SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(  )     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For fiscal year ended ____________________

(X)      TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
         EXCHANGE  ACT OF 1934 For the  transition  period from March 3, 1997 to
         November 30, 1997.

Commission File No. 1-7013

                            GRISTEDE'S SLOAN'S, INC.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)


                     Delaware                           13-1829183
            -------------------------------          ----------------
            (State or Other Jurisdiction of          (I.R.S. Employer
             Incorporation or Organization)         Identification No.)


           823 Eleventh Avenue, New York, New York        10019-3535
           ----------------------------------------       ----------
           (Address of Principal Executive Offices)       (Zip Code)


                                 (212) 956-5803
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)


Securities registered pursuant to Section 12 (b) of the Act:

     Title of each class             Name of each exchange on which registered
Common Stock, $0.02 par value                   American Stock Exchange


Securities registered pursuant to Section 12(g) of the Act:

                                      None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by  Section  13,  or 15(d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.
                                               Yes [ ]    No [X]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K.    [X]

As of May 1, 1998, 19,636,574 shares of the registrant's common stock, $0.02 par
value, were outstanding.  The aggregate market value of the common stock held by
nonaffiliates  of the  registrant  (i.e.,  excluding  shares  held by  executive
officers,  directors,  and control  persons as defined in Rule 405) on that date
was $7,561,456 computed at the closing price on that date.

Documents Incorporated by Reference:  None


<PAGE>


         This  annual  report  on  Form  10-KSB  contains  both  historical  and
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform  Act  of  1995.  Words  such  as  "anticipates",  "believes",
"expects", "intends", "future", and similar expressions identify forward-looking
statements.  Any such  "forward-looking"  statements in this report  reflect the
Company's current views with respect to future events and financial performance,
and are subject to a variety of factors  that could cause the actual  results or
performance to differ materially from historical results or from the anticipated
results or performance expressed or implied by such forward-looking  statements.
Because of such factors,  there can be no assurance  that the actual  results or
developments   anticipated   by  the  Company  will  be  realized  or,  even  if
substantially  realized,  that they will have the anticipated results. The risks
and uncertainties  that may affect the Company's  business include,  but are not
limited  to:  economic  conditions,   governmental  regulations,   technological
advances,  pricing  and  competition,  acceptance  by  the  marketplace  of  new
products,  retention of key personnel, the sufficiency of financial resources to
sustain and expand the Company's operations, and other factors described in this
report and in prior filings with the Securities and Exchange Commission. Readers
should not place undue reliance on such forward-looking statements,  which speak
only as of the date hereof,  and should be aware that except as may be otherwise
legally  required  of the  Company,  the Company  undertakes  no  obligation  to
publicly  revise  any such  forward-looking  statements  to  reflect  events  or
circumstances that may arise after the date hereof.


ITEM 1.           BUSINESS.

General

         The Company is a Delaware corporation whose principal executive offices
are located at 823 Eleventh Avenue,  New York, New York  10019-3535.  Unless the
context otherwise  requires,  the terms "Company" or "Registrant" as used herein
refer to  Gristede's  Sloan's,  Inc.  (which is a holding  corporation)  and its
wholly-owned subsidiaries.

         The Company owns and operates 42 supermarkets and one health and beauty
aids store (the "Supermarkets").  37 Supermarkets are located in Manhattan,  New
York,  three  Supermarkets  are located in  Westchester  County,  New York,  two
Supermarkets are located in Brooklyn, New York and one Supermarket is located in
Long Island,  New York. 23 of the  Supermarkets are operated under the "Sloan's"
name and 20 are operated under the "Gristede's"  name. The Company leases all of
its Supermarket locations.

         The Company also owns City Produce Operating Corp., a corporation which
operates a warehouse  and  distribution  center  primarily  for fresh produce on
leased premises in the Bronx, New York.

         The Company  competes on the basis of providing  customer  convenience,
service  and a wide  assortment  of food  products,  including  those  that  are
appealing  to the  clientele in the  neighborhoods  where its  Supermarkets  are
located. The Supermarkets,  like most Manhattan  supermarkets,  are smaller than
their suburban counterparts,  ranging in size from approximately 3,200 to 23,000
square feet of selling space and averaging 8,500 square feet of selling space.

         The  Supermarkets  offer,  at  competitive   prices,   broad  lines  of
merchandise,  including  nationally and regionally  advertised  brands,  private
label and generic  brands.  Merchandise  sold  includes food items such as fresh
meats,  produce, dry groceries,  dairy products,  baked goods, poultry and fish,
fresh fruits and vegetables,  frozen foods,  delicatessen  and gourmet foods, as
well as many non-food  items such as  cigarettes,  soaps,  paper  products,  and
health and beauty  aids.  Check-cashing  services  are  available  to  qualified
customers  holding  check-cashing  cards and,  for a small fee, the Company will
deliver  groceries to a  customer's  apartment  door.  The  Supermarkets  accept
payment by Mastercard, Visa, American Express and Discover credit cards. Most of
the Supermarkets are open sixteen hours per day, seven days a week and on


                                        2

<PAGE>


holidays,  including  Christmas,  New  Year's  and  Thanksgiving.  Most  of  the
Supermarkets close two hours earlier on Sundays.

         The  Company's  predecessor  was  incorporated  in 1956 in New York. In
1985, the Company's  domicile was changed to Delaware by merging the predecessor
corporation  into a newly formed  Delaware  corporation,  incorporated  for such
purpose. The Company became a public company in 1968 and listed its Common Stock
on the American Stock Exchange in 1972.  Until 1992, the Company  engaged in the
jewelry business, operating under the name Designcraft Industries, Inc. for most
of such time.  The  Company  changed its name to Sloan's  Supermarkets,  Inc. in
September  1993 and to Gristede's  Sloan's,  Inc. in 1997 to reflect its current
business.


Recent Developments

         On November 10, 1997 a Merger Agreement, dated as of July 14, 1997 (the
"Merger   Agreement")  among  Red  Apple  Group,  Inc.   ("Group"),   Red  Apple
Supermarkets, Inc. ("RAS"), Gristede's Supermarkets,  Inc. ("Gristede's"),  City
Produce  Distributors,  Inc.,  Supermarket  Acquisition Corp.  ("SAC"),  John A.
Catsimatidis,  the Company, RAS Operating Corp. ("RASOC"),  Gristede's Operating
Corp.  ("GOC"),  SAC Operating Corp.  ("SACOC") and City Produce Operating Corp.
("City Produce") was consummated pursuant to which four corporations directly or
indirectly  owned by Mr.  Catsimatidis,  the  Chairman  of the  Board  and Chief
Executive  Officer of the Company,  merged into four newly  formed  wholly owned
subsidiaries  of the  Company.  As a result of the  mergers  (collectively,  the
"Merger"),  the  Company  acquired  the  assets  and  business  of 29  operating
supermarkets  (including accounts receivable,  fixtures,  leasehold improvements
and inventories of supplies and merchandise located at the supermarkets, certain
leasehold  rights in real  property and  equipment  and certain  other  contract
rights in connection with the operation of such supermarkets),  ownership of the
tradenames  "Gristede's"  and  "Sloan's"  and  the  warehouse  and  distribution
business now operated by City Produce (collectively, the "Food Group").

         Pursuant  to the  Merger  Agreement,  John  Catsimatidis  and  Group (a
corporation wholly owned by John Catsimatidis),  as the sole stockholders of the
four  corporations  acquired  in the  Merger,  became  entitled  to  receive  an
aggregate of  $40,000,000  in market value of the Company's  Common  Stock.  The
aggregate market value of the shares of the Company's Common Stock issued in the
Merger was reduced by an amount  equal to the amount of certain  liabilities  of
RAS,  Gristede's  and SAC to John  Catsimatidis  and entities  controlled by him
which were assumed by the surviving  corporations  in the Merger  ("Intercompany
Liabilities").  The  aggregate  amount  of  such  Intercompany  Liabilities  was
$4,000,000.  Based on a market value of $2.18125 per share (the average  closing
sales price for the Common Stock as reported on the American  Stock Exchange for
the sixty  consecutive  trading days ended on October 29, 1997, the day prior to
the date of a Special and Annual  Meeting of  Stockholders  of the Company  (the
"Stockholders  Meeting") at which the Merger was approved) the aggregate  number
of shares issued to Mr.  Catsimatidis  and Group was  4,173,754 and  12,330,544,
respectively.  As of June 1, 1998 Mr. Catsimatidis beneficially owned 18,250,650
shares of Common Stock (approximately 90.5% of the outstanding shares).

         Simultaneously with the consummation of the Merger, the Company entered
into  agreements  with European  American  Bank and certain other  participating
lenders with respect


                                        3

<PAGE>


to a $25,000,000 secured bank facility comprised of: (i) a $12,000,000 five year
term loan to  refinance  the  Company's  outstanding  bank  debt and to  provide
working  capital,  (ii)  an  $8,000,000  five  year  term  loan to  finance  the
remodelling  of  the  Company's   supermarkets   and  the   installation   of  a
point-of-sale and management information system, and (iii) a $5,000,000 two year
revolving line of credit for additional working capital.

         At the  Stockholders  Meeting held on October 30, 1997,  the  Company's
stockholders  approved,  among other things,  amendments to the  Certificate  of
Incorporation of the Company to (a) increase the number of authorized  shares of
Common  Stock  from  10,000,000  to  25,000,000  and (b)  change the name of the
Company to Gristede's  Sloan's,  Inc. (see Item 4.  "Submission  of Matters to a
Vote of  Securityholders").  On  November  4, 1997 the  Company  filed  with the
Delaware  Secretary of State a Certificate  of Amendment of its  Certificate  of
Incorporation to effectuate such amendments.

         In February 1998, the  Company  acquired  from  an  affiliate  of  John
Catsimatidis the assets of a Supermarket  located at 1644 York Avenue, New York,
New York. For information  concerning the terms of such acquisition see Item 13.
"Certain Relationships and Related Transactions."


Growth Strategy

         The Company believes that the Merger will allow it to realize synergies
and increasing  operating leverage while providing management with the necessary
resources and focus to streamline operations, automate facilities and capitalize
on  strategic  opportunities.  The  Company  also  believes  that the Merger has
enabled it to achieve the critical  mass  necessary to execute its future growth
strategy.

         The  Company  has  embarked  on a capital  expenditure  program for its
Supermarkets  that includes  extensive  remodelings  and the  introduction  of a
centralized  point-of-sale  information  system.  The  Company  has  obtained an
$8,000,000 five year term loan from certain banks to provide  financing for such
capital improvements (see "Recent Developments").

         As of June 1, 1998, 11 stores have been remodeled and  modernized.  The
Company anticipates that seven more stores will be remodeled before November 29,
1998. The program will continue into 1999. The modernized  smaller  Supermarkets
are  re-named  "Gristede's  2001",  and the  larger  Supermarkets  are  re-named
"Gristede's Mega Stores".

         The largest of the remodeled stores is located in Roosevelt  Island, in
New York City and has been  expanded  in size to 23,000  square  feet of selling
space from the previous 8,000 square feet.

         Average  sales  increases at the  remodeled  stores have  exceeded 50%.
Modernization  has resulted in a more enjoyable  shopping  atmosphere  with more
rapid check-out lines due to scanners and improved lighting facilities.

         The  Company  may  also  expand  its  operations  through  opening  new
supermarkets,  acquisitions  of supermarkets  and/or  acquisitions of businesses
which the Company believes would complement its core supermarket business.


                                        4

<PAGE>


Marketing

         The Company  advertises  in local  newspapers  on a weekly  basis.  The
Company's advertising  emphasizes competitive prices and variety of merchandise.
Some of the Company's vendors offer cooperative  advertising  allowances,  which
the Company  receives  for  advertising  particular  products  in its  newspaper
advertisements.


Competition

         The  Company's  retail  business  is subject  to  intense  competition,
characterized by low profit margins and requiring  regular  advertising.  All of
the Supermarkets are in direct competition with Food Emporium,  D'Agostino, A&P,
Pathmark and independent  supermarket/grocery  operators which do business under
the names "Pioneer",  "Key Food" and "Associated",  many of which are larger and
have  substantially  greater  resources than the Company.  The Supermarkets also
compete with other outlets which sell products sold by  supermarkets in New York
City.  Those outlets include gourmet food stores,  health and beauty aid stores,
drug  stores,  produce  stores,  bodegas,  delicatessens  and other  retail food
establishments. In addition, several of the Company's competitors have announced
plans to open larger stores.


Sources of Supply

         During the period  from March 3, 1997 to November  30, 1997  covered by
this  report  (the  "Transition  Period"),  the  Company  obtained  45%  of  the
merchandise sold in its stores from one principal  merchandise  supplier,  White
Rose Foods, and the balance from other vendors, none of which accounted for more
than 10% of merchandise  purchased by the Company. The Company believes that its
supplier relationships are currently satisfactory.  The Company is not dependent
on these supplier  relationships  since  merchandise  is readily  available from
numerous  sources under different brand names,  subject to conditions  affecting
food supplies generally.


Tradenames

         The Company owns the "Gristede's" and "Sloan's" tradenames.  Such names
have an  established  reputation  in the areas  served by the  Supermarkets  for
convenience,  competitive prices,  service and a wide variety of quality produce
and merchandise.

         Gristede's is a federally  registered  trademark.  While the Company is
not  aware  that  its use of the  tradename  infringes  upon the  rights  of any
persons, it has not obtained any federal or state trademark registration for the
tradename  "Sloan's."  The assertion by a third party of superior  rights in the
tradename  "Sloan's" or the loss of the Company's right to use either  tradename
could have a material adverse effect on the Company.


Labor Contracts

         All of the  employees  of the  Company  other  than  96  administrative
employees and executives and 58 store managers and  co-managers  are represented
by  unions.  The table  below  sets  forth the name of each union with which the
Company has a collective  bargaining  agreement and the expiration  date of such
agreement.


                                        5

<PAGE>


Name of Union                                                Expiration Date
----------------------------------------                     -----------------
Retail, Wholesale & Chain Store                              October 3, 1998
  Food Employees Union, Local 338
Amalgamated Meat Cutters and Retail Food                     October 23, 1999
  Store Employees Union, Local 342-50
United Food and Commercial Workers Union                     December 19, 1998
  ("UFCW"), Local 174
UFCW, Local 1500                                             June 21, 1998
UFCW, Local 464A                                             May 1, 2003
International Brotherhood of Teamsters                       June 30, 1999
  ("Teamsters"), Local 803
Teamsters, Local 202                                         December 31, 2003


Governmental Approvals

         All of the stores have obtained all necessary  governmental  approvals,
licenses and permits to operate the Supermarkets.


Employees

         At June 1, 1998, the Company had approximately  1,123 employees,  1,022
of which are employed at the Supermarkets or the City Produce warehouse, and 101
of which are employed at the Company's  executive offices.  Approximately 390 of
the employees were employed on a full-time basis.


Year 2000 Issue

         The Company has initiated an automation program to install state of the
art computerized  point-of-sale terminals ("POS") which are year 2000 compliant,
in all its  Supermarkets.  Approximately  one-third of the Supermarkets  already
have POS systems installed.  The Company  anticipates that all Supermarkets will
have POS systems installed by the year 2000.

         Corporate  level  systems are being  developed  and  implemented  using
client server  technology to make  efficient and timely use of the data supplied
by store  automation  systems for  management,  marketing and general  corporate
purposes.  Management  believes  that all such systems will be in place so as to
ensure  corporate  wide year 2000  functionality  from its systems.  The Company
estimates that the cost to implement  corporate level systems that are year 2000
compliant will not exceed $100,000.


ITEM 2.  PROPERTIES.

         The Company leases all 43  Supermarket  locations and the warehouse and
distribution  center operated by City Produce. 11 of such leases expire prior to
2001,  23 of such leases  expire on dates from 2001  through  2010 and 9 of such
leases expire on dates from 2011 through 2018.  The  Supermarkets  range in size
from approximately 3,200 to 23,000 square feet of selling space, averaging 8,500
square feet of selling space. All of the stores are air-


                                        6

<PAGE>


conditioned,  have all necessary fixtures and equipment and are suitable for the
retail operations conducted thereat.


ITEM 3.  LEGAL PROCEEDINGS.

         On August 8, 1994, a lawsuit  against the Company and Mr.  Catsimatidis
was instituted in the United States District Court for the Southern  District of
New York by RMED  International,  Inc.  ("RMED"),  a former  stockholder  of the
Company.

         The complaint  alleges,  among other things,  that RMED and a purported
class consisting of persons who purchased the Company's common stock on or after
March 19, 1993 were damaged by alleged nondisclosures in certain filings made by
the Company with the Securities and Exchange Commission between January 1993 and
June 1994 relating to an  investigation  by the FTC. The complaint  alleges that
such  nondisclosures  constituted  violations  of  Federal  and New  York  State
securities  laws,  as well as common  law fraud  and  seeks  damages  (including
punitive  damages) in an unspecified  amount (although in discovery  proceedings
the named plaintiff has claimed that its damages were  approximately  $800,000),
as well as costs and  disbursements of the action.  On June 2, 1994, the Company
issued a press release which disclosed the FTC action.

On September 30, 1994, the  defendants  filed a motion to dismiss for failure to
state a cause of action and for lack of  subject  matter  jurisdiction  over the
state claims. The motion was denied. In June 1995, RMED filed a motion for class
certification,  and discovery was held in abeyance  pending  disposition of that
motion. The motion was granted in March 1996 and discovery is now proceeding and
is scheduled to be completed in June 1998.  Management believes that the lawsuit
is without  merit and  intends to defend the  action  vigorously;  however,  the
outcome cannot be determined.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.

         A Special and Annual meeting of stockholders of the Company was held on
October 30, 1997. At the meeting,  John  Catsimatidis was elected as the Class 3
director to serve for a one year term expiring at the annual  meeting to be held
in 1998,  and Leroy  Hemingway II was  reelected and Kishore Lall was elected as
Class 1 Directors for a two year term expiring at the annual  meeting to be held
in 1999.  The number of votes cast in favor of the election of Mr.  Catsimatidis
was  2,587,693  and the number of votes cast against was 166,825.  The number of
votes cast in favor of the  election  of Mr.  Hemingway  was  2,584,527  and the
number of votes cast against was  169,991.  The number of votes cast in favor of
the election of Mr. Lall was  2,584,527 and the number of votes cast against was
169,991.  The terms of Martin  Bring and  Frederick  Selby as  Directors  of the
Company continued after the meeting.

         In addition to the election of the directors, the stockholders approved
the Merger Agreement (see Item 1 "Business - Recent  Developments").  The number
of votes  cast in favor of the Merger  Agreement  was  1,765,609,  the number of
votes cast against the Merger Agreement was 60,051 and the number of abstentions
was 1,486. The stockholders also approved a proposal to amend the Certificate of
Incorporation  of the Company to increase  from  10,000,000  to  25,000,000  the
authorized number of shares of Common Stock. The number of


                                        7

<PAGE>


votes cast in favor of the  amendment  was  1,627,166,  the number of votes cast
against was 196,766 and the number of abstentions  was 3,214.  The  stockholders
also approved a proposal to amend the Certificate of Incorporation to change the
name of the Company to  Gristede's,  Sloan's,  Inc.  The number of votes cast in
favor of the  amendment  was  2,672,005,  the number of votes cast  against  was
80,446 and the number of abstentions was 2,067. The  stockholders  also ratified
the grant to John Catsimatidis of non-qualified options to purchase an aggregate
of 250,000  shares of Common  Stock at $2.875 per share  through  the earlier of
August 11, 2006 or 90 days after the termination of Mr. Catsimatidis' employment
by the Company. The number of votes cast in favor of the proposal was 1,633,157,
the number of votes cast against was 187,575 and the number of  abstentions  was
6,414.


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS.

         The Company's  Common Stock is listed and traded on the American  Stock
Exchange.  Since  November 12, 1997 the Common Stock has been quoted under stock
symbol  "GRI."  Prior  thereto  it was quoted  under the  symbol  "SLO." For the
Transition  Period from March 3, 1997 to  November  30, 1997 and the fiscal year
ended  March 2, 1997,  the  quarterly  high and low price  range for such common
stock is shown in the following tabulation:

                             Transition Period from
                                 March 3, 1997 to            Fiscal Year Ended
                                 November 30, 1997             March 2, 1997
--------------------------------------------------------------------------------
Quarter                        High            Low           High          Low
---------                      -----           -----         -----         -----
First                          3-1/8           2-1/4         3-3/4         2-7/8
Second                         2-5/8           1-7/8         3-1/2         2-1/2
Third                          2-11/16             2         3-3/8         2-1/4
Fourth                  Not applicable    Not applicable     3-1/16        1-7/8
--------------------------------------------------------------------------------


         The  approximate  number of holders of record of the  Company's  Common
Stock on June 1, 1998 was 230. The Company believes that there are a significant
number  of  shares  of the  Company's  Common  Stock  held in  street  name and,
consequently, the Company is unable to determine the actual number of beneficial
owners.

         The Company has never paid a cash dividend on its Common Stock and does
not expect to pay a cash dividend in the near future.


                                        8

<PAGE>


<TABLE>
<CAPTION>

ITEM 6.       SELECTED FINANCIAL DATA


                                  39 Weeks Ended                                    Years Ended
                                 ----------------         -------------------------------------------------------------
                                    November 30,               March 2,                March 3,            February 26,
                                       1997(1)                   1997                     1996                 1995

<S>                               <C>                     <C>                     <C>                     <C>          
Sales ........................    $  77,908,693           $ 104,168,864           $ 116,866,063           $ 116,862,727
Cost of sales ................       48,591,721              63,932,541              72,351,240              72,893,642
Gross profit .................       29,316,972              40,236,323              44,514,823              43,969,085
Direct operating
   expenses ..................       27,462,628              33,821,475              37,566,143              36,738,453
Corporate overhead ...........        3,983,280               6,207,930               6,405,593               8,269,408
Depreciation and
   amortization ..............        1,585,486               2,092,403               2,257,714               2,747,641
Bad debt expense .............             --                   113,242                 222,878                 277,952
Excess of expenses
   over sales ................       (3,714,422)             (1,998,727)             (1,937,505)             (4,064,369)



At End of Period
Total assets .................       52,705,555              23,119,000              20,152,454              18,281,000
Long-term debt ...............       12,662,910                    --                      --                      --
Total liabilities ............       38,035,533              20,014,000              17,620,539              16,822,000


<FN>

--------
(1)  Includes the  operations of the Food Group only for the 36 week period from
March 3, 1997 to November 9, 1997 and the  operations  of the  combined  Company
from November 10, 1997 to Novemer 30, 1997.

</FN>
</TABLE>


                                        9

<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS.


Company Background

         The fiscal year ended March 3, 1996  consisted of 53 weeks.  The fiscal
year ended March 2, 1997 consisted of 52 weeks. The transition period from March
3, 1997 to November 30, 1997 (the "Transition Period") consisted of 39 weeks.


Results of Operations (Transition Period Compared to 1997)

         During the 36 week period from March 3, 1997 until November 9, 1997 the
Company  consisted of 15 stores and filed Quarterly Reports on Form 10-Q for the
quarters ended June 1, 1997 and August 31, 1997.

         On November 10, 1997, as a result of the Merger,  the Company  acquired
certain assets net of liabilities  of 29 selected  supermarkets  and a wholesale
distribution  business (the "Food Group") controlled by John  Catsimatidis,  the
principal  stockholder of the Company.  The transaction was accounted for as the
acquisition  of the Company by the Food Group  pursuant to Emerging  Issues Task
Force 90-13 as a result of the Food Group obtaining control of the Company after
the transaction.

         As a result of the reverse  acquisition  the  following  summary of the
Results of Operations for the 39 week period  encompasses  the operations of the
Food Group for 36 weeks,  and the  operations of the new combined  companies for
only 3 weeks after the  Merger.  Therefore,  the 15 stores  owned by the Company
prior to the Merger have  contributed  to sales,  gross  margin and overhead for
only 3 weeks.

         Sales for the 39 weeks ended November 30, 1997, on an annualized basis,
were  $103,878,260 as compared to  $104,168,864  for the 52 weeks ended March 2,
1997. The net sales decrease was the result of several factors. Sales for the 39
week period did not  include the busy  Christmas  and New Year's  holiday  sales
periods.  The  favorable  summer  weather in the New York City area  during 1997
resulting in prolonged vacations,  as well as continuing  deflationary pressures
in food prices also  contributed  to the decrease in sales.  The decreases  were
partially  offset by increases in sales  attributable to the fact that 15 stores
not  included as part of the prior year's  numbers were  included for 3 weeks in
the November 30, 1997 period.  The sales of the 15 stores amounted to $3,870,221
of the  annualized  39 week's  sales.  In addition,  the  remodeling of 4 stores
during the 39 week period resulted in substantial sales increases. Sales for the
same 29 stores  were  $71,379,894  for the 39 weeks ended  November  30, 1997 as
compared with $74,119,743 for the 39 weeks ended December 1, 1996, a decrease of
3.70%.  The  sales  decline  in the 1997  period  was due to the same  favorable
weather conditions during such period and continuing  deflationary  pressures in
food prices previously noted.

         Gross profit as a percentage of sales was 37.63% for the 39 week period
ended November 30, 1997 as compared to 38.63% for the 52 week period ended March
2, 1997. The decreases in gross profit margin was mainly due to the  curtailment
of our long-term  forward buying  program in the November  period as compared to
the March period.  In addition,  construction  activity  taking place during the
store remodelings and grand opening promotions for the remodeled stores affected
overall gross profit margins during the November period.

         Store operating, general and administrative expenses as a percentage of
sales were 35.25% for the 39 week period ended  November 30, 1997 as compared to
32.47% of sales for the 52 week period


                                       10

<PAGE>


ended March 2, 1997.  Operating  expenses as a percentage of sales  increased in
the November period due to increases in occupancy cost,  labor costs  associated
with the store remodels and advertising costs.

         Nonstore operating expenses as a percentage of sales were 5.11% for the
39 week period ended  November 30, 1997 as compared to 6.07% of sales for the 52
week period  ended March 2, 1997.  The decrease in nonstore  operating  expenses
were mainly the result of reduced administrative  personnel and the reduced need
for the services of outside legal counsel in connection  with  litigation,  real
estate, and general corporate matters.


Results of Operations (1997 Compared to 1996)

         Sales for the fiscal  year  ended  March 2, 1997 were  $104,168,864  as
compared to  $116,866,023  for the fiscal year ended March 3, 1996. The decrease
in sales was  attributable to the following:  (i) 1996 was comprised of 53 weeks
as compared with 52 weeks in 1997,  (ii) one store that was open for all of 1996
was only open for a portion of 1997 due to a fire, as a result of which sales of
such store were approximately $3,270,000 less in 1997 as compared to 1996, (iii)
beverage sales, which ordinarily represent  approximately 17.0% of summer sales,
were negatively  impacted by the abnormally cool weather in the New York area in
1997  and  (iv)  the  selling  price  of  cereals,   which  typically  represent
approximately  7.50% of grocery  sales,  decreased in 1997.  Sales from the City
Produce  distribution center to outside customers were approximately  $1,525,000
less  in 1997  as  compared  with  1996  mainly  as a  result  of the  increased
utilization of the facility as a distribution center for the Food Group's stores
under the better-buying program.

         Gross profit as a percentage of sales was 38.6% for 1997 as compared to
38.1% for 1996. The improvement in 1997 primarily reflects the implementation of
the better-buying program utilizing the City Produce distribution center to make
bulk purchases,  on a direct basis at better prices, as well as the expansion of
the sales of  value-added,  higher margin  products.  Additionally,  prices were
selectively increased.

         Direct operating  expenses as a percent of sales were 32.5% for 1997 as
compared with 32.1% for 1996. The primary  reasons for the increase in operating
expenses as a percent of sales in 1997 as compared  with 1996 were  increases in
utility costs,  advertising  costs and occupancy costs resulting from new leases
replacing  expired ones. In addition,  fixed monthly  expenses such as occupancy
costs benefitted from 53 weeks of sales in 1996 as compared to 52 weeks of sales
in 1997.

         Corporate  overhead  decreased  to  $6,207,930  in 1997 as  compared to
$6,405,593  in 1996.  Bad debt  expense was $113,242 or 0.1% of sales in 1997 as
compared  with  $222,878  or 0.2% of  sales in 1996.  The  decrease  in bad debt
expense was primarily  due to a reduction in reserves  required for the expanded
use of credit cards in the Food Group's stores.

         As a result  of the  above,  the  excess  of  expenses  over  sales was
$1,998,727  for 1997 as  compared  to  $1,937,505  for 1996,  after  charges for
depreciation   and   amortization   expenses  of  $2,092,403   and   $2,257,714,
respectively.


Liquidity and Capital Resources

         On November 10, 1997, the Company completed its financial  arrangements
with a  group  of  banks  for a  credit  facility  in the  aggregate  amount  of
$25,000,000.  Under the credit agreement the Company obtained a term loan in the
amount of  $12,000,000 to refinance  prior bank debt, an  improvement  term loan
line of credit in the amount of $8,000,000 to finance capital improvements to


                                       11

<PAGE>


its  Supermarkets  and a revolving line of credit in the amount of $5,000,000 to
provide working capital.


         As of  November  30,  1997,  the  Company  had  taken  down the  entire
$12,000,000 term loan and $1,000,000 was outstanding under the revolving line of
credit. As of May 11, 1998 the entire $5,000,000 of the revolving line of credit
was  outstanding,  but the  Company  still had  available  $5,350,000  under the
improvement  term loan line of credit to finance the Company's  continuing major
store remodeling program. Management of the Company anticipates that the Company
will generate  sufficient  cash flow to finance its future working capital needs
for the foreseeable future.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
         RISK.

         Not applicable.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                                                        Page No.
                                                                        --------
Report of independent certified public accountants                           F-1

Consolidated balance sheet of Gristede's Sloan's, Inc.
   and its subsidiaries as of November 30, 1997                              F-3

Statement of Assets to be Purchased and Liabilities to
   be assumed as of March 2, 1997                                            F-5

Consolidated Statement of Operations of Gristede's Sloans, Inc.
   and its subsidiaries for the three weeks ended November 30, 1997          F-6

Consolidated Statements of Sales and Expenses of Gristede's Sloan's, Inc.
   and its subsidiaries for the 36 weeks ended November 9, 1997,
   the 53 weeks ended March 2, 1997 and the 53 weeks ended March 3, 1996     F-7

Consolidated Statement of Stockholders' Equity of Gristede's Sloan's,
   Inc. and its subsidiaries for the three weeks ended November 30, 1997     F-8

Consolidated Statement of Cash Flows of Gristede's Sloan's, Inc.
   and its subsidiaries for the three weeks ended November 30, 1997          F-9

Notes to Financial Statements                                               F-10


                                       12

<PAGE>


Report of Independent Certified Public Accountants


Board of Directors of
  Gristede's Sloan's, Inc.
New York, New York

We have  audited  the  accompanying  consolidated  balance  sheet of  Gristede's
Sloan's,  Inc.  and  subsidiaries  as of  November  30,  1997,  and the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
the three weeks then ended (see Note 1). We have also  audited the  accompanying
statement of assets to be purchased and  liabilities to be assumed by Gristede's
Sloan's,  Inc.  as of March 2,  1997 and the  related  statements  of sales  and
expenses  for the 36 weeks ended  November 9,  1997 and each of the two years in
the  period  ended  March  2,  1997.   These   financial   statements   are  the
responsibility of Gristede's Sloan's,  Inc.'s management.  Our responsibility is
to express an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

The  accompanying  statement of assets to be  purchased  and  liabilities  to be
assumed and  statements  of sales and expenses  were prepared for the purpose of
complying  with  the  rules  and  regulations  of the  Securities  and  Exchange
Commission,  and are not intended to be a complete  presentation  of  Gristede's
Sloan's,  Inc.'s  financial  position or results of  operations as of or for the
periods noted above.

                                      F-1


<PAGE>


In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  (i) the  financial  position of  Gristede's
Sloan's, Inc. and subsidiaries as of November 30, 1997, and the results of their
operations  and their cash flows for the three  weeks then  ended,  and (ii) the
assets to be purchased and liabilities to be assumed by Gristede's Sloan's, Inc.
at March 2, 1997 and its sales and expenses for the 36 weeks  ended  November 9,
1997 and each of the two years in the period ended March 2, 1997,  in conformity
with generally accepted accounting principles.


/s/ BDO Seidman, LLP
--------------------
BDO Seidman, LLP


New York, New York

May 15, 1998, except for
  Note 9a and Note 13b, as to
  which the date is June 9, 1998

                                      F-2


<PAGE>



                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                                  Balance Sheet


November 30, 1997

Assets
Current:
   Cash .......................................................      $    88,970
   Accounts receivable - net of allowance for
     doubtful accounts of $300,000 ............................        5,110,026
   Inventories ................................................       16,221,465
   Prepaid expenses and other current assets ..................          914,544
   Notes receivable - current portion .........................          584,912
                                                                     -----------
        Total current assets ..................................       22,919,917
                                                                     -----------
Property and equipment:
   Furniture, fixtures and equipment ..........................       13,393,803
   Capitalized equipment leases ...............................        5,574,369
   Leasehold interests and improvements .......................       30,296,510
                                                                     -----------
                                                                      49,264,682
   Less:  Accumulated depreciation and amortization ...........       23,567,986
                                                                     -----------
              Net property and equipment ......................       25,696,696
                                                                     -----------
      Due from affiliate ......................................          351,778
                                                                     -----------
      Deposits and other assets ...............................          717,429
                                                                     -----------
      Deferred costs ..........................................        1,515,004
                                                                     -----------
      Notes receivable - noncurrent portion ...................        1,504,731
                                                                     -----------
                                                                     $52,705,555
                                                                     -----------

See accompanying notes to financial statements.

                                      F-3

<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                                  Balance Sheet


November 30, 1997

Liabilities and Stockholders' Equity
Current:
   Accounts payable, trade .......................................   $15,671,962
   Accrued payroll, vacation and withholdings ....................     1,276,535
   Accrued expenses and other current liabilities ................       947,395
   Capitalized lease obligation - current portion ................       389,809
   Current portion of long-term debt .............................     1,714,284
                                                                     -----------
        Total current liabilities ................................    19,999,985
Long-term debt - noncurrent portion ..............................    11,285,716
Due to affiliate .................................................     4,000,000
Deferred advertising .............................................       378,654
Capitalized lease obligation - noncurrent portion ................     1,377,194
Deferred rent ....................................................       993,984
                                                                     -----------
        Total liabilities ........................................    38,035,533
                                                                     -----------
Commitments and contingencies
Stockholders' equity:
   Common stock, $0.02 par value - shares authorized 25,000,000;         392,732
      outstanding 19,636,574
        Additional paid-in capital ...............................    14,136,674
        Retained earnings ........................................       140,616
                                                                     -----------
              Total stockholders' equity .........................    14,670,022
                                                                     -----------
                                                                     $52,705,555


See accompanying notes to financial statements.

                                      F-4


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                       Statement of Assets to be Purchased
                          and Liabilities to be Assumed


March 2, 1997

Assets:
Accounts receivable .........................................        $ 2,999,000
Inventories .................................................          9,457,000
Notes receivable ............................................          1,634,000
Prepaid expenses and other current assets ...................            213,000
Security deposits ...........................................            300,000
Fixed assets, net ...........................................          7,187,000
Capital leases, net .........................................          1,329,000
                                                                     -----------
      Assets purchased ......................................         23,119,000
                                                                     -----------
Liabilities:
Accounts payable ............................................         11,192,000
Due to affiliate ............................................          4,000,000
Accrued vacation and sick pay ...............................            993,000
Due to Sloan's Supermarkets, Inc. ...........................          1,154,000
Capitalized leased obligations to affiliate .................          2,675,000
                                                                     -----------
      Total liabilities .....................................         20,014,000
                                                                     -----------
Net assets purchased ........................................        $ 3,105,000
                                                                     -----------


See accompanying notes to financial statements.

                                      F-5


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                             Statement of Operations




Three weeks ended November 30, 1997

Sales .........................................................      $ 9,225,123
Cost of sales .................................................        5,731,065
                                                                     -----------
        Gross profit ..........................................        3,494,058
Store operating, general and administrative expenses ..........        2,754,563
   Depreciation and amortization ..............................          219,813
                                                                     -----------
                                                                         519,682
   Nonstore operating expense .................................          266,480
                                                                     -----------
           Operating profit ...................................          253,202
                                                                     -----------
   Other income (expense):
      Interest expense ........................................           82,586
                                                                     -----------
           Total other expenses ...............................           82,586
                                                                     -----------
           Income before provision for income taxes ...........          170,616
   Provision for income taxes .................................           30,000
                                                                     -----------
   Net income .................................................      $   140,616
                                                                     -----------
   Income per share of common stock ...........................      $       .01
                                                                     -----------
   Weighted average common shares outstanding .................       19,636,574
                                                                     -----------


See accompanying notes to financial statements.

                                      F-6

<PAGE>

<TABLE>
<CAPTION>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                        Statements of Sales and Expenses




                                            36 weeks ended            52 weeks ended            53 weeks ended
                                               November 9,                 March 2,                  March 3,
                                                   1997                      1997                      1996
                                              ------------              ------------              ------------
<S>                                          <C>                       <C>                       <C>          
Sales .................................      $  68,683,570             $ 104,168,864             $ 116,866,063
Cost of sales .........................         42,860,656                63,932,541                72,351,240
                                              ------------              ------------              ------------
      Gross profit ....................         25,822,914                40,236,323                44,514,823
Direct operating expenses .............         24,708,065                33,821,475                37,566,143
                                              ------------              ------------              ------------
                                                 1,114,849                 6,414,848                 6,948,680
Corporate overhead ....................          3,716,800                 6,207,930                 6,405,593
                                              ------------              ------------              ------------
                                                (2,601,951)                  206,918                   543,087
Depreciation and amortization .........          1,365,673                 2,092,403                 2,257,714
Bad debt expense ......................               --                     113,242                   222,878
                                              ------------              ------------              ------------
Excess of expenses over sales .........      $  (3,967,624)            $  (1,998,727)            $  (1,937,505)
                                              ------------              ------------              ------------


See accompanying notes to financial statements.

</TABLE>

                                      F-7


<PAGE>


<TABLE>
<CAPTION>

                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                        Statement of Stockholders' Equity




Three weeks ended November 30, 1997

                                                    Common stock
                                            -----------------------------             Additional                            Total
                                             Number of            Amount               paid-in            Retained     stockholders'
                                              shares                                   capital            earnings         equity
                                             ----------       -----------            -----------       -----------       -----------
<S>                                          <C>              <C>                    <C>               <C>               <C>        
Balance, November 10, 1997 ...............         --         $      --              $      --         $      --         $      --
To reflect acquisition of ................   19,636,574           392,732             14,136,674              --          14,529,406
   Sloan's Supermarkets, Inc. -
   Recapitalization (Note 1)  
Net income ...............................         --                --                      --            140,616           140,616
                                             ----------       -----------            -----------       -----------       -----------
   Balance, November 30, 1997 ............   19,636,574       $   392,732            $14,136,674       $   140,616       $14,670,022
                                             ==========       ===========            ===========       ===========       ===========

See accompanying notes to financial statements.

</TABLE>

                                      F-8
<PAGE>


<TABLE>
<CAPTION>

                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                             Statement of Cash Flows


Three weeks ended November 30, 1997

<S>                                                                                          <C>         
Cash flows from operating activities:
   Net income ..........................................................................     $    140,616
   Adjustments to reconcile net income to net cash used in operating
      activities:
      Depreciation and amortization ....................................................          219,813
      Changes in operating assets and liabilities, net of effect from
        acquisition of supermarkets:
                    Accounts receivable ................................................         (421,106)
                    Inventories ........................................................         (209,130)
                    Prepaid expenses and other current assets ..........................          442,666
                    Notes receivable ...................................................           23,433
                    Receivable from officer ............................................           (1,113)
                    Other assets .......................................................         (399,092)
                    Accounts payable, trade ............................................       (6,529,099)
                    Accrued payroll, vacation and withholdings .........................          397,894
                    Accrued expenses and other current liabilities .....................          270,334
                    Deferred rent ......................................................           34,503
                    Other credits ......................................................          378,654
                                                                                             ------------
                           Net cash used in operating activities .......................       (5,651,627)
                                                                                             ------------
Cash flows from investing activities:
           Capital expenditures - net ..................................................         (362,987)
                                                                                             ------------
                           Net cash used in investing activities .......................         (362,987)
                                                                                             ------------
Cash flows from financing activities:
           Repayments of bank loan .....................................................       (7,100,000)
           Capitalized lease obligations ...............................................           (7,665)
           Proceeds from bank loan .....................................................       13,000,000
                                                                                             ------------
                           Net cash provided by financing activities ...................        5,892,335
                                                                                             ------------
Net decrease in cash ...................................................................         (122,279)
Cash, beginning of period -- acquired from supermarkets ................................          211,249
                                                                                             ------------
Cash, end of period ....................................................................     $     88,970
                                                                                             ============
Supplemental disclosures of cash flow information:
           Cash paid for interest ......................................................     $     21,792
           Cash paid for taxes .........................................................            1,500
                                                                                             ------------


See accompanying notes to financial statements.

</TABLE>

                                      F-9


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


1.  Business and Basis        
    of Presentation           
                              
                              On November 4, 1997,  Sloan's  Supermarkets,  Inc.
                              ("Sloan's")   changed   its  name  to   Gristede's
                              Sloan's,   Inc.  ("GRI"  or  the  "Company").   On
                              November 10, 1997,  GRI acquired  certain  assets,
                              net of liabilities of 29 selected supermarkets and
                              a  wholesale   distribution  business  ("The  Food
                              Group") controlled by Mr. John Catsimatidis, a 37%
                              shareholder of GRI. The  transaction was accounted
                              for as the  acquisition  of  Sloan's  by The  Food
                              Group pursuant to Emerging Issues Task Force 90-13
                              as a result of The Food Group obtaining control of
                              Sloan's  after the  transaction.  The  assets  and
                              liabilities of The Food Group (the "Acquiror") are
                              recorded at their historical cost.  Sloan's assets
                              and  liabilities  are being recorded at their fair
                              value to the extent  acquired.  Consideration  for
                              the  transaction  was  based  on an  aggregate  of
                              $36,000,000  in  market  value  of  the  Company's
                              common stock and the  assumption  of $4,000,000 of
                              liabilities.  16,504,298  shares of  common  stock
                              were issued on the date of the  acquisition  based
                              on a market price of $2.18 per share.

                              The accompanying statement of operations as of and
                              for  the  three  weeks  ended  November  30,  1997
                              represents the consolidated operations of The Food
                              Group and GRI.  Retained  earnings at November 30,
                              1997   represent  the   cumulative  net  operating
                              results  for  both  The  Food  Group  and GRI from
                              November  10, 1997 (the date the  acquisition  was
                              consummated) to November 30, 1997.

                                      F-10


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              The Food Group's financial statements, rather than
                              complete financial statements, are presented as of
                              and for periods prior to November 9,  1997 because
                              the business acquired consists of only certain net
                              assets of the stores and there are certain  assets
                              of  The  Food  Group   that  were  not   acquired.
                              Accordingly,   the  statements  present  only  the
                              assets  acquired and the  liabilities  assumed and
                              the sales and expenses  directly  attributable  to
                              The Food Group. The financial  statements  consist
                              of  a  historical  consistent  comparison  of  the
                              operating results only of those stores transferred
                              to the public  company.  The  entities  owning The
                              Food Group (the  "Group"),  in  addition to owning
                              the  above  stores,  also  have  other  operations
                              included within its consolidated group.  Corporate
                              overhead  costs for the entire Group are allocated
                              to the Group's  respective  operations,  including
                              The Food Group. Corporate overhead included in the
                              accompanying  statements  of  sales  and  expenses
                              include identified  overhead costs for payroll and
                              other   directly   attributable   overhead   costs
                              pertaining to the retail stores owned by the Group
                              which also  includes  costs  incurred for selected
                              stores not being  sold.  No tax  benefit  has been
                              recognized  due to the fact that the losses remain
                              with the corporate parent of The Food Group.


2.  Summary of                Fiscal Year
    Significant
    Accounting Policies       On  January  13,  1998,  the  Company's  Board  of
                              Directors  elected to change the Company's  fiscal
                              year-end  from the Sunday  closest to the last day
                              of February to the Sunday  closest to the last day
                              of November.

                                      F-11


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              INVENTORIES

                              Store  inventories  are valued  principally at the
                              lower of cost or market with cost determined under
                              the retail method.

                              PROPERTY AND EQUIPMENT

                              Depreciation of furniture,  fixtures and equipment
                              is computed by the  straight-line  method over the
                              estimated  useful lives of the assets,  with lives
                              ranging   from  seven  to  ten  years.   Leasehold
                              improvements  are  amortized  over the  shorter of
                              their estimated  useful lives or the lease term by
                              the straight-line method.

                              The Company recorded approximately $4.4 million to
                              leasehold   rights  on  the  consummation  of  the
                              acquisition  discussed  in Note 1 due to favorable
                              leasing terms.  The leasehold rights are amortized
                              over ten years by the straight-line method.
                                        
                              LEASES 

                              The  Company  charges  the  cost of  noncancelable
                              operating lease payments and beneficial leaseholds
                              to  operations on a  straight-line  basis over the
                              lives of the leases.

                              DEFERRED  ADVERTISING

                              Advertising    rebates   and   space    allocation
                              allowances  are deferred and  recognized in income
                              over the period of the agreement, generally one to
                              three years.

                              ADVERTISING EXPENSE 

                              The Company expenses  advertisement costs when the
                              advertisement is first shown.

                              DEFERRED COSTS

                              Deferred  costs consist of  noncompete  agreement,
                              acquisition   and   financing   costs.   They  are
                              amortized  on a  straight-line  basis over five to
                              ten years.

                                      F-12


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              INCOME TAXES

                              Deferred tax assets and liabilities are recognized
                              for the future tax  consequences  attributable  to
                              differences   between  the   financial   statement
                              carrying    amounts   of   existing   assets   and
                              liabilities   and  their   respective  tax  basis.
                              Deferred tax assets and  liabilities  are measured
                              using  enacted  tax  rates  expected  to  apply to
                              taxable   income  in  the  years  in  which  those
                              temporary differences are expected to be recovered
                              or settled.  The effect on deferred tax assets and
                              liabilities of a change in tax rates is recognized
                              in  income  in  the  period  that   includes   the
                              enactment   date.   No  deferred   tax  assets  or
                              liabilities   from  The  Food   Group   have  been
                              recognized  since  only the  operating  assets and
                              liabilities  of the  stores  have been  sold.  The
                              losses  incurred by these stores being sold remain
                              with the Red Apple Group, Inc.

                              The Company will not  recognize  gain or loss as a
                              result of the completion of the  transactions  set
                              forth in the  merger  agreement  between  The Food
                              Group and the Company.  The Company  believes that
                              it will undergo an "Ownership  Change"  within the
                              meaning of  Section  382 of the  Internal  Revenue
                              Code of 1986, as amended,  as a consequence of the
                              transaction. As a result, the Company's ability to
                              offset  its  net  operating   loss   carryforwards
                              (including  a portion  of any net  operating  loss
                              incurred in the  Company's  current  taxable year)
                              against income earned after the  transaction  will
                              be limited.  (As of November 30, 1997, the Company
                              had   net   operating   loss    carryforwards   of
                              approximately  $3,000,000).  Thus, the transaction
                              could  result in taxation of some  Company  income
                              that,  absent  the  transaction,  might  have been
                              offset by net operating loss carryforwards.

                              USE OF ESTIMATES 

                              The   preparation   of  financial   statements  in
                              conformity  with  generally  accepted   accounting
                              principles  requires  management to make estimates
                              and  assumptions   that  affect  certain  reported
                              amounts of assets, liabilities, income and expense
                              and  disclosures of  contingencies.  Future events
                              could alter such estimates in the near term.

                                      F-13


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              STOCK-BASED COMPENSATION PLANS

                              Statement   of  Financial   Accounting   Standards
                              ("SFAS")  No.  123,  "Accounting  for  Stock-Based
                              Compensation"  allows  either  adoption  of a fair
                              value  method  of   accounting   for   stock-based
                              compensation  plans or  continuation of accounting
                              under Accounting  Principles Board ("APB") Opinion
                              No.   25,   "Accounting   for   Stock   Issued  to
                              Employees,"  and  related   interpretations   with
                              supplemental disclosures.

                              The   Company   has  chosen  to  account  for  all
                              stock-based  compensation  arrangements  under APB
                              Opinion No. 25 with related disclosures under SFAS
                              No. 123. Pro forma net earnings  (loss) per common
                              share amounts as if the fair value method had been
                              adopted are presented in Note 11.

                              FAIR VALUE OF FINANCIAL INSTRUMENTS

                              SFAS No.  107,  "Disclosure  About  Fair  Value of
                              Financial   Instruments"   requires  companies  to
                              disclose the fair value of financial  instruments.
                              The carrying values of cash and cash  equivalents,
                              accounts  receivable and accounts payable reported
                              in the  accompanying  consolidated  balance sheets
                              approximate  fair  value  due  to  the  short-term
                              maturities of these assets.
                                        

                              The fair value of long-term  debt,  consisting  of
                              the term loan and  revolving  loan  payable  as of
                              November 30, 1997,  approximates the recorded book
                              values because of the fluctuating  interest rates.
                              It was not  practical to determine  the fair value
                              of the  amount  due to  affiliate,  because of the
                              uncertain repayment terms.

                              LONG-LIVED ASSETS

                              During  1995,  SFAS No. 121,  "Accounting  for the
                              Impairment of Long-lived Assets and for Long-lived
                              Assets to Be Disposed  Of",  was issued.  SFAS 121
                              requires the Company to review  long-lived  assets
                              and certain  identifiable  assets related to those
                              assets for impairment  whenever  circumstances and
                              situations change such that there is an indication
                              that the carrying  amounts may not be recoverable.
                              If  the  undiscounted  future  cash  flows  of the
                              enterprise are less than their  carrying  amounts,
                              their  carrying  amounts are reduced to fair value
                              and  an   impairment   loss  is   recognized.   No
                              impairment  losses  have  been  necessary  through
                              November 30, 1997.

                                      F-14


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              INCOME PER SHARE

                              Per share data are based on the  weighted  average
                              number of shares of common  stock and common stock
                              equivalents  outstanding  during each year. Income
                              (loss) per share is computed by the treasury stock
                              method;  primary and fully  diluted  income (loss)
                              per  share  are  the   same.   

                              Recent Accounting Pronouncements

                              SFAS No. 128,  "Earnings  Per  Share,"  requires a
                              presentation  of  basic  EPS and  diluted  EPS for
                              fiscal years  beginning  after  December 15, 1997.
                              Basic EPS  excludes  dilution  and is  computed by
                              dividing earnings available to common stockholders
                              by the  weighted-average  number of common  shares
                              outstanding  for  the  period.  Similar  to  fully
                              diluted  EPS,  diluted EPS assumes  conversion  of
                              convertible  debt and the issuance of common stock
                              for  all  other  potentially  dilutive  equivalent
                              shares outstanding,  unless the effect of issuance
                              would have  an anti-dilutive  effect.  The Company
                              believes  SFAS No. 128 will have  little,  if any,
                              effect on the information already disclosed in the
                              Company's financial statements.

                              SFAS No. 129,  "Disclosure  of  Information  About
                              Capital  Structure"  requires an entity to provide
                              certain    disclosures    within   its   financial
                              statements   about  the   pertinent   rights   and
                              privileges of the various  securities  outstanding
                              for fiscal  years  beginning  after  December  15,
                              1997. The Company  believes SFAS No. 129 will have
                              little, if any, effect on the information  already
                              disclosed in the Company's  financial  statements.

                              SFAS No. 130,  "Reporting  Comprehensive  Income",
                              requires an entity to report  comprehensive income
                              and its  components  for  fiscal  years  beginning
                              after December 15, 1997. The Company believes SFAS
                              No. 130 will have  little,  if any,  effect on the
                              information  already  disclosed  in the  Company's
                              financial  statements.  

                              SFAS No. 131,  "Disclosures  About  Segments of an
                              Enterprise  and Related  Information"  requires an
                              entity  to  report   financial   and   descriptive
                              information   about   its   reportable   operating
                              segments for fiscal years beginning after December
                              15, 1997.  The Company  believes SFAS No. 131 will
                              have  little,  if any,  effect on the  information
                              already  disclosed  in  the  Company's   financial
                              statements.

                                      F-15


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              Statement of Position  98-1,  "Accounting  for the
                              Costs of Computer  Software  Developed or Obtained
                              for Internal  Use",  requires an entity to expense
                              all  software  development  costs  incurred in the
                              preliminary project stage, training costs and data
                              conversion  costs for fiscal years beginning after
                              December 15, 1998. The Company  believes that this
                              statement  will not have a material  effect on the
                              Company's   accounting   for   computer   software
                              acquisitions.    

                              Statement  of  Position  98-5,   "Accounting   for
                              Start-up Costs", requires an entity to expense all
                              start-up  related  costs as  incurred  for  fiscal
                              years  beginning  after  December  15,  1998.  The
                              Company believes that this statement will not have
                              a material effect on the Company's  accounting for
                              start-up costs.

3.  Acquisition of The        As discussed  in  Note  1,  the  following   table
    Food Group                reflects unaudited pro forma combined results of 
                              operations  of  Sloan's  and The Food Group on the
                              basis that the  acquisition had taken place at the
                              beginning  of the  fiscal  year  for  each  of the
                              periods presented:


                                                      36 weeks       52 weeks
                                                       ended           ended
                                                     November 9,     March 2,
                                                        1997           1997
                              --------------------------------------------------
                              Revenues             $101,157,570     $150,721,403

                              Operating income        1,679,004       11,085,809
                              --------------------------------------------------


                              In management's  opinion,  the unaudited pro forma
                              combined  results of operations are not indicative
                              of the actual results that would have occurred had
                              the acquisition  been consummated on March 4, 1996
                              or of future operations of the combined  companies
                              under the ownership and management of GRI.

                                      F-16


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              4. Related Party The Company has advanced funds to
                              a company  owned  Transactions  by the Chairman of
                              the Board who is also the principal stockholder of
                              the Company.  As of November 30, 1997, the Company
                              is owed approximately $352,000, including $148,000
                              of accrued  interest.  Such advance bears interest
                              at prime plus 1.25% per annum  (9.75% at  November
                              30, 1997 and 9.50% at March 2, 1997).

                              The  Company  and  other  affiliated  supermarkets
                              allocate  volume,  advertising  and other rebates.
                              Rebates,  whether allocated or directly attributed
                              to the Company, are recorded as reductions to cost
                              of sales or  advertising  expense over the life of
                              the  related   agreement.   Rebates   recorded  as
                              reductions to expenses  approximated $0.4 million,
                              $1.5  million,  $3.2  million and $2.2 million for
                              the 3 weeks  ended  November  30,  1997,  36 weeks
                              ended November 9,  1997 and the fiscal years ended
                              1997 and 1996, respectively.

                              Prior to the merger,  Red Apple Management Inc., a
                              company   wholly   owned  by  John   Catsimatidis,
                              provided certain payroll, related employee benefit
                              services  and office  services for The Food Group.
                              Such services include  accounting,  merchandising,
                              human resources,  maintenance,  executive salaries
                              and  employee  benefits.  During the 3 weeks ended
                              November  30,  1997,  36 weeks  ended  November 9,
                              1997 and the fiscal years ended 1997 and 1996, the
                              Company incurred  approximately $-0-,  $2,748,000,
                              $3,755,000 and $3,761,000, respectively.

                              Newspaper   advertising   for   the   Company   is
                              frequently   pooled  with  advertising  for  other
                              supermarkets  which are not owned by the  Company.
                              In such cases,  the Company  pays a  proportionate
                              share of such advertising  expenses based upon its
                              number   of    Supermarkets    covered    in   the
                              advertisements.  Such  amounts  allocated  to  the
                              Company approximated $-0-, $388,000,  $319,000 and
                              $317,000  during the 3 weeks  ended  November  30,
                              1997,  36 weeks ended  November  9, 1997,  and the
                              fiscal years ended 1997 and 1996, respectively.

                                      F-17


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              Lowenthal,  Landau,  Fischer & Bring,  P.C., a law
                              firm  of  which a  director  of the  Company  is a
                              member,   charged  the  Company  $-0-,   $341,000,
                              $194,000 and $487,000 in fees for rendering  legal
                              services to the  Company  during the 3 weeks ended
                              November  30,  1997,  36 weeks ended   November 9,
                              1997 and the fiscal  years ended March 2, 1997 and
                              March 3, 1996, respectively.
                                       

                              Capitalized Lease Obligations Due to Affiliate

                              Certain  stores  have  entered  into  capital  and
                              operating  leases  with an  affiliate,  Red  Apple
                              Leasing,  Inc.  (a  company  wholly  owned by John
                              Catsimatidis). Such leases are primarily for store
                              operating  equipment.  Obligations  under  capital
                              leases at November  30, 1997 were  $1,206,932  and
                              require monthly  payments of $35,114 through March
                              1, 2001.  Obligations  under  operating  leases at
                              March 2, 1997  require  84  payments  of  $14,594.
                              Obligations under operating leases at June 2, 1997
                              and September 1, 1997 require 60 monthly  payments
                              of $10,783 and $16,297, respectively.

                              Notes Receivable

                              During 1994, the Company sold two stores. Pursuant
                              to the  United  States  Federal  Trade  Commission
                              settlement  agreement  (see Note 11),  the Company
                              also sold four stores during 1996 and 1997. At the
                              time of the  sale,  the  Company  accepted  a note
                              receivable   on  each  store.   These  notes  bear
                              interest at rates of 8.5% to 10% and have terms of
                              4 to 6 years.


5.  Deferred Costs            At November 30, 1997, deferred costs consisted of:

<TABLE>
<CAPTION>

                                                                         Amount
                              ----------------------------------------------------------------------
<S>                                                                   <C>                 <C>       
                              Acquisition costs                       $  834,316          5-10 years
                              Non-compete covenants                      790,316            10 years
                              Debt costs                                 254,528          5-10 years
                              Other                                      122,263          5-11 years
                              Accumulated amortization                  (486,419)
                              ----------------------------------------------------------------------
                              Net deferred costs                      $1,515,004
                              ----------------------------------------------------------------------

</TABLE>


                                      F-18


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


6.  Due to Affiliate          Amounts due to  affiliate represent liabilities in
                              connection with the  consummation of the merger as
                              discussed in Note 1. The  affiliate has agreed not
                              to demand payment of these liabilities in the next
                              fiscal year.  Accordingly,  the liability has been
                              classified as  noncurrent.  The liability does not
                              bear interest.


7.  Commitments and           The Company operates primarily in leased
    Contingencies             facilities,  under noncancelable  operating leases
                              expiring at various dates  through  2018.  Certain
                              leases  provide for  contingent  rents (based upon
                              store sales exceeding stipulated amounts or on the
                              Consumer  Price  Index),  escalation  clauses  and
                              renewal  options  ranging  from  five  to  fifteen
                              years.  The Company is obligated  under all leases
                              to  pay  for  taxes,  insurance  and  common  area
                              maintenance expenses.

                              Rent expense under noncancelable operating leases,
                              including  leases  with  related  parties  for the
                              fiscal periods ended  November 30, 1997,  November
                              9,  1997,  March  2,  1997   and  March  3,  1996,
                              respectively, is as follows:

<TABLE>
<CAPTION>

                                                3 weeks ended  36 weeks ended   52 weeks ended  53 weeks ended
                                                 November 30,   November 9,         March 2,         March 3,
                                                     1997           1997             1997              1996
                              --------------------------------------------------------------------------------
<S>                                               <C>           <C>              <C>              <C>        
                              Base rents          $ 450,460     $ 4,026,056      $ 4,952,840      $ 4,699,012
                              Contingent rents         --           (18,169)          21,461          (27,951)
                              --------------------------------------------------------------------------------
                              Rent expense        $ 450,460     $ 4,007,887      $ 4,974,301      $ 4,671,061
                              --------------------------------------------------------------------------------

</TABLE>

                              Related party rent expense was $51,823,  $446,760,
                              $267,000  and  $348,000  for  the  3  weeks  ended
                              November  30,  1997,  36 weeks  ended  November 9,
                              1997 and the fiscal  years ended March 2, 1997 and
                              March 3, 1996, respectively.

                                      F-19


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              Future    minimum    lease    commitments    under
                              noncancelable leases as of November 30, 1997 are:


                              Fiscal year ending
                              ----------------------------------------------
                              1998                              $  8,653,000
                              1999                                 8,351,000
                              2000                                 8,109,000
                              2001                                 7,173,000
                              2002                                 6,600,000
                              Thereafter                          47,155,000
                              ----------------------------------------------
                                                                 $86,041,000
                              ----------------------------------------------


8.  Income Taxes              Deferred tax expense or benefit is  the  change in
                              the computed tax asset or liability balance. As of
                              November 30, 1997,  the Company had total deferred
                              tax assets of approximately  $2,400,000,  of which
                              approximately   $1,000,000   is   related  to  net
                              operating loss  carryforwards  which are available
                              to  offset  income  earned in  future  years,  and
                              approximately  $1,400,000 relates to the different
                              bases of leasehold  rights.  The net deferred  tax
                              assets at November 30, 1997 and March 2, 1997 were
                              offset by valuation allowances of an equal amount.
                              Accordingly,   no  deferred   income   taxes  were
                              recognized in any of the periods.

                              As of November 30, 1997, the Company had available
                              Federal  net  operating  loss   carryforwards   of
                              approximately   $3,000,000,   of  which   the  tax
                              benefits of $1,000,000 when and if realized,  will
                              be  credited   directly  to   additional   paid-in
                              capital.

                                      F-20


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              The income tax expense amounts in the consolidated
                              statements of  operations  consist of state income
                              taxes.



9.  Debt                      (a) Credit Facility and Term Loan Agreement

                                  On November 10, 1997, the Company entered into
                                  an  aggregate   $25,000,000  five-year  credit
                                  facility  with  European   American  Bank,  as
                                  agent, and certain other participating  banks.
                                  The  credit   facility  is   comprised   of  a
                                  $12,000,000  five-year term loan, a $8,000,000
                                  five-year  term loan line for  remodeling  and
                                  capital  improvements to the Company's  stores
                                  and a  $5,000,000  two-year  revolving  credit
                                  facility for general working capital purposes.
                                  Borrowings under the facility bear interest at
                                  a "spread"  over either the bank's  prime rate
                                  or LIBOR rates,  with the spread  dependent on
                                  the  ratio  of the  Company's  funded  debt to
                                  EBITDA   ratio,   as  defined  in  the  credit
                                  agreement.   The  credit   facility   contains
                                  covenants,   representations   and  events  of
                                  default typical of credit facility agreements,
                                  including  financial  covenants  which require
                                  the  Company to meet,  among other  things,  a
                                  minimum  tangible  net  worth,   debt  service
                                  coverage  ratios  and  fixed  charge  coverage
                                  ratios,  and  which  limit  transactions  with
                                  affiliates.   The   facility   is  secured  by
                                  equipment,     inventories     and    accounts
                                  receivable.

                                  On June 9, 1998, the Company's  banks extended
                                  the dates by which the Company was required to
                                  deliver to them its Annual  Report on SEC Form
                                  10-K for the nine months  ended  November  30,
                                  1997,  and its  quarterly  report  on SEC Form
                                  10-Q for the quarter ended March 1, 1998.

                                      F-21


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                                  Long-term  debt at November 30, 1997  consists
                                  of the following:

<TABLE>
<CAPTION>

                                  November 30, 1997

                                  --------------------------------------------------------------------------------
<S>                                                                                                    <C>        
                                  Term loan  payable  to banks due October 31, 2002.
                                    Interest on prime-based loans is payable monthly
                                    in arrears and interest on LIBOR-based  loans is
                                    payable  at the end of the  applicable  interest
                                    period;   principal   payable   in  59   monthly
                                    installments of $142,857  beginning  December 1,
                                    1997  with the 60th such  installment  being the
                                    then outstanding  principal  amount.  During the
                                    three weeks ended November 30, 1997 the interest
                                    rates  were  8.28% and 9.25% on the  LIBOR-based
                                    and     prime-based      loans,     respectively
                                    (collateralized   by   certain   assets  of  the
                                    Company,  including receivables,  inventory, and
                                    store equipment)                                                   $12,000,000

                                  Revolving  loan  payable  to bank, due October 31,
                                    1999.  Interest on prime-based  loans is payable
                                    monthly in arrears and  interest on  LIBOR-based
                                    loans is  payable  at the end of the  applicable
                                    interest  period.  During the three  weeks ended
                                    November 30, 1997,  the interest  rate was 9.25%
                                    (collateralized   by   certain   assets  of  the
                                    Company,  including receivables,  inventory, and
                                    store equipment)                                                     1,000,000
                                  --------------------------------------------------------------------------------
                                                                                                        13,000,000
                                  Less:  Current portion                                                 1,714,284
                                  --------------------------------------------------------------------------------
                                                                                                       $11,285,716
                                  ================================================================================

</TABLE>


                                      F-22


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                                  Principal  maturities of long-term  debt as of
                                  November 30, 1997:

                              Fiscal year ending
                              --------------------------------------------------
                              1998                                   $ 1,714,284
                              1999                                     2,714,284
                              2000                                     1,714,284
                              2001                                     1,714,284
                              2002                                     5,142,864
                              --------------------------------------------------
                                                                     $13,000,000
                              --------------------------------------------------


                              (b) In addition to  related party  capital  leases
                                  (Note  4),  the  Company  has  other   capital
                                  equipment  leases.  The net book  value of all
                                  assets under capital  leases is  approximately
                                  $1.4 million.

                                  Future  net  minimum  lease   payments   under
                                  capital leases are as follows:


                              Fiscal year ending
                              --------------------------------------------------
                              1998                                     $ 537,072
                              1999                                       537,072
                              2000                                       537,072
                              2001                                       256,160
                              2002                                       115,704
                              Thereafter                                 212,124
                              --------------------------------------------------
                                                                       2,195,204
                              Less: Amount representing interest         428,201
                              --------------------------------------------------
                              Present value of net minimum 
                                lease payments                         1,767,003
                              Due within one year                        389,809
                              --------------------------------------------------
                              Total                                   $1,377,194
                              ==================================================

                                      F-23


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


10.  Retirement Plans         The  Company   participates  in   various  defined
                              contribution   multi-employer  union pension plans
                              which are  administered  jointly by management and
                              union representatives and which sponsor most full-
                              time and certain  part-time union  employees.  The
                              pension  expense  for  these  plans   approximated
                              $153,000, $369,000, $697,000 and $849,000 in the 3
                              weeks  ended  November  30,  1997,  36 weeks ended
                              November 9,  1997, and the fiscal years ended 1997
                              and 1996,  respectively.  The Company could, under
                              certain  circumstances,  be  liable  for  unfunded
                              vested  benefits  or  other  expenses  of  jointly
                              administered union/management plans.


11.  Stock Option Plans       The  following  stock  option  plans were  carried
                              forward by The Food Group from Sloan's:

                              On  October  7,  1994,  the  Company  granted  the
                              Chairman a non-qualified  stock option to purchase
                              an aggregate of 275,000  shares of common stock at
                              a price of $3.75 per share (the fair market  value
                              at that date).

                              On  August  12,  1996,  the  Company  granted  the
                              Chairman a non-qualified  stock option to purchase
                              an aggregate of 250,000  shares of common stock at
                              a  price  of  $2.875  per  share,  subject  to the
                              ratification  of the  Company's  stockholders.  On
                              October  30,  1997,  the  Company's   stockholders
                              ratified the grant.

                              The Company  currently has one incentive grant and
                              four nonqualified grants under which stock options
                              may be  granted  to  officers,  directors  and key
                              employees  of  the  Company  - the  1994  Employee
                              Incentive  Grant  (the  "1994  Grant"),  the  1994
                              Nonqualified Grant (the "1994 NQ Grant"), the 1995
                              Chairman's  Nonqualified  Options (the "Chairman's
                              Grant"),  the 1994 Director's  Nonqualified  Grant
                              (the   "Directors'    Grant"),    and   the   1994
                              Nonqualified    Recruitment   Grant   (the   "1994
                              Recruitment   Grant").  The  options  to  purchase
                              common shares  generally are issued at fair market
                              value on the date of the grant,  begin  vesting on
                              the date of the  grant,  and expire ten years from
                              issuance  and  are   conditioned   upon  continual
                              employment during the vesting period.

                                      F-24


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              Under the 1994  Grant  and the 1994 NQ Grant,  the
                              Company  granted options to purchase up to 100,000
                              and 35,000 shares of common stock, respectively.

                              In  addition  to  the  one  incentive  grant,  the
                              Company has granted  stock  options to certain key
                              executives  and  directors.  The options vest over
                              five years and  contractual  lives of these grants
                              are similar to that of the incentive plan.
                                        

                              The   Company   applies   APB   Opinion   No.  25,
                              "Accounting  for Stock Issued to  Employees,"  and
                              related   interpretations  for  its  stock  option
                              grants.  Generally,  compensation  expense  is not
                              recognized for stock option grants.

                              In accordance  with SFAS No. 123,  "Accounting for
                              Stock-based  Compensation",  the Company discloses
                              the pro  forma  impact of  recording  compensation
                              expense  utilizing the  Black-Scholes  model.  The
                              Black-Scholes option valuation model was developed
                              for use in  estimating  the fair  value of  traded
                              options which have no vesting restrictions and are
                              fully transferable.  In addition, option valuation
                              models  require  the  input of  highly  subjective
                              assumptions  including  the  expected  stock price
                              volatility.  Because the  Company's  stock options
                              have characteristics  significantly different from
                              those of traded  options,  and because  changes in
                              the subjective  input  assumptions  can materially
                              affect the fair value  estimate,  in  management's
                              opinion,   the   Black-Scholes   model   does  not
                              necessarily provide a reliable measure of the fair
                              value of its stock options.

                              The accounting  provisions of SFAS No. 123 did not
                              have an  effect  on the  Company's  pro  forma net
                              income  and  earnings  per share and thus have not
                              been presented.

                                      F-25


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              A summary  of the  status of the  Company's  stock
                              options plans is presented below:

<TABLE>
<CAPTION>

                                                                                              Weighted Average
                                                                                Shares          Exercise Price
                              --------------------------------------------------------------------------------
<S>                                                                          <C>                 <C> 
                              Balance, February 26, 1995                       473,000               4.29
                                 Granted                                          --                  --
                                 Exercised                                        --                  --
                                 Forfeited                                      (9,000)              5.63
                                                                             ---------           --------
                              Balance, March 3, 1996                           464,000               4.27
                                 Granted                                          --                  --
                                 Exercised                                        --                  --
                                 Forfeited                                      (8,000)              5.63
                                                                             ---------           --------
                              Balance, March 2, 1997                           456,000               4.24
                                 Granted                                       325,000               3.36
                                 Exercised                                        --                  --
                                 Forfeited                                      (1,000)              5.63
                                                                             ---------           --------
                              Balance, November 9, 1997                        780,000               3.87
                                 Granted                                          --                  --
                                 Exercised                                        --                  --
                                 Forfeited                                        --                  --
                                                                             ---------           --------
                              Balance, November 30, 1997                       780,000               3.87
                                                                             =========           ========

</TABLE>


                              Options  exercisable  as of November  30, 1997 and
                              March  2,   1997   were   773,400   and   442,800,
                              respectively.

                              All  options  prior  to  November  10,  1997  were
                              assumed from Sloan's by the Company.

                                      F-26


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              The following table  summarizes  information as of
                              November  30,  1997  concerning   outstanding  and
                              exercisable options:

<TABLE>
<CAPTION>

                                                        Options Outstanding                Options Exercisable
                                              --------------------------------------     ---------------------
                                                             Weighted
                                                              Average      Weighted                   Weighted
                                 Range of                    Remaining     Average                     Average
                                 Exercise       Number      Contractual   Exercise          Number    Exercise
                                  Prices      Outstanding      Life        Price         Exercisable     Price
                              --------------------------------------------------------------------------------
<S>                                            <C>             <C>          <C>           <C>             <C> 
                                   3.75        275,000         5.94         3.75          275,000         3.75
                                   5.63         33,000         6.06         5.63           33,000         5.63
                                   5.63         84,000         6.06         5.63           84,000         5.63
                                   3.81         30,000         6.94         3.81           30,000         3.81
                                   3.81         33,000         1.94         3.81           26,400         3.81
                                   2.87        250,000         9.75         2.87          250,000         2.87
                                   5.00         75,000         4.75         5.00           75,000         5.00
                              --------------------------------------------------------------------------------
                              2.87-5.63        780,000         6.61         3.87          773,400         6.65
                              --------------------------------------------------------------------------------

</TABLE>


12.  Litigation               In June 1994,  the  United  States  Federal  Trade
                              Commission   (the  "FTC")   commenced   an  action
                              alleging that certain acquisitions  consummated by
                              Mr. John  Catsimatidis,  Sloan's,  and three other
                              entities (the "Red Apple entities")  controlled by
                              Mr.  Catsimatidis,  including  corporations  which
                              presently    own    the     acquisition     stores
                              (collectively,  the  "companies")  of  32  Sloan's
                              supermarkets   between  1991  and  1993   violated
                              Federal  antitrust  laws because the effect of the
                              acquisitions  might  be  substantially  to  lessen
                              competition   among   supermarkets   within   four
                              Manhattan residential neighborhoods. The complaint
                              indicated  that the FTC could seek  divestiture of
                              up to ten supermarkets owned by the companies.

                                      F-27


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              In  order  to  avoid  the   costs  of   protracted
                              litigation  in the  matter and  without  admitting
                              that any  antitrust law was violated as alleged in
                              the complaint, on November 21, 1994, the companies
                              entered into a settlement  agreement  against them
                              (the "Settlement Agreement"). The companies agreed
                              in the  Settlement  Agreement  that within  twelve
                              months  from  the  date  of a final  order  in the
                              proceeding  they  would  divest  themselves  of an
                              aggregate of six supermarkets in Manhattan, chosen
                              by  them  from  a  list  of  sixteen  supermarkets
                              specifically    designated   in   the   Settlement
                              Agreement  (none of which were  owned by  Sloan's)
                              and certain alternate  supermarkets  referenced in
                              the Settlement  Agreement (five of which were then
                              owned  by  Sloan's).  Nothing  in  the  Settlement
                              Agreement required Sloan's to divest itself of any
                              of its supermarkets, but any supermarkets divested
                              by Sloan's  counted  towards  satisfaction  of the
                              divesture obligations.

                              An order  embodying the  Settlement  Agreement was
                              made  effective   March  6,  1995  (the  "Order").
                              Pursuant to that Order,  for a period of ten years
                              from March 6, 1995, the companies cannot,  without
                              prior FTC  approval,  acquire any  interest in any
                              existing  supermarket  in a designated  area.  The
                              Order  does  not  restrict  the   companies   from
                              acquiring an interest in a supermarket  by leasing
                              or  purchasing a new location  that at the time of
                              acquisition  (and  for  six  months  prior  to the
                              acquisition)   is   not   being   operated   as  a
                              supermarket.

                              In March 1996, an application (the  "Application")
                              was  made to  modify  the  Order so as to lift the
                              divesture  requirements other than with respect to
                              one  store on the Upper  West  Side  which was not
                              owned by Sloan's.  The FTC approved the  divesture
                              of that store and its  divesture  was completed on
                              May 9, 1996.  On April 29, 1996,  the  Application
                              was revised;  and it was further revised in August
                              and  September  so as to seek  relief  solely with
                              respect to the  requirement  of  divesture  of any
                              supermarkets  in the Chelsea section of Manhattan.
                              On  September  13,  1996,   the  FTC  granted  the
                              Application   as   modified,   and   deleted   the
                              requirement    of    divestiture    in    Chelsea.
                              Simultaneously,  the FTC  appointed  a trustee  to
                              divest four supermarkets pursuant to the Order, as
                              modified.   The   trustee   was  not  granted  any
                              authority  to  divest  until  the FTC  approved  a
                              trustee  agreement  between  the  trustee  and the
                              companies.

                                      F-28


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


                              Subsequent to the  modification of the Order,  The
                              Food Group  sold an  aggregate  of four  stores in
                              compliance  with the  divestiture of the Order, as
                              modified. Based thereon, the trustee agreement did
                              not become effective.

                              A settlement of FTC claims based on the companies'
                              failure  to divest  supermarkets  pursuant  to the
                              Order was agreed to,  pursuant  to which  $600,000
                              was paid to the FTC. The $600,000  payment was not
                              included in The Food Group or Sloan's.

                              The  companies may at times be involved in various
                              legal proceedings which are routine and incidental
                              to the conduct of its  business.  The companies do
                              not believe  that any of this  litigation,  either
                              individually  or in the  aggregate,  could  have a
                              material adverse effect on the financial condition
                              or results of operations of the companies.

                              On August 8, 1994,  a lawsuit  against the Company
                              and Mr.  Catsimatidis was instituted in the United
                              States District Court for the Southern District of
                              New York by RMED International,  Inc. ("RMED"),  a
                              former stockholder of the Company.

                              The complaint  alleges,  among other things,  that
                              RMED and a purported  class  consisting of persons
                              who  purchased  the  Company's  common stock on or
                              after  March 19,  1993  were  damaged  by  alleged
                              nondisclosures  in  certain  filings  made  by the
                              Company   with   the   Securities   and   Exchange
                              Commission  between  January  1993 and  June  1994
                              relating  to an  investigation  by  the  FTC.  The
                              complaint   alleges   that   such   nondisclosures
                              constituted  violations  of  Federal  and New York
                              State  securities  laws,  as  well as  common  law
                              fraud,  and  seeks  damages  (including   punitive
                              damages) in an  unspecified  amount  (although  in
                              discovery  proceedings,  the named  plaintiff  has
                              claimed  that  its  damages   were   approximately
                              $800,000)  as well as costs and  disbursements  of
                              the action.  On June 2, 1994, the Company issued a
                              press release which disclosed the FTC action.

                              In June 1995,  Plaintiff  filed a motion for class
                              certification,  and discovery was held in abeyance
                              pending disposition of that motion. The motion was
                              granted in March 1996. Discovery is now proceeding
                              and it is  scheduled to be completed in June 1998.
                              Management  believes  that the  lawsuit is without
                              merit and intends to vigorously defend the action;
                              however, the outcome cannot be determined.

                                      F-29


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries

                          Notes to Financial Statements


13.  Subsequent Events        (a) On  March  17,  1998,  the  board of directors
                                  approved  an  options   program   whereby  key
                                  employees  and  directors   would  be  granted
                                  options to acquire up to 500,000 shares of the
                                  Company.  The options  vest ratably over three
                                  years and are exercisable at $2.63.


                              (b) On  June 9, 1998, Mr. John Catsimatidis issued
                                  a  limited   $1  million   guarantee   of  the
                                  collection  of all accounts  receivable  as of
                                  November    10,   1997.    Furthermore,    Mr.
                                  Catsimatidis has also agreed not to permit the
                                  level of the  Company's  liability  due to the
                                  affiliate  to fall below  $1,000,000  prior to
                                  the  issuance of fiscal  year ending  November
                                  29, 1998 audited financial statements.

                              (c) During 1998,  three  union  contracts covering
                                  approximately  900 employees will expire.  The
                                  Company   expects   to  enter   into   similar
                                  contracts with the unions as they expire.

                              (d) On February 6,  1998,  the  Company  purchased
                                  substantially  all of the assets  and  assumed
                                  certain of the  liabilities  of a  supermarket
                                  located  at 1644 York  Avenue,  New York,  New
                                  York owned by a corporation  controlled by Mr.
                                  John Catsimatidis. The purchase price is to be
                                  the  value of the  supermarket  based  upon an
                                  appraisal to be  conducted by a firm  selected
                                  by a committee of independent directors of the
                                  Company less the amount of certain liabilities
                                  assumed by the Company.

                                      F-30


<PAGE>


                                    PART III


Item 9   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
           ACCOUNTING AND FINANCIAL DISCLOSURE.

None.


Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Set forth below is certain  information  as of June 1, 1998 with  respect to all
directors and executive officers of the Company.


                                            Position with the Company or
                        Director             Other Principal Occupation
Name and Age             Since                 for the Past Five Years
------------             -----              -----------------------------

John A. Catsimatidis    1988(2)     Chairman of the  Board, President and Chief
     (49)                           Executive Officer of the Company since July
                                    28,  1988;  Treasurer  of the Company  from
                                    July 28, 1988 to March 17, 1998;  President
                                    and Chief  Executive  Officer  of Red Apple
                                    Group,    Inc.    (holding    company   for
                                    supermarket  chains)  and  Chairman  of the
                                    Board  and  Chief  Executive   Officer  and
                                    Director  of  United  Refining  Company  (a
                                    refiner and retailer of petroleum products)
                                    for more than five years;  Director of News
                                    Communications Inc., a public company whose
                                    stock  is  traded  over-the-counter,  since
                                    December 4, 1991.

Martin R. Bring          1988       Member of  the  law firm  of  Wolf,  Block,
     (55)                           Schorr and Solis-Cohen  LLP, New York, N.Y.
                                    and  predecessor  firm for more  than  five
                                    years.

Frederick Selby          1978       Chairman of Selby Capital Partners
     (60)                           (acquisition  and sale of  privately  owned
                                    firms and  divisions  of public  companies)
                                    for more than five years.

Leroy Hemingway II       1991       Chairman of the Board of The Famous Carpet 
     (66)                           Barns of Florida,  Inc. (a firm  engaged in
                                    retail  sales of carpets)  and  Chairman of
                                    the Board of Hemingway Properties, Inc. (an
                                    owner and operator of shopping centers) for
                                    more than five years.

--------

(2)   Mr. Catsimatidis also served as a director of the Company from November 4,
1986 to November 27, 1987.


                                       13

<PAGE>


Kishore Lall             1997       Director of  the  Registrant since October,
     (50)                           1997;  Senior  Vice  President  and Head of
                                    Commercial  Banking of ABN AMRO  Bank,  New
                                    York  branch  from  January  1991 until May
                                    1994.

Stuart Spivak             --        Executive Vice President and Chief Financial
     (61)                           Officer  of the  Company  since  March  17,
                                    1998;  Chief Financial  Officer of the Food
                                    Group  for  more   than  ten  years   prior
                                    thereto.

Michael Seltzer           --        Vice President and Secretary of the Company
     (48)                           since March 17, 1998;  Vice  President  and
                                    Controller  of the Food Group for more than
                                    10 years prior thereto.

Franklin Georges          --        Treasurer of  the  Company  since March 17,
     (43)                           1998;  Financial  consultant  to  the  Food
                                    Group  from  May 1996 to  March  17,  1998;
                                    Controller  of Telecom  Satellite  Systems,
                                    Inc.,  a  privately-held  cable  television
                                    company,  from  February  1994 to May 1996;
                                    division    accounting   manager   for   K.
                                    Hovnanian  Companies,  a public real estate
                                    development company,  from February 1991 to
                                    February 1994.


Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
"Exchange Act"),  requires directors and officers of the Company and persons who
own  more  than 10  percent  of the  Company's  common  stock  to file  with the
Securities  and  Exchange  Commission  (the  "Commission")  initial  reports  of
ownership  and reports of changes in ownership of the common  stock.  Directors,
officers and more than 10 percent  stockholders are required by the Exchange Act
to furnish the Company with copies of all Section 16(a) forms they file.

     To the Company's knowledge,  based solely on a review of the copies of such
reports  furnished  to the  Company and  written  representations  that no other
reports were required during the Transition  Period ended November 30, 1997, all
Section 16(a) filings  applicable  to its  directors,  officers and more than 10
percent beneficial owners were timely filed.


                                       14

<PAGE>


Item 11. EXECUTIVE COMPENSATION.

     The following table sets forth for the two fiscal years ended March 2, 1997
and the  Transition  Period  from March 3, 1997 to  November  30,  1997  certain
information  concerning the compensation  paid or accrued to the Chief Executive
Officer of the Company. As of November 30, 1997 there were no persons serving as
executive officers of the Company whose total salary and bonus exceeded $100,000
for the transition  period or who were being paid salary during such period at a
rate that would have exceeded  $100,000 had the period been for a full year. The
table  below does not  include  any  information  concerning  any person in such
person's  capacity as an  executive  officer of any entity  comprising  the Food
Group.

<TABLE>
<CAPTION>

                                                                                      Long-term Compensation
                                                                              -------------------------------------
                                                 Annual Compensation                  Awards                Payouts
                                           ----------------------------       -----------------------       -------
                                                                Other                                                   All
                                                                annual        Restricted                               other 
Name and                                                        compen-           stock       Options        LTIP      compen-
principal                                  Salary     Bonus     sation           award(s)     /Sar's        payouts    sation 
position                    Year             ($)       ($)       ($)               ($)         (#)            ($)       ($)   
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>       <C>       <C>               <C>     <C>                <C>       <C>
John Catsimatidis,      Transition           $-        $-        $-                $-            -            $-        $-
  Chairman of the       Period from
  Board, President      March 3, 1997
  and Chief             to November
  Executive             30, 1997
  Officer

                            1997              -         -         -                 -            -             -         -

                            1996              -         -         -                 -      250,000             -         -
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>


Stock Options

     No stock  options were granted to or exercised by Mr.  Catsimatidis  during
the  Transition  Period from March 3, 1997 to November 30, 1997.  The  following
table sets forth certain  information with respect to options to purchase Common
Stock held by John Catsimatidis on November 30, 1997.


                      Number of Unexercised            Value of Unexercised
                         Options Held on              in-the-Money Options on
                        November 30, 1997                November 30, 1997
                     --------------------------     ---------------------------
Name                 Exercisable/Unexercisable       Exercisable/Unexercisable
--------------------------------------------------------------------------------
John Catsimatidis            525,000/0                           0/0
--------------------------------------------------------------------------------


     The closing sales price of the Common Stock on the American  Stock Exchange
on November 28, 1997 (the last trading day before  November 30, 1997) was $2.25.
On November 30, 1997 Mr. Catsimatidis held options to purchase 275,000 shares of
Common Stock at $3.75 per share and options to purchase 250,000 shares at $2.875
per share.

                                       15


<PAGE>


Compensation of Directors

     Non-officer  directors  receive a quarterly  stipend of $1,500 and $500 for
each meeting attended.  Directors who serve on committees  receive $250 for each
meeting attended.


Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT.

     The following table sets forth certain  information  regarding ownership of
Common  Stock on June 1, 1998 by: (i) each  stockholder  known to the Company to
own beneficially  more than 5% of the outstanding  shares of Common Stock;  (ii)
each of the  Company's  directors;  and (iii) all officers and  directors of the
Company as a group. Except as otherwise indicated, the address of each person is
c/o Gristede's  Sloan's,  Inc., 823 Eleventh Avenue, New York, N.Y.  10019-3535.
The Company  believes that ownership of the shares by the persons named below is
both of record and  beneficial  and such persons have sole voting and investment
power with respect to the shares indicated.


Name and Address of                        Number of
 Beneficial Owner                            Shares             Percent of Class
-------------------------------          -------------          ----------------

John Catsimatidis                        18,250,650(1)                   90.5%
Leroy Hemingway II                           18,150(2)                       *
Frederick Selby                              10,910(2)                       *
Martin Bring                                  8,800(2)                       *
Kishore Lall                                  9,100                          *
All officers and directors as a          18,297,610(3)                   90.6%
  group (8 persons)

-----

*    Less than 1%.

(1)  Includes an aggregate of 12,391,574 shares held by corporations  controlled
     by Mr.  Catsimatidis,  2,057 shares held by a profit  sharing plan of which
     Mr.  Catsimatidis  is a trustee,  605 shares held by Mr.  Catsimatidis as a
     trustee of individual retirement accounts and currently exercisable options
     to purchase an aggregate of 525,000 shares of Common Stock.

(2)  Includes  for each of Messrs.  Selby,  Hemingway  and Bring an aggregate of
     8,800 shares of Common  Stock which may be  purchased  upon the exercise of
     currently exercisable stock options.

(3)  Includes  an  aggregate  of  551,400  shares of Common  Stock  which may be
     purchased upon the exercise of currently exercisable stock options.


                                       16

<PAGE>


Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     For  information  concerning  the Merger on November  10, 1997  whereby the
Company  acquired  from  corporations  directly or  indirectly  owned by John A.
Catsimatidis,   29  operating   Supermarkets,   ownership   of  the   tradenames
"Gristede's"  and  "Sloan's" and the  warehouse  and  distribution  business now
operated by City Produce, see Item 1. Business - Recent  Developments," which is
incorporated  herein by  reference.  No  information  is  contained  herein with
respect to  transactions  prior to the  consummation  of the Merger  between Mr.
Catsimatidis  and any entity which owned any of the 29 Supermarkets or warehouse
and distribution business acquired by the Company in the Merger.

     From March 19,  1993 to  November  10,  1997 the  Company  was a party to a
Management   Agreement  with  Group  pursuant  to  which  Group  supervised  all
operations of the  Supermarkets  then owned by the Company subject to the policy
goals and decisions prescribed by a committee of the independent directors. Such
agreement  required the Company to pay to Group a quarterly  fee equal to 1-1/4%
of all sales made in or from the  Supermarkets  and to  reimburse  Group for all
expenses  incurred  by  Group  in the  performance  of its  services  under  the
agreement.  For the  Transition  Period Group earned a fee of $398,206 under the
agreement.

     Under a Management  Agreement,  dated  November  10, 1997 (the  "Management
Agreement"),  Namdor Inc., a subsidiary of the Company,  performs consulting and
managerial  services for two  supermarkets  owned by corporations  controlled by
John Catsimatidis. In consideration of such services, Namdor Inc. is entitled to
receive  on a  quarterly  basis a cash  payment of one and  one-quarter  (1.25%)
percent of all sales of inventory  and  merchandise  made at or from the managed
supermarkets.

     On February 6, 1998 the Company  purchased  substantially all of the assets
and assumed  certain of the  liabilities  of a supermarket  located at 1644 York
Avenue,  New  York,  New  York  owned  by  a  corporation   controlled  by  John
Catsimatidis.  The purchase  price is to be the value of the  supermarket  based
upon  an  appraisal  to be  conducted  by a  firm  selected  by a  committee  of
independent  directors  of the  Company  less the amount of certain  liabilities
assumed by the Company.  The appraisal  will be based on, among other things,  a
review  of the  operating  statement  of the  supermarket  for the  period  from
February 6, 1998 to a date no earlier than January 31, 1999.  The purchase price
will be subject to  adjustment  to the extent  that the  acquired  inventory  is
greater or less than the sum of trade  payables  and  liabilities  for  employee
vacation and sick pay that have been assumed by the Company.  The purchase price
will be paid at such  time  and by such  method  as shall  be  recommended  by a
committee of the independent  directors of the Company and approved by the Board
of Directors of the Company, John Catsimatidis abstaining.

     Group provides maintenance services to the Company,  including  supermarket
refrigeration,  electrical  and  equipment  maintenance.  During the  Transition
Period, the Company did not incur expenses for such services.

     Prior to its  acquisition  by the Company in November  1997,  City  Produce
Distributors, Inc., a corporation indirectly wholly owned and controlled by John
Catsimatidis,  sold produce and certain  grocery  items to the Company at prices
consistent with those obtainable from non-affiliated  third parties.  During the
Transition Period, such sales aggregated approximately $2,705,135.

     Prior to the acquisition by the Company in November 1997 of 29 Supermarkets
from corporations controlled by Mr. Catsimatidis,  newspaper advertising for the
Supermarkets   was  frequently   pooled  with   advertising  for  such  acquired
Supermarkets.  In such  cases,  the Company  paid a portion of such  advertising
expenses  based  upon the  number  of  Supermarkets  and  supermarkets  of other
companies


                                       17


<PAGE>


covered  in  the   advertisements.   Such  amounts   allocated  to  the  Company
approximated $130,321 during the Transition Period.

In consideration of accommodations  extended to the Company by H.S. Realty Corp.
("H.S.  Realty"),  a corporation wholly owned by John Catsimatidis which enabled
the Company to consummate the sale of assets of the Company's  Howard H. Sweet &
Son  Inc.  subsidiary  ("Sweet")  to  Tiffco  Jewelry  and  Chain  Crafts,  Inc.
("Tiffco"),  on January 23, 1990, the Company,  among other things,  advanced to
H.S. Realty approximately $204,000.

     The  $204,000  advance was  originally  to be  repayable  on the earlier of
January 23, 1991 or five days after the sale by H.S. Realty to Tiffco of certain
real property  leased to Tiffco by H.S.  Realty after the sale of assets.  Since
January 23, 1991,  the Board of Directors has extended the repayment date of the
advance on an annual basis,  the most recent  extension  being until January 23,
1999 or five days after the sale by H.S. Realty to Tiffco of the Sweet Property.
As of November 30, 1997,  H.S.  Realty was indebted to the Company on account of
the  advance  in the  amount of  $351,776  and such  indebtedness  was  accruing
interest at the rate of 9.75% per annum (1-1/4% per annum over the prime rate of
interest charged by Chemical Bank, N.A. as of November 30, 1997).

     Effective as of January 1, 1994, the Company  entered into  Indemnification
Agreements  with each of its directors and officers other than Kishore Lall. The
Company entered into an Indemnification Agreement with Kishore Lall effective as
of October 30, 1997, and also entered into Indemnification  Agreements with each
of Stuart Spivak, Michael Seltzer and Franklin Georges effective March 17, 1998.
Said  agreements  supplement  the  indemnification  provisions  of the Company's
By-laws and the  Delaware  General  Corporation  Law.  The  stockholders  of the
Company  authorized the Company to enter into such  agreements  with each of its
directors at the Annual Meeting of Stockholders held on August 21, 1987.

     The Board of  Directors  has  authorized  the  Company  to enter  into such
agreements with each of its officers.

     Red Apple Leasing,  Inc., a corporation  wholly owned by John Catsimatidis,
leases store operating equipment to the Company. For information concerning such
leases, see Note 4 of Notes to the Financial Statements of the Company.

     On May 15, 1998, John Catsimatidis issued a limited $1,000,000 guarantee of
the collection of accounts receivable assigned to the Company as a result of the
Merger on November 10, 1997.  In order to cover his  contingent  liability,  Mr.
Catsimatidis  agreed  not to permit  the  liabilities  to Mr.  Catsimatidis  and
certain of his  affiliates  which were  assumed by the  Company in the Merger to
fall below $1,000,000 prior to the issuance of the Company's  audited  financial
statements for the fiscal year ending November 29, 1998.

     By  virtue  of his  ownership  of  Common  Stock  (see  Item 12.  "Security
Ownership  of Certain  Beneficial  Owners and  Management")  and his position as
Chairman of the Board of the Company,  John  Catsimatidis  may be deemed to be a
"parent" of the Company under rules promulgated by the Commission.

     Lowenthal, Landau, Fischer & Bring, P.C., a law firm of which Martin Bring,
a director of the Company, was a member (until the firm merged with Wolf, Block,
Schorr and  Solis-Cohen LLP in February  1998),  received fees of  approximately
$341,279  for  rendering  legal  services to the Company  during the  Transition
Period.


                                       18


<PAGE>


                                     PART IV

Item 14. EXHIBITS AND REPORTS ON FORM 8-K.

(a)  (1)   Financial Statements

     A list  of all  financial  statements  filed  as part  of  this  report  is
contained  in the  index  to Item 8,  which  index  is  incorporated  herein  by
reference.

     (2)   Financial Statement Schedules

           None.

     (3)   Exhibits

Number     Description
------     -----------
3.1        Amended and Restated  Certificate of Incorporation of the Registrant.
           Incorporated by reference to Exhibit 3.1 to the  Registrant's  Annual
           Report on Form 10-K of the fiscal year ended  February  28, 1990 (the
           "1990 10-K").

3.2        Certificate  of  Amendment  to Amended and  Restated  Certificate  of
           Incorporation of the Registrant. Incorporated by reference to Exhibit
           3.2 to the  Registrant's  Annual Report on Form 10-KSB for the fiscal
           year ended February 27, 1994 (the "1994 10-KSB").

3.3        Amended  and  Restated  Bylaws  of the  Registrant.  Incorporated  by
           reference to Exhibit 3.2 to the 1990 10-K.

10.1       Form of Indemnification Agreement dated as of January 1, 1994 between
           the Registrant and each director of the  Registrant.  Incorporated by
           reference to Exhibit 10.11 to the 1994 10-KSB.

10.2       Form of Indemnification Agreement dated as of January 1, 1994 between
           the Registrant and each officer of the  Registrant.  Incorporated  by
           reference to Exhibit 10.12 to the 1994 10-KSB.

10.3       1994 Stock Option Plan. Incorporated by reference to Exhibit 10.12 of
           the Company's  Annual Report on Form 10-KSB for the fiscal year ended
           February 26, 1995 ("1995 10-KSB").

10.4       Director  Stock  Option  Plan.  Incorporated  by reference to Exhibit
           10.13 of the Company's 1995 10-KSB.

10.5       Merger  Agreement.  Incorporated  by  reference  to  Exhibit A to the
           Company's  definitive  Proxy  Statement  for the  Special  and Annual
           Meeting of Stockholders of the Company held on October 31, 1997.

10.6       Loan  Agreement  dated as of  November 7, 1997  between the  Company,
           European  American  Bank  ("EAB"),  Israel  Discount Bank of New York
           ("IDBNY"), Keybank National


                                       19


<PAGE>


           Association  ("Keybank")  and Bank  Leumi  Trust  Company of New York
           ("Bank Leumi").* All exhibits and schedules to the Loan Agreement are
           omitted,  but the  Registrant  undertakes to provide copies of any or
           all of the  foregoing  exhibits and schedules to the  Securities  and
           Exchange Commission upon its request.

10.7       Management  Agreement  dated November 10, 1997 between Namdor Inc., G
           Remainder Corp. and S Remainder Corp.*

10.8       Asset  Purchase  Agreement  between G Remainder  Corp. and Gristede's
           Operating  Corp.* All  exhibits and  schedules to the Asset  Purchase
           Agreement  are  omitted,  but the  Registrant  undertakes  to provide
           copies of any or all of the  foregoing  exhibits and schedules to the
           Securities and Exchange Commission upon its request.

10.9       First  Amendment  and Waiver to Loan  Agreement  dated April 30, 1998
           between the Company, IDBNY, Keybank and Bank Leumi.*

10.10      1998 Stock Option Plan.*

10.11      Agreement  dated  May 15,  1998  between  John  Catsimatidis  and the
           Company.*

11.        Statement re computation of per share income (loss). Not required.

21.        Listing of the Company's  subsidiaries  all of which are wholly owned
           by the Company.

              Subsidiaries                    State of Incorporation
              ------------                    ----------------------
              Namdor Inc.                     New York
              SAC Operating Corp.             New York
              Gristede's Operating Corp.      New York
              City Produce Operating Corp.    New York
              RAS Operating Corp.             New York

The  Registrant  has one  other  wholly-owned  subsidiary,  the name of which is
omitted  herein  because as of June 1, 1998 it did not  constitute a significant
subsidiary.

23.       Consent of BDO Seidman, LLP, Independent Certified Public Accountants.

27.       Financial Data Schedule*


(b)  Reports on Form 8-K

           The Company  filed one Current  Report  on  Form 8-K  during the last
quarter of the Transition  Period.  Such Current Report on Form 8-K was filed on
November 12, 1998 to report the Merger and contained certain pro forma financial
information of the Company and the businesses acquired.


-------------------------------
*    Filed herewith.


                                       20


<PAGE>


                              SIGNATURES

                 Pursuant  to the  requirements  of  Section  13 or 15(d) of the
Securities  Exchange Act of 1934, the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                              GRISTEDE'S SLOAN'S, INC.


Dated:        June 10, 1998                   By: /s/ John A. Catsimatidis
                                              John A. Catsimatidis
                                              Chairman of the Board

                 Pursuant  to the  requirements  of  Section  13 or 15(d) of the
Securities  Exchange  Act of 1934,  this  report  has been  signed  below by the
following  persons on behalf of the  Registrant and in the capacities and on the
dates indicated:

Signature                       Title                              Date
---------                       -----                              ----

  /s/ John A. Catsimatidis
John A. Catsimatidis            Chairman of the Board, President   June 10, 1998
                                and Chief Executive Officer
                                (Chief Executive Officer and
                                Chief Operating Officer)
  /s/ Martin Bring
Martin Bring                    Director                           June 10, 1998


  /s/ Frederick Selby
Frederick Selby                 Director                           June 10, 1998


  /s/ Leroy Hemingway II
Leroy Hemingway II              Director                           June 10, 1998


  /s/ Kishore Lall
Kishore Lall                    Director                           June 10, 1998


  /s/ Stuart Spivak
Stuart Spivak                   Executive Vice President and
                                Chief Financial Officer (Chief     June 10, 1998
                                Financial Officer and Chief
                                Accounting Officer)


                                  21

<PAGE>


                            GRISTEDE'S SLOAN'S, INC.
                           ANNUAL REPORT ON FORM 10-K
                  FOR THE TRANSITION PERIOD FROM MARCH 3, 1997
                              TO NOVEMBER 30, 1997

                                  EXHIBIT INDEX

Number        Description

3.1           Amended  and  Restated   Certificate  of   Incorporation   of  the
              Registrant.  Incorporated  by  reference  to  Exhibit  3.1  to the
              Registrant's  Annual  Report on Form 10-K of the fiscal year ended
              February 28, 1990 (the "1990 10-K").

3.2           Certificate  of Amendment to Amended and Restated  Certificate  of
              Incorporation  of the  Registrant.  Incorporated  by  reference to
              Exhibit 3.2 to the  Registrant's  Annual Report on Form 10-KSB for
              the fiscal year ended February 27, 1994 (the "1994 10-KSB").

3.3           Amended and Restated  Bylaws of the  Registrant.  Incorporated  by
              reference to Exhibit 3.2 to the 1990 10-K.

10.1          Form of  Indemnification  Agreement  dated as of  January  1, 1994
              between  the  Registrant  and  each  director  of the  Registrant.
              Incorporated by reference to Exhibit 10.11 to the 1994 10-KSB.

10.2          Form of  Indemnification  Agreement  dated as of  January  1, 1994
              between  the  Registrant  and  each  officer  of  the  Registrant.
              Incorporated by reference to Exhibit 10.12 to the 1994 10-KSB.

10.3          1994 Stock Option Plan. Incorporated by reference to Exhibit 10.12
              of the Company's  Annual Report on Form 10-KSB for the fiscal year
              ended February 26, 1995 ("1995 10-KSB").

10.4          Director Stock Option Plan.  Incorporated  by reference to Exhibit
              10.13 of the Company's 1995 10-KSB.

10.5          Merger  Agreement.  Incorporated  by reference to Exhibit A to the
              Company's  definitive  Proxy  Statement for the Special and Annual
              Meeting of Stockholders of the Company held on October 31, 1997.

10.6          Loan  Agreement  dated as of November 7, 1997 between the Company,
              European  American Bank ("EAB"),  Israel Discount Bank of New York
              ("IDBNY"), Keybank National Association ("Keybank") and Bank Leumi
              Trust  Company  of New York  ("Bank  Leumi").*  All  exhibits  and
              schedules to the Loan  Agreement are omitted,  but the  Registrant
              undertakes  to  provide  copies  of any  or  all of the  foregoing
              exhibits and

-----------------------
*  Filed herewith

                                      -1-

<PAGE>


              schedules  to the  Securities  and  Exchange  Commission  upon its
              request.

10.7          Management  Agreement dated November 10, 1997 between Namdor Inc.,
              G Remainder Corp. and S Remainder Corp.*

10.8          Asset Purchase  Agreement between G Remainder Corp. and Gristede's
              Operating  Corp.* All exhibits and schedules to the Asset Purchase
              Agreement are omitted,  but the  Registrant  undertakes to provide
              copies of any or all of the  foregoing  exhibits and  schedules to
              the Securities and Exchange Commission upon its request.

10.9          First Amendment and Waiver to Loan Agreement dated  April 30, 1998
              between the Company, IDBNY, Keybank and Bank Leumi.*

10.10         1998 Stock Option Plan.*

10.11         Agreement  dated May 15, 1998  between John  Catsimatidis  and the
              Company.*

11.           Statement re computation of per share income (loss). Not required.

21.           Listing  of the  Company's  subsidiaries  all of which are  wholly
              owned by the Company.

              Subsidiaries                                State of Incorporation
              ------------                                ----------------------

              Namdor Inc.                                 New York
              SAC Operating Corp.                         New York
              Gristede's Operating Corp.                  New York
              City Produce Operating Corp.                New York
              RAS Operating Corp.                         New York

The  Registrant  has one  other  wholly-owned  subsidiary,  the name of which is
omitted  herein  because as of June 1, 1998 it did not  constitute a significant
subsidiary.

23.           Consent  of  BDO  Seidman,  LLP,  Independent  Certified  Public 
              Accountants.

27.           Financial Data Schedule*
-------------------------
*  Filed herewith

                                       -2-


<PAGE>


                                  EXHIBIT 10.6

                                 LOAN AGREEMENT


                          Dated as of November 7, 1997


     GRISTEDE'S SLOAN'S, INC., a Delaware corporation having its principal place
of business at 823 Eleventh Avenue,  New York, New York 10019 (the  "Borrower"),
each of the  Subsidiaries  of the Borrower  listed on Schedule 1 annexed  hereto
(individually,  a "Guarantor" and collectively,  the "Guarantors") (the Borrower
and the Guarantors, collectively, the "Credit Parties"), EUROPEAN AMERICAN BANK,
a New York banking  organization,  having an office at 335 Madison  Avenue,  New
York, New York 10017 ("EAB" or a "Bank") ISRAEL DISCOUNT BANK OF NEW YORK, a New
York banking  organization,  having an office at 511 Fifth Avenue, New York, New
York 10017 ("Israel  Discount" or a "Bank"),  KEYBANK  NATIONAL  ASSOCIATION,  a
national banking association,  having an office at 1377 Motor Parkway, Islandia,
New York 11788  ("Key" or a "Bank") and BANK LEUMI TRUST  COMPANY OF NEW YORK, a
New York trust company, having an office at 562 Fifth Avenue, New York, New York
10036  ("Leumi" or a "Bank") and EUROPEAN  AMERICAN BANK, as agent for the Banks
(the "Agent") hereby agree as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

     SECTION  1.01.  Certain  Defined  Terms.  As used in  this  Agreement,  the
following  terms shall have the following  meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):

     "Acquisition" means the acquisition by the Borrower directly or indirectly,
by merger or  otherwise  of (i) twenty  nine  operating  supermarkets,  (ii) the
tradenames  "Sloan's"  and  "Gristede's"  and (iii) the business of City Produce
Distributors, Inc., all subject to and as provided in the Merger Agreement.

     "Affiliate"  means,  as to  any  Person  (i) a  Person  which  directly  or
indirectly controls,  or is controlled by, or is under common control with, such
Person;  (ii) a Person which directly or indirectly  beneficially  owns or holds
ten (10%)  percent or more of any class of voting stock of, or ten (10%) percent
or more of the equity  interest  in,  such  Person;  or (iii) a Person ten (10%)
percent or more of the voting stock of which, or ten (10%) or more of the equity
interest of which, is directly or indirectly  beneficially owned or held by such
Person.  The term 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.


<PAGE>


     "Agent" means  European  American  Bank, or any bank which  succeeds to the
position of Agent, as provided in this Agreement.

     "Agreement" means this Loan Agreement, as amended, supplemented or modified
from time to time.

     "Asset Sale  Recapture  Event"  means any sale of assets by the Borrower or
any Guarantor other than in the ordinary course of business.

     "Asset  Sale  Recapture  Payment"  means  sixty  (60%)  percent of the "net
proceeds"  of an Asset  Sale  Recapture  Event.  In the  case of an  Asset  Sale
Recapture  Event in which  assets are sold solely for cash,  the "net  proceeds"
shall  be  the  sales  price  for  the  assets  less  reasonable  and  customary
out-of-pocket  expenses  associated with such sale. In the case of an Asset Sale
Recapture  Event in which assets are sold for cash and debt,  the "net proceeds"
shall be the cash  portion  of the sale  price  (but not more than  sixty  (60%)
percent  of the sales  price)  for the  assets  less  reasonable  and  customary
out-of-pocket  expenses  associated  with such sale  plus an  assignment  of the
promissory notes  representing the non-cash portion of the sale. Said assignment
of the  promissory  notes shall be terminated  when the Agent has received,  for
distribution to the Banks, a total of sixty (60%) percent of the proceeds of the
Asset Sale Recapture Event.

     "Bank" or  "Banks"  means one or more,  as the  context  requires,  of EAB,
Israel Discount,  Key, Leumi and each other lender which becomes a party to this
Agreement.

     "Benefit Arrangement" means an employee benefit plan, within the meaning of
Section 3(3) of ERISA, which is neither a Plan nor Multiemployer Plan, and which
is  maintained,  sponsored  or otherwise  contributed  to by the Borrower or any
ERISA Affiliate.

     "Board of Governors" means the Board of Governors of the Federal
Reserve System of the United States of America.

     "Business  Day" means (i) a day other than a Saturday,  Sunday or other day
on which  commercial banks in New York City are authorized or required by law to
close and (ii) if the  relevant day relates to a  Eurodollar  Loan,  an Interest
Period,  or notice with respect to a Eurodollar Loan, a day on which dealings in
Dollar deposits are carried on in the London interbank market.

     "Capital Lease" means a lease (other than Excludible  Capital Leases) which
has been or should be, in accordance with GAAP,  capitalized on the books of the
lessee.

     "Cash Flow  Recapture"  means the obligation of the Borrower to make a Cash
Flow  Recapture  Payment based on the  existence of Excess Cash Flow,  beginning
with Excess Cash Flow for the fiscal year ending February 28, 1999.

                                       -2-


<PAGE>


     "Cash Flow Recapture  Payment" means,  for any fiscal year of the Borrower,
the lesser of (i) twenty  five (25%)  percent of Excess Cash Flow for any fiscal
year or (ii) $750,000.00.

     "Cleandown  Period"  means a period,  declared  by the  Borrower  to be the
"Cleandown  Period",  of thirty (30) consecutive days during each fiscal year of
the Borrower,  commencing  with the Borrower's  fiscal year  beginning  March 2,
1998.

     "Collateral"  means all  property  which is subject to, or is to be subject
to, the Liens granted by the Security Agreements.

     "Commitment" means, with respect to each Bank, the aggregate obligations of
such Bank to (i) make its  proportionate  share of Revolving Credit Loans to the
Borrower,  (ii) make its  proportionate  share of the Term Loan to the Borrower,
and (iii)  make its  proportionate  share of the  Improvement  Term Loans to the
Borrower,  in each case pursuant to the terms and conditions of this  Agreement,
and in each case in the  aggregate  Dollar  amount set forth in Schedule  1.01-A
annexed hereto.

     "Commitment  Letter" means the letter from EAB to the Borrower,  dated June
11,  1997,  as amended,  pursuant to which EAB agreed to extend forty four (44%)
percent of a credit facility as described  therein to the Borrower and the Agent
agreed to use its best efforts to arrange,  structure and syndicate  such credit
facility.

     "Consolidated  Subsidiaries" means, as to any Person, those Subsidiaries of
such Person which are consolidated with such Person in the financial  statements
delivered pursuant to Section 5.01(b).

     "Consolidated  Capital Expenditures" means, as to any Person, the aggregate
amount of any  expenditures  (including such  expenditures  financed by purchase
money  Debt  or  secured  by  purchase  money  Liens)  by  such  Person  and its
Consolidated  Subsidiaries  for assets  (including  fixed assets  acquired under
Capital Leases) which it is contemplated  will be used or usable in fiscal years
subsequent  to the  year  of  acquisition,  all  computed  and  consolidated  in
accordance with GAAP.

     "Consolidated  Current  Liabilities" means, as to any Person, the aggregate
amount of all  liabilities  of such  Person  and its  Consolidated  Subsidiaries
(including tax and other proper accruals) which would be properly  classified as
current liabilities, all computed and consolidated in accordance with GAAP.

     "Consolidated  Funded Debt" means, as to the Borrower and its  Consolidated
Subsidiaries,  the  aggregate  of the  Funded  Debt  of  the  Borrower  and  its
Consolidated Subsidiaries, computed and consolidated in accordance with GAAP.

     "Consolidated  Subordinated  Debt"  means,  as to  any  Person,  all of the
Subordinated Debt of such Person and its Consolidated Subsidiaries, computed and
consolidated in accordance with GAAP.

                                       -3-


<PAGE>


     "Consolidated  Tangible Net Worth" means,  as to any Person,  the excess of
(i) such Person's Consolidated Total Assets, less all intangible assets properly
classified as such in accordance with GAAP,  including,  but without limitation,
patents,  patent  rights,  trademarks,  trade  names,  franchises,   copyrights,
licenses,  permits and  goodwill,  over (ii) such  Person's  Consolidated  Total
Liabilities.

     "Consolidated Total Assets" means, as to any Person, the aggregate net book
value of the assets of such Person and its Consolidated  Subsidiaries  after all
appropriate  adjustments in accordance with GAAP (including without  limitation,
reserves for doubtful receivables,  obsolescence,  depreciation and amortization
and excluding the amount of any write-up or revaluation of any asset).

     "Consolidated  Total  Liabilities"  means,  as to  any  Person,  all of the
liabilities  of such Person and its  Consolidated  Subsidiaries,  including  all
items which, in accordance with GAAP, would be included on the liability side of
the balance  sheet  (other than  capital  stock,  capital  surplus and  retained
earnings) computed and consolidated in accordance with GAAP.

     "Consolidated  Total  Unsubordinated  Liabilities" means, as to any Person,
the excess of (i) such Person's  Consolidated  Total  Liabilities over (ii) such
Person's Consolidated Subordinated Debt.

     "Debt" means, as to any Person,  (i) all  indebtedness or liability of such
Person for borrowed  money;  (ii)  indebtedness  of such Person for the deferred
purchase  price of property or services  (excluding  trade  obligations);  (iii)
obligations  of such  Person as a lessee  under  Capital  Leases;  (iv)  current
liabilities  of such Person in respect of  unfunded  vested  benefits  under any
Plan;  (v)  obligations  of such Person under  letters of credit  issued for the
account of such Person; (vi) obligations of such Person arising under acceptance
facilities;  (vii)  obligations  secured by any Lien on  property  owned by such
Person whether or not the  obligations  have been assumed;  and (viii) all other
liabilities  for borrowed  money and which are recorded as such, or which should
be recorded as such, on such Person's  financial  statements in accordance  with
GAAP.

     "Debt  Service  Ratio"  means,  as to the  Borrower  and  its  Consolidated
Subsidiaries for any period, the ratio of (i) EBITDA for such period to (ii) the
sum of (x)  interest  expense for such period plus (y) the  principal  amount of
long term Debt  (excluding  Revolving  Credit Loans and  excluding the principal
component of payments on Excludible  Capital Leases) scheduled to be paid during
such period.  The Debt Service  Ratio shall be measured and tested at the end of
each fiscal quarter and for a period  covering the four (4) fiscal quarters then
ended.

     "Default"  means  any of the  events  specified  in  Section  6.01  of this
Agreement,  whether  or not any  requirement  for notice or lapse of time or any
other condition has been satisfied.

                                       -4-


<PAGE>


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

     "Drawdown" means a request by the Borrower and the making of an Improvement
Term Loan by the Banks.

     "Drawdown  Period" means the period beginning on the date of this Agreement
and ending on October 31, 2000.

     "EBITDA" means, as to the Borrower and its  Consolidated  Subsidiaries  for
any  period,  the sum of (i)  net  income  (excluding  extraordinary  gains  and
losses),  plus (ii) interest expense, plus (iii) depreciation expense, plus (iv)
amortization of intangible assets plus (v) federal, state and local income taxes
deducted in calculating  net income,  in each case measured for the Borrower and
its Consolidated  Subsidiaries on a consolidated basis for such period, computed
and consolidated in accordance with GAAP.

     "EBITDAR" means, as to the Borrower and its  Consolidated  Subsidiaries for
any period, the sum of (i) EBITDA, plus (ii) rent expense, in each case measured
for the Borrower and its  Consolidated  Affiliates on a  consolidated  basis for
such period, computed and consolidated in accordance with GAAP.

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

     "ERISA Affiliate" means any trade or business (whether or not incorporated)
which  together with any other Person would be treated,  with such Person,  as a
single employer under Section 4001 of ERISA.

     "Eurocurrency  Reserve  Requirement"  means,  with  respect to the  Reserve
Adjusted LIBOR Rate for an Interest Period, the aggregate (without  duplication)
daily  average  of the  rates  (expressed  as a  decimal  fraction)  of  reserve
requirements  in  effect  on such day  (including,  without  limitation,  basic,
marginal,  supplemental or emergency reserves) under any regulation  (including,
but without limitation,  Regulation D) promulgated by the Board of Governors (or
any successor thereto or other governmental  authority having  jurisdiction over
the Agent) by the Agent against "Eurocurrency liabilities" (as such term is used
in Regulation  D), but without  benefit or credit for  proration,  exemptions or
offsets  that might  otherwise be available to the Agent from time to time under
Regulation D. Without  limiting the effect of the  foregoing,  the  Eurocurrency
Reserve  Requirement  shall reflect any other reserves required to be maintained
by the Agent against (1) any category of liabilities  that includes  deposits by
reference to which the Reserve  Adjusted LIBOR Rate is to be determined;  or (2)
any category of extension of credit or other assets that include loans bearing a
Reserve  Adjusted  LIBOR  Rate.  As of the date of this  Agreement  there are no
Eurocurrency Reserve Requirements in effect.


                                       -5-


<PAGE>


     "Eurodollar  Loan"  means  a Loan  bearing  interest  at an  interest  rate
determined with reference to the Reserve  Adjusted LIBOR Rate in accordance with
the provisions of Article II hereof.

     "Event of Default"  means any of the events  specified  in Section  6.01 of
this Agreement, provided that any requirement for notice or lapse of time or any
other condition has been satisfied.

     "Excess  Cash  Flow"  means,  as  to  the  Borrower  and  its  Consolidated
Subsidiaries for any fiscal year, the amount  calculated as follows:  EBITDA for
such fiscal year minus the minimum EBITDA for such fiscal year necessary to meet
the Debt  Service  Ratio for such  year,  minus  Unfunded  Consolidated  Capital
Expenditures for such fiscal year.

     "Excludible   Capital   Leases"  means  those  Capital  Leases  which  were
capitalized  on the balance  sheet of the Borrower on or at March 2, 1997 in the
capitalized principal amount of $1,411,000.00.

     "Existing  Facility"  means the Term Loan,  Term Loan I and the Credit Line
Advances (each as defined in the Prior  Agreement) made available to Namdor Inc.
by EAB pursuant to the Prior Agreement.

     "Federal  Funds  Effective  Rate"  means,  for any  period,  a  fluctuating
interest  rate per annum equal for each day during  such period to the  weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers,  as published for such
day (or, if such day is not a Business Day for the next preceding  Business Day)
by the Federal  Reserve  Bank of New York,  or, if such rate is not so published
for any day which is a Business Day, the average of the  quotations for such day
on such transactions  received by the Agent from three (3) federal funds brokers
of recognized standing selected by it.

     "Fee Letter"  means the letter dated June 11, 1997 from EAB to the Borrower
in which the Borrower  agreed to pay certain fees in connection  with the credit
facility as described therein, as amended.

     "Field Audit" means an examination of the books and records of the Borrower
and the Guarantors (exclusive of the Individual  Guarantor),  to be performed by
employees or other representatives of the Agent.

     "Fixed  Charge   Coverage   Ratio"  means,  as  to  the  Borrower  and  its
Consolidated  Subsidiaries  for any  period,  the ratio of (i)  EBITDAR for such
period to (ii) the sum of (x)  interest  expense for such period  plus,(y)  rent
expense  (including  rent for real estate  occupancy and for all other operating
leases)  for such  period,  plus (z) the  principal  amount  of long  term  Debt
(excluding  Revolving Credit Loans) scheduled to be paid during such period. The
Fixed  Charge  Coverage  Ratio shall be  measured  and tested at the end of each
fiscal  quarter  and for a period  covering  the four (4) fiscal  quarters  then
ended.

                                       -6-


<PAGE>


     "Food Group" means,  collectively,  those certain assets acquired and those
certain  liabilities  assumed  of  Red  Apple  Supermarkets,   Inc.,  Gristede's
Supermarkets, Inc., Supermarket Acquisition Corp. and City Produce Distributors,
Inc., all as provided for in the Merger Agreement.

     "Funded  Debt" means,  as to any Person,  such Debt of such Person which is
(i) all  indebtedness or liability for borrowed money;  (ii) all indebtedness or
liability  for  the  deferred  purchase  price  of  property   (excluding  trade
obligations);  (iii) all  obligations  for  principal as a lessee under  Capital
Leases, as determined in accordance with GAAP; (iv) all obligations to reimburse
an issuing  bank for the  amount of all  undrawn  letters  of credit,  unmatured
drafts accepted or other deferred payment obligations  incurred under letters of
credit,  and (v) all liabilities of such Person under any preferred stock which,
at the  option  of the  holder  or upon the  occurrence  of one or more  certain
events,  is redeemable by such holder, or which, at the option of such holder is
convertible into Debt.

     "Funded  Debt  to  EBITDA  Ratio"  means,   as  to  the  Borrower  and  its
Consolidated  Subsidiaries for any period, the ratio of (i) Consolidated  Funded
Debt (as of the last day of such  period) to (ii)  EBITDA for such  period.  The
Funded  Debt to EBITDA  Ratio  shall be  measured  and tested at the end of each
fiscal  quarter and, in the case of EBITDA,  for a period  covering the four (4)
fiscal quarters then ended.

     "GAAP" means Generally Accepted Accounting Principles.

     "Generally Accepted  Accounting  Principles" means those generally accepted
accounting principles and practices which are recognized as such by the American
Institute  of  Certified  Public   Accountants   acting  through  the  Financial
Accounting  Standards  Board  ("FASB") or through  other  appropriate  boards or
committees  thereof and which are consistently  applied for all periods so as to
properly reflect the financial condition, operations and cash flows of a Person,
except that any accounting  principle or practice  required to be changed by the
FASB (or other  appropriate board or committee of the FASB) in order to continue
as a generally accepted accounting  principle or practice may be so changed. Any
dispute or  disagreement  between  the  Borrower  and the Agent  relating to the
determination of Generally Accepted Accounting  Principles shall, in the absence
of manifest  error,  be  conclusively  resolved for all  purposes  hereof by the
written opinion with respect thereto, delivered to the Agent, of the independent
accountants  selected by the  Borrower and approved by the Agent for the purpose
of auditing the periodic financial statements of the Borrower.

     "Guarantor"  or Guarantors"  means one or more of the Guarantors  listed on
Schedule 1 of this  Agreement,  and any other Person (other than the  Individual
Guarantor)  required to guarantee the  obligations of the Borrower in accordance
with Section 5.01(k) of this Agreement.


                                       -7-


<PAGE>


     "Guaranty" or  "Guaranties"  means the guaranty or guaranties  executed and
delivered by the Guarantors  pursuant to Section  3.01(j) or Section  5.01(k) of
this Agreement.

     "Hazardous  Materials" includes,  without limit, any flammable  explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic
substances,  or related  materials  defined in the  Comprehensive  Environmental
Response,  Compensation,  and  Liability  Act of 1980,  as  amended  (42  U.S.C.
Sections 9601, et seq.), the Hazardous Materials  Transportation Act, as amended
(49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act, as
amended (42 U.S.C.  Sections 9601 et. seq.), and in the regulations  adopted and
publications  promulgated pursuant thereto, or any other federal, state or local
environmental law, ordinance, rule or regulation.

     "Improvement  Term Loan" or "Improvement Term Loans" means, one or more, as
the  context  requires,  of the term  loans  made by the  Banks to the  Borrower
pursuant to Section 2.15 of this Agreement.

     "Improvement  Term Loan Commitment"  shall have the meaning given such term
in Section 2.15 of this Agreement.

     "Improvement  Term Loan  Maturity  Date" means,  for all  Improvement  Term
Loans, October 31, 2002.

     "Improvement  Term Loan Note" or "Improvement Term Loan Notes" means one or
more, as the context  requires,  of the promissory notes of the Borrower payable
to the  order of each of the  Banks,  in  substantially  the form of  Exhibit  C
annexed  hereto,  evidencing the  indebtedness of the Borrower to each such Bank
resulting  from one or more  Improvement  Term  Loans  made by such  Bank to the
Borrower pursuant to this Agreement.

     "Individual Guarantor" means John Catsimatidis.

     "Interest  Determination Date" means the date on which a Prime Rate Loan is
converted to a Eurodollar  Loan and, in the case of a Eurodollar  Loan, the last
day of the applicable Interest Period.

     "Interest  Payment Date" means (i) as to each Eurodollar  Loan, in the case
of Interest  Periods of three (3) months or less,  the last day of each Interest
Period and in the case of six (6) month Interest  Periods,  the ninetieth (90th)
day and the last day of such  Interest  Period  and (ii) as to each  Prime  Rate
Loan, the last Business Day of each month.

     "Interest Period" means as to any Eurodollar Loan, the period commencing on
the date of such Eurodollar Loan and ending on the numerically corresponding day
in the calendar month that is one, two, three or six months  thereafter,  as the
Borrower  may elect (or, if there is no  numerically  corresponding  day, on the
last Business Day of such month); provided, however, (i) that no Interest Period
for a Revolving Credit Loan, the Term Loan or an Improvement Term Loan shall end
later than the Revolving Credit Maturity Date, the

                                       -8-


<PAGE>


Term Loan Maturity Date or the Improvement Term Loan Maturity Date, respectively
(ii) if any  Interest  Period  would end on a day which  shall not be a Business
Day, such Interest Period shall be extended to the next succeeding  Business Day
unless such next succeeding  Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the next preceding Business Day,
(iii) no Interest Period  representing a portion of the principal required to be
paid in accordance  with Section 2.10 or Section 2.19 may be selected unless the
outstanding  Prime  Rate  Loans and  Eurodollar  Loans  for  which the  relevant
Interest Periods end on or prior to the date of such payment are in an aggregate
amount which will be sufficient to make such payment, (iv) interest shall accrue
from and including  the first day of such  Interest  Period to but excluding the
date of payment  of such  interest,  and (v) no  Interest  Period of  particular
duration may be selected by the Borrower if the Agent  determines,  in its sole,
good  faith  discretion,  that  Eurodollar  Loans with such  maturities  are not
generally available.

     "Investment"  means any stock,  evidence  of Debt or other  security of any
Person,  any loan,  advance,  contribution  of capital,  extension  of credit or
commitment therefor,  including without limitation the guaranty of loans made to
others (except for current trade and customer  accounts  receivable for services
rendered in the  ordinary  course of business  and  payable in  accordance  with
customary  trade terms in the ordinary  course of business)  and any purchase of
(i) any security of another  Person or (ii) any business or  undertaking  of any
Person  or any  commitment  or option  to make any such  purchase,  or any other
investment.

     "Leverage Ratio" means, as to the Borrower and its Consolidated Affiliates,
the ratio of (i) Consolidated Total  Unsubordinated  Liabilities to (ii) the sum
of (x) Consolidated Tangible Net Worth plus (y) Consolidated Subordinated Debt.

     "LIBOR Applicable Margin" shall have the meaning set forth in Sections 2.26
of this Agreement.

     "LIBOR  Rate" means the rate per annum  identified  as the LIBOR Rate for a
requested  Interest  Period as published on page 3750 of the Dow Jones  Telerate
service.

     "Lien"  means any  mortgage,  deed of  trust,  pledge,  security  interest,
hypothecation,  assignment, deposit arrangement, encumbrance, lien (statutory or
other),  or preference,  priority,  or other security  agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever, including,
without limitation, any conditional sale or other title retention agreement, any
financing  lease having  substantially  the same  economic  effect as any of the
foregoing,  and  the  filing  of  any  financing  statement  under  the  Uniform
Commercial  Code or comparable  law of any  jurisdiction  to evidence any of the
foregoing.

     "Loan"  or  Loans"  means  Revolving  Credit  Loans,  the Term Loan and the
Improvement Term Loans, or any or all as the context requires,

                                       -9-


<PAGE>


and may refer to Prime Rate Loans and/or Eurodollar Loans, as the
context requires.

     "Loan Documents" means this Agreement,  the Notes, the Security Agreements,
the Pledge Agreements, the Guaranties, the Commitment Letter, the Fee Letter and
any other document executed or delivered
pursuant to this Agreement.

     "Material  Adverse Change" means, as to any Person,  (i) a material adverse
change in the financial condition, business,  operations,  properties or results
of operations of such Person or (ii) any event or occurrence which is reasonably
likely to have a  material  adverse  effect  on the  ability  of such  Person to
perform its obligations under the Loan Documents.

     "Maturity Dates" means,  collectively,  the Revolving Credit Maturity Date,
the Term Loan Maturity Date and the Improvement Term Loan Maturity Dates.

     "Merger Agreement" means that certain Merger Agreement dated as of July 14,
1997 among Red Apple  Group,  Inc.,  Gristede's  Supermarkets,  Inc.,  Red Apple
Supermarkets,  Inc., City Produce Distributors,  Inc.,  Supermarket  Acquisition
Corp.,  John A.  Catsimatidis,  the Borrower,  Gristede's  Operating  Corp., RAS
Operating Corp., SAC Operating Corp. and City Produce Operating Corp., as it may
be amended or supplemented from time to time.

     "Multiemployer  Plan" means a Plan described in Section 4001(a)(3) of ERISA
which covers employees of the Borrower or any ERISA Affiliate.

     "Note" or "Notes" means one or more of the Revolving Credit Notes, the Term
Loan Notes or the Improvement Term Loan Notes as the context requires.

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

     "Permitted  Investments" means, (i) direct obligations of the United States
of America or any governmental agency thereof, or obligations  guaranteed by the
United States of America,  provided that such obligations mature within one year
from the date of acquisition thereof; (ii) time certificates of deposit having a
maturity  of one year or less  issued  by (x) any of the  Banks or (y) any other
commercial  bank  organized and existing  under the laws of the United States or
any  state  thereof  and  having  aggregate  capital  and  surplus  in excess of
$1,000,000,000.00;  (iii) money market  mutual funds having  assets in excess of
$1,000,000,000;  (iv)  commercial  paper rated not less than P-1 or A-1 or their
equivalent by Moody's  Investor  Services,  Inc.  ("Moody") or Standard & Poor's
Corporation  ("S&P"),  respectively;  (v) tax exempt securities rated Prime 2 or
better by Moody's or A-1 or better by S&P; (vi)  investments,  loans or advances
by the Borrower in or to any Guarantor  (other than the  Individual  Guarantor);
(vii) any other Investments,  (including,  without limitation, loans or advances
to

                                      -10-


<PAGE>


employees) in a maximum amount  outstanding  at any time of $500,000;  or (viii)
notes or other  evidence  of  indebtedness  from  purchasers  of assets from the
Borrower or a Guarantor.

     "Person"  means  an  individual,  partnership,   corporation  (including  a
business  trust),  limited  liability  company,  joint  stock  company,   trust,
unincorporated association, joint venture or other entity or a federal, state or
local  government,  or a  political  subdivision  thereof  or any agency of such
government or subdivision.

     "Plan" means any employee  benefit plan  (excluding a  Multiemployer  Plan)
which is  covered  by Title IV of ERISA or is  subject  to the  minimum  funding
standards  under  Section 412 of the Internal  Revenue Code of 1986, as amended,
and which is maintained,  sponsored or otherwise  contributed to by the Borrower
or any ERISA Affiliate.

     "Pledge  Agreement" or "Pledge  Agreements"  means the pledge  agreement or
pledge  agreements  executed and  delivered  by the Borrower  and/or one or more
Guarantors pursuant to Section 3.01(n) or 5.01(k) of this Agreement.

     "Prime Applicable  Margin" shall have the meaning set forth in Section 2.26
of this Agreement.

     "Prime  Rate"  means the  fluctuating  rate per annum  equal to the rate of
interest  publicly  announced by the Agent at its principal  office from time to
time as its Prime  Rate,  each change in the Prime Rate to be  effective  on the
date such change is announced to be effective.

     "Prime  Rate  Loan"  means a Loan  bearing  interest  at an  interest  rate
determined with reference to the Prime Rate.

     "Prior  Agreement" means that certain Loan and Security  Agreement dated as
of October 13, 1995 between EAB and Namdor, Inc., as amended.

     "Pro Rata  Share of the  Commitment"  means,  as to each  Bank,  the ratio,
expressed as a percentage, of its Commitment to the Total Commitment.

     "Prohibited  Transaction" means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time
to time.

     "Regulation  D" means  Regulation D of the Board of Governors,  as the same
may be amended and in effect from time to time.

     "Regulation  G" means  Regulation G of the Board of Governors,  as the same
may be amended and in effect from time to time.

     "Regulation  T" means  Regulation T of the Board of Governors,  as the same
may be amended and in effect from time to time.


                                      -11-


<PAGE>


     "Regulation  U" means  Regulation U of the Board of Governors,  as the same
may be amended and in effect from time to time.

     "Regulation  X" means  Regulation X of the Board of Governors,  as the same
may be amended and in effect from time to time.

     "Reportable Event" means any of the events set forth in Section
4043 of ERISA.

     "Required Banks" means those Banks having, in the aggregate,  sixty six and
two thirds (66 2/3%) percent of the Total Commitment.

     "Reserve  Adjusted LIBOR Rate" means,  with respect to any Eurodollar  Loan
for any Interest  Period,  an interest rate per annum determined by the Agent to
be equal to the  quotient of (a) the LIBOR Rate divided by (b) a number equal to
1.00 minus the  Eurocurrency  Reserve  Requirement as determined by the Agent on
the date the Reserve Adjusted LIBOR Rate is determined.

     "Revolving  Credit Loan" or "Revolving  Credit Loans" means one or more, as
the context  requires,  of the  revolving  credit loans made by the Banks to the
Borrower pursuant to the terms and conditions of this Agreement.

     "Revolving Credit Maturity Date" means October 31, 1999.

     "Revolving  Credit Note" or "Revolving  Credit Notes" means one or more, as
the context  requires,  of the promissory  notes of the Borrower  payable to the
order of each of the  Banks,  in  substantially  the form of  Exhibit  A annexed
hereto,  evidencing the indebtedness of the Borrower to each such Bank resulting
from Revolving  Credit Loans made by such Bank to the Borrower  pursuant to this
Agreement.

     "Security Agreement" or "Security  Agreements" means the security agreement
or security agreements executed and delivered by the Borrower and the Guarantors
pursuant to Section 3.01(l) or Section 5.01(k) of this Agreement.

     "Subordinated  Debt" means Debt of any Person,  the  repayment of which the
obligee has agreed in writing, or the terms of which provide, such terms to have
been  approved  by the Agent in advance in  writing,  shall be  subordinate  and
junior to the rights of the Banks with respect to Debt owing from such Person to
the Banks.

     "Subsidiary" means, as to any Person, any corporation, partnership, limited
liability  company,  joint  venture or other  Person  whether  now  existing  or
hereafter  organized or acquired:  (i) in the case of a corporation,  of which a
majority of the  securities  having  ordinary  voting  power for the election of
directors  (other  than  securities  having  such  power  only by  reason of the
happening of a  contingency)  are at the time owned by such Person and/or one or
more  Subsidiaries of such Person or (ii) in the case of a partnership,  limited
liability  company,  joint venture or similar entity, of which a majority of the
partnership, membership or other

                                      -12-


<PAGE>


ownership  interests  are at the time owned by such Person and/or one or more of
its Subsidiaries.

     "Term Loan" or "Term Loans" means one or more, as the context requires,  of
the term  loans  made by the  Banks to the  Borrower  pursuant  to the terms and
conditions of this Agreement.

     "Term Loan Maturity Date" means October 31, 2002.

     "Term Loan Note" or "Term Loan  Notes"  means one or more,  as the  context
requires,  of the promissory  notes of the Borrower payable to the order of each
of the Banks, in substantially the form of Exhibit B annexed hereto,  evidencing
the  indebtedness of the Borrower to each such Bank resulting from the Term Loan
made by such Bank to the Borrower pursuant to this Agreement.

     "Total  Commitment"  means the aggregate of the  Commitments of each of the
Banks,   which,  on  the  date  of  this  Agreement,   is  Twenty  Five  Million
($25,000,000.00) Dollars.

"Unfunded   Consolidated   Capital   Expenditures"  means  Consolidated  Capital
Expenditures which are not funded by Debt.

     "Unused  Facility  Fee" means the fee payable  pursuant to Section  2.06 of
this Agreement.

     SECTION  1.02.  COMPUTATION  OF  TIME  PERIODS.  In this  Agreement  in the
computation of periods of time from a specified date to a later  specified date,
the word "from" means "from and  including"  and the words "to" and "until" each
means "to but excluding". All times shall be references to New York City time.

     SECTION 1.03. ACCOUNTING TERMS.  Except as otherwise herein
specifically provided, each accounting term used herein shall have
the meaning given to it under GAAP.

                                      -13-


<PAGE>


                                   ARTICLE II

                          AMOUNT AND TERMS OF THE LOANS

     SECTION 2.01. THE REVOLVING  CREDIT LOANS.  (a) The Banks agree,  severally
but not jointly,  on the terms and subject to the conditions of this  Agreement,
and in reliance upon the  representations  and  warranties of the Credit Parties
set forth in this  Agreement  that the Banks will,  until the  Revolving  Credit
Maturity Date, lend to the Borrower such Revolving  Credit Loans as the Borrower
may  request  from  time to  time,  which  Loans  may be  borrowed,  repaid  and
reborrowed,  provided,  however,  that (x) the aggregate  outstanding  Revolving
Credit Loans at any one time (other than during the Cleandown  Period) shall not
exceed Five Million  ($5,000,000.00) Dollars (the "Revolving Credit Commitment")
as the  Revolving  Credit  Commitment  may be reduced  pursuant to Section  2.07
hereof, (y) the aggregate  outstanding Revolving Credit Loans at any time during
each  Cleandown  Period  shall not  exceed Two  Million  Five  Hundred  Thousand
($2,500,000.00)  Dollars and (z) each Bank's pro rata share of Revolving  Credit
Loans shall not exceed its Pro Rata Share of the Revolving Credit Commitment.

     (b) Each  Revolving  Credit Loan shall be a Prime Rate Loan or a Eurodollar
Loan (or a  combination  thereof) as the Borrower may request  subject to and in
accordance  with Section  2.02.  Any Bank may at its option make any  Eurodollar
Loan by causing a foreign  branch or affiliate to make such Loan,  provided that
any exercise of such option shall not affect the  obligation  of the Borrower to
repay such Loan in  accordance  with the terms of such Bank's  Revolving  Credit
Note. Subject to the other provisions of this Agreement,  Revolving Credit Loans
of more than one type may be  outstanding  at the same time  provided,  however,
that not more than three (3) Eurodollar Loans may be outstanding at any time.

     SECTION 2.02. NOTICE OF REVOLVING CREDIT LOANS. (a) The Borrower shall give
the Agent  irrevocable  written,  telex,  telephonic  (immediately  confirmed in
writing) or facsimile  notice (i) at least two (2)  Business  Days prior to each
Revolving  Credit Loan  comprised in whole or in part of one or more  Eurodollar
Loans  (subject to Section  2.32 hereof) and (ii) prior to 11:00 a.m. on the day
of each  Revolving  Credit  Loan  consisting  solely of a Prime Rate Loan.  Upon
receipt  of such  notice,  the  Agent  shall  promptly  notify  each Bank of the
contents  thereof  and  of the  amount,  type  and  other  relevant  information
regarding the Loan requested.  Thereupon,  each Bank shall,  not later than 2:00
p.m.,  transfer  immediately  available  funds equal to such Bank's share of the
requested borrowing to the Agent, which, provided the conditions of Section 3.01
and 3.02 of this Agreement have been met, shall thereupon  transfer  immediately
available funds equal to the requested  borrowing to the Borrower's account with
the Agent. If a notice of borrowing is received by the Agent after 11:00 a.m. on
a  Business  Day,  such  notice  shall be deemed to have been  given on the next
succeeding Business Day. Any Bank's failure to make any requested Loan shall not
relieve any other Bank of its obligation

                                      -14-


<PAGE>


to make such Loan, but neither the Agent nor such other Bank shall be liable for
such failure of the first Bank.

     (b) Each notice given  pursuant to this Section 2.02 shall specify the date
of such  borrowing,  the amount  thereof and whether such Loan is to be (or what
portion or portions  thereof are to be) a Prime Rate Loan or a  Eurodollar  Loan
and, if such Loan or any portion thereof is to consist of one or more Eurodollar
Loans,  the principal  amounts thereof and Interest  Period or Interest  Periods
with respect  thereto.  If no election as to a type of Loan is specified in such
notice,  such Loan (or portion  thereof as to which no  election  is  specified)
shall  be a Prime  Rate  Loan.  If no  election  as to the  Interest  Period  is
specified in such notice with respect to any Eurodollar Loan, the Borrower shall
be deemed to have selected an Interest  Period of one month's  duration and if a
Eurodollar  Loan is requested  when such Loans are not  available,  the Borrower
shall be deemed to have requested a Prime Rate Loan.

     (c) The  Borrower  shall have the right,  on such notice to the Agent as is
required pursuant to (a) above, (x) to continue any Eurodollar Loan or a portion
thereof into a subsequent  Interest Period (subject to availability)  and (y) to
convert a Prime  Rate Loan into a  Eurodollar  Loan  (subject  to  availability)
subject to the following:

         (i) if a Default or an Event of  Default  shall  have  occurred  and be
continuing at the time of any proposed  conversion or continuation only Interest
Periods of one month's duration shall be available;

         (ii) in the case of a  continuation  or  conversion  of fewer  than all
Loans, the aggregate  principal amount of each Eurodollar Loan continued or into
which  a  Loan  is  converted  shall  be in  the  minimum  principal  amount  of
$1,000,000.00 and in increased integral multiples of $100,000.00;

         (iii) each  continuation  or conversion  shall be effected by each Bank
applying  the  proceeds of the new Loan to the Loan (or portion  thereof)  being
continued or converted;

         (iv) if the new Loan made as a result of a  continuation  or conversion
shall be a Eurodollar Loan, the first Interest Period with respect thereto shall
commence on the date of continuation or conversion;

         (v) each  request  for a  Eurodollar  Loan which shall fail to state an
applicable  Interest  Period  shall be deemed to be a  request  for an  Interest
Period of one month's  duration and each request for a Eurodollar Loan made when
such Loans are not  available  shall be deemed to be a request  for a Prime Rate
Loan;

         (vi) in the event that the Borrower shall not give notice to continue a
Eurodollar Loan as provided above,  such Loan shall  automatically  be converted
into a Prime Rate Loan at the expiration of the then current Interest Period.

                                      -15-


<PAGE>


     (d) Unless the Agent shall have  received  notice from a Bank prior to 2:00
p.m. on the requested  date, that such Bank will not make available to the Agent
the Loan  requested to be made on such date, the Agent may assume that such Bank
has made  such Loan  available  to the  Agent on such  date in  accordance  with
Section  2.01(a) and the Agent in its sole discretion may, in reliance upon such
assumption,  make available to the Borrower on such date a corresponding  amount
on behalf of such Bank.  If and to the  extent  such Bank shall not have so made
available to the Agent the Loan  requested to be made on such date and the Agent
shall have so made available to the Borrower a corresponding amount on behalf of
such  Bank,  such Bank  shall,  on demand,  pay to the Agent such  corresponding
amount together with interest thereon,  at the Federal Funds Effective Rate, for
each day from the date such  amount  shall  have been so made  available  by the
Agent to the  Borrower  until the date such amount shall have been repaid to the
Agent.  If such Bank does not pay such  corresponding  amount  promptly upon the
Agent's demand  therefor,  the Agent shall promptly  notify the Borrower and the
Borrower shall, not later than one (1) Business Day following such notice, repay
such corresponding amount to the Agent together with accrued interest thereon at
the applicable rate or rates provided in Section 2.04.

     SECTION 2.03.  REVOLVING CREDIT NOTES. (a) Each Revolving Credit Loan shall
be (i) in the case of each Prime Rate Loan in the  minimum  principal  amount of
$250,000.00,  and in increased  integral multiples of $50,000.00 and (ii) in the
case of each Eurodollar Loan in the minimum  principal  amount of  $1,000,000.00
and in increased  integral  multiples of  $100,000.00  (except that, if any such
Prime Rate Loan so requested  shall  exhaust the remaining  available  Revolving
Credit Commitment,  such Prime Rate Loan may be in an amount equal to the amount
of the remaining available  Revolving Credit Commitment).  Each Revolving Credit
Loan shall be evidenced by the Revolving  Credit Notes.  Each  Revolving  Credit
Note  shall be dated the date  hereof and be in the  principal  amount set forth
next to the  applicable  Bank's name on the signature  pages  hereto,  and shall
mature  on the  Revolving  Credit  Maturity  Date,  at  which  time  the  entire
outstanding principal balance and all interest thereon shall be due and payable.
Each Revolving  Credit Note shall be entitled to the benefits and subject to the
provisions of this Agreement.

     (b) At the time of the making of each Revolving Credit Loan and at the time
of each  payment of principal  thereon,  each Bank is hereby  authorized  by the
Borrower to make a notation on the schedule annexed to its Revolving Credit Note
of the date and amount, and the type and Interest Period, if applicable,  of the
Revolving Credit Loan or payment, as the case may be. Failure to make a notation
with respect to any  Revolving  Credit Loan shall not limit or otherwise  affect
the  obligation  of the  Borrower  hereunder or under the  applicable  Revolving
Credit  Note with  respect to such  Revolving  Credit  Loan,  and any payment of
principal  by the  Borrower  shall  not be  affected  by the  failure  to make a
notation thereof on said schedule.


                                      -16-


<PAGE>


     SECTION 2.04. PAYMENT OF INTEREST ON THE REVOLVING CREDIT NOTES. (a) In the
case of a Prime Rate Loan,  interest  shall be payable at a rate per annum equal
to the Prime  Rate plus the Prime  Applicable  Margin.  Such  interest  shall be
payable  on each  Interest  Payment  Date,  commencing  with the first  Interest
Payment Date after the date of such Prime Rate Loan and on the Revolving  Credit
Maturity Date. Any change in the rate of interest on the Revolving  Credit Notes
due to a change in the Prime  Rate or a change  in the Prime  Applicable  Margin
shall  take  effect as of the date of such  change  in the  Prime  Rate or Prime
Applicable Margin, as applicable.

     (b) In the case of a Eurodollar  Loan,  interest shall be payable at a rate
per annum equal to the  Reserve  Adjusted  LIBOR Rate plus the LIBOR  Applicable
Margin. Such interest shall be payable on each Interest Payment Date, commencing
with the first Interest  Payment Date after the date of such Eurodollar Loan and
on the  Revolving  Credit  Maturity  Date.  In the  event  Eurodollar  Loans are
available,  the Agent shall  determine  the rate of interest  applicable to each
requested  Eurodollar Loan for each Interest Period at 11:00 a.m., New York City
time, or as soon as practicable  thereafter,  two (2) Business Days prior to the
commencement  of such  Interest  Period and shall use its best efforts to notify
the  Borrower  and  the  Banks  of the  rate of  interest  so  determined.  Such
determination shall be conclusive absent manifest error.

     (c) All interest  shall be paid to the Agent for the pro rata  distribution
to the Banks.

     SECTION 2.05. USE OF PROCEEDS.  The proceeds of the Revolving  Credit Loans
shall be used by the Borrower  exclusively for working  capital.  No part of the
proceeds of any Revolving  Credit Loan may be used for any purpose that directly
or indirectly  violates or is inconsistent with, the provisions of Regulation G,
T, U or X.

     SECTION 2.06. PREPAYMENT. (a) The Borrower shall have the right at any time
and from time to time to prepay any Revolving  Credit Loan which is a Prime Rate
Loan, in whole or in part,  without  premium or penalty on  irrevocable  written
notice to the Agent (to be received by the Agent prior to 12:00 p.m. on the date
such  prepayment is to be made)  provided,  however,  that each such  prepayment
shall be on a Business Day and shall be in an aggregate  principal  amount which
is in the minimum amount of $100,000.00 and in increased  integral  multiples of
$50,000.00.

     (b) The  Borrower  shall  have the right at any time and from time to time,
subject to the provisions of this  Agreement,  including but without  limitation
Section 2.30, to prepay any Revolving Credit Loan which is a Eurodollar Loan, in
whole or in part, on three (3) Business Days' prior  irrevocable  written notice
to the  Agent,  provided,  however,  that  each  such  prepayment  shall be on a
Business  Day and  shall be in an  aggregate  principal  amount  which is in the
minimum  amount  of  $1,000,000.00  and  in  increased   integral  multiples  of
$100,000.00.


                                      -17-


<PAGE>


     (c) The notice of  prepayment  under this  Section 2.06 shall set forth the
prepayment date and the principal  amount of the Loan being prepaid and shall be
irrevocable  and shall commit the Borrower to prepay such Loan by the amount and
on the date stated  therein.  All  prepayments  shall be  accompanied by accrued
interest on the principal  amount being prepaid to the date of prepayment.  Each
prepayment  under  this  Section  2.06  shall be applied  first  towards  unpaid
interest on the amount being  prepaid and then towards the principal in whole or
partial prepayment of Loans as specified by the Borrower. In the absence of such
specification,  amounts  being  prepaid shall be applied first to any Prime Rate
Loan then  outstanding and then to Eurodollar  Loans in the order of the nearest
expiration of their Interest Periods.

     (d) At any time that the principal  amount of outstanding  Revolving Credit
Loans exceed the Revolving Credit Commitment,  the Borrower shall prepay so much
of the Revolving Credit Loans as shall exceed the Revolving  Credit  Commitment.
Any such  prepayments  shall be  applied  as set  forth in (c) above and if such
prepayments  of  Revolving  Credit  Loans  shall  result  in a  prepayment  of a
Eurodollar  Loan  other  than  on the  last  day of its  Interest  Period,  such
prepayment shall be subject to the reimbursement required by Section 2.30.

     SECTION 2.07.  THE TERM LOANS.  The Banks hereby  agree,  severally but not
jointly,  on the date of this Agreement,  and on the terms and conditions and in
reliance  upon  the   representations  and  warranties  of  the  Credit  Parties
hereinafter set forth in this Agreement,  to make a Term Loan to the Borrower in
the principal amount of TWELVE MILLION ($12,000,000.00) DOLLARS and the Borrower
agrees to borrow such  amount by  executing  and  delivering  to the Agent,  for
delivery to the Banks, the Term Loan Notes. The Term Loans, or portions thereof,
shall be Prime Rate Loans or Eurodollar Loans (or a combination  thereof) as the
Borrower may request subject to and in accordance with Section 2.08 hereof.  Any
Bank may at its option make any  Eurodollar  Loan by causing a foreign branch or
affiliate to make such Loan, provided that any exercise of such option shall not
affect the obligation of the Borrower to repay such Loan in accordance  with the
terms of the Notes.  Subject to the other  provisions  of this  Agreement,  Term
Loans  of more  than  one type may be  outstanding  at the same  time  provided,
however, that not more than three (3) Eurodollar Loans may be outstanding at any
time.

     SECTION 2.08. NOTICE OF TERM LOAN DESIGNATIONS.  (a) The Borrower may elect
to  designate  the Term Loan (or a portion  thereof)  as a Prime  Rate Loan or a
Eurodollar  Loan by so specifying in the  irrevocable  notice given  pursuant to
this Section 2.08; provided, however, that each Eurodollar Loan requested of the
Agent for any specific  Interest Period shall be in the minimum principal amount
of $1,000,000.00 and in increased integral multiples of $100,000.00 thereafter.

     (b)  The  Borrower  shall  give  the  Agent  irrevocable  written,   telex,
telephonic (immediately confirmed in writing) or facsimile notice

                                      -18-


<PAGE>


(i) at least two (2) Business  Days' prior to each  election to  designate  each
Term Loan (or a portion  thereof) as a Eurodollar  Loan, and (ii) prior to 11:00
a.m.  on the day of each  election  to  designate  each  Term Loan (or a portion
thereof) as a Prime Rate Loan, in each case  specifying the date (which shall be
a Business Day) thereof and the aggregate  principal  amount and, if any portion
thereof is to consist of one or more Eurodollar Loans, the respective  principal
amounts and Interest Periods for each such Eurodollar Loan; provided that:

         (i) if the  Borrower  shall fail to specify the duration of an Interest
Period with regard to any  Eurodollar  Loan in its notice,  the Interest  Period
shall be for a period of one month; and

         (ii) if the Borrower shall fail to specify the type of Loan  requested,
the request shall be deemed to be a request for a Prime Rate Loan.

     (c) Upon receipt of such notice,  the Agent shall promptly notify each Bank
of the contents thereof and of the amount,  type and other relevant  information
regarding the Loan requested.

     SECTION  2.09.  TERM LOAN NOTES.  The Term Loans shall be  evidenced by the
Term Loan  Notes.  The Term Loan Notes  shall each be dated the date  hereof and
each of the Term Loan Notes shall mature on the Term Loan Maturity Date at which
time the entire outstanding  principal balance and all interest thereon shall be
due and  payable.  The Term Loan Notes  shall be entitled  to the  benefits  and
subject to the provisions of this Agreement.

     SECTION 2.10  REPAYMENT OF TERM LOAN NOTES.  (a) The  principal  balance of
each of the Term Loan Notes shall be payable in sixty (60) monthly installments,
each due on the last Business Day of each month, beginning on the first such day
after the date hereof and  continuing on each such day  thereafter.  Each of the
first  fifty  nine  (59)  such  monthly  principal  installments  shall be in an
aggregate  amount  equal to  $142,857.00  and the final such  monthly  principal
installment  shall  be in an  amount  equal to the  then  aggregate  outstanding
principal balance of the Term Loan Notes.

     (b) All  payments of  installments  on the Term Loan Notes shall be made to
the Agent for the pro rata distributions to the Banks.

     SECTION 2.11 PAYMENT OF INTEREST ON THE TERM LOAN NOTES. (a) In the case of
a Prime Rate Loan,  interest  shall be payable at a rate per annum  equal to the
Prime Rate plus the Prime Applicable  Margin.  Such interest shall be payable to
the Agent, for the pro rata  distribution to the Banks, on each Interest Payment
Date,  commencing  with the first  Interest  Payment Date after the date of such
Prime  Rate  Loan,  on each  Interest  Determination  Date and on the Term  Loan
Maturity  Date. Any change in the rate of interest on the Term Loan Notes due to
a change in the Prime Rate or a change in the Prime Applicable Margin shall take
effect as of the date of such  change in the Prime Rate or the Prime  Applicable
Margin.


                                      -19-


<PAGE>


     (b) In the case of a Eurodollar  Loan,  interest shall be payable at a rate
per annum  (computed  on the basis of the actual  number of days  elapsed over a
year of 360  days)  equal to the  Reserve  Adjusted  LIBOR  Rate  plus the LIBOR
Applicable Margin. Such interest shall be payable to the Agent, for the pro rata
distribution  to the Banks on each Interest  Payment Date,  commencing  with the
first  Interest  Payment Date after the date of such  Eurodollar  Loan,  on each
Interest  Determination Date and on the Term Loan Maturity Date. The Agent shall
determine the rate of interest applicable to each requested  Eurodollar Loan for
each  Interest  Period  at  11:00  a.m.,  New  York  City  time,  or as  soon as
practicable thereafter,  two (2) Business Days prior to the commencement of such
Interest  Period  and shall  notify  the  Borrower  of the rate of  interest  so
determined. Such determination shall be conclusive absent manifest error.

     SECTION 2.12 CONVERSION AND  CONTINUATION OF TERM LOANS. The Borrower shall
have the right, at any time, on such notice to the Agent as set forth in Section
2.08(b) of this Agreement,  (i) to continue any part of the Term Loan which is a
Eurodollar Loan or portion thereof into a subsequent Interest Period (subject to
availability)  or (ii) to  convert  part of the Term Loan  which is a Prime Rate
Loan into a Eurodollar Loan (subject to availability), subject to the following:

     (a) if a Default or Event of Default  shall have occurred and be continuing
at the time of any proposed  conversion or continuation only Interest Periods of
one month's duration shall be available;

     (b) in the case of a  continuation  or  conversion of fewer than all Loans,
the aggregate  principal  amount of each  Eurodollar Loan continued or converted
shall be in the  minimum  amount  of  $1,000,000.00  and in  increased  integral
multiples of $100,000.00;

     (c) each continuation or conversion shall be effected by each Bank applying
the proceeds of the new Loan to the Loan (or portion thereof) being continued or
converted;

     (d) if the new Loan made as a result of a continuation or conversion  shall
be a Eurodollar  Loan,  the first  Interest  Period with respect  thereto  shall
commence on the date of continuation or conversion;

     (e)  each  request  for a  Eurodollar  Loan  which  shall  fail to state an
applicable  Interest  Period  shall be deemed to be a  request  for an  Interest
Period of one month;

     (f) unless  sufficient Prime Rate Loans are outstanding or other Eurodollar
Loans are outstanding with Interest Periods expiring prior to the next scheduled
installment  payment of the Term Loan Notes,  and are  sufficient  to enable the
Borrower to make such  installment  payments,  any Eurodollar Loan, a portion of
which is required  to be repaid on any such  installment  payment  date shall be
automatically  converted  at the end of such  Interest  Period into a Prime Rate
Loan; and


                                      -20-


<PAGE>


     (g) in the event  that the  Borrower  shall not give  notice to  continue a
Eurodollar Loan as provided above,  such Loan shall  automatically  be converted
into a Prime Rate Loan at the expiration of the then current Interest Period.

     SECTION 2.13. USE OF PROCEEDS. The proceeds of the Term Loans shall be used
by the  Borrower (i) to repay any  indebtedness  owing to EAB under the Existing
Facility,  (ii) to fund  the  payment  of  certain  liabilities  assumed  by the
Borrower  in  connection  with the  Acquisition,  (iii) to fund  the  costs  and
expenses incurred by the Borrower in connection with this Agreement, and (iv) to
finance  working  capital of the Borrower and to finance  working capital of its
Subsidiaries.  No part of the  proceeds  of any Loan may be used for any purpose
that directly or indirectly  violates or is inconsistent with, the provisions of
Regulations G, T, U or X.

     SECTION 2.14. PREPAYMENT.  (a) Subject to the provisions of this Agreement,
the  Borrower  shall  have the right at any time and from time to time to prepay
any  part of the Term  Loan  which is a Prime  Rate  Loan,  in whole or in part,
without premium or penalty on prior irrevocable  written notice to the Agent (to
be received by the Agent prior to 12:00 p.m. on the date such  prepayment  is to
be made) provided, however, that each such prepayment shall be on a Business Day
and shall be in an aggregate  minimum  principal  amount of  $100,000.00  and in
increased integral multiples of $50,000.00.

     (b) The  Borrower  shall  have the right at any time and from time to time,
subject to the provisions  hereof and of Section 2.31, to prepay any part of the
Term Loan which is a Eurodollar Loan, in whole or in part, on three (3) Business
Days prior irrevocable written notice to the Agent, provided, however, that such
prepayment  shall be in an aggregate  minimum  principal amount of $1,000,000.00
and in increased integral multiples of $100,000.00.

     (c) Upon the  occurrence of any Asset Sale  Recapture  Event,  the Borrower
shall,  without  demand or notice from the Agent,  make an Asset Sale  Recapture
Payment.  Such  payment  shall be  applied  to the Term Loan as set forth in (e)
below.

     (d) Upon the  existence  of  Excess  Cash  Flow for any  fiscal  year,  the
Borrower shall,  without demand or notice from the Agent, and not later than the
ninetieth  (90th) day after the end of the fiscal  year in which the Excess Cash
Flow occurred, make a Cash Flow Recapture Payment. Such payment shall be applied
to the Term Loan as set forth in (e) below.

     (e) The notice of  prepayment  under this  Section 2.14 shall set forth the
prepayment date and the principal  amount of the Loan being prepaid and shall be
irrevocable  and shall commit the Borrower to prepay such Loan by the amount and
on the date stated therein.  All prepayments shall be accompanied by (i) accrued
interest on the principal  amount being  prepaid to the date of  prepayment  and
(ii)  except in the case of (x) Asset  Sale  Recapture  Payments,  (y) Cash Flow
Recapture  Payments and (z) prepayments made after eighteen (18) months from the
date hereof, a prepayment fee

                                      -21-


<PAGE>


of 37.5 basis points on the  principal  amount being  prepaid.  Each  prepayment
under this Section 2.14 shall be applied  first towards  unpaid  interest on the
principal  amount  being  prepaid  and then  towards the  principal  in whole or
partial  prepayment of Loans by the Borrower.  All prepayments  shall be applied
first to any Prime Rate  Loans then  outstanding  and then to  Eurodollar  Loans
outstanding in the order of the nearest  expiration of their  Interest  Periods.
All partial  prepayments of the Term Loans shall be applied to  installments  of
principal  of the Term Loans in the inverse  order of  maturity.  All  principal
payments or prepayments shall be made to the Agent for the pro rata distribution
to the Banks.

     SECTION 2.15. THE IMPROVEMENT TERM LOANS. The Banks hereby agree, severally
but not jointly, on the date of this Agreement,  and on the terms and conditions
and in reliance upon the  representations  and  warranties of the Credit Parties
hereinafter set forth in this Agreement,  to make  Improvement Term Loans to the
Borrower  in  the  maximum   aggregate   principal   amount  of  EIGHT   MILLION
($8,000,000.00)  DOLLARS  (the  "Improvement  Term  Loan  Commitment")  and  the
Borrower agrees to borrow such amounts by executing and delivering to the Agent,
for delivery to the Banks, the Improvement Term Loan Notes. The Improvement Term
Loans, or portions thereof,  shall be Prime Rate Loans or Eurodollar Loans (or a
combination  thereof) as the Borrower may request  subject to and in  accordance
with Section 2.17 hereof. Any Bank may at its option make any Eurodollar Loan by
causing a foreign  branch or  affiliate  to make such  Loan,  provided  that any
exercise of such option shall not affect the obligation of the Borrower to repay
such  Loan in  accordance  with the  terms of the  Notes.  Subject  to the other
provisions of this Agreement,  Improvement  Term Loans of more than one type may
be outstanding at the same time.

     SECTION 2.16. DRAWDOWNS.  Each Improvement Term Loan may be advanced in one
or more Drawdowns.  The Borrower shall give the Agent irrevocable written telex,
telephonic  (immediately confirmed in writing) or facsimile notice by 11:00 a.m.
on the day any Drawdown is requested. On the day of such request, or on the next
Business  Day if the notice is  received  after  11:00 a.m.,  and  provided  the
Borrower has  satisfied all of the  conditions  of Sections  3.01 and 3.03,  the
Agent will notify each Bank of the request for the  Drawdown and each Bank will,
not later than 2:00 p.m.,  transfer  immediately  available  funds equal to such
Bank's  share of the  requested  Drawdown  to the Agent  which  shall  thereupon
transfer  immediately  available  funds equal to the  requested  Drawdown to the
Borrower's  account  with the Agent.  Any Bank's  failure to make any  requested
Drawdown  shall  not  relieve  any  other  Bank of its  obligation  to make such
Drawdown,  but  neither  the Agent nor such  other Bank shall be liable for such
failure of the first  Bank.  Each  Drawdown  shall be in the  minimum  aggregate
amount of $250,000.00 and in increased integral multiples of $25,000.00,  unless
such  Drawdown  will  exhaust  the  remaining  available  Improvement  Term Loan
Commitment  in  which  event  the  Drawdown  may be in the  remaining  available
principal amount of the Improvement Term Loan Commitment.

                                      -22-


<PAGE>


     SECTION  2.17.  NOTICE  OF  IMPROVEMENT  TERM  LOAN  DESIGNATIONS.  (a) The
Borrower may elect to designate an Improvement  Term Loan (or a portion thereof)
as a Prime Rate Loan or a Eurodollar  Loan by so specifying  in the  irrevocable
notice  given  pursuant  to this  Section  2.17;  provided,  however,  that each
Eurodollar Loan requested of the Agent for any specific Interest Period shall be
in the minimum  principal  amount of  $1,000,000.00  and in  increased  integral
multiples of $100,000.00 thereafter.

     (b)  The  Borrower  shall  give  the  Agent  irrevocable  written,   telex,
telephonic  (immediately  confirmed in writing) or facsimile notice (i) at least
two (2) Business Days' prior to each election to designate each Improvement Term
Loan (or a portion  thereof) as a Eurodollar  Loan, and (ii) prior to 11:00 a.m.
on the day of each  election  to  designate  each  Improvement  Term  Loan (or a
portion  thereof) as a Prime Rate Loan, in each case  specifying the date (which
shall be a Business Day) thereof and the aggregate  principal amount and, if any
portion  thereof is to consist of one or more Eurodollar  Loans,  the respective
principal  amounts and Interest Periods for each such Eurodollar Loan;  provided
that:

         (i) if the  Borrower  shall fail to specify the duration of an Interest
Period with regard to any  Eurodollar  Loan in its notice,  the Interest  Period
shall be for a period of one month; and

         (ii) if the Borrower shall fail to specify the type of Loan  requested,
the request shall be deemed to be a request for a Prime Rate Loan.

     (c) Upon receipt of such notice,  the Agent shall promptly notify each Bank
of the contents thereof and of the amount,  type and other relevant  information
regarding the Loan requested.

     SECTION 2.18. IMPROVEMENT TERM LOAN NOTES. The Improvement Term Loans shall
be  evidenced  by the  Improvement  Term  Loan  Notes.  Each  Drawdown  shall be
evidenced by a separate Improvement Term Loan Note, provided,  however, that the
Agent may require  that any number of separate  Improvement  Term Loan Notes and
the  Improvement  Term Loans  evidenced  thereby be  consolidated  into one such
Improvement  Term Loan Note and one such  Improvement Term Loan. The Improvement
Term Loan Notes shall be dated the date hereof and each of the Improvement  Term
Loan Notes shall mature on the Improvement Term Loan Maturity Date at which time
the entire  outstanding  principal balance and all interest thereon shall be due
and payable.  The Improvement  Term Loan Notes shall be entitled to the benefits
and subject to the provisions of this Agreement.

     SECTION 2.19.  REPAYMENT OF IMPROVEMENT  TERM LOAN NOTES. (a) The principal
balance of each of the Improvement  Term Loan Notes shall be payable in a number
of monthly installments,  such number to be equal to the number of full calendar
months between the date of the Improvement  Term Loan and the  Improvement  Term
Loan Maturity Date. Each such installment  shall be due on the last Business Day
of  each  month,  beginning  on the  first  such  day  after  the  date  of each
Improvement Term Loan and continuing on each such day thereafter.

                                      -23-


<PAGE>


Each of the monthly principal installments shall be in an aggregate amount equal
to one sixtieth  (1/60th) of the original  principal  amount of the  Improvement
Term Loan and the final such monthly principal installment shall be in an amount
equal to the then aggregate  outstanding  principal  balance of the  Improvement
Term Loan Notes.

     (b) All payments of installments  on the Improvement  Term Loan Notes shall
be made to the Agent for the pro rata distributions to the Banks.

     SECTION 2.20.  PAYMENT OF INTEREST ON THE IMPROVEMENT  TERM LOAN NOTES. (a)
In the case of a Prime Rate Loan,  interest shall be payable at a rate per annum
equal to the Prime Rate plus the Prime Applicable Margin. Such interest shall be
payable  to the  Agent,  for the pro rata  distribution  to the  Banks,  on each
Interest Payment Date, commencing with the first Interest Payment Date after the
date of such Prime Rate Loan,  on each  Interest  Determination  Date and on the
Improvement  Term Loan Maturity  Date. Any change in the rate of interest on the
Improvement Term Loan Notes due to a change in the Prime Rate or a change in the
Prime  Applicable  Margin shall take effect as of the date of such change in the
Prime Rate or the Prime Applicable Margin.

     (b) In the case of a Eurodollar  Loan,  interest shall be payable at a rate
per annum  (computed  on the basis of the actual  number of days  elapsed over a
year of 360  days)  equal to the  Reserve  Adjusted  LIBOR  Rate  plus the LIBOR
Applicable Margin. Such interest shall be payable to the Agent, for the pro rata
distribution  to the Banks on each Interest  Payment Date,  commencing  with the
first  Interest  Payment Date after the date of such  Eurodollar  Loan,  on each
Interest  Determination Date and on the Improvement Term Loan Maturity Date. The
Agent  shall  determine  the  rate of  interest  applicable  to  each  requested
Eurodollar  Loan  for  each  Interest  Period  at  11:00  a.m.,  or as  soon  as
practicable thereafter,  two (2) Business Days prior to the commencement of such
Interest  Period  and shall  notify  the  Borrower  of the rate of  interest  so
determined. Such determination shall be conclusive absent manifest error.

     SECTION 2.21.  CONVERSION AND  CONTINUATION OF IMPROVEMENT  TERM LOANS. The
Borrower  shall have the right,  at any time, on such notice to the Agent as set
forth in  Section  2.17(b) of this  Agreement,  (i) to  continue  any part of an
Improvement  Term Loan  which is a  Eurodollar  Loan or portion  thereof  into a
subsequent Interest Period (subject to availability) or (ii) to convert any part
of an  Improvement  Term Loan which is a Prime Rate Loan into a Eurodollar  Loan
(subject to availability), subject to the following:

     (a) if a Default or Event of Default  shall have occurred and be continuing
at the time of any proposed  conversion or continuation only Interest Periods of
one month's duration shall be available;

     (b) in the case of a  continuation  or  conversion of fewer than all Loans,
the aggregate principal amount of each Eurodollar Loan

                                      -24-


<PAGE>


continued or converted  shall be in the minimum amount of  $1,000,000.00  and in
increased integral multiples of $100,000.00;

     (c) each continuation or conversion shall be effected by each Bank applying
the proceeds of the new Loan to the Loan (or portion thereof) being continued or
converted;

     (d) if the new Loan made as a result of a continuation or conversion  shall
be a Eurodollar  Loan,  the first  Interest  Period with respect  thereto  shall
commence on the date of continuation or conversion;

     (e)  each  request  for a  Eurodollar  Loan  which  shall  fail to state an
applicable  Interest  Period  shall be deemed to be a  request  for an  Interest
Period of one month;

     (f) unless  sufficient Prime Rate Loans are outstanding or other Eurodollar
Loans are outstanding with Interest Periods expiring prior to the next scheduled
installment  payment of the Improvement  Term Loan Notes,  and are sufficient to
enable the Borrower to make such  installment  payments,  any Eurodollar Loan, a
portion of which is required to be repaid on any such  installment  payment date
shall be automatically converted at the end of such Interest Period into a Prime
Rate Loan; and

     (g) in the event  that the  Borrower  shall not give  notice to  continue a
Eurodollar Loan as provided above,  such Loan shall  automatically  be converted
into a Prime Rate Loan at the expiration of the then current Interest Period.

     SECTION 2.22. USE OF PROCEEDS.  The proceeds of the Improvement  Term Loans
shall be used by the Borrower exclusively to finance completed  improvements to,
and the  purchase  of  equipment  for,  the  Credit  Parties'  stores  and other
facilities,  including completed  improvements which may have been funded by the
Borrower  prior to the date of this  Agreement  and set forth on  Schedule  2.22
hereto. No part of the proceeds of any Improvement Term Loan may be used for any
purpose  that  directly or  indirectly  violates or is  inconsistent  with,  the
provisions of Regulations G, T, U or X.

     SECTION 2.23. PREPAYMENT.  (a) Subject to the provisions of this Agreement,
the  Borrower  shall  have the right at any time and from time to time to prepay
any part of an Improvement  Term Loan which is a Prime Rate Loan, in whole or in
part,  without  premium or penalty on one (1) Business  Day's prior  irrevocable
written notice to the Agent provided,  however,  that each such prepayment shall
be on a Business Day and shall be in an aggregate  minimum  principal  amount of
$250,000.00 and in increased integral multiples of $100,000.00.

     (b) The  Borrower  shall  have the right at any time and from time to time,
subject to the  provisions  hereof and of Section 2.31, to prepay any part of an
Improvement  Term Loan which is a Eurodollar Loan, in whole or in part, on three
(3)  Business  Days prior  irrevocable  written  notice to the Agent,  provided,
however, that

                                      -25-


<PAGE>


such  prepayment  shall  be  in  an  aggregate   minimum   principal  amount  of
$1,000,000.00 and in increased integral multiples of $100,000.00.

     (c) Upon the occurrence of any Asset Sale Recapture  Event, and if the Term
Loan has been paid in full,  the Borrower  shall,  without demand or notice from
the Agent, make an Asset Sale Recapture  Payment.  Such payment shall be applied
to the Improvement Term Loans as set forth in (e) below.

     (d) Upon the existence of Excess Cash Flow for any fiscal year,  and if the
Term Loan has been paid in full,  the Borrower  shall,  without demand or notice
from the Agent, and not later than the ninetieth (90th) day after the end of the
fiscal year in which the Excess Cash Flow  occurred,  make a Cash Flow Recapture
Payment.  Such  payment  shall be applied to the  Improvement  Term Loans as set
forth in (e) below.

     (e) The notice of  prepayment  under this  Section 2.23 shall set forth the
prepayment  date and the  principal  amount of the  Improvement  Term Loan being
prepaid and shall be  irrevocable  and shall  commit the Borrower to prepay such
Improvement  Term  Loan  by the  amount  and on the  date  stated  therein.  All
prepayments shall be accompanied by (i) accrued interest on the principal amount
being prepaid to the date of prepayment and (ii) except in the case of (x) Asset
Sale Recapture  Payments,  (y) Cash Flow Recapture  Payments and (z) prepayments
made after  eighteen (18) months from the date hereof,  a prepayment fee of 37.5
basis points on the principal  amount being prepaid.  Each prepayment under this
Section 2.23 shall be applied first towards unpaid  interest on the amount being
prepaid  and then  towards  the  principal  in whole or  partial  prepayment  of
Improvement Term Loans by the Borrower.  All prepayments  shall be applied first
to  any  Prime  Rate  Loans  then  outstanding  and  then  to  Eurodollar  Loans
outstanding in the order of the nearest  expiration of their  Interest  Periods.
All  partial  prepayments  of the  Improvement  Term  Loans  shall be applied to
installments of principal of the Improvement  Term Loans in the inverse order of
maturity.  All principal  payments or prepayments shall be made to the Agent for
the pro rata distribution to the Banks.

     SECTION 2.24.  FEES. (a) The Borrower  agrees to pay to the Agent,  for the
pro rata  distribution  to the Banks,  from the date each of the  conditions  of
Section  3.01  of  this  Agreement  has  been  satisfied  and for so long as the
Revolving Credit  Commitment or the Improvement Term Loan Commitment  remains in
effect, on the last Business Day of each fiscal quarter of the Borrower,  and on
any day that the  Revolving  Credit  Commitment  or the  Improvement  Term  Loan
Commitment is reduced or terminated,  an Unused  Facility Fee computed at a rate
per annum equal to one quarter of one (1/4%)  percent  (computed on the basis of
the actual  number of days  elapsed  over 360 days) on the average  daily unused
amount  of  the  Revolving  Credit  Commitment  or  the  Improvement  Term  Loan
Commitment, as applicable, such Unused Facility Fee being payable for the fiscal

                                      -26-


<PAGE>


quarter of the Borrower, or part thereof, preceding the payment date.

     (b) The  Borrower  agrees  to pay to the  Agent  not  later  than the third
Business  Day  after  the  date of this  Agreement,  for its  services  as Agent
hereunder,  those fees,  charges and expenses as set forth in the Fee Letter and
as the  Borrower  and the  Agent  may  otherwise  mutually  agree in a  separate
writing.

     SECTION 2.25.  REDUCTION OF REVOLVING CREDIT COMMITMENT OR IMPROVEMENT TERM
LOAN COMMITMENT.  Upon at least three (3) Business Days' prior written notice to
the Agent,  the  Borrower  may  irrevocably  elect to have the unused  Revolving
Credit Commitment or the unused  Improvement Term Loan Commitment  terminated in
whole or reduced in part  provided,  however,  that any such  partial  reduction
shall be in a minimum amount of  $250,000.00,  or whole multiples  thereof.  The
Revolving Credit Commitment or the unused Improvement Term Loan Commitment, once
terminated  or reduced,  shall not be  reinstated  without  the express  written
approval  of the Agent and the Banks.  Any  reduction  to the  Revolving  Credit
Commitment or the unused  Improvement  Term Loan Commitment shall be applied pro
rata to the respective Revolving Credit Commitments or the Improvement Term Loan
Commitments of each Bank.

     SECTION 2.26.  APPLICABLE MARGIN. The Prime Applicable Margin and the LIBOR
Applicable Margin shall each be determined on the basis of the Borrower's Funded
Debt to  EBITDA  Ratio,  as  calculated  based  on the  Borrower's  consolidated
financial  statements  for its most recent  fiscal  year or  quarter.  The Prime
Applicable  Margin  and the  LIBOR  Applicable  Margin  shall be  determined  as
follows:

         (i) The initial  Prime  Applicable  Margin shall be 75 basis points and
     the initial LIBOR  Applicable  Margin shall be 250 basis  points,  and each
     shall be applicable until delivery of the Borrower's consolidated financial
     statements  for its fiscal  year ending  March 1, 1998  pursuant to Section
     5.01(b) hereof.

     Beginning  with delivery of the  Borrower's  financial  statements  for the
fiscal year ending March 1, 1998, and for each fiscal quarter thereafter:

         (ii) If the  Borrower's  Funded  Debt to EBITDA  Ratio as of the end of
     such fiscal year or quarter is less than 1.50 to 1.00, the Prime Applicable
     Margin shall be -0- basis points and the LIBOR  Applicable  Margin shall be
     175 basis points.

         (iii) If the  Borrower's  Funded Debt to EBITDA  Ratio as of the end of
     such  fiscal  year or quarter is equal to or greater  than 1.50 to 1.00 but
     less  than  2.00 to 1.00,  the Prime  Applicable  Margin  shall be 50 basis
     points and the LIBOR Applicable Margin shall be 225 basis points.

         (iv) If the  Borrower's  Funded  Debt to EBITDA  Ratio as of the end of
     such fiscal year or quarter is equal to or greater  than 2.00 to 1.00,  the
     Prime Applicable Margin shall be 75 basis

                                      -27-


<PAGE>


     points and the LIBOR Applicable Margin shall be 250 basis points.

     The Agent shall  determine the Applicable  Margins within five (5) Business
Days of its receipt of all required financial statements and certificates.

     Upon the occurrence and during the  continuance of a Default or an Event of
Default the Prime Applicable  Margin and the LIBOR  Applicable  Margin may, as a
result of changes in the  Borrower's  Funded Debt to EBITDA Ratio,  increase but
will not decrease.

     SECTION 2.27.  EUROCURRENCY RESERVE REQUIREMENT.  It is understood that the
cost to the Banks of making or maintaining  Eurodollar  Loans may fluctuate as a
result  of  the  applicability  of,  or  change  in,  the  Eurocurrency  Reserve
Requirement. The Borrower agrees to pay to the Agent on behalf of the Banks from
time to time,  as  provided  in Section  2.28  below,  such  amounts as shall be
necessary  to  compensate  each  Bank for the  portion  of the cost of making or
maintaining  any  Eurodollar  Loans made by it resulting  from any change in the
Eurocurrency Reserve Requirement, it being understood that the rates of interest
applicable to Eurodollar  Loans  hereunder have been  determined on the basis of
the Eurocurrency  Reserve  Requirement in effect at the time of determination of
the Reserve Adjusted LIBOR Rate and that such rates do not reflect costs imposed
on  each  Bank  in  connection  with  any  change  to the  Eurocurrency  Reserve
Requirement.  It is agreed that for purposes of this  paragraph  the  Eurodollar
Loans made hereunder shall be deemed to constitute  Eurocurrency  Liabilities as
defined  in  Regulation  D and to be  subject  to the  reserve  requirements  of
Regulation D without benefit or credit of proration, exemptions or offsets which
might otherwise be available to each Bank from time to time under Regulation D.

     SECTION 2.28.  INCREASED COSTS.  If, after the date of this Agreement,  the
adoption  of,  or any  change  in,  any  applicable  law,  regulation,  rule  or
directive,  or any  interpretation  thereof by any  authority  charged  with the
administration or interpretation thereof:

         (i) subjects  any Bank to any tax with respect to the Notes,  the Total
Commitment  or on any  amount  paid  or to be paid  under  or  pursuant  to this
Agreement or the Notes (other than any tax measured by or based upon the overall
net income of such Bank);

         (ii)  changes  the basis of  taxation  of  payments  to any Bank of any
amounts  payable  hereunder  (other  than any tax  measured by or based upon the
overall net income of such Bank);

         (iii)  imposes,  modifies  or deems  applicable  any  reserve,  capital
adequacy or deposit  requirements  against any assets held by,  deposits with or
for the account of, or loans made by, any Bank; or


                                      -28-


<PAGE>


         (iv) imposes on the Agent or any Bank,  any other  condition  affecting
the  Notes or this  Agreement;  and the  result  of any of the  foregoing  is to
increase  the cost to the Agent or any Bank of  maintaining  this  Agreement  or
making the Loans, or to reduce the amount of any payment  (whether of principal,
interest  or  otherwise)  receivable  by the Agent or any Bank or to require the
Agent or any Bank to make any payment on or calculated by reference to the gross
amount of any sum received by them, in each case by an amount which the Agent in
its sole, reasonable judgment deems material, then and in any such case:

         (a) the  Agent  shall  promptly  advise  the  Borrower  of such  event,
     together  with the date  thereof,  the  amount  of such  increased  cost or
     reduction or payment and the way in which such amount has been  calculated;
     and

         (b) the  Borrower  shall  pay to the  Agent on behalf of itself or such
     Bank,  within ten (10) days after the advice  referred to in subsection (a)
     hereinabove, such an amount or amounts as will compensate the Agent or such
     Bank for such additional cost, reduction or payment for so long as the same
     shall remain in effect.

     The determination of the Agent as to additional amounts payable pursuant to
this Section 2.28 shall be conclusive  evidence of such amounts absent  manifest
error and if made in good faith.

     SECTION  2.29.  CAPITAL  ADEQUACY.  If the  Agent  or any Bank  shall  have
reasonably  determined  that,  subsequent to the date hereof,  any change in the
applicability of any law, rule,  regulation or guideline,  or the adoption after
the date  hereof of any other  law,  rule,  regulation  or  guideline  regarding
capital adequacy, or any change in any of the foregoing or in the interpretation
or administration of any of the foregoing by any governmental authority, central
bank or comparable  agency  charged with the  interpretation  or  administration
thereof,  or compliance by the Agent or such Bank (or any lending office of such
Bank)  or the  Agent's  or such  Bank's  holding  company  with any  request  or
directive regarding capital adequacy (whether or not having the force of law) of
any such  authority,  central bank or comparable  agency,  has or would have the
effect of reducing  the rate of return on the Agent's or such Bank's  capital or
on the  capital of the  Agent's or such  Bank's  holding  company,  if any, as a
consequence of its  obligations  hereunder to a level below that which the Agent
or such Bank or the Agent's or such Bank's  holding  company could have achieved
but for such  adoption,  change or  compliance  (taking into  consideration  the
Agent's or such Bank's  policies  and the policies of the Agent's or such Bank's
holding  company  with respect to capital  adequacy) by an amount  deemed by the
Agent or such Bank to be material, then from time to time the Borrower shall pay
to the Agent on behalf  of the  Agent or such  Bank  such  additional  amount or
amounts  as will  reasonably  compensate  the Agent or such Bank or its or their
holding company or companies for any such reduction suffered.


                                      -29-


<PAGE>


     SECTION  2.30.  CHANGE IN  LEGALITY.  (a)  Notwithstanding  anything to the
contrary  contained  elsewhere in this  Agreement,  if any change after the date
hereof in law, rule,  regulation,  guideline or order, or in the  interpretation
thereof by any governmental  authority charged with the administration  thereof,
shall make it unlawful for any of the Banks to make or maintain  any  Eurodollar
Loan or to give effect to its obligations as contemplated hereby with respect to
a Eurodollar Loan, then, by written notice to the Borrower, the Agent, on behalf
of such Bank may:

                  (i) declare that Eurodollar  Loans will not thereafter be made
         by such Bank hereunder, whereupon the Borrower shall be prohibited from
         requesting such Eurodollar  Loans from such Bank hereunder  unless such
         declaration is subsequently withdrawn; and

                (ii) require  that,  subject to the  provisions of Section 2.31,
         all  outstanding  Eurodollar  Loans made by it be  converted to a Prime
         Rate  Loan,   whereupon   all  of  such   Eurodollar   Loans  shall  be
         automatically  converted to a Prime Rate Loan as of the effective  date
         of such notice as provided in paragraph (b) below.

         (b) For purposes of this Section  2.30, a notice to the Borrower by the
Agent  pursuant to paragraph (a) above shall be  effective,  for the purposes of
paragraph  (a)  above,  if lawful,  and if any  Eurodollar  Loans  shall then be
outstanding,  on the last day of the then current  Interest  Period;  otherwise,
such notice shall be effective on the date of receipt by the Borrower.

     SECTION 2.31.  FUNDING LOSSES.  The Borrower agrees to compensate each Bank
for any loss or expense which such Bank may sustain or incur as a consequence of
(a) default by the  Borrower in payment when due of the  principal  amount of or
interest  on any  Eurodollar  Loan,  (b)  default  by the  Borrower  in making a
borrowing of,  conversion  into or  continuation  of Eurodollar  Loans after the
Borrower  has  given a  notice  requesting  the  same  in  accordance  with  the
provisions  of this  Agreement,  (c)  default  by the  Borrower  in  making  any
prepayment  after the Borrower has given a notice thereof in accordance with the
provisions  of this  Agreement or (d) the making of a prepayment  of  Eurodollar
Loans on a day  which is not the last day of an  Interest  Period  with  respect
thereto,  including,  without limitation, in each case, any such loss or expense
arising from the reemployment of funds obtained by it or from amounts payable by
such Bank to lenders of funds  obtained by it in order to make or maintain  such
Loans. Such compensation shall include an amount equal to the excess, if any, of
(i) the amount of interest which would have accrued on the amount so prepaid, or
not so borrowed,  converted or  continued,  for the period from the date of such
prepayment or of such failure to borrow,  convert or continue to the last day of
such  Interest  Period  (or,  in the case of a failure  to  borrow,  convert  or
continue,  the  Interest  Period that would have  commenced  on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein, excluding, the LIBOR Applicable Margin included therein, if any,

                                      -30-


<PAGE>


over (ii) the amount of interest (as  reasonably  determined by such Bank) which
would have accrued to such Bank on such amount by placing such amount on deposit
for a comparable period with leading banks in the interbank  eurodollar  market.
This covenant shall survive the termination of this Agreement and the payment of
the Loans and all other  amounts  payable  hereunder for a period of ninety (90)
days from the date of termination of this Agreement and the payment of the Loans
and all other amounts payable hereunder.  When claiming under this Section 2.31,
the  claiming  Bank shall  provide to the  Borrower  a  statement,  signed by an
officer  of such  Bank,  explaining  the  amount  of any  such  loss or  expense
(including  the  calculation  of such amount),  which  statement  shall,  in the
absence of manifest  error,  and provided it is made in good faith be conclusive
evidence of such amounts with respect to the parties hereto.

     SECTION 2.32. CHANGE IN LIBOR;  AVAILABILITY OF RATES. In the event, and on
each occasion,  that, on the day the interest rate for any Eurodollar Loan is to
be   determined,   the  Agent  shall  have   determined  in  good  faith  (which
determination,  absent manifest error,  shall be conclusive and binding upon the
Borrower)  that  dollar  deposits in the amount of the  principal  amount of the
requested  Eurodollar Loan are not generally  available in the London  interbank
market,  or that the rate at which such dollar  deposits are being  offered will
not adequately and fairly reflect the cost to the Banks of making or maintaining
the principal amount of such Eurodollar Loan during such Interest  Period,  such
Eurodollar  Loan shall be  unavailable.  The Agent shall, as soon as practicable
thereafter,  given written,  telex or telephonic notice of such determination of
unavailability  to the Borrower.  Any request by the Borrower for an unavailable
Eurodollar  Loan  shall be deemed to have been a request  for a Prime Rate Loan.
After such notice shall have been given and until the Agent shall have  notified
the Borrower that the circumstances giving rise to such unavailability no longer
exist,  each  subsequent  request for an  unavailable  Eurodollar  Loan shall be
deemed to be a request for a Prime Rate Loan.

     SECTION  2.33.  AUTHORIZATION  TO DEBIT  BORROWER'S  ACCOUNT.  The Agent is
hereby authorized to debit the Borrower's  account maintained with the Agent for
(i) all scheduled payments of principal and/or interest or fees under the Notes,
(ii) the  Agent's  fees,  and (iii) all other  amounts due  hereunder;  all such
debits to be made on the days such payments are due in accordance with the terms
hereof.

     SECTION 2.34.  LATE CHARGES,  DEFAULT  INTEREST.  (a) If the Borrower shall
default in the payment of any principal  installment of or interest on any Loan,
or any other amount becoming due hereunder,  upon the consent and  determination
of the  Required  Banks,  the  Borrower  shall pay to the Agent for the pro rata
distribution  to the Banks  interest,  to the extent  permitted  by law, on such
defaulted  amount  up to the date of  actual  payment  (after  as well as before
judgment)  at an increased  rate per annum  (computed on the basis of the actual
number of days elapsed over a year of

                                      -31-


<PAGE>


360 days) of up to a rate equal to three (3%)  percent in excess of the interest
rate  otherwise  in effect with respect to the type of Loan in  connection  with
which the required payments have not been made.

         (b) Upon the  occurrence  and  during the  continuation  of an Event of
Default,  upon the consent and determination of the Required Banks, the Borrower
shall pay to the Agent, for the pro rata distribution to the Banks, interest, to
the extent permitted by law, on the Loans  outstanding  (after as well as before
judgment)  at an increased  rate per annum  (computed on the basis of the actual
number of days  elapsed  over a year of 360 days) of up to a rate equal to three
(3%) percent in excess of the interest rate otherwise in effect hereunder.

     SECTION 2.35. Payments. All payments by the Borrower hereunder or under the
Notes shall be made in U.S. dollars in immediately available funds at the office
of the Agent by 2:00 p.m. on the date on which such payment shall be due.

     SECTION 2.36. Interest Adjustments. (a) If the provisions of this Agreement
or the Notes would at any time otherwise  require payment by the Borrower to any
Bank of any amount of interest in excess of the maximum amount then permitted by
applicable law the interest payments shall be reduced to the extent necessary so
that such Bank shall not receive  interest in excess of such maximum amount.  To
the extent that,  pursuant to the  foregoing  sentence,  the Agent shall receive
interest  payments  on behalf of the  Banks  hereunder  or under the Notes in an
amount less than the amount otherwise provided, such deficit (hereinafter called
the  "Interest  Deficit")  will  cumulate and will be carried  forward  (without
interest) until the termination of this Agreement. Interest otherwise payable to
any Bank  hereunder  or under  the  Notes  for any  subsequent  period  shall be
increased  by such maximum  amount of the Interest  Deficit that may be so added
without  causing such Bank to receive  interest in excess of the maximum  amount
then permitted by applicable law.

         (b) The  amount of the  Interest  Deficit  at the time of any  complete
payment of the Loans at that time outstanding (other than an optional prepayment
thereof) shall be cancelled and not paid.

     SECTION  2.37.  Interest  Rate  Hedge  Contract.  Upon the  request  of the
Required  Banks,  the Borrower  shall enter into interest rate hedge  agreements
with a term of two (2) years with the Agent,  an  affiliate  of the Agent or any
other bank  reasonably  acceptable  to the Agent (and, in the case of such other
bank,  shall  deliver  copies of the hedge  agreements to the Agent) to purchase
interest rate caps for a maximum notional value of $10,000,000.00.

                                      -32-


<PAGE>


                                   ARTICLE III

                              CONDITIONS OF LENDING

     SECTION 3.01.  CONDITIONS  PRECEDENT TO THE MAKING OF THE INITIAL REVOLVING
CREDIT LOAN, THE INITIAL DRAWDOWN AND THE TERM LOAN. The obligation of the Banks
to make the initial  Revolving  Credit Loans,  the initial Drawdown and the Term
Loan contemplated by this Agreement are each subject to the condition  precedent
that the Agent and the Banks  shall  have  received  from the  Borrower  and the
Guarantors  on or before the date of this  Agreement the  following,  each dated
such day, in form and substance satisfactory to the Agent and its counsel:

     (a) A Revolving  Credit Note,  duly executed by the Borrower and payable to
the order of each of the Banks.

     (b) A Term Loan Note,  duly  executed  by the  Borrower  and payable to the
order of each of the Banks.

     (c) An  Improvement  Term Loan Note,  duly  executed  by the  Borrower  and
payable to the order of each of the Banks.

     (d)  Certified  (as of the  date  of  this  Agreement)  copies  of (i)  the
resolutions of the Board of Directors of the Borrower  authorizing the Loans and
authorizing  and approving  this  Agreement and the other Loan Documents and the
execution,  delivery  and  performance  thereof,  (ii)  the  resolutions  of the
shareholders of the Borrower approving the Acquisition,  and (iii) all documents
evidencing other necessary corporate action and governmental  approvals, if any,
with respect to this Agreement and the other Loan Documents.

     (e) Certified (as of the date of this Agreement)  copies of the resolutions
of the  Boards of  Directors  and the  shareholders  of each of the  Guarantors,
authorizing  and approving this Agreement,  their  Guaranties and any other Loan
Document  applicable  to  the  Guarantors,  and  the  execution,   delivery  and
performance  thereof and  certified  copies of all  documents  evidencing  other
necessary corporate action and governmental  approvals,  if any, with respect to
this Agreement, their Guaranties and the other Loan Documents.

     (f) A certificate of the Secretary or an Assistant  Secretary  (attested to
by  another  officer)  of the  Borrower  certifying:  (i)  the  names  and  true
signatures  of the officer or officers of the Borrower  authorized  to sign this
Agreement,  the Notes and the other Loan Documents to be delivered  hereunder on
behalf of the Borrower;  and (ii) a copy of the  Borrower's  by-laws as complete
and correct on the date of this Agreement.

     (g) A Certificate of the Secretary or an Assistant  Secretary  (attested to
by another officer) of each of the Guarantors  certifying (i) the names and true
signatures of the officer or officers of the Guarantors  authorized to sign this
Agreement,  their  Guaranties  and any  other  Loan  Documents  to be  delivered
hereunder

                                      -33-


<PAGE>


on behalf of the Guarantors;  (ii) a copy of each of the Guarantors'  by-laws as
complete  and  correct  on the  date of this  Agreement;  and  (iii)  the  stock
ownership of each Guarantor.

     (h) Copies of the certificate of incorporation  and all amendments  thereto
of the Borrower and the  Guarantors  certified in each case by the  Secretary of
State  (or  equivalent  officer)  of the state of  incorporation  of each of the
Borrower and the  Guarantors  and a  certificate  of existence and good standing
with respect to the Borrower and the Guarantors  from the Secretary of State (or
equivalent  officer)  of the  state of  incorporation  of the  Borrower  and the
Guarantors) and from the Secretary of State (or equivalent officer) of any state
in which the Borrower or the Guarantors are authorized to do business.

     (i) An opinion of Lowenthal, Landau, Fischer & Bring, P.C., counsel for the
Borrower  and the  Guarantors  as to certain  matters  referred to in Article IV
hereof and as to such other  matters as the Agent or its counsel may  reasonably
request.

     (j) From each of the Guarantors, an executed Guaranty.

     (k) From the  Individual  Guarantor,  an  executed  guaranty in the form of
Exhibit E annexed hereto.

     (l) From the  Borrower  and each of the  Guarantors,  an executed  Security
Agreement giving to the Agent, on behalf of the Banks a first priority  security
interest in all assets of the Borrower  and the  Guarantors  including,  but not
limited to, all personal property,  equipment,  fixtures,  inventory,  accounts,
chattel  paper and  general  intangibles  all  whether  now  owned or  hereafter
acquired (the "Collateral"). Such Collateral shall not include the Borrower's or
any Guarantor's interest as a tenant under any leases of real estate.

     (m) From the Borrower and each of the Guarantors,  UCC-1 filings perfecting
the Agent's security interests in the Collateral.

     (n) From the Borrower and any Guarantor  which owns all or any of the stock
of another  Guarantor or any  Subsidiary  of the  Borrower,  a Pledge  Agreement
granting  to the  Agent,  on  behalf of the  Banks,  a first  priority  security
interest in all of the stock in such Guarantor and/or Subsidiary.

     (o) From the Borrower and any Guarantor  executing and  delivering a Pledge
Agreement, the stock certificate(s) for the shares pledged thereunder,  together
with a stock power executed in blank.

     (p) Intentionally omitted.

     (q) Intentionally omitted.


                                      -34-


<PAGE>


     (r) A property damage  insurance policy for the Collateral in the amount of
the  replacement  value of the  Collateral  naming  the Agent as loss payee with
insurance  companies  acceptable  to the Agent.  The policies  shall provide for
thirty (30) days notice to the Agent of cancellation or change.

     (s) From the Borrower,  copies of all of the Borrower's credit  agreements,
loan  agreements,  indentures,  mortgages  and other  documents  relating to the
extension of credit.

     (t) From the Borrower,  evidence  satisfactory to the Agent and its counsel
that the Acquisition has closed.

     (u)  Receipt  and  satisfactory  review  by the  Agent and the Banks of the
reaffirmation  dated  October 30, 1997 to the opinion of Coopers and Lybrand LLP
dated July 14, 1997,  together  with any  revisions or additions  thereto,  such
reaffirmation, revisions or additions to reflect no opinions, assumptions, facts
or  other  data  which  the  Agent  and the  Banks  reasonably  determine  to be
materially and adversely different from the opinion previously delivered.

     (v) From the  Borrower,  the fees and expenses to be paid  pursuant to this
Agreement, the Commitment Letter and the Fee Letter.

     (w) The  Agent and the Banks  shall,  prior to the date of this  Agreement,
have completed their due diligence reviews of the Borrower, the results of which
shall be satisfactory to the Agent and the Banks in their sole discretion.

     (x) The  following  statements  shall  be true  and the  Agent  shall  have
received a certificate signed by the President or Chief Financial Officer of the
Borrower dated the date hereof, stating that:

          (i) The  representations  and  warranties  contained  in Article IV of
this Agreement and in the other Loan Documents are true and correct on and as of
such date; and

     (ii) No Default or Event of Default  has  occurred  and is  continuing,  or
would result from the making of the initial  Revolving  Credit Loans or the Term
Loan.

     (y) All legal matters incident to this Agreement and the Loan  transactions
contemplated  hereby  shall be  reasonably  satisfactory  to Cullen and  Dykman,
counsel to the Agent.

     (z) Receipt by the Agent of such other approvals,  opinions or documents as
the Agent or its counsel may reasonably request.

     SECTION  3.02.  CONDITIONS  PRECEDENT TO ALL REVOLVING  CREDIT  LOANS.  The
obligation of the Banks to make each  Revolving  Credit Loan shall be subject to
the further condition precedent that on the date of such Revolving Credit Loan:


                                      -35-


<PAGE>


     (a) The  following  statements  shall  be true  and the  Agent  shall  have
received a certificate signed by the President or the Chief Financial Officer of
the Borrower dated the date of such Revolving Credit Loan, stating that:

          (i) The  representations  and  warranties  contained  in Article IV of
this  Agreement  and in the other  Loan  Documents  are true and  correct in all
material  respects  on and as of such  date as  though  made on and as such date
(provided that the  representation  made in Section 4.01(f) shall be deemed made
as to the then most recent fiscal year and interim period  financial  statements
delivered to the Agent and the Banks and any other representation that refers to
a specific date shall be restated as of such date); and

          (ii) No Default or Event of Default  has  occurred  and is continuing,
or would result from such Revolving Credit Loan.

     (b) The Agent  shall  have  received  such  other  approvals,  opinions  or
documents as the Agent or its counsel may reasonably request.

     SECTION  3.03.  CONDITIONS  PRECEDENT TO THE MAKING OF ALL  DRAWDOWNS.  The
obligation of each Bank to make its share of each  Drawdown  shall be subject to
the condition  precedent  that the Agent and the Banks shall have received on or
before the date of such Loans all of the documents  required by Section 3.01 and
each of the following,  in form and substance  satisfactory to the Agent and its
counsel:

     (a) The  following  statements  shall  be true  and the  Agent  shall  have
received a certificate signed by the President or the Chief Financial Officer of
the Borrower dated the date of such Loan:

          (i)  Stating  that  the  representations  and  warranties contained in
Article  IV of this  Agreement  and in the  other  Loan  Documents  are true and
correct in all material respects on and as of such date as though made on and as
of such date (provided that the representation  made in Section 4.01(f) shall be
deemed made as to the then most recent fiscal year and interim period  financial
statements  delivered  to the Agent  and the Banks and any other  representation
that refers to a specific date shall be restated as of such date);

          (ii)  Stating  that no Default or Event of Default has occurred and is
continuing, or would result from the making of the Drawdown;

          (iii)  Describing the goods and/or services being  financed  with  the
Drawdown, together with the name and address of each vendor receiving $25,000.00
or more of the proceeds of such Drawdown; and

          (iv) Stating that the improvements  being  financed  with the Drawdown
have been completed and paid for in full and/or that the

                                      -36-


<PAGE>


equipment  being  financed with the Drawdown has been  delivered and paid for in
full.

     (b)  Additional  Documentation.  The Agent shall have  received  such other
approvals,  opinions,  or documents  as the Agent or its counsel may  reasonably
request,  including,  but  without  limitation,  copies  of  invoices  and other
documentation  reasonably satisfactory to the Agent evidencing the completion of
the store improvements or the purchase of equipment financed with such Drawdown.


                                      -37-


<PAGE>


                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

     SECTION 4.01. REPRESENTATIONS AND WARRANTIES. On the date of this Agreement
and on each  date that the  Borrower  requests  a  Revolving  Credit  Loan or an
Improvement  Term Loan,  the Borrower and each of the  Guarantors  represent and
warrant as follows:

     (a) Subsidiaries. On the date hereof, the only Subsidiaries of the Borrower
or a Guarantor are those set forth on Schedule  4.01(a)  annexed  hereto,  which
Schedule  accurately sets forth with respect to each such  Subsidiary,  its name
and address,  any other  addresses at which it conducts  business,  its state of
incorporation  and  each  other  jurisdiction  in which  it is  qualified  to do
business and the identity and share holdings of its stockholders.  Except as set
forth on  Schedule  4.01(a),  all of the issued and  outstanding  shares of each
Subsidiary  which  are owned by the  Borrower  or a  Guarantor  are owned by the
Borrower  or such  Guarantor  free and clear of any  mortgage,  pledge,  lien or
encumbrance.  Except as set forth on Schedule 4.01(a), there are not outstanding
any warrants, options, contracts or commitments of any kind entitling any Person
to purchase or otherwise  acquire any shares of common or capital stock or other
equity  interest  of the  Borrower or any  Guarantor  or any  Subsidiary  of the
Borrower or a Guarantor,  nor are there  outstanding  any  securities  which are
convertible  into or exchangeable  for any shares of the common or capital stock
of the  Borrower  or  any  Guarantor  or any  Subsidiary  of the  Borrower  or a
Guarantor.

     (b) Good Standing.  The Borrower and the  Guarantors are each  corporations
duly  incorporated,  validly existing and in good standing under the laws of the
States of their respective incorporation and each has the corporate power to own
their assets and to transact the  business in which they are  presently  engaged
and are duly  qualified  and are in good  standing  in such other  jurisdictions
where failure to qualify or otherwise  maintain such standing  could result in a
Material  Adverse Change in the Borrower or in the Borrower and the  Guarantors,
taken as a whole.

     (c) Due  Execution,  Etc. The  execution,  delivery and  performance by the
Borrower and each  Guarantor of the Loan Documents to which they are a party are
within the Borrower's  and the  Guarantors'  corporate  power and have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the  stockholders of the Borrower or Guarantors other
than those already obtained; (ii) do not contravene the Borrower's or any of the
Guarantors'  certificates of incorporation,  charters or by-laws;  (iii) violate
any provision of any law,  rule,  regulation,  contractual  restriction,  order,
writ,  judgment,  injunction,  or decree,  determination  or award binding on or
affecting  the  Borrower  or  any  Guarantor;  (iv)  result  in a  breach  of or
constitute a default  under any  indenture or loan or credit  agreement,  or any
other agreement, lease or instrument to which the Borrower or any Guarantor is a
party or by which it or its

                                      -38-


<PAGE>


properties may be bound or affected;  or (v) result in, or require, the creation
or  imposition of any Lien (other than the Lien of the Loan  Documents)  upon or
with respect to any of the  properties  now owned or  hereafter  acquired by the
Borrower or any Guarantor.

     (d) No Consents Required.  No authorization or approval or other action by,
and no notice to or filing with, any  governmental  authority or regulatory body
is required for the due execution,  delivery and  performance by the Borrower or
any   Guarantor  of  any  Loan   Document  to  which  it  is  a  party,   except
authorizations, approvals, actions, notices or filings which have been obtained,
taken or made, as the case may be.

     (e)  Validity  and  Enforceability.   The  Loan  Documents  when  delivered
hereunder  will have been duly  executed and delivered on behalf of the Borrower
and each  Guarantor,  as the case may be, and will be legal,  valid and  binding
obligations of the Borrower and each Guarantor,  as the case may be, enforceable
against the Borrower or such Guarantor in accordance with their respective terms
except  as  enforcement  thereof  may  be  limited  by  bankruptcy,  insolvency,
reorganization,  moratorium  or  other  similar  laws  or  equitable  principles
affecting the enforcement of creditors rights.

     (f) Financial  Statements.  The  consolidated  financial  statements of the
Borrower and its  Consolidated  Subsidiaries  for the fiscal year ended March 2,
1997, and for the most recent interim fiscal period, and the combining financial
statements of the Borrower and the Food Group for the fiscal year ended March 2,
1997,  copies of which have been  furnished  to the Agent and the Banks,  fairly
present  the   financial   condition  of  the  Borrower  and  its   Consolidated
Subsidiaries  and the  Borrower  and the  Food  Group as at such  dates  and the
results of operations of the Borrower and its Consolidated  Subsidiaries and the
Borrower  and the  Food  Group  for the  periods  ended  on such  dates,  all in
accordance  with GAAP, and since such dates there has been (i) other than as set
forth in Schedule 4.01(f) hereto, no material increase in the liabilities of the
Borrower  and its  Consolidated  Subsidiaries  or the  Food  Group  and  (ii) no
Material Adverse Change in the Borrower or any of its Consolidated  Subsidiaries
or the Food Group.

     (g) No  Litigation.  Except as disclosed in Schedule  4.01(g),  there is no
pending  or,  to  the  Borrower's  knowledge,  threatened  in  writing,  action,
proceeding  or  investigation  affecting  the  Borrower,  any  Guarantor  or any
Subsidiary of the Borrower or a Guarantor, before any court, governmental agency
or  arbitrator,  which  either in one case or in the  aggregate,  is  reasonably
likely to result in a Material Adverse Change in the Borrower or in the Borrower
and the Guarantors, taken as a whole.

     (h) Taxes.  The Borrower and each Guarantor  have filed all federal,  state
and local tax returns required to be filed and have paid all taxes,  assessments
and governmental  charges and levies thereon to be due,  including  interest and
penalties.  Other than as set forth in  Schedule  4.01(h)  hereto,  the  federal
income tax liability of the Borrower and each Guarantor has been finally

                                      -39-


<PAGE>


determined  and  satisfied for all taxable years up to and including the taxable
year ending March 3, 1996.

     (i) Licenses,  Etc. The Borrower, each Guarantor and each Subsidiary of the
Borrower or each Guarantor possess all licenses, permits,  franchises,  patents,
copyrights,  trademarks  and trade names,  or rights  thereto,  to conduct their
respective  businesses  substantially as now conducted and as presently proposed
to be conducted,  and, to their knowledge,  neither the Borrower,  any Guarantor
nor any such Subsidiary are in violation of any similar rights of others.

     (j) Burdensome  Agreements.  Neither the Borrower nor any of the Guarantors
are a party to any indenture,  loan or credit  agreement or any other agreement,
lease  or  instrument  or  subject  to any  charter,  corporate  or  partnership
restriction  which could result in a Material  Adverse Change in the Borrower or
in the Borrower and the Guarantors,  taken as a whole.  Neither the Borrower nor
any Guarantor is in default in any respect in the  performance,  observance,  or
fulfillment of any of the obligations or covenants contained in any agreement or
instrument material to its business.

     (k) Margin Stock.  The Borrower is not engaged in the business of extending
credit for the  purpose of  purchasing  or  carrying  margin  stock  (within the
meaning of Regulation G, T, U or X), and no proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of  purchasing or carrying any margin stock or in any other way which will cause
the Borrower to violate the provisions of Regulations G, T, U or X.

     (l) Compliance With Laws. The Borrower,  each Guarantor and each Subsidiary
of the Borrower or a Guarantor are in compliance with all federal and state laws
and regulations in all jurisdictions  where the failure to comply with such laws
or regulations  could result in a Material  Adverse Change in the Borrower or in
the Borrower and the Guarantors, taken as a whole.

     (m) ERISA. The Borrower, each Guarantor, each Subsidiary of the Borrower or
a Guarantor  and each ERISA  Affiliate  are in  compliance  with all  applicable
provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has
occurred and is continuing with respect to any Benefit  Arrangement or Plan (and
to the best of their knowledge,  to any Multiemployer Plan); no notice of intent
to  terminate  a Plan  has  been  filed  nor has any Plan  been  terminated;  no
circumstances  exist  which  constitute  grounds  under  Section  4042 of  ERISA
entitling the PBGC to institute  proceedings to terminate,  or appoint a trustee
to  administrate  a Plan,  nor has the PBGC  instituted  any  such  proceedings;
neither  the  Borrower,  any  Guarantor,  any  Subsidiary  of the  Borrower or a
Guarantor,  nor any ERISA Affiliate has completely or partially  withdrawn under
Sections 4201 or 4204 of ERISA from a  Multiemployer  Plan.  The Borrower,  each
Guarantor,  each  Subsidiary  of the  Borrower  or a  Guarantor  and each  ERISA
Affiliate:

                                      -40-


<PAGE>


          (i)  have  met  their  minimum  funding  requirements under ERISA with
respect to all of their Plans;

          (ii) have made when due any and all payments required to be made under
any  agreement  relating to a  Multiemployer  Plan and that to the best of their
knowledge, each Multiemployer Plan is able to pay benefits thereunder when due;

          (iii)  represent that for all Plans,  the present fair market value of
all Plan  assets  exceeds the present  value of all vested  benefits  under each
Plan, as determined on the most recent valuation date of the Plan, determined on
Financial Accounting Statements 35 and 36 basis for such Plan;

          (iv)  represent  that to the extent  that any Benefit  Arrangement  is
insured,  they have paid when due all premiums  required to be paid;  and to the
extent that any Benefit  Arrangement is funded other than with  insurance,  they
have made when due all contributions required to be paid;

          (v) represent that for each Benefit Arrangement, Plan, and to the best
of their  knowledge  each  Multiemployer  Plan,  that neither the Borrower,  any
Guarantor,  any  such  Subsidiary  nor any  ERISA  Affiliate  has  incurred  any
liability to the PBGC under ERISA.

     (n) Hazardous Materials.  The Borrower,  each Guarantor and each Subsidiary
of the Borrower or a Guarantor  are in  compliance  with all  federal,  state or
local laws,  ordinances,  rules,  regulations  or policies  governing  Hazardous
Materials and neither the Borrower,  any Guarantor nor any such  Subsidiary  has
used  Hazardous  Materials  on,  from,  or  affecting  any property now owned or
occupied or hereafter  owned or occupied by the  Borrower,  any Guarantor or any
such  Subsidiary  in any manner  which  violates  federal,  state or local laws,
ordinances,   rules,   regulations  or  policies  governing  the  use,  storage,
treatment,  transportation,  manufacture,  refinement,  handling,  production or
disposal of Hazardous  Materials,  and to the  Borrower's,  Guarantors' and such
Subsidiaries'  knowledge,  no prior  owner of any such  property  or any tenant,
subtenant,  prior tenant or prior  subtenant have used  Hazardous  Materials on,
from or affecting such property in any manner which violates  federal,  state or
local laws,  ordinances,  rules,  regulations,  or policies  governing  the use,
storage,   treatment,   transportation,   manufacture,   refinement,   handling,
production or disposal of Hazardous Materials.

     (o) Use of Proceeds.  The proceeds of the Revolving  Credit Loans, the Term
Loan and the Improvement  Term Loans shall be used  exclusively for the purposes
set forth in Section 2.05,  Section 2.15 and Section 2.23,  respectively of this
Agreement.

     (p) No Liens.  The properties and assets of the Borrower and the Guarantors
are not  subject  to any Lien  other than  those  described  in Section  5.02(a)
hereof.


                                      -41-


<PAGE>


     (q)  Casualties.  Neither the business nor the  properties of the Borrower,
any  Guarantor or any  Subsidiary of the Borrower or a Guarantor are affected by
any fire, explosion, accident, strike, hail, earthquake,  embargo, act of God or
of the public enemy,  or other  casualty  (whether or not covered by insurance),
which  could  result in a  Material  Adverse  Change in the  Borrower  or in the
Borrower and the Guarantors, taken as a whole.

     (r) Solvency of Guarantors.  The liability of the Guarantors as a result of
the execution of their respective Guaranties and the execution of this Agreement
shall not cause the liabilities  (including  contingent  liabilities) of each of
the Guarantors to exceed the fair saleable value of their respective assets.

     (s) Advantage to Guarantors.  The Guarantors  acknowledge they have derived
or expect to derive a financial or other  advantage  from the Loans  obtained by
the Borrower from the Banks.

     (t) Credit  Agreements.  Schedule 4.01(t) is a complete and correct list of
all credit agreements,  indentures,  purchase  agreements,  guaranties,  Capital
Leases, and other investments,  agreements and arrangements  presently in effect
providing  for or relating to  extensions of credit  (including  agreements  and
arrangements for the issuance of letters of credit or for acceptance  financing)
in respect of which the Borrower or any  Guarantor is in any manner  directly or
contingently obligated,  and the maximum principal or face amounts of the credit
in question,  outstanding or to be outstanding,  are correctly  stated,  and all
Liens of any  nature  given or  agreed  to be given  as  security  therefor  are
correctly  described or indicated in such  Schedule and neither the Borrower nor
any Guarantor is in default with respect to its obligations thereunder.


                                      -42-


<PAGE>


                                    ARTICLE V

                            COVENANTS OF THE BORROWER

     SECTION 5.01.  AFFIRMATIVE  COVENANTS.  So long as (i) the Total Commitment
shall be in effect or (ii) any amount shall remain  outstanding under any of the
Notes, the Borrower and each of the Guarantors  will,  unless the Required Banks
shall otherwise consent in writing:

     (a) Compliance  with Laws,  Etc.  Comply,  and cause each Subsidiary of the
Borrower or a Guarantor to comply, with all applicable laws, rules,  regulations
and orders,  where the failure to so comply could  result in a Material  Adverse
Change in the Borrower or in the Borrower and the Guarantors, taken as a whole.

     (b) Reporting Requirements. Furnish to the Agent and each of the Banks:

          (i) Annual Financial Statements. As soon as available and in any event
not later  than the date it is  required  to be filed  with the  Securities  and
Exchange  Commission,  a copy of Form 10-K for each fiscal year of the Borrower,
including the audited consolidated  financial statements of the Borrower and its
Consolidated  Affiliates for such year, including a balance sheet with a related
statement of income and retained  earnings and  statement of cash flows,  all in
reasonable  detail and  setting  forth in  comparative  form the figures for the
previous  fiscal year,  together with an  unqualified  opinion,  prepared by BDO
Seidman, LLP or such other independent  certified public accountants selected by
the  Borrower  and  reasonably  satisfactory  to the Agent,  all such  financial
statements to be prepared in accordance with GAAP.

          (ii) Quarterly Financial  Statements.  As soon as available and in any
event not later than the date it is required to be filed with the Securities and
Exchange  Commission,  a copy  of Form  10-Q  for  each  fiscal  quarter  of the
Borrower,  including the consolidated  financial  statements of the Borrower and
its Consolidated  Affiliates for such quarter and for year to date,  including a
balance  sheet with a related  statement of income and  retained  earnings and a
statement  of  cash  flows,  all in  reasonable  detail  and  setting  forth  in
comparative  form the figures for the comparable  quarter and comparable year to
date period for the previous  fiscal year, all such  financial  statements to be
prepared by management of the Borrower in accordance with GAAP.

          (iii) Consolidating Financial Statements. (1) As soon as available and
in any event  within  ninety  (90) days after the end of each fiscal year of the
Borrower  and within  sixty  (60) days after the end of each of the first  three
fiscal  quarters  of  the  Borrower,  a  copy  of  the  consolidating  financial
statements  of the  Borrower  and its  operating  Subsidiaries  for such year or
quarter, including balance sheets with related statements of income and retained
earnings and  statements  of cash flows,  all in  reasonable  detail and setting
forth in comparative form the figures for the previous

                                      -43-


<PAGE>


fiscal year or previous  fiscal  quarter,  all such  financial  statements to be
prepared by management of the Borrower in accordance  with GAAP, and (2) as soon
as  available  and in any event  within  sixty  (60) days  after the end of each
fiscal quarter the Borrower  (including the fourth fiscal quarter),  a copy of a
financial  schedule showing EBITDA operating  results by store location for such
quarter, prepared by management of the Borrower.

          (iv) Form 8-K. As soon as it is filed, a copy of the Form 8-K filed by
the Borrower with the  Securities  and Exchange  Commission  with respect to the
Acquisition,  together  with all  financial  statements  and  schedules  related
thereto.

          (v) Management Letters.  Promptly upon receipt thereof,  copies of any
reports  submitted to the Borrower or any  Guarantor  by  independent  certified
public accountants in connection with examination of the financial statements of
the Borrower and each Guarantor made by such accountants.

          (vi)  Certificate of No Default.  Simultaneously  with the delivery of
the  financial  statements  referred  to  in  Section  5.01(b)(i)  and  (ii),  a
certificate of the President or the Chief Financial  Officer of the Borrower (1)
certifying  that no Default or Event of Default has occurred and is  continuing,
or if a Default or Event of Default has occurred and is continuing,  a statement
as to the nature  thereof  and the  action  which is  proposed  to be taken with
respect thereto;  and (2) with  computations  demonstrating  compliance with the
covenants contained in Section 5.03.

          (vii) Notice of Litigation.  Promptly after the commencement  thereof,
notice of all actions,  suits and  proceedings  before any court or governmental
department,  commission, board, bureau, agency, or instrumentality,  domestic or
foreign, affecting the Borrower, any Guarantor or any Subsidiary of the Borrower
or a Guarantor which, if determined adversely to the Borrower,  any Guarantor or
any such  Subsidiary  could result in a Material  Adverse Change in the Borrower
and the Guarantors, taken as a whole.

          (viii)  Notice of Defaults and Events of Default.  As soon as possible
and in any event  within five (5) days after the  occurrence  of each Default or
Event of Default,  a written notice setting forth the details of such Default or
Event of Default and the action  which is  proposed to be taken by the  Borrower
with respect thereto.

          (ix) ERISA Reports.  Promptly  after the filing or receiving  thereof,
copies of all reports,  including annual reports, and notices which the Borrower
any Guarantor and any  Subsidiary of the Borrower or a Guarantor,  files with or
receives from the PBGC or the U.S.  Department of Labor under ERISA; and as soon
as possible after the Borrower,  any Guarantor or any such  Subsidiary  knows or
has  reason to know that any  Reportable  Event or  Prohibited  Transaction  has
occurred  with  respect  to any  Plan or that  the  PBGC  or the  Borrower,  any
Guarantor or any such  Subsidiary has  instituted or will institute  proceedings
under Title IV of ERISA to

                                      -44-


<PAGE>


terminate any Plan,  the Borrower or such  Guarantor will deliver to the Agent a
certificate of the President or the Chief  Financial  Officer of the Borrower or
such Guarantor  setting forth details as to such Reportable  Event or Prohibited
Transaction  or Plan  termination  and the action the Borrower or such Guarantor
proposes to take with respect thereto.

          (x) Reports to Other Creditors. Promptly after the furnishing thereof,
copies of any statement or report  furnished to any other party  pursuant to the
terms of any indenture,  loan, or credit or similar  material  agreement and not
otherwise  required to be furnished to the Agent pursuant to any other clause of
this Section 5.01(b).

          (xi)  Proxy  Statements,  Etc.  Promptly  after the  sending or filing
thereof, copies of all proxy statements,  financial statements and reports which
the Borrower or any Guarantor  sends to its public  stockholders,  and copies of
all regular,  periodic,  and special reports,  and all  registration  statements
which the  Borrower or any  Guarantor  files with the  Securities  and  Exchange
Commission or any governmental  authority which may be substituted  therefor, or
with any national securities exchange.

          (xii) Personal  Financial  Statements.  At least once in each calendar
year,  and not later than fifteen  (15) months  after the last  delivery of such
financial  statement,  a  copy  of  the  personal  financial  statement  of  the
Individual  Guarantor dated as of date not more than six (6) months prior to the
date of delivery.

          (xiii) Lease Status Certificate. As soon as available and in any event
within sixty (60) days after the end of each fiscal quarter,  a certificate from
the chief  financial  officer of the Borrower  setting forth the Credit Parties'
payment status for all leases of real property, in form and substance reasonable
satisfactory to the Agent.

          (xiv)  General  Information.  Such other  information  respecting  the
condition or operations,  financial or otherwise, of the Borrower, any Guarantor
or any  Subsidiary  of the  Borrower or a Guarantor as the Bank may from time to
time reasonably request.

     (c)  Taxes.  Pay and  discharge,  and  cause  its  Subsidiaries  to pay and
discharge,  all taxes, assessments and governmental charges upon it or them, its
or  their  income  and its or  their  properties  prior  to the  dates  on which
penalties  are  attached  thereto,  unless and only to the extent  that (i) such
taxes shall be contested  in good faith and by  appropriate  proceedings  by the
Borrower,  any  Guarantor or any such  Subsidiary,  as the case may be, and (ii)
there be adequate reserves therefor in accordance with GAAP entered on the books
of the Borrower, any Guarantor or any such Subsidiary.

     (d) Corporate Existence.  Preserve and maintain, and cause its Subsidiaries
to preserve and  maintain,  their  corporate  existence and good standing in the
jurisdiction of their incorporation and the rights, privileges and franchises of
the Borrower, each

                                      -45-


<PAGE>


Guarantor and each such  Subsidiary in each case where failure to so preserve or
maintain could result in a Material Adverse Change in the Borrower or any of the
Guarantors.

     (e)  Maintenance  of  Properties  and  Insurance.  (i) Keep,  and cause any
Subsidiaries  to  keep,  the  respective  properties  and  assets  (tangible  or
intangible) that are useful and necessary in its business, in good working order
and condition,  reasonable wear and tear excepted;  and (ii) maintain, and cause
any  Subsidiaries to maintain,  insurance with  financially  sound and reputable
insurance  companies or  associations in such amounts and covering such risks as
are  usually  carried by  companies  engaged in  similar  businesses  and owning
properties  doing business in the same general areas in which the Borrower,  any
Guarantors and any such Subsidiaries operate.

     (f) Books of Record and Account.  Keep and cause any  Subsidiaries to keep,
adequate  records  and  proper  books of record and  account  in which  complete
entries  will be  made in a  manner  to  enable  the  preparation  of  financial
statements in accordance with GAAP, reflecting all financial transactions of the
Borrower, the Guarantors, and any such Subsidiaries.

     (g) Visitation; Field Audit. (a) From time to time, permit the Agent or any
of the Banks or any  agents or  representatives  thereof,  to  examine  and make
copies of and abstracts  from the books and records of, and visit the properties
of, the  Borrower or any  Guarantor  and to discuss the  affairs,  finances  and
accounts of the Borrower or any Guarantor with any of the  respective  executive
officers or  directors of the Borrower or such  Guarantor or the  Borrower's  or
such Guarantor's independent accountants.

          (b) From time to time,  allow the Bank to conduct,  and cooperate with
the Bank in connection therewith, a Field Audit. The expense of such Field Audit
shall be for the account of the Borrower, provided that as long as no Default or
Event of  Default  exists,  the  cost of such  Field  Audits  shall  not  exceed
$5,000.00 in any fiscal year of the Borrower.

          (c) Any Field Audits or other  visitations shall be made during normal
business hours and on reasonable notice. The Agent shall use its best efforts to
preserve the confidentiality of any non-public information obtained by it.

     (h) Performance and Compliance  with Other  Agreements.  Perform and comply
with each of the  provisions of each and every  agreement the failure to perform
or comply with which would be reasonably  likely to result in a Material Adverse
Change in the Borrower or in the Borrower and the Guarantors, taken as a whole.

     (i)  Pension  Funding.  Comply  with the  following  and cause  each  ERISA
Affiliate of the Borrower,  any Guarantor or any Subsidiary of the Borrower or a
Guarantor to comply with the following:


                                      -46-


<PAGE>


          (i) engage solely in transactions  which would not subject any of such
     entities to either a civil penalty  assessed  pursuant to Section 502(i) of
     ERISA or a tax  imposed by Section  4975 of the  Internal  Revenue  Code in
     either case in an amount in excess of $25,000.00;

          (ii)  make  full  payment  when due of all  amounts  which,  under the
     provisions of any Plan or ERISA,  the  Borrower,  any  Guarantor,  any such
     Subsidiary  or any ERISA  Affiliate  of any of same is  required  to pay as
     contributions thereto;

          (iii) all applicable  provisions of the Internal  Revenue Code and the
     regulations  promulgated  thereunder,  including but not limited to Section
     412 thereof,  and all applicable rules,  regulations and interpretations of
     the  Accounting  Principles  Board and the Financial  Accounting  Standards
     Board;

          (iv) not fail to make any payments in an aggregate amount greater than
     $25,000.00 to any Multiemployer Plan that the Borrower, any Guarantor,  any
     such  Subsidiary  or any ERISA  Affiliate may be required to make under any
     agreement  relating  to such  Multiemployer  Plan,  or any  law  pertaining
     thereto; or

          (v) not take any action  regarding  any Plan which could result in the
     occurrence of a Prohibited Transaction.

     (j) Licenses.  Maintain at all times, and cause each Subsidiary to maintain
at all times,  all licenses or permits  necessary to the conduct of its business
or as may be required by any governmental agency or instrumentality thereof, the
failure to maintain would be reasonably  likely to result in a Material  Adverse
Change in the Borrower or in the Borrower and the Guarantors, taken as a whole.

     (k) New Subsidiaries and Affiliates. Cause any Affiliate of the Borrower or
any Guarantor formed after the date of this Agreement, to (x) become a guarantor
of all  obligations  of the  Borrower  under this  Agreement  and the other Loan
Documents,  (y) to secure its obligations with a security interest in all of its
personal  property and (z) become a party to this Agreement.  The parent company
of any such Affiliate shall pledge its shares in such Affiliate to the Agent for
the benefit of the Banks.

     (l) Agent's Fees.  Pay to the Agent (i) an annual  administrative  fee, and
(ii) those fees (other than the annual  administrative fee), in each case as set
forth in the Fee Letter.

     (m) Trademarks.  The Borrower shall deliver or cause to be delivered to the
Bank certified copies of all trademarks owned by the Borrower and the Guarantors
within  thirty (30) days of the date of this  Agreement.  The  Borrower  and the
Guarantors,  as the case may be, shall enter into a Trademark Security Agreement
for each of such trademarks within thirty (30) days of the date hereof.


                                      -47-


<PAGE>


     SECTION 5.02. NEGATIVE COVENANTS. So long as (i) the Total Commitment shall
be in effect or (ii) any amount shall remain outstanding under any of the Notes,
neither the Borrower nor any of the Guarantors will, without the written consent
of the Required Banks:

     (a) Liens, Etc. Create, incur, assume or suffer to exist, any Lien, upon or
with respect to any of its properties, now owned or hereafter acquired, except:

          (i) Liens in favor of the Banks  securing  Debt  permitted  by Section
5.02;

          (ii) Liens for taxes or  assessments  or other  government  charges or
levies  if not yet due and  payable  or if due and  payable  if they  are  being
contested in good faith by  appropriate  proceedings  and for which  appropriate
reserves are maintained;

          (iii)  Liens  imposed  by  law,  such  as  mechanics',  materialmen's,
landlords',  warehousemen's,  and  carriers'  Liens,  and other  similar  Liens,
securing  obligations  incurred in the ordinary course of business which are not
past due or which are being  contested in good faith by appropriate  proceedings
and for which appropriate reserves have been established;

          (iv) Liens under workers' compensation, unemployment insurance, Social
Security, or similar legislation;

          (v) Liens,  deposits,  or pledges to secure the  performance  of bids,
tenders,  contracts  (other than  contracts  for the  payment of money),  leases
(permitted under the terms of this Agreement),  public or statutory obligations,
surety,  stay, appeal,  indemnity,  performance or other similar bonds, or other
similar obligations arising in the ordinary course of business;

          (vi) Liens described in Schedule 5.02(a),  provided that no such Liens
shall be renewed,  extended or  refinanced  except for the refinance of the then
outstanding balance of Debt secured by such Lien;

          (vii)  Judgment and other similar  Liens  arising in  connection  with
court proceedings (other than those described in Section 6.01(f)),  provided (i)
the execution or other  enforcement of such Liens is effectively  stayed and the
claims  secured  thereby  are  being  actively  contested  in good  faith and by
appropriate  proceedings,  or  (ii)  any  such  judgment  is  fully  covered  by
insurance;

          (viii)  Easements,  rights-of-way,  restrictions,  and  other  similar
encumbrances  which,  in the  aggregate,  do not  materially  interfere with the
Borrower's  or a  Guarantor's  occupation,  use and enjoyment of the property or
assets  encumbered  thereby in the normal  course of its business or  materially
impair the value of the property subject thereto; and


                                      -48-


<PAGE>


          (ix) Purchase  money Liens on any property  hereafter  acquired or the
assumption of any Lien on property  (excluding  leases for the use or occupation
of real property)  existing at the time of such acquisition,  or a Lien incurred
in connection with any conditional sale or other title retention  agreement or a
Capital Lease, provided that:

               (1) Any property  subject to any of the  foregoing is acquired by
the Borrower or any Guarantor in the ordinary course of its respective  business
and the  Lien on any  such  property  is  created  contemporaneously  with  such
acquisition;

               (2) The obligation  secured by any Lien so created,  assumed,  or
existing  shall not exceed one hundred  (100%) percent of lesser of cost or fair
market  value of the  property  acquired  as of the time of the  Borrower or any
Guarantor acquiring the same;

               (3) Each such Lien shall  attach only to the property so acquired
and fixed improvements thereon;

               (4)  The  Debt  secured  by  all  such  Liens  shall  not  exceed
$2,500,000.00 at any time outstanding in the aggregate; and

               (5) The  obligation  secured  by such  Lien is  permitted  by the
provisions of Section  5.02(b) and the related  expenditure  is permitted by the
provisions of Section 5.03(b).

     (b) Debt. Create, incur, assume, or suffer to exist, any Debt, except:

          (i) Debt of the Borrower under this Agreement or the Notes;

          (ii) Debt  described in Schedule  5.02(b),  provided that no such Debt
shall be renewed,  extended or  refinanced  except for the refinance of the then
outstanding balance of such Debt;

          (iii)  Accounts  payable to trade  creditors for goods or services and
current  operating  liabilities  (other than for borrowed  money),  in each case
incurred and paid in the ordinary course of business,  unless  contested in good
faith and by appropriate proceedings;

          (iv) Debt of the Borrower or any Guarantor  secured by purchase  money
Liens permitted by Section 5.02(a)(ix); and

          (v) Inter Company Debt

     (c)  Lease  Obligations.  Create,  incur,  assume,  or  suffer to exist any
obligation  as lessee for the rental or hire of any real or  personal  property,
except (i) Capital Leases permitted by Section 5.02(a);  (ii) leases existing on
the date of this Agreement and any extensions or renewals thereof;  (iii) leases
for the use and  occupancy  of real  property  (other than leases  described  in
clause (i) or (ii)) which do not, in the aggregate, require the

                                      -49-


<PAGE>


Borrower  and the  Guarantors  to make  payments  (including  taxes,  insurance,
maintenance,  and  similar  expenses  which the  Borrower  or any  Guarantor  is
required to pay under the terms of any lease) in any fiscal year of the Borrower
in excess of that amount of incremental "Average Annual Cost" during each fiscal
year of the  Borrower set forth in the  schedule  below,  it being the intent of
this clause  (iii) that the  Borrower  may enter into such leases  which add not
more than such amounts of incremental "Average Annual Cost" in each fiscal year,
and (iv) all other operating leases (other than leases described in (i), (ii) or
(iii)), which do not, in the aggregate,  require the Borrower and the Guarantors
to make  annual  payments  under such leases in excess of  $1,000,000.00  in the
aggregate over the term of this Agreement.  For purposes hereof, "Average Annual
Cost" shall mean the total  amount to be paid by the lessee under any lease over
the term of such lease, for any and all purposes,  including rent,  escalations,
taxes,  operating  costs,  pass  throughs,  electric  and other  utility  costs,
commissions,  build-outs, and all other amounts payable to or for the benefit of
the lessor divided by the term of the lease, in years.

                               Real Estate Leases
                               ------------------

     Fiscal Year Ending in                             Average Annual Cost
     ---------------------                             -------------------

     1998                                              $500,000.00*

     1999                                              $1,500,000.00

     2000                                              $2,000,000.00

     2001 and thereafter                               $3,000,000.00


*for the period beginning with the date of this Agreement

     (d) Merger.  Merge into, or  consolidate  with or into, or have merged into
it, any Person (for the purpose of this  subsection (d), the acquisition or sale
by the Borrower or any  Guarantor by lease,  purchase or  otherwise,  of all, or
substantially  all,  of the  common  stock or the  assets of any Person or of it
shall be deemed a merger of such  Person  with the  Borrower  or any  Guarantor)
other than a merger of a Subsidiary  into its parent  corporation and other than
as contemplated by the Acquisition.

     (e) Sale of Assets, Etc. Sell, assign, transfer, lease or otherwise dispose
of any of its assets,  (including a saleleaseback  transaction)  with or without
recourse,  except  for (i)  inventory  disposed  of in the  ordinary  course  of
business;  (ii) the sale or other disposition of assets no longer used or useful
in the conduct of its business;  and (iii) upon notice to the Agent, rights as a
tenant under leases of real estate  provided that (x) not more than one (1) such
lease shall be sold during each fiscal year of the Borrower and (y) the Borrower
complies with the provisions of Section 2.23(c) of this Agreement.


                                      -50-


<PAGE>


     (f) Investments, Etc. Make any Investment other than Permitted Investments.

     (g) Transactions With Affiliates. Except in the ordinary course of business
and pursuant to the reasonable requirements of the Borrower's,  a Guarantor's or
a Subsidiary's  business and upon fair and reasonable terms no less favorable to
the  Borrower,  or the Guarantor or the  Subsidiary  than would be obtained in a
comparable arm's length  transaction with a Person not an Affiliate,  enter into
any transaction,  including, without limitation, the purchase, sale, or exchange
of property or the rendering of any service, with any Affiliate.

     (h)  Prepayment  of  Outstanding  Debt.  Pay,  in  whole  or in  part,  any
outstanding  Debt (other than the Loans) of the Borrower or any Guarantor  which
by its terms is not then due and payable.

     (i)  Guarantees.   Guaranty,  or  in  any  other  way  become  directly  or
contingently  obligated  for  any  Debt  of  any  other  Person  (including  any
agreements  relating to working  capital  maintenance,  take or pay contracts or
similar  arrangements) other than (i) the endorsement of negotiable  instruments
for deposit in the ordinary course of business;  (ii) guarantees existing on the
date  hereof  and set  forth  in  Schedule  5.02(i)  annexed  hereto,  or  (iii)
guarantees of Debt permitted hereunder.

     (j) Change of Business. Materially alter the nature of its business.

     (k) Fiscal Year. Change the ending date of its fiscal year.

     (l) Losses.  Incur a net loss for (i) the period  beginning  on the date of
this Agreement and ending on March 1, 1998 or (ii) any fiscal year thereafter.

     (m)  Accounting  Policies.   Change  any  accounting  policies,  except  as
permitted by GAAP.

     (n)  Change  of  Tax  Status.  Change  its  tax  reporting  status  as  a C
corporation.

     (o) Change in  Ownership.  Fail or cease to maintain the  ownership by John
Catsimatidis,  directly or  indirectly,  of a majority of such classes of voting
stock of the Borrower and the Guarantors such as would enable the holder thereof
to elect a majority of the members of the Board of Directors of the Borrower and
each Guarantor.

     (p) Management.  Fail to retain John  Catsimatidis  in a reasonably  active
full time capacity in the management of the Borrower and Guarantors.

     (q) Hazardous Material. The Borrower, each Guarantor and each Subsidiary of
the  Borrower or a  Guarantor  shall not cause or permit any  property  owned or
occupied by the Borrower, any Guarantor or

                                      -51-


<PAGE>


any such  Subsidiary  to be used to generate,  manufacture,  refine,  transport,
treat, store, handle, dispose, transfer, produce or process Hazardous Materials,
except in  compliance  with all  applicable  federal,  state  and local  laws or
regulations nor shall the Borrower,  any Guarantor or any such Subsidiary  cause
or permit,  as a result of any intentional or  unintentional  act or omission on
the part of the Borrower,  any Guarantor or any such Subsidiary or any tenant or
subtenant,  a release of Hazardous Materials onto any property owned or occupied
by the  Borrower,  any  Guarantor  or any  such  Subsidiary  or onto  any  other
property.  The Borrower,  each Guarantor and each such Subsidiary shall not fail
to comply with all applicable federal, state and local laws,  ordinances,  rules
and  regulations,  whenever  and by  whomever  triggered,  and shall not fail to
obtain and comply with, any and all approvals, registrations or permits required
thereunder.  The Borrower and the  Guarantors  shall  execute any  documentation
reasonably  required  by the  Agent  in  connection  with  the  representations,
warranties  and covenants  contained in this  paragraph and Section 4.01 of this
Agreement.

     SECTION 5.03. FINANCIAL  REQUIREMENTS.  So long as (i) the Total Commitment
shall be in effect or (ii) any amount shall remain  outstanding under any of the
Notes:

     (a) Minimum  Consolidated  Tangible Net Worth.  The Borrower and Guarantors
will maintain at all times a Consolidated Tangible Net Worth ("TNW") of not less
than the following, to be tested quarterly:

            Period                                 Minimum TNW
            ------                                 -----------

            From the date of this Agreement        $12,500,000.00
            until May 30, 1998

            From May 31, 1998 until                $14,500,000.00
            May 29, 1999

            From May 30, 1999 until                $16,500,000.00
            May 27, 2000

            From May 28, 2000 and                  $18,500,000.00
            thereafter.

     (b)  Unfunded   Consolidated  Capital  Expenditures.   The  Borrower,   the
Guarantors and their respective Subsidiaries will not make Unfunded Consolidated
Capital  Expenditures  in excess of the amounts set forth below in the aggregate
during any fiscal year:

Fiscal Year Ending In                        Amount
---------------------                        ------

1998                                         $500,000.00*

1999                                         $1,000,000.00

2000                                         $1,250,000.00

                                      -52-

<PAGE>


2001                                         $1,500,000.00

*for the period beginning with the date of this Agreement

     (c)  Leverage  Ratio.  The Borrower  and the  Guarantors  will at all times
maintain a Leverage  Ratio,  to be tested  quarterly,  of not  greater  than the
following:

                Period                              Leverage Ratio
                ------                              --------------

                From the date of this Agreement     3.00 to 1.00
                until May 30, 1998

                From May 31, 1998 until             2.50 to 1.00
                May 29, 1999

                From May 30, 1999 until             2.25 to 1.00
                May 27, 2000

                From May 28, 2000 and               2.00 to 1.00
                thereafter.

     (d) Funded Debt to EBITDA Ratio.  The Borrower and Guarantors will maintain
at all times on a  consolidated  basis,  a Funded  Debt to EBITDA  Ratio,  to be
tested quarterly, of not greater than the following:

               Period                     Funded Debt to EBITDA Ratio
               ------                     ---------------------------
         From August 30, 1998 until               2.50 to 1.0
         August 28, 1999

         From August 29, 1999 until               2.25 to 1.0
         August 26, 2000

         From August 27, 2000 and                 2.00 to 1.00
         thereafter.

     (e) Fixed Charge Coverage Ratio.  The Borrower and Guarantors will maintain
at all times,  beginning  with the fiscal  quarter  ending  May 31,  1998,  on a
consolidated  basis, a minimum Fixed Charge Coverage Ratio of not less than 1.25
to 1.0, such ratio to be tested quarterly.

     (f) Debt Service Ratio.  The Borrower and  Guarantors  will maintain at all
times,  beginning with the fiscal quarter ending May 31, 1998, on a consolidated
basis,  a minimum Debt Service Ratio of not less than 1.50 to 1.0, such ratio to
be tested quarterly.

     (g) Minimum  EBITDA.  The  Borrower and the  Guarantors  shall have minimum
EBITDA of $2,000,000.00 for the last nine months of fiscal year 1998.

                                      -53-


<PAGE>


                                   ARTICLE VI

                                EVENTS OF DEFAULT

     SECTION 6.01. EVENTS OF DEFAULT. If any of the following events ("Events of
Default") shall occur and be continuing:

     (a) The Borrower  shall fail to pay any  installment  of  principal  of, or
interest  on, any of the Notes when due,  or any fees or other  amounts  owed in
connection with this Agreement; or

     (b) Any  representation  or warranty  made by the Borrower or any Guarantor
herein  or in the  Loan  Documents  or which is  contained  in any  certificate,
document,  opinion,  or financial or other statement furnished at any time under
or in connection  with any Loan Document  shall prove to have been  incorrect in
any material respect when made; or

     (c) The Borrower or any Guarantor shall fail to perform any term, covenant,
or agreement  contained in this Agreement in any other Loan Document (other than
the Notes) on its part to be performed or observed; or

     (d) The Borrower,  any  Guarantor,  or any  Subsidiary of the Borrower or a
Guarantor shall fail to pay any Debt in a minimum outstanding  principal balance
of  $250,000.00  (excluding  Debt  evidenced by the Notes) of the Borrower,  any
Guarantor  or any such  Subsidiary  (as the case may  be),  or any  interest  or
premium thereon,  when due (whether by scheduled maturity,  required prepayment,
acceleration,  demand or otherwise)  and such failure shall  continue  after the
applicable  grace  period,  if any,  specified in the  agreement  or  instrument
relating to such Debt;  or any other  default  under any agreement or instrument
relating to any such Debt,  or any other  event  shall occur and shall  continue
after the  applicable  grace  period,  if any,  specified  in such  agreement or
instrument, if the effect of such default or event is to accelerate the maturity
of such  Debt;  or any such Debt shall be  declared  to be due and  payable,  or
required  to  be  prepaid  (other  than  by  a  regularly   scheduled   required
prepayment), prior to the stated maturity thereof; or

     (e) The  Borrower,  any  Guarantor or any  Subsidiary  of the Borrower or a
Guarantor  shall  generally not pay its Debts as such Debts become due, or shall
admit in  writing  its  inability  to pay its Debts  generally,  or shall make a
general  assignment  for the benefit of creditors;  or any  proceeding  shall be
instituted  by or against the  Borrower,  any  Guarantor or any such  Subsidiary
seeking  to  adjudicate  it a bankrupt  or  insolvent,  or seeking  liquidation,
winding up,  reorganization,  arrangement,  adjustment,  protection,  relief, or
composition of it or its Debts under any law relating to bankruptcy,  insolvency
or  reorganization  or relief of  debtors,  or seeking the entry of an order for
relief or the appointment of a receiver,  trustee, or other similar official for
it or for any  substantial  part of its property and if  instituted  against the
Borrower, any Guarantor or any such Subsidiary shall remain

                                      -54-


<PAGE>


undismissed for a period of 30 days; or the Borrower,  any Guarantor or any such
Subsidiary shall take any action to authorize any of the actions set forth above
in this subsection (e); or

     (f) Any  judgment or order or  combination  of  judgments or orders for the
payment of money, in excess of $500,000.00 in the aggregate, which sum shall not
be subject to full, complete and effective insurance coverage, shall be rendered
against the  Borrower,  any  Guarantor  or any  Subsidiary  of the Borrower or a
Guarantor and either (i)  enforcement  proceedings  shall have been commenced by
any creditor upon such judgment or order or (ii) there shall be any period of 90
consecutive  days during which a stay of  enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; or

     (g) Any Guarantor shall fail to perform or observe any term or provision of
its Guaranty or any  representation or warranty made by any Guarantor (or any of
its officers or partners) in connection  with such  Guarantor's  Guaranty  shall
prove to have been incorrect in any material respect when made; or

     (h)  Any of the  following  events  occur  or  exist  with  respect  to the
Borrower, any Guarantor,  any Subsidiary of the Borrower or a Guarantor,  or any
ERISA  Affiliate:  (i) any Prohibited  Transaction  involving any Plan; (ii) any
Reportable  Event with respect to any Plan;  (iii) the filing under Section 4041
of ERISA of a notice of intent to terminate any Plan or the  termination  of any
Plan; (iv) any event or circumstance that might constitute grounds entitling the
PBGC to institute  proceedings  under Section 4042 of ERISA for the  termination
of,  or for the  appointment  of a  trustee  to  administer,  any  Plan,  or the
institution  of the  PBGC of any  such  proceedings;  (v)  complete  or  partial
withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer  Plan or the
reorganization insolvency, or termination of any Multiemployer Plan; and in each
case  above,  such  event or  condition,  together  with  all  other  events  or
conditions,  if any, could in the opinion of the Agent subject the Borrower, any
Guarantor,  any such Subsidiary or any ERISA Affiliate to any tax,  penalty,  or
other liability to a Plan, a Multiemployer  Plan, the PBGC, or otherwise (or any
combination  thereof) which in the aggregate exceeds or may exceed  $500,000.00;
or

     (i) This  Agreement  or any  other  Loan  Document,  at any time  after its
execution and delivery and for any reason, ceases to be in full force and effect
in all  material  respects  or shall be  declared  to be null and  void,  or the
validity or enforceability of any document or instrument  delivered  pursuant to
this Agreement shall be contested by the Borrower, any Guarantor or any party to
such document or instrument or the Borrower,  any Guarantor or any party to such
document  or  instrument  shall  deny that it has any or  further  liability  or
obligation under any such document or instrument; or

     (j) An event of  default  specified  in any Loan  Document  other than this
Agreement shall have occurred and be continuing.

                                      -55-


<PAGE>


     SECTION 6.02.  REMEDIES ON DEFAULT.  Upon the occurrence and continuance of
an Event of Default  the Agent may,  and at the  request of the  Required  Banks
shall, by notice to the Borrower take any or all of the following  actions:  (i)
terminate the Commitment,  (ii) declare the Notes,  all interest thereon and all
other  amounts  payable  under this  Agreement to be forthwith  due and payable,
whereupon the Commitment shall be terminated,  the Notes, all such interest, and
all such other amounts  shall become and be forthwith  due and payable,  without
presentment,  demand,  protest or further  notice of any kind,  all of which are
hereby  expressly waived by the Borrower and (iii) proceed to enforce its rights
whether by suit in equity or by action at law, whether for specific  performance
of any covenant or agreement  contained in this  Agreement or any Loan Document,
or in aid of the exercise of any power  granted in either this  Agreement or any
Loan  Document  or proceed to obtain  judgment  or any other  relief  whatsoever
appropriate to the  enforcement  of its rights,  or proceed to enforce any other
legal or equitable  right which the Agent or the Banks may have by reason of the
occurrence  of any  Event  of  Default  hereunder  or under  any Loan  Document,
provided,  however,  upon the  occurrence of an Event of Default  referred to in
Section 6.01(e), the Commitment shall be immediately terminated,  the Notes, all
interest  thereon,  and all other amounts  payable under this Agreement shall be
immediately  due and payable  without  presentment,  demand,  protest or further
notice of any kind,  all of which are hereby  expressly  waived by the Borrower.
Any amounts collected  pursuant to action taken under this Section 6.02 shall be
applied to the payment of, first, any costs incurred by the Agent in taking such
action, including but without limitation reasonable attorneys fees and expenses,
second, to payment of the accrued interest on the Notes and third, to payment of
the unpaid principal of the Notes.

     SECTION 6.03. REMEDIES CUMULATIVE.  No remedy conferred upon or reserved to
the Agent or the Banks  hereunder  or in any Loan  Document  is  intended  to be
exclusive of any other available remedy, but each and every such remedy shall be
cumulative  and in addition to every other remedy given under this  Agreement or
any Loan Document or now or hereafter  existing at law or in equity. No delay or
omission to exercise any right or power accruing upon any Event of Default shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised  from time to time and as often as may
be deemed expedient.  In order to entitle the Agent or the Banks to exercise any
remedy  reserved  in this  Article  VI,  it shall not be  necessary  to give any
notice,  other  than such  notice as may be herein  expressly  required  in this
Agreement or in any Loan Document.

                                      -56-


<PAGE>


                                   ARTICLE VII

                  THE AGENT; RELATIONS AMONG BANKS AND BORROWER

     SECTION 7.01. APPOINTMENT, POWERS AND IMMUNITIES OF AGENT. Each Bank hereby
irrevocably  appoints and authorizes the Agent to act as its agent hereunder and
under any other Loan Document with such powers as are specifically  delegated to
the Agent by the terms of this Agreement and any other Loan  Document,  together
with such other powers as are  reasonably  incidental  thereto.  The Agent shall
have no duties or  responsibilities  except  those  expressly  set forth in this
Agreement and any other Loan Document, and shall not by reason of this Agreement
be a trustee or fiduciary for any Bank.  The Agent shall not be  responsible  to
the Banks for any recitals,  statements,  representations  or warranties made by
the  Borrower or the  Guarantors,  or any officer or official of the Borrower or
Guarantors,  or any of them, or any other Person  contained in this Agreement or
any other Loan Document,  or in any  certificate or other document or instrument
referred to or provided for in, or received by any of them under, this Agreement
or any other Loan Document, or for the value, legality, validity, effectiveness,
genuineness,  enforceability  or sufficiency of this Agreement or any other Loan
Document or any other document or instrument  referred to or provided for herein
or therein,  except as  explicitly  provided  herein,  or for the failure by the
Borrower,  the  Guarantors,  or any of  them  to  perform  any of  their  or its
respective obligations hereunder or thereunder.  The Agent may employ agents and
attorneys-in-fact and shall not be responsible, except as to money or securities
received by it or its authorized agents, for the negligence or misconduct of any
such agents or attorneys-in-fact  selected by it with reasonable care. Except as
otherwise  explicitly  provided  herein,  neither  the  Agent  nor  any  of  its
directors,  officers,  employees or agents shall be liable or responsible to any
Bank for any  action  taken or omitted  to be taken by it or them  hereunder  or
under any other Loan Document or in connection herewith or therewith, except for
its or their own gross negligence or wilful  misconduct.  The Borrower shall pay
any fee agreed to in writing by the  Borrower  and the Agent with respect to the
Agent's services hereunder.

     SECTION 7.02.  RELIANCE BY AGENT.  The Agent shall be entitled to rely upon
any  certification,  notice or other  communication  (including  any  thereof by
telephone,  telex,  telegram or cable)  believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal  counsel,  independent  accountants  and
other experts selected by the Agent with reasonable care. The Agent may deem and
treat each Bank as the holder of the Loans  made by it for all  purposes  hereof
unless and until a notice of the permitted transfer thereof satisfactory to, the
Agent  signed by such Bank shall have been  furnished to the Agent but the Agent
shall not be required to deal with any Person who has  acquired a  participation
in any Loan from a Bank.  As to any matters not  expressly  provided for by this
Agreement or any other Loan

                                      -57-


<PAGE>


Document,  the Agent  shall in all cases be fully  protected  in  acting,  or in
refraining from acting,  hereunder in accordance with instructions signed by the
Required Banks, and such instructions of the Required Banks and any action taken
or failure to act pursuant  thereto shall be binding on all of the Banks and any
other holder of all or any portion of any Loan.

     SECTION 7.03. DEFAULTS.  The Agent shall not be deemed to have knowledge of
the occurrence of a Default or Event of Default  (other than the  non-payment of
principal of or interest on the Loans) unless the Agent has actual  knowledge of
any  Default  or Event of  Default  or has  received  notice  from a Bank or the
Borrower  specifying  such  Default or Event of Default  and  stating  that such
notice is a "Notice of  Default."  In the event that the Agent  receives  such a
notice of, or otherwise has actual  knowledge of the  occurrence of a Default or
Event of Default,  the Agent shall give prompt notice  thereof to the Banks (and
shall give each Bank prompt  notice of each such  non-payment).  The Agent shall
(subject to Section 7.08) take such action with respect to such Default or Event
of Default  which is  continuing  as shall be  directed by the  Required  Banks;
provided that,  unless and until the Agent shall have received such  directions,
the Agent may take such action, or refrain from taking such action, with respect
to such  Default  or Event of Default  as it shall  deem  advisable  in the best
interest of the Banks; and provided further that the Agent shall not be required
to take any such action which it determines to be contrary to law.

     SECTION 7.04.  RIGHTS OF AGENT AS A BANK. With respect to the Loans made by
it, the Agent in its capacity as a Bank hereunder shall have the same rights and
powers  hereunder  as any other Bank and may exercise the same as though it were
not  acting as the  Agent,  and the term  "Bank" or  "Banks"  shall,  unless the
context  otherwise  indicates,  include the Agent in its capacity as a Bank. The
Agent or any Bank and their respective Affiliates may (without having to account
therefor  to any other  Bank  except as  otherwise  expressly  provided  in this
Agreement)  accept  deposits  from,  lend  money to (on a secured  or  unsecured
basis),  and generally  engage in any kind of banking,  trust or other  business
with, the Borrower, the Guarantors or any of them (and any of their Affiliates);
provided that no payment or lien priority  shall be given to the Agent or to any
Bank for any other  transaction  without the express written  approval of all of
the other  Banks.  In the case of EAB,  it may do so as if it were not acting as
the  Agent,  and the Agent may  accept  fees and  other  consideration  from the
Borrower,  the  Guarantors or any of them for services in  connection  with this
Agreement  or  otherwise  without  having to account  for the same to the Banks.
Although the Agent or a Bank or any of their  respective  Affiliates  may in the
course of such  relationships  and  relationships  with  other  Persons  acquire
information about the Borrower, the Guarantors,  their Affiliates and such other
Persons,  neither the Agent nor such Bank shall have any duty to the other Banks
or the Agent to disclose such information to the other Banks or the Agent except
as  otherwise  provided  herein with  respect to the  occurrence  of an Event of
Default.

                                      -58-


<PAGE>


     SECTION 7.05.  INDEMNIFICATION  OF AGENT.  The Banks agree to indemnify the
Agent (to the extent not  reimbursed  under Section 8.04 or under the applicable
provisions of any other Loan Document,  but without  limiting the obligations of
the Borrower and Guarantors under Section 8.04 or such  provisions),  ratably in
accordance with their respective  percentages of the Total  Commitment  (without
giving effect to any participation in all or any portion of the Total Commitment
sold by them to any other  Person),  for any and all  liabilities,  obligations,
losses,  damages,  penalties,  actions,  judgments,  suits,  costs,  expenses or
disbursements  of any  kind and  nature  whatsoever  which  may be  imposed  on,
incurred by or asserted  against the Agent in any way relating to or arising out
of this Agreement,  any other Loan Document or any other documents  contemplated
by or  referred  to herein or the  transactions  contemplated  hereby or thereby
(including,  without  limitation,  the costs and expenses which the Borrower and
Guarantors  are  obligated  to pay under  Section  8.04 or under the  applicable
provisions of any other Loan Document but  excluding,  unless a Default or Event
of Default has occurred,  normal administrative costs and expenses incidental to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents or instruments;  provided
that no Bank shall be liable for any of the  foregoing  to the extent they arise
from the gross negligence or wilful misconduct of the party to be indemnified.

     SECTION  7.06.  DOCUMENTS.  It is the  responsibility  of the  Borrower  to
forward to each Bank,  on or before  the due dates set forth  herein,  a copy of
each report,  notice or other  document  required by this Agreement or any other
Loan  Document to be delivered to the Agent.  The Agent is not  responsible  for
forwarding such information to the Banks.

     SECTION 7.07.  NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank agrees that
it has,  independently  and without reliance on the Agent or any other Bank, and
based on such documents and information as it has deemed  appropriate,  made its
own credit analysis of the Borrower,  the Guarantors and their  Subsidiaries and
decision  to enter  into  this  Agreement  and that it will,  independently  and
without  reliance upon the Agent or any other Bank,  and based on such documents
and information as it shall deem  appropriate at the time,  continue to make its
own analysis and decisions in taking or not taking  action under this  Agreement
or any other Loan  Document.  The Agent  shall not be  required  to keep  itself
informed as to the  performance  or  observance by the Borrower or Guarantors of
this Agreement or any other Loan Document or any other  document  referred to or
provided  for herein or therein or to  inspect  the  properties  or books of the
Borrower,  the  Guarantors or any  Subsidiary.  Except for notices,  reports and
other documents and information  expressly required to be furnished to the Banks
by the Agent hereunder,  the Agent shall not have any duty or  responsibility to
any  other  Bank to  provide  any Bank  with  any  credit  or other  information
concerning  the affairs,  financial  condition or business of the Borrower,  the
Guarantors or any  Subsidiary (or any of their  Affiliates)  which may come into
the

                                      -59-


<PAGE>


possession of the Agent or of its Affiliates. The Agent shall not be required to
file this  Agreement,  any other Loan  Document or any  document  or  instrument
referred to herein or therein,  or record or give notice of this Agreement,  any
other Loan Document or any document or instrument referred to herein or therein,
to any Person.

     SECTION 7.08. FAILURE OF AGENT TO ACT. Except for action expressly required
of the Agent  hereunder,  the Agent  shall in all  cases be fully  justified  in
failing or  refusing  to act  hereunder  unless it shall have  received  further
assurances   (which  may  include  cash   collateral)  of  the   indemnification
obligations  of the Banks under Section 7.05 in respect of any and all liability
and expense  which may be incurred  by it by reason of taking or  continuing  to
take any such action.

     SECTION  7.09.  RESIGNATION  OF  AGENT.  Subject  to  the  appointment  and
acceptance of a successor Agent as provided  below,  the Agent may resign at any
time by giving written  notice  thereof to the Banks and the Borrower.  Upon any
such resignation, the Required Banks shall have the right to appoint a successor
Agent  which  shall have an office in New York State and shall be subject to the
reasonable  approval of the Borrower.  If no successor  Agent shall have been so
appointed by the Required Banks and shall have accepted such appointment  within
30 days after the retiring  Agent's  giving of notice of  resignation,  then the
retiring  Agent may, on behalf of the Banks,  appoint a successor  Agent,  which
shall be a bank which has an office in New York, New York. The Required Banks or
the  retiring  Agent,  as the  case may be,  shall  upon  the  appointment  of a
Successor  Agent  promptly so notify the Borrower,  the Guarantors and the other
Banks.  Upon the acceptance of any appointment as Agent hereunder by a successor
Agent,  such successor Agent shall  thereupon  succeed to and become vested with
all the rights,  powers,  privileges and duties of the retiring  Agent,  and the
retiring Agent shall be discharged  from its duties and  obligations  hereunder.
After any retiring Agent's  resignation as Agent, the provisions of this Article
7 shall  continue in effect for its  benefit in respect of any actions  taken or
omitted to be taken by it while it was acting as the Agent.

     SECTION 7.10. AMENDMENTS CONCERNING AGENCY FUNCTION. The Agent shall not be
bound by any waiver, amendment,  supplement or modification of this Agreement or
any other Loan Document which affects its duties hereunder or thereunder  unless
it shall have given its prior written consent thereto.

     SECTION 7.11.  LIABILITY OF AGENT. The Agent shall not have any liabilities
or responsibilities to the Borrower, the Guarantors or any of them on account of
the failure of any Bank to perform its  obligations  hereunder or to any Bank on
account of the failure of the Borrower, the Guarantors or any of them to perform
their or its obligations hereunder or under any other Loan Document.

     SECTION  7.12.  TRANSFER  OF AGENCY  FUNCTION.  Without  the consent of the
Borrower, the Guarantors or any Bank, the Agent may

                                      -60-


<PAGE>


at any time or from time to time  transfer its  functions as Agent  hereunder to
any of its offices  wherever  located,  provided  that the Agent shall  promptly
notify the Borrower, the Guarantors and the Banks thereof.

     SECTION 7.13.  WITHHOLDING  TAXES. Each Bank represents that it is entitled
to receive any payments to be made to it hereunder  without the  withholding  of
any tax and will furnish to the Agent such forms, certifications, statements and
other  documents  as the Agent may request  from time to time to  evidence  such
Bank's  exemption from the withholding of any tax imposed by any jurisdiction or
to enable the Agent to comply with any applicable  laws or regulations  relating
thereto.  Without  limiting  the  effect  of the  foregoing,  if any Bank is not
created or organized under the laws of the United States of America or any state
thereof,  in the event that the payment of  interest by the  Borrower is treated
for U.S.  income tax  purposes as derived in whole or in part from  sources from
within the U.S.,  such Bank will  furnish to the Agent Form 4224 or Form 1001 of
the Internal Revenue Service, or such other forms, certifications, statements or
documents,  duly  executed and completed by such Bank as evidence of such Bank's
exemption from the withholding of U.S. tax with respect thereto. The Agent shall
not be obligated  to make any payments  hereunder to such Bank in respect of any
Loan  until  such Bank shall have  furnished  to the Agent the  requested  form,
certification, statement or document.

     SECTION 7.14.  SEVERAL  OBLIGATIONS AND RIGHTS OF BANKS. The failure of any
Bank to make any Loan to be made by it on the date specified  therefor shall not
relieve any other Bank of its  obligation to make its Loan on such date,  but no
Bank shall be responsible for the failure of any other Bank to make a Loan to be
made by such other Bank.

     SECTION  7.15.  PRO RATA  TREATMENT  OF LOANS,  ETC.  Except to the  extent
otherwise  provided,  each prepayment and payment of principal of or interest on
Loans of a particular type and a particular Interest Period shall be made to the
Agent for the  account  of the  Banks  holding  Loans of such type and  Interest
Period pro rata in accordance with the respective  unpaid  principal  amounts of
such Loans of such Interest Period held by such Banks.

     SECTION  7.16.  SHARING OF PAYMENTS  AMONG  BANKS.  If a Bank shall  obtain
payment of any  principal  of or  interest  on any Loan made by it  through  the
exercise of any right of setoff,  banker's lien,  counterclaim,  or by any other
means,  it shall share such  payment with the other Banks and the amount of such
payment  shall be  applied  to  reduce  the  Loans of all the  Banks pro rata in
accordance with the unpaid principal on the Loans held by each of them, and make
such other  adjustments  from time to time as shall be equitable to the end that
all the Banks shall share the benefit of such payment (net of any expenses which
may be incurred by such Bank in obtaining or  preserving  such benefit) pro rata
in accordance  with the unpaid  principal and interest on the Loans held by each
of  them.  To such  end the  Banks  shall  make  appropriate  adjustments  among
themselves if such payment is rescinded or must

                                      -61-


<PAGE>


otherwise  be  restored.  Nothing  contained  herein  shall  require any Bank to
exercise any such right or shall  affect the right of any Bank to exercise,  and
retain the  benefits  of  exercising,  any such right with  respect to any other
indebtedness  of the  Borrower.  Notwithstanding  the  foregoing  or  any  other
provision  of this  Agreement,  no right or remedy of any Bank  relating  to any
assets of the Borrower  (including real property,  improvements or fixtures) not
covered by this Agreement or the Loan Documents  shall in any way be affected by
this  Agreement  or  otherwise  with  respect to any other  indebtedness  of the
Borrower to any of the Banks.

     SECTION  7.17.  NONRECEIPT  OF FUNDS BY AGENT.  Unless the Agent shall have
received  notice  from a Bank prior to the date on which such Bank is to provide
funds to the  Agent  for a Loan to be made by such  Bank that such Bank will not
make available to the Agent such funds,  the Agent may assume that such Bank has
made such funds  available to the Agent on the date of such Loan,  and the Agent
in its sole discretion may, but shall not be obligated to, in reliance upon such
assumption,  make available to the Borrower on such date a corresponding amount.
If and to the extent that such Bank shall not have so made such funds  available
to the Agent,  such Bank agrees to repay to the Agent  forthwith  on demand such
corresponding  amount together with interest thereon, for each day from the date
such  amount is made  available  to the  Borrower  until the date such amount is
repaid to the Agent,  at the customary  rate set by the Agent for the correction
of errors among banks for three  Business Days and thereafter at the Prime Rate.
If such Bank shall repay to the Agent such corresponding  amount, such amount so
repaid shall constitute such Bank's Loan for purposes of this Agreement. If such
Bank  does not pay such  corresponding  amount  forthwith  upon  Agent's  demand
therefor,  the Agent shall promptly notify the Borrower,  and the Borrower shall
immediately pay such  corresponding  amount to the Agent with interest  thereon,
for each day from the date such amount is made  available to the Borrower  until
the date such amount is repaid to the Agent, at the rate of interest  applicable
at the time to such proposed Loan.

     Unless the Agent shall have received  notice from the Borrower prior to the
date on which any payment is due to the Banks  hereunder  that the Borrower will
not make such  payment in full,  the Agent may assume that the Borrower has made
such  payment  in full to the  Agent  on such  date  and the  Agent  in its sole
discretion may, but shall not be obligated to, in reliance upon such assumption,
cause to be  distributed  to each Bank on such due date an  amount  equal to the
amount then due such Bank.  If and to the extent the Borrower  shall not have so
made such  payment  in full to the  Agent,  each Bank  shall  repay to the Agent
forthwith on demand such amount  distributed to such Bank together with interest
thereon,  for each day from the date  such  amount is  distributed  to such Bank
until the date such Bank repays such amount to the Agent,  at the customary rate
set by the Agent for the  correction  of errors  among banks for three  Business
Days and thereafter at the Prime Rate.

                                      -62-


<PAGE>


                                  ARTICLE VIII

                                  MISCELLANEOUS

     SECTION 8.01.  AMENDMENTS.  Etc. Except as otherwise  expressly provided in
this Agreement,  any provision of this Agreement may be amended or modified only
by an instrument in writing signed by the Borrower,  the  Guarantors,  the Agent
and the Required Banks, and any provision of this Agreement may be waived by the
Borrower (if such provision  requires  performance by the Agent or the Banks) or
by the Agent  acting with the consent of the Required  Banks (if such  provision
requires performance by the Borrower); provided that no amendment,  modification
or waiver shall,  unless by an  instrument  signed by all of the Banks or by the
Agent  acting with the consent of all of the Banks:  (a)  increase or extend the
term of the Revolving  Credit  Commitment or the Total  Commitment or the Loans,
(b) extend the date fixed for the  payment of  principal  of or  interest on any
Loan,  (c) reduce the amount of any payment of principal  thereof or the rate at
which interest is payable  thereon or any fee payable  hereunder,  (d) alter the
terms of this  Section  8.01,  (e) amend the  definition  of the term  "Required
Banks",  (f) change the fees  payable to any Bank except as  otherwise  provided
herein,  (g) permit the  Borrower to  transfer or assign any of its  obligations
hereunder or under the Loan  Documents,  (h) amend the  provisions  of Article 7
hereof,  (i) release the Individual  Guarantor from his Guaranty or amend any of
the provisions thereof, (j) release any Guarantor from its Guaranty or amend any
of the  provisions  thereof,  (k)  give  any  payment  priority  to  any  Person
(including any of the Banks) over amounts due in connection  with the Loans,  or
(l) release any Collateral (other than as permitted by the Security  Agreement).
No  failure  on the part of the Agent or any Bank to  exercise,  and no delay in
exercising,  any right  hereunder  shall operate as a waiver thereof or preclude
any other or further  exercise  thereof or the exercise of any other right.  The
remedies  herein  provided  are  cumulative  and not  exclusive  of any remedies
provided by law.

     SECTION 8.02. NOTICES,  ETC. All notices and other communications  provided
for hereunder  shall be in writing  (including  telegraphic  communication)  and
mailed via certified mail, telegraphed, sent by overnight mail delivery service,
sent by facsimile or  delivered,  if to the  Borrower or any  Guarantor,  at the
address  of the  Borrower  or  Guarantor,  as the case may be,  set forth at the
beginning of this  Agreement  with a copy to Martin  Bring,  Esq. of  Lowenthal,
Landau, Fisher and Bring, P.C., 250 Park Avenue, New York, New York 10177 and if
to the Agent or any Bank,  at the address of the Agent or such Bank set forth at
the beginning of this  Agreement to the attention of  Gristede's  Sloan's,  Inc.
Account  Officer,  or,  as to each  party,  at such  other  address  as shall be
designated by such party in a written  notice  complying as to delivery with the
terms  of  this  Section  8.02  to the  other  parties.  All  such  notices  and
communications shall be effective when mailed, telegraphed or delivered,  except
that notices to the Bank shall not be effective until received by the Bank.


                                      -63-


<PAGE>


     SECTION 8.03. NO WAIVER,  REMEDIES.  No failure on the part of the Agent or
any Bank to exercise,  and no delay in  exercising,  any right,  power or remedy
under any Loan Document, shall operate as a waiver thereof; nor shall any single
or partial  exercise of any right under any Loan Document  preclude any other or
further  exercise  thereof or the  exercise  of any other  right.  The  remedies
provided in the Loan  Documents are cumulative and not exclusive of any remedies
provided by law.

     SECTION  8.04.  COSTS,  EXPENSES AND TAXES.  The Borrower  agrees to pay on
demand  all  reasonable,  out of  pocket  costs  and  expenses  of the  Agent in
connection with the preparation,  execution, delivery and administration of this
Agreement,  the  Notes  and  any  other  Loan  Documents,   including,   without
limitation,  the  reasonable  fees and  expenses  of counsel  for the Agent with
respect  thereto and with respect to advising  the Banks as to their  respective
rights and responsibilities under this Agreement, and all costs and expenses, if
any (including  reasonable  counsel fees and expenses),  in connection  with the
enforcement  of this  Agreement,  the Notes and any other  Loan  Documents.  The
Borrower  shall at all times  protect,  indemnify,  defend and save harmless the
Agent and the Banks from and  against  any and all  claims,  actions,  suits and
other  legal  proceedings,  and  liabilities,   obligations,   losses,  damages,
penalties,  judgments,  costs,  expenses or disbursements which the Agent or the
Banks may, at any time,  sustain or incur by reason of or in  consequence  of or
arising out of the execution and delivery of this Agreement and the consummation
of the transactions  contemplated  hereby. The Borrower  acknowledges that it is
the intention of the parties hereto that this  Agreement  shall be construed and
applied to protect  and  indemnify  the Agent and the Banks  against any and all
risks  involved  in the  execution  and  delivery  of  this  Agreement  and  the
consummation of the  transactions  contemplated  hereby,  all of which risks are
hereby assumed by the Borrower, including, without limitation, any and all risks
of the acts or omissions, whether rightful or wrongful, of any present or future
de jure or de facto  government  or  governmental  authority,  provided that the
Borrower shall not be liable for any portion of such  liabilities,  obligations,
losses,  damages,  penalties,  actions,  judgments,  suits,  costs,  expenses or
disbursements resulting from the Agent or any Bank's gross negligence or willful
misconduct. The provisions of this Section 8.04 shall survive the payment of the
Notes and the termination of this Agreement.

     SECTION  8.05.  RIGHT OF SET-OFF.  Upon (i) the  occurrence  and during the
continuance  of any Event of Default and (ii) the  declaration  of the making of
the Notes due and payable  pursuant to the provisions of Section 6.02, the Banks
each are hereby  authorized  at any time and from time to time,  to the  fullest
extent  permitted by law, to set off and apply any and all deposits  (general or
special,  time or  demand,  provisional  or  final)  at any time  held and other
indebtedness  at any time owing by the Banks to or for the credit or the account
of the Borrower or any Guarantor  against any and all of the  obligations of the
Borrower or any Guarantor now or hereafter existing under this Agreement and the

                                      -64-


<PAGE>


Notes, irrespective of whether or not the Agent or the Banks shall have made any
demand under this Agreement or the Term Loan Notes and although such obligations
may be unmatured.  The rights of the Banks under this Section are in addition to
all other rights and remedies  (including,  without limitation,  other rights of
set-off) which the Agent and the Banks may have.

     SECTION 8.06. BINDING EFFECT. This Agreement shall become effective when it
shall have been  executed by the  Borrower,  the  Guarantors,  the Agent and the
Banks.

     SECTION 8.07.  SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement
shall be binding  upon and inure to the benefit of the parties  hereto and their
respective  successors  and assigns,  except that the Borrower may not assign or
otherwise  transfer  any of its rights  under this  Agreement  without the prior
written consent of all Banks.

     (b)  Any  Bank  may at  any  time  grant  to one or  more  banks  or  other
institutions  (each a  "Participant")  participating  interests  in its Pro Rata
Share of the  Commitment  or any or all of its  Loans.  In the event of any such
grant by a Bank of a  participating  interest to a  Participant,  whether or not
upon notice to the  Borrower and the Agent,  such Bank shall remain  responsible
for the performance of its obligations hereunder, and the Borrower and the Agent
shall  continue to deal solely and directly  with such Bank in  connection  with
such Bank's rights and obligations under this Agreement.  Any agreement pursuant
to which any Bank may grant such a  participating  interest  shall  provide that
such  Bank  shall  retain  the sole  right and  responsibility  to  enforce  the
obligations of the Borrower hereunder including,  without limitation,  the right
to  approve  any  amendment,  modification  or waiver of any  provision  of this
Agreement.  An assignment or other transfer which is not permitted by subsection
(c) or (d) below shall be given  effect for purposes of this  Agreement  only to
the  extent  of  a  participating  interest  granted  in  accordance  with  this
subsection (b).

     (c) (i) Any  Bank  may at any  time  assign  to one or more  banks or other
institutions (each  an"Assignee") all, or a proportionate part (equivalent to an
initial  Commitment  of not less than  $4,000,000)  of all,  of its  rights  and
obligations  under this Agreement and the Notes,  and such Assignee shall assume
such rights and obligations,  pursuant to an Assignment and Assumption Agreement
in substantially the form of Exhibit D hereto executed by such Assignee and such
transferor  Bank,  with,  so long as no Default or Event of Default has occurred
and is  continuing,  (and subject to) the  subscribed  consent of the  Borrower,
which shall not be  unreasonably  withheld,  and the Agent;  provided that if an
Assignee is an  affiliate of such  transferor  Bank,  no such  consent  shall be
required.  Upon  execution and delivery of such  instrument  and payment by such
Assignee to such transferor Bank of an amount equal to the purchase price agreed
between such  transferor  bank and such Assignee,  such Assignee shall be a Bank
party to this Agreement and shall have all the rights and  obligations of a Bank
with a Commitment as set forth in such instrument of assumption, and the

                                      -65-


<PAGE>


transferor  Bank  shall  be  released  from  its  obligations   hereunder  to  a
corresponding  extent,  and no further  consent or action by any party  shall be
required.

          (ii)  Upon  the  consummation  of  any  assignment  pursuant  to  this
subsection  (c), the  transferor  Bank,  the Agent and the  Borrower  shall make
appropriate  arrangements so that, if required, a new Note or Notes is issued to
the Assignee. In connection with any such assignment,  the transferor Bank shall
pay to the Agent an  administrative  fee for processing  such  assignment in the
amount of $3,500.00.  If the Assignee is not incorporated  under the laws of the
United  States of America or a state  thereof,  it shall deliver to the Borrower
and the Agent certification as to exemption from deduction or withholding of any
Unites States federal income taxes in accordance with Section 7.13.

     (d) Any Bank may at any time assign all or any portion of its rights  under
this Agreement and its Notes to a Federal Reserve Bank. No such assignment shall
release the transferor Bank from its obligations hereunder.

     SECTION 8.08. FURTHER ASSURANCES.  The Borrower and each Guarantor agree at
any time and from time to time at its expense,  upon  request of the Agent,  the
Banks or their respective  counsel,  to promptly execute,  deliver, or obtain or
cause to be executed,  delivered or obtained any and all further instruments and
documents  and to take or cause to be taken all such  other  action the Agent or
any Bank may  reasonably  deem  desirable in obtaining the full benefits of this
Agreement.

     SECTION 8.09. SECTION HEADINGS, SEVERABILITY, ENTIRE AGREEMENT. Section and
subsection headings have been inserted herein for convenience only and shall not
be construed as part of this  Agreement.  Every  provision of this Agreement and
each Loan Document is intended to be severable; if any term or provision of this
Agreement,  any Loan  Document,  or any other  document  delivered in connection
herewith shall be invalid,  illegal or unenforceable for any reason  whatsoever,
the validity,  legality and enforceability of the remaining provisions hereof or
thereof shall not in any way be affected or impaired  thereby.  All exhibits and
schedules to this  Agreement  shall be annexed  hereto and shall be deemed to be
part of this Agreement.  This Agreement and the exhibits and schedules  attached
hereto embody the entire Agreement and understanding  between the Borrower,  the
Guarantors,  the  Agent and the Banks and  supersede  all prior  agreements  and
understandings relating to the subject matter hereof provided,  however, that to
the extent that the  provisions of the  Commitment  Letter and/or the Fee Letter
are not  inconsistent  with the  provisions of this Agreement and the other Loan
Documents  but are  cumulative  with respect  thereto,  such  provisions  of the
Commitment Letter and the Fee Letter shall survive the execution and delivery of
this Agreement.


                                      -66-


<PAGE>


     SECTION 8.10.  GOVERNING LAW. This Agreement,  the Notes and all other Loan
Documents  shall be governed by, and construed in accordance  with,  the laws of
the State of New York.

     SECTION 8.11. WAIVER OF JURY TRIAL. The Borrower, each Guarantor, the Agent
and the Banks waive all rights to trial by jury on any cause of action  directly
or indirectly involving the terms,  covenants or conditions of this Agreement or
any Loan Document.

     SECTION 8.12. EXECUTION IN COUNTERPARTS.  This Agreement may be executed in
any  number  of  counterparts  and  by  different  parties  hereto  in  separate
counterparts,  each of which when so executed  shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.

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

EUROPEAN AMERICAN BANK, as Agent

By:     /s/ Kevin Lord
   --------------------------
   Kevin Lord
   Vice President

EUROPEAN AMERICAN BANK

By:      /s/ Kevin Lord
   --------------------------
   Kevin Lord
   Vice President

ISRAEL DISCOUNT BANK OF NEW YORK

By:    /s/ Lisa L. Ba
   --------------------------
   Name:  Lida L. Ba
   Title:  Senior Vice President

By:    /s/ Scott Fishbein
   --------------------------
   Name:  Scott Fishbein
   Title: Vice President


                                      -67-


<PAGE>


KEYBANK NATIONAL ASSOCIATION

By:    /s/ Joseph F. Burns
   --------------------------
   Name:  Joseph F. Burns
   Title: Vice President

BANK LEUMI TRUST COMPANY OF NEW YORK

By:    /s/ Richard Silverstein
   --------------------------
   Name:  Richard Silverstein
   Title: First Vice President

By:    /s/ John Koenigsberg
   --------------------------
   Name:  John Koenigsberg
   Title: Vice President


GRISTEDE'S SLOAN'S, INC.

By:    /s/ John Catsimatidis
   --------------------------
   John Catsimatidis
   Chief Executive Officer

CITY PRODUCE OPERATING CORP.

By:    /s/ John Catsimatidis
   --------------------------
   John Catsimatidis
   President

GRISTEDE'S OPERATING CORP.

By:    /s/ John Catsimatidis
   --------------------------
   John Catsimatidis
   President

NAMDOR INC.

By:    /s/ John Catsimatidis
   --------------------------
   John Catsimatidis
   President

RAS OPERATING CORP.

By:   /s/ John Catsimatidis
   --------------------------
   John Catsimatidis
   President

SAC OPERATING CORP.

By:   /s/ John Catsimatidis
   --------------------------
   John Catsimatidis
   President


                                      -68-


<PAGE>


                                  EXHIBIT 10.7

                                   NAMDOR INC.
                               823 Eleventh Avenue
                            New York, New York 10019





                                                               November 10, 1997


G Remainder Corp.
S Remainder Corp.
823 Eleventh Avenue
New York, New York  10019

Gentlemen:

         This Agreement  sets forth certain  consulting and managerial  services
that are to be performed  by Namdor Inc.  (the  "Company")  for the benefit of G
Remainder Corp. ("G Corp.") and S Remainder Corp. ("S Corp.").  Reference to the
"Managed Stores" shall be deemed to mean the supermarkets  identified in Exhibit
A attached hereto.

         Each of G Corp. and S Corp. (individually referred to as an "Owner" and
collectively  referred to as the  "Owners")  desires  that the  Company  perform
certain consulting and management services on behalf of the Managed Stores owned
by such Owner.  The  Company  hereby  agrees to render  certain  consulting  and
managerial  services  (hereinafter  collectively  referred to as the "Management
Services") in the management and operation of the Managed Stores, subject to the
terms and conditions as hereinafter set forth.

         In performing the Management  Services,  the Company shall have, and is
hereby granted, full and complete authority, subject to the policy decisions and
goals  prescribed  by the Owners,  to manage the Managed  Stores  under the name
"Sloan's" or "Gristede's" or under such other name as G Corp. shall from time to
time deem  appropriate,  and to do everything and to take such action  necessary
for the  conduct of business in the  Managed  Stores and for the  purchasing  of
merchandise  and equipment for the  operation of the Managed  Stores  consistent
with the policy  decisions and goals prescribed from time to time by the Owners.
By means of example and not of limitation, the Management Services shall include
the following:

         -     Supervising the operation of the Managed Stores,  including,  but
               not limited to, the following: purchasing inventory,  merchandise
               and  equipment for the Managed  Stores in the ordinary  course of
               business;  maintaining the operating books and accounting records
               of  the  Managed   Stores;   conducting   sale  and   promotional
               activities;  and  supervising all  merchandising  and advertising
               activities, all in the ordinary course of business;

                                       -2-


<PAGE>


         -     Supervising the hiring and firing of employees,  agents, and the
               dealing with  independent  contractors as the Company shall deem
               necessary,  convenient,  advantageous or proper to the operation
               of the business at the Managed Stores;

         -     Applying  for  such  licenses  and  permits  as the  Company  may
               determine to be necessary, convenient, advantageous or proper for
               the operation of the Managed Stores;

         -     Implementing  the selling  prices and gross  margin goals set by
               the Owners from time to time in  consultation  with the Company,
               all as may be  deemed  necessary,  convenient,  advantageous  or
               proper for the operation of the business at the Managed Stores;

         -     Negotiating  and  recommending  to the Owners  contracts for the
               purchase,  sale or disposition  of merchandise  and equipment at
               retail  or  wholesale,   upon  such  terms  as  the  Company  in
               consultation  with the Owners,  shall determine to be necessary,
               convenient, advantageous or proper.

         -     Negotiating and recommending to the Owners contracts of any type
               and  description  for services that the Company in  consultation
               with the Owners may determine from time to time to be necessary,
               convenient or  advantageous  to the operation of the business at
               the Managed Stores.

         -     Negotiating  and  recommending to the Owners leases for personal
               property and/or real property including, without limitation, for
               the real property of which the Managed  Stores form a part,  all
               as the  Company in  consultation  with the Owners may  determine
               from time to time to be necessary,  convenient,  advantageous or
               proper.

         -     Obtaining and maintaining  insurance  policies as the Company in
               consultation  with the  Owners may deem  necessary,  convenient,
               advantageous  or proper for the operation of the business at the
               Managed Stores, naming itself and the Owners as insured parties.

         -     To perform such other Management Services as the Owners may from
               time to time  request for the  operation  of the business at the
               Managed Stores.

         In  performing  the  Management  Services,  the Company  shall use such
management and marketing  methods as it may deem  advisable or appropriate  from
time to time.  The Company shall report to the Owners on a regular weekly basis,
and at such other times as the Owners may determine.  In  consultation  with the
Owners,  the Company may  determine  what  merchandise  and  equipment  shall be
purchased,  from whom the merchandise and equipment may be purchased,  and where
such merchandise and equipment shall be stored, warehoused,  distributed,  sold,
or  otherwise  disposed.  In the absence of any showing of gross  negligence  or
willful misconduct, the Company, its directors,  officers, employees, agents and
affiliates shall be deemed to be released from, and is hereby released from, any

                                       -3-


<PAGE>


liability resulting from its performance of the Management Services.

         The  Company  agrees  that all monies  belonging  to the  Owners,  bank
accounts and/or savings accounts  maintained in the Company's own name on behalf
of the Owners  and/or in the name of the Owners will be kept  separate  from and
will not be commingled  with monies and/or  accounts of the Company,  the Owners
and/or any other company.

         The Owners  hereby  agrees to  indemnify,  defend and hold harmless the
Company,  its directors,  officers,  employees,  agents and affiliates and their
successors  and  assigns,  from and  against  all  claims,  actions or causes of
action,   assessments,   demands,  losses,  damages,   judgments,   settlements,
liabilities,  costs and expenses, including, without limitation, costs and legal
or other  expenses  for  investigating  or  defending  any action or  threatened
actions, interest, penalties, and reasonable attorneys' fees and expenses of any
nature  whatsoever,  whether actual or consequential  (collectively,  "Damages")
asserted  against,  resulting  to,  imposed  upon or  incurred  by the  Company,
directly or indirectly, by reason of the Company's performance of the Management
Services,  except that the Owners shall be responsible for any Damages  directly
resulting from the gross  negligence or willful  misconduct of the Company,  its
directors, officers, employees, agents and affiliates. The Company, on one hand,
and the Owners,  on the other hand, shall promptly notify the other or others of
the existence of any claim,  demand or other matter to which the indemnification
obligations may apply. The Company shall give the Owners reasonable  opportunity
to defend the same at its own  expense  and with  counsel of its own  selection;
provided that the Company may  participate  in such defense with its own counsel
at its own expense.

         In  consideration  of  the  Company's  performance  of  the  Management
Services,  the  Owners  shall  pay to the  Company  an  amount  equal to one and
one-quarter  percent (1-1/4%) of all sales of inventory and merchandise made at,
in or from the Managed  Stores owned by the Owners  (hereinafter  referred to as
the "Management  Fee").  Within thirty (30) days following the end of each three
(3) month period commencing December 31, 1997, payment of the Management Fee for
such partial period shall be paid to the Company.

         The Company  may, at any  reasonable  time and from time to time during
the term of this  Agreement,  and for a period of six (6) months  following  the
termination  of this  Agreement  for any cause  whatsoever,  audit the books and
records of the Owners  pertaining  to all sales made at, in or from the  Managed
Stores.  The Owners  shall  cooperate  with the  Company and shall make all such
books and records available to the Company. If any audit discloses that an Owner
understated  the amount of sales and/or  underpaid the  Management Fee due, such
Owner shall pay to the  Company  the amount due within  seven (7) days after the
Company  demands  payment  thereof,  together  with interest at the highest rate
permitted  by law.  In the event any audit  discloses  an error in excess of two
percent (2%),  the  applicable  Owner shall also pay the Company the cost of the
audit within seven (7) days after demand therefor.

                                       -4-


<PAGE>


         In  addition  to  payment  of the  Management  Fee,  each  Owner  shall
reimburse the Company for any and all reasonable  expenses  incurred and/or paid
for by the  Company  relating  in any  way to the  rendering  of the  Management
Services  to such  Owner.  Said  reimbursement  shall  be made  within  (7) days
following receipt of notice requesting same.

         This  Agreement  shall  commence on  November  3, 1997 (the  "Effective
Date") and shall end on the first  anniversary of the Effective Date;  provided,
however,  that the term of this Agreement shall  automatically be extended as to
the Company and each Owner for  additional  one year periods  unless  either the
Company or such Owner shall have given the other notice that it does not wish to
extend  this  Agreement  not later than ninety (90) days prior to the end of the
then current term. The giving of such notice by or to one Owner shall not affect
the term of the Agreement as to the other Owner.

         Wherever in this  Agreement  the Company has the right or obligation to
take any action for or on behalf of itself and/or any Owner, including,  without
limitation,  the filing of applications for licenses and permits, the Company is
hereby  granted the right to take said action or perform said  obligation in its
own name and/or that of the Owner.  Each Owner  shall fully  cooperate  with the
Company and in furtherance of the foregoing shall,  without limitation,  furnish
on a timely basis such data, documents, information and assistance and make such
appearances  as may be required by the  Company.  If any such action may only be
taken and maintained, or any such obligation may only be performed, by an Owner,
then such Owner shall do so at the request of the Company.

         The  terms  and  conditions  of  this  Agreement  shall  inure  to  the
successors and assigns of the Company and each of the Owners.

         This Agreement  constitutes the entire agreement between the Owners and
the Company  concerning  Management  Services to be performed by the Company for
and on behalf of the Owners and shall be deemed to  supersede  and  replace  all
prior agreements, understandings and undertakings, whether oral or written.

         If this Agreement  correctly  expresses your understanding of the terms
and  conditions  under and by which  Management  Services  will  continue  to be
performed  by the  Company,  kindly so indicate  by signing all of the  enclosed
copies and by returning two (2) fully executed copies to the attention of Stuart
Spivak at the Company at the address indicated on this letterhead.


                                                Very truly yours,

                                                NAMDOR INC.


                                                By: /s/ John A. Catsimatidis
                                                   --------------------------



                                       -5-


<PAGE>


This 10th day of November, 1997, each of the undersigned hereby acknowledges and
agrees to the foregoing terms and conditions.


                                                G REMAINDER CORP.



                                                By: /s/ John A. Catsimatidis
                                                   --------------------------
                                                   John A. Catsimatidis
                                                   Chairman of the Board



                                                S REMAINDER CORP.


                                                By: /s/ John A. Catsimatidis
                                                   --------------------------
                                                   John A. Catsimatidis
                                                   Chairman of the Board


                                       -6-


<PAGE>


                                    EXHIBIT A




                             List of Managed Stores
                             ----------------------


                      1644 York Avenue, New York, New York
                      105 East 39th Street, New York, New York
                      8 East 48th Street, New York, New York
                      1350 First Avenue, New York, New York


                                       -7-


<PAGE>


                                  EXHIBIT 10.8


                            ASSET PURCHASE AGREEMENT

                This AGREEMENT, dated February 6, 1998, is made by and between G
REMAINDER CORP., a New York corporation, with its principal executive offices at
823 Eleventh  Avenue,  New York, New York  10019-3535  ("Seller") and GRISTEDE'S
OPERATING CORP., a New York corporation, with its principal executive offices at
823 Eleventh Avenue, New York, New York 10019-3535 ("Buyer").

                                               W I T N E S S E T H :

          I. Definitions.

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

     Agreement.  "Agreement" shall mean this Asset Purchase Agreement,  together
with the  Exhibits  attached  hereto,  as the same shall be amended from time to
time in accordance with the terms hereof which Exhibits are herein  incorporated
by reference.

     Assumed Capex  Liabilities.  "Assumed Capex  Liabilities"  shall mean those
outstanding  liabilities  set forth on Schedule 1A  attached  hereto  which were
incurred in  connection  with the  refurbishment  of the Store during the period
from August 1, 1997 to February 6, 1998.

     Assumed   Liabilities.   "Assumed   Liabilities"   shall  mean  only  those
liabilities,  obligations,  duties,  expenses  and costs of the Seller which the
Buyer shall assume and which are listed on Schedule 1B attached hereto.

     Base Purchase  Price.  "Base Purchase Price" shall mean the amount computed
in accordance with Schedule 2 attached hereto.



<PAGE>



     Bill of Sale.  "Bill of Sale"  shall mean the Bill of Sale,  in the form of
Exhibit A attached  hereto,  by which the  Seller  conveys to the Buyer good and
marketable  title  to the  Fixed  Assets,  the  Licenses,  the  Records  and the
Inventory free and clear of all liens and encumbrances.

     Buyer.   "Buyer"  shall  mean  Gristede's   Operating  Corp.,  a  New  York
corporation.

     Closing.  "Closing" shall mean the conference to be held at 10:00 A.M., New
York, New York time, on the Closing Date or at such other time and at such place
as the parties  shall  agree,  at which the  transactions  contemplated  by this
Agreement shall be consummated.

     Closing  Date.  "Closing  Date" shall mean the date the Closing shall occur
pursuant to Section 11 of this Agreement.

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

     Contracts.  "Contracts"  shall  mean  those,  but  only  those  agreements,
service,  utility and maintenance  contracts,  commitments,  purchase orders and
work orders in  connection  with the business of operating  the Stores listed on
Schedule 3 to this Agreement (and any other  contracts  pertaining to either the
equipment  located in any Store or to the  provision  of  services to the Store)
which the Buyer shall assume from and after the Closing Date.

     Contract  Assignment.  "Contract  Assignment" shall mean the Assignment and
Assumption of Contracts,  in the form of Exhibit B attached hereto, by which the
Seller assigns the Contracts to the Buyer and the Buyer assumes the  obligations
of the Seller under the Contracts from and after the Closing Date.

                                       -2-


<PAGE>


     Employee  Plans.  "Employee  Plans" shall mean the employee  benefit plans,
including,  but not limited to, any bonus,  profit  sharing,  retirement,  stock
purchase,   stock  option,  flexible  compensation,   hospitalization,   medical
insurance,  severance and pension plans established and maintained by the Seller
pursuant to the Union Contracts,  or otherwise,  a complete list of which is set
forth on Schedule 4.

     ERISA.  "ERISA" shall mean the Employee  Retirement  Income Security Act of
1974, as amended.

     Fixed  Assets.   "Fixed  Assets"  shall  mean  all  machinery,   equipment,
furniture, fixtures, leasehold improvements and other items of tangible personal
property  located at or used in the  operation  of the Store on the Closing Date
(whether  or not owned by the  Seller on the date  hereof),  including,  but not
limited to, those items listed on Schedule 5 hereto and  including  transferable
warranties, if any, pertaining thereto.

     Inventory.  "Inventory"  shall  mean  all  inventory  of  supplies  and all
inventory of  merchandise  owned by the Seller and located at the Store for sale
to customers in the ordinary course of business as of the Closing Date.

     Inventory  Value.  "Inventory  Value" shall mean the value of the Inventory
which shall equal the amount of Trade Payables  attributable  to the purchase of
the Inventory by the Seller.

     Laws. "Laws" shall have the meaning set forth in Section 8.7.

     Licenses.   "Licenses"  shall  mean  all  transferable  licenses,  permits,
certificates,  approvals,  authorizations,  variances  and  consents  issued  or
granted by governmental and quasi-governmental  bodies, officers and authorities
in  respect  of  the  ownership,  occupancy,  use  and  operation  of any of the
Purchased Assets, all of which licenses,  permits, etc. are listed on Schedule 6
annexed hereto and made a part hereof. Licenses to sell

                                       -3-


<PAGE>



alcoholic  beverages are not listed on Schedule 6 and are not within the meaning
of the term "Licenses" because they are not transferable.

     Lien. "Lien" shall mean any mortgage,  lien,  pledge,  adverse claim, levy,
charge,  security  interest or other  encumbrance  in or on, or any  interest or
title of any vendor,  lessor, lender or other secured party to a party under any
conditional  sale or other  title  retention  agreement  or lease in the  nature
thereof with respect to any property or asset owned or held by such party.

     Losses. "Losses" shall mean all claims,  demands,  losses, costs, expenses,
obligations,   liabilities,  damages,  recoveries  and  deficiencies,  including
interest,  penalties and reasonable  attorneys' fees,  incurred by a party to be
indemnified under Section 18 or 19, as the case may be.

     MPPAA. "MPPAA" shall mean the Multiemployer  Pension Plan Amendments Act of
1980, as amended.

     PBGC. "PBGC" shall mean the Pension Benefit Guaranty Corporation.

     Post-Closing Adjustment Date. "Post-Closing Adjustment Date" shall mean the
date which is 60 days after the Closing Date, on or by which certain adjustments
to the  consideration  to be paid by the  Buyer  pursuant  to  Section 3 of this
Agreement shall be made and paid.

     Purchased Assets.  "Purchased  Assets" shall mean the Contracts,  the Fixed
Assets, the Inventory, the Real Property Leases, the Licenses and the Records.

     Purchase  Price.  "Purchase  Price" shall mean the  purchase  price for the
Purchased Assets calculated in accordance with Section 3.1 hereof.

     Real Property  Lease.  "Real Property Lease" shall mean all of the Seller's
right,  title and  interest  in and to the Lease,  dated  June 1, 1986,  between
Gristede's

                                       -4-


<PAGE>



Supermarkets,  Inc. ("GSI") and Betty Garsky and Joyce Gellis,  as Trustees of a
Trust executed under the Last Will and Testament of Samuel Garsky, as amended by
a First Amendment and Extension of Lease,  dated as of May 1, 1997, between 500A
East 87th Street,  LLC, the successor in interest to the landlord,  and GSI, and
as assigned to Seller on November 7, 1997.

     Real Property Lease Assignment. "Real Property Lease Assignment" shall mean
the  Assignment and Assumption of Real Property Lease in the form annexed hereto
as Exhibit C.

     Records.  "Records" shall mean those, but only those, books,  documents and
records relating to the operation of the Store.

     Seller. "Seller" shall mean G Remainder Corp., a New York corporation.

     Store.  "Store" shall mean the store located at 1644 York Avenue, New York,
New York.

     Trade Payables.  "Trade Payables" shall mean those trade payables of Seller
set  forth on a list to be  delivered  to Buyer on or  before  the  Post-Closing
Adjustment Date.

     Union  Contracts.  "Union  Contracts"  shall mean those contracts listed on
Schedule 7 attached hereto.

     V&S Obligations.  "V&S Obligations"  shall mean all accrued  obligations of
the Seller to employees of the Store for vacation and sick pay as of the Closing
Date to be set  forth  on a list to be  delivered  to  Buyer  on or  before  the
Post-Closing Adjustment Date.


     II. Purchase and Sale.

          A. Subject to the terms and conditions hereof and in reliance upon the
representations  and warranties  contained in this Agreement,  the Seller hereby
agrees to sell, transfer,  convey, assign and deliver to the Buyer and the Buyer
agrees to  purchase,  acquire and assume from the  Seller,  effective  as of the
Closing Date, all of the Purchased Assets.

                                       -5-


<PAGE>


          B. It is  specifically  understood  and  agreed  that the Buyer is not
assuming any of the  obligations,  liabilities,  costs or expenses of the Seller
other  than the  Assumed  Liabilities.  The  Seller  will  pay,  satisfy  and/or
discharge all liens or other  encumbrances,  not expressly  assumed by the Buyer
upon the business conducted at the Store or upon the Purchased Assets whether or
not such liens or encumbrances are filed or recorded prior to the Closing Date.


     III. Consideration For Purchase.

          A. The  purchase  price  payable by the Buyer to the Seller for all of
the Purchased Assets (the "Purchase Price") shall be the difference  between (a)
the Base  Purchase  Price and (b) the amount of the Assumed  Capex  Liabilities,
adjusted  by any  amounts  to be  credited  or  debited  against  such  price in
accordance with other sections of this Agreement.  The Base Purchase Price shall
be  calculated  in  accordance  with the  procedure  set forth in,  and shall be
allocated in accordance with, Schedule 2 annexed hereto.

          B. The  Purchase  Price shall be payable by the Buyer at such time and
by such method  (cash,  issuance to Seller of a note or other  securities or any
combination  of the  foregoing)  as  shall  be  recommended  by a  committee  of
independent directors of GSI and approved by the Board of Directors of GSI, John
Catsimatidis abstaining.

          C.  To the  extent  that  the  sum  of  the  Trade  Payables  and  V&S
Obligations  assumed by the Buyer exceeds the Inventory Value the Purchase Price
shall be reduced dollar for dollar.


     IV. Assignments, Subleases and Consents.

          A. On the Closing Date, the Seller agrees to assign to Buyer and Buyer
agrees to assume from the Seller the Real Property Lease. Such assignment and


                                       -6-


<PAGE>


assumption of Real Property  Lease shall be effected at the Closing by Buyer and
the Seller joining in the execution of the Real Property Lease Assignment.

          B. The  Seller  will use its  best  efforts  to  secure  any  required
consents  to any  assignment  of the Real  Property  Lease to Buyer  where  such
consents are required by the terms of such Real Property Lease.  The Seller will
use its best efforts to have the landlord under such Real Property Lease sign an
estoppel and consent letter in form and substance  satisfactory to the Buyer. To
the extent that Buyer's cooperation is necessary or desirable to secure consent,
Buyer shall provide such  cooperation  including,  but not limited to, providing
financial statements and other financial  information and information  regarding
its intended use or disposition of the Store to the lessor. However, Buyer shall
not be  obligated  to  accept  any  change  to a term or  provision  of the Real
Property Lease in order to receive any necessary consent.

          C. On the Closing Date,  the Seller agrees to assign to the Buyer each
Contract,  and the Buyer  agrees to assume from and after the  Closing  Date the
Seller's obligations under each Contract.  Such assignment to the Buyer shall be
effected at the Closing by the Buyer and the Seller  joining in the execution of
the Contract Assignment.

          D. The Seller will use its best  efforts to secure all consents to the
assignment  to the Buyer of each  Contract  where such consent to  assignment is
required by the terms of such Contract,  or otherwise.  It is further understood
by the Buyer that third  parties may not consent to the  assignment of Contracts
without the cooperation of the Buyer in providing  financial  information and/or
other information.  If requested, such information shall be supplied to any such
third party by the Buyer.  The Buyer shall not be obligated to accept any change
to a term or  provision  of a  Contract  in order to  receive a  consent  to the
assignment thereof. If the Seller is unable to secure consent as aforesaid,  the
Buyer may elect to take an

                                       -7-


<PAGE>


assignment  of such  Contract or elect to take  possession  of the Store without
such Contract. The parties hereby agree that the assignment of the Real Property
Lease  pertaining  to the  Store  shall  proceed  notwithstanding  the  Seller's
inability to effectuate the assignment of any Contract relating to the Store.


     V.  Inventory.  The Buyer and Seller agree that the  Inventory  Value shall
equal  the value of all  Trade  Payables  attributable  to the  purchase  of the
Inventory by the Seller.


     VI. Adjustments.

          A.  Subject  to  earlier   determination   and   adjustment,   on  the
Post-Closing  Adjustment  Date,  the real property taxes  (including  taxes paid
directly and by way of additional  rent) and  assessments  relating to the Store
noticed of record prior to the Closing Date,  personal  property taxes,  minimum
rent and additional rent (other than percentage rent),  water, gas,  electricity
and other utilities,  common area maintenance  reimbursements to lessors,  local
business or other  license fees or taxes,  merchants  association  dues and like
charges,  vending machine,  video game machines and ride revenues, if any, shall
be prorated on a three  hundred sixty (360) day basis as of the Closing Date. If
the real  estate tax rate for the  current  tax year is not  established  by the
Closing  Date,  the  prorations  shall be made based on the basis of the rate in
effect for the prior tax year and then  adjusted for the current year as soon as
the tax rate is established.

          B. At the Closing,  Buyer shall reimburse the Seller for the amount of
the security  deposit with accrued  interest,  if any, to the landlord under the
Real  Property  Lease and the  Seller  shall  assign to Buyer all rights to such
security  deposit with accrued  interest,  if any. The Seller shall pre-pay rent
under the Real  Property  Lease and fees and other  charges  under each Contract
through the end of the calendar  month or such other period in which the Closing
Date occurs, but the Buyer shall reimburse the Seller for such rent or fees

                                       -8-


<PAGE>


and charges  accrued from the Closing Date through the end of such month or such
other period as a part of the Post-Closing  Adjustment Date proration  described
in Section 6.1. The  reimbursement  shall be based on a 30-day month,  i.e., the
Buyer shall  reimburse the Seller in an amount equal to the prepaid rent times a
fraction,  the numerator of which is the number of days from the Closing Date to
the 30th day of the month  (regardless  of how many actual days there are in the
month),  inclusive, and the denominator of which is 30. The Seller shall request
final  readings on all utilities as of the Closing Date and shall be responsible
for all utilities consumed prior to the Closing.  If for any reason readings are
not made as of the Closing Date,  then utility  charges shall be prorated  based
upon average  daily  utility  charges  reflected in the last  statement for each
utility paid by the Seller.

     VII. Risk of Loss. Until the Closing Date, all risk of loss of or damage to
the assets to be transferred or to be sold to the Buyer hereunder shall be borne
by the Seller.  To the extent that the Real Property Lease and Contracts require
the  Seller  to  maintain  fire and  extended  coverage  insurance,  the  Seller
represents that it maintains  insurance covering its contractual  obligations to
maintain the same.

     VIII. Representations,  Warranties and Agreements of the Seller. The Seller
represents, warrants, covenants and agrees that:

          A.  Title of  Assets.  The  Seller  has on the  Closing  Date good and
marketable title to all of the Fixed Assets (which are not leased), the Records,
the Licenses and the Inventory, free and clear of all Liens.

          B. Taxes.  The Seller shall pay or cause to be paid,  before  becoming
delinquent,  all sales, use or other taxes and indebtedness  owed or incurred by
the Seller as to any of the property or assets being conveyed hereunder,  except
amounts  being  contested  by the Seller in good  faith or for which  Seller has
provided adequate reserves for payment.

                                       -9-


<PAGE>


          C.  Lease.  The Real  Property  Lease,  an  original of which is being
delivered  to the Buyer at the Closing,  is true,  accurate and complete and has
not been modified, amended or changed from its original terms; the Seller is not
now,  nor,  with the passage of time,  will be, in default and has not  received
notice of any default under the Real Property Lease,  and on the Closing Date is
in  substantial  compliance  with all of the terms and  conditions  of such Real
Property Leases on the part of the Seller to be performed or observed.  The Real
Property  Lease is on the Closing  Date,  in full force and effect in accordance
with its terms.

          D.  Notice of  Condemnation.  As of the date  hereof,  the  Seller has
received  no notice of any  existing  or proposed  condemnation  proceedings  in
respect of all or any portion of any property  relating to the Store which would
have a material adverse effect on the Seller's use of such leased premises.

          E.  Corporate  Authority.  The  Seller  has full  corporate  power and
authority  to  enter  into  this  Agreement  and to carry  out the  transactions
contemplated  hereby.  The Board of Directors and the  shareholder of the Seller
have  taken  all  action   required  by  law,   the  Seller's   Certificate   of
Incorporation,  as  amended,  its  By-Laws or  otherwise  to be taken by them to
authorize the execution and delivery of this Agreement and the  consummation  of
the transactions  contemplated hereby, and this Agreement is a valid and binding
agreement of the Seller enforceable in accordance with its terms, except that:

                    (1)  such   enforcement   may  be  subject  to   bankruptcy,
          insolvency,  reorganization,  moratorium  or other similar laws now or
          hereafter in effect relating to creditors' rights; and

                    (2) the remedy of specific  performance  and  injunctive and
          other forms of equitable  relief may be subject to equitable  defenses
          and to

                                      -10-


<PAGE>


          the discretion of the court before which any proceeding  therefore may
          be brought.

          F.  Consent of Third  Parties.  Subject to receipt of the consents and
approvals  referred  to in  Section  4,  the  execution  and  delivery  of  this
Agreement, the performance by Seller of its obligations under this Agreement and
the documents  contemplated  hereunder and the  consummation of the transactions
contemplated  hereby  or  thereby  will not (i)  violate  or  conflict  with the
Certificate of Incorporation or By-laws of Seller; (ii) conflict with, or result
in the  breach  or  termination  of, or  constitute  a default  or  require  any
approval,  waiver or consent under,  any lease,  agreement,  commitment or other
instrument,  or any order,  judgment or decree, to which Seller is a party or by
which Seller or any of its properties is bound; or (iii)  constitute a violation
of any Law (as  defined in  Section  8.7)  applicable  to  Seller.  No  consent,
registration,  application,  approval,  permit,  license or authorization of, or
designation, declaration or filing with, any public or governmental authority is
required on the Seller's part in  connection  with the execution and delivery of
this Agreement and the documents  contemplated hereunder and the consummation of
the transactions contemplated hereby and thereby.

          G.  Compliance  with Laws. The business and operation of the Store has
been,  and is,  on the date  hereof,  being  conducted  in  accordance  with all
applicable laws, rules and regulations of all authorities ("Laws"), except those
which do not (either  individually  or in the aggregate)  materially,  adversely
affect the Store or its business.  Performance of this Agreement will not result
in any breach of, or constitute a default under, or result in the imposition of,
any Lien or encumbrance upon the Store under any arrangement,  agreement,  lease
or other  financial  instrument to which the Seller is a party or by which it is
bound or affected and will not violate the Certificate of Incorporation,  or the
By-Laws, of the Seller;

                                      -11-


<PAGE>


provided,  however, that no representation or warranty is given as to the effect
of the  assignment of the Real Property Lease to the Buyer and/or the subsequent
operation  of the Store by the Buyer  without the parties  having  obtained  any
required consent by the landlord to the Real Property Lease.

          H. Contracts and Union Contracts.  True,  accurate and complete copies
of all of the Contracts and the Union Contracts have been furnished to the Buyer
or will be furnished to the Buyer prior to the Closing Date.  Such Contracts and
Union  Contracts  have not been and,  prior to the  Closing  Date,  will not be,
amended,  modified or changed,  and are and as of the Closing Date,  will be, in
full force and effect.  There has been no claim of default under any Contract or
Union Contract by any party thereto which has not been cured and there exists no
event which alone, or with notice or the lapse of time or both, would constitute
a default under any Contract or Union  Contract by any party  thereto.  All sums
due and payable  under the Contracts up to the Closing Date have been or will be
paid in full prior to or on the Closing Date.

          I. Work Stoppages. There are no current work stoppages, strikes or any
material  violations of any Union  Contracts  with respect to the Store and none
which occurred within the past six (6) months.

          J. Safety  Violations.  To the extent that the Seller has received any
notification from any governmental authority or is otherwise aware that it is in
material violation of any applicable health,  sanitation,  fire,  environmental,
safety, building, zoning or other law, ordinance or regulation in respect of the
Store or the structures or equipment  relating thereto,  the Seller has remedied
such violation prior to the Closing Date.

                                      -12-


<PAGE>


          K. Court Orders and  Judgments.  There are, as of the date hereof,  no
court orders or judgments negatively impacting the operation of the Store in the
ordinary course, or affecting the transfer of the Purchased Assets.

          L. No Restrictions on Authority of the Seller. There are no corporate,
contractual,  statutory  or other  restrictions  of any kind  upon the power and
authority  of the  Seller to the  transfer,  sale,  assignment,  conveyance  and
delivery of assets,  properties and business as  contemplated by this Agreement,
and no action by any federal, state, municipal or other governmental department,
commission,  board,  bureau,  agency or  instrumentality is necessary to provide
such power or authority.

          M. Licenses. The Licenses (which, among other licenses, do not include
licenses  to  sell  alcoholic  beverages)  held  as of  the  Closing  Date  will
constitute  all licenses  needed or required in connection  with the  ownership,
occupancy, and operation of the Purchased Assets for their present uses.

          N.  Fixed  Assets.  All  of the  Fixed  Assets  and,  if  they  do not
constitute Fixed Assets hereunder, all of the electrical,  mechanical, plumbing,
HVAC and fire  detection  systems,  if any, of the Store,  are as of the Closing
Date in working order and operable condition.

          O.  Hazardous  Waste.  To the  best of the  Seller's  knowledge  after
reasonable  inquiry,  there are no hazardous wastes or toxic substances  located
on, in or under the Store and the Store has not been used for the storage of any
oils,  petroleum  by-products  (other than  cleaning  agents,  insecticides  and
similar substances  customarily  utilized by building  maintenance  personnel or
customarily sold in supermarkets in New York City) or other hazardous materials.
For  purposes  of  this  Agreement,   hazardous  waste  shall  include,  without
limitation,  any hazardous substance as defined in 42 U.S.C.A.  ss.9601(14),  as
amended from

                                      -13-


<PAGE>


time to time through the Closing Date. During Seller's lease thereof,  the Store
has not been used as a waste  storage or  disposal  site and, to the best of the
Seller's  knowledge after reasonably  diligent  inquiry,  the Store has not been
used as a waste storage or disposal site prior to the Seller's ownership.

          P.  Utilities.  All  utilities  that  are  required  for the  full and
complete  occupancy  and  use  of  the  Store,  including,  without  limitation,
electricity,   sanitary  sewers,  storm  sewers  and  drainage,   water,  public
telephones  and similar  systems have been  connected to the Store and as of the
Closing Date are in working order.

          Q. Employee  Benefit Plans.  Except for the Employee Plans, the Seller
does not maintain any other bonus, pension,  profit sharing,  retirement,  stock
purchase,   stock  option,  flexible  compensation,   hospitalization,   medical
insurance,  vacation  pay,  severance pay or any other similar plan or practice,
including, but not limited to, any welfare or pension benefit plan as defined in
Section  3(1) and 3(2) of ERISA,  respectively,  whether  formal or  informal or
written or unwritten,  which is in effect with respect to any employee or former
employee  of the  Seller or which is  maintained  by the  Seller or to which the
Seller  contributes or is required to  contribute.  To the best knowledge of the
Seller, with respect to all Employee Plans: (i) all contributions required to be
made  (including  obligations  accrued up to the Closing  Date) to all  Employee
Plans by the Seller up to the  Closing  Date,  have been paid or will be paid by
the Seller on or before the Closing Date, (ii)  consummation of the transactions
contemplated herein will not give rise to any material withdrawal liability with
respect to a multiemployer  plan under MPPAA regarding the Employee Plans, (iii)
neither any of such Employee Plans,  nor any trust created  thereunder,  nor any
trustee or administrator  thereof (including the Seller or any of its affiliated
companies)  has engaged in any  prohibited  transaction  which has  subjected or
could subject any of such Employee Plans to any liability

                                      -14-


<PAGE>


which is material to such Union Plan for any tax imposed  under  Section 4975 of
the Code or penalty  imposed under Section 502(i) of ERISA,  (iv) no "reportable
event,"  within  the  meaning of Section  4043 of ERISA,  or any other  event or
condition,  has occurred with respect to any such Employee Plan which presents a
material risk of the termination of any such Employee Plan,  including,  but not
limited  to, a  termination  by action of the PBGC and (v) no suits,  actions or
other litigations (excluding claims for benefits incurred in the ordinary course
of Employee Plan  activities) are pending or threatened with respect to any such
Employee Plan which  individually  or in the aggregate are reasonably  likely to
have a material  adverse impact on any such Employee Plan or the business of the
Seller.

          R. COBRA Indemnification and Information.  The Seller shall pay and be
liable to Buyer and shall assume,  indemnify,  defend,  and hold harmless  Buyer
from and  against and in respect of any and all  losses,  damages,  liabilities,
taxes,  and sanctions  imposed upon,  incurred by, or assessed against Buyer and
any  of  its  employees  that  arise  under  the  Consolidated   Omnibus  Budget
Reconciliation  Act of 1984  ("COBRA")  and the Code,  interest  and  penalties,
costs, and expenses (including, without limitation, disbursements and reasonable
legal fees  incurred in  connection  therewith,  and in seeking  indemnification
therefor,  in any  amounts  or  expenses  required  to be  paid or  incurred  in
connection with any action, suit, proceeding, claim, appeal, demand, assessment,
or judgment)  arising by reason of or relating to any failure to comply with the
continuation  health care coverage of COBRA and Section 601 through 608 of ERISA
which failure  occurred with respect to any current or prior  employee of Seller
or any qualified  beneficiary of such employee (as defined in COBRA) on or prior
to the Closing Date or as otherwise  required as a result of the transactions or
matters contemplated by this Agreement.

                                      -15-


<PAGE>


          S.  Unemployment  Insurance.   Buyer  shall  have  the  right  (to  be
determined by the Buyer in its sole  discretion)  of  transferring  the Seller's
unemployment  insurance  experience  rating with  respect to those  employees of
Seller subsequently  retained by the Buyer. In connection  therewith,  Buyer has
the right to audit and approve the payroll information furnished to the New York
State  Unemployment  Insurance  Division  in  connection  with  the  sale of the
Purchased  Assets.  Buyer shall  determine in its sole  discretion the method of
effecting this  transaction  and Seller agrees to cooperate fully with Buyer and
shall promptly furnish such payroll  information as shall be requested from time
to time by Buyer.

          T.  Disclosures.  No  representation  or  warranty  by  Seller in this
Agreement  or any other  document  furnished  by Seller in  connection  herewith
contains or will contain any untrue  statement of a material  fact,  or omits or
will  omit to state a  material  fact  required  to be  disclosed  hereunder  or
thereunder.

     IX. Representations, Warranties and Representations of the Buyer.

          A.  Corporate  Authority.  The Buyer  represents and warrants that the
Buyer has full corporate power and authority to enter into this Agreement and to
carry out the transactions  contemplated  hereby.  The Board of Directors of the
Buyer  has  taken  all  action  required  by law,  the  Buyer's  Certificate  of
Incorporation,  its By-Laws or otherwise  to be taken by Buyer to authorize  the
execution  and  delivery  of  this  Agreement  and  the   consummation   of  the
transactions  contemplated  hereby,  and this  Agreement  is a valid and binding
agreement of the Buyer enforceable in accordance with its terms, except that:

               a. such  enforcement  may be subject to  bankruptcy,  insolvency,
reorganization,  moratorium  or other  similar  laws now or  hereafter in effect
relating to creditors' rights; and

                                      -16-


<PAGE>


               b. the remedy of specific  performance  and  injunctive and other
forms of  equitable  relief  may be  subject to  equitable  defenses  and to the
discretion of the court before which any proceeding therefor may be brought.

          B.  No  Restrictions  on  Authority  of the  Buyer.  Except  for  such
restrictions  as shall have been waived,  there are no  corporate,  contractual,
statutory or other  restrictions of any kind upon the power and authority of the
Buyer to the  purchase  and  acceptance  of assets,  properties  and business as
contemplated by this Agreement,  and no action by any federal,  state, municipal
or  other  governmental  department,   commission,   board,  bureau,  agency  or
instrumentality is necessary to provide such power or authority.

          C.  Disclosures.  No  representation  or warranty by the Buyer in this
Agreement or any other  document  furnished by the Buyer in connection  herewith
contains or will contain any untrue  statement of a material  fact,  or omits or
will  omit to state a  material  fact  required  to be  disclosed  hereunder  or
thereunder.

     X. Statutory and Regulatory  Filings.  Promptly after the date hereof,  the
Seller and the Buyer shall,  if necessary,  prepare and file in connection  with
the  assignment of the Real Property  Lease,  all  documentation  required to be
filed under the New York State Real Property Transfer Tax Law. The parties shall
furnish to each other such necessary  information  and reasonable  assistance as
the other shall require in connection with its compliance with the provisions of
the New York Real Property Transfer Tax Law.

     XI. Closing. The Closing Date shall be the date of this Agreement.

     XII. Sales and Use Taxes; Transfer Taxes.

          A.  The  Buyer  shall  be  solely  responsible,  absent  an  available
exemption,  for any sales  and use  taxes  (including  interest  and  penalties)
applicable  to the transfer of the  Purchased  Assets.  The Seller and the Buyer
shall jointly prepare a schedule of sales tax due

                                      -17-


<PAGE>


as a result of the transfer of the Purchased Assets.  Such tax will be collected
by the Seller from the Buyer on or before the  Post-Closing  Adjustment Date (in
the form of a check)  and will be  remitted  by the  Seller  to the  appropriate
taxing authority. If there is any different valuation of Purchased Assets by the
taxing  authority,  the Buyer will pay such tax directly to the taxing authority
and will hold the Seller  harmless  from and  against  any  claims  arising as a
result of the imposition of the tax, its collection and/or remittance.

          B. The  Seller  shall be  solely  responsible,  absent  any  available
exemption,  for transfer taxes payable in connection  with the assignment of the
Real  Property  Lease.  Transfer  taxes will be  collected by the Buyer from the
Seller on or before the  Post-Closing  Adjustment  Date (in the form of a check)
and will be  remitted by the Buyer to the  appropriate  taxing  authorities.  If
there is any different  determination  of one or more of the transfer taxes due,
the Seller will pay such taxes  directly to the taxing  authority  and will hold
the Buyer  harmless  from and  against  any  claims  arising  as a result of the
imposition of the taxes, their collection and/or remittance.

     XIII.  Notices.  All notices  provided  for in this  Agreement  shall be in
writing  and sent by  certified  mail,  return  receipt  requested,  by  Federal
Express,  Express  Mail  or  other  overnight  delivery  service  reputed  to be
reliable, or by personal delivery to the parties at the address set forth in the
preamble to this  Agreement or to such other  addresses of which one party shall
have given notice to the other party in the manner  prescribed  herein.  Notices
shall be deemed given when sent.

     XIV. Seller's Employees. To the extent scheduled as an Assumed Liability on
or before the  Post-Closing  Adjustment Date, the Buyer shall assume all accrued
but unpaid,  vacation,  sick and personal days due to each of Seller's employees
for  his/her  employment  with the  Seller at the Store for all  periods of time
prior to the Closing Date and be given a credit

                                      -18-


<PAGE>



therefor against the Purchase Price.  Other than as set forth herein,  the Buyer
is not assuming any  obligation or liability for any events  occurring  prior to
the  Closing  Date  arising  out of,  resulting  from or based  upon  the  Union
Contracts or the performance or non-performance by the Seller of its obligations
thereunder.

     XV. Bulk Sales Law. The Buyer hereby  waives  compliance by the Seller with
the  provisions  of the Bulk  Sales  Law of the State of New York  contained  in
Article 6 of the Uniform Commercial Code in effect in the State of New York. The
Seller agrees to indemnify the Buyer  against,  and hold it harmless  from,  any
claims of the  creditor or creditors of Seller or any entity or affiliate of the
Seller  arising  out of any  failure  to comply  with any bulk  sales law of any
jurisdiction  in respect of any of the assets  and  properties  purchased  by or
otherwise transferred to the Buyer pursuant to this Agreement.

     XVI. Further Assurances.  From time to time, without further consideration,
each of the parties  hereto will execute and deliver such documents as the other
party  hereto  may   reasonably   request  in  form  and  substance   reasonably
satisfactory  to the other party in order more  effectively  to  consummate  the
transactions  contemplated  hereby and to vest in the Buyer good and  marketable
title to the assets being conveyed hereunder.

     XVII.  Survival  of  Representations.   All  representations,   warranties,
covenants and agreements  made by any party in this Agreement or pursuant hereto
shall  survive  for a period of three  years from the close of  business  on the
Closing Date.

     XVIII. Indemnification by the Seller.

          A. The Seller  shall  indemnify,  defend and hold  harmless  the Buyer
against  any and all  Losses  (other  than  economic  losses  from  unprofitable
operations  of the Store for any  period of time  during  which the Buyer  shall
operate the Store  provided that such losses are not the result of or related to
the breach by the Seller of any representation made by

                                      -19-


<PAGE>


the Seller hereunder) that the Buyer shall incur or suffer,  which arise out of,
result from or relate to:

                    (1) the Seller's operation of the Store prior to the Closing
          Date,  including all Losses arising from all debts,  liabilities,  all
          liabilities  under the Union Contracts and Employee Plans prior to the
          Closing Date and all  obligations  and  commitments of the Seller,  of
          whatever nature, whether absolute, contingent or otherwise, other than
          the Assumed Liabilities, and

                    (ii) any breach of or  failure by the Seller to perform  any
          of its  representations,  warranties,  covenants or agreements in this
          Agreement or any schedule,  certificate,  exhibit or other  instrument
          furnished or to be furnished  under this Agreement  within three years
          of the Closing  Date,  including,  but not limited to, any  obligation
          incurred by the Seller to pay  transfer  tax and any  finder's  fee or
          brokerage commission in connection with this transaction.

          B. In  determining  the amount of any loss,  there  shall be  excluded
therefrom the amount  attributable  thereto of any  insurance  recoveries by the
Buyer.  The total  amount of  potential  liability  of the Seller for all Losses
(other than Losses  resulting from the assertion of liability  against the Buyer
by third  parties,  the  indemnification  of which  shall not be  subject to any
limitation) shall not exceed the Purchase Price.

          C. The Buyer shall  notify the Seller  within 15 days after  receiving
notice  thereof of the  existence of any claim,  demand or other matter to which
the Seller's indemnification  obligation would apply and shall give the Seller a
reasonable opportunity to defend the same at its own expense and with counsel of
its own  selection;  provided,  that the  Buyer  shall  also  have the  right to
participate in the defense at its own expense. If the Seller

                                      -20-


<PAGE>


shall fail to defend, the Buyer shall have the right, but not the obligation, to
undertake  the defense of, and to compromise  or settle  (exercising  reasonable
business  judgment),  the claim or other matter on behalf of and for the account
of the Seller.

     XIX. Indemnification by the Buyer.

          A. The Buyer  shall  indemnify,  defend and hold  harmless  the Seller
against  any and all Losses that the Seller  shall incur or suffer,  which arise
out of, result from, or relate to:

                    (1) the  Buyer's  operation  of the Store from and after the
          Closing Date,

                    (ii) any breach of or failure by the Buyer to perform any of
          its  representations,  warranties,  covenants  or  agreements  in this
          Agreement  within three years after the Closing Date,  including,  but
          not limited to, any obligation incurred by the Buyer to pay a finder's
          fee or brokerage commission in connection with this transaction.

          B. In  determining  the amount of any Loss,  there  shall be  excluded
therefrom the amount  attributable  thereto of any  insurance  recoveries by the
Seller.

          C. The Seller shall  notify the Buyer  within 15 days after  receiving
notice  thereof of the  existence of any claim,  demand or other matter to which
the Buyer's  indemnification  obligation  would apply and shall give the Buyer a
reasonable opportunity to defend the same at its own expense and with counsel of
its own  selection;  provided  that the  Seller  shall  also  have the  right to
participate  in the  defense  at its own  expense.  If the Buyer  shall  fail to
defend,  the Seller shall have the right,  but not the obligation,  to undertake
the defense of, and to  compromise  or settle  (exercising  reasonable  business
judgment),  the claim or other  matter on behalf of and for the  account  of the
Buyer.

                                      -21-


<PAGE>


     XX. Entire Agreement.  This Agreement contains the entire agreement between
the  parties  hereto and may not be modified  except by a writing  signed by the
party to be bound thereby.

     XXI. Applicable Laws. This Agreement shall be construed in accordance with,
and be governed by, the laws of the State of New York.

     XXII.  Successors or Assigns.  This Agreement may not be assigned by either
party.

     XXIII. Counterparts.  This Agreement may be executed in counterparts at one
time or at different times and irrespective of the date of execution between the
parties  named  herein,  it shall be deemed to have been executed as of the date
first above written and constitute one agreement.

     XXIV. Exhibits and Schedules. Any exhibit or schedule which is not attached
to this  Agreement or which has not been  completed at the time of the execution
of this Agreement  shall, at the time of its attachment,  be deemed to be a part
hereof for all purposes as of the date of this Agreement.

     IN  WITNESS  WHEREOF,  the  Seller  and the Buyer  have  caused  this Asset
Purchase Agreement to be duly executed as of the date first above written.

                                                G REMAINDER CORP.

                                                By: /s/ John A. Catsimatidis
                                                   --------------------------
                                                   John A. Catsimatidis
                                                   Chairman of the Board


                                                GRISTEDE'S OPERATING CORP.

                                                By: /s/ John A. Catsimatidis
                                                   --------------------------
                                                   John A. Catsimatidis
                                                   Chairman of the Board

                                      -22-


<PAGE>


                                  EXHIBIT 10.9

                  FIRST AMENDMENT AND WAIVER TO LOAN AGREEMENT

     THIS FIRST AMENDMENT AND WAIVER  ("Amendment") made this 30th day of April,
1998 among GRISTEDE'S SLOAN'S, INC., a Delaware corporation having its principal
place of  business  at 823  Eleventh  Avenue,  New  York,  New York  10019  (the
"Borrower"),  each of the  Subsidiaries  of the  Borrower  listed on  Schedule 1
annexed to the Agreement (as hereinafter defined)  (individually,  a "Guarantor"
and  collectively,   the   "Guarantors")   (the  Borrower  and  the  Guarantors,
collectively,  the "Credit Parties"), EUROPEAN AMERICAN BANK, a New York banking
organization,  having an office at 335 Madison Avenue,  New York, New York 10017
("EAB"  or a  "Bank")  ISRAEL  DISCOUNT  BANK OF NEW  YORK,  a New York  banking
organization,  having an office at 511 Fifth  Avenue,  New York,  New York 10017
("Israel  Discount"  or a  "Bank"),  KEYBANK  NATIONAL  ASSOCIATION,  a national
banking association,  having an office at 1377 Motor Parkway, Islandia, New York
11788 ("Key" or a "Bank") and BANK LEUMI USA (formerly known as Bank Leumi Trust
Company of New York),  a New York trust  company,  having an office at 562 Fifth
Avenue,  New York,  New York 10036  ("Leumi" or a "Bank") and EUROPEAN  AMERICAN
BANK, as agent for the Banks (the "Agent").

                              W I T N E S S E T H :

     WHEREAS,  the Credit  Parties,  the Banks and the Agent entered into a Loan
Agreement  dated  as  of  the  7th  day  of  November,   1997  (hereinafter  the
"Agreement"); and

     WHEREAS,  the Banks have made loans to the Borrower as evidenced by certain
notes of the Borrower and specifying interest to be paid thereon; and

     WHEREAS, the Borrower has requested that the Agent and the Banks:

          (i) waive the Default caused by the failure of the Borrower to deliver
the  consolidating  financial  statements  required by Sections  5.01(b)(ii) and
(iii) of the Agreement;

          (ii)  waive the  Default  caused by the  failure  of the  Borrower  to
deliver the lease status  certificate  required by Section  5.01(b)(xiii) of the
Agreement;

          (iii)  consent to the  Borrower's  request  to change its fiscal  year
ending  date from the Sunday  nearest to  February 28 of each year to the Sunday
nearest November 30 of each year, to be effective November 30, 1997;

          (iv) amend the timing of the  calculation of the Applicable  Margin as
set forth herein;

          (iv)  amend  certain  of  the  financial  covenants  contained  in the
Agreement as set forth herein.


<PAGE>


     NOW, THEREFORE, in consideration of Ten ($10.00) Dollars and other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged,  the Credit  Parties,  the Banks and the Agent do hereby  agree as
follows:

     1. Defined Terms.  As used in this  Amendment,  capitalized  terms,  unless
otherwise defined, shall have the meanings set forth in the Agreement.

     2.  Representations and Warranties.  As an inducement for the Bank to enter
into this Amendment, the Credit Parties each represent and warrant as follows:

          A. That with respect to the Agreement and the Loan Documents  executed
in connection therewith and herewith:

               (i) There are no  defenses  or offsets to the  Borrower's  or any
          Guarantor's  obligations  under the Agreement as amended  hereby,  the
          Notes or any of the Loan Documents or any other agreements in favor of
          the Bank  referred to in the  Agreement,  and if any such  defenses or
          offsets exist without the knowledge of the Borrower or any  Guarantor,
          the same are hereby waived.

               (ii)  All of  the  representations  and  warranties  made  by the
          Borrower and any Guarantor in the Agreement as amended hereby are true
          and correct in all  material  respects as if made on the date  hereof,
          except for those made with  respect to a particular  date,  which such
          representations  and  warranties  are  restated as of the date of this
          Amendment to be true and correct in all  material  respects as of such
          date; and provided further that the representations and warranties set
          forth in Section  4.01(f) of the  Agreement  shall relate to the draft
          internally   prepared   (subject   to  year  end  audit   adjustments)
          consolidated  balance  sheet  of the  Borrower  and  its  Consolidated
          Subsidiaries for the fiscal year ended November 30, 1997.

               (iii) The outstanding aggregate principal balance of the Loans as
          evidenced by the Notes was  $18,092,859.00 on May 4, 1998 and interest
          has been paid through April 30, 1998.

     3.  Amended  Definitions.  The  following  definitions  in Article I of the
Agreement are hereby amended to read as follows:

          "'Cash Flow Recapture'  means the obligation of the Borrower to make a
          Cash Flow  Recapture  Payment  based on the  existence  of Excess Cash
          Flow,  beginning  with  Excess  Cash Flow for the fiscal  year  ending
          November 29, 1998."


                                       -2-


<PAGE>


          "'Cleandown Period' means a period, declared by the Borrower to be the
          "Cleandown Period", of thirty (30) consecutive days during each fiscal
          year of the  Borrower,  commencing  with the  Borrower's  fiscal  year
          beginning December 1, 1997."

          "'Debt Service Ratio' means,  as to the Borrower and its  Consolidated
          Subsidiaries  for any period,  the ratio of (i) EBITDA for such period
          to (ii) the sum of (x)  interest  expense for such period plus (y) the
          principal  amount of long term Debt (excluding  Revolving Credit Loans
          and  excluding  the  principal  component  of payments  on  Excludible
          Capital  Leases)  scheduled  to be paid during such  period.  The Debt
          Service  Ratio shall be measured  and tested at the end of each fiscal
          quarter commencing with the fiscal quarter ending May 31, 1998 and for
          a period covering (i) the two (2) fiscal quarters then ended as of the
          fiscal quarter ended May 31, 1998,  (ii) the three (3) fiscal quarters
          then ended as of the fiscal  quarter ended August 30, 1998,  and (iii)
          the four (4)  fiscal  quarters  then  ended  at all  times  thereafter
          commencing with the fiscal year ending November 29, 1998."

          "'Fixed  Charge  Coverage  Ratio'  means,  as to the  Borrower and its
          Consolidated Subsidiaries for any period, the ratio of (i) EBITDAR for
          such  period to (ii) the sum of (x)  interest  expense for such period
          plus,(y) rent expense  (including  rent for real estate  occupancy and
          for  all  other  operating  leases)  for  such  period,  plus  (z) the
          principal amount of long term Debt (excluding  Revolving Credit Loans)
          scheduled  to be paid during such period.  The Fixed  Charge  Coverage
          Ratio shall be measured  and tested at the end of each fiscal  quarter
          commencing  with the  fiscal  quarter  ending  May 31,  1998 and for a
          period  covering (i) the two (2) fiscal  quarters then ended as of the
          fiscal quarter ended May 31, 1998,  (ii) the three (3) fiscal quarters
          then ended as of the fiscal  quarter ended August 30, 1998,  and (iii)
          the four (4)  fiscal  quarters  then  ended  at all  times  thereafter
          commencing with the fiscal year ending November 29, 1998."

          "'Funded  Debt to EBITDA  Ratio'  means,  as to the  Borrower  and its
          Consolidated   Subsidiaries   for  any   period,   the  ratio  of  (i)
          Consolidated  Funded Debt (as of the last day of such  period) to (ii)
          EBITDA for such  period.  The  Funded  Debt to EBITDA  Ratio  shall be
          measured and tested at the end of each fiscal quarter and, in the case
          of EBITDA,  for the periods  covering (i) the one fiscal  quarter then
          ended as of March 1, 1998 (which amount shall be annualized), (ii) the
          two (2) fiscal  quarters  then ended as of May 31, 1998 (which  amount
          shall be

                                       -3-


<PAGE>


          annualized),  (iii) the three (3)  fiscal  quarters  then  ended as of
          August 30, 1998 (which amount shall be annualized),  and (iv) the four
          (4) fiscal quarters then ended at all times thereafter commencing with
          the fiscal year ending November 29, 1998."

     4. Amendments. The following amendments are hereby made to the Agreement:

          (a) Section 2.26 of the  Agreement  is hereby  deleted in its entirety
and replaced as follows:

          "SECTION 2.26.  Applicable Margin. The Prime Applicable Margin and the
          LIBOR  Applicable  Margin shall each be determined on the basis of the
          Borrower's  Funded Debt to EBITDA Ratio,  as  calculated  based on the
          Borrower's  consolidated  financial  statements  for its  most  recent
          fiscal  year or  quarter.  The Prime  Applicable  Margin and the LIBOR
          Applicable Margin shall be determined as follows:

               (i) The initial Prime Applicable  Margin shall be 75 basis points
          and the initial LIBOR Applicable Margin shall be 250 basis points, and
          each shall be applicable until delivery of the Borrower's consolidated
          financial  statements  for its  fiscal  quarter  ending  March 1, 1998
          pursuant to Section 5.01(b) hereof.

               Beginning  with delivery of the Borrower's  financial  statements
          for the fiscal  quarter ending March 1, 1998, and for each fiscal year
          or quarter thereafter:

               (ii) If the Borrower's  Funded Debt to EBITDA Ratio as of the end
          of such  fiscal  year or quarter is less than 1.50 to 1.00,  the Prime
          Applicable  Margin shall be -0- basis points and the LIBOR  Applicable
          Margin shall be 175 basis points.

               (iii) If the Borrower's Funded Debt to EBITDA Ratio as of the end
          of such  fiscal  year or quarter  is equal to or greater  than 1.50 to
          1.00 but less than 2.00 to 1.00, the Prime Applicable  Margin shall be
          50 basis  points and the LIBOR  Applicable  Margin  shall be 225 basis
          points.

               (iv) If the Borrower's  Funded Debt to EBITDA Ratio as of the end
          of such  fiscal  year or quarter  is equal to or greater  than 2.00 to
          1.00,  the Prime  Applicable  Margin  shall be 75 basis points and the
          LIBOR Applicable Margin shall be 250 basis points.


                                       -4-


<PAGE>


          The Agent  shall  determine  the  Applicable  Margins  within five (5)
          Business Days of its receipt of all required financial  statements and
          certificates.  Changes  to the  Applicable  Margins,  if any,  will be
          effective as of the date of determination thereof by the Agent.

               Upon the occurrence and during the continuance of a Default or an
          Event of Default the Prime Applicable  Margin and the LIBOR Applicable
          Margin  may, as a result of changes in the  Borrower's  Funded Debt to
          EBITDA Ratio, increase but will not decrease."

          (b) Section 5.02(c) of the Agreement is hereby deleted in its entirety
and replaced as follows:

          "(c) Lease Obligations.  Create, incur, assume, or suffer to exist any
          obligation  as lessee for the  rental or hire of any real or  personal
          property, except (i) Capital Leases permitted by Section 5.02(a); (ii)
          leases  existing on the date of this  Agreement and any  extensions or
          renewals  thereof;  (iii)  leases  for the use and  occupancy  of real
          property (other than leases  described in clause (i) or (ii)) which do
          not, in the aggregate, require the Borrower and the Guarantors to make
          payments  (including  taxes,  insurance,   maintenance,   and  similar
          expenses  which the Borrower or any Guarantor is required to pay under
          the terms of any lease) in any fiscal  year of the  Borrower in excess
          of that amount of incremental "Average Annual Cost" during each fiscal
          year of the  Borrower set forth in the  schedule  below,  it being the
          intent of this  clause  (iii)  that the  Borrower  may enter into such
          leases  which add not more than such amounts of  incremental  "Average
          Annual Cost" in each fiscal year, and (iv) all other operating  leases
          (other than leases described in (i), (ii) or (iii)),  which do not, in
          the aggregate,  require the Borrower and the Guarantors to make annual
          payments under such leases in excess of $1,000,000.00 in the aggregate
          over the term of this Agreement.  For purposes hereof, "Average Annual
          Cost" shall mean the total  amount to be paid by the lessee  under any
          lease over the term of such lease, for any and all purposes, including
          rent, escalations, taxes, operating costs, pass throughs, electric and
          other utility costs,  commissions,  build-outs,  and all other amounts
          payable to or for the benefit of the lessor divided by the term of the
          lease, in years.



                                       -5-


<PAGE>


                               Real Estate Leases

          Fiscal Year                           
          Ending in                             Average Annual Cost

          1997                                  $500,000.00*

          1998                                  $1,500,000.00

          1999                                  $2,000,000.00

          2000 and thereafter                   $3,000,000.00

          *for the period beginning with the date of the Agreement"

          (c) Section 5.02(l) of the Agreement is hereby deleted in its entirety
and replaced as follows:

          "(l) Losses.  Incur a net loss (i) the period beginning on the date of
          this  Agreement  and ending on March 1,  1998,  or (ii) for any fiscal
          year  thereafter,  including but not limited to the fiscal year ending
          November 29, 1998."

          (d) Section 5.03(b) of the Agreement is hereby deleted in its entirety
and replaced as follows:

          "(b) Unfunded  Consolidated Capital  Expenditures.  The Borrower,  the
          Guarantors and their  respective  Subsidiaries  will not make Unfunded
          Consolidated  Capital  Expenditures in excess of the amounts set forth
          below in the aggregate during any fiscal year:

          Fiscal Year                           
          Ending in                             Average Annual Cost

          1997                                  $500,000.00*

          1998                                  $1,000,000.00

          1999                                  $1,250,000.00

          2000 and thereafter                   $1,500,000.00

          *for the period beginning with the date of the Agreement"

     5. Waivers and  Consent.  (a) The Agent and the Banks each hereby waive the
following Defaults under the Agreement:

               (i) the  failure  of the  Borrower  to deliver  the  consolidated
financial  statements  required by Section  5.01(b)(i) of the Agreement provided
that such statements are delivered not later than May 13, 1998;


                                       -6-


<PAGE>


               (ii) the  failure of the  Borrower  to deliver  the  consolidated
financial  statements  required by Section 5.01(b)(ii) of the Agreement provided
that such statements are delivered not later than May 28, 1998;

               (iii) the failure of the  Borrower  to deliver the  consolidating
financial  statements required by Section 5.01(b)(iii) of the Agreement provided
that such statements are delivered not later than May 28, 1998;

               (iv) the  failure of the  Borrower  to deliver  the lease  status
certificate  required by Section  5.01(b)(xiii)  of the Agreement  provided that
such certificate is delivered not later than May 28, 1998.

          (b) The Agent and the Banks hereby consent to the  Borrower's  request
to change its fiscal year ending date from the Sunday  nearest to February 28 of
each year to the  Sunday  nearest  November  30 of each  year,  to be  effective
November 30, 1997.

     6. Effectiveness. This Amendment shall become effective upon the occurrence
of the following events and the receipt and satisfactory review by the Agent and
its counsel of the following documents:

          (a) The Agent and each Bank shall have received this  Amendment,  duly
executed by the Borrower and each Guarantor.

          (b) The Agent shall have received copies of any and all  modifications
of the  documentation  referred to in Section 3.01 of the Agreement  which could
result in a Material Adverse Change.

          (c) The Agent  shall  have been  paid,  on  behalf  of the  Banks,  an
amendment fee in the amount of $15,000.00.

     7.  Governing  Law. This  Amendment  shall be governed by, and construed in
accordance with, the laws of the State of New York.

     8.  Counterparts.   This  Amendment  may  be  executed  in  any  number  of
counterparts and by different parties hereto in separate  counterparts,  each of
which when so executed  shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

     9. Ratification. Except as hereby amended, the Agreement and all other Loan
Documents executed in connection therewith shall remain in full force and effect
in accordance with their originally  stated terms and conditions.  The Agreement
and all other  Loan  Documents  executed  in  connection  therewith,  as amended
hereby, are in all respects ratified and confirmed.

     10. Waiver of Jury Trial. The Borrower,  each Guarantor,  the Agent and the
Banks  waive all  rights to trial by jury on any  cause of  action  directly  or
indirectly involving the terms, covenants or conditions of this Amendment or any
Loan Document.

                                       -7-


<PAGE>


     IN WITNESS  WHEREOF,  the parties hereto have executed this Amendment as of
the year and date first above written.

EUROPEAN AMERICAN BANK, as Agent

By:   /s/ George L Stirling
   ----------------------------
   George L. Stirling
   Vice President

EUROPEAN AMERICAN BANK

By:   /s/ George L Stirling
   ----------------------------
   George L. Stirling
   Vice President

ISRAEL DISCOUNT BANK OF NEW YORK

By:    /s/ Scott Fishbein
   ----------------------------
   Name:  Scott Fishbein
   Title: Vice President

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

KEYBANK NATIONAL ASSOCIATION

By:    /s/ Joseph Burns
   ----------------------------
    Name:  Joseph Burns
    Title: Vice President

BANK LEUMI USA

By:    /s/ John Koenigsberg
   ----------------------------
   Name:  John Koenigsberg
   Title: Vice President

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

GRISTEDE'S SLOAN'S, INC.

By:    /s/ John Catsimatidis
   ----------------------------
   John Catsimatidis
   Chief Executive Officer


CITY PRODUCE OPERATING CORP.

By:    /s/ John Catsimatidis
   ----------------------------
   John Catsimatidis
   President


                                       -8-


<PAGE>


GRISTEDE'S OPERATING CORP.

By:    /s/ John Catsimatidis
   ----------------------------
   John Catsimatidis
   President

NAMDOR INC.

By:    /s/ John Catsimatidis
   ----------------------------
   John Catsimatidis
   President

RAS OPERATING CORP.

By:    /s/ John Catsimatidis
   ----------------------------
   John Catsimatidis
   President

SAC OPERATING CORP.

By:    /s/ John Catsimatidis
   ----------------------------
   John Catsimatidis
   President


                                       -9-


<PAGE>


                                  EXHIBIT 10.10

                             1998 STOCK OPTION PLAN
                                       OF
                            GRISTEDE'S SLOAN'S, INC.


1.   Purpose

     The purpose of this Stock Option Plan (the "Plan") of  Gristede's  Sloan's,
Inc., a Delaware  corporation (the "Company"),  is to secure for the Company and
its  stockholders  the  benefits  arising  from stock  ownership by selected key
employees of the Company or its  subsidiaries,  directors,  consultants or other
persons  ("Participants")  as  the  Board  of  Directors  of the  Company,  or a
committee thereof constituted for the purpose,  may from time to time determine.
The Plan will provide a means whereby (i) such  employees  (including  employees
who are  directors)  may  purchase  shares of the  Common  Stock of the  Company
pursuant to options that will qualify as "incentive stock options" under Section
422 of the Internal  Revenue Code of 1986, as amended (the "Code") and (ii) such
employees,  directors,  consultants  or other person may purchase  shares of the
Common Stock of the Company pursuant to "non-qualified stock options."

2.   Administration

     2.1 The Plan shall be administered by the Board of Directors of the Company
(the  "Board  of  Directors")  or by one or  more  committees  of the  Board  of
Directors (the  "Committee")  each composed solely of two or more  "Non-Employee
Directors", as that term is defined in Rule 16b-3(b)(3) of the General Rules and
Regulations  under the Securities  Exchange Act of 1934 (the "Exchange Act"), of
the Company.  Any action of the Board of Directors or the Committee with respect
to  administration  of the Plan  shall be taken by a  majority  vote or  written
consent of its members.  No person on the Board of Directors or Committee  shall
participate in any matter pertaining to him.

     2.2 Subject to the  provisions  of the Plan,  the Board of Directors or the
Committee  shall have authority (i) to construe and interpret the Plan,  (ii) to
define the terms used therein,  (iii) to prescribe,  amend and rescind rules and
regulations  relating to the Plan, (iv) to determine the individuals to whom and
the time or times at which options shall be granted, whether any options granted
will be incentive stock options or  non-qualified  stock options,  the number of
shares to be subject to each option, the exercise price of an option, the number
of installments, if any, in which each option may be exercised, and the duration
of each option,  (v) to approve and  determine the duration of leaves of absence
which may be granted to Participants without constituting a termination of their
employment   for  the  purposes  of  the  Plan,  and  (vi)  to  make  all  other
determinations  necessary or advisable for the  administration  of the Plan. All
determinations  and  interpretations  made  by the  Board  of  Directors  or the
Committee  shall be binding and conclusive on all  Participants  in the Plan and
their legal representatives and beneficiaries.


<PAGE>


3.   Shares Subject to the Plan

     Subject to adjustment as provided in Paragraph 14 hereof,  the shares to be
issued under the Plan shall consist of the Company's Common Stock. The aggregate
number  of  shares of common  stock,  par  value  $.02 per share of the  Company
("Shares") which may be issued upon exercise of all options under the Plan shall
not exceed  500,000,  subject to  adjustment as provided in Paragraph 14. If any
option granted under the Plan shall expire or terminate for any reason,  without
having been exercised in full,  the  unpurchased  shares  subject  thereto shall
again be available for options to be granted under the Plan.

4.   Eligibility and Participation

     4.1  All  regular  salaried  employees  of the  Company  or any  subsidiary
corporation  (as  defined in Section  424(f) of the Code)  shall be  eligible to
receive  incentive stock options and non-qualified  stock options.  Directors of
the Company or any subsidiary corporation, consultants and other persons who are
not regular salaried employees of the Company or any subsidiary  corporation are
not eligible to receive  incentive  stock  options,  but are eligible to receive
non-qualified stock options.

     4.2 No incentive  stock  options may be granted to any employee who, at the
time the incentive stock option is granted, owns shares possessing more than ten
percent  of the  total  combined  voting  power of all  classes  of stock of the
Company (or of its subsidiary  corporations  as defined in Section 424(f) of the
Code),  unless the exercise price of such incentive stock option is at least one
hundred ten percent of the fair market value of the Common Stock,  determined by
fair market value as of the date each respective option is granted in accordance
with  Paragraph  7,  and  such  incentive  stock  option  by  its  terms  is not
exercisable  after the  expiration  of five years  from the date such  incentive
stock option is granted. In addition,  and anything to the contrary contained in
this Plan  notwithstanding,  no employee of the Company  shall be granted in any
calendar year options to purchase more than 100,000 Shares.

     4.3 The aggregate fair market value of the Common Stock for which incentive
stock options granted to any one employee under this Plan or any other incentive
stock  option  plan  of the  Company  which  may by  their  terms  first  become
exercisable  during any calendar year shall not exceed  $100,000,  determined by
fair market value as of the date each respective option is granted.

     4.4 All options  granted  under the Plan shall be granted  within ten years
from March 17, 1998.

5.   Duration of Options

     Each option and all rights  associated  therewith shall expire on such date
as the Board of Directors or the Committee may determine,  but in no event later
than ten  years  from the date on which  the  option  is  granted,  and shall be
subject to earlier termination as provided herein.


                                       -2-


<PAGE>


6.   Price and Exercise of Options

     6.1  Subject to  Paragraph  4.2,  the  purchase  price of the Common  Stock
covered by each option  shall be  determined  by the Board of  Directors  or the
Committee,  but in the case of an incentive  stock option shall not be less than
one hundred  percent of the fair market  value of such Common  Stock on the date
the incentive  stock option is granted.  The purchase  price of the Common Stock
upon  exercise of an option shall be paid in full at the time of exercise (i) in
cash or by  certified or  cashier's  check  payable to the order of the Company,
(ii) by  cancellation of  indebtedness  owed by the Company to the  Participant,
(iii) by delivery of shares of Common Stock of the Company already owned by, and
in the  possession  of the  Participant,  (iv) if  authorized  by the  Board  of
Directors or the Committee or if specified in the option being  exercised,  by a
promissory  note made by the  Participant  in favor of the  Company,  subject to
terms and  conditions  determined  by the Board of Directors  or the  Committee,
secured by the Common Stock,  issuable  upon  exercise,  and in compliance  with
applicable law  (including,  without  limitation,  state,  corporate and federal
requirements),  (v) by any combination  thereof, or (vi) in such other manner as
the Board of Directors or the Committee  may specify in order to facilitate  the
exercise  of  options by the  holders  thereof.  Shares of Common  Stock used to
satisfy  the  exercise  price of an option  shall be valued at their fair market
value determined in accordance with Paragraph 7 hereof.

     6.2 No option granted under this Plan shall be exercisable if such exercise
would involve a violation of any applicable law or regulation (including without
limitation,  federal and state  securities  laws and  regulations).  Each option
shall  be  exercisable  in such  installments  during  the  period  prior to its
expiration  date  as the  Board  of  Directors  or  Committee  shall  determine;
provided, however, that unless otherwise determined by the Board of Directors or
Committee, if the Participant shall not in any given installment period purchase
all of the  shares  which  the  Participant  is  entitled  to  purchase  in such
installment  period,  then such  Participant's  right to purchase any shares not
purchased in such installment period shall continue until the expiration date or
sooner termination of the Participant's option. No option may be exercised for a
fraction  of a share and no partial  exercise of any option may be for less than
ten shares.

7.   Fair Market Value of Common Stock

     The "Fair Market Value of a Share of Common  Stock" of the Company shall be
defined and determined as follows:

     (a) If the Common Stock is listed on any  established  stock  exchange or a
national market system,  including without limitation the National Market of the
National Association of Securities Dealers,  Inc. Automated Quotation ("Nasdaq")
System,  the Fair Market  Value of a Share of Common  Stock shall be the closing
sales price for such stock (or the closing  bid, if no sales were  reported)  as
quoted on such system or exchange (or the exchange  with the greatest  volume of
trading in Common  Stock) on the date of grant,  as  reported in The Wall Street
Journal or such other source as the Board deems reliable;

     (b) If the Common Stock is quoted on Nasdaq (but not on the National Market
thereof)  or  regularly  quoted by a  recognized  securities  dealer but selling
prices are not reported,  the Fair Market Value of a Share of Common Stock shall
be the mean between the high bid

                                       -3-


<PAGE>


and low asked prices for the Common  Stock on the last market  trading day prior
to the day of  determination,  as reported  in The Wall  Street  Journal or such
other source as the Board deems reliable, or;

     (c) In the absence of an established  market for the Common Stock, the Fair
Market Value thereof shall be determined in good faith by the Board.

8.   Withholding Tax

     Upon (i) the disposition of shares of Common Stock acquired pursuant to the
exercise of an incentive  stock option  granted  pursuant to the Plan within two
years of the granting of the incentive  stock option or within  eighteen  months
after  exercise  of the  incentive  stock  option,  or (ii)  the  exercise  of a
non-qualified  stock  option,  the Company  shall have the right to require such
employee or other person,  and such  employee or other person,  by accepting the
options  granted  under the Plan  agrees,  to pay the  Company the amount of any
taxes which the Company may be required to withhold with respect thereto. In the
event of (i) or (ii),  then such  employee or other  person may elect to pay the
amount of any taxes which the Company may be required to withhold by  delivering
to the Company  shares of the Company's  Common Stock having a fair market value
determined  in  accordance  with  Paragraph  7  equal  to  the  withholding  tax
obligation  determined  by the Company.  Such shares so delivered  may be either
shares  withheld by the Company upon the exercise of the option or other shares.
Such  election  shall  comply  with  all  applicable  laws  (including   without
limitation, state, corporate and federal requirements).

9.   Nontransferability

     An option granted under the Plan shall, by its terms, be nontransferable by
the holder either  voluntarily or by operation of law, other than by will or the
laws of descent and  distribution  and shall be exercisable  during the holder's
lifetime  only by the holder,  regardless  of any  community  property  interest
therein of the spouse of the holder, or such spouse's successors in interest. If
the spouse of the holder shall have acquired a community property interest in an
option,  the holder,  or the holder's  permitted  successors  in  interest,  may
exercise  the  option  on behalf of the  spouse of the  holder or such  spouse's
successors in interest.

10.  Holding of Stock After Exercise of Option

     Shares shall not be issued pursuant to the exercise of an option unless the
exercise of such option and the issuance  and  delivery of such Shares  pursuant
thereto  shall comply with all relevant  provisions of law,  including,  without
limitation,  the Securities Act of 1933, as amended, the Exchange Act, the rules
and  regulations  promulgated   thereunder,   state  securities  laws,  and  the
requirements of any stock exchange yon which the Shares may then be listed,  and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.

     As a condition  to the  exercise of an option,  the Company may require the
person  exercising  such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute

                                       -4-


<PAGE>



such  Shares,   if,  in  the  opinion  of  counsel  for  the  Company,   such  a
representation is required by any of the aforementioned  relevant  provisions of
law.

     Inability  of the  Company to obtain  authority  from any  regulatory  body
having  jurisdiction,  which authority is deemed by the Company's  counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the  Company of any  liability  in respect of the  failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.

11.  Termination of Employment

     If a holder of an  incentive  stock  option  ceases to be  employed  by the
Company or one of its subsidiary  corporations  (as defined in Section 424(f) of
the Code) for any reason other than the holder's  death or permanent  disability
(within the meaning of Section  22(e)(3) of the Code),  the  holder's  incentive
stock options shall  immediately  become void and of no further force or effect;
provided,  however, that within three months after the date the holder ceases to
be an employee of the Company or such subsidiary such incentive stock option may
be  exercised  to the  extent  exercisable  on the  date  of such  cessation  of
employment.  A leave of absence approved in writing by the Board of Directors or
the Committee  shall not be deemed a termination  of employment for the purposes
of this Paragraph 11, but no incentive stock option may be exercised  during any
such leave of absence, except during the first three months thereof. Termination
of  employment  or  other  relationship  with the  Company  by the  holder  of a
non-qualified  stock  option will have the effect  specified  in the  individual
option agreement or certificate of grant as determined by the Board of Directors
or the Committee.

12.  Death or Permanent Disability of Option Holder

     If the holder of an  incentive  stock  option  dies or becomes  permanently
disabled  while the  option  holder is  employed  by the  Company  or one of its
subsidiary corporations (as defined in Section 424(f) of the Code), the holder's
option  shall  expire  one  year  after  the  date of such  death  or  permanent
disability  unless by its terms it expires  sooner.  During  such  period  after
death,  such  incentive  stock  option  may,  to  the  extent  that  it  remains
unexercised  (but  exercisable by the holder  according to such option's  terms)
upon the date of such death,  be  exercised by the person or persons to whom the
option  holder's right under the incentive stock option shall pass by the option
holder's will or by the laws of descent and distribution. The death or permanent
disability  of a holder of a  non-qualified  stock  option  will have the effect
specified  in the  individual  option  agreement  or  certificate  of  grant  as
determined by the Board of Directors or the Committee.

13.  Privileges of Stock Ownership

     No person entitled to exercise any option granted under the Plan shall have
any of the rights or privileges  of a  stockholder  of the Company in respect of
any  shares  of  Common  Stock  issuable  upon  exercise  of such  option  until
certificates  representing such shares shall have been issued and delivered.  No
shares  shall be issued and  delivered  upon  exercise of any option  unless and
until,  in the  opinion of counsel  for the  Company  there shall have been full
compliance  with  any  applicable  registration  requirements  of the  Act,  any
applicable listing requirements of any national securities exchange on which the
Common Stock is then listed,

                                       -5-


<PAGE>


and  any  other   requirements  of  law  or  of  any  regulatory  bodies  having
jurisdiction over such issuance and delivery.

14.  Adjustments

     14.1  If  the  outstanding  shares  of  Common  Stock  of the  Company  are
increased,  decreased,  changed into or exchanged for a different number or kind
of  shares   or   securities   of  the   Company   through   a   reorganization,
recapitalization,  reclassification,  stock dividend, stock split, reverse stock
split or other similar transaction,  an appropriate and proportionate adjustment
shall be made in the maximum  number and kind of shares as to which  options may
be granted under this Plan. A  corresponding  adjustment  changing the number or
kind of shares allocated to unexercised options or portions thereof, which shall
have been granted  prior to any such change,  shall  likewise be made.  Any such
adjustment  in the  outstanding  options  shall be made  without  change  to the
aggregate purchase price applicable to the unexercised portion of the option but
with a corresponding  adjustment in the purchase price for each share covered by
the option.

     14.2 Notwithstanding the foregoing, the Board of Directors or the Committee
may provide in writing in connection with such transaction for any or all of the
foregoing alternatives (separately or in combination): (i) for options therefore
granted  to  become  immediately  exercisable;  (ii) for the  assumption  by the
successor  corporation of the options theretofore granted or the substitution by
such corporation for such options or new stock options covering the stock of the
successor  corporation,  or a parent or  subsidiary  thereof,  with  appropriate
adjustments  as to the number and kind of shares and  prices;  and (iii) for the
continuance  of the Plan by such  successor  corporation in which event the Plan
and the options  theretofore  granted shall continue in the manner and under the
terms so provided.

     14.3  Adjustments  under  this  Paragraph  14 shall be made by the Board of
Directors or Committee,  whose  determination  as to what  adjustments  shall be
made,  and the  extent  thereof,  shall be final,  binding  and  conclusive.  No
fractional  shares  of  stock  shall  be  issued  under  the  Plan  on any  such
adjustment.

15.  Amendment and Termination of Plan

     15.1 The Board of  Directors  or the  Committee  may at any time suspend or
terminate the Plan. The Board of Directors or the Committee may also at any time
amend or revise the terms of the Plan,  provided,  however,  that if stockholder
approval is required pursuant to Rule 16b-3 or another Rule of the General Rules
and  Regulations  under the Exchange  Act, no such  amendment or revision to (i)
increase the maximum number of shares which may be acquired pursuant to options,
granted  under the Plan,  (ii)  change the minimum  purchase  price set forth in
Paragraph 4.2 and 6, (iii) increase the maximum term of options  provided for in
Paragraph  5, or (iv)  change the  designation  of persons  eligible  to receive
options or as  provided  in  Paragraph  4,  shall  become  effective  until such
stockholder approval of such amendment or revision is obtained.

     15.2 No amendment, suspension or termination of the Plan shall, without the
consent  of the  holder,  alter or impair any  rights or  obligations  under any
option or theretofore granted under the Plan.

                                       -6-


<PAGE>


16.  Effective Date of Plan

     16.1 No  option  may be  granted  under the Plan  unless  and until (i) the
options and underlying  shares have been registered  under the Act and qualified
with the appropriate  state  regulatory  agencies,  or (ii) the Company has been
advised by counsel that such options and underlying  shares are exempt from such
registration and/or qualification.

     16.2 The Plan shall be effective as of March 17, 1998, the date on which it
was  approved  by the  Board.  However,  notwithstanding  any  other  provisions
contained herein, the Plan and all stock options granted under the Plan shall be
void if the Plan is not approved at the next Annual Meeting of  Stockholders  by
the holders of a majority of the outstanding voting stock of the Company (voting
as a single class) present, or represented, and entitled to vote at a meeting of
such stockholders duly held in accordance with the Delaware General  Corporation
Law. No stock option issued under the Plan shall become  exercisable in whole or
in part until the Plan is so approved by stockholders.

17.  Reservation of Shares

     The Company,  during the term of this Plan,  will at all times  reserve and
keep  available  such  number of Shares as shall be  sufficient  to satisfy  the
requirements of the Plan.


                                       -7-


<PAGE>


                                 EXHIBIT 10.11


                              JOHN A. CATSIMATIDIS
                              823 Eleventh Avenue
                            New York, New York 10019





Gristede's Sloan's, Inc.
823 Eleventh Avenue
New York, N.Y. 10019

May 15, 1998


          Ref:     Audit of Gristede's Sloan's Inc. Financial Statements for the
                   Fiscal Year Ended 11/30/97


Gentlemen:

     On  November  10,  1997,  Gristede's  Sloan's,  Inc.  ("GRI")  acquired  29
supermarkets and City Produce Distributors, Inc (collectively, the "Food Group")
from entities wholly owned directly or indirectly by myself (the "Acquisition").
The total consideration for the Acquisition was $40 million--and was paid by GRI
issuing $36 million in common stock and assuming $4 million in liabilities  owed
by  the  Food  Group  to  myself  or  entities   wholly  owned  by  myself  (the
"Intercompany Liabilities").

     In  connection  with the  Acquisition,  GRI  acquired  (i) the  inventories
located  at the  Food  Group  stores,  (ii)  various  Food  Group  vendor  trade
receivables,  and (iii) certain other Food Group assets. In turn, GRI assumed an
equivalent  amount of Food Group trade vendor  payables  and certain  other Food
Group liabilities.

     GRI's audited  financial  statements  for FYE 11/30/97  indicate that as of
such date, GRI had  approximately  $3.3 million in vendor trade receivables that
were  acquired   from  the  Food  Group   pursuant  to  the   Acquisition   (the
"Receivables").

     Notwithstanding   an  aggregate  $300,000  reserve  against  aggregate  GRI
receivables of approximately  $5.1 million  outstanding at 11/30/97,  should any
portion of the Receivables, net of amounts applied against the $300,000 reserve,
be deemed by GRI's auditors BDO Seidman,  LLP, to be uncollectible at GRI's next
fiscal year end date of 11/29/98 (the "Net Uncollectible Receivables"),  I agree
to have such Net Uncollectible  Receivables offset,  dollar for dollar,  against
the Intercompany Liabilities, provided however that the aggregate amount of such
offsets  do not  exceed  $1  million.  Subsequent  recoveries  against  the  Net
Uncollectible Receivables shall be available to pay Intercompany Liabilities.


<PAGE>


Gristede's Sloan's, Inc.
Page 2


     I agree not to permit the level of Intercompany  Liabilities on GRI's books
to fall below $1 million  prior to the  issuance of GRI's  audited FYE  11/29/98
financial statements, to cover any contingent liability herein.


                                        Sincerely,

                                        /s/ John Catsimatidis

                                        John Catsimatidis



<PAGE>


                                                                      Exhibit 23


CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Sloan's Supermarkets, Inc.
New York, New York

We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statement  on Form S-8 dated  January 23,  1996,  relating  to the  consolidated
financial  statements  appearing in the Company's Annual Report on Form 10-K for
the transition period from March 3, 1997 to November 30, 1997.

  /s/ BDO Seidman, LLP

BDO Seidman, LLP



New York, New York

June 10, 1998