, the performance by the parties hereto of their 
respective obligations hereunder or the consummation of the transactions 
contemplated hereby, (ii) any Note or the use of the proceeds of the issuance 
thereof, or (iii) any actual or prospective claim, litigation, governmental 
investigation or proceeding relating to any of the foregoing, whether based on 
contract, tort or any other theory and regardless of whether any Indemnitee is a
party thereto, but only in each case to the extent such losses, claims, 
damages, liabilities and related expenses relate to any defaults existing as 
of the date hereof under the Indenture; provided that such indemnity shall not, 
as to any Indemnitee, be available to the extent that such losses, claims, 
damages, liabilities or related expenses are determined by a court of competent 
jurisdiction by final and nonappealable judgment to have resulted form the gross
negligence or wilful misconduct of such Indemnitee.

                             *    *    *    *    *






                                      35
<PAGE>
 
    If you are in agreement with the foregoing, please sign the form of 
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you, 
the Company and the Subsidiary Guarantors.


                                            Very truly yours,


                                            DRYPERS CORPORATION




                                            BY _________________________________
                                                  Executive Vice President and
                                                     Chief Financial Officer






The foregoing is hereby
agreed to as of the
date thereof.

ING BARING (U.S.) CAPITAL  CORPORATION


By ____________________________
         Vice President
       






                                      36

                                                             
<PAGE>
 
                                                                      SCHEDULE A



                       INFORMATION RELATING TO PURCHASER


                                                          Principal Amount of
Name and Address of Purchaser                            Notes to be Purchased
-----------------------------                            ---------------------


ING BARING (U.S.) CAPITAL CORPORATION                           $10,000,000

  (1) All payments by wire transfer of immediately
      available funds to:
               



      with sufficient information to identify the
      source and application of such funds.

  (2) All notices of payments and written 
      confirmations of such wire transfers:

                   ING Baring (U.S.) Capital Corp.
                   135 East 57th Street
                   New York, New York 10022-2101
                   Attn:   Joan Chiappe
                   Ref:    Drypers
                   Phone:  (212) 409-1742
                   Fax:    (212) 371-9295

  (3) All other communications:

                   667 Madison Avenue,
                   New York, NY 10021
                   Fax: (212) 409-6425
                   Attention: Geoffrey W. Arens




                                  Schedule A


<PAGE>
 



                                 DEFINED TERMS

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

        "AFFILIATE" means, at any time, and with respect to any Person, (a) any 
other Person that such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or more of any class of voting or equity interests. As used in this
definition, "CONTROL" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Unless the contact otherwise clearly requires, any reference to an "Affiliate"
is a reference to an Affiliate of the Company.

        "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on
which commercial banks in New York, New York or Houston, Texas are required or
authorized to be closed.

        "CAPITAL LEASE" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.

        "CLOSING" is defined in Section 3.

        "CODE" means the Internal Revenue Code of 1986, as amended from time to 
time, and the rules and regulations promulgated thereunder from time to time.

        "COMPANY" means Drypers Corporation, a Delaware corporation.

        "CONFIDENTIAL INFORMATION" is defined in Section 20.

        "DEFAULT" means an event or condition the occurrence or existence of 
which would, with the lapse of time or the giving of notice or both, become an 
Event of Default.


                                  Schedule B




<PAGE>

        "DEFAULT RATE" means that rate of interest that is the greater of (i) 1%
per annum above the rate of interest stated in clause (a) of the first paragraph
of the Notes or (ii) 3% over th rate of interest publicly announced by The Chase
Manhattan Bank in New York, New York as its "base" or "prime" rate.

        "ENVIRONMENTAL LAWS" means any and all Federal, state, local, and 
foreign statutes, laws, regulations, ordinances, rules, judgments, orders, 
decrees, permits, concessions, grants, franchises, licenses, agreements or 
governmental restrictions relating to pollution and the protection of the 
environment or the release of any materials into the environment, including but 
not limited to those related to hazardous substances or wastes, air emissions 
and discharges to waste or public systems.

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

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

        "EVENT OF DEFAULT" is defined in Section 11.

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

        "GAAP" means generally accepted accounting principles as in effect from 
time to time in the United States of America.

        "GOVERNMENTAL AUTHORITY" means
        
        (a)  the government of

             (i)  the United States of America or any State or other political 
        subdivision thereof, or

             (ii) any jurisdiction in which the Company or any Subsidiary
        conducts all or any part of its business, or which asserts jurisdiction
        over any properties of the Company or any Subsidiary, or

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

    
                                  Schedule B
<PAGE>
 

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

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

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

        (c) to lease properties or to purchase properties or services primarily
    for the purpose of assuring the owner of such indebtedness or obligation of
    the ability of any other Person to make payment of the indebtedness or
    obligation; or

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

In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.

        "HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous 
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining, 
production, processing, treatment, storage, handling, transportation, transfer, 
use, disposal, release, discharge, spillage, seepage, or filtration of which is 
or shall be restricted, prohibited or penalized by any applicable law 
(including, without limitation, asbestos, urea formaldehyde foam insulation and 
polycholorinated biphenyls).

        "HOLDER" means, with respect to any Note, the Person in whose name such 
Note is registered in the register maintained by the Company pursuant to Section
13.1

        "INDEBTEDNESS" with respect to any Person means, at any time, without 
duplication,

                                  Schedule B





<PAGE>
 
        
        (a)  its liabilities for borrowed money an its redemption obligations in
    respect of mandatorily redeemable Preferred Stock;

        (b) its liabilities for the deferred (in excess of 180 days) purchase
    price of property acquired by such Person (excluding accounts payable
    arising in the ordinary course of business but including all liabilities
    created or arising under any conditional sale or other title retention
    agreement with respect to any such property);

        (c)  all liabilities appearing on its balance sheet in accordance with 
    GAAP in respect to Capital Leases;

        (d) all liabilities for borrowed money secured by any Lien with respect
    to any property owned by such Person (whether or not it has assumed or
    otherwise become liable for such liabilities);

        (e) all its liabilities in respect of letters of credit or instruments
    serving a similar function issued or accepted for its account by banks and
    other financial institutions (whether or not representing obligations for
    borrowed money);

        (f)  Swaps of such Person; and

        (g)  any Guaranty of such Person with respect to liabilities of a type 
    described in any of clauses (a) through (f) hereof.

Indebtedness of any Person shall include all obligations of such Person of the 
character described in clause (a) through (g) to the extent such Person remains 
legally liable in respect thereof notwithstanding that any such obligation is 
deemed to be extinguished under GAAP.

        "INDENTURE" means the Indenture dated as of November 10, 1992 among the 
Company, the Subsidiary Guarantors listed therein and First Interstate Bank of 
Texas, N.A., as trustee, as amended or supplemented from time to time.

        "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note, (b)
any holder of a Note holding more than 10% of the aggregate principal amount of 
the Notes then outstanding, and (c) any bank, trust company, savings and loan 
association or other financial institution, any pension plan, any investment 
company, any insurance company, any broker or dealer, or any other similar 
financial institution or entity, regardless of legal form.

                                  Schedule B
        
<PAGE>
 

        "LIEN" means, with respect to any Person, any mortgage, lien, pledge, 
charge, security interest or other encumbrance, or any interest or title of any 
vendor, lessor, lender or other secured party to or of such Person under any 
conditional sale or other title retention agreement or Capital Lease, upon or 
with respect to any property or asset of such Person (including in the case of 
stock, stockholder agreements, voting trust agreements and all similar 
arrangements).

        "MATERIAL" means material in relation to the business, operations, 
affairs, financial condition, assets, properties or prospects of the Company and
its Subsidiaries taken as a whole.

        "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the 
business, operations, affairs, financial condition, assets or properties of the 
Company and its Subsidiaries taken as a whole, or (b) the ability of the Company
to perform its obligations under this Agreement, the Other Agreements and the 
Notes, or (c) the validity or enforceability of this Agreement, the Other 
Agreements or the Notes.

        "MULTIEMPLOYER PLAN" means any Plan that is a "Multiemployer plan" (a 
such term is defined in section 4001 (a)(3) of ERISA).

        "NOTES" is defined in Section 1.

        "OFFICER'S CERTIFICATE" means a certificate of a Senior Financial 
Officer or of any other officer of the Company whose responsibilities extend to 
the subject matter of such certificate.

        "OPTION" with respect to any Person means any security, right, 
subscription, warrant, option, "phantom" stock right or other contract or
agreement that gives the right to (i) purchase or otherwise receive or be issued
any shares of capital stock or any security of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of such Person or
(ii) receive or exercise any benefits or rights similar to any rights enjoyed by
or accruing to the holder of shares of capital stock of such Person, including
any rights to participate in the equity or income of such Person or to
participate in or direct the election of any directors or officers of such
Person or the manner in which any shares of capital stock of such Person are
voted.

        "OTHER AGREEMENTS" means the Registration Rights Agreement and the 
Warrants.

        "PBGC" means the Pension Benefit Guaranty Corporation referred to and 
defined in ERISA or any successor thereto.

                                  Schedule B





<PAGE>
 

        "PERSON" means an individual, partnership, corporation, limited 
liability company, association, trust, unincorporated organization, or a 
government or agency or political subdivision thereof.

        "PLAN" means as "employee benefit plan" (as defined in section 3(3) of 
ERISA) that is or, within the preceding five years, has been established or 
maintained, or to which contributions are or, within the preceding five years, 
have been made or required to be made, by the Company or any ERISA Affiliate or 
with respect to which the Company or any ERISA Affiliate may have any liability.

        "PREFERRED STOCK" means any class of capital stock of a corporation that
is preferred over any other class of capital stock of such corporation as to the
payment of dividends or the payment of any amount upon liquidation or 
dissolution of such corporation.

        "PREMIUM" means with respect to a prepayment occurring on or before 
January 2, 1998 3%, and thereafter 1%, of the principal amount of each Note 
being prepaid.

        "PROPERTY" or "PROPERTIES" means, unless otherwise specifically limited,
real or personal property of any kind, tangible or intangible, choate or 
inchoate.

        "REGISTRATION RIGHTS AGREEMENT" means the Registraton Rights Agreement 
dated as of the date hereof between the Company and you.

        "REPORT" is defined in Section 5.3.

        "REQUIRED HOLDERS" means, at any time, the holders of at least a 
majority in principal amount of the Notes at the time outstanding (exclusive of 
Notes then owned by the Company or any of its Affiliates).

        "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this agreement.

        "SECURITIES ACT" means the Securities Act of 1933, as amended from time 
to time.

        "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal 
accounting officer, treasurer or comptroller of the Company.


                                  Schedule B

                                       6




<PAGE>
 


        "SUBSIDIARY" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.

        "SUBSIDIARY GUARANTEE" means, individually and collectively, the 
guarantees now or hereafter given by the subsidiary Guarantors pursuant to 
Section 10.

        "SUBSIDIARY GUARANTORS" means any Subsidiary of the Company that 
executes a Subsidiary Guarantee in accordance with this Agreement, and their 
respective successors and assigns.

        "SWAPS" means, with respect to any Person, payment obligations with 
respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides of the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.

        "WARRANTS" means Warrants in the forms of Exhibit 2 to purchase 750,000 
shares of the Company's Common Stock (subject to adjustment in the terms set
forth therein), with 100,000 Warrants immediately exercisable and delivered in
payment of certain fees and 200,000 Warrants becoming exercisable on each of
July 1 and October 1, 1997 and the remainder becoming exercisable on January 1,
1998 (subject in each case to earlier termination in accordance with the terms
thereof).

        "WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one hundred
percent (100%) of all of the equity interest (except directors' qualifying 
shares ) and voting

                                  Schedule B

                                       7
<PAGE>
 


interest of which are owned by any one or more of the Company and the Company's 
other Wholly-Owned Subsidiaries at such time.




                                  Schedule B

                                       8


<PAGE>
 

                                [FORM OF NOTE]


                              DRYPERS CORPORATION

                        12% SENIOR NOTE DUE MAY 1, 1999


No. [______]                                                              [Date]
$[________]

        FOR VALUE RECEIVED, the undersigned, DRYPERS CORPORATION (herein called
the "Company"), a corporation organized and existing under the laws of the State
of Delaware, hereby promises to pay to [___________________], or registered
assigns, the principal sum of [_________________] DOLLARS on May 1, 1999, with
interest (computed on the basis of a 360-day year of twelve 30-day months) (a)
on the unpaid balance thereof at the rate of 12% per annum from the date hereof,
payable semiannually, on the 1st day of January and July in each year,
commencing with the January 1 or July 1 next succeeding the date hereof, until
the principal hereof shall have become due and payable, and at maturity, and (b)
to the extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Premium (as defined in the Note Purchase Agreement referred to
below), payable semiannually as aforesaid (or, at in the Note Purchase Agreement
referred to below), payable semiannually as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the greater of (i) 13% or (ii) 3% over the rate of interest publicly
announced by The Chase Manhattan Bank from time to time in New York, New York as
its "base" or "prime" rate.

        Payments of principal of, interest on and any Premium with respect to 
this Note are to be made in lawful money of the United States of America at the 
principal office of The Chase Manhattan Bank in New York, New York or at such 
other place as the Company shall have designated by written notice to the holder
of this Note as provided in the Note Purchase Agreement referred to below.

        This Note is one of a series of Senior Notes (herein called the "Notes")
issued pursuant to a Note Purchase Agreement, dated as of April 24, 1997 (as 
from time to time amended, the "Note Purchase Agreement"), between the Company, 
the Subsidiary Guarantors (as therein defined) and the Purchaser named therein 
and is entitled to the benefits and subject to the provisions thereof. Each 
holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed
to the confidentiality provisions set forth in Section 20 of the Note Purchase 
Agreement and (ii) to have made the representation set forth in Section 6.2 of 
the Note Purchase Agreement.

                                   Exhibit 1


<PAGE>
 
        The Note is a registered Note and, as provided in the Note Purchase 
Agreement, upon surrender of this Note for registration of transfer, duly 
endorsed, or accompanied by a written instrument of transfer duly executed, by 
the registered holder hereof or such holder's attorney duly authorized in 
writing, a new Note for a like principal amount will be issued to, and 
registered in the name of, the transferee. Prior to due presentment for 
registration of transfer, the Company may treat the person in whose name this 
Note is registered as the owner hereof for the purpose of receiving payment and 
for all other purposes, and the Company will not be affected by any notice to 
the contrary.

        The Company will make required prepayments of principal on the dates and
in the amounts specified in the Note Purchase Agreement. This Note is also
subject to optional prepayment, in whole or from time to time in part, at the
times and on the terms specified in the Note Purchase Agreement, but not
otherwise.

        If an Event of Default, as defined in the Note Purchase Agreement, 
occurs and is continuing, the principal of this Note may be declared or 
otherwise become due and payable in the manner, at the price (including any 
applicable Premium) and with the effect provided in the Note Purchase Agreement.

        This Note shall be construed and enforced in accordance with, and the 
rights of the holders shall be governed by, the law of the State of New York 
excluding choice-of-law principles of the law of such State that would require 
application of the laws of a jurisdiction other than such State.



                                                DRYPERS CORPORATION



                                                By___________________
                                                  [Title]



                                   Exhibit 1

                                       2