<PAGE>
 
                                                                     EXHIBIT 4.1

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                                CREDIT AGREEMENT


                                     among


                         THE PETERSEN COMPANIES, INC.,


                      PETERSEN PUBLISHING COMPANY, L.L.C.,


                           THE LENDERS NAMED HEREIN,


                           FIRST UNION NATIONAL BANK,
                            as Administrative Agent,


                                      and


                                   CIBC INC.,
                             as Documentation Agent


                 $175,000,000 Senior Revolving Credit Facility


                                  Arranged by
                       FIRST UNION CAPITAL MARKETS CORP.


                          Dated as of October 6, 1997



================================================================================
<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                 Page
<C>         <S>                                                                  <C>

                                   RECITALS.....................................    1

                                   ARTICLE I

                                  DEFINITIONS
     1.1.   Defined Terms.......................................................    1
     1.2.   Accounting Terms....................................................   21
     1.3.   Designated Non-Guarantor Subsidiaries...............................   22
     1.4.   Other Terms; Construction...........................................   22
     1.5.   Officers, Directors of Limited Liability Companies..................   22

                                   ARTICLE II

                         AMOUNT AND TERMS OF THE LOANS

     2.1.   Commitments; Loans..................................................   22
     2.2.   Borrowings..........................................................   23
     2.3.   Disbursements; Funding Reliance; Domicile of Loans..................   26
     2.4.   Notes...............................................................   26
     2.5.   Termination and Reduction of Commitments and Swingline Commitment...   27
     2.6.   Mandatory Repayments and Prepayments................................   28
     2.7.   Voluntary Prepayments...............................................   29
     2.8.   Interest............................................................   30
     2.9.   Fees................................................................   31
     2.10.  Interest Periods....................................................   32
     2.11.  Conversions and Continuations.......................................   33
     2.12.  Method of Payments; Computations....................................   34
     2.13.  Recovery of Payments................................................   35
     2.14.  Use of Proceeds.....................................................   35
     2.15.  Pro Rata Treatment; Sharing of Payments.............................   35
     2.16.  Increased Costs; Change in Circumstances; Illegality; etc...........   36
     2.17.  Taxes...............................................................   38
     2.18.  Compensation........................................................   40
     2.19.  Duty to Mitigate....................................................   40
     2.20.  Replacement of Lenders..............................................   40

                                  ARTICLE III

                               LETTERS OF CREDIT

     3.1.   Issuance............................................................   41
     3.2.   Outstanding Letter of Credit........................................   42
</TABLE> 

                                      -i-
<PAGE>
 
<TABLE> 
<C>         <S>                                                                  <C>
     3.3.   Notices.............................................................   42
     3.4.   Participations......................................................   43
     3.5.   Reimbursement.......................................................   43
     3.6.   Payment by Revolving Loans..........................................   43
     3.7.   Payment to Lenders..................................................   44
     3.8.   Obligations Absolute................................................   44
     3.9.   Cash Collateral Account.............................................   46
     3.10.  Effectiveness.......................................................   46

                                   ARTICLE IV

                            CONDITIONS OF BORROWING

     4.1.   Conditions of Initial Borrowing.....................................   47
     4.2.   Conditions of All Borrowings........................................   50

                                   ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

     5.1.   Organization and Power..............................................   51
     5.2.   Authorization; Enforceability.......................................   51
     5.3.   No Violation........................................................   52
     5.4.   Governmental Authorization; Permits.................................   52
     5.5.   Litigation..........................................................   52
     5.6.   Taxes...............................................................   53
     5.7.   Subsidiaries........................................................   53
     5.8.   Full Disclosure.....................................................   53
     5.9.   Margin Regulations..................................................   54
     5.10.  Financial Matters...................................................   54
     5.11.  Ownership of Properties.............................................   55
     5.12.  ERISA...............................................................   56
     5.13.  Environmental Matters...............................................   56
     5.14.  Compliance With Governing Documents, Decrees and Laws...............   57
     5.15.  Labor Relations.....................................................   58
     5.16.  Regulated Industries................................................   58
     5.17.  Insurance...........................................................   58
     5.18.  Certain Contracts...................................................   58
     5.19.  Capitalization......................................................   58
     5.20.  Security Documents..................................................   59

                                   ARTICLE VI

                             AFFIRMATIVE COVENANTS

     6.1.   Financial Statements................................................   59
     6.2.   Other Business and Financial Information............................   60
     6.3.   Existence; Franchises; Maintenance of Properties....................   63
</TABLE> 

                                      -ii-
<PAGE>
 
<TABLE> 
<C>         <S>                                                                  <C>
     6.4.   Compliance with Laws................................................   63
     6.5.   Payment of Obligations..............................................   63
     6.6.   Insurance...........................................................   63
     6.7.   Maintenance of Books and Records; Inspection........................   63
     6.8.   Permitted Acquisitions..............................................   64
     6.9.   Creation or Acquisition of Subsidiaries.............................   65
     6.10.  Additional Security; Further Assurances.............................   66
     6.11.  Consents............................................................   67
     6.12.  Year 2000...........................................................   67
     6.13.  Post-Closing Transactions...........................................   67

                                  ARTICLE VII

                              FINANCIAL COVENANTS

     7.1.   Leverage Ratio......................................................   67
     7.2.   Interest Coverage Ratio.............................................   68
     7.3.   Fixed Charge Coverage Ratio.........................................   68

                                  ARTICLE VIII

                               NEGATIVE COVENANTS

     8.1.   Merger; Consolidation...............................................   68
     8.2.   Indebtedness........................................................   69
     8.3.   Liens...............................................................   70
     8.4.   Disposition of Assets...............................................   72
     8.5.   Investments.........................................................   73
     8.6.   Restricted Payments.................................................   74
     8.7.   Transactions with Affiliates........................................   76
     8.8.   Lines of Business...................................................   76
     8.9.   Certain Amendments..................................................   77
     8.10.  Limitation on Certain Restrictions..................................   77
     8.11.  No Other Negative Pledges...........................................   78
     8.12.  Fiscal Year.........................................................   78
     8.13.  Accounting Changes..................................................   78
     8.14.  Designated Senior Indebtedness......................................   78

                                   ARTICLE IX

                               EVENTS OF DEFAULT

     9.1.   Events of Default...................................................   78
     9.2.   Remedies: Termination of Commitments, Acceleration, etc.............   80
     9.3.   Remedies: Set-Off...................................................   81
</TABLE> 

                                     -iii-
<PAGE>
 
<TABLE> 
<C>         <S>                                                                  <C>
                                   ARTICLE X

                            THE ADMINISTRATIVE AGENT

     10.1.  Appointment.........................................................   82
     10.2.  Nature of Duties....................................................   82
     10.3.  Exculpatory Provisions..............................................   82
     10.4.  Reliance by Administrative Agent....................................   82
     10.5.  Non-Reliance on Administrative Agent and Other Lenders..............   83
     10.6.  Notice of Default...................................................   83
     10.7.  Indemnification.....................................................   84
     10.8.  The Administrative Agent in its Individual Capacity.................   84
     10.9.  Successor Administrative Agent......................................   84
     10.10. Collateral Matters..................................................   85
     10.11. Documentation Agent, etc............................................   85
     10.12. Issuing Lender and Swingline Lender.................................   85

                                   ARTICLE XI

                                 MISCELLANEOUS

     11.1.  Fees and Expenses...................................................   86
     11.2.  Indemnification.....................................................   86
     11.3.  Governing Law; Consent to Jurisdiction..............................   87
     11.4.  Waiver of Jury Trial; Arbitration; Preservation and Limitation of
            Remedies............................................................   87
     11.5.  Notices.............................................................   88
     11.6.  Amendments, Waivers, etc............................................   89
     11.7.  Assignments, Participations.........................................   90
     11.8.  No Waiver...........................................................   92
     11.9.  Successors and Assigns..............................................   92
     11.10. Survival............................................................   92
     11.11. Severability........................................................   93
     11.12. Construction........................................................   93
     11.13. Confidentiality.....................................................   93
     11.14. Counterparts........................................................   93
     11.15. Disclosure of Information...........................................   93
     11.16. Entire Agreement....................................................   94
</TABLE>

                                      -iv-
<PAGE>
 
                                    ANNEXES

Annex I        Applicable Margin Percentages



                                    EXHIBITS

Exhibit A-1    Form of Notice of Revolving Borrowing
Exhibit A-2    Form of Notice of Swingline Borrowing
Exhibit B-1    Form of Revolving Credit Note
Exhibit B-2    Form of Swingline Note
Exhibit C      Form of Notice of Prepayment
Exhibit D      Form of Notice of Conversion/Continuation
Exhibit E      Form of Letter of Credit Notice
Exhibit F      Form of Parent Guaranty
Exhibit G      Form of Borrower Pledge and Security Agreement
Exhibit H      Form of Parent Pledge and Security Agreement
Exhibit I-1    Form of Opinion of Kirkland & Ellis
Exhibit I-2    Form of Opinion of Heller Ehrman White & McAuliffe
Exhibit J      Form of Compliance Certificate
Exhibit K      Form of Assignment and Acceptance


                                   SCHEDULES

Schedule 5.7    Subsidiaries
Schedule 5.11   Leases
Schedule 5.17   Insurance
Schedule 5.18   Certain Contracts
Schedule 5.19   Capitalization
Schedule 8.3    Liens
Schedule 8.4    Scheduled Titles
Schedule 8.5    Investments
Schedule 8.7    Transactions with Affiliates

                                      -v-
<PAGE>
 
                                CREDIT AGREEMENT


     THIS CREDIT AGREEMENT, dated as of the 6th day of October, 1997 (this
"Agreement"), is made among THE PETERSEN COMPANIES, INC., a Delaware corporation
formerly known as BrightView Communications Group, Inc. with its principal
offices in Los Angeles, California ("Parent"), PETERSEN PUBLISHING COMPANY,
L.L.C., a Delaware limited liability company with its principal offices in Los
Angeles, California (the "Borrower"), the banks and financial institutions
listed on the signature pages hereof or that become parties hereto after the
date  hereof (collectively, the "Lenders"), FIRST UNION NATIONAL BANK ("First
Union"), as administrative agent for the Lenders (in such capacity, the
"Administrative Agent"), and CIBC INC. ("CIBC"), as documentation agent (in such
capacity, the "Documentation Agent").


                                   RECITALS

     A.   The Borrower is owned by Petersen Holdings, L.L.C., a Delaware limited
liability company ("Holdings"), which holds a 99.9% managing membership interest
in the Borrower), and by Parent, which holds a 0.1% passive membership interest
in the Borrower.

     B.   The Borrower has requested that the Lenders make available to the
Borrower a revolving credit facility in the aggregate principal amount of
$175,000,000.  The Borrower will use the proceeds of this facility to repay
certain existing indebtedness, to pay or reimburse certain fees and expenses in
connection herewith and therewith, and for working capital and general corporate
purposes, including certain acquisitions, all as more fully described herein.

     C.   The Lenders are willing to make available to the Borrower the credit
facility described herein subject to and on the terms and conditions set forth
in this Agreement.

                                   AGREEMENT

     NOW, THEREFORE, in consideration of the mutual provisions, covenants and
agreements herein contained, the parties hereto hereby agree as follows:

 
                                   ARTICLE I

                                  DEFINITIONS

     1.1  Defined Terms.  For purposes of this Agreement, in addition to the
          -------------                                                     
terms defined elsewhere herein, the following terms shall have the meanings set
forth below (such meanings to be equally applicable to the singular and plural
forms thereof):

     "ABR Loan" shall mean, at any time, any Loan that bears interest at such
time at the Alternate Base Rate.
<PAGE>
 
     "Account Designation Letter" shall mean a letter from the Borrower to the
Administrative Agent, duly completed and signed by an Authorized Officer and in
form and substance satisfactory to the Administrative Agent, listing any one or
more accounts to which the Borrower may from time to time request the
Administrative Agent to forward the proceeds of any Loans made hereunder.

     "Acquisition" shall mean any transaction or series of related transactions,
consummated on or after the date hereof, by which a Person directly, or
indirectly through one or more of its Subsidiaries, (i) acquires any going
business, any publication or brand name and the related rights and assets, or
all or substantially all of the assets, of any Person, whether through purchase
of assets, merger or otherwise, or (ii) acquires securities or other ownership
interests of any Person having at least a majority of combined voting power of
the then outstanding securities or other ownership interests of such Person.

     "Acquisition Amount" shall mean, with respect to any Acquisition, the sum
(without duplication) of (i) the amount of cash paid by the Borrower and its
Subsidiaries in connection with such Acquisition, (ii) the Fair Market Value of
all Capital Stock of Parent issued or given in connection with such Acquisition,
(iii) the amount (determined by using the face amount or the amount payable at
maturity, whichever is greater) of all Indebtedness incurred, assumed or
acquired by the Borrower and its Subsidiaries in connection with such
Acquisition, (iv) all additional purchase price amounts in connection with such
Acquisition in the form of earnouts and other contingent obligations that should
be recorded as a liability on the balance sheet of the Borrower and its
Subsidiaries or expensed, in either event in accordance with Generally Accepted
Accounting Principles, Regulation S-X under the Securities Act, or any other
rule or regulation of the Securities and Exchange Commission, (v) all amounts
paid in respect of covenants not to compete, consulting agreements and other
affiliated contracts in connection with such Acquisition, (vi) the amount of all
transaction fees and expenses (including, without limitation, legal, accounting
and finders' fees and expenses) incurred by the Borrower and its Subsidiaries in
connection with such Acquisition and (vii) the aggregate fair market value of
all other consideration given by the Borrower and its Subsidiaries in connection
with such Acquisition.

     "Adjusted LIBOR Rate" shall mean, at any time with respect to any LIBOR
Loan, a rate per annum equal to the LIBOR Rate as in effect at such time plus
the Applicable Margin Percentage for LIBOR Loans as in effect at such time.

     "Administrative Agent" shall mean First Union, in its capacity as
Administrative Agent appointed under ARTICLE X, and its successors and permitted
assigns in such capacity.

     "Affiliate" shall mean, as to any Person, each other Person that directly,
or indirectly through one or more intermediaries, owns or controls, is
controlled by or under common control with, such Person or is a director or
officer of such Person.  For purposes of this definition, with respect to any
Person "control" shall mean (i) the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise, or
(ii) the beneficial ownership of securities or other ownership interests of such
Person having 10% or more of the combined voting power of the then outstanding
securities or other ownership interests of such Person ordinarily (and apart
from rights accruing under special circumstances) having the right to vote in
the election of directors or other governing body of such Person.

                                      -2-
<PAGE>
 
     "Agreement" shall mean this Credit Agreement, as amended, modified or
supplemented from time to time.

     "Alternate Base Rate" shall mean the higher of (i) the per annum interest
rate publicly announced from time to time by First Union in Charlotte, North
Carolina, to be its prime rate (which may not necessarily be its best lending
rate), as adjusted to conform to changes as of the opening of business on the
date of any such change in such prime rate, or (ii) 0.5% per annum plus the
Federal Funds Rate, as adjusted to conform to changes as of the opening of
business on the date of any such change in the Federal Funds Rate.

     "Applicable Margin Percentage" shall mean, at any time from and after the
Closing Date, the applicable percentage (a) to be added to the LIBOR Rate
pursuant to SECTION 2.8 for purposes of determining the Adjusted LIBOR Rate, and
(b) to be used in calculating the Revolving Credit Commitment Fee payable
pursuant to SECTION 2.9(b), in each case as determined in accordance with the
matrix set forth in Annex I hereto.  On each Adjustment Date, the Applicable
                    -------                                                 
Margin Percentage for LIBOR Loans and the Revolving Credit Commitment Fee shall
be adjusted effective as of such date (based upon the calculation of the
Leverage Ratio as of the last day of the fiscal period to which such Adjustment
Date relates) in accordance with the matrix set forth in Annex I hereto;
                                                         -------        
provided, however, that, notwithstanding the foregoing or anything in Annex I to
--------  -------                                                     -------   
the contrary, if at any time Parent shall have failed to deliver the financial
statements and a Compliance Certificate as required by SECTION 6.1(a) or SECTION
6.1(b) (as the case may be) and SECTION 6.2(a), or if at any time a Default or
Event of Default shall have occurred and be continuing, then at all times from
and including the date on which such statements and Compliance Certificate are
required to have been delivered (or the date of occurrence of such Default or
Event of Default, as the case may be) to the date on which the same shall have
been delivered (or such Default or Event of Default cured or waived, as the case
may be), each Applicable Margin Percentage shall be determined in accordance
with Annex I hereto as if the Leverage Ratio were greater than or equal to 4.0 :
     -------                                                                    
1.0 (notwithstanding the actual Leverage Ratio). For purposes of this
definition, "Adjustment Date" shall mean, with respect to any fiscal quarter of
Parent beginning with the fiscal quarter ended September 30, 1997, the tenth
(10th) day (or, if such day is not a Business Day, on the next succeeding
Business Day) after delivery by Parent in accordance with SECTION 6.1(a) or
SECTION 6.1(b), as the case may be, of (i) financial statements for the most
recently completed applicable fiscal period and (ii) a duly completed Compliance
Certificate with respect to such fiscal period.  Until the first Adjustment Date
after the Closing Date, the Applicable Margin Percentages for LIBOR Loans and
the Revolving Credit Commitment Fee shall be determined in accordance with the
matrix set forth in Annex I hereto based upon the Leverage Ratio as set forth in
                    -------                                                     
the pro forma Covenant Compliance Worksheet required to be delivered pursuant to
SECTION 4.1(n).

     "Asset Disposition" shall mean any sale, assignment, transfer or other
disposition by Parent or any of its Subsidiaries to any other Person (other than
to the Borrower or to a Wholly Owned Subsidiary of the Borrower), whether in one
transaction or in a series of related transactions, of any of its assets,
business units or other properties (including any interests in property, whether
tangible or intangible, and including Capital Stock of Subsidiaries), excluding
(i) sales of inventory and other assets and licenses or leases of intellectual
property, in each case in the ordinary course of business, (ii) the sale or
exchange of used or obsolete equipment to the extent the proceeds of such sale
are applied towards, or such equipment is exchanged for, similar replacement
equipment, and (iii) the sale or other disposition of the Scheduled Titles or
Investments relating thereto as permitted by clause (iii) of SECTION 8.4.

                                      -3-
<PAGE>
 
     "Assignee" shall have the meaning given to such term in SECTION 11.7(a).

     "Assignment and Acceptance" shall mean an Assignment and Acceptance entered
into between a Lender and an Assignee and accepted by the Administrative Agent
and the Borrower, in substantially the form of EXHIBIT K.

     "Authorized Officer" shall mean (i) any individual properly authorized in
accordance with the terms of the operating agreement of the Borrower to take the
action specified herein on behalf of the Borrower or (ii) in the case of a
corporation or other Person (other than an individual) taking any action on
behalf of the Borrower in its capacity as a manager of the Borrower, any
individual properly authorized by resolution of the board of directors of such
corporation or other Person or in accordance with the terms of its operating
agreement to take the action specified herein on its behalf, and in each case
whose signature and incumbency shall have been certified to the Administrative
Agent by the secretary or an assistant secretary (or such other individual who
is properly authorized to perform the duties normally associated with the title
of secretary or assistant secretary) of the Borrower or such corporation or
other Person, as the case may be.

     "Bankruptcy Code" shall mean 11 U.S.C. (S)(S) 101 et seq., as amended from
                                                       -- ---                  
time to time, and any successor statute.

     "Borrower Pledge and Security Agreement" shall mean a pledge and security
agreement made by the Borrower in favor of the Administrative Agent, in
substantially the form of EXHIBIT G, as amended, modified or supplemented from
time to time.

     "Borrowing" shall mean the incurrence by the Borrower (including as a
result of conversions and continuations of outstanding Revolving Loans pursuant
to SECTION 2.11) on a single date of a group of Revolving Loans of a single Type
(or a Swingline Loan made by the Swingline Lender) and, in the case of LIBOR
Loans, as to which a single Interest Period is in effect.

     "Borrowing Date" shall mean, with respect to any Borrowing, the date upon
which such Borrowing is made.

     "Business Day" shall mean (i) any day other than a Saturday or Sunday, a
legal holiday or a day on which commercial banks in Charlotte, North Carolina
are required by law to be closed and (ii) in respect of any determination
relevant to a LIBOR Loan, any such day that is also a day on which tradings are
conducted in the London interbank Eurodollar market.

     "CIBC" shall have the meaning given to such term in the preamble hereto.

     "Capital Expenditures" shall mean, for any period, the aggregate amount
(whether paid in cash or accrued as a liability) that would, in accordance with
Generally Accepted Accounting Principles, be included on the consolidated
statement of cash flows of Parent and its Subsidiaries for such period as
additions to equipment, fixed assets, real property or improvements or other
capital assets (including, without limitation, capital lease obligations);
provided, however, that Capital Expenditures shall not include any such
--------  -------                                                      
expenditures (i) for replacements and substitutions for capital assets, to the
extent made with the proceeds of insurance, or (ii) made in connection with
Permitted Acquisitions.

                                      -4-
<PAGE>
 
     "Capital Stock" shall mean (i) with respect to any Person that is a
corporation, any and all shares, interests or equivalents in corporate stock
(whether voting or nonvoting, and whether common or preferred) of such
corporation, and (ii) with respect to any Person that is not a corporation, any
and all partnership, membership, limited liability company or other equity
interests of such Person; and in each case, any and all warrants or options to
purchase any of the foregoing.

     "Cash Collateral Account" shall have the meaning given to such term in
SECTION 3.9.

     "Cash Equivalents" shall mean (i) securities issued or unconditionally
guaranteed by the United States of America or any agency or instrumentality
thereof, backed by the full faith and credit of the United States of America and
maturing within one year from the date of acquisition, (ii) commercial paper
issued by any Person organized under the laws of the United States of America,
maturing within 270 days from the date of acquisition and, at the time of
acquisition, having a rating of at least A-1 or the equivalent thereof by
Standard & Poor's Ratings Services or at least P-1 or the equivalent thereof by
Moody's Investors Service, Inc., (iii) time deposits and certificates of deposit
maturing within one year from the date of issuance and issued by a bank or trust
company organized under the laws of the United States of America or any state
thereof that has combined capital and surplus of at least $500,000,000 and that
has (or is a subsidiary of a bank holding company that has) a long-term
unsecured debt rating of at least A or the equivalent thereof by Standard &
Poor's Ratings Services or at least A2 or the equivalent thereof by Moody's
Investors Service, Inc., (iv) repurchase obligations with a term not exceeding
seven (7) days with respect to underlying securities of the types described in
clause (i) above entered into with any bank or trust company meeting the
qualifications specified in clause (iii) above, and (v) money market funds at
least 95% of the assets of which are continuously invested in securities of the
type described in clause (i) above.

     "Casualty Event" shall mean, with respect to any property (including any
interest in property) of the Borrower or any of its Subsidiaries, any loss of,
damage to, or condemnation or other taking of, such property for which the
Borrower or such Subsidiary receives insurance proceeds, proceeds of a
condemnation award or other compensation (other than business interruption
insurance proceeds).

     "Closing Date" shall mean the date upon which the initial extensions of
credit are made pursuant to this Agreement.

     "Collateral" shall mean all the assets, property and interests in property
that shall from time to time be pledged or be purported to be pledged as direct
or indirect security for the Obligations pursuant to any one or more of the
Security Documents.

     "Commission" shall mean the Securities and Exchange Commission and any
successor thereto.

     "Commitment" shall mean, with respect to any Lender at any time, the amount
set forth opposite such Lender's name on its signature page hereto under the
caption "Commitment" or, if such Lender has entered into one or more Assignment
and Acceptances, the amount set forth for such Lender at such time in the
Register maintained by the Administrative Agent pursuant to SECTION 11.7(b) as
such Lender's "Commitment," as such amount may be reduced at or prior to such
time pursuant to the terms hereof.

                                      -5-
<PAGE>
 
     "Commodity Hedge Agreement" shall mean any option, hedge or other similar
agreement or arrangement designed to protect against fluctuations in commodity
or materials prices.

     "Compliance Certificate" shall mean a fully completed and duly executed
certificate in the form of EXHIBIT J, together with a Covenant Compliance
Worksheet.

     "Consolidated Fixed Charges" shall mean, for any period, the aggregate
(without duplication) of the following, all determined on a consolidated basis
for Parent and its Subsidiaries in accordance with Generally Accepted Accounting
Principles for such period: (a) Consolidated Interest Expense for such period,
(b) federal, state, local and other income taxes (but only to the extent
actually paid in cash during such period), (c) Capital Expenditures for such
period, (d) the aggregate (without duplication) of all scheduled payments of
principal on Funded Debt required to have been made by Parent and its
Subsidiaries during such period (whether or not actually made), and (e) the
aggregate of all amounts actually paid in cash by Parent during such period as
dividends or distributions in respect of its Capital Stock or to purchase,
redeem, retire or otherwise acquire its Capital Stock.

     "Consolidated Funded Debt" shall mean, as of any date of determination, the
difference between (i) the aggregate (without duplication) of all Funded Debt of
Parent and its Subsidiaries as of such date, determined on a consolidated basis
in accordance with Generally Accepted Accounting Principles, minus (ii) the
                                                             -----         
amount by which the aggregate cash balances and Cash Equivalents of Parent and
its Subsidiaries as of such date, determined on a consolidated basis in
accordance with Generally Accepted Accounting Principles, exceed $5,000,000.
For purposes of determining Consolidated Funded Debt as of any date, each
Contingent Obligation of Parent and its Subsidiaries required to be included in
such determination shall be valued at the maximum aggregate principal amount
(whether or not drawn or outstanding) of the Indebtedness that is the
corresponding "primary obligation" (as such term is defined in the definition of
Contingent Obligation) as of such date.

     "Consolidated Interest Expense" shall mean, for any period, the sum
(without duplication) of (i) total interest expense of Parent and its
Subsidiaries for such period in respect of Funded Debt of Parent and its
Subsidiaries (including, without limitation, all such interest expense accrued
or capitalized during such period, whether or not actually paid during such
period), determined on a consolidated basis in accordance with Generally
Accepted Accounting Principles (but excluding pay-in-kind interest, if any, on
Indebtedness permitted under clause (ii) of SECTION 8.2), (ii) all net amounts
payable under or in respect of Interest Rate Protection Agreements, to the
extent paid or accrued by Parent and its Subsidiaries during such period, and
(iii) all ongoing commitment fees and other ongoing fees in respect of Funded
Debt (including the Revolving Credit Commitment Fee and the annual
administrative fee payable to the Administrative Agent under paragraph (ii) of
the Fee Letter) paid, accrued or capitalized by Parent and its Subsidiaries
during such period.

     "Consolidated Net Income" shall mean, for any period, net income (or loss)
for Parent and its Subsidiaries for such period, determined on a consolidated
basis in accordance with Generally Accepted Accounting Principles.

     "Consolidated Operating Cash Flow" shall mean, for any period, the
aggregate of (i) Consolidated Net Income for such period, plus (ii) the sum of
                                                          ----                
Consolidated Interest Expense, federal, state, local and other income taxes,
depreciation, amortization of intangible assets, and extraordinary losses and
other noncash expenses or charges reducing income for such period, all to the
extent taken into account in the calculation of Consolidated Net Income for such
period, minus 
        -----                                                               

                                      -6-
<PAGE>
 
(iii) the sum of extraordinary gains and other noncash credits increasing income
for such period, all to the extent taken into account in the calculation of
Consolidated Net Income for such period.

     "Contingent Obligation" shall mean, with respect to any Person, any direct
or indirect liability of such Person with respect to any Indebtedness, liability
or other obligation (the "primary obligation") of another Person (the "primary
obligor"), whether or not contingent, (a) to purchase, repurchase or otherwise
acquire such primary obligation or any property constituting direct or indirect
security therefor, (b) to advance or provide funds (i) for the payment or
discharge of any such primary obligation or (ii) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, (c) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor in respect thereof to make payment of such
primary obligation or (d) otherwise to assure or hold harmless the owner of any
such primary obligation against loss or failure or inability to perform in
respect thereof; provided, however, that, with respect to Parent and its
                 --------  -------                                      
Subsidiaries, the term Contingent Obligation shall not include endorsements for
collection or deposit in the ordinary course of business.

     "Covenant Compliance Worksheet" shall mean a fully completed worksheet in
the form of Attachment A to EXHIBIT J.

     "Credit Documents" shall mean this Agreement, the Notes, the Letters of
Credit, the Fee Letter, the Parent Guaranty, the Parent Pledge and Security
Agreement, the Borrower Pledge and Security Agreement, any other Security
Documents, any Subsidiaries Guaranty, any Interest Rate Protection Agreement to
which the Borrower and any Lender are parties and that is permitted hereunder to
be entered into by the Borrower, and all other agreements, instruments,
documents and certificates (other than legal opinions) now or hereafter executed
and delivered to the Administrative Agent or any Lender by or on behalf of any
Credit Party with respect to this Agreement and the transactions contemplated
hereby, in each case as amended, modified, supplemented or restated from time to
time.

     "Credit Party" shall mean any of the Borrower, any of its Subsidiaries,
Holdings and Parent.

     "Debt Issuance" shall mean the issuance or sale by Parent, the Borrower or
any of their Subsidiaries of any debt securities, whether in a public offering
of such securities or otherwise (excluding Permitted Refinancing Indebtedness).

     "Default" shall mean any event or condition that, with the passage of time
or giving of notice, or both, would constitute an Event of Default.

     "Designated Acquisition Funds" shall have the meaning given to such term in
SECTION 6.8(a).

     "Designated Non-Guarantor Subsidiary" shall mean (i) any Foreign
Subsidiary, (ii) Petersen Capital Corp., so long as such corporation exists
solely as a co-issuer of the Subordinated Notes or any Permitted Refinancing
Indebtedness and has no assets (other than nominal capitalization) and conducts
no business other than the performance of its obligations with regard thereto,
or any other Person formed for such purpose and satisfying such conditions, or
(iii) any other Subsidiary of the Borrower that is not a Wholly Owned Subsidiary
and that has elected, by written notice to the 

                                      -7-
<PAGE>
 
Administrative Agent given not less than ten (10) Business Days after the
creation or acquisition thereof by the Borrower or any other Subsidiary, not to
become a guarantor under a Subsidiaries Guaranty and not to grant to the
Administrative Agent a Lien upon and security interest in its personal property
assets pursuant to a Subsidiaries Pledge and Security Agreement.

     "Disqualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person that, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable), or upon the happening
of any event or otherwise, (i) matures or is mandatorily redeemable or subject
to any mandatory repurchase requirement, pursuant to a sinking fund obligation
or otherwise, (ii) is redeemable or subject to any mandatory repurchase
requirement at the sole option of the holder thereof, or (iii) is convertible
into or exchangeable for (whether at the option of the issuer or the holder
thereof) (a) debt securities or (b) any Capital Stock referred to in (i) or (ii)
above, in each case under (i), (ii) or (iii) above at any time on or prior to
the Maturity Date; provided, however, that only the portion of Capital Stock
                   --------  -------                                        
that so matures or is mandatorily redeemable, is so redeemable at the option of
the holder thereof, or is so convertible or exchangeable on or prior to such
date shall be deemed to be Disqualified Capital Stock.

     "Dollars" or "$" shall mean dollars of the United States of America.

     "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.

     "ERISA Affiliate" shall mean any Person (including any trade or business,
whether or not incorporated) that would be deemed to be under "common control"
with, or a member of the same "controlled group" as, the Borrower or any of its
Subsidiaries, within the meaning of Sections 414(b), (c), (m) or (o) of the
Internal Revenue Code or Section 4001 of ERISA.

     "ERISA Event" shall mean any of the following with respect to a Plan or
Multiemployer Plan, as applicable: (i) a Reportable Event with respect to a Plan
or a Multiemployer Plan, (ii) a complete or partial withdrawal by the Borrower
or any ERISA Affiliate from a Multiemployer Plan that results in liability under
Section 4201 or 4204 of ERISA, or the receipt by the Borrower or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A of ERISA, (iii) the distribution
by the Borrower or any ERISA Affiliate under Section 4041 or 4041A of ERISA of a
notice of intent to terminate any Plan or the taking of any action to terminate
any Plan, (iv) the commencement of proceedings by the PBGC under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan, or the receipt by the Borrower or any ERISA Affiliate of a notice from any
Multiemployer Plan that such action has been taken by the PBGC with respect to
such Multiemployer Plan, (v) the institution of a proceeding by any fiduciary of
any Multiemployer Plan against the Borrower or any ERISA Affiliate to enforce
Section 515 of ERISA, which is not dismissed within thirty (30) days, (vi) the
imposition upon the Borrower or any ERISA Affiliate of any liability under Title
IV of ERISA, other than for PBGC premiums due but not delinquent under Section
4007 of ERISA, or the imposition or threatened imposition of any Lien upon any
assets of the Borrower or any ERISA Affiliate as a result of any alleged failure
to comply with the Internal Revenue Code or ERISA in respect of any Plan, (vii)
the engaging in or otherwise becoming liable for a nonexempt Prohibited
Transaction by the Borrower or any ERISA Affiliate, (viii) a violation of the
applicable requirements of Section 404 or 405 of ERISA 

                                      -8-
<PAGE>
 
or the exclusive benefit rule under Section 401(a) of the Internal Revenue Code
by any fiduciary of any Plan for which the Borrower or any of its ERISA
Affiliates may be directly or indirectly liable or (ix) the adoption of an
amendment to any Plan that, pursuant to Section 401(a)(29) of the Internal
Revenue Code or Section 307 of ERISA, would result in the loss of tax-exempt
status of the trust of which such Plan is a part if the Borrower or an ERISA
Affiliate fails to timely provide security to such Plan in accordance with the
provisions of such sections.

     "Eligible Assignee" shall mean (i) a commercial bank organized under the
laws of the United States or any state thereof and having total assets in excess
of $1,000,000,000, (ii) a commercial bank organized under the laws of any other
country that is a member of the Organization for Economic Cooperation and
Development or any successor thereto (the "OECD") or a political subdivision of
any such country and having total assets in excess of $1,000,000,000, provided
                                                                      --------
that such bank or other financial institution is acting through a branch or
agency located in the United States, in the country under the laws of which it
is organized or in another country that is also a member of the OECD, (iii) the
central bank of any country that is a member of the OECD, (iv) a finance
company, insurance company or other financial institution or fund that is
engaged in making, purchasing or otherwise investing in loans in the ordinary
course of its business and having total assets in excess of $500,000,000, (v)
any Affiliate of an existing Lender or (vi) any other Person approved by the
Administrative Agent and the Documentation Agent, which approval shall not be
unreasonably withheld.

     "Environmental Claims" shall mean any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, accusations,
allegations, notices of noncompliance or violation, investigations (other than
internal reports prepared by any Person in the ordinary course of its business
and not in response to any third party action or request of any kind) or
proceedings relating in any way to any actual or alleged violation of or
liability under any Environmental Law or relating to any permit issued, or any
approval given, under any such Environmental Law (collectively, "Claims"),
including, without limitation, (i) any and all Claims by Governmental
Authorities for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental Law and (ii) any and
all Claims by any third party seeking damages, contribution, indemnification,
cost recovery, compensation or injunctive relief resulting from Hazardous
Substances or arising from alleged injury or threat of injury to human health or
the environment.

     "Environmental Laws" shall mean any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals, rules of
common law and orders of courts or Governmental Authorities, relating to the
protection of human health or occupational safety or the environment, now or
hereafter in effect and in each case as amended from time to time, including,
without limitation, requirements pertaining to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, handling,
reporting, licensing, permitting, investigation or remediation of Hazardous
Substances.

     "Equity Issuance" shall mean the issuance, sale or other disposition by
Parent, the Borrower or any of their Subsidiaries of its Capital Stock, any
rights, warrants or options to purchase or acquire any shares of its Capital
Stock or any other security or instrument representing, convertible into or
exchangeable for an equity interest in Parent, the Borrower or any of their
Subsidiaries; provided, however, that the term Equity Issuance shall not include
              --------  -------                                                 
(i) the issuance or sale of Capital Stock of the Borrower or a Subsidiary of the
Borrower in connection with any capital contributions made 

                                      -9-
<PAGE>
 
directly or indirectly (y) by Parent to the Borrower or (z) by the Borrower to a
Subsidiary of the Borrower, (ii) the issuance or sale of Capital Stock by the
Borrower or any of its Subsidiaries to Parent, the Borrower or any of their
Subsidiaries, provided that such Capital Stock is pledged to the Administrative
              --------    
Agent pursuant to the Borrower Pledge and Security Agreement, the Parent Pledge
and Security Agreement or a Subsidiaries Pledge and Security Agreement, as
applicable, (iii) any issuance or sale of Capital Stock of Parent to any of the
Permitted Holders, but only to the extent that the Net Cash Proceeds therefrom
constitute Designated Acquisition Funds and are contributed to the Borrower and
applied in payment of the relevant Acquisition Amount as provided in SECTION
6.8(a), (iv) any Capital Stock or other equity securities of Parent issued or
sold in connection with any Permitted Acquisition and constituting all or a
portion of the applicable purchase price, or (v) any rights, options, shares or
other Capital Stock issued pursuant to employee stock option plans, stock
purchase plans or other benefit plans duly approved by Parent's board of
directors or a committee thereof.

     "Event of Default" shall have the meaning given to such term in SECTION
9.1.

     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute, and all rules and regulations from
time to time promulgated thereunder.

     "Existing Senior Credit Agreement" shall mean the Credit Agreement, dated
as of September 30, 1996, among the Borrower, the banks and other financial
institutions party thereto, CIBC, as Documentation Agent, and First Union, as
Administrative Agent, as amended.

     "Existing Senior Indebtedness" shall mean all indebtedness, accrued and
unpaid interest, fees and other monetary obligations under the Existing Senior
Credit Agreement and the other Credit Documents (as such term is defined in the
Existing Senior Credit Agreement).

     "Fair Market Value" shall mean, with respect to any Capital Stock of Parent
given in connection with an Acquisition, the value given to such Capital Stock
for purposes of such Acquisition by the parties thereto, as determined in good
faith pursuant to the relevant acquisition agreement or otherwise in connection
with such Acquisition.

     "Federal Funds Rate" shall mean, for any period, a fluctuating per annum
interest rate (rounded upwards, if necessary, to the nearest 1/100 of one
percentage point) 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 that is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by the Administrative Agent.

     "Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System or any successor thereto.

     "Fee Letter" shall mean the letter from First Union to the Borrower, dated
August 18, 1997, relating to certain fees payable by the Borrower in respect of
the transactions contemplated by this Agreement, as amended, modified or
supplemented from time to time.

                                      -10-
<PAGE>
 
     "Financial Officer" shall mean, with respect to Parent or the Borrower, as
the context may require, the chief financial officer, vice president - finance,
principal accounting officer or treasurer of Parent or the Borrower, as the case
may be.

     "First Union" shall have the meaning given to such term in the preamble
hereto.

     "Fixed Charge Coverage Ratio" shall mean, as of the last day of any fiscal
quarter, the ratio of (i) Consolidated Operating Cash Flow for the period of
four consecutive fiscal quarters then ending to (ii) Consolidated Fixed Charges
for such period.

     "Foreign Subsidiary" shall mean any Subsidiary of the Borrower that is
organized under the laws of any nation, state or jurisdiction other than the
United States of America or any state thereof.

     "Funded Debt" shall mean any Indebtedness other than (i) Indebtedness
arising under Interest Rate Protection Agreements or Commodity Hedge Agreements
and (ii) accrued expenses, current trade or other accounts payable (it being
understood that such expenses and accounts payable that are 90 days or more past
due (except to the extent such items are being disputed by the obligor on
reasonable grounds and in good faith) shall be considered to be "Funded Debt")
and other current liabilities arising in the ordinary course of business and not
incurred through the borrowing of money.

     "Generally Accepted Accounting Principles" shall mean generally accepted
accounting principles, as set forth in the statements, opinions and
pronouncements of the Accounting Principles Board, the American Institute of
Certified Public Accountants and the Financial Accounting Standards Board (or,
to the extent not so set forth in such statements, opinions and pronouncements,
as generally followed by entities similar in size to Parent and engaged in
generally similar lines of business), consistently applied and maintained and in
conformity with those used in the preparation of the most recent financial
statements of Holdings referred to in SECTION 5.10(a).

     "Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof and any central bank thereof, any municipal,
local, city or county government, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.

     "Hazardous Substances" shall mean any substances or materials (i) that are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (ii) that are
defined by any Environmental Law as toxic, explosive, corrosive, ignitable,
infectious, radioactive, mutagenic or otherwise hazardous, (iii) that constitute
a nuisance, trespass or health or safety hazard to Persons or neighboring
properties, or (iv) that contain, without limitation, asbestos, polychlorinated
biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum
derived substances or wastes, crude oil, nuclear fuel, natural gas or synthetic
gas.

     "Holdings" shall have the meaning given to such term in the recitals
hereof.

     "Indebtedness" shall mean, with respect to any Person (without
duplication), (i) all indebtedness, obligations and liabilities of such Person
for borrowed money or in respect of loans or advances (including, in the case of
the Borrower, pay-in-kind interest, if any, on Indebtedness 

                                      -11-
<PAGE>
 
permitted under clause (ii) of SECTION 8.2), (ii) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (iii) all
reimbursement obligations of such Person with respect to surety bonds, letters
of credit and bankers' acceptances (in each case, whether or not drawn or
matured and in the stated amount thereof), (iv) all obligations of such Person
to pay the deferred purchase price of property or services, (v) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person, (vi) all obligations of such
Person as lessee under leases that are or are required to be, in accordance with
Generally Accepted Accounting Principles, recorded as capital leases, to the
extent such obligations are required to be so recorded, (vii) all Disqualified
Capital Stock issued by such Person with the amount of Indebtedness represented
by such Disqualified Capital Stock being equal to the greater of its voluntary
or involuntary liquidation preference and its maximum fixed repurchase price,
but excluding accrued dividends, if any (for purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
this Agreement, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value to be
determined reasonably and in good faith by the board of directors or other
governing body of the issuer of such Disqualified Capital Stock), (viii) the net
termination obligations of such Person under any Interest Rate Protection
Agreements or Commodity Hedge Agreements, calculated as of any date as if such
agreement or arrangement were terminated as of such date, (ix) all Contingent
Obligations of such Person and (x) all indebtedness referred to in clauses (i)
through (ix) above secured by any Lien on any property or asset owned or held by
such Person regardless of whether the indebtedness secured thereby shall have
been assumed by such Person or is nonrecourse to the credit of such Person. For
all purposes of this Agreement, Indebtedness of Parent or any of its
Subsidiaries shall not include any unearned subscription revenues.

     "Initial Public Offering" shall mean the initial public offering and sale
by Parent of its Class A Common Stock pursuant to the Registration Statement.

     "Interest Coverage Ratio" shall mean, as of the last day of any fiscal
quarter, the ratio of (i) Consolidated Operating Cash Flow for the period of
four consecutive fiscal quarters then ending to (ii) Consolidated Interest
Expense for such period.

     "Interest Period" shall have the meaning given to such term in SECTION
2.10.

     "Interest Rate Protection Agreement" shall mean any interest or foreign
currency rate swap, cap, collar, option, hedge, forward rate or other similar
agreement or arrangement designed to protect against fluctuations in interest
rates or currency exchange rates.

     "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.

     "Issuing Lender" shall mean First Union in its capacity as issuer of the
Letters of Credit, and its successors in such capacity.

     "LIBOR Loan" shall mean, at any time, any Revolving Loan that bears
interest at such time at the Adjusted LIBOR Rate.

                                      -12-
<PAGE>
 
     "LIBOR Rate" shall mean, with respect to each LIBOR Loan comprising part of
the same Borrowing for any Interest Period, an interest rate per annum obtained
by dividing (i) (y) the rate of interest appearing on Telerate Page 3750 (or any
successor page) or (z) if no such rate is available, or at the option of the
Administrative Agent in any event, the rate of interest determined by the
Administrative Agent to be the rate or the arithmetic mean of rates (rounded
upward, if necessary, to the nearest 1/16 of one percentage point) at which
Dollar deposits in immediately available funds are offered by First Union to
first-tier banks in the London interbank Eurodollar market, in each case under
(y) and (z) above at approximately 11:00 a.m., London time, two (2) Business
Days prior to the first day of such Interest Period for a period substantially
equal to such Interest Period and in an amount substantially equal to the amount
of First Union's LIBOR Loan comprising part of such Borrowing, by (ii) the
amount equal to 1.00 minus the Reserve Requirement (expressed as a decimal) for
such Interest Period.

     "Lender" shall mean each financial institution signatory hereto and each
other financial institution that becomes a "Lender" hereunder pursuant to
SECTION 11.7, and their respective successors and assigns.

     "Lending Office" shall mean, with respect to any Lender, the office of such
Lender designated as its "Lending Office" on its signature page hereto or in an
Assignment and Acceptance, or such other office as may be otherwise designated
in writing from time to time by such Lender to the Borrower and the
Administrative Agent.  A Lender may designate separate Lending Offices as
provided in the foregoing sentence for the purposes of making or maintaining
different Types of Loans, and, with respect to LIBOR Loans, such office may be a
domestic or foreign branch or Affiliate of such Lender.

     "Letter of Credit Exposure" shall mean, with respect to any Lender at any
time, such Lender's ratable share (based on the proportion that its Commitment
bears to the aggregate Commitments at such time) of the sum of (i) the aggregate
Stated Amount of all Letters of Credit outstanding at such time and (ii) the
aggregate amount of all Reimbursement Obligations outstanding at such time.

     "Letter of Credit Notice" shall have the meaning given to such term in
SECTION 3.3.

     "Letters of Credit" shall have the meaning given to such term in SECTION
3.1.

     "Leverage Ratio" shall mean, as of the last day of any fiscal quarter, the
ratio of (i) Consolidated Funded Debt as of such date to (ii) Consolidated
Operating Cash Flow for the period of four consecutive fiscal quarters then
ending.

     "Lien" shall mean any mortgage, pledge, hypothecation, assignment, security
interest, lien (statutory or otherwise), preference, priority, charge or other
encumbrance of any nature, whether voluntary or involuntary, including, without
limitation, the interest of any vendor or lessor under any conditional sale
agreement, title retention agreement, capital lease or any other lease or
arrangement having substantially the same effect as any of the foregoing.

     "Loans" shall mean any or all of the Revolving Loans and the Swingline
Loans.

     "Margin Stock" shall have the meaning given to such term in Regulation U.

                                      -13-
<PAGE>
 
     "Material Adverse Change" shall mean a material adverse change in the
condition (financial or otherwise), operations, business, properties or assets
of Parent and its Subsidiaries taken as a whole.

     "Material Adverse Effect" shall mean a material adverse effect upon (A) the
condition (financial or otherwise), operations, business, properties or assets
of Parent and its Subsidiaries taken as a whole, (B) to the extent not covered
under clause (A) above, the ability of any Credit Party to consummate the
transactions contemplated hereby or perform its obligations under this Agreement
or any of the other Credit Documents to which it is a party or (C) the legality,
validity or enforceability of this Agreement or any of the other Credit
Documents or the rights and remedies of the Administrative Agent and the Lenders
hereunder and thereunder.

     "Maturity Date" shall mean September 30, 2002.

     "Multiemployer Plan" shall mean any "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate
makes, is making or is obligated to make contributions or has made or been
obligated to make contributions.

     "Net Cash Proceeds" shall mean (i) in the case of any Equity Issuance or
Debt Issuance, the aggregate cash payments received by Parent, the Borrower and
their Subsidiaries less reasonable and customary fees and expenses (including
underwriting discounts and commissions) incurred by Parent, the Borrower and
their Subsidiaries in connection therewith, (ii) in the case of any Casualty
Event, the aggregate cash proceeds of insurance, condemnation awards and other
compensation received by the Borrower and its Subsidiaries in respect of such
Casualty Event less (y) reasonable fees and expenses incurred by the Borrower
and its Subsidiaries in connection therewith and (z) contractually required
repayments of Indebtedness to the extent secured by Liens on the property
subject to such Casualty Event and any income or transfer taxes paid or
reasonably estimated by the Borrower to be payable by Parent and its
Subsidiaries as a result of such Casualty Event, and (iii) in the case of any
Asset Disposition, the aggregate amount of all cash payments received by Parent
and its Subsidiaries in connection with such Asset Disposition less (x)
reasonable fees and expenses incurred by Parent, the Borrower and their
Subsidiaries in connection therewith, (y) Indebtedness to the extent the amount
thereof is secured by a Lien on the property that is the subject of such Asset
Disposition and the transferee of (or holder of the Lien on) such Property
requires that such Indebtedness be repaid as a condition to such Asset
Disposition, and (z) any income or transfer taxes paid or reasonably estimated
by the Borrower to be payable by Parent, the Borrower and their Subsidiaries as
a result of such Asset Disposition.

     "Notes" shall mean any or all of the Revolving Credit Notes and the
Swingline Note.

     "Notice of Conversion/Continuation" shall have the meaning given to such
term in SECTION 2.11(b).

     "Notice of Prepayment" shall have the meaning given to such term in SECTION
2.7(a).

     "Notice of Revolving Borrowing" shall have the meaning given to such term
in SECTION 2.2(b).

                                      -14-
<PAGE>
 
     "Notice of Swingline Borrowing" shall have the meaning given to such term
in SECTION 2.2(d).

     "Obligations" shall mean all principal of and interest (including, to the
greatest extent permitted by law, post-petition interest) on the Loans, all
Reimbursement Obligations and all fees, expenses, indemnities and other
obligations owing, due or payable at any time by the Borrower to the
Administrative Agent, any Lender, the Issuing Lender or any other Person
entitled thereto, under this Agreement or any of the other Credit Documents.

     "Outstanding Letter of Credit" shall mean that certain irrevocable letter
of credit no. S111300, dated January 21, 1997, issued for the account of the
Borrower in favor of Goldmick, LLC and 251 West 92nd Corp. under the Existing
Senior Credit Agreement as a "Letter of Credit" within the meaning of such term
thereunder and treated pursuant to SECTION 3.2 as having originally been issued
under this Agreement.

     "PBGC" shall mean the Pension Benefit Guaranty Corporation and any
successor thereto.

     "PIC" shall mean Petersen Investment Corp., a Delaware corporation.

     "Parent" shall have the meaning given to such term in the preamble hereof.

     "Parent Guaranty" shall mean a guaranty agreement made by Parent and
Holdings in substantially the form of EXHIBIT F, as amended, modified or
supplemented from time to time.

     "Parent Pledge and Security Agreement" shall mean a pledge agreement made
by Parent and Holdings in favor of the Administrative Agent, in substantially
the form of EXHIBIT H, as amended, modified or supplemented from time to time.

     "Participant" shall have the meaning given to such term in SECTION 11.7(d).

     "Permitted Acquisition" shall mean (a) any Acquisition made by the Borrower
or any of its Subsidiaries with respect to which all of the following conditions
are satisfied: (i) each business acquired shall be within the Permitted Lines of
Business, (ii) any Capital Stock given as consideration in connection therewith
shall be Capital Stock of Parent, (iii) in the case of an Acquisition involving
the acquisition of control of Capital Stock of any Person, immediately after
giving effect to such Acquisition such Person (or the surviving Person, if the
Acquisition is effected through a merger or consolidation) shall be the Borrower
or a Subsidiary Guarantor (provided that such Person (or the surviving Person)
                           --------                                           
may be a Designated Non-Guarantor Subsidiary, but only so long as after giving
effect to such Acquisition the Borrower is in compliance with the applicable
provisions of SECTION 8.5), and (iv) all of the conditions and requirements of
SECTIONS 6.8 and 6.9 applicable to such Acquisition are satisfied; or (b) any
other Acquisition to which the Required Lenders (or the Administrative Agent on
their behalf) have given their prior written consent (which consent may be in
their sole discretion and may be given subject to such additional terms and
conditions as the Required Lenders shall establish) and with respect to which
all of the conditions and requirements set forth in this definition and in
SECTION 6.8, and in or pursuant to any such consent, have been satisfied or
waived in writing by the Required Lenders (or the Administrative Agent on their
behalf).

                                      -15-
<PAGE>
 
     "Permitted Holders" shall mean, collectively, Neal Vitale and each Person
who purchased Capital Stock of Holdings, Parent or PIC pursuant to the
Securities Purchase Agreement as of the date thereof.

     "Permitted Liens" shall have the meaning given to such term in SECTION 8.3.

     "Permitted Lines of Business" shall have the meaning given to such term in
SECTION 8.8(a).

     "Permitted Refinancing Indebtedness" shall mean Indebtedness of the
Borrower (and, at the election of the Borrower, any Designated Non-Guarantor
Subsidiary described in clause (ii) of the definition thereof) the proceeds of
which are used to extend, repay, redeem, repurchase, defease or refinance the
Subordinated Notes (or to extend, repay, redeem, repurchase, defease or
refinance any Indebtedness previously issued to extend, repay, redeem,
repurchase, defease or refinance the Subordinated Notes and satisfying the
requirements of "Permitted Refinancing Indebtedness" set forth in this
definition); provided that, as a condition to such Indebtedness being permitted
             --------                                                          
to be issued pursuant to clause (ii) of SECTION 8.2, (i) immediately after
giving effect to the issuance of such Indebtedness, no Default or Event of
Default shall exist, (ii) such Indebtedness (a) shall mature by its terms no
earlier than November 15, 2006, (b) shall not provide for any scheduled payment
of principal prior to November 15, 2006, (c) shall be unsecured, (d) shall be
subordinated in right and time of payment to the Obligations on terms and
conditions no less favorable to the Lenders than those set forth in Articles 10
and 11 of the Subordinated Note Indenture as in effect on the date hereof, and
(e) shall bear interest at a fixed, non-increasing rate not exceeding the rate
payable in respect of the Subordinated Notes as in effect on the date hereof,
and such interest shall be payable not more frequently than semiannually, (iii)
the principal amount of such Indebtedness shall not exceed the principal amount
of the Indebtedness so extended, repaid, redeemed, repurchased, defeased or
refinanced (plus the amount of any accrued interest, premiums, make-whole
amounts and expenses paid or incurred in connection therewith), (iv) the
agreements and instruments evidencing or governing such Indebtedness shall not
have any covenants more restrictive in any material respect than the covenants
set forth in the Subordinated Note Indenture as in effect on the date hereof or
any material covenants not contained in the Subordinated Note Indenture as in
effect on the date hereof, and (v) prior to or concurrently with the issuance of
such Indebtedness, the Borrower shall have delivered to each Lender a
certificate, signed by a Financial Officer of the Borrower, satisfactory in form
and substance to the Required Lenders and to the effect that, after giving
effect to the incurrence of such Indebtedness, the Borrower is in compliance
with the financial covenants set forth in SECTIONS 7.1 through 7.3, such
compliance being determined with regard to calculations made on a pro forma
basis in accordance with Generally Accepted Accounting Principles as of the last
day of the fiscal quarter then most recently ended and as if such Indebtedness
had been incurred on the first day of the period applicable to such covenants
(such calculations to be attached to such certificate).

     "Permitted Subordinated Note Repurchases" shall mean one or more
repurchases by the Borrower, in any one or more transactions, of any of the
Subordinated Notes (other than pursuant to the Subordinated Note Redemption), so
long as (i) immediately prior to and immediately after giving effect to each
such repurchase, no Default or Event of Default shall exist, (ii) prior to or
concurrently with each such repurchase, the Borrower shall have delivered to the
Administrative Agent a certificate, signed by a Financial Officer of the
Borrower, satisfactory in form and substance to the Administrative Agent and to
the effect that, after giving effect to such repurchase, the Borrower is in
compliance with the financial covenants set forth in SECTIONS 7.1 through 7.3,
such compliance being determined with regard to calculations made on a pro forma
basis in accordance with Generally 

                                      -16-
<PAGE>
 
Accepted Accounting Principles as of the last day of the fiscal quarter then
most recently ended and as if such repurchase had been effected on the first day
of the period applicable to such covenants (such calculations to be attached to
such certificate), and (iii) pursuant to all such repurchases, the Borrower
shall not directly or indirectly acquire more than $25,000,000 in aggregate
stated principal amount of the Subordinated Notes (provided that the Borrower
                                                   ---------
may pay up to $28,500,000 in the aggregate, inclusive of premium and other
associated costs and expenses, if any, in respect of such repurchases (but
excluding accrued and unpaid interest), so long as the aggregate stated
principal amount of all Subordinated Notes so repurchased does not exceed
$25,000,000).

     "Person" shall mean any corporation, association, joint venture,
partnership, limited liability company, organization, business, individual,
trust, government or agency or political subdivision thereof or any other legal
entity.

     "Petersen License Agreement" shall mean the License Agreement, dated as of
August 15, 1996, between Robert E. Petersen and Petersen Publishing Company, as
licensor, and Parent, as licensee, as amended, modified or supplemented from
time to time in accordance with the terms of this Agreement.

     "Plan" shall mean any "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA that is subject to the provisions of Title IV of ERISA
(other than a Multiemployer Plan) and to which the Borrower or any ERISA
Affiliate may have any liability.

     "Post-Closing Transactions" shall mean (i) the merger of PIC with and into
Parent, (ii) the merger of Holdings with and into the Borrower, and (iii) the
Subordinated Note Redemption.

     "Predecessor" shall mean the historical operations of the publishing
division of Petersen Publishing Company prior to the acquisition thereof by the
Borrower.

     "Prohibited Transaction" shall mean any transaction described in (i)
Section 406 of ERISA that is not exempt by reason of Section 408 of ERISA or by
reason of a Department of Labor prohibited transaction individual or class
exemption or (ii) Section 4975(c) of the Internal Revenue Code that is not
exempt by reason of Section 4975(c)(2) or 4975(d) of the Internal Revenue Code.

     "Projections" shall have the meaning given to such term in SECTION 5.10(c).

     "Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.

     "Redemption Account" shall mean an account established and maintained by
the Borrower with the Administrative Agent to hold funds for the purpose of
effecting the Subordinated Note Redemption on the date specified therefor in the
notice of redemption, with investments of amounts on deposit therein being at
the direction of the Borrower but to be made only in Cash Equivalents unless
otherwise agreed to by the Administrative Agent.

     "Refunded Swingline Loans" shall have the meaning given to such term in
SECTION 2.2(e).

     "Register" shall have the meaning given to such term in SECTION 11.7(b).

                                      -17-
<PAGE>
 
     "Registration Statement" shall mean the Registration Statement of Parent on
Form S-1 under the Securities Act, as initially filed with the Commission on
August 7, 1997, and as amended by Amendment No. 1 thereto filed with the
Commission on September 15, 1997, and by Amendment No. 2 thereto filed with the
Commission on September 24, 1997, and as may be further amended prior to the
date hereof.

     "Regulations D, G, T, U and X" shall mean Regulations D, G, T, U and X,
respectively, of the Federal Reserve Board, and any successor regulations.

     "Reimbursement Obligation" shall have the meaning given to such term in
SECTION 3.5.

     "Reportable Event" shall mean (i) any "reportable event" within the meaning
of Section 4043(c) of ERISA for which the 30-day notice under Section 4043(a) of
ERISA has not been waived by the PBGC (including any failure to meet the minimum
funding standard of, or timely make any required installment under, Section 412
of the Internal Revenue Code or Section 302 of ERISA, regardless of the issuance
of any waivers in accordance with Section 412(d) of the Internal Revenue Code),
(ii) any such "reportable event" subject to advance notice to the PBGC under
Section 4043(b)(3) of ERISA, (iii) any application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the Internal
Revenue Code, and (iv) a cessation of operations described in Section 4062(e) of
ERISA.

     "Required Lenders" shall mean the Lenders holding outstanding Loans and
Commitments (or, after the termination of the Commitments, outstanding Loans and
Letter of Credit Exposure) representing at least a majority of the aggregate at
such time of all outstanding Loans and Commitments (or, after the termination of
the Commitments, the aggregate at such time of all outstanding Loans and Letter
of Credit Exposure); provided, however, that so long as First Union and CIBC are
                     --------  -------                                          
the only Lenders under this Agreement, the term "Required Lenders" shall mean
First Union and CIBC.

     "Requirement of Law" shall mean, with respect to any Person, the charter,
articles or certificate of organization or incorporation and bylaws or other
organizational or governing documents of such Person, and any statute, law,
treaty, rule, regulation, order, decree, writ, injunction or determination of
any arbitrator or court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject or otherwise pertaining to any or all of the
transactions contemplated by this Agreement and the other Credit Documents.

     "Reserve Requirement" shall mean, with respect to any Interest Period, the
reserve percentage (expressed as a decimal) in effect from time to time during
such Interest Period, as provided by the Federal Reserve Board, applied for
determining the maximum reserve requirements (including, without limitation,
basic, supplemental, marginal and emergency reserves) applicable to First Union
under Regulation D with respect to "Eurocurrency liabilities" within the meaning
of Regulation D, or under any similar or successor regulation with respect to
Eurocurrency liabilities or Eurocurrency funding.

     "Responsible Officer" shall mean, with respect to Parent or the Borrower,
as the context may require, the president, the chief executive officer, the
chief financial officer, any executive officer, or any other Financial Officer
of Parent or the Borrower, as the case may be, and any other officer or 

                                      -18-
<PAGE>
 
similar official thereof responsible for the administration of the obligations
of Parent or the Borrower, as applicable, in respect of this Agreement.

     "Revolving Credit Commitment Fee" shall have the meaning given to such term
in SECTION 2.9(b).

     "Revolving Credit Notes" shall mean the promissory notes of the Borrower in
substantially the form of EXHIBIT B-1, together with any amendments,
modifications and supplements thereto, substitutions therefor and restatements
thereof.

     "Revolving Loans" shall have the meaning given to such term in SECTION
2.1(a).

     "Scheduled Titles" shall have the meaning given to such term in SECTION
8.4.

     "Securities Act" shall mean the Securities Act of 1933, as amended from
time to time, and any successor statute, and all rules and regulations from time
to time promulgated thereunder.

     "Securities Purchase Agreement" shall mean the Securities Purchase
Agreement, dated as of September 30, 1996, among Holdings, PIC, Parent and the
Persons listed on Schedule A thereto, providing for the purchase and sale of
Capital Stock of Holdings, Parent and PIC, as amended, modified or supplemented
from time to time.

     "Security Documents" shall mean the Borrower Pledge and Security Agreement,
the Parent Pledge and Security Agreement, any Subsidiaries Pledge and Security
Agreement and all other pledge or security agreements, mortgages, assignments or
other similar agreements or instruments executed and delivered by any Credit
Party pursuant to SECTION 6.9 or SECTION 6.10 or otherwise in connection with
the transactions contemplated hereby, in each case as amended, modified or
supplemented from time to time.

     "Securityholders Agreement" shall mean the Securityholders Agreement, dated
as of September 30, 1996, among PIC, Holdings, Parent and the securityholders
named therein, as amended, modified or supplemented from time to time.

     "Stated Amount" shall mean, with respect to any Letter of Credit at any
time, the aggregate amount available to be drawn thereunder at such time
(regardless of whether any conditions for drawing could then be met).

     "Subordinated Note Indenture" shall mean the Indenture, dated as of
November 15, 1996, among the Borrower and Petersen Capital Corp., as issuers,
the guarantors named therein, and United States Trust Company of New York, as
trustee, providing for the issuance of the Subordinated Notes, as amended,
modified or supplemented from time to time in accordance with the terms of this
Agreement.

     "Subordinated Note Redemption" shall mean the redemption, which shall be at
the option of the Borrower (but which, if consummated, shall be consummated on
or before December 1, 1997), by the Borrower of up to $25,000,000 in aggregate
principal amount of the Subordinated Notes together with the payment of the
redemption premium and all accrued and unpaid interest thereon.

                                      -19-
<PAGE>
 
     "Subordinated Notes" shall mean the 11-1/8% Senior Subordinated Notes of
the Borrower issued pursuant to the Subordinated Note Indenture, as amended,
modified or supplemented from time to time in accordance with the terms of this
Agreement.

     "Subsidiaries Guaranty" shall mean any agreement or instrument, in form and
substance satisfactory to the Administrative Agent and the Required Lenders (and
in any event in substantially the form of the Parent Guaranty, with appropriate
modifications), entered into pursuant to SECTION 6.9 and pursuant to which any
one or more of the Subsidiaries of the Borrower shall guarantee to the
Administrative Agent and the Lenders the payment in full of the Obligations, as
the same may be amended, modified or supplemented from time to time.

     "Subsidiaries Pledge and Security Agreement" shall mean any agreement or
instrument, in form and substance satisfactory to the Administrative Agent and
the Required Lenders (and in any event in substantially the form of the Borrower
Pledge and Security Agreement, with appropriate modifications), entered into
pursuant to SECTION 6.9 and pursuant to which any one or more of the
Subsidiaries of the Borrower shall grant to the Administrative Agent a Lien upon
and security interest in its personal property assets as security for its
obligations under a Subsidiaries Guaranty, as the same may be amended, modified
or supplemented from time to time.

     "Subsidiary" shall mean, with respect to any Person, any corporation or
other Person of which more than fifty percent (50%) of the outstanding Capital
Stock having ordinary voting power to elect a majority of the board of
directors, board of managers or other governing body of such Person, is at the
time, directly or indirectly, owned or controlled by such Person and one or more
of its other Subsidiaries or a combination thereof (irrespective of whether, at
the time, securities of any other class or classes of any such corporation or
other Person shall or might have voting power by reason of the happening of any
contingency).  When used without reference to a parent entity, the term
"Subsidiary" shall be deemed to refer to a Subsidiary of Parent.

     "Subsidiary Guarantor" shall mean any Subsidiary of the Borrower that is a
guarantor under a Subsidiaries Guaranty and has granted to the Administrative
Agent a Lien upon and security interest in its personal property assets pursuant
to a Subsidiaries Pledge and Security Agreement.

     "Swingline Commitment" shall mean $10,000,000 or, if less, the aggregate
Commitments at the time of determination, as such amount may be reduced at or
prior to such time pursuant to the terms hereof.

     "Swingline Lender" shall mean First Union in its capacity as maker of
Swingline Loans, and its successors in such capacity.

     "Swingline Loans" shall have the meaning given to such term in SECTION
2.1(b).

     "Swingline Maturity Date" shall mean the date that is five (5) Business
Days prior to the Maturity Date.

     "Swingline Note" shall mean the promissory note of the Borrower in
substantially the form of EXHIBIT B-2, together with any amendments,
modifications and supplements thereto, substitutions therefor and restatements
thereof.

                                      -20-
<PAGE>
 
     "Syndication Completion Date" shall have the meaning given to such term in
SECTION 2.2(a).

     "Termination Date" shall mean the Maturity Date or such earlier date of
termination of the Commitments pursuant to SECTION 2.5 or SECTION 9.2.

     "Transactions" shall mean, collectively, (i) the consummation of the
Initial Public Offering, (ii) the transactions described in the first paragraph
under the caption "Use of Proceeds" in the Registration Statement and the
transactions described under the caption "The Reorganization" in the
Registration Statement (other than the Post-Closing Transactions), and (iii) the
transactions contemplated by this Agreement and the other Credit Documents,
including the initial extensions of credit hereunder on the Closing Date and the
repayment in full of the Existing Senior Indebtedness.

     "Type" shall have the meaning given to such term in SECTION 2.2(a).

     "Unfunded Pension Liability" shall mean, with respect to any Plan or
Multiemployer Plan, the excess of its benefit liabilities under Section
4001(a)(16) of ERISA over the current value of its assets, determined in
accordance with the applicable assumptions used for funding under Section 412 of
the Code for the applicable plan year.

     "Unutilized Commitment" shall mean, with respect to any Lender at any time,
such Lender's Commitment at such time less the sum of (i) the aggregate
                                      ----                             
principal amount of all Revolving Loans made by such Lender that are outstanding
at such time and (ii) such Lender's Letter of Credit Exposure at such time.

     "Unutilized Swingline Commitment" shall mean, with respect to the Swingline
Lender at any time, the Swingline Commitment at such time less the aggregate
                                                          ----              
principal amount of all Swingline Loans that are outstanding at such time.

     "Wholly Owned" shall mean, with respect to any Subsidiary of any Person,
that 100% of the outstanding Capital Stock of such Subsidiary (excluding
directors' qualifying shares and shares required to be held by foreign
nationals, in the case of a Foreign Subsidiary) is owned, directly or
indirectly, by such Person.

     "Willis Stein" shall mean Willis Stein & Partners, L.P., a Delaware limited
partnership.

      1.2 Accounting Terms.  Except as specifically provided otherwise in this
          ----------------                                                    
Agreement, all accounting terms used herein that are not specifically defined
shall have the meanings customarily given them, and all financial computations
hereunder shall be made, in accordance with Generally Accepted Accounting
Principles.  Notwithstanding the foregoing, in the event that any changes in
Generally Accepted Accounting Principles after the date hereof are required to
be applied to Parent and would affect the computation of the financial covenants
contained in SECTIONS 7.1 through 7.3, as applicable, such changes shall be
followed only from and after the date this Agreement shall have been amended to
take into account any such changes.  Notwithstanding anything to the contrary
contained herein, all computations of the financial covenants contained in
SECTIONS 7.1 through 7.3 with respect to any period ending on or before
September 30, 1997 shall be made with reference to, and all associated financial
terms defined herein shall, with respect to any such period, be deemed to refer
to, the consolidated financial statements of Holdings and its Subsidiaries for
such period.

                                      -21-
<PAGE>
 
      1.3 Designated Non-Guarantor Subsidiaries.  Notwithstanding anything to
          -------------------------------------                              
the contrary contained in this Agreement, the assets, liabilities, revenues,
income, losses and other financial statement items of Designated Non-Guarantor
Subsidiaries shall not be taken into account in the calculation of the financial
covenants set forth in SECTIONS 7.1 through 7.3.

      1.4 Other Terms; Construction.  Unless otherwise specified or unless the
          -------------------------                                           
context otherwise requires, all references herein to sections, annexes,
schedules and exhibits are references to sections, annexes, schedules and
exhibits in and to this Agreement, and all terms defined in this Agreement shall
have the defined meanings when used in any other Credit Document or any
certificate or other document made or delivered pursuant hereto.  All references
herein to the Lenders or any of them shall be deemed to include the Issuing
Lender unless specifically provided otherwise or unless the context otherwise
requires.  As used in this Agreement or in any other Credit Document, the term
"including" means "including, without limitation."

      1.5 Officers, Directors of Limited Liability Companies.  References herein
          --------------------------------------------------                    
to officers or directors of any limited liability company shall refer to persons
who are authorized under the articles of organization and operating agreement of
such company to perform the duties and exercise the powers normally associated
with officers and directors, as the case may be, of corporations.


                                  ARTICLE II

                         AMOUNT AND TERMS OF THE LOANS

     2.1  Commitments; Loans.  (a)  Each Lender severally agrees, subject to and
          ------------------                                                    
on the terms and conditions of this Agreement, to make revolving credit loans
(each, a "Revolving Loan," and collectively, the "Revolving Loans") to the
Borrower, from time to time on any Business Day during the period from and
including the Closing Date to but not including the Termination Date, in an
aggregate principal amount at any time outstanding not greater than the excess,
if any, of its Commitment at such time over its Letter of Credit Exposure at
such time, provided that no Borrowing of Revolving Loans shall be made if,
           --------                                                       
immediately after giving effect thereto, the sum of (x) the aggregate principal
amount of Revolving Loans outstanding at such time, (y) the aggregate Letter of
Credit Exposure of all Lenders at such time and (z) the aggregate principal
amount of Swingline Loans outstanding at such time (excluding the aggregate
amount of any Swingline Loans to be repaid with proceeds of Revolving Loans made
pursuant to such Borrowing) would exceed the aggregate Commitments at such time,
and provided further that, in the event the Borrower shall deliver a notice of
    -------- -------                                                          
redemption pursuant to the Subordinated Note Indenture in connection with the
Subordinated Note Redemption, no Borrowing of Revolving Loans shall be made at
any time prior to the consummation of the Subordinated Note Redemption (other
than for the purpose of effecting the Subordinated Note Redemption) if,
immediately after giving effect thereto, the aggregate Unutilized Commitments
would be less than the difference between (i) the aggregate amount required to
effect the Subordinated Note Redemption (including the payment of any related
redemption premium and all accrued and unpaid interest) minus (ii) the amount
then on deposit with the Administrative Agent in a Redemption Account. Subject
to and on the terms and conditions of this Agreement, the Borrower may borrow,
repay and reborrow Revolving Loans.

     (b) The Swingline Lender agrees, subject to and on the terms and conditions
of this Agreement, to make loans (each, a "Swingline Loan," and collectively,
the "Swingline Loans") to the

                                      -22-
<PAGE>
 
Borrower, from time to time on any Business Day during the period from the
Closing Date to but not including the Swingline Maturity Date (or, if earlier,
the Termination Date), in an aggregate principal amount not exceeding the
Swingline Commitment, notwithstanding that the aggregate principal amount of
Swingline Loans outstanding at any time, when added to the aggregate principal
amount of the Revolving Loans made by the Swingline Lender in its capacity as a
Lender outstanding at such time and its Letter of Credit Exposure at such time,
may exceed its Commitment at such time, but provided that no Borrowing of
                                            --------
Swingline Loans shall be made if, immediately after giving effect thereto, the
sum of (x) the aggregate principal amount of Revolving Loans outstanding at such
time, (y) the aggregate Letter of Credit Exposure of all Lenders at such time
and (z) the aggregate principal amount of Swingline Loans outstanding at such
time would exceed the aggregate Commitments at such time. Subject to and on the
terms and conditions of this Agreement, the Borrower may borrow, repay
(including by means of a Borrowing of Revolving Loans pursuant to SECTION
2.2(e)) and reborrow Swingline Loans.

      2.2 Borrowings.  (a)  The Revolving Loans shall, at the option of the
          ----------                                                       
Borrower and subject to the terms and conditions of this Agreement, be either
ABR Loans or LIBOR Loans (each, a "Type" of Loan), provided that (i) all Loans
                                                   --------                   
comprising the same Borrowing shall, unless otherwise specifically provided
herein, be of the same Type, (ii) notwithstanding any other provision of this
Agreement, any Revolving Loans made on the Closing Date shall be made initially
as ABR Loans, and (iii) notwithstanding any other provision of this Agreement,
no LIBOR Loans having an interest period of longer than one month may be
borrowed at any time prior to the earlier of the 60th day after the Closing Date
and the date upon which the Administrative Agent determines in its sole
discretion, and notifies the Borrower, that the primary syndication of the
credit facilities provided for hereunder has been completed (the earlier of such
dates, the "Syndication Completion Date").  The Swingline Loans shall be made
and maintained as ABR Loans at all times.

     (b) In order to make a Borrowing of Revolving Loans (other than Borrowings
for the purpose of repaying Refunded Swingline Loans, which shall be made
pursuant to SECTION 2.2(e), and other than Borrowings involving continuations or
conversions of outstanding Revolving Loans, which shall be made pursuant to
SECTION 2.11), the Borrower will give the Administrative Agent written notice
(or oral notice promptly confirmed in writing) not later than 1:00 p.m.,
Charlotte time, three (3) Business Days prior to each such Borrowing to be
comprised of LIBOR Loans and one (1) Business Day prior to each such Borrowing
to be comprised of ABR Loans; provided, however, that a request for a Borrowing
                              --------  -------                                
of any Revolving Loans to be made on the Closing Date may, at the discretion of
the Administrative Agent, be given later than the times specified hereinabove.
Each such notice (each, a "Notice of Revolving Borrowing") shall be irrevocable,
shall be given in the form of EXHIBIT A-1 (or, if oral notice is given, shall be
promptly followed with a writing in the form of EXHIBIT A-1) and shall specify
(x) the aggregate principal amount and initial Type of the Revolving Loans to be
made pursuant to such Borrowing, (y) in the case of a Borrowing of LIBOR Loans,
the initial Interest Period to be applicable thereto, and (z) the requested
Borrowing Date, which shall be a Business Day.  Upon its receipt of a Notice of
Revolving Borrowing, the Administrative Agent will promptly notify each Lender
of the proposed Borrowing.  Notwithstanding anything to the contrary contained
herein:

          (i)    the aggregate principal amount of each Borrowing of Revolving
     Loans that is comprised of ABR Loans shall not be less than $3,000,000 or,
     if greater, an integral multiple of $1,000,000 in excess thereof (or, if
     less, in the amount of the aggregate Unutilized Commitments), and the
     aggregate principal amount of each Borrowing of Revolving Loans 

                                      -23-
<PAGE>
 
     that is comprised of LIBOR Loans shall not be less than $5,000,000 or, if
     greater, an integral multiple of $1,000,000 in excess thereof;

          (ii)   if the Borrower shall have failed to designate the Type of
     Revolving Loans comprising a Borrowing, the Borrower shall be deemed to
     have requested a Borrowing comprised of ABR Loans; and

          (iii)  if the Borrower shall have failed to select the duration of the
     Interest Period to be applicable to any Borrowing of LIBOR Loans, then the
     Borrower shall be deemed to have selected an Interest Period with a
     duration of one month.

     (c) Not later than 1:00 p.m., Charlotte time, on the requested Borrowing
Date, each Lender will make available to the Administrative Agent at its office
referred to in SECTION 11.5 (or at such other location as the Administrative
Agent may designate) an amount, in Dollars and in immediately available funds,
equal to the amount of the Revolving Loan to be made by such Lender. To the
extent the Lenders have made such amounts available to the Administrative Agent
as provided hereinabove, the Administrative Agent will make the aggregate of
such amounts available to the Borrower in accordance with SECTION 2.3(a) and in
like funds as received by the Administrative Agent.

     (d) In order to make a Borrowing of a Swingline Loan, the Borrower will
give the Administrative Agent and the Swingline Lender written notice (or oral
notice promptly confirmed in writing) not later than 1:00 p.m., Charlotte time,
on the Business Day of such Borrowing.  Each such notice (each, a "Notice of
Swingline Borrowing") shall be irrevocable, shall be given in the form of
EXHIBIT A-2 (or, if oral notice is given, shall be promptly followed with a
writing in the form of EXHIBIT A-2) and shall specify (i) the principal amount
of the Swingline Loan to be made pursuant to such Borrowing (which shall not be
less than $500,000 and, if greater, shall be in an integral multiple of $250,000
in excess thereof (or, if less, in the amount of the Unutilized Swingline
Commitment)) and (ii) the requested Borrowing Date, which shall be a Business
Day.  Not later than 3:00 p.m., Charlotte time, on the requested Borrowing Date,
the Swingline Lender will make available to the Administrative Agent at its
office referred to in SECTION 11.5 (or at such other location as the
Administrative Agent may designate) an amount, in Dollars and in immediately
available funds, equal to the amount of the requested Swingline Loan.  To the
extent the Swingline Lender has made such amount available to the Administrative
Agent as provided hereinabove, the Administrative Agent will make such amount
available to the Borrower in accordance with SECTION 2.3(a) and in like funds as
received by the Administrative Agent.

     (e) With respect to any outstanding Swingline Loans, the Swingline Lender
may at any time (whether or not an Event of Default has occurred and is
continuing) in its sole and absolute discretion, and is hereby authorized and
empowered by the Borrower to, cause a Borrowing of Revolving Loans to be made
for the purpose of repaying such Swingline Loans by delivering to the
Administrative Agent (if the Administrative Agent is different from the
Swingline Lender) and each other Lender (on behalf of, and with a copy to, the
Borrower), not later than 1:00 p.m., Charlotte time, one (1) Business Day prior
to the proposed Borrowing Date therefor, a notice (which shall be deemed to be a
Notice of Revolving Borrowing given by the Borrower) requesting the Lenders to
make Revolving Loans (which shall be made initially as ABR Loans) on such
Borrowing Date in an aggregate amount equal to the amount of such Swingline
Loans (the "Refunded Swingline Loans") outstanding on the date such notice is
given that the Swingline Lender requests to be repaid.  Not 

                                      -24-
<PAGE>
 
later than 1:00 p.m., Charlotte time, on the requested Borrowing Date, each
Lender (other than the Swingline Lender) will make available to the
Administrative Agent at its office referred to in SECTION 11.5 (or at such other
location as the Administrative Agent may designate) an amount, in Dollars and in
immediately available funds, equal to the amount of the Revolving Loan to be
made by such Lender. To the extent the Lenders have made such amounts available
to the Administrative Agent as provided hereinabove, the Administrative Agent
will make the aggregate of such amounts available to the Swingline Lender in
like funds as received by the Administrative Agent, which shall apply such
amounts in repayment of the Refunded Swingline Loans. Notwithstanding any
provision of this Agreement to the contrary, on the relevant Borrowing Date, the
Refunded Swingline Loans (including the Swingline Lender's ratable share
thereof, in its capacity as a Lender) shall be deemed to be repaid with the
proceeds of the Revolving Loans made as provided above (including a Revolving
Loan deemed to have been made by the Swingline Lender), and such Refunded
Swingline Loans deemed to be so repaid shall no longer be outstanding as
Swingline Loans but shall be outstanding as Revolving Loans. If any portion of
any such amount repaid (or deemed to be repaid) to the Swingline Lender shall be
recovered by or on behalf of the Borrower from the Swingline Lender in any
bankruptcy, insolvency or similar proceeding or otherwise, the loss of the
amount so recovered shall be shared ratably among all the Lenders in the manner
contemplated by SECTION 2.15(b).

     (f) If, as a result of any bankruptcy, insolvency or similar proceeding
with respect to the Borrower, Revolving Loans are not made pursuant to
subsection (e) above in an amount sufficient to repay any amounts owed to the
Swingline Lender in respect of any outstanding Swingline Loans, or if the
Swingline Lender is otherwise precluded for any reason from giving a notice on
behalf of the Borrower as provided for hereinabove, the Swingline Lender shall
be deemed to have sold without recourse, representation or warranty, and each
Lender shall be deemed to have purchased and hereby agrees to purchase, a
participation in such outstanding Swingline Loans in an amount equal to its
ratable share (based on the proportion that its Commitment bears to the
aggregate Commitments at such time) of the unpaid amount thereof together with
accrued interest thereon.  Upon one (1) Business Day's prior notice from the
Swingline Lender, each Lender (other than the Swingline Lender) will make
available to the Administrative Agent at its office referred to in SECTION 11.5
(or at such other location as the Administrative Agent may designate) an amount,
in Dollars and in immediately available funds, equal to its respective
participation.  To the extent the Lenders have made such amounts available to
the Administrative Agent as provided hereinabove, the Administrative Agent will
make the aggregate of such amounts available to the Swingline Lender in like
funds as received by the Administrative Agent.  In the event any such Lender
fails to make available to the Administrative Agent the amount of such Lender's
participation as provided in this subsection (f), the Swingline Lender shall be
entitled to recover such amount on demand from such Lender, together with
interest thereon for each day from the date such amount is required to be made
available for the account of the Swingline Lender until the date such amount is
made available to the Swingline Lender at the Federal Funds Rate for the first
three (3) Business Days and thereafter at the Alternate Base Rate.  Promptly
following its receipt of any payment by or on behalf of the Borrower in respect
of a Swingline Loan, the Swingline Lender will pay to each Lender that has
acquired a participation therein such Lender's ratable share of such payment.

     (g) Notwithstanding any provision of this Agreement to the contrary, the
obligation of each Lender (other than the Swingline Lender) to make Revolving
Loans for the purpose of repaying any Refunded Swingline Loans pursuant to
subsection (e) above and each such Lender's obligation to purchase a
participation in any unpaid Swingline Loans pursuant to subsection (f) above
shall be 

                                      -25-
<PAGE>
 
absolute and unconditional and shall not be affected by any circumstance or
event whatsoever, including, without limitation, (i) any set-off, counterclaim,
recoupment, defense or other right that such Lender may have against the
Swingline Lender, the Administrative Agent, the Borrower or any other Person for
any reason whatsoever, (ii) the occurrence or continuance of any Default or
Event of Default, (iii) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of the
Borrower or any of its Subsidiaries, or (iv) any breach of this Agreement by any
party hereto.

      2.3 Disbursements; Funding Reliance; Domicile of Loans.  (a)  The Borrower
          --------------------------------------------------                    
hereby authorizes the Administrative Agent to disburse the proceeds of each
Borrowing in accordance with the terms of any written instructions from any of
the Authorized Officers, provided that the Administrative Agent shall not be
                         --------                                           
obligated under any circumstances to forward amounts to any account not listed
in an Account Designation Letter.  The Borrower may at any time deliver to the
Administrative Agent an Account Designation Letter listing any additional
accounts or deleting any accounts listed in a previous Account Designation
Letter.

     (b) Unless the Administrative Agent has received, prior to 1:00 p.m.,
Charlotte time, on the relevant Borrowing Date, written notice from a Lender
that such Lender will not make available to the Administrative Agent such
Lender's ratable portion of the relevant Borrowing, the Administrative Agent may
assume that such Lender has made such portion available to the Administrative
Agent in immediately available funds on such Borrowing Date in accordance with
the applicable provisions of SECTION 2.2, and the Administrative Agent may, in
reliance upon such assumption, but shall not be obligated to, make a
corresponding amount available to the Borrower on such Borrowing Date.  If and
to the extent that such Lender shall not have made such portion available to the
Administrative Agent, and the Administrative Agent shall have made such
corresponding amount available to the Borrower, such Lender, on the one hand,
and the Borrower, on the other, severally agree to pay to the Administrative
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 Administrative Agent, (i) in the
case of such Lender, at the Federal Funds Rate, and (ii) in the case of the
Borrower, at the rate of interest applicable at such time to the Type of
Revolving Loans comprising such Borrowing, as determined under the provisions of
SECTION 2.8.  If such Lender shall repay to the Administrative Agent such
corresponding amount, such amount shall constitute such Lender's Revolving Loan
as part of such Borrowing for purposes of this Agreement.  The failure of any
Lender to make any Loan required to be made by it as part of any Borrowing shall
not relieve any other Lender of its obligation, if any, hereunder to make its
Revolving Loan as part of such Borrowing, but no Lender shall be responsible for
the failure of any other Lender to make the Revolving Loan to be made by such
other Lender as part of any Borrowing.

     (c) Each Lender may, at its option, make and maintain any Loan at, to or
for the account of any of its Lending Offices, provided that any exercise of
                                               --------                     
such option shall not affect the obligation of the Borrower to repay such Loan
to or for the account of such Lender in accordance with the terms of this
Agreement.

      2.4 Notes.  (a)  The Revolving Loans made by each Lender shall be
          -----                                                        
evidenced by a Revolving Credit Note appropriately completed in substantially
the form of EXHIBIT B-1.  Each Revolving Credit Note issued to a Lender shall
(i) be executed by the Borrower, (ii) be payable to the order of such Lender,
(iii) be dated as of the Closing Date, (iv) be in a stated principal amount
equal 

                                      -26-
<PAGE>
 
to such Lender's Commitment, (v) bear interest in accordance with the provisions
of SECTION 2.8, as the same may be applicable to the Revolving Loans made by
such Lender from time to time, and (vi) be entitled to all of the benefits of
this Agreement and the other Credit Documents and subject to the provisions
hereof and thereof.

     (b) The Swingline Loans made by the Swingline Lender shall be evidenced by
a Swingline Note appropriately completed in substantially the form of EXHIBIT B-
2.  The Swingline Note shall (i) be executed by the Borrower, (ii) be payable to
the order of the Swingline Lender, (iii) be dated as of the Closing Date, (iv)
be in a stated principal amount equal to the Swingline Commitment, (v) bear
interest in accordance with the provisions of SECTION 2.8, as the same may be
applicable to the Swingline Loans made from time to time, and (vi) be entitled
to all of the benefits of this Agreement and the other Credit Documents and
subject to the provisions hereof and thereof.

     (c) Each Lender will record on its internal records the amount and Type of
each Loan made by it and each payment received by it in respect thereof and
will, in the event of any transfer of any of its Notes, either endorse on the
reverse side thereof or on a schedule attached thereto (or any continuation
thereof) the outstanding principal amount and Type of the Loans evidenced
thereby as of the date of transfer or provide such information on a schedule to
the Assignment and Acceptance relating to such transfer; provided, however, that
                                                         --------  -------      
the failure of any Lender to make any such recordation or provide any such
information, or any error therein, shall not affect the Borrower's obligations
under this Agreement or the Notes.

      2.5 Termination and Reduction of Commitments and Swingline Commitment.
          -----------------------------------------------------------------  
(a) The Commitments shall be automatically and permanently terminated on the
earlier of (i) October 15, 1997 (if the Closing Date shall not have occurred on
or prior to such date) and (ii) the Maturity Date (unless sooner terminated
pursuant to subsections (b) or (c) below or SECTION 9.2). The Swingline
Commitment shall be automatically and permanently terminated on the Swingline
Maturity Date (unless sooner terminated pursuant to subsections (c) or (d) below
or SECTION 9.2).

     (b) The Commitments shall, on each date upon which a prepayment of the
Loans is required under SECTIONS 2.6(c) through 2.6(e), be automatically and
permanently reduced by the amount of such required prepayment, as more
particularly set forth in SECTION 2.6(f).

     (c) At any time and from time to time after the date hereof, upon not less
than five (5) Business Days' prior written notice to the Administrative Agent
(and, in the case of a termination or reduction of the Unutilized Swingline
Commitment, the Swingline Lender), the Borrower may terminate in whole or reduce
in part the aggregate Unutilized Commitments or the Unutilized Swingline
Commitment, provided that any such partial reduction shall be in an aggregate
            --------                                                         
amount of not less than $5,000,000 ($500,000 in the case of the Unutilized
Swingline Commitment) or, if greater, an integral multiple thereof, and provided
                                                                        --------
further that, in the event the Borrower shall deliver a notice of redemption
-------                                                                     
pursuant to the Subordinated Note Indenture in connection with the Subordinated
Note Redemption, at no time prior to the consummation of the Subordinated Note
Redemption shall the Borrower reduce the aggregate Unutilized Commitments to an
amount less than the difference between (i) the aggregate amount required to
effect the Subordinated Note Redemption (including the payment of any related
redemption premium and all accrued and unpaid interest) minus (ii) the amount
then on deposit with the Administrative Agent in a Redemption Account.  The
amount of any termination or reduction made under this subsection (c) may not
thereafter be reinstated.

                                      -27-
<PAGE>
 
     (d) Each reduction of the Commitments pursuant to this SECTION 2.5 shall be
applied ratably among the Lenders according to their respective Commitments.
Notwithstanding any provision of this Agreement to the contrary, any reduction
of the Commitments pursuant to this SECTION 2.5 that has the effect of reducing
the aggregate Commitments to an amount less than the amount of the Swingline
Commitment at such time shall result in an automatic corresponding reduction of
the Swingline Commitment to the amount of the aggregate Commitments (as so
reduced), without any further action on the part of the Borrower or the
Swingline Lender.

      2.6 Mandatory Repayments and Prepayments.  (a)  To the extent not
          ------------------------------------                         
previously paid, and except to the extent due or made sooner pursuant to the
provisions of this Agreement, (i) the aggregate outstanding principal of the
Revolving Loans shall be due and payable on the Maturity Date, and (ii) the
aggregate outstanding principal of the Swingline Loans shall be due and payable
on the Swingline Maturity Date.

     (b) In the event that at any time the sum of (x) the aggregate principal
amount of Revolving Loans outstanding at such time, (y) the aggregate Letter of
Credit Exposure of all Lenders at such time and (z) the aggregate principal
amount of Swingline Loans outstanding at such time (excluding the aggregate
amount of any Swingline Loans to be repaid with proceeds of Revolving Loans made
on the date of determination) shall exceed the aggregate Commitments at such
time (after giving effect to any concurrent termination or reduction thereof),
the Borrower will immediately prepay the outstanding principal amount of the
Swingline Loans and, to the extent of any excess remaining after prepayment in
full of outstanding Swingline Loans, the Borrower will immediately prepay the
outstanding principal amount of the Revolving Loans in the amount of such
excess; provided that, to the extent such excess amount is greater than the
        --------                                                           
aggregate principal amount of Swingline Loans and Revolving Loans outstanding
immediately prior to the application of such prepayment, the amount so prepaid
shall be retained by the Administrative Agent and held in the Cash Collateral
Account as cover for the Letter of Credit Exposure of the Lenders, as more
particularly described in SECTION 3.9, and thereupon such cash shall be deemed
to reduce the aggregate Letter of Credit Exposure by an equivalent amount.

     (c) Promptly upon (and in any event not later than two (2) Business Days
after) its receipt thereof, the Borrower will prepay the outstanding principal
amount of the Loans in an amount equal to 25% of the Net Cash Proceeds from any
Equity Issuance (other than the Initial Public Offering or any offering and sale
of common stock of Parent pursuant to exercise of the over-allotment option in
connection therewith) or 100% of the Net Cash Proceeds from any Debt Issuance,
and will deliver to the Administrative Agent, concurrently with such prepayment,
a certificate signed by a Financial Officer of the Borrower in form and
substance satisfactory to the Administrative Agent and setting forth the
calculation of such Net Cash Proceeds.

     (d) Not later than 180 days after its receipt of any proceeds of insurance,
condemnation award or other compensation in respect of any Casualty Event (and
in any event upon its determination not to repair or replace any property
subject to such Casualty Event), the Borrower will prepay the outstanding
principal amount of the Loans in an amount equal to 100% of the Net Cash
Proceeds from such Casualty Event (less any amounts theretofore applied or
committed to be applied within a reasonable period to the repair or replacement
of property subject to such Casualty Event) and will deliver to the
Administrative Agent, concurrently with such prepayment, a certificate signed by
a Financial Officer of the Borrower in form and substance satisfactory to the
Administrative Agent and setting forth the calculation of such Net Cash
Proceeds; provided, however, that, notwithstanding 
          --------  -------                                                     

                                      -28-
<PAGE>
 
the foregoing, (i) nothing in this subsection shall be deemed to limit or
otherwise affect any right of the Administrative Agent herein or in any of the
other Credit Documents to receive and hold such proceeds as loss payee and to
disburse the same to the Borrower upon the terms hereof or thereof, or any
obligation of the Borrower and each of its Subsidiaries herein or in any of the
other Credit Documents to remit any such proceeds to the Administrative Agent
upon its receipt thereof, and (ii) any and all such proceeds received or held by
the Administrative Agent or the Borrower or any of its Subsidiaries during the
continuance of an Event of Default (regardless of any proposed or actual use
thereof for repair or replacement) shall be applied to prepay the outstanding
principal amount of the Loans.

     (e) Not later than 180 days after its receipt thereof (and in any event
upon its determination not to acquire additional assets or properties or
otherwise to reinvest in its businesses), the Borrower will prepay the
outstanding principal amount of the Loans in an amount equal to 100% of the Net
Cash Proceeds from any Asset Disposition (less any amounts theretofore expended
or committed to be expended within a reasonable period to acquire assets or
properties or otherwise reinvested in its businesses) and will deliver to the
Administrative Agent, concurrently with such prepayment, a certificate signed by
a Financial Officer of the Borrower in form and substance satisfactory to the
Administrative Agent and setting forth the calculation of such Net Cash
Proceeds.  Notwithstanding the foregoing, nothing in this subsection shall be
deemed to permit any Asset Disposition not expressly permitted under SECTION
8.4.

     (f) Each prepayment of the Loans made pursuant to subsections (c) through
(e) above shall be applied (i) first, to reduce the outstanding principal amount
of the Swingline Loans, with a corresponding reduction to the Commitments as
provided in SECTION 2.5(b), (ii) second, to the extent of any excess remaining
after application as provided in clause (i) above, to reduce the outstanding
principal amount of the Revolving Loans, with a corresponding reduction to the
Commitments as provided in SECTION 2.5(b), and (iii) third, to the extent of any
excess remaining after application as provided in clauses (i) and (ii) above, to
pay any outstanding Reimbursement Obligations, and thereafter to cash
collateralize Letter of Credit Exposure pursuant to SECTION 3.9.  Each
prepayment pursuant to the provisions of this Section shall be applied ratably
among the Lenders holding the Loans being prepaid, in proportion to the
principal amount held by each, and as among Revolving Loans shall be applied
first to prepay all ABR Loans before any LIBOR Loans are prepaid.

     (g) Each payment or prepayment of a LIBOR Loan made pursuant to the
provisions of this SECTION 2.6 on a day other than the last day of the Interest
Period applicable thereto shall be made together with all amounts required under
SECTION 2.18 to be paid as a consequence thereof.

      2.7 Voluntary Prepayments.  At any time and from time to time, the
          ---------------------                                         
Borrower shall have the right to prepay the Revolving Loans, in whole or in
part, without premium or penalty (except as provided in clause (iii) below),
upon written notice (or oral notice promptly confirmed in writing) given to the
Administrative Agent not later than 1:00 p.m., Charlotte time, three (3)
Business Days prior to each intended prepayment, provided that (i) each partial
                                                 --------                      
prepayment shall be in an aggregate principal amount of not less than $3,000,000
or, if greater, an integral multiple of $1,000,000 in excess thereof, (ii) no
partial prepayment of LIBOR Loans made pursuant to any single Borrowing shall
reduce the aggregate outstanding principal amount of the remaining LIBOR Loans
under such Borrowing to less than $5,000,000 or to any greater amount not an
integral multiple of $1,000,000 in excess thereof, and (iii) unless made
together with all amounts required under SECTION 2.18 to be paid as a
consequence of such prepayment, a prepayment of a LIBOR Loan may be made only on
the last 

                                      -29-
<PAGE>
 
day of the Interest Period applicable thereto. Each such notice (each, a "Notice
of Prepayment") shall be given in the form of EXHIBIT C (or, if oral notice is
given, shall be promptly followed with a writing in the form of EXHIBIT C),
shall specify the proposed date of such prepayment and the aggregate principal
amount and Type of Revolving Loans to be prepaid (and, in the case of LIBOR
Loans, the Interest Period of the Borrowing pursuant to which made), and shall
be irrevocable and shall bind the Borrower to make such prepayment on the terms
specified therein. Notwithstanding the foregoing provisions of this Section, the
Borrower may prepay the Swingline Loans at any time and from time to time after
the date hereof, in whole or in part, without premium or penalty, upon written
notice (or oral notice promptly confirmed in writing) delivered to the
Administrative Agent no later than 1:00 p.m., Charlotte time, on the date of
such prepayment, provided that each partial prepayment of Swingline Loans shall
                 --------                                                      
be in an aggregate principal amount of not less than $500,000 or, if greater, an
integral multiple of $250,000 in excess thereof.  Revolving Loans and Swingline
Loans prepaid pursuant to this Section may be reborrowed, subject to the terms
and conditions of this Agreement.  Each prepayment of the Loans pursuant to the
provisions of this Section shall be applied ratably among the Lenders holding
the Loans being prepaid, in proportion to the principal amount held by each.

      2.8 Interest.  (a)  The Borrower will pay interest in respect of the
          --------                                                        
unpaid principal amount of each Loan, from the date of Borrowing thereof until
such principal amount shall be paid in full, (i) at the Alternate Base Rate, as
in effect from time to time during such periods as such Loan is an ABR Loan, and
(ii) at the Adjusted LIBOR Rate, as in effect from time to time during such
periods as such Loan is a LIBOR Loan.

     (b) Upon the occurrence and during the continuance of an Event of Default
as the result of failure by the Borrower to pay any principal of or interest on
any Loan, any fees or other amount hereunder when due (whether at maturity,
pursuant to acceleration or otherwise), and (at the election of the Required
Lenders) upon the occurrence and during the continuance of any other Event of
Default, all outstanding principal amounts of the Loans and, to the greatest
extent permitted by law, all interest accrued on the Loans and all other accrued
and outstanding fees and other amounts hereunder, shall bear interest at a rate
per annum equal to the interest rate applicable from time to time thereafter to
such Loans (whether the Alternate Base Rate or the Adjusted LIBOR Rate) plus 2%
(or, in the case of fees and other amounts, at the Alternate Base Rate plus 2%),
and, in each case, such default interest shall be payable on demand.  To the
greatest extent permitted by law, interest shall continue to accrue after the
filing by or against the Borrower of any petition seeking any relief in
bankruptcy or under any law pertaining to insolvency or debtor relief.

     (c) Accrued (and theretofore unpaid) interest shall be payable as follows:

           (i)   in respect of each ABR Loan (including any ABR Loan or portion
     thereof paid or prepaid pursuant to the provisions of SECTION 2.6, except
     as provided hereinbelow), in arrears on the last Business Day of each
     calendar quarter, beginning with the first such day to occur after the
     Closing Date; provided, that in the event the Loans are repaid or prepaid
                   --------                                                   
     in full and the Commitments have been terminated, then accrued interest in
     respect of all ABR Loans shall be payable together with such repayment or
     prepayment on the date thereof;

           (ii)   in respect of each LIBOR Loan (including any LIBOR Loan or
     portion thereof paid or prepaid pursuant to the provisions of SECTION 2.6,
     except as provided hereinbelow), in arrears (y) on the last Business Day of
     the Interest Period applicable thereto (subject to the 

                                      -30-
<PAGE>
 
     provisions of clause (iv) in SECTION 2.10) and (z) in addition, in the case
     of a LIBOR Loan with an Interest Period having a duration of six months, on
     the date three months after the first day of such Interest Period;
     provided, that in the event all LIBOR Loans made pursuant to a single 
     --------             
     Borrowing are repaid or prepaid in full, then accrued interest in respect
     of such LIBOR Loans shall be payable together with such repayment or
     prepayment on the date thereof; and

           (iii)  in respect of any Loan, at maturity (whether pursuant to
     acceleration or otherwise) and, after maturity, on demand.

     (d) Nothing contained in this Agreement or in any other Credit Document
shall be deemed to establish or require the payment of interest to any Lender at
a rate in excess of the maximum rate permitted by applicable law.  If the amount
of interest payable for the account of any Lender on any interest payment date
would exceed the maximum amount permitted by applicable law to be charged by
such Lender, the amount of interest payable for its account on such interest
payment date shall be automatically reduced to such maximum permissible amount.
In the event of any such reduction affecting any Lender, if from time to time
thereafter the amount of interest payable for the account of such Lender on any
interest payment date would be less than the maximum amount permitted by
applicable law to be charged by such Lender, then the amount of interest payable
for its account on such subsequent interest payment date shall be automatically
increased to such maximum permissible amount, provided that at no time shall the
                                              --------                          
aggregate amount by which interest paid for the account of any Lender has been
increased pursuant to this sentence exceed the aggregate amount by which
interest paid for its account has theretofore been reduced pursuant to the
previous sentence.

     (e) The Administrative Agent shall promptly notify the Borrower and the
Lenders upon determining the interest rate for each Borrowing of LIBOR Loans
after its receipt of the relevant Notice of Revolving Borrowing or Notice of
Conversion/Continuation, and upon each change in the Alternate Base Rate;
provided, however, that the failure of the Administrative Agent to provide the
--------  -------                                                             
Borrower or the Lenders with any such notice shall neither affect any
obligations of the Borrower or the Lenders hereunder nor result in any liability
on the part of the Administrative Agent to the Borrower or any Lender.  Each
such determination (including each determination of the Reserve Requirement)
shall, absent manifest error, be conclusive and binding on all parties hereto.

      2.9 Fees.  The Borrower agrees to pay:
          ----                              

     (a) To First Union, for its own account, on the Closing Date, the fee
described in paragraph (i) of the Fee Letter, in the amount set forth therein as
due and payable on such date;

     (b) To the Administrative Agent, for the account of each Lender, a
commitment fee (the "Revolving Credit Commitment Fee") for the period from the
date of this Agreement to the Termination Date, at a per annum rate equal to the
Applicable Margin Percentage for the Revolving Credit Commitment Fee, on such
Lender's ratable share (based on the proportion that its Commitment bears to the
aggregate Commitments) of the average daily aggregate Unutilized Commitments,
payable in arrears (i) on the last Business Day of each calendar quarter,
beginning with the first such day to occur after the Closing Date, and (ii) on
the Termination Date;

     (c) To the Administrative Agent, for the account of each Lender, a letter
of credit fee for each calendar quarter in respect of all Letters of Credit
outstanding during such quarter, at a per 

                                      -31-
<PAGE>
 
annum rate equal to the Applicable Margin Percentage from time to time during
such quarter for LIBOR Loans, on such Lender's ratable share (based on the
proportion that its Commitment bears to the aggregate Commitments) of the daily
average aggregate Stated Amount of such Letters of Credit, payable in arrears
(i) on the last Business Day of each calendar quarter, beginning with the first
such day to occur after the Closing Date, and (ii) on the later of the
Termination Date and the date of termination of the last outstanding Letter of
Credit;

     (d) To the Issuing Lender, for its own account, a facing fee for each
calendar quarter in respect of all Letters of Credit outstanding during such
quarter, at a per annum rate of 0.25% on the daily average aggregate Stated
Amount of such Letters of Credit (provided, however, that, notwithstanding the
                                  --------  -------                           
foregoing, the amount of such fee with regard to any single Letter of Credit
shall not be less than $500), payable in arrears (i) on the last Business Day of
each calendar quarter, beginning with the first such day to occur after the
Closing Date, and (ii) on the later of the Termination Date and the date of
termination of the last outstanding Letter of Credit; and

     (e) To the Administrative Agent, for its own account, the annual
administrative fee described in paragraph (ii) of the Fee Letter, on the terms,
in the amount and at the times set forth therein.

      2.10.  Interest Periods.  Concurrently with the giving of (y) a Notice of
             ----------------                                                  
Revolving Borrowing or (z) a Notice of Conversion/Continuation in respect of any
Borrowing comprised of ABR Loans to be converted into, or LIBOR Loans to be
continued as, LIBOR Loans, the Borrower shall have the right to elect, pursuant
to such notice, the interest period (each, an "Interest Period") to be
applicable to such LIBOR Loans, which Interest Period shall, at the option of
the Borrower, be a one, three or six-month period; provided, however, that:
                                                   --------  -------       

             (i)   all LIBOR Loans comprising a single Borrowing shall at all
     times have the same Interest Period;

             (ii)  the initial Interest Period for any LIBOR Loan shall commence
     on the date of the Borrowing of such LIBOR Loan (including the date of any
     continuation of, or conversion into, such LIBOR Loan), and each successive
     Interest Period applicable to such LIBOR Loan shall commence on the day on
     which the next preceding Interest Period applicable thereto expires;

             (iii) LIBOR Loans may not be outstanding under more than seven (7)
     separate Interest Periods at any one time (for which purpose Interest
     Periods shall be deemed to be separate even if they are coterminous);

             (iv)  if any Interest Period otherwise would expire on a day that
     is not a Business Day, such Interest Period shall expire on the next
     succeeding Business Day unless such next succeeding Business Day falls in
     another calendar month, in which case such Interest Period shall expire on
     the next preceding Business Day;

             (v)   the Borrower may not select any Interest Period that begins
     prior to the Closing Date or that expires after the Maturity Date;

                                      -32-
<PAGE>
 
           (vi)   at any time prior to the Syndication Completion Date, the
     Borrower may select an Interest Period having a duration of two weeks but
     may not select any Interest Period having a duration longer than one month;

           (vii)  if any Interest Period begins on a day for which there is no
     numerically corresponding day in the calendar month during which such
     Interest Period would otherwise expire, such Interest Period shall expire
     on the last Business Day of such calendar month; and

           (viii) if, upon the expiration of any Interest Period applicable to a
     Borrowing of LIBOR Loans, the Borrower shall have failed to elect a new
     Interest Period to be applicable to such LIBOR Loans, then the Borrower
     shall be deemed to have elected to convert such LIBOR Loans into ABR Loans
     as of the expiration of the then current Interest Period applicable
     thereto.

      2.11.  Conversions and Continuations.  (a)  The Borrower shall have the
             -----------------------------                                   
right, on any Business Day occurring on or after the Closing Date, to elect (i)
to convert all or a portion of the outstanding principal amount of any ABR Loans
into LIBOR Loans, or to convert any LIBOR Loans the Interest Periods for which
end on the same day into ABR Loans, or (ii) to continue all or a portion of the
outstanding principal amount of any LIBOR Loans the Interest Periods for which
end on the same day for an additional Interest Period, provided that (w) any
                                                       --------             
such conversion of LIBOR Loans into ABR Loans shall involve an aggregate
principal amount of not less than $3,000,000 or, if greater, an integral
multiple of $1,000,000 in excess thereof; any such conversion of ABR Loans into,
or continuation of, LIBOR Loans shall involve an aggregate principal amount of
not less than $5,000,000 or, if greater, an integral multiple of $1,000,000 in
excess thereof; and no partial conversion of LIBOR Loans made pursuant to a
single Borrowing shall reduce the outstanding principal amount of such LIBOR
Loans to less than $5,000,000 or to any greater amount not an integral multiple
of $1,000,000 in excess thereof, (x) except as otherwise provided in SECTION
2.16(d), LIBOR Loans may be converted into ABR Loans only on the last day of the
Interest Period applicable thereto (and, in any event, if a LIBOR Loan is
converted into an ABR Loan on any day other than the last day of the Interest
Period applicable thereto, the Borrower will pay, upon such conversion, all
amounts required under SECTION 2.18 to be paid as a consequence thereof), (y) no
such conversion or continuation shall be permitted with regard to any ABR Loans
that are Swingline Loans, and (z) no conversion of ABR Loans into LIBOR Loans or
continuation of LIBOR Loans shall be permitted during the continuance of a
Default or Event of Default.

     (b) The Borrower shall make each such election by giving the Administrative
Agent written notice (or oral notice promptly confirmed in writing) not later
than 1:00 p.m., Charlotte time, three (3) Business Days prior to the intended
effective date of any conversion of ABR Loans into, or continuation of, LIBOR
Loans and one (1) Business Day prior to the intended effective date of any
conversion of LIBOR Loans into ABR Loans.  Each such notice (each, a "Notice of
Conversion/Continuation") shall be irrevocable, shall be given in the form of
EXHIBIT D (or, if oral notice is given, shall be promptly followed with a
writing in the form of EXHIBIT D) and shall specify (x) the date of such
conversion or continuation (which shall be a Business Day), (y) in the case of a
conversion into, or a continuation of, LIBOR Loans, the Interest Period to be
applicable thereto, and (z) the aggregate amount and Type of the Loans being
converted or continued.  Upon the receipt of a Notice of
Conversion/Continuation, the Administrative Agent will promptly notify each
Lender of the proposed conversion or continuation.  In the event that the
Borrower shall fail to deliver a Notice of Conversion/Continuation as provided
herein with respect to any outstanding LIBOR Loans, such 

                                      -33-
<PAGE>
 
LIBOR Loans shall automatically be converted to ABR Loans upon the expiration of
the then current Interest Period applicable thereto (unless repaid pursuant to
the terms hereof). In the event the Borrower shall have failed to select in a
Notice of Conversion/Continuation the duration of the interest period to be
applicable to any conversion into, or continuation of, LIBOR Loans, then the
Borrower shall be deemed to have selected an Interest Period with a duration of
one month.

      2.12.  Method of Payments; Computations.  (a) All payments by the Borrower
             --------------------------------                                   
hereunder shall be made without setoff, counterclaim or other defense, in
Dollars and in immediately available funds to the Administrative Agent, for the
account of the Lenders or the Swingline Lender, as the case may be (except as
otherwise expressly provided herein as to payments required to be made directly
to the Issuing Lender and the Lenders), at the Administrative Agent's office
referred to in SECTION 11.5, prior to 1:00 p.m., Charlotte time, on the date
payment is due.  Any payment made as required hereinabove, but after 1:00 p.m.,
Charlotte time, shall be deemed to have been made on the next succeeding
Business Day.  If any payment falls due on a day that is not a Business Day,
then such due date shall be extended to the next succeeding Business Day (except
that in the case of LIBOR Loans to which the proviso of clause (iv) in SECTION
2.10 is applicable, such due date shall be the next preceding Business Day), and
such extension of time shall then be included in the computation of payment of
interest, fees or other applicable amounts.

     (b) The Administrative Agent will distribute to the Lenders like amounts
relating to payments made to the Administrative Agent for the account of the
Lenders as follows: (i) if the payment is received by 1:00 p.m., Charlotte time,
in immediately available funds, the Administrative Agent will make available to
each relevant Lender on the same date, by wire transfer of immediately available
funds, such Lender's ratable share of such payment (based on the percentage that
the amount of the relevant payment owing to such Lender bears to the total
amount of such payment owing to all of the relevant Lenders), and (ii) if such
payment is received after 1:00 p.m., Charlotte time, or in other than
immediately available funds, the Administrative Agent will make available to
each such Lender its ratable share of such payment by wire transfer of
immediately available funds on the next succeeding Business Day (or in the case
of uncollected funds, as soon as practicable after collected).  If the
Administrative Agent shall not have made a required distribution to the
appropriate Lenders as required hereinabove after receiving a payment for the
account of such Lenders, the Administrative Agent will pay to each such Lender,
on demand, its ratable share of such payment with interest thereon at the
Federal Funds Rate for each day from the date such amount was required to be
disbursed by the Administrative Agent until the date repaid to such Lender.  The
Administrative Agent will distribute to the Issuing Lender like amounts relating
to payments made to the Administrative Agent for the account of the Issuing
Lender in the same manner, and subject to the same terms and conditions, as set
forth hereinabove with respect to distributions of amounts to the Lenders.

     (c) Unless the Administrative Agent shall have received written notice from
the Borrower prior to the date on which any payment is due to any Lender
hereunder that such payment will not be made in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date, and the Administrative Agent may, in reliance on such
assumption, but shall not be obligated to, cause to be distributed to such
Lender on such due date an amount equal to the amount then due to such Lender.
If and to the extent the Borrower shall not have so made such payment in full to
the Administrative Agent, and without limiting the obligation of the Borrower to
make such payment in accordance with the terms hereof, such Lender shall repay
to the Administrative Agent forthwith on demand such amount so distributed 

                                      -34-
<PAGE>
 
to such Lender, together with interest thereon for each day from the date such
amount is so distributed to such Lender until the date repaid to the
Administrative Agent, at the Federal Funds Rate.

     (d) All computations of interest and fees hereunder (including computations
of the Reserve Requirement) shall be made on the basis of a year consisting of
(i) in the case of interest on ABR Loans, 365 or 366 days, as the case may be,
or (ii) in all other instances, 360 days; and in each instance under (i) and
(ii) above, with regard to the actual number of days (including the first day,
but excluding the last day) elapsed.

      2.13.  Recovery of Payments.  (a)  The Borrower agrees that to the extent
             --------------------                                              
the Borrower makes a payment or payments to or for the account of the
Administrative Agent, the Issuing Lender or any Lender, which payment or
payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
receiver or any other party under any bankruptcy, insolvency or similar state or
federal law, common law or equitable cause, then, to the extent of such payment
or repayment, the Obligation intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been received.

     (b) If any amounts distributed by the Administrative Agent to any Lender
are subsequently returned or repaid by the Administrative Agent to the Borrower
or its representative or successor in interest, whether by court order or by
settlement approved by the Lender in question, such Lender will, promptly upon
receipt of notice thereof from the Administrative Agent, pay the Administrative
Agent such amount.  If any such amounts are recovered by the Administrative
Agent from the Borrower or its representative or successor in interest, the
Administrative Agent will redistribute such amounts to the Lenders on the same
basis as such amounts were originally distributed.

      2.14.  Use of Proceeds. The proceeds of the Loans shall be used solely (i)
             ---------------  
to repay a portion of the Existing Senior Indebtedness, (ii) to pay or reimburse
reasonable transaction fees and expenses in connection therewith and in
connection with the consummation of the transactions contemplated hereby, (iii)
to effect the Subordinated Note Redemption and Permitted Subordinated Note
Repurchases, and (iv) for working capital and general corporate purposes and to
finance Permitted Acquisitions in accordance with the terms and provisions of
this Agreement, including, without limitation, the provisions set forth in
SECTION 6.8.

      2.15.  Pro Rata Treatment; Sharing of Payments.  (a)  All fundings,
             ---------------------------------------                     
continuations and conversions of Revolving Loans shall be made by the Lenders
pro rata on the basis of their respective Commitments (in the case of the
initial funding of Revolving Loans pursuant to SECTION 2.2) or on the basis of
their respective outstanding Revolving Loans (in the case of continuations and
conversions of Revolving Loans pursuant to SECTION 2.11, and additionally in all
cases in the event the Commitments have expired or have been terminated), as the
case may be from time to time.  All payments on account of principal of or
interest on any Loans, fees or any other Obligations owing to or for the account
of any one or more Lenders shall be apportioned ratably among such Lenders in
proportion to the amounts of such principal, interest, fees or other Obligations
owed to them respectively.

     (b) Each Lender agrees that if it shall receive any amount hereunder
(whether by voluntary payment, realization upon security, exercise of the right
of setoff or banker's lien, counterclaim or cross action, or otherwise, other
than pursuant to SECTION 11.7 or SECTION 2.20) 

                                      -35-
<PAGE>
 
applicable to the payment of any of the Obligations that exceeds its ratable
share (according to the proportion of (i) the amount of such Obligations due and
payable to such Lender at such time to (ii) the aggregate amount of such
Obligations due and payable to all Lenders at such time) of payments on account
of such Obligations then or therewith obtained by all the Lenders to which such
payments are required to have been made, such Lender shall forthwith purchase
from the other Lenders such participations in such Obligations as shall be
necessary to cause such purchasing Lender to share the excess payment or other
recovery ratably with each of them; provided, however, that if all or any
                                    --------  -------  
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each such other Lender shall be rescinded and each
such other Lender shall repay to the purchasing Lender the purchase price to the
extent of such recovery, together with an amount equal to such other Lender's
ratable share (according to the proportion of (i) the amount of such other
Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to the provisions of this subsection may, to the fullest extent
permitted by law, exercise any and all rights of payment (including, without
limitation, setoff, banker's lien or counterclaim) with respect to such
participation as fully as if such participant were a direct creditor of the
Borrower in the amount of such participation. If under any applicable
bankruptcy, insolvency or similar law, any Lender receives a secured claim in
lieu of a setoff to which this subsection applies, such Lender shall, to the
extent practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Lenders entitled under this subsection
to share in the benefits of any recovery on such secured claim.

      2.16.  Increased Costs; Change in Circumstances; Illegality; etc.  (a) If,
             ---------------------------------------------------------          
at any time after the date hereof and from time to time, the introduction of or
any change after the date hereof in any applicable law, rule or regulation or in
the interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof, or compliance by any
Lender with any guideline or request from any such Governmental Authority
(whether or not having the force of law), shall (i) subject such Lender to any
tax or other charge, or change the basis of taxation of payments to such Lender,
in respect of any of its LIBOR Loans or any other amounts payable hereunder or
its obligation to make, fund or maintain any LIBOR Loans (other than taxes on
the overall net income of such Lender or its applicable Lending Office or any
change in the rate or basis thereof), (ii) impose, modify or deem applicable any
reserve, special deposit or similar requirement (other than as a result of any
change in the Reserve Requirement) against assets of, deposits with or for the
account of, or credit extended by, such Lender or its applicable Lending Office,
or (iii) impose on such Lender or its applicable Lending Office any other
condition, and the result of any of the foregoing shall be to increase the cost
to such Lender of making or maintaining any LIBOR Loans or issuing or
participating in Letters of Credit or to reduce the amount of any sum received
or receivable by such Lender hereunder (including in respect of Letters of
Credit), the Borrower will, promptly upon demand therefor by such Lender, pay to
such Lender such additional amounts as shall compensate such Lender for such
increase in costs or reduction in return.

     (b) If, at any time after the date hereof and from time to time, any Lender
shall have reasonably determined that the introduction of or any change after
the date hereof in any applicable law, rule or regulation regarding capital
adequacy or in the interpretation or administration thereof by any Governmental
Authority charged with the interpretation or administration thereof, or
compliance by such Lender with any guideline or request from any such
Governmental Authority (whether or not having the force of law), has or would
have the effect, as a consequence of such Lender's 

                                      -36-
<PAGE>
 
Commitment, Loans or issuance of or participations in Letters of Credit
hereunder, of reducing the rate of return on the capital of such Lender or any
Person controlling such Lender to a level below that which such Lender or
controlling Person could have achieved but for such introduction, change or
compliance (taking into account such Lender's or controlling Person's policies
with respect to capital adequacy), the Borrower will, promptly upon demand
therefor by such Lender therefor, pay to such Lender such additional amounts as
will compensate such Lender or controlling Person for such reduction in return.

     (c) If, on or prior to the first day of any Interest Period, (y) the
Administrative Agent shall have determined that adequate and reasonable means do
not exist for ascertaining the applicable LIBOR Rate for such Interest Period or
(z) the Administrative Agent shall have received written notice from the
Required Lenders of their determination that the rate of interest referred to in
the definition of "LIBOR Rate" upon the basis of which the Adjusted LIBOR Rate
for LIBOR Loans for such Interest Period is to be determined will not adequately
and fairly reflect the cost to such Lenders of making or maintaining LIBOR Loans
during such Interest Period, the Administrative Agent will forthwith so notify
the Borrower and the Lenders.  Upon such notice, (i) all then outstanding LIBOR
Loans shall automatically, on the expiration date of the respective Interest
Periods applicable thereto (unless then repaid in full), be converted into ABR
Loans, (ii) the obligation of the Lenders to make, to convert ABR Loans into, or
to continue, LIBOR Loans shall be suspended (including pursuant to the Borrowing
to which such Interest Period applies), and (iii) any Notice of Revolving
Borrowing or Notice of Conversion/Continuation given at any time thereafter with
respect to LIBOR Loans shall be deemed to be a request for ABR Loans, in each
case until the Administrative Agent or the Required Lenders, as the case may be,
shall have determined that the circumstances giving rise to such suspension no
longer exist (and the Required Lenders, if making such determination, shall have
so notified the Administrative Agent), and the Administrative Agent shall have
so notified the Borrower and the Lenders.

     (d) Notwithstanding any other provision in this Agreement, if, at any time
after the date hereof and from time to time, any Lender shall have determined in
good faith that the introduction of or any change in any applicable law, rule or
regulation or in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration
thereof, or compliance with any guideline or request from any such Governmental
Authority (whether or not having the force of law), has or would have the effect
of making it unlawful for such Lender to make or to continue to make or maintain
LIBOR Loans, such Lender will forthwith so notify the Administrative Agent and
the Borrower.  Upon such notice, (i) each of such Lender's then outstanding
LIBOR Loans shall automatically, on the expiration date of the respective
Interest Period applicable thereto (or, to the extent any such LIBOR Loan may
not lawfully be maintained as a LIBOR Loan until such expiration date, upon such
notice), be converted into an ABR Loan, (ii) the obligation of such Lender to
make, to convert ABR Loans into, or to continue, LIBOR Loans shall be suspended
(including pursuant to any Borrowing of Revolving Loans for which the
Administrative Agent has received a Notice of Revolving Borrowing but for which
the Borrowing Date has not arrived), and (iii) any Notice of Revolving Borrowing
or Notice of Conversion/Continuation given at any time thereafter with respect
to LIBOR Loans shall, as to such Lender, be deemed to be a request for an ABR
Loan, in each case until such Lender shall have determined that the
circumstances giving rise to such suspension no longer exist and shall have so
notified the Administrative Agent, and the Administrative Agent shall have so
notified the Borrower.

                                      -37-
<PAGE>
 
     (e) Determinations by the Administrative Agent or any Lender for purposes
of this SECTION 2.16 of any increased costs, reduction in return, market
contingencies, illegality or any other matter shall, absent manifest error, be
conclusive, provided that such determinations are made in good faith.  No
            --------                                                     
failure by the Administrative Agent or any Lender at any time to demand payment
of any amounts payable under this SECTION 2.16 shall constitute a waiver of its
right to demand payment of any additional amounts arising at any subsequent
time.  Nothing in this SECTION 2.16 shall require or be construed to require the
Borrower to pay any interest, fees, costs or other amounts in excess of that
permitted by applicable law.

      2.17.  Taxes.  (a) Any and all payments by the Borrower hereunder or under
             -----                                                              
any Note shall be made, in accordance with the terms hereof and thereof, free
and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, other than net income and franchise taxes imposed on the
Administrative Agent or any Lender by the United States or by the jurisdiction
under the laws of which the Administrative Agent or such Lender, as the case may
be, is organized or in which its principal office or (in the case of a Lender)
its applicable Lending Office is located, or any political subdivision or taxing
authority thereof (all such nonexcluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under any Note to the Administrative Agent or
any Lender, (i) the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this SECTION 2.17), the Administrative Agent or
such Lender, as the case may be, receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower will make such
deductions, (iii) the Borrower will pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law and (iv)
the Borrower will deliver to the Administrative Agent or such Lender, as the
case may be, evidence of such payment.

     (b) The Borrower will indemnify the Administrative Agent and each Lender
for the full amount of Taxes (including, without limitation, any Taxes imposed
by any jurisdiction on amounts payable under this SECTION 2.17) paid by the
Administrative Agent or such Lender, as the case may be, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes were correctly or legally asserted; provided
                                                                       --------
that if the Borrower reasonably believes that such Taxes were not correctly or
legally asserted, the Administrative Agent or such Lender, as the case may be,
will use reasonable efforts to cooperate with the Borrower to obtain a refund of
such Taxes so long as such efforts would not, in the sole determination of the
Administrative Agent or such Lender, as the case may be, result in any
additional costs, expenses or risks or be otherwise disadvantageous to it.  This
indemnification shall be made within 30 days from the date the Administrative
Agent or such Lender, as the case may be, makes written demand therefor.

     (c) Each of the Administrative Agent and the Lenders agrees that if it
subsequently recovers, or receives a permanent net tax benefit with respect to,
any amount of Taxes (i) previously paid by it and as to which it has been
indemnified by or on behalf of the Borrower or (ii) previously deducted by the
Borrower (including, without limitation, any Taxes deducted from any additional
sums payable under clause (i) of subsection (a) above), the Administrative Agent
or such Lender, as the case may be, shall reimburse the Borrower to the extent
of the amount of any such recovery or permanent net tax benefit (but only to the
extent of indemnity payments made, or additional amounts 

                                      -38-
<PAGE>
 
paid, by or on behalf of the Borrower under this SECTION 2.17 with respect to
the Taxes giving rise to such recovery or tax benefit); provided, however, that
                                                        --------  -------
the Borrower, upon the request of the Administrative Agent or such Lender,
agrees to repay to the Administrative Agent or such Lender, as the case may be,
the amount paid over to the Borrower (together with any penalties, interest or
other charges), in the event the Administrative Agent or such Lender is required
to repay such amount to the relevant taxing authority or other Governmental
Authority. The determination by the Administrative Agent or any Lender of the
amount of any such recovery or permanent net tax benefit shall, in the absence
of manifest error, be conclusive and binding.

     (d) If any Lender is incorporated or organized under the laws of a
jurisdiction other than the United States of America or any state thereof (a
"Non-U.S. Lender") and claims exemption from United States withholding tax
pursuant to the Internal Revenue Code, such Non-U.S. Lender will deliver to each
of the Administrative Agent and the Borrower, on or prior to the Closing Date
(or, in the case of a Non-U.S. Lender that becomes a party to this Agreement as
a result of an assignment after the Closing Date, on the effective date of such
assignment), (i) in the case of a Non-U.S. Lender that is a "bank" for purposes
of Section 881(c)(3)(A) of the Internal Revenue Code, a properly completed
Internal Revenue Service Form 4224 or 1001, as applicable (or successor forms),
certifying that such Non-U.S. Lender is entitled to an exemption from or a
reduction of withholding or deduction for or on account of United States federal
income taxes in connection with payments under this Agreement or any of the
Notes, together with a properly completed Internal Revenue Service Form W-8 or
W-9, as applicable (or successor forms), and (ii) in the case of a Non-U.S.
Lender that is not a "bank" for purposes of Section 881(c)(3)(A) of the Internal
Revenue Code, a certificate in form and substance reasonably satisfactory to the
Administrative Agent and the Borrower and to the effect that (x) such Non-U.S.
Lender is not a "bank" for purposes of Section 881(c)(3)(A) of the Internal
Revenue Code, is not subject to regulatory or other legal requirements as a bank
in any jurisdiction, and has not been treated as a bank for purposes of any tax,
securities law or other filing or submission made to any governmental authority,
any application made to a rating agency or qualification for any exemption from
any tax, securities law or other legal requirements, (y) is not a 10-percent
shareholder for purposes of Section 881(c)(3)(B) of the Internal Revenue Code
and (z) is not a controlled foreign corporation receiving interest from a
related person for purposes of Section 881(c)(3)(C) of the Internal Revenue
Code, together with a properly completed Internal Revenue Service Form W-8 or W-
9, as applicable (or successor forms).  Each such Non-U.S. Lender further agrees
to deliver to each of the Administrative Agent and the Borrower an additional
copy of each such relevant form on or before the date that such form expires or
becomes obsolete or after the occurrence of any event (including a change in its
applicable Lending Office) requiring a change in the most recent forms so
delivered by it, in each case certifying that such Non-U.S. Lender is entitled
to an exemption from or a reduction of withholding or deduction for or on
account of United States federal income taxes in connection with payments under
this Agreement or any of the Notes, unless an event (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required, which event renders
all such forms inapplicable or the exemption to which such forms relate
unavailable and such Non-U.S. Lender notifies the Administrative Agent and the
Borrower that it is not entitled to receive payments without deduction or
withholding of United States federal income taxes.  Each such Non-U.S. Lender
will promptly notify the Administrative Agent and the Borrower of any changes in
circumstances that would modify or render invalid any claimed exemption or
reduction.

     (e) If any Lender is entitled to a reduction in (and not a complete
exemption from) the applicable withholding tax, the Borrower and the
Administrative Agent may withhold from any 

                                      -39-
<PAGE>
 
interest payment to such Lender an amount equivalent to the applicable
withholding tax after taking into account such reduction. If any of the forms or
other documentation required under subsection (d) above are not delivered to the
Administrative Agent as therein required, then the Borrower and the
Administrative Agent may withhold from any interest payment to such Lender not
providing such forms or other documentation an amount equivalent to the
applicable withholding tax.

      2.18. Compensation.  The Borrower will compensate each Lender upon demand
            ------------                                                       
for all losses, expenses and liabilities (including, without limitation, any
loss, expense or liability incurred by reason of the liquidation or reemployment
of deposits or other funds required by such Lender to fund or maintain LIBOR
Loans) that such Lender may incur or sustain (i) if for any reason (other than a
default by such Lender) a borrowing or continuation of, or conversion into, a
LIBOR Loan does not occur on a date specified therefor in a Notice of Revolving
Borrowing or Notice of Conversion/Continuation, (ii) if any repayment,
prepayment or conversion of any LIBOR Loan occurs on a date other than the last
day of an Interest Period applicable thereto (including as a consequence of
acceleration of the maturity of the Loans pursuant to SECTION 9.2), (iii) if any
prepayment of any LIBOR Loan is not made on any date specified in a notice of
prepayment given by the Borrower or (iv) as a consequence of any other failure
by the Borrower to make any payments with respect to any LIBOR Loan when due
hereunder.  Calculation of all amounts payable to a Lender under this SECTION
2.18 shall be made as though such Lender had actually funded its relevant LIBOR
Loan through the purchase of a Eurodollar deposit bearing interest at the LIBOR
Rate in an amount equal to the amount of such LIBOR Loan, having a maturity
comparable to the relevant Interest Period; provided, however, that each Lender
                                            --------  -------                  
may fund its LIBOR Loans in any manner it sees fit and the foregoing assumption
shall be utilized only for the calculation of amounts payable under this SECTION
2.18.  Determinations by any Lender for purposes of this SECTION 2.18 of any
such losses, expenses or liabilities shall, absent manifest error, be
conclusive, provided that such determinations are made in good faith.
            --------                                                 

      2.19.  Duty to Mitigate.  Any of the Administrative Agent or any Lender
             ----------------                                                
claiming any additional amounts payable pursuant to SECTION 2.16(a), SECTION
2.16(b) or SECTION 2.17 or exercising its rights under SECTION 2.16(d) shall use
reasonable efforts (consistent with legal and regulatory restrictions) to file
any certificate or document reasonably requested by the Borrower or to change
the jurisdiction of its applicable Lending Office if the making of such filing
or change would avoid the need for or reduce the amount of any such additional
amounts that may thereafter accrue or avoid the circumstances giving rise to
such exercise and would not, in the sole determination of the Administrative
Agent or such Lender, as the case may be, result in any additional costs,
expenses or risks or be otherwise disadvantageous to it.  Each of the
Administrative Agent and each Lender agrees to use reasonable efforts to notify
the Borrower as promptly as practicable upon its becoming aware that
circumstances exist that would cause the Borrower to become obligated to pay
additional amounts to the Administrative Agent or such Lender pursuant to
SECTION 2.16(a), SECTION 2.16(b) or SECTION 2.17 or that would entitle such
Lender to exercise its rights under SECTION 2.16(d).

      2.20.  Replacement of Lenders.  The Borrower may, at any time and so long 
             ----------------------           
as no Default or Event of Default has then occurred and is continuing, replace
any Lender that has requested additional amounts from the Borrower under SECTION
2.16(a), SECTION 2.16(b) or SECTION 2.17 or the obligation of which to make or
maintain LIBOR Loans has been suspended under SECTION 2.16(d), in either case by
written notice to such Lender and the Administrative Agent given not more than
thirty (30) days after any such event and identifying one or more Persons each
of which shall be reasonably 

                                      -40-
<PAGE>
 
acceptable to the Administrative Agent (each, a "Replacement Lender," and
collectively, the "Replacement Lenders") to replace such Lender (the "Replaced
Lender"), provided that (i) the notice from the Borrower to the Replaced Lender 
          --------                             
and the Administrative Agent provided for hereinabove shall specify an effective
date for such replacement (the "Replacement Effective Date"), which shall be at
least five (5) Business Days after such notice is given, (ii) as of the relevant
Replacement Effective Date, each Replacement Lender shall enter into an
Assignment and Acceptance with the Replaced Lender pursuant to SECTION 11.7(a)
(but shall not be required to pay the processing fee otherwise payable to the
Administrative Agent pursuant to SECTION 11.7(a)), pursuant to which such
Replacement Lenders collectively shall acquire, in such proportion among them as
they may agree with the Borrower and the Administrative Agent, all (but not less
than all) of the Commitment and outstanding Loans of the Replaced Lender, and,
in connection therewith, shall pay to the Replaced Lender, as the purchase price
in respect thereof, an amount equal to the sum as of the Replacement Effective
Date (without duplication) of (y) the unpaid principal amount of, and all
accrued but unpaid interest on, all outstanding Loans of the Replaced Lender and
(z) the Replaced Lender's ratable share of all accrued but unpaid fees owing to
the Replaced Lender hereunder, and (iii) all other obligations of the Borrower
owing to the Replaced Lender under this Agreement (other than those specifically
described in clause (ii) above in respect of which the assignment purchase price
has been, or is concurrently being, paid), including, without limitation,
amounts payable under SECTION 2.18 as a result of the actions required to be
taken under this SECTION 2.20, shall be paid in full by the Borrower to the
Replaced Lender on or prior to the Replacement Effective Date.


                                  ARTICLE III

                               LETTERS OF CREDIT

     3.1   Issuance.  Subject to and upon the terms and conditions herein set
           --------                                                          
forth, so long as no Default or Event of Default has occurred and is continuing,
the Issuing Lender will, at any time and from time to time on and after the
Closing Date and prior to the earlier of (i) the seventh day prior to the
Maturity Date and (ii) the Termination Date, and upon request by the Borrower in
accordance with the provisions of SECTION 3.3, issue for the account of the
Borrower one or more irrevocable standby letters of credit denominated in
Dollars and in a form customarily used or otherwise approved by the Issuing
Lender, and on the Closing Date the Issuing Lender shall be deemed to have
issued the Outstanding Letter of Credit (together with all amendments,
modifications and supplements thereto, substitutions therefor and renewals and
restatements thereof, collectively, the "Letters of Credit").  The Stated Amount
of each Letter of Credit shall not be less than such amount as may be acceptable
to the Issuing Lender.  Notwithstanding the foregoing:

     (a) No Letter of Credit shall be issued the Stated Amount upon issuance of
which (i) when added to the aggregate Letter of Credit Exposure of the Lenders
at such time, would exceed $10,000,000 or (ii) when added to the sum of (x) the
aggregate Letter of Credit Exposure of all Lenders at such time, (y) the
aggregate principal amount of all Revolving Loans then outstanding and (z) the
aggregate principal amount of all Swingline Loans then outstanding, would exceed
the aggregate Commitments at such time;

     (b) Unless the Issuing Lender otherwise agrees, there shall not be more
than five (5) Letters of Credit issued and outstanding at any time;

                                      -41-
<PAGE>
 
     (c) No Letter of Credit shall be issued that by its terms expires later
than the seventh day prior to the Maturity Date or, in any event, more than one
(1) year after its date of issuance; provided, however, that a Letter of Credit
                                     --------  -------                         
may, if requested by the Borrower, provide by its terms, and on terms acceptable
to the Issuing Lender, for renewal for successive periods of one year or less
(but not beyond the seventh day prior to the Maturity Date), unless and until
the Issuing Lender shall have delivered a notice of nonrenewal to the
beneficiary of such Letter of Credit; and

     (d) The Issuing Lender shall be under no obligation to issue any Letter of
Credit if, at the time of such proposed issuance, (i) any order, judgment or
decree of any Governmental Authority or arbitrator shall purport by its terms to
enjoin or restrain the Issuing Lender from issuing such Letter of Credit, or any
Requirement of Law applicable to the Issuing Lender or any request or directive
(whether or not having the force of law) from any Governmental Authority with
jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing
Lender refrain from, the issuance of letters of credit generally or such Letter
of Credit in particular or shall impose upon the Issuing Lender with respect to
such Letter of Credit any restriction or reserve or capital requirement (for
which the Issuing Lender is not otherwise compensated) not in effect on the
Closing Date, or any unreimbursed loss, cost or expense that was not applicable,
in effect or known to the Issuing Lender as of the Closing Date and that the
Issuing Lender in good faith deems material to it, or (ii) the Issuing Lender
shall have actual knowledge, or shall have received notice from any Lender,
prior to the issuance of such Letter of Credit that one or more of the
conditions specified in SECTIONS 4.1 (if applicable) or 4.2 are not then
satisfied (or have not been waived in writing as required herein) or that the
issuance of such Letter of Credit would violate the provisions of subsection (a)
above.

      3.2 Outstanding Letter of Credit.  The parties hereto agree that the
          ----------------------------                                    
Outstanding Letter of Credit will be treated as if it had been originally issued
under this Agreement, and as of the Closing Date the Outstanding Letter of
Credit shall be deemed to be a Letter of Credit for all purposes hereunder and
under the other Credit Documents.  Specifically, and without limitation of the
foregoing or the other provisions of this Article, (i) the Stated Amount of the
Outstanding Letter of Credit, for so long as the same shall be outstanding,
shall be included in calculating (y) the limit set forth in clause (i) of
SECTION 3.1(a) and (z) the aggregate Letter of Credit Exposure, (ii) each Lender
hereby absolutely and unconditionally agrees to pay to the Issuing Lender, in
accordance with SECTION 3.6, such Lender's pro rata share of each payment made
by the Issuing Lender under the Outstanding Letter of Credit, together with
interest in accordance with SECTION 3.6, and (iii) with respect to the
Outstanding Letter of Credit, the Issuing Lender shall have the benefit of all
agreements, covenants and indemnities of the Issuing Lender set forth in this
Agreement and shall comply with all agreements and obligations set forth herein
that bind the Issuing Lender, insofar as the same apply to Letters of Credit
generally.

      3.3 Notices.  Whenever the Borrower desires the issuance of a Letter of
          -------                                                            
Credit (other than the Outstanding Letter of Credit), the Borrower will give the
Issuing Lender written notice (or oral notice promptly confirmed in writing)
with a copy to the Administrative Agent not later than 1:00 p.m., Charlotte
time, three (3) Business Days (or such shorter period as is acceptable to the
Issuing Lender in any given case) prior to the requested date of issuance
thereof.  Each such notice (each, a "Letter of Credit Notice") shall be
irrevocable, shall be given in the form of EXHIBIT E (or, if oral notice is
given, shall be promptly followed with a writing in the form of EXHIBIT E) and
shall specify (i) the requested date of issuance, which shall be a Business Day,
(ii) the requested Stated Amount and expiry date of the Letter of Credit, and
(iii) the name and address of the requested beneficiary or beneficiaries of the
Letter of Credit.  The Borrower will also complete any application 

                                      -42-
<PAGE>
 
procedures and documents required by the Issuing Lender in connection with the
issuance of any Letter of Credit. Upon its issuance of any Letter of Credit, the
Issuing Lender will promptly notify the Administrative Agent of such issuance,
and the Administrative Agent will give prompt notice thereof to each Lender.

      3.4 Participations.  Immediately upon the issuance of any Letter of
          --------------                                                 
Credit, the Issuing Lender shall be deemed to have sold and transferred to each
Lender, and each Lender shall be deemed irrevocably and unconditionally to have
purchased and received from the Issuing Lender, without recourse or warranty, an
undivided interest and participation, pro rata (based on the percentage of the
aggregate Commitments represented by such Lender's Commitment), in such Letter
of Credit, each drawing made thereunder and the obligations of the Borrower
under this Agreement with respect thereto and any Collateral or other security
therefor or guaranty pertaining thereto; provided, however, that the fee
                                         --------  -------              
relating to Letters of Credit described in SECTION 2.9(d) shall be payable
directly to the Issuing Lender as provided therein, and the Lenders shall have
no right to receive any portion thereof. Upon any change in the Commitments of
any of the Lenders pursuant to SECTION 11.7(a), with respect to all outstanding
Letters of Credit and Reimbursement Obligations there shall be an automatic
adjustment to the participations pursuant to this Section to reflect the new pro
rata shares of the assigning Lender and the Assignee.

      3.5 Reimbursement.  The Borrower hereby agrees to reimburse the Issuing
          -------------                                                      
Lender by making payment to the Administrative Agent, for the account of the
Issuing Lender, in immediately available funds, for any payment made by the
Issuing Lender under any Letter of Credit (each such amount so paid until
reimbursed, together with interest thereon payable as provided hereinbelow, a
"Reimbursement Obligation") immediately after, and in any event within one (1)
Business Day after its receipt of notice of, such payment (provided that any
                                                           --------         
such Reimbursement Obligation shall be deemed timely satisfied (but nevertheless
subject to the payment of interest thereon as provided hereinbelow) if satisfied
pursuant to a Borrowing of Revolving Loans made on or prior to the next Business
Day following the date of the Borrower's receipt of notice of such payment),
together with interest on the amount so paid by the Issuing Lender, to the
extent not reimbursed prior to 1:00 p.m., Charlotte time, on the date of such
payment or disbursement, for the period from the date of the respective payment
to the date the Reimbursement Obligation created thereby is satisfied, at the
Alternate Base Rate as in effect from time to time during such period, such
interest also to be payable on demand.  The Issuing Lender will provide the
Administrative Agent and the Borrower with prompt notice of any payment or
disbursement made under any Letter of Credit, although the failure to give, or
any delay in giving, any such notice shall not release, diminish or otherwise
affect the Borrower's obligations under this Section or any other provision of
this Agreement.  The Administrative Agent will promptly pay to the Issuing
Lender any such amounts received by it under this Section.

      3.6 Payment by Revolving Loans.  In the event that the Issuing Lender
          --------------------------                                       
makes any payment under any Letter of Credit and the Borrower shall not have
timely satisfied in full its Reimbursement Obligation to the Issuing Lender
pursuant to SECTION 3.5, and to the extent that any amounts then held in the
Cash Collateral Account established pursuant to SECTION 3.9 shall be
insufficient to satisfy such Reimbursement Obligation in full, the Issuing
Lender will promptly notify the Administrative Agent, and the Administrative
Agent will promptly notify each Lender, of such failure.  If the Administrative
Agent gives such notice prior to 11:00 a.m., Charlotte time, on any Business
Day, each Lender will make available to the Administrative Agent, for the
account of the Issuing Lender, its pro rata share (based on the percentage of
the aggregate Commitments represented by such Lender's Commitment) of the amount
of such payment on such Business Day in immediately 

                                      -43-
<PAGE>
 
available funds. If the Administrative Agent gives such notice after 11:00 a.m.,
Charlotte time, on any Business Day, each such Lender shall make its pro rata
share of such amount available to the Administrative Agent on the next
succeeding Business Day. If and to the extent any Lender shall not have so made
its pro rata share of the amount of such payment available to the Administrative
Agent, such Lender agrees to pay to the Administrative Agent, for the account of
the Issuing Lender, forthwith on demand such amount, together with interest
thereon at the Federal Funds Rate for each day from such date until the date
such amount is paid to the Administrative Agent. The failure of any Lender to
make available to the Administrative Agent its pro rata share of any payment
under any Letter of Credit shall not relieve any other Lender of its obligation
hereunder to make available to the Administrative Agent its pro rata share of
any payment under any Letter of Credit on the date required, as specified above,
but no Lender shall be responsible for the failure of any other Lender to make
available to the Administrative Agent such other Lender's pro rata share of any
such payment. Each such payment by a Lender under this SECTION 3.6 of its pro
rata share of an amount paid by the Issuing Lender shall constitute a Revolving
Loan by such Lender (the Borrower being deemed to have given a timely Notice of
Revolving Borrowing therefor) and shall be treated as such for all purposes of
this Agreement; provided that for purposes of determining the aggregate
                --------
Unutilized Commitments immediately prior to giving effect to the application of
the proceeds of such Revolving Loans, the Reimbursement Obligation being
satisfied thereby shall be deemed not to be outstanding at such time.

      3.7 Payment to Lenders.  Whenever the Issuing Lender receives a payment in
          ------------------                                                    
respect of a Reimbursement Obligation as to which the Administrative Agent has
received, for the account of the Issuing Lender, any payments from the Lenders
pursuant to SECTION 3.6, the Issuing Lender will promptly pay to the
Administrative Agent, and the Administrative Agent will promptly pay to each
Lender that has paid its pro rata share thereof, in immediately available funds,
an amount equal to such Lender's ratable share (based on the proportionate
amount funded by such Lender to the aggregate amount funded by all Lenders) of
such Reimbursement Obligation.

      3.8 Obligations Absolute.  The Reimbursement Obligations of the Borrower,
          --------------------                                                 
and the obligations of the Lenders under SECTION 3.6 to make payments to the
Administrative Agent, for the account of the Issuing Lender, with respect to
Letters of Credit, shall be irrevocable, shall remain in effect until the
Issuing Lender shall have no further obligations to make any payments or
disbursements under any circumstances with respect to any Letter of Credit, and,
except to the extent resulting from any gross negligence or willful misconduct
on the part of the Issuing Lender, shall be absolute and unconditional, shall
not be subject to counterclaim, setoff or other defense or any other
qualification or exception whatsoever and shall be made in accordance with the
terms and conditions of this Agreement under all circumstances, including,
without limitation, any of the following circumstances:

     (a) Any lack of validity or enforceability of this Agreement, any of the
other Credit Documents or any documents or instruments relating to any Letter of
Credit;

     (b) Any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations in respect of any Letter of Credit or any
other amendment, modification or waiver of or any consent to departure from any
Letter of Credit or any documents or instruments relating thereto, in each case
whether or not the Borrower has notice or knowledge thereof;

     (c) The existence of any claim, setoff, defense or other right that the
Borrower may have at any time against a beneficiary named in a Letter of Credit,
any transferee of any Letter of Credit 

                                      -44-
<PAGE>
 
(or any Person for whom any such transferee may be acting), the Administrative
Agent, the Issuing Lender, any Lender or other Person, whether in connection
with this Agreement, any Letter of Credit, the transactions contemplated hereby
or any unrelated transactions (including any underlying transaction between the
Borrower and the beneficiary named in any such Letter of Credit);

     (d) Any draft, certificate or any other document presented under the Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
(provided that such draft, certificate or other document appears on its face to
 --------                                                                      
comply with the terms of such Letter of Credit), any errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
telecopier or otherwise, or any errors in translation or in interpretation of
technical terms;

     (e) Any defense based upon the failure of any drawing under a Letter of
Credit to conform to the terms of the Letter of Credit (provided that any draft,
                                                        --------                
certificate or other document presented pursuant to such Letter of Credit
appears on its face to comply with the terms thereof), any nonapplication or
misapplication by the beneficiary or any transferee of the proceeds of such
drawing or any other act or omission of such beneficiary or transferee in
connection with such Letter of Credit;

     (f) The exchange, release, surrender or impairment of any Collateral or
other security for the Obligations;

     (g) The occurrence of any Default or Event of Default; or

     (h) Any other circumstance or event whatsoever, including, without
limitation, any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Borrower or a guarantor.

Any action taken or omitted to be taken by the Issuing Lender under or in
connection with any Letter of Credit, if taken or omitted in the absence of
gross negligence or willful misconduct, shall be binding upon the Borrower and
each Lender and shall not create or result in any liability of the Issuing
Lender to the Borrower or any Lender.  It is expressly understood and agreed
that, for purposes of determining whether a wrongful payment under a Letter of
Credit resulted from the Issuing Lender's gross negligence or willful
misconduct, (i) the Issuing Lender's acceptance of documents that appear on
their face to comply with the terms of such Letter of Credit, without
responsibility for further investigation, regardless of any notice or
information to the contrary (so long as such documents appear on their face to
comply with the terms of such Letter of Credit), (ii) the Issuing Lender's
exclusive reliance on the documents presented to it under such Letter of Credit
as to any and all matters set forth therein, including the amount of any draft
presented under such Letter of Credit, whether or not the amount due to the
beneficiary thereunder equals the amount of such draft and whether or not any
document presented pursuant to such Letter of Credit proves to be insufficient
in any respect (so long as such document appears on its face to comply with the
terms of such Letter of Credit), and whether or not any other statement or any
other document presented pursuant to such Letter of Credit proves to be forged
or invalid or any statement therein proves to be inaccurate or untrue in any
respect whatsoever, and (iii) any noncompliance in any immaterial respect of the
documents presented under such Letter of Credit with the terms thereof shall, in
each case, be deemed not to constitute gross negligence or willful misconduct of
the Issuing Lender.

                                      -45-
<PAGE>
 
      3.9 Cash Collateral Account.  At any time and from time to time (i) after
          -----------------------                                              
the occurrence and during the continuance of an Event of Default, the
Administrative Agent, at the direction or with the consent of the Required
Lenders, may require the Borrower to deliver to the Administrative Agent such
additional amount of cash as is equal to the aggregate Stated Amount of all
Letters of Credit at any time outstanding (whether or not any beneficiary under
any Letter of Credit shall have drawn or be entitled at such time to draw
thereunder) and (ii) in the event of a prepayment under SECTION 2.6(b), or to
the extent any amount of a required prepayment under any of SECTIONS 2.6(c)
through 2.6(e) remains after prepayment of all outstanding Loans and
Reimbursement Obligations and termination of the Commitments, as contemplated by
SECTION 2.6(f), the Administrative Agent will retain such amount as may then be
required to be retained, such amounts in each case under clauses (i) and (ii)
above to be held by the Administrative Agent in a cash collateral account (the
"Cash Collateral Account").  The Borrower hereby grants to the Administrative
Agent, for the benefit of the Issuing Lender and the Lenders, a Lien upon and
security interest in the Cash Collateral Account and all amounts held therein
from time to time as security for Letter of Credit Exposure, and for application
to the Borrower's Reimbursement Obligations as and when the same shall arise.
The Administrative Agent shall have exclusive dominion and control, including
the exclusive right of withdrawal, over such account.  Other than any interest
on the investment of such amounts in Cash Equivalents, which investments shall
be made at the direction of the Borrower (unless a Default or Event of Default
shall have occurred and be continuing, in which case the determination as to
investments shall be made at the option and in the discretion of the
Administrative Agent), amounts in the Cash Collateral Account shall not bear
interest. Interest and profits, if any, on such investments shall accumulate in
such account.  In the event of a drawing, and subsequent payment by the Issuing
Lender, under any Letter of Credit at any time during which any amounts are held
in the Cash Collateral Account, the Administrative Agent will deliver to the
Issuing Lender an amount equal to the Reimbursement Obligation created as a
result of such payment (or, if the amounts so held are less than such
Reimbursement Obligation, all of such amounts) to reimburse the Issuing Lender
therefor.  Any amounts remaining in the Cash Collateral Account after the
expiration of all Letters of Credit and reimbursement in full of the Issuing
Lender for all of its obligations thereunder shall be held by the Administrative
Agent, for the benefit of the Borrower, to be applied against the Obligations in
such order and manner as the Administrative Agent may direct.  If the Borrower
is required to provide cash collateral pursuant to SECTION 2.6(b), such amount
(to the extent not applied as aforesaid) shall be returned to the Borrower on
demand, provided that after giving effect to such return (i) the sum of (x) the
        --------                                                               
aggregate principal amount of all Revolving Loans outstanding at such time, (y)
the aggregate principal amount of all Swingline Loans outstanding at such time
and (z) the aggregate Letter of Credit Exposure of all Lenders at such time
would not exceed the aggregate Commitments at such time and (ii) no Default or
Event of Default shall have occurred and be continuing at such time.  If the
Borrower is required to provide cash collateral as a result of an Event of
Default, such amount (to the extent not applied as aforesaid) shall be returned
to the Borrower within three (3) Business Days after all Events of Default have
been cured or waived.

      3.10 Effectiveness.  Notwithstanding any termination of the Commitments or
           -------------                                                        
repayment of the Loans, or both, the obligations of the Borrower under this
ARTICLE III shall remain in full force and effect until the Issuing Lender and
the Lenders shall have no further obligations to make any payments or
disbursements under any circumstances with respect to any Letter of Credit.

                                      -46-
<PAGE>
 
                                  ARTICLE IV

                            CONDITIONS OF BORROWING

      4.1 Conditions of Initial Borrowing.  The obligation of each Lender to
          -------------------------------                                   
make Loans in connection with the initial Borrowing hereunder, and the
obligation of the Issuing Lender to issue Letters of Credit hereunder on the
Closing Date, is subject to the satisfaction of the following conditions
precedent:

     (a) The Administrative Agent shall have received the following, each dated
as of the Closing Date (unless otherwise specified) and, except for the Notes
and any certificates or instruments required to be delivered under the Borrower
Pledge and Security Agreement and the Parent Pledge and Security Agreement, in
sufficient copies for each Lender:

           (i)    a Revolving Credit Note for each Lender that is a party hereto
     as of the Closing Date, in the amount of such Lender's Commitment, and a
     Swingline Note for the Swingline Lender, in the amount of the Swingline
     Commitment, in each case duly completed in accordance with the relevant
     provisions of SECTION 2.4 and executed by the Borrower;

           (ii)   the Parent Guaranty, duly completed and executed by each of
     Parent and Holdings;

           (iii)  the Borrower Pledge and Security Agreement, duly completed and
     executed by the Borrower, and the Parent Pledge and Security Agreement,
     duly completed and executed by each of Parent and Holdings, in each case
     together with any certificates evidencing the interests being pledged
     thereunder as of the Closing Date and undated assignments separate from
     certificate for any such certificate, duly executed in blank, and any
     promissory notes being pledged thereunder, duly endorsed in blank (or, in
     the case of uncertificated interests, appropriately completed and duly
     executed instructions for registration and notification thereof); and

           (iv)   the favorable opinions of (A) Kirkland & Ellis, special
     counsel to the Credit Parties, in substantially the form of EXHIBIT I-1,
     and (B) Heller Ehrman White & McAuliffe, special California counsel to the
     Credit Parties, in substantially the form of EXHIBIT I-2, in each case
     addressed to the Administrative Agent and the Lenders and addressing such
     other matters as the Administrative Agent or any Lender may reasonably
     request.

     (b) The Administrative Agent shall have received a certificate, signed by
the president, the chief executive officer or the chief financial officer of
Parent, in form and substance satisfactory to the Administrative Agent,
certifying that (i) all representations and warranties of Parent and the
Borrower contained in this Agreement and the other Credit Documents are true and
correct as of the Closing Date, both immediately before and after giving effect
to the consummation of the Transactions, the initial Loans hereunder and the
application of the proceeds thereof, (ii) no Default or Event of Default has
occurred and is continuing, both immediately before and after giving effect to
the consummation of the Transactions, the initial Loans hereunder and the
application of the proceeds thereof, and (iii) both immediately before and after
giving effect to the consummation of the Transactions, the initial Loans
hereunder and the application of the proceeds thereof, no Material 

                                      -47-
<PAGE>
 
Adverse Change has occurred since June 30, 1997, and there exists no event,
condition or state of facts that could reasonably be expected to result in a
Material Adverse Change.

     (c) The Administrative Agent shall have received a certificate of the
secretary or an assistant secretary of the Borrower, in form and substance
satisfactory to the Administrative Agent, certifying (i) that attached thereto
is a true and complete copy of the articles of organization and all amendments
thereto of the Borrower, certified as of a recent date by the Secretary of State
of the State of Delaware, and that the same has not been amended since the date
of such certification, and (ii) that attached thereto is a true and complete
copy of the limited liability company operating agreement of the Borrower and
all amendments thereto, as then in effect, and as to the incumbency and
genuineness of the signature of each officer of the Borrower executing this
Agreement or any of the other Credit Documents on behalf of the Borrower, and
attaching all such copies of the documents described above.

     (d) The Administrative Agent shall have received a certificate of the
secretary or an assistant secretary of Holdings, in form and substance
satisfactory to the Administrative Agent, certifying (i) that attached thereto
is a true and complete copy of the articles of organization and all amendments
thereto of Holdings, certified as of a recent date by the Secretary of State of
the State of Delaware, and that the same has not been amended since the date of
such certification, and (ii) that attached thereto is a true and complete copy
of the limited liability company operating agreement of Holdings and all
amendments thereto, as then in effect, and as to the incumbency and genuineness
of the signature of each officer of Holdings executing any of the Credit
Documents to which Holdings is a party on behalf of Holdings, and attaching all
such copies of the documents described above.

     (e) The Administrative Agent shall have received a certificate of the
secretary or an assistant secretary of Parent, in form and substance
satisfactory to the Administrative Agent, certifying (i) that attached thereto
is a true and complete copy of the certificate of incorporation and all
amendments thereto of Parent, certified as of a recent date by the Secretary of
State of the State of Delaware, and that the same has not been amended since the
date of such certification, (ii) that attached thereto is a true and complete
copy of the bylaws of Parent, as then in effect and as in effect at all times
from the date on which the resolutions referred to in clause (iii) below were
adopted to and including the date of such certificate and (iii) that attached
thereto is a true and complete copy of the resolutions adopted by the board of
directors of Parent (x) authorizing the execution, delivery and performance by
Parent of this Agreement and the other Credit Documents to which it is a party,
(y) authorizing, in its capacity as the managing member of Holdings, the
execution, delivery and performance by Holdings of the Credit Documents to which
Holdings is a party, and (z) authorizing, in its capacity as the managing member
of Holdings (in Holdings' capacity as the managing member of the Borrower), the
execution, delivery and performance by the Borrower of the Credit Documents to
which the Borrower is a party, and as to the incumbency and genuineness of the
signature of each officer of Parent executing any of such Credit Documents, and
attaching all such copies of the documents described above.

     (f) The Administrative Agent shall have received (i) a certificate as of a
recent date of the good standing of each of the Borrower, Holdings and Parent
under the laws of the State of Delaware, from the Secretary of State of
Delaware, (ii) a certificate as of a recent date of the qualification of Parent
to conduct business as a foreign corporation in the State of California, from
the Secretary of State of California, and (iii) certificates as of a recent date
of the qualification of the Borrower to 

                                      -48-
<PAGE>
 
conduct business as a foreign corporation in the States of Illinois and
California, from the Secretaries of State of Illinois and California.

     (g) All legal matters, documentation, and corporate or other proceedings
incident to the Transactions shall be satisfactory in form and substance to the
Administrative Agent and the Documentation Agent; all approvals, permits and
consents of any Governmental Authorities or other Persons required in connection
with the execution and delivery of this Agreement and the other Credit Documents
and the consummation of the Transactions (including, if required or solicited,
from the holders of the Subordinated Notes) shall have been obtained (without
the imposition of conditions that are not acceptable to the Administrative
Agent), and all related filings, if any, shall have been made, and all such
approvals, permits, consents and filings shall be in full force and effect and
the Administrative Agent shall have received such copies thereof as it shall
have requested; all applicable waiting periods shall have expired without any
adverse action being taken by any Governmental Authority having jurisdiction;
and no action, proceeding, investigation, regulation or legislation shall have
been instituted, threatened or proposed before, and no order, injunction or
decree shall have been entered by, any court or other Governmental Authority, in
each case to enjoin, restrain or prohibit, to obtain substantial damages in
respect of, or that is otherwise related to or arises out of, this Agreement,
any of the other Credit Documents or the consummation of the Transactions, or
that, in the opinion of the Administrative Agent, could reasonably be expected
to have a Material Adverse Effect.

     (h) The Administrative Agent shall have received evidence in form and
substance satisfactory to it that (i) the Initial Public Offering shall have
been consummated in all material respects in compliance with all applicable
Requirements of Law, and (ii) Parent shall have applied all of the Net Cash
Proceeds of the Initial Public Offering (other than the portion thereof
attributable to exercise of the over-allotment option in connection therewith)
to prepay an equivalent amount of the Existing Senior Indebtedness, all on terms
and conditions satisfactory to the Administrative Agent.

     (i) All transaction fees and expenses payable by or on behalf of the
Borrower in connection with the Transactions shall be in an aggregate amount
reasonably acceptable to the Administrative Agent, and the Administrative Agent
shall have received such evidence thereof in form and substance satisfactory to
it (including itemizations thereof) as it shall have reasonably requested.

     (j) The Administrative Agent shall have received certified reports from an
independent search service satisfactory to it listing (i) any judgment or tax
lien filing that names the Borrower as debtor in any of the jurisdictions listed
on Annex A to the Borrower Pledge and Security Agreement or that names Holdings
or Parent as debtor in any of the jurisdictions listed beneath its respective
name on Annex A to the Parent Pledge and Security Agreement and (ii) any Uniform
Commercial Code financing statement that names the Borrower, Holdings or Parent
as debtor in any of such jurisdictions, as applicable, and the results thereof
shall be satisfactory to the Administrative Agent.

     (k) The Administrative Agent shall have received evidence in form and
substance satisfactory to it that all filings, recordings, registrations and
other actions (including, without limitation, the filing of duly completed UCC-1
financing statements in each jurisdiction listed on Annex A to the Borrower
Pledge and Security Agreement or Annex A to the Parent Pledge and Security
Agreement) necessary or, in the reasonable opinion of the Administrative Agent,
desirable to perfect the Liens created by the Security Documents shall have been
completed, or arrangements satisfactory to the Administrative Agent for the
completion thereof shall have been made.

                                      -49-
<PAGE>
 
     (l) Since June 30, 1997, both immediately before and after giving effect to
the consummation of the Transactions, there shall not have occurred any Material
Adverse Change or any event, condition or state of facts that could reasonably
be expected to result in a Material Adverse Change.

     (m) The Borrower shall have paid (i) to First Union, the unpaid balance of
the fee described in paragraph (i) of the Fee Letter, (ii) to the Administrative
Agent, the initial payment of the annual administrative fee described in
paragraph (ii) of the Fee Letter, and (iii) all other fees and expenses of the
Administrative Agent and the Lenders required hereunder or under any other
Credit Document to be paid on or prior to the Closing Date (including fees and
expenses of counsel) in connection with this Agreement and the transactions
contemplated hereby.

     (n) The Administrative Agent shall have received a Covenant Compliance
Worksheet, duly completed and certified by the chief financial officer of Parent
and in form and substance satisfactory to the Administrative Agent,
demonstrating Parent's compliance with the financial covenants set forth in
SECTIONS 7.1 through 7.3 (at the levels applicable thereto as of September 30,
1997), determined on a pro forma basis as of June 30, 1997 after giving effect
to the making of the initial Loans hereunder and the consummation of the other
Transactions.  For purposes of the calculations under the foregoing Covenant
Compliance Worksheet, Consolidated Operating Cash Flow for the fiscal quarter
ended September 30, 1996 shall be deemed to be $14,600,000.

     (o) The Administrative Agent shall have received evidence satisfactory to
it that concurrently with the making of the initial Loans hereunder, (x) all
principal, interest and other amounts outstanding with respect to the Existing
Senior Indebtedness shall be repaid and satisfied in full, (y) all commitments
to extend credit under the Existing Senior Credit Agreement shall be terminated,
and (z) any Liens securing any Existing Senior Indebtedness shall be released.

     (p) The Administrative Agent shall have received evidence in form and
substance reasonably satisfactory to it that all of the requirements of SECTION
6.6 and those provisions of the Borrower Pledge and Security Agreement relating
to the maintenance of insurance have been satisfied, including receipt of
certificates of insurance evidencing the insurance coverages described on
SCHEDULE 5.17 and all other or additional coverages required under the Borrower
Pledge and Security Agreement and naming the Administrative Agent as loss payee
or additional insured, as its interests may appear.

     (q) The Administrative Agent shall have received an Account Designation
Letter, together with written instructions from an Authorized Officer, including
wire transfer information, directing the payment of the proceeds of the initial
Loans to be made hereunder.

     (r) The Administrative Agent and each Lender shall have received such other
documents, certificates, opinions and instruments in connection with the
transactions contemplated hereby as it shall have reasonably requested.

      4.2 Conditions of All Borrowings.  The obligation of each Lender to make
          ----------------------------                                        
any Loans hereunder, including the initial Loans (but excluding Revolving Loans
made for the purpose of repaying Refunded Swingline Loans pursuant to SECTION
2.2(e)), and the obligation of the Issuing Lender to issue any Letters of Credit
hereunder, is subject to the satisfaction of the following conditions precedent
on the relevant Borrowing Date or date of issuance:

                                      -50-
<PAGE>
 
     (a) The Administrative Agent shall have received a Notice of Revolving
Borrowing in accordance with SECTION 2.2(b), or (together with the Swingline
Lender) a Notice of Swingline Borrowing in accordance with SECTION 2.2(d), or
(together with the Issuing Lender) a Letter of Credit Notice in accordance with
SECTION 3.3, as applicable;

     (b) Each of the representations and warranties contained in ARTICLE V and
in the other Credit Documents shall be true and correct in all material respects
on and as of such Borrowing Date (including the Closing Date, in the case of the
initial Loans made hereunder) or date of issuance with the same effect as if
made on and as of such date, both immediately before and after giving effect to
the Loans to be made or Letter of Credit to be issued on such date (except to
the extent any such representation or warranty is expressly stated to have been
made as of a specific date, in which case such representation or warranty shall
be true and correct in all material respects as of such date); and

     (c) No Default or Event of Default shall have occurred and be continuing on
such date, both immediately before and after giving effect to the Loans to be
made or Letter of Credit to be issued on such date.

     Each giving of a Notice of Revolving Borrowing, a Notice of Swingline
Borrowing or a Letter of Credit Notice, and the consummation of each Borrowing
or issuance of a Letter of Credit, shall be deemed to constitute a
representation by the Borrower that the statements contained in subsections (b)
and (c) above are true, both as of the date of such notice or request and as of
the relevant Borrowing Date or date of issuance.


                                   ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

     To induce the Administrative Agent and the Lenders to enter into this
Agreement and to induce the Lenders to extend the credit contemplated hereby,
each of Parent and the Borrower represents and warrants to the Administrative
Agent and the Lenders as follows:

      5.1 Organization and Power.  Each Credit Party (i) is a limited liability
          ----------------------                                               
company, corporation, partnership or other business organization duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, (ii) has the full limited liability company, corporate,
partnership or other applicable power and authority to execute, deliver and
perform the Credit Documents to which it is or will be a party, to own and hold
its property and to engage in its business as presently conducted, and (iii) is
duly qualified to do business as a foreign limited liability company,
corporation, partnership or other business organization and is in good standing
in each jurisdiction where the nature of its business or the ownership of its
properties requires it to be so qualified, except where the failure to be so
qualified could not, individually or in the aggregate, be reasonably expected to
have a Material Adverse Effect.

      5.2 Authorization; Enforceability.  Each Credit Party has taken, or on the
          -----------------------------                                         
Closing Date will have taken, all necessary limited liability company or
corporate action to execute, deliver and perform each of the Credit Documents to
which it is or will be a party, and has, or on the Closing Date (or any later
date of execution and delivery) will have, validly executed and delivered each
of the Credit Documents to which it is or will be a party.  This Agreement
constitutes, and each of the 

                                      -51-
<PAGE>
 
other Credit Documents upon execution and delivery will constitute, the legal,
valid and binding obligation of each of the Credit Parties that is a party
hereto or thereto, enforceable against it in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally or by
general equitable principles or principles of good faith and fair dealing.

      5.3 No Violation.  The execution, delivery and performance by each Credit
          ------------                                                         
Party of this Agreement and each of the other Credit Documents to which it is or
will be a party, compliance by it with the terms hereof and thereof, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (i) violate any provision of its articles of organization, certificate
of incorporation, certificate of partnership, operating agreement, bylaws,
partnership agreement or other constituent documents, as applicable, or
contravene any other Requirement of Law applicable to it, (ii) conflict with,
result in a breach of or constitute (with notice, lapse of time or both) a
default under any indenture, agreement or other instrument to which it is a
party, by which it or any of its properties is bound or to which it is subject,
(iii) require any approval of stockholders, members or partners of any Credit
Party or any approval or consent of any Person under any agreement to which any
Credit Party is a party, except for such approvals or consents which will be
obtained on or before the Closing Date and disclosed in writing to the Lenders
or such approvals or consents the failure of which to obtain could not
reasonably be expected, singly or in the aggregate, to have a Material Adverse
Effect, or (iv) except for the Liens granted pursuant to the Security Documents,
result in or require the creation or imposition of any Lien upon any of its
properties or assets.  No Subsidiary of the Borrower is subject to any
restriction or encumbrance on its ability to make dividend payments or other
distributions in respect of its Capital Stock, to repay Indebtedness owed to the
Borrower or any other Subsidiary of the Borrower, to make loans or advances to
the Borrower or any other Subsidiary of the Borrower, or to transfer any of its
assets or properties to the Borrower or any other Subsidiary of the Borrower, in
each case other than such restrictions or encumbrances existing under or by
reason of (i) the Credit Documents, (ii) applicable Requirements of Law, (iii)
customary non-assignment provisions in any lease governing a leasehold interest,
(iv) the terms of licenses of trademarks and copyrights entered into in the
ordinary course of business, and (v) other contractual restrictions in respect
of assets not material to the business of the Credit Parties, taken as a whole.

      5.4 Governmental Authorization; Permits.  (a)  No consent, approval,
          -----------------------------------                             
authorization or other action by, notice to, or registration or filing with, any
Governmental Authority or other Person is or will be required as a condition to
or otherwise in connection with the due execution, delivery and performance by
any Credit Party of this Agreement or any of the other Credit Documents to which
it is or will be a party or the legality, validity or enforceability hereof or
thereof, other than (i) filings of Uniform Commercial Code financing statements
and other instruments and actions necessary to perfect the Liens created by the
Security Documents, (ii) consents that would be required in respect of the
leases referred to in clause (iii) of SECTION 5.3, and (iii) consents the
failure to obtain which would not, individually or in the aggregate, have a
Material Adverse Effect.

     (b) Each Credit Party has, and is in good standing with respect to, all
governmental approvals, licenses, permits and authorizations necessary to
conduct its business as presently conducted and to own or lease and operate its
properties, except for those the failure to obtain which could not be reasonably
expected, individually or in the aggregate, to have a Material Adverse Effect.

      5.5 Litigation.  There are no actions, investigations, suits or
          ----------                                                 
proceedings pending or, to the knowledge of Parent or the Borrower (after due
investigation) threatened, at law, in equity or in 

                                      -52-
<PAGE>
 
arbitration, before any court, other Governmental Authority or other Person
("Litigation"), (i) against or affecting any Credit Party or any of such
Person's properties that could, if adversely determined, be reasonably expected
to have a Material Adverse Effect, or (ii) with respect to this Agreement, any
of the other Credit Documents or any of the Transactions. Neither Parent nor the
Borrower has been advised that there is a reasonable likelihood of an adverse
determination of any Litigation, which adverse determination, should it occur,
would have a Material Adverse Effect.

      5.6 Taxes.  Each Credit Party has timely filed all federal and all
          -----                                                         
material state and local tax returns and reports required to be filed by it and
has paid all taxes, assessments, fees and other charges levied upon it or upon
its properties that are shown thereon as due and payable, other than those that
are being contested in good faith and by proper proceedings and for which
adequate reserves have been established in accordance with Generally Accepted
Accounting Principles.  Such returns accurately reflect in all material respects
all liability for taxes of the Borrower and its Subsidiaries for the periods
covered thereby.  There is no ongoing audit or examination or, to the knowledge
of Parent or the Borrower, other investigation by any Governmental Authority of
the tax liability of any Credit Party and there is no unresolved claim by any
Governmental Authority concerning the tax liability of any Credit Party for any
period for which tax returns have been or were required to have been filed,
other than claims for which adequate reserves have been established in
accordance with Generally Accepted Accounting Principles.  No Credit Party has
waived or extended or has been requested to waive or extend the statute of
limitations relating to the payment of any taxes.

      5.7 Subsidiaries.  As of the Closing Date, no Credit Party has any
          ------------                                                  
Subsidiaries or otherwise has any equity or other ownership interest in any
corporation, partnership, joint venture or other Person, except as set forth on
SCHEDULE 5.7.  SCHEDULE 5.7 indicates, as to each such Subsidiary of any Credit
Party as of the Closing Date and after giving effect to the Transactions, each
direct owner of its Capital Stock and such owner's percentage ownership thereof.
On the Closing Date and immediately after giving effect to the Transactions, (i)
Holdings will directly own 99.9% of the outstanding membership interests in the
Borrower, (ii) Parent will directly own 0.1% of the outstanding membership
interests in the Borrower, and (iii) Parent will directly or indirectly own all
of the outstanding membership interests in Holdings.

      5.8 Full Disclosure.  All factual information (including, without
          ---------------                                              
limitation, factual information set forth in the Registration Statement)
furnished to the Administrative Agent or any Lender on or prior to the Closing
Date in writing by or on behalf of any Credit Party for purposes of or in
connection with this Agreement, the transactions contemplated hereby and the
other Transactions is, and all other such factual information hereafter
furnished to the Administrative Agent or any Lender in writing by or on behalf
of any Credit Party will be, true and accurate in all material respects on the
date as of which such information is dated or certified (or, if such information
has been amended or supplemented, on the date as of which any such amendment or
supplement is dated or certified) and not made incomplete by omitting to state a
material fact necessary to make the statements contained therein, in light of
the circumstances under which such information was provided, not misleading.  No
fact is known, no condition exists nor has any event occurred which has not been
disclosed herein or in any other document, certificate or statement furnished to
the Administrative Agent or the Lenders for use in the transactions contemplated
hereby which, singly or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

                                      -53-
<PAGE>
 
      5.9  Margin Regulations.  Neither the Borrower nor any of its Subsidiaries
           ------------------                                                   
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying Margin Stock.  No
proceeds of the Loans will be used, directly or indirectly, to purchase or carry
any Margin Stock, to extend credit for such purpose or for any other purpose
that would violate or be inconsistent with Regulations G, T, U or X or any
provision of the Exchange Act.

      5.10 Financial Matters.  (a)  The Borrower has heretofore furnished to the
           -----------------                                                    
Administrative Agent copies of (i) the audited balance sheets of Parent as of
December 31, 1996 and June 30, 1997, and the related statements of operations
and shareholders' equity and cash flows for the period from August 15, 1996 to
December 31, 1996 and the six months ended June 30, 1997, together with the
opinion of Ernst & Young LLP thereon, (ii) the audited consolidated balance
sheets of Holdings and its Subsidiaries as of December 31, 1996 and June 30,
1997, and the related consolidated statements of operations, members' equity and
cash flows for the three months ended December 31, 1996 and the six months ended
June 30, 1997, together with the opinion of Ernst & Young LLP thereon, and (iii)
the audited balance sheets of the Predecessor as of November 30, 1995 and
September 30, 1996, and the related statements of operations and divisional
equity and cash flows for each of the two years in the period ended November 30,
1995 and the ten months ended September 30, 1996, together with the opinion of
Ernst & Young LLP thereon.  Such financial statements have been prepared in
accordance with Generally Accepted Accounting Principles and present fairly the
financial condition of Parent, Holdings or the Predecessor, as the case may be
(and with respect to Holdings, on a consolidated basis), as of the respective
dates thereof and the results of operations and cash flows of Parent, Holdings
or the Predecessor, as the case may be (and with respect to Holdings, on a
consolidated basis), for the respective periods then ended.  Except as fully
reflected in the most recent financial statements referred to above and the
notes thereto, there are no material liabilities or obligations with respect to
any Credit Party of any nature whatsoever (whether absolute, contingent or
otherwise and whether or not due).  There has been no Material Adverse Change
since June 30, 1997, and there exists no event, condition or state of facts that
could reasonably be expected to result in a Material Adverse Change.

     (b) The Borrower has heretofore furnished to the Administrative Agent a
correct and complete copy of the Registration Statement as filed with the
Commission.  The unaudited pro forma balance sheet and statement of operations
of Parent set forth in the Registration Statement comply in all material
respects with the applicable accounting requirements of the Securities Act and
the rules and regulations thereunder, and in the opinion of Parent, the
assumptions on which the pro forma adjustments to such financial statements are
based provide a reasonable basis for presenting the significant effects of the
transactions contemplated thereby and such adjustments give appropriate effect
to such assumptions and are properly applied in such financial statements.

     (c) The Borrower has prepared, and has heretofore furnished to the
Administrative Agent a copy of, annual projected balance sheets and statements
of income and cash flows of the Borrower for the four-year period ending
December 31, 2000, giving effect to the consummation of the Transactions (the
"Projections").  In the opinion of management of the Borrower, the assumptions
used in the preparation of the Projections were fair, complete and reasonable
when made and continue to be fair, complete and reasonable as of the date
hereof.  The Projections have been prepared in good faith by the executive and
financial personnel of the Borrower, are complete and represent a reasonable
estimate of the future performance and financial condition of the Borrower,
subject to the 

                                      -54-
<PAGE>

uncertainties and approximations inherent in any projections and without any
representation or warranty that the projected results will be achieved.

     (d) Upon consummation of the Transactions and as of the Closing Date:

           (i)   The fair saleable value of the assets of the Borrower and each
     of its Subsidiaries, on a stand-alone basis, exceeds the amount that will
     reasonably be required to be paid on or in respect of the existing debts
     and other liabilities (including Contingent Obligations) of such Person as
     they mature.

           (ii)  The assets of each of the Borrower and each of its
     Subsidiaries, on a stand-alone basis, do not constitute unreasonably small
     capital for any such Person to carry out its business as conducted as of
     the Closing Date and as proposed to be conducted, including the capital
     needs of any such Person, taking into account the particular capital
     requirements of the business conducted and to be conducted by such Person,
     and the availability of capital in respect thereof (with reference, without
     limitation, to the Projections).

           (iii) The Borrower does not intend to, and does not intend to permit
     any of its Subsidiaries to, incur debts beyond its ability to pay such
     debts as they mature (taking into account the timing and amounts of cash to
     be payable on or in respect of debt of each of such Person). As of the
     Closing Date, the anticipated cash flow of the Borrower and each of its
     Subsidiaries, after taking into account all presently anticipated uses of
     the cash of each such Person, will at all times be sufficient to pay all
     amounts on or in respect of Indebtedness of each such Person when such
     amounts are, as anticipated as of the Closing Date, required to be paid.

           (iv)  The Borrower does not intend, and does not believe, that final
     judgments against any of the Borrower or its Subsidiaries in actions for
     money damages will be rendered at a time when, or in an amount such that,
     any such Person will be unable to satisfy any such judgments promptly in
     accordance with their terms (taking into account the maximum reasonable
     amount of such judgments in any such actions and the earliest reasonable
     time at which such judgments might be rendered).  The anticipated cash flow
     of the Borrower and each of its Subsidiaries, on a stand-alone basis, after
     taking into account all other anticipated uses of the cash of each such
     Person (including the payments on or in respect of debt referred to in
     clause (iii) of this SECTION 5.10(D)), will at all times be sufficient to
     pay all such judgments promptly in accordance with their terms.

     5.11 Ownership of Properties.  Each Credit Party (i) has good and
          -----------------------                                     
marketable title to all real property owned by it, (ii) holds interests as
lessee under valid leases in full force and effect with respect to all material
leased real and personal property used in connection with its business, (iii)
possesses or has rights to use licenses, patents, copyrights, trademarks,
service marks, trade names and other assets sufficient to enable it to continue
to conduct its business substantially as heretofore conducted and without any
material conflict with the rights of others, and (iv) has good title to all of
its other properties and assets reflected in the most recent financial
statements referred to in SECTION 5.10(a) (except as sold or otherwise disposed
of since the date thereof in the ordinary course of business), in each case
under (i), (ii), (iii) and (iv) above free and clear of all Liens other than
Permitted Liens, and other than encumbrances or restrictions that could not
reasonably be expected to have a Material Adverse Effect.  SCHEDULE 5.11 lists,
as of the Closing Date, all real 

                                      -55-
<PAGE>
 
property leasehold interests of each Credit Party, indicating in each case the
identity of the owner, the nature of the leased premises and the address of the
property. As of the Closing Date, no Credit Party owns any fee interest in any
real property.

      5.12 ERISA.  Each Plan is and has been administered in compliance in all
           -----                                                              
material respects with all applicable Requirements of Law, including, without
limitation, the applicable provisions of ERISA and the Internal Revenue Code.
No ERISA Event has occurred and is continuing or, to the knowledge of Parent or
the Borrower, is reasonably expected to occur with respect to any Plan, in
either case that could be reasonably expected, individually or in the aggregate,
to have a Material Adverse Effect.  No Plan has any Unfunded Pension Liability,
and neither the Borrower nor any ERISA Affiliate has engaged in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA, in either instance
where the same could be reasonably expected, individually or in the aggregate,
to have a Material Adverse Effect.  Neither the Borrower nor any ERISA Affiliate
is required to contribute to or has, or has at any time had, any liability to a
Multiemployer Plan.

      5.13 Environmental Matters.  (a)  No Hazardous Substances are or have been
           ---------------------                                                
generated, used, located, released, treated, disposed of or stored by any Credit
Party or, to the knowledge of Parent or the Borrower, by any other Person
(including any predecessor in interest) or otherwise, in, on or under any
portion of any real property, leased or owned, of any Credit Party, except as
could not reasonably be expected to have a Material Adverse Effect, and no
portion of any such real property or, to the knowledge of Parent or the
Borrower, any other real property at any time leased, owned or operated by any
Credit Party, has been contaminated by any Hazardous Substance; and no portion
of any real property, leased or owned, of any Credit Party has been or is
presently the subject of an environmental audit, assessment or remedial action,
except for any such contamination, audit, assessment or remedial action that
could not reasonably be expected to have a Material Adverse Effect.

     (b) No portion of any real property leased or owned by any Credit Party as
of the Closing Date has been used by a Credit Party or, to the knowledge of
Parent or the Borrower, by any other Person, as or for a mine, a landfill, a
dump or other disposal facility, a gasoline service station, or (other than for
petroleum substances stored in the ordinary course of business) a petroleum
products storage facility; no portion of such real property or any other real
property at any time leased, owned or operated by any Credit Party has, pursuant
to any Environmental Law, been placed on the "National Priorities List" or
"CERCLIS List" (or any similar federal or state list) of sites subject to
possible environmental problems; and there are not, and to Parent or the
Borrower's knowledge have never been, any underground or above-ground storage
tanks situated on any real property currently leased or owned by any Credit
Party.

     (c) Each Credit Party has obtained all licenses and permits under
Environmental Laws necessary to their respective operations, and all such
licenses and permits are being maintained in good standing, and each Credit
Party is in compliance with all material terms and conditions of such licenses
and permits, except for any such failure to obtain, maintain or comply which
could not reasonably be expected to have a Material Adverse Effect.

     (d) No Credit Party has received (i) any notice or claim to the effect that
it is or may be liable to any Person under any Environmental Law, including
without limitation, any claim relating to any Hazardous Materials except as
could not reasonably be expected to have a Material Adverse Effect or (ii) any
letter or request for information under Section 104 of the Comprehensive

                                      -56-
<PAGE>
 
Environmental Response, Compensation, and Liability Act (42 U.S.C. (S) 9604) or
comparable foreign or state laws regarding any matter which could reasonably be
expected to result in a Material Adverse Effect, and, to the best of Parent or
the Borrower's knowledge, no Credit Party is involved in any investigation,
response or corrective action relating to or in connection with any Hazardous
Materials at any real property occupied by such Person or at any other location
except for such of the foregoing which could not reasonably be expected to have
a Material Adverse Effect.

     (e) No Credit Party is subject to any judicial or administrative proceeding
alleging the violation of or liability under any Environmental Laws which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect.

     (f) No Credit Party nor any of its respective properties or operations is
subject to any outstanding written order or agreement with any governmental
authority or private party relating to (i) any actual or potential violation of
or liability under any Environmental Laws or (ii) any Environmental Claims,
except for such of the foregoing which could not reasonably be expected to have
a Material Adverse Effect.

     (g) No Credit Party or, to the best of Parent or the Borrower's knowledge,
any predecessor of any Credit Party, has filed any notice under any
Environmental Law indicating past or present ownership or operation of a
hazardous waste treatment, storage or disposal facility, as defined under 40
C.F.R. Parts 260-270 or any state equivalent.

     (h) No Lien in favor of any Person relating to or in connection with any
Environmental Claim has attached to any property currently owned by any Credit
Party, except for any such Lien which could not reasonably be expected to have a
Material Adverse Effect.

     (i) All activities and operations of each Credit Party are in compliance
with the requirements of all applicable Environmental Laws, except to the extent
the failure so to comply, individually or in the aggregate, could not be
reasonably expected to have a Material Adverse Effect. No Credit Party is
involved in any suit, action or proceeding, or has received any notice,
complaint or other request for information from any Governmental Authority or
other Person, in either case with respect to any actual, alleged or threatened
Environmental Claims that, if adversely determined, could be reasonably
expected, individually or in the aggregate, to have a Material Adverse Effect.

     (j) To Parent or the Borrower's knowledge, no event or condition has
occurred which may interfere with present compliance by any Credit Party with
any Environmental Law, or which may give rise to any liability of any Credit
Party under any Environmental Law, which individually or in the aggregate has
had or could reasonably be expected to have a Material Adverse Effect.

     5.14 Compliance With Governing Documents, Decrees and Laws.  (a)  No
          -----------------------------------------------------          
Credit Party is in violation of (i) its articles of incorporation, articles of
organization, bylaws, operating agreement or any other organizational documents
or (ii) any order, decree or judgment of any Governmental Authority having
jurisdiction over any such Person.

     (b) Each Credit Party has timely filed all material reports, documents and
other materials required to be filed by it under all applicable Requirements of
Law with any Governmental Authority, has retained all material records and
documents required to be retained by it under all applicable Requirements of
Law, and is otherwise in compliance with all applicable Requirements of 

                                      -57-
<PAGE>
 
Law in respect of the conduct of its business and the ownership and operation of
its properties, except for such Requirements of Law the failure to comply with
which, individually or in the aggregate, could not be reasonably expected to
have a Material Adverse Effect.

      5.15 Labor Relations.  Except as could not reasonably be expected to have
           ---------------                                                     
a Material Adverse Effect: (a) no Credit Party is engaged in any unfair labor
practice within the meaning of the National Labor Relations Act of 1947, as
amended; (b) there is (i) no unfair labor practice complaint before the National
Labor Relations Board, or grievance or arbitration proceeding arising out of or
under any collective bargaining agreement, pending or, to the knowledge of
Parent or the Borrower, threatened against any Credit Party, (ii) no strike,
lock-out, slowdown, stoppage, walkout or other labor dispute pending or, to the
knowledge of Parent or the Borrower, threatened against any Credit Party and
(iii) to the knowledge of Parent or the Borrower, no petition for certification
or union election or union organizing activities with respect to any Credit
Party; and (c) neither Parent nor the Borrower is aware of any existing or
imminent labor disturbance by the employees of any Credit Party's principal
suppliers, manufacturers or customers.

      5.16 Regulated Industries.  No Credit Party is (i) an "investment
           --------------------                                        
company," a company "controlled" by an "investment company," or an "investment
advisor," within the meaning of the Investment Company Act of 1940, as amended,
(ii) a "holding company," a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or (iii) subject to regulation under the Federal Power Act.

      5.17 Insurance.  SCHEDULE 5.17 sets forth a summary (that is true and
           ---------                                                       
correct in all material respects) of all insurance policies or arrangements
carried or maintained by any Credit Party as of the Closing Date.  The assets,
properties and business of the Credit Parties are insured against such hazards
and liabilities, under such coverages and in such amounts, as are customarily
maintained by prudent companies of established repute engaged in the same or
similar businesses and under policies issued by insurers of recognized
responsibility.

      5.18 Certain Contracts.  SCHEDULE 5.18 lists, as of the Closing Date and
           -----------------                                                  
after giving effect to the Transactions, each contract, agreement or commitment,
written or oral, to which any Credit Party is a party, by which any of them or
their respective properties is bound or to which any of them is subject and that
(i) relates to employment of senior executives of a Credit Party or labor
matters, (ii) evidences Funded Debt of a Credit Party, or (iii) the termination
of which by any party or the breach of which by a Credit Party could reasonably
be expected to have a Material Adverse Effect, in each case other than purchase
orders in the ordinary course of business and the Credit Documents, and also
indicates the parties, subject matter and term thereof.  As of the Closing Date,
each such contract is in full force and effect, and no Credit Party or, to the
knowledge of Parent or the Borrower, any other party thereto, is in default
under any such contract.

      5.19 Capitalization.  As of the Closing Date and after giving effect to
           --------------                                                    
the Transactions, the capitalization of each Credit Party (other than Parent) is
set forth on SCHEDULE 5.19.  All issued and outstanding Capital Stock of the
Borrower and each Subsidiary has been duly authorized and validly issued and, to
the extent applicable, is fully paid and nonassessable.  As of the Closing Date
after giving effect to the Transactions and other than with respect to the
Capital Stock of Parent, there will be no outstanding securities convertible
into or exchangeable for Capital Stock of any Credit Party or options, warrants
or other rights to purchase or subscribe for Capital Stock of any Credit 

                                      -58-
<PAGE>
 
Party or contracts, commitments, agreements, understandings or arrangements of
any kind to which any Credit Party is a party relating to the issuance of any
Capital Stock of such Credit Party, any such convertible or exchangeable
securities or any such options, warrants or rights. As of the Closing Date, no
stockholder or member of the Borrower or any of its Subsidiaries has any
preemptive rights to subscribe for any additional equity securities of such
Credit Party. Any issuance and sale of Capital Stock of the Borrower or any
Subsidiary, upon such issuance and sale, will either (a) have been registered or
qualified under applicable federal and state securities laws or (b) be exempt
therefrom. The Initial Public Offering, when consummated, will constitute a
"Qualified IPO" within the meaning of such term under the Securityholders
Agreement.

      5.20 Security Documents.  The provisions of each of the Security Documents
           ------------------                                                   
(whether executed and delivered prior to or on the Closing Date or thereafter)
are and will be effective to create in favor of the Administrative Agent, for
its benefit and the benefit of the Lenders, a valid and enforceable security
interest in and Lien upon all right, title and interest of each Credit Party
that is a party thereto in and to the Collateral purported to be pledged by such
Credit Party thereunder and described therein, and upon (i) the initial
extension of credit hereunder, (ii) the filing of appropriately completed
Uniform Commercial Code financing statements and continuations thereof in the
jurisdictions specified therein, (iii) the filing of appropriately completed
short-form assignments in the U.S. Patent and Trademark Office and the U.S.
Copyright Office, (iv) in the case of uncertificated securities, compliance with
Section 8-313 (or its successor provision) of the applicable Uniform Commercial
Code, and (v) the possession by the Administrative Agent of any certificates
evidencing the securities pledged thereby, such security interest and Lien shall
constitute a fully perfected and first priority security interest in and Lien
upon such right, title and interest of each such Credit Party in and to such
Collateral, to the extent that such security interest and Lien can be perfected
by such filings, actions and possession, subject only to Permitted Liens.


                                  ARTICLE VI

                             AFFIRMATIVE COVENANTS

     Each of Parent and the Borrower covenants and agrees that, until the
termination of the Commitments, the termination or expiration of all Letters of
Credit and the payment in full of all principal and interest with respect to the
Loans and all Reimbursement Obligations together with all other amounts then due
and owing hereunder:

      6.1 Financial Statements.  Parent will deliver to each Lender:
          --------------------                                      

     (a) As soon as available and in any event within forty-five (45) days after
the end of each of the first three fiscal quarters of each fiscal year,
beginning with the fiscal quarter ended September 30, 1997, (i) unaudited
consolidated balance sheets of Parent and its Subsidiaries as of the end of such
fiscal quarter and unaudited consolidated statements of income and cash flows
for Parent and its Subsidiaries for the fiscal quarter then ended and for that
portion of the fiscal year then ended, in each case setting forth comparative
consolidated figures as of the end of and for the corresponding period in the
preceding fiscal year, all in reasonable detail and prepared in accordance with
Generally Accepted Accounting Principles (subject to the absence of notes
required by Generally Accepted Accounting Principles and subject to normal year-
end adjustments) applied on a basis consistent with that of the preceding
quarter or containing disclosure of the effect on the financial condition or
results 

                                      -59-
<PAGE>
 
of operations of any change in the application of accounting principles and
practices during such quarter and (ii) if applicable, Parent's quarterly report
on Form 10-Q for such quarterly period;

     (b) As soon as available and in any event within 100 days after the end of
each fiscal year, beginning with the fiscal year ending December 31, 1997, (i)
an audited consolidated balance sheet of Parent and its Subsidiaries as of the
end of such fiscal year and audited consolidated statements of income and cash
flows for Parent and its Subsidiaries for the fiscal year then ended, in each
case setting forth comparative figures as of the end of and for the preceding
fiscal year, all in reasonable detail, together with (y) a report thereon by
Ernst & Young, LLP or another certified public accounting firm of recognized
national standing reasonably acceptable to the Required Lenders that is not
qualified as to going concern or scope of audit and to the effect that (A) such
financial statements present fairly the consolidated financial condition and
results of operations of Parent and its Subsidiaries as of the dates and for the
periods indicated in accordance with Generally Accepted Accounting Principles
applied on a basis consistent with that of the preceding year or containing
disclosure of the effect on the financial position or results of operations of
any change in the application of accounting principles and practices during such
year and (B) the examination by such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards, and (z) a report by such accountants to the effect that,
based on and in connection with their examination of the financial statements of
Parent and its Subsidiaries, such accountants obtained no knowledge of the
occurrence or existence of any Default or Event of Default relating to
accounting or financial reporting matters, or a statement specifying the nature
and period of existence of any such Default or Event of Default disclosed by
their audit; provided, however, that such accountants shall not be liable by
             --------  -------                                              
reason of the failure to obtain knowledge of any Default or Event of Default
that would not be disclosed or revealed in the course of their audit
examination, and (ii) if applicable, Parent's annual report on Form 10-K for
such year; and

     (c) As soon as available and in any event within sixty (60) days after the
end of each fiscal quarter of each fiscal year, beginning with the fiscal
quarter ended September 30, 1997, unaudited statements of profit and loss
(listing revenues, contribution profit and circulation figures) for each of the
top twenty publications (ranked by revenues) of the Borrower and its
Subsidiaries (and to the extent not already included in such group, the
Scheduled Titles) for such fiscal quarter.

      6.2 Other Business and Financial Information.  Parent will deliver to each
          ----------------------------------------                              
Lender:

     (a) Concurrently with each delivery of the financial statements described
in SECTION 6.1(a) or SECTION 6.1(b), a Compliance Certificate in the form of
EXHIBIT J with respect to the period covered by the financial statements then
being delivered, executed by a Financial Officer of Parent, together with a
Covenant Compliance Worksheet reflecting the computation of the financial
covenants set forth in SECTIONS 7.1 through 7.3 as of the last day of the period
covered by such financial statements;

     (b) As soon as available and in any event within thirty (30) days after the
end of each fiscal year, beginning with the fiscal year ending December 31,
1997, a consolidated operating budget for Parent and its Subsidiaries for the
succeeding fiscal year (prepared on a quarterly basis), together with a
certificate of a Financial Officer of Parent to the effect that such budget has
been prepared in good faith and is a reasonable estimate of the financial
position and results of operations of Parent and its Subsidiaries for the period
covered thereby and that such Financial Officer has no reason to believe such
budget is misleading in any material respect in light of the circumstances
existing at the time of 

                                      -60-
<PAGE>
 
preparation or delivery thereof (but without representation or warranty that the
results reflected therein will actually be achieved); and as soon as available
from time to time thereafter, any modifications or revisions to or restatements
of such budget;

     (c) Promptly upon receipt thereof, copies of all reports in final form
(other than reports of a routine or ministerial nature which are not material)
submitted to Parent by its independent certified public accountants in
connection with each annual, interim or special audit, including, without
limitation, any comment letter submitted by such accountants to management in
connection with their annual audit, and promptly upon completion thereof, any
response reports from Parent in respect thereof;

     (d) Promptly upon the sending, filing or receipt thereof, copies of (i) all
financial statements, reports, notices and proxy statements that Parent shall
send or make available generally to its stockholders, (ii) all regular, periodic
and special reports, registration statements and prospectuses (other than on
Form S-8) that Parent or the Borrower shall render to or file with the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc. or any national securities exchange and (iii) all press releases
and other statements made available generally by Parent or any of its
Subsidiaries to the public concerning material developments in the business of
Parent or any of its Subsidiaries;

     (e) Promptly upon (and in any event within five (5) Business Days after) a
Responsible Officer obtains knowledge thereof, written notice of any of the
following:

           (i)   the occurrence of any Default or Event of Default or of any
     condition or event that would be required to be disclosed in a current
     report filed with the Commission on Form 8-K (whether or not Parent is
     required to file such reports under the Exchange Act), together with a
     written statement of a Responsible Officer of Parent specifying the nature
     and period of existence of such event or condition and the action that
     Parent has taken, is taking and proposes to take with respect thereto;

           (ii)  the institution or threatened institution of any action, suit,
     investigation or proceeding against or affecting Parent or any of its
     Subsidiaries, including any such investigation or proceeding by any
     Governmental Authority (other than routine periodic inquiries,
     investigations or reviews), that seeks to enjoin or otherwise prevent the
     consummation of, or to recover damages or obtain relief as a result of, any
     of the Transactions, or that could, if adversely determined, be reasonably
     expected, individually or in the aggregate, to have a Material Adverse
     Effect, and any material development in any litigation or other proceeding
     previously reported pursuant to SECTION 5.5 or this SECTION 6.3(e)(ii);

           (iii) the receipt by Parent or any of its Subsidiaries from any
     Governmental Authority of any notice asserting any failure by Parent or any
     of its Subsidiaries to be in compliance with applicable Requirements of Law
     or that threatens the taking of any action against Parent or such
     Subsidiary or sets forth circumstances that, if taken or adversely
     determined, could be reasonably expected to have a Material Adverse Effect;

           (iv)  the occurrence of any ERISA Event that could be reasonably
     expected to have a Material Adverse Effect, together with (x) a written
     statement of a Responsible Officer of 

                                      -61-
<PAGE>
 
     the Borrower specifying the details of such ERISA Event and the action that
     the Borrower has taken, is taking and proposes to take with respect
     thereto, (y) a copy of any notice with respect to such ERISA Event that may
     be required to be filed with the PBGC and (z) a copy of any notice
     delivered by the PBGC to the Borrower or such ERISA Affiliate with respect
     to such ERISA Event;

          (v)    the occurrence of any material default under, or any proposed
     or threatened termination or cancellation of, any material contract or
     agreement to which Parent or any of its Subsidiaries is a party, the
     termination or cancellation of which could be reasonably expected to have a
     Material Adverse Effect;

          (vi)   the occurrence of any of the following: (x) the assertion of
     any Environmental Claim against or affecting Parent, any of its
     Subsidiaries or any of their respective real property, leased or owned; (y)
     the receipt by Parent or any of its Subsidiaries of notice of any alleged
     violation of or noncompliance with any Environmental Laws; or (z) the
     taking of any remedial action by Parent, any of its Subsidiaries or any
     other Person in response to the actual or alleged generation, storage,
     release, disposal or discharge of any Hazardous Substances on, to, upon or
     from any real property leased or owned by Parent or any of its
     Subsidiaries; but in each case under clauses (x), (y) and (z) above, only
     to the extent the same could be reasonably expected to have a Material
     Adverse Effect; and

          (vii)  any other matter or event that has, or could be reasonably
     expected to have, a Material Adverse Effect, together with a written
     statement of a Responsible Officer of Parent setting forth the nature and
     period of existence thereof and the action that Parent has taken, is taking
     and proposes to take with respect thereto;

     (f) At the same time provided to the holders of the Subordinated Notes (or
of any debt securities in respect of any Permitted Refinancing Indebtedness),
any information provided to such holders pursuant to Section 4.02 of the
Subordinated Note Indenture (or pursuant to any similar provisions of any
agreement or instrument in respect of such Permitted Refinancing Indebtedness);

     (g) Not later than the last day of each fiscal year of Parent, a report in
form and substance satisfactory to the Administrative Agent outlining all
material insurance coverage maintained as of the date of such report by Parent
and its Subsidiaries and all material insurance coverage planned to be
maintained by such Persons in the subsequent fiscal year;

     (h) Promptly after the availability thereof, copies of all material
amendments to the articles of incorporation or organization, bylaws, operating
agreement or other organizational documents of Parent or any of its
Subsidiaries; and

     (i) As promptly as reasonably possible, such other information about the
business, condition (financial or otherwise), operations or properties of Parent
or any of its Subsidiaries (including any Plan and any information required to
be filed under ERISA, and including any statements, audits or other reports
submitted by or on behalf of Parent or any of its Subsidiaries to any state
Governmental Authority) as the Administrative Agent or any Lender may from time
to time reasonably request.

                                      -62-
<PAGE>
 
      6.3 Existence; Franchises; Maintenance of Properties.  Parent will, and
          ------------------------------------------------                   
will cause each of its Subsidiaries to, (i) maintain and preserve in full force
and effect its limited liability company or corporate existence, as applicable,
except as expressly permitted otherwise by SECTION 8.1, (ii) obtain, maintain
and preserve in full force and effect all other rights, franchises, licenses,
permits, certifications, approvals and authorizations required by Governmental
Authorities and necessary to the ownership, occupation or use of its properties
or the conduct of its business, except to the extent the failure to do so could
not be reasonably expected to have a Material Adverse Effect, and (iii) keep all
material properties in good working order and condition (normal wear and tear
excepted) and from time to time make all necessary repairs to and renewals and
replacements of such properties, except to the extent that any of such
properties are obsolete or are being replaced.

      6.4 Compliance with Laws.  Parent will, and will cause each of its
          --------------------                                          
Subsidiaries to, comply in all respects with all Requirements of Law applicable
in respect of the conduct of its business and the ownership and operation of its
properties, except to the extent the failure so to comply could not be
reasonably expected to have a Material Adverse Effect.

      6.5 Payment of Obligations.  Parent will, and will cause each of its
          ----------------------                                          
Subsidiaries to, (i) pay all liabilities and obligations as and when due
(subject to any applicable subordination provisions), except to the extent
failure to do so could not be reasonably expected to have a Material Adverse
Effect, and (ii) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it, upon its income or profits or upon any of its
properties, prior to the date on which penalties would attach thereto, and all
lawful claims that, if unpaid, might become a Lien upon any of the properties of
Parent or any of its Subsidiaries; provided, however, that neither Parent nor
                                   --------  -------                         
any of its Subsidiaries shall be required to pay any such tax, assessment,
charge, levy or claim that is being contested in good faith and by proper
proceedings and as to which Parent or such Subsidiary is maintaining adequate
reserves with respect thereto in accordance with Generally Accepted Accounting
Principles, unless and until any tax lien notice has become effective with
respect thereto or until any lien resulting therefrom attaches to its properties
and becomes enforceable against its other creditors.

      6.6 Insurance.  Parent will, and will cause each of its Subsidiaries to,
          ---------                                                           
maintain with financially sound and reputable insurance companies insurance with
respect to its assets, properties and business, against such hazards and
liabilities, of such types and in such amounts, as is customarily maintained by
companies of established reputation engaged in the same or similar businesses
similarly situated, and maintain such other or additional insurance on such
terms and subject to such conditions as may be required under any Security
Document.

      6.7 Maintenance of Books and Records; Inspection.  Parent will, and will
          --------------------------------------------                        
cause each of its Subsidiaries to, (i) maintain adequate books, accounts and
records, in which full, true and correct entries in all material respects shall
be made of all financial transactions in relation to its business and
properties, and prepare all financial statements required under this Agreement,
in each case in accordance with Generally Accepted Accounting Principles and in
compliance with the requirements of any Governmental Authority having
jurisdiction over it, and (ii) permit employees or agents of the Administrative
Agent or any Lender to inspect its properties and examine or audit its books,
records, working papers and accounts and make copies and memoranda of them, and
to discuss its affairs, finances and accounts with its officers and employees
and, upon notice to Parent or the Borrower, the independent public accountants
of Parent and its Subsidiaries (and by this provision Parent authorizes such
accountants, in the presence of a Responsible Officer, to discuss the finances
and affairs of 

                                      -63-
<PAGE>
 
Parent and its Subsidiaries), all at such times and from time to time, upon
reasonable notice and during business hours, as may be reasonably requested.

      6.8  Permitted Acquisitions.  (a)  Subject to the provisions of subsection
           ----------------------                                               
(b) below and the requirements contained in the definition of Permitted
Acquisition, and subject to the other terms and conditions of this Agreement,
the Borrower may from time to time on or after the Closing Date effect Permitted
Acquisitions, provided that, with respect to each Permitted Acquisition:
              --------                                                  

           (i)   no Default or Event of Default shall have occurred and be
     continuing at the time of the consummation of such Permitted Acquisition or
     would exist immediately after giving effect thereto; and

           (ii)  the Acquisition Amount with respect thereto (to the extent
     paid or payable in cash (other than cash contributed to Parent (or paid to
     Parent in respect of the issuance or sale of Capital Stock of Parent) by
     any of the Permitted Holders and thereafter contributed by Parent to the
     Borrower specifically for the purpose of paying all or a portion of the
     Acquisition Amount, and which is in fact used solely for such purpose
     ("Designated Acquisition Funds")) and/or by the assumption of Indebtedness)
     shall not exceed $100,000,000.

     (b) The Borrower shall have delivered to the Administrative Agent and each
Lender the items listed in clauses (i) and (ii) below not less than ten (10)
Business Days prior to the consummation of any Permitted Acquisition with
respect to which the Acquisition Amount exceeds $10,000,000, and the items
listed in clauses (iii) and (iv) below not less than three (3) Business Days
prior thereto:

           (i)   a reasonably detailed description of the material terms of such
     Permitted Acquisition (including, without limitation, the purchase price
     and method and structure of payment) and of each Person or business that is
     the subject of such Permitted Acquisition (each, a "Target");

           (ii)  historical financial statements of the Target (or, if there
     are two or more Targets that are the subject of such Permitted Acquisition
     and that are part of the same consolidated group, consolidated historical
     financial statements for all such Targets) for the two (2) most recent
     fiscal years available and, if available, for any interim periods since the
     most recent fiscal year-end;

           (iii) consolidated projected income statements of Parent and its
     Subsidiaries (giving effect to such Permitted Acquisition and the
     consolidation with the Borrower of each relevant Target) for the three-year
     period following the consummation of such Permitted Acquisition, in
     reasonable detail, together with any appropriate statement of assumptions
     and pro forma adjustments; and

           (iv)  a certificate, in form and substance reasonably satisfactory to
     the Administrative Agent, executed by a Financial Officer of Parent,
     setting forth the Acquisition Amount and further to the effect that, to the
     best of such individual's knowledge, (x) the consummation of such Permitted
     Acquisition will not result in a violation of any provision of this SECTION
     6.8, and after giving effect to such Permitted Acquisition and any
     Borrowings 

                                      -64-
<PAGE>
 
     made in connection therewith, Parent will be in compliance with the
     financial covenants contained in SECTIONS 7.1 through 7.3, such compliance
     to be determined as of the last day of the fiscal quarter then most
     recently ended with regard to calculations made on a pro forma basis in
                                                          --- -----      
     accordance with Generally Accepted Accounting Principles as if each Target
     had been consolidated with Parent for those periods applicable to SECTION
     6.8 and such covenants (such calculations to be attached to the
     certificate), (y) Parent believes in good faith that it will continue to
     comply with such financial covenants for a period of one year following the
     date of the consummation of such Permitted Acquisition, and (z) after
     giving effect to such Permitted Acquisition and any Borrowings in
     connection therewith, Parent believes in good faith that it will have
     sufficient availability under the Commitments to meet its ongoing working
     capital requirements.

     (c) As soon as reasonably practicable after the consummation of any
Permitted Acquisition, the Borrower will deliver to the Administrative Agent and
each Lender a copy of the fully executed acquisition agreement (including
schedules and exhibits thereto) and other material documents and closing papers
delivered in connection therewith.

The consummation of each Permitted Acquisition shall be deemed to be a
representation and warranty by the Borrower that (except as shall have been
approved by the Required Lenders) all conditions thereto set forth in this
SECTION 6.8 and in the description furnished under clause (i) of subsection (b)
above have been satisfied in all material respects, that the same is permitted
in accordance with the terms of this Agreement and that the matters certified to
by the Financial Officer of Parent in the certificate referred to in clause (iv)
of subsection (b) above are, to the best of such individual's knowledge, true
and correct in all material respects as of the date such certificate is given,
which representation and warranty shall be deemed to be a representation and
warranty as of the date thereof for all purposes hereunder, including, without
limitation, for purposes of SECTIONS 4.2 and 9.1.

      6.9 Creation or Acquisition of Subsidiaries.  Subject to the provisions of
          ---------------------------------------                               
SECTION 8.5, the Borrower may from time to time create or acquire new
Subsidiaries in connection with Permitted Acquisitions or otherwise, and the
Subsidiaries of the Borrower may create or acquire new Subsidiaries, provided
                                                                     --------
that:

     (a) Concurrently with (and in any event within ten (10) Business Days
thereafter) the creation or direct or indirect acquisition by the Borrower
thereof, each such new Subsidiary (unless such Subsidiary is a Designated Non-
Guarantor Subsidiary) will execute and deliver to the Administrative Agent (i) a
Subsidiaries Guaranty (or an appropriate joinder to an existing Subsidiaries
Guaranty), pursuant to which such new Subsidiary shall guarantee the payment in
full of the Obligations of the Borrower under this Agreement and the other
Credit Documents, and (ii) a Subsidiaries Pledge and Security Agreement (or an
appropriate joinder to an existing Subsidiaries Pledge and Security Agreement),
pursuant to which such new Subsidiary shall grant to the Administrative Agent a
first priority Lien upon and security interest in its accounts receivable,
inventory, equipment, general intangibles and other personal property as
Collateral for its obligations under the Subsidiaries Guaranty, subject only to
Permitted Liens;

     (b) Concurrently with (and in any event within ten (10) Business Days
thereafter) the creation or acquisition of any new Subsidiary all or a portion
of the Capital Stock of which is directly owned by the Borrower, the Borrower
will execute and deliver to the Administrative Agent an appropriate amendment or
supplement to the Borrower Pledge and Security Agreement pursuant to 

                                      -65-
<PAGE>
 
which all of the Capital Stock of such new Subsidiary owned by the Borrower
shall be pledged to the Administrative Agent, together with the certificates
evidencing such Capital Stock and undated stock powers duly executed in blank;
and concurrently with (and in any event within ten (10) Business Days
thereafter) the creation or acquisition of any new Subsidiary all or a portion
of the Capital Stock of which is directly owned by another Subsidiary (the
"Parent Subsidiary"), the Parent Subsidiary will execute and deliver to the
Administrative Agent an appropriate joinder, amendment or supplement to the
Subsidiaries Pledge and Security Agreement, pursuant to which all of the Capital
Stock of such new Subsidiary owned by such Parent Subsidiary shall be pledged to
the Administrative Agent, together with the certificates evidencing such Capital
Stock and undated stock powers duly executed in blank (provided that no more
                                                       --------             
than 65% of the Capital Stock of any Foreign Subsidiary shall be required to be
pledged pursuant to this subsection (b)); and

     (c) As promptly as reasonably possible, the Borrower and its Subsidiaries
will deliver any such other documents, certificates and opinions (including
opinions of local counsel in the jurisdiction of organization of each such new
Subsidiary), in form and substance reasonably satisfactory to the Administrative
Agent, as the Administrative Agent may reasonably request in connection
therewith and will take such other action as the Administrative Agent may
reasonably request to create in favor of the Administrative Agent a perfected
security interest in the Collateral being pledged pursuant to the documents
described above.  In the event of a sale or other disposition of the Capital
Stock of any Subsidiary Guarantor in a transaction expressly permitted by or
pursuant to this Agreement or any other applicable Credit Document, such
Subsidiary Guarantor shall be released from its obligations under the applicable
Subsidiaries Guaranty, Subsidiaries Pledge and Security Agreement and any other
Security Documents to which it is a party, the security interest of the
Administrative Agent in the Collateral of such Subsidiary Guarantor pledged
thereunder shall be released, and in connection therewith the Administrative
Agent, at the request and expense of the Borrower, will execute and deliver to
such Subsidiary Guarantor such documents and instruments evidencing such release
or termination as the Borrower may reasonably request.

      6.10 Additional Security; Further Assurances.  (a)  The Borrower will, and
           ---------------------------------------                              
will cause each of its Subsidiaries (other than any Designated Non-Guarantor
Subsidiaries) to, grant to the Administrative Agent from time to time security
interests, Liens and mortgages in and upon such assets and properties of the
Borrower or such Subsidiary as are not covered by the Security Documents
executed and delivered on the Closing Date or pursuant to SECTION 6.9 and as may
be reasonably requested from time to time by the Required Lenders (including,
without limitation, Liens on assets acquired by the Borrower or a Subsidiary in
connection with any Permitted Acquisition).  Such security interests, Liens and
mortgages shall be granted pursuant to documentation in form and substance
reasonably satisfactory to the Required Lenders and shall constitute valid and
perfected security interests and Liens, subject to no Liens other than Permitted
Liens.  Without limitation of the foregoing, in connection with the grant of any
mortgage or deed of trust with respect to any interest in real property, the
Borrower will, and will cause each applicable Subsidiary to, at the Borrower's
expense, prepare, obtain and deliver to the Administrative Agent any
environmental assessments, appraisals, surveys, title insurance and other
matters or documents as the Administrative Agent may reasonably request or as
may be required under applicable banking laws and regulations.

     (b) Parent will, and will cause each of its Subsidiaries to, make, execute,
endorse, acknowledge and deliver any amendments, modifications or supplements
hereto and restatements hereof and any other agreements, instruments or
documents, and take any and all such other actions, as may from time to time be
reasonably requested by the Administrative Agent or the Required 

                                      -66-
<PAGE>
 
Lenders to perfect and maintain the validity and priority of the Liens granted
pursuant to the Security Documents and to effect, confirm or further assure or
protect and preserve the interests, rights and remedies of the Administrative
Agent and the Lenders under this Agreement and the other Credit Documents.

     6.11 Consents.  The Borrower shall use its best efforts to obtain duly
          --------                                                         
executed consents, in form and substance satisfactory to the Administrative
Agent, to the grant of a security interest by the Borrower pursuant to the
Borrower Pledge and Security Agreement in each contract listed on Annex D
thereto for which a consent has not previously been furnished as required by the
terms of such contract.

     6.12 Year 2000.  Parent will, and will cause each of its Subsidiaries to,
          ---------                                                           
take all necessary action to ensure that its computer-based systems are able to
operate and effectively process data including dates on and after January 1,
2000.  At the request of the Administrative Agent, Parent will provide to the
Administrative Agent evidence acceptable to the Administrative Agent of Parent's
Year 2000 compatibility.

     6.13 Post-Closing Transactions.  Parent will, on or prior to December 31,
          -------------------------                                           
1997 and in accordance with the provisions of SECTION 8.1, (i) cause PIC to be
merged with and into Parent or Holdings and (ii) cause Holdings to be merged
with and into the Borrower, and in connection therewith will take all such
actions as may be reasonably requested by the Administrative Agent, including
the execution of an amendment to the Parent Pledge and Security Agreement
reflecting the Parent's ownership and pledge to the Administrative Agent of all
of the outstanding membership interests in the Borrower; provided, however, that
                                                         --------  -------      
Parent will not cause Holdings to be merged with and into the Borrower prior to
the merger of PIC with and into Parent or Holdings or otherwise cause or permit
PIC to become the direct owner of any of the outstanding membership interests in
the Borrower.


                                  ARTICLE VII

                              FINANCIAL COVENANTS

     Each of Parent and the Borrower covenants and agrees that, until the
termination of the Commitments, the termination or expiration of all Letters of
Credit and the payment in full of all principal and interest with respect to the
Loans and all Reimbursement Obligations together with all other amounts then due
and owing hereunder:

      7.1 Leverage Ratio.  Parent will not permit the Leverage Ratio as of the
          --------------                                                      
last day of any fiscal quarter during the periods set forth below to be greater
than the ratio set forth below opposite such period:

                                      -67-
<PAGE>
 
<TABLE>
<CAPTION>
         Date                                Leverage Ratio
         ----                                --------------
         <S>                                 <C>
 
         September 30, 1997 through
            December 31, 1998                  4.50 : 1.0
 
         January 1, 1999 through
            December 31, 2000                  4.00 : 1.0
 
         January 1, 2001 through
            December 31, 2001                  3.75 : 1.0
 
         Thereafter                            3.50 : 1.0
</TABLE> 

     7.2 Interest Coverage Ratio. Parent will not permit the Interest Coverage
         -----------------------
Ratio as of the last day of any fiscal quarter during the periods set forth
below to be less than the ratio set forth below opposite such period:

<TABLE> 
<CAPTION> 
         Date                           Interest Coverage Ratio
         ----                           -----------------------
         <S>                            <C>  
         September 30, 1997 through
            September 30, 1998                 2.00 : 1.0
 
         October 1, 1998 through
            September 30, 1999                 2.25 : 1.0
 
         Thereafter                            2.50 : 1.0
</TABLE>

      7.3 Fixed Charge Coverage Ratio.  Parent will not permit the Fixed Charge
          ---------------------------                                          
Coverage Ratio as of the last day of any fiscal quarter, beginning with the
fiscal quarter ended September 30, 1997, to be less than 1.10 : 1.0.


                                 ARTICLE VIII

                               NEGATIVE COVENANTS

     Each of Parent and the Borrower covenants and agrees that, until the
termination of the Commitments, the termination or expiration of all Letters of
Credit and the payment in full of all principal and interest with respect to the
Loans and all Reimbursement Obligations together with all other amounts then due
and owing hereunder:

      8.1 Merger; Consolidation.  Parent will not, and will not permit or cause
          ---------------------                                                
any of its Subsidiaries to, liquidate, wind up or dissolve, or enter into any
consolidation, merger or other combination, or agree to do any of the foregoing;
provided, however, that:
--------  -------       

             (i) the Borrower may merge or consolidate with another Person so
     long as (w) the Borrower is the surviving entity, (x) if such other Person
     is a Subsidiary of the Borrower immediately prior to giving effect thereto,
     the aggregate of any cash or other assets 

                                      -68-
<PAGE>
 
     of the Borrower or any of its Subsidiaries received as consideration
     pursuant to such transaction by Persons other than the Borrower or a Wholly
     Owned Subsidiary of the Borrower shall be deemed to constitute an
     Investment made by the Borrower pursuant to clause (xiii) of SECTION 8.5,
     (y) if such other Person is not a Subsidiary of the Borrower immediately
     prior to giving effect thereto, such merger or consolidation shall
     constitute a Permitted Acquisition and the applicable conditions and
     requirements of SECTIONS 6.8 and 6.9 shall be satisfied, and (z)
     immediately after giving effect thereto, no Default or Event of Default
     would exist;

             (ii)   any Subsidiary of the Borrower may merge or consolidate with
     another Person so long as (w) the surviving entity is the Borrower or a
     Subsidiary Guarantor (which may be the acquired entity), (x) if such other
     Person is a Subsidiary of the Borrower immediately prior to giving effect
     thereto, the aggregate of any cash or other assets of the Borrower or any
     of its Subsidiaries received as consideration pursuant to such transaction
     by Persons other than the Borrower or a Wholly Owned Subsidiary of the
     Borrower shall be deemed to constitute an Investment made by the Borrower
     pursuant to clause (xiii) of SECTION 8.5, (y) if such other Person is not a
     Subsidiary of the Borrower immediately prior to giving effect thereto, such
     merger or consolidation shall constitute a Permitted Acquisition and the
     applicable conditions and requirements of SECTIONS 6.8 and 6.9 shall be
     satisfied, and (z) immediately after giving effect thereto, no Default or
     Event of Default would exist;

             (iii)  Holdings may merge with and into the Borrower so long as (y)
     the Borrower is the surviving entity, and (z) no Person other than Parent
     or a Wholly Owned Subsidiary receives any consideration; and

             (iv)   PIC may merge with and into Parent or Holdings so long as
     (y) Parent or Holdings, as the case may be, is the surviving entity, and
     (z) no Person other than Parent or a Wholly Owned Subsidiary receives any
     consideration.

      8.2 Indebtedness.  Parent will not, and will not permit or cause any of
          ------------                                                       
its Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness
other than:

             (i)    Indebtedness incurred under this Agreement, the Notes, the
     Parent Guaranty and any Subsidiaries Guaranty;

             (ii)   Indebtedness of the Borrower under the Subordinated Notes,
     in an aggregate principal amount at any time outstanding not to exceed
     $100,000,000 from and after the Closing Date (less the principal amount of
     any permitted payment, prepayment or redemption, including the principal
     amount of the Subordinated Note Redemption, if effected), and any Permitted
     Refinancing Indebtedness;

             (iii)  the subordinated guarantees of the Subordinated Notes by the
     Guarantors (as defined in the Subordinated Note Indenture) as set forth in
     the Subordinated Note Indenture, which guarantees are subordinated to the
     guarantees of the Obligations to at least the same extent and in the same
     manner as the Subordinated Notes are subordinated to the Obligations, and
     subordinated guarantees of the Permitted Refinancing Indebtedness, which
     guarantees are subordinated to the guarantees of the Obligations to at
     least the same extent and in the same manner as the Permitted Refinancing
     Indebtedness is subordinated to the Obligations;

                                      -69-
<PAGE>
 
             (iv)   accrued expenses (including salaries, accrued vacation and
     other compensation), current trade or other accounts payable and other
     current liabilities arising in the ordinary course of business and not
     incurred through the borrowing of money, provided that the same shall be
     paid within thirty (30) days of when due except to the extent being
     contested in good faith and by appropriate proceedings;

             (v)    loans and advances by Parent, the Borrower or any Subsidiary
     Guarantors to the Borrower or any other Subsidiary Guarantor, or by any
     Subsidiary Guarantor to Parent or the Borrower, provided that any such loan
                                                     --------                   
     or advance is subordinated in right and time of payment to the Obligations
     and is evidenced by a promissory note, in form and substance satisfactory
     to the Administrative Agent, pledged to the Administrative Agent pursuant
     to the Security Documents;

             (vi)   Indebtedness of the Borrower under Interest Rate Protection
     Agreements entered into for the purpose of hedging interest rate risk and
     not for speculation;

             (vii)  Indebtedness under Commodity Hedge Agreements entered into
     in the ordinary course of business consistent with reasonable business
     requirements and not for speculation;

             (viii) Indebtedness of the type described in, and secured by Liens
     of the type described in, clauses (iv) and (v) of SECTION 8.3;

             (ix)   Indebtedness consisting of guarantees made in the ordinary
     course of business by the Borrower or any of its Subsidiaries of
     obligations of the Borrower or any of its Subsidiaries, which obligations
     are otherwise permitted under this Agreement;

             (x)    Indebtedness of Parent in an aggregate principal amount not
     exceeding $5,000,000 outstanding at any time issued to repurchase its
     Capital Stock from former management employees in connection with their
     termination or departure, which repurchases are permitted under SECTION 8.6
     (provided that such Indebtedness is subordinated in right and time of
      --------                                                            
     payment to the Obligations on terms and conditions satisfactory to the
     Administrative Agent in its sole discretion); and

             (xi)   Indebtedness of the Borrower and its Subsidiaries incurred
     solely to finance the payment of all or part of the purchase price of any
     equipment, real property or other fixed assets acquired in the ordinary
     course of business, including Indebtedness in respect of capital lease
     obligations ("Purchase Money Indebtedness") and any refinancings, renewals
     or replacements of any such Purchase Money Indebtedness (subject to the
     limitations on the principal amount thereof set forth in this clause (xi)),
     and other Indebtedness of Parent and its Subsidiaries that is unsecured
     (other than Indebtedness specified in clauses (i) through (x) above), which
     Purchase Money Indebtedness and other unsecured Indebtedness shall not
     exceed $10,000,000 in the aggregate at any time.

      8.3  Liens.  Parent will not, and will not permit or cause any of its
           -----                                                           
Subsidiaries to, directly or indirectly, make, create, incur, assume or suffer
to exist, any Lien upon or with respect to any part of its property or assets,
whether now owned or hereafter acquired, or file or permit the filing of, or
permit to remain in effect, any financing statement or other similar notice of
any Lien 

                                      -70-
<PAGE>
 
with respect to any such property, asset, income or profits under the Uniform
Commercial Code of any state or under any similar recording or notice statute,
or agree to do any of the foregoing, other than the following (collectively,
"Permitted Liens"):

             (i)   Liens created under the Security Documents;

             (ii)  Liens in existence on the Closing Date and set forth on
     SCHEDULE 8.3;

             (iii) Liens imposed by law with respect to property or assets of
     the Borrower and its Subsidiaries, such as Liens of carriers, warehousemen,
     mechanics, materialmen and landlords, and other similar Liens incurred in
     the ordinary course of business for sums not constituting borrowed money
     that are not overdue for a period of more than thirty (30) days or that are
     being contested in good faith by appropriate proceedings and for which
     adequate reserves have been established in accordance with Generally
     Accepted Accounting Principles (if so required);

             (iv)  Liens (other than any Lien imposed by ERISA, the creation or
     incurrence of which would result in an Event of Default under SECTION
     9.1(j)) with respect to property or assets of the Borrower and its
     Subsidiaries incurred in the ordinary course of business in connection with
     worker's compensation, unemployment insurance or other forms of
     governmental insurance or benefits, or to secure the performance of letters
     of credit, bids, tenders, statutory obligations, surety and appeal bonds,
     leases, government contracts and other similar obligations (other than
     obligations for borrowed money) entered into in the ordinary course of
     business;

             (v)   Liens for taxes, assessments or other governmental charges or
     statutory obligations that are not delinquent or remain payable without any
     penalty or that are being contested in good faith by appropriate
     proceedings and for which adequate reserves have been established in
     accordance with Generally Accepted Accounting Principles (if so required);

             (vi)  Liens securing the Purchase Money Indebtedness permitted
     under clause (xi) of SECTION 8.2, provided that the aggregate principal
                                       -------- 
     amount at any time outstanding of all Indebtedness secured by such Liens,
     when combined with the aggregate amount of all other unsecured Indebtedness
     outstanding at such time incurred pursuant to clause (xi) of SECTION 8.2,
     does not exceed $10,000,000, and provided further that any such Lien (i)
                                      -------- -------                       
     shall attach to such property concurrently with or within twenty (20) days
     after the acquisition thereof by the Borrower or such Subsidiary, (ii)
     shall not exceed the lesser of (y) the fair market value of such property
     or (z) the cost thereof to the Borrower or such Subsidiary and (iii) shall
     not encumber any other property of the Borrower or any of its Subsidiaries;
     and the replacement, extension or renewal of any such Lien, provided that
                                                                 --------     
     such replacement, extension or renewal Lien shall not extend to or cover
     any property other than the property subject to such Lien immediately prior
     to such replacement, extension or renewal, and provided further that the
                                                    -------- -------         
     Indebtedness secured by such replacement, extension or renewal Lien is
     permitted under this Agreement;

             (vii) any attachment or judgment Lien not constituting an Event of
     Default under SECTION 9.1(i) that is being contested in good faith by
     appropriate proceedings and for which 

                                      -71-
<PAGE>
 
     adequate reserves have been established in accordance with Generally
     Accepted Accounting Principles (if so required);

           (viii) Liens arising from the filing, for notice purposes only, of
     financing statements in respect of operating leases;

           (ix)   Liens arising by operation of law in favor of depositary banks
     and collecting banks, incurred in the ordinary course of business;

           (x)    Liens consisting of restrictions on the transfer of securities
     pursuant to applicable federal and state securities laws;

           (xi)   interests of lessors and licensors under leases and licenses
     to which the Borrower or any of its Subsidiaries is a party;

           (xii)  with respect to any real property occupied by the Borrower or
     any of its Subsidiaries, all easements, rights of way, licenses and similar
     encumbrances on title that do not materially impair the use of such
     property for its intended purposes; and

           (xiii) Liens in favor of the trustee or agent under the Subordinated
     Note Indenture or any other agreement or indenture relating to Indebtedness
     of the Borrower permitted under clause (ii) of SECTION 8.2, covering sums
     required to be deposited with such trustee or agent thereunder.

      8.4 Disposition of Assets.  Parent will not, and will not permit or cause
          ---------------------                                                
any of its Subsidiaries to, sell, assign, lease, convey, transfer or otherwise
dispose of (whether in one or a series of transactions) all or any portion of
its assets, business or properties (including, without limitation, any Capital
Stock of any Subsidiary), or enter into any arrangement with any Person
providing for the lease by Parent or any Subsidiary as lessee of any asset that
has been sold or transferred by Parent or such Subsidiary to such Person, or
agree to do any of the foregoing, except for:

             (i)   sales of inventory and licenses or leases of intellectual
     property and other assets by the Borrower and its Subsidiaries, in each
     case in the ordinary course of business;

             (ii)  the sale or exchange by the Borrower or any of its
     Subsidiaries of used or obsolete equipment to the extent (y) the proceeds
     of such sale are applied towards, or such equipment is exchanged for,
     replacement equipment or (z) such equipment is no longer necessary for the
     operations of the Borrower or its applicable Subsidiary in the ordinary
     course of business;

             (iii) the sale or other disposition of any or all right, title and
     interest of the Borrower and its Subsidiaries in and to the assets and
     properties (other than cash) directly associated with the publications
     listed in SCHEDULE 8.4 (such assets and properties, collectively, the
     "Scheduled Titles"), and the sale or other disposition of any Investments
     made by the contribution of any of the Scheduled Titles to a joint venture,
     partnership or other Person (which may be a Subsidiary) as permitted by
     clause (xiii) of SECTION 8.5, in each 

                                      -72-
<PAGE>
 
     case provided that, in the good faith judgment of the Borrower, fair value
          --------                        
     is received in exchange for such sale or other disposition;

             (iv) the sale, lease or other disposition of assets by a Subsidiary
     of the Borrower to the Borrower or to another Wholly Owned Subsidiary of
     the Borrower if, immediately after giving effect thereto, no Default or
     Event of Default would exist; and

              (v) the sale or disposition of assets by Parent or any of its
     Subsidiaries outside the ordinary course of business for cash, provided
                                                                    --------
     that (w) the Net Cash Proceeds from such sales or dispositions, when
     aggregated with the Net Cash Proceeds from all other sales and dispositions
     not otherwise specifically permitted under this SECTION 8.4 that are
     consummated during the same fiscal quarter or the period of three
     consecutive fiscal quarters immediately prior thereto, do not exceed
     $10,000,000 in the aggregate for Parent and its Subsidiaries, (x) to the
     extent not theretofore expended or committed to be expended within a
     reasonable period to acquire assets or properties or otherwise reinvested
     in the businesses of the Borrower, such Net Cash Proceeds are delivered to
     the Administrative Agent within 180 days after receipt thereof for
     application in prepayment of the Loans in accordance with the provisions of
     SECTION 2.6(e), (y) in no event shall Parent or any of its Subsidiaries
     sell or otherwise dispose of any of the Capital Stock of any Subsidiary
     (other than a Subsidiary to which the Borrower has contributed no assets or
     properties other than assets consisting of Scheduled Titles), and (z)
     immediately after giving effect thereto, no Default or Event of Default
     would exist.

      8.5 Investments.  Parent will not, and will not permit or cause any of its
          -----------                                                           
Subsidiaries to, directly or indirectly, purchase, own, invest in or otherwise
acquire any Capital Stock, evidence of indebtedness or other obligation or
security or any interest whatsoever in any other Person, or make or permit to
exist any loans, advances or extensions of credit to, or any investment in cash
or by delivery of property in, any other Person, or purchase or otherwise
acquire (whether in one or a series of related transactions) any portion of the
assets, business or properties of another Person (including pursuant to an
Acquisition), or create or acquire any Subsidiary, or become a partner or joint
venturer in any partnership or joint venture (collectively, "Investments"), or
make a commitment or otherwise agree to do any of the foregoing, other than:

            (i)   Investments in Cash Equivalents;

            (ii)  Investments consisting of (a) purchases and acquisitions of
     inventory, supplies, materials and equipment, or (b) licenses or leases of
     intellectual property and other assets, in each case in the ordinary course
     of business,

            (iii) Investments consisting of loans and advances to employees for
     reasonable travel, relocation and business expenses in the ordinary course
     of business, extensions of trade credit in the ordinary course of business,
     and prepaid expenses incurred in the ordinary course of business;

            (iv)  without duplication, Investments consisting of Indebtedness
     permitted under clause (v) of SECTION 8.2;

            (v)   Investments existing on the Closing Date and described in
     SCHEDULE 8.5;

                                      -73-
<PAGE>
 
           (vi)   Investments of the Borrower under Interest Rate Protection
     Agreements entered into for the purpose of hedging interest rate risk and
     not for speculation;

           (vii)  Investments under Commodity Hedge Agreements entered into in
     the ordinary course of business consistent with reasonable business
     requirements and not for speculation;

           (viii) Investments consisting of endorsements for collection or
     deposit in the ordinary course of business;

           (ix)   Investments consisting of the making of capital contributions
     or the purchase of Capital Stock (a) by Parent and Holdings in the
     Borrower, (b) by the Borrower or any Subsidiary in any other Subsidiary
     that is (or after giving effect to such Investment will be) a Subsidiary
     Guarantor, and (c) by any Subsidiary in the Borrower;

           (x)    Permitted Acquisitions;

           (xi)   Investments of Parent contemplated by the activities described
     in SECTION 8.8(b);

           (xii)  Investments of the Borrower and its Subsidiaries consisting of
     the licensing of publication titles and other assets pursuant to joint
     marketing arrangements with other Persons;

           (xiii) Investments (other than Investments specified in clauses (i)
     through (xii) above) of the Borrower and its Subsidiaries in an aggregate
     amount, as valued at the time each such Investment is made, not exceeding
     $5,000,000 for all such Investments from and after the Closing Date (which
     Investments may include, without limitation, (a) Investments in Foreign
     Subsidiaries and other Designated Non-Guarantor Subsidiaries, (b)
     Investments consisting of the contribution by the Borrower to partnerships,
     joint ventures or other Persons (including Subsidiaries) of the Scheduled
     Titles and any additional Investments in such Persons, and (c) cash or
     other assets of the Borrower or any of its Subsidiaries received as
     consideration by any Person other than the Borrower or a Wholly Owned
     Subsidiary of the Borrower in a transaction permitted by SECTION 8.1);

           (xiv)  Investments in Capital Stock of Parent permitted under clause
     (v) of SECTION 8.6;

           (xv)   Permitted Subordinated Note Repurchases;

           (xvi)  Investments in the Borrower or any Subsidiary consisting of
     Designated Acquisition Funds; and

           (xvii) Investments existing as of the Closing Date by Parent in PIC
     and by the Borrower in Petersen Capital Corp.

      8.6 Restricted Payments.  (a)  Parent will not, and will not permit or
          -------------------                                               
cause any of its Subsidiaries to, directly or indirectly, declare or make any
dividend payment, or make any other distribution of cash, property or assets, in
respect of any of its Capital Stock or any warrants, rights 

                                      -74-
<PAGE>
 
or options to acquire its Capital Stock, or purchase, redeem, retire or
otherwise acquire for value any shares of its Capital Stock or any warrants,
rights or options to acquire its Capital Stock, or set aside funds for any of
the foregoing, except that:

           (i)   any Credit Party may declare and make dividend payments or
     other distributions payable solely in its Qualified Capital Stock (provided
                                                                        --------
     that, in the case of any such dividends or distributions by the Borrower or
     any of its Subsidiaries, such Capital Stock is pledged to the
     Administrative Agent pursuant to the Borrower Pledge and Security
     Agreement, the Parent Pledge and Security Agreement or a Subsidiaries
     Pledge and Security Agreement, as applicable);

           (ii)  each Wholly Owned Subsidiary of the Borrower may declare and
     make dividend payments or other distributions to the Borrower or another
     Wholly Owned Subsidiary of the Borrower, to the extent not prohibited under
     applicable Requirements of Law;

           (iii) the Borrower may declare and make cash dividend payments to
     Holdings and Parent from time to time in amounts necessary to enable Parent
     to pay required federal, state and local income taxes in respect of that
     portion of its consolidated earnings attributable to the operations of the
     Borrower and its Subsidiaries; provided, however, that the Borrower shall
                                    --------  -------                         
     not make any dividends or distributions under this clause (iii) unless, at
     the time made, the payment of such dividend or distribution is permitted
     under the Subordinated Note Indenture (or under any applicable agreement or
     instrument relating to any Permitted Refinancing Indebtedness) and the
     Borrower complies with all applicable conditions and requirements
     thereunder;

           (iv)  so long as no Default or Event of Default shall have occurred
     and is continuing or would result therefrom, the Borrower may make dividend
     payments or other distributions of cash to Parent in an amount not in
     excess of (y) $1,000,000 per fiscal year solely for the purpose of paying
     fees and expenses of the Credit Parties, including directors' fees, less
     (z) the amount of any management, advisory, consulting and similar fees
     paid by the Borrower to Willis Stein and its Affiliates during such fiscal
     year; provided that the Borrower may make further dividends and
           --------                                                 
     distributions for such purpose under this clause (iv) from time to time, in
     an aggregate amount (including the $1,000,000 amount set forth in clause
     (y) above) not to exceed $2,500,000 during any fiscal year (less the
     aggregate amount of payments during such fiscal year described under clause
     (z) above) if, at the time made, the payment of such dividend or
     distribution is permitted under the Subordinated Note Indenture (or under
     any applicable agreement or instrument relating to any Permitted
     Refinancing Indebtedness) and the Borrower complies with all applicable
     conditions and requirements thereunder; and

           (v)   so long as no Default or Event of Default shall have occurred
     and is continuing or would result therefrom, (y) Parent may repurchase its
     Capital Stock from former management employees in connection with their
     termination or departure, in an aggregate amount not to exceed $12,500,000
     for all such repurchases from and after the Closing Date, and (z) the
     Borrower may make dividend payments or other distributions of cash to
     Parent for the purpose of effecting such repurchases; provided, however,
                                                           --------  ------- 
     that the Borrower shall not make any dividends or distributions under
     clause (z) above unless, at the 

                                      -75-
<PAGE>
 
     time made, the payment of such dividend or distribution is permitted under
     the Subordinated Note Indenture (or under any applicable agreement or
     instrument relating to any Permitted Refinancing Indebtedness) and the
     Borrower complies with all applicable conditions and requirements
     thereunder.

     (b) Parent will not, and will not permit or cause any of its Subsidiaries
to, make (or give any notice in respect of) any voluntary or optional payment or
prepayment of principal on, or directly or indirectly make any redemption
(including pursuant to any change of control provision), retirement, defeasance
or other acquisition for value of, the Subordinated Notes or any Permitted
Refinancing Indebtedness, or make any deposit or otherwise set aside funds for
any of the foregoing purposes, other than (i) the Subordinated Note Redemption,
(ii) Permitted Subordinated Note Repurchases and (iii) the repayment and
redemption of the Subordinated Notes (or any Permitted Refinancing Indebtedness)
with the proceeds from the subsequent issuance of Permitted Refinancing
Indebtedness.

      8.7  Transactions with Affiliates.  Parent will not, and will not permit
           ----------------------------                                       
or cause any of its Subsidiaries to, enter into any material transaction
(including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service) with any officer, director,
stockholder or other Affiliate of Parent or any Subsidiary, except in the
ordinary course of its business and upon fair and reasonable terms that are no
less favorable to it than would obtain in a comparable arm's length transaction
with a Person other than an Affiliate of Parent or such Subsidiary; provided,
                                                                    -------- 
however, that nothing contained in this Section shall prohibit:
-------                                                        

           (i)   transactions described on SCHEDULE 8.7 or otherwise expressly
     permitted under this Agreement;

           (ii)  transactions among any of Parent and its Wholly Owned
     Subsidiaries;

           (iii) the consummation on the Closing Date of the Transactions; and

           (iv)  transactions after the Closing Date that are expressly
     contemplated by the Securities Purchase Agreement and the Securityholders
     Agreement (including any registration rights described therein) and that
     are not prohibited by any other provision of this Agreement or any other
     Credit Document, provided that the aggregate management, advisory,
                      --------                                         
     consulting and similar fees paid by the Borrower to Willis Stein and its
     Affiliates pursuant to the Securities Purchase Agreement or otherwise shall
     not exceed (y) $1,000,000 during any fiscal year less (z) the amount of any
     distributions made by the Borrower during such fiscal year pursuant to
     SECTION 8.6(a)(iv), and provided further that any such fees may accrue but
                             -------- -------                                  
     shall not be paid by the Borrower at any time after the occurrence and
     during the continuance of a Default or Event of Default.

      8.8 Lines of Business.  (a)  The Borrower will not, and will not permit or
          -----------------                                                     
cause any of its Subsidiaries to, engage in any businesses other than the
publication, sale, distribution and licensing of publications and brand names,
copyrights, patents, servicemarks and trademarks for the conduct of a
publishing, programming, events and media business (including, without
limitation, electronic media), and including new or additional publications,
media, programming or events and the business and activities ancillary thereto
(the "Permitted Lines of Business").

                                      -76-
<PAGE>
 
     (b) Parent will not engage in any business or activity other than (i) the
ownership of equity interests in the Borrower and Holdings and the exercise of
rights and performance of obligations in connection therewith, (ii) the entry
into, and exercise of rights and performance of obligations in respect of, (A)
this Agreement, the Parent Guaranty and any other Credit Documents to which it
is or may become a party, (B) contracts and agreements with or for the benefit
of officers, directors and employees of it or any Subsidiary thereof relating to
their employment or directorships, (C) insurance policies and related contracts
and agreements and (D) equity subscription agreements, registration rights
agreements, warrant agreements, voting and other stockholder agreements,
engagement letters, underwriting agreements and other agreements in respect of
its equity securities or any offering, issuance or sale thereof, (iii) the
offering, issuance and sale of its equity securities to the extent such
offering, issuance or sale does not constitute a Default or Event of Default,
(iv) the filing of registration statements, and compliance with applicable
reporting and other obligations, under federal, state or other securities laws,
(v) the performance of obligations under and compliance with its certificate of
incorporation and by-laws, or any applicable law, ordinance, regulation, rule,
order, judgment, decree or permit, including, without limitation, as a result of
or in connection with the activities of its Subsidiaries, (vi) the performance
of contractual obligations not otherwise prohibited hereunder, (vii) the
incurrence and payment of its business and operating expenses and any taxes for
which it may be liable, and (viii) other activities reasonably incidental or
related to the foregoing. Parent will not, directly or indirectly, create or own
any Subsidiary other than (y) the Borrower and its Subsidiaries permitted
hereunder and (z) subject to the provisions of SECTION 6.13, PIC and Holdings.

      8.9 Certain Amendments.  Parent will not, and will not permit or cause any
          ------------------                                                    
of its Subsidiaries to, (i) amend, modify or waive, or permit the amendment,
modification or waiver of, any provision of the Subordinated Notes, the
Subordinated Note Indenture or any other agreement or instrument evidencing or
governing any Indebtedness permitted under clause (ii) of SECTION 8.2, the
effect of which would be to (a) increase the principal amount due thereunder,
(b) shorten or accelerate the time of payment of any amount due thereunder, (c)
increase the applicable interest rate or amount of any fees or costs due
thereunder, (d) amend any of the subordination provisions thereunder (including
any of the definitions relating thereto), (e) make any covenant therein more
restrictive or add any new covenant, or (f) otherwise materially and adversely
affect the Lenders, or breach or otherwise violate any of the subordination
provisions applicable thereto, including, without limitation, restrictions
against payment of principal and interest thereon, or (ii) amend, modify or
change any provision of its articles of organization, certificate of
incorporation, limited liability company operating agreement or bylaws, as
applicable, or the terms of any class or series of its Capital Stock, other than
in a manner that could not reasonably be expected to materially and adversely
affect the Lenders.

      8.10 Limitation on Certain Restrictions.  Parent will not, and will not
           ----------------------------------                                
permit or cause any of its Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any restriction or
encumbrance on (i) the right of any Credit Party to perform and comply with its
obligations under the Credit Documents or (ii) the right of any Subsidiary of
the Borrower to make any dividend payments or other distributions in respect of
its Capital Stock, to repay Indebtedness owed to the Borrower or any other
Subsidiary of the Borrower, to make loans or advances to the Borrower or any
other Subsidiary of the Borrower, or to transfer any of its assets or properties
to the Borrower or any other Subsidiary of the Borrower, in each case other than
such restrictions or encumbrances existing under or by reason of (i) the Credit
Documents, (ii) applicable Requirements of Law, (iii) customary non-assignment
provisions in any lease governing a leasehold 

                                      -77-
<PAGE>
 
interest, (iv) the terms of licenses or trademarks and copyrights entered into
in the ordinary course of business, and (v) other contractual restrictions in
respect of assets not material to the business of the Credit Parties, taken as a
whole.

      8.11 No Other Negative Pledges.  Parent will not, and will not permit or
           -------------------------                                          
cause any of its Subsidiaries to, directly or indirectly, enter into or suffer
to exist any agreement or restriction that prohibits or conditions the creation,
incurrence or assumption of any Lien upon or with respect to any part of its
property or assets, whether now owned or hereafter acquired, or agree to do any
of the foregoing, other than as set forth in (i) this Agreement and the Security
Documents, (ii) the Subordinated Note Indenture, (iii) any agreement or
instrument creating a Permitted Lien (but only to the extent such agreement or
restriction applies to the assets subject to such Permitted Lien), (iv)
operating leases of real or personal property entered into by the Borrower or
any of its Subsidiaries as lessee in the ordinary course of business, (v)
interests of licensors in licenses entered into by the Borrower or any of its
Subsidiaries as licensee in the ordinary course of business, and (vi)
restrictions on assignability in other contracts not material to the business of
the Credit Parties, taken as a whole.

      8.12 Fiscal Year.  Parent will not, and will not permit or cause any of
           -----------                                                       
its Subsidiaries to, change the ending date of its fiscal year to a date other
than December 31.

      8.13 Accounting Changes.  Parent will not, and will not permit or cause
           ------------------                                                
any of its Subsidiaries to, make or permit any material change in its accounting
policies or reporting practices, except as may be required by Generally Accepted
Accounting Principles.

      8.14 Designated Senior Indebtedness.  The Borrower will not designate any
           ------------------------------                                      
Indebtedness other than the Indebtedness under this Agreement as "Designated
Senior Indebtedness" for purposes of the Subordinated Note Indenture or any
Permitted Refinancing Indebtedness.


                                  ARTICLE IX

                               EVENTS OF DEFAULT

      9.1  Events of Default.  The occurrence of any one or more of the
           -----------------                                           
following events shall constitute an "Event of Default":

     (a) The Borrower shall fail to pay any principal of any Loan or any
Reimbursement Obligation when due;

     (b) The Borrower shall fail to pay any interest on any Loan, any fee or any
other Obligation (other than as set forth in subsection (a) above) when due, and
such failure shall continue unremedied for three (3) days;

     (c) Parent or the Borrower shall fail to observe, perform or comply with
any condition, covenant or agreement contained in any of SECTIONS 2.14,
6.2(e)(i), 6.3(i), 6.8, 6.9, 6.13, ARTICLE VII or ARTICLE VIII;

                                      -78-
<PAGE>
 
     (d) The Borrower or any other Credit Party shall fail to observe, perform
or comply with any condition, covenant or agreement contained in this Agreement
or any of the other Credit Documents other than those enumerated in subsections
(a), (b) and (c) above, and such failure shall continue unremedied for any grace
period specifically applicable thereto or, if no such grace period is
applicable, for a period of thirty (30) days after the earlier of (i) the date
on which a Responsible Officer of the Borrower acquires knowledge thereof and
(ii) the date on which written notice thereof is delivered by the Administrative
Agent or any Lender to the Borrower;

     (e) Any representation or warranty made or deemed made by or on behalf of
the Borrower or any other Credit Party in this Agreement, any of the other
Credit Documents or in any certificate, instrument, report or other document
furnished in connection herewith or therewith or in connection with the
transactions contemplated hereby or thereby shall prove to have been false or
misleading in any material respect as of the time made, deemed made or
furnished;

     (f) The Borrower or any other Credit Party shall (i) fail to pay when due
(whether by scheduled maturity, acceleration or otherwise and after giving
effect to any applicable grace period) any principal of or interest on any
Indebtedness (other than the Indebtedness incurred pursuant to this Agreement)
having an aggregate principal amount of at least $1,000,000; or (ii) fail to
observe, perform or comply with any condition, covenant or agreement contained
in any agreement or instrument evidencing or relating to any such Indebtedness,
or any other event shall occur or condition exist in respect thereof, and the
effect of such failure, event or condition is to cause, or permit the holder or
holders of such Indebtedness (or a trustee or agent on its or their behalf) to
cause (with the giving of notice, lapse of time, or both), such Indebtedness to
become due, or to be prepaid, redeemed, purchased or defeased, prior to its
stated maturity;

     (g) The Borrower or any other Credit Party (other than a Designated Non-
Guarantor Subsidiary) shall (i) file a voluntary petition or commence a
voluntary case seeking liquidation, winding-up, reorganization, dissolution,
arrangement, readjustment of debts or any other relief under the Bankruptcy Code
or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to controvert
in a timely and appropriate manner, any petition or case of the type described
in subsection (h) below, (iii) apply for or consent to the appointment of or
taking possession by a custodian, trustee, receiver or similar official for or
of itself or all or a substantial part of its properties or assets, (iv) fail
generally, or admit in writing its inability, to pay its debts generally as they
become due, (v) make a general assignment for the benefit of creditors or (vi)
take any corporate action to authorize or approve any of the foregoing;

     (h) Any involuntary petition or case shall be filed or commenced against
the Borrower or any other Credit Party (other than a Designated Non-Guarantor
Subsidiary) seeking liquidation, winding-up, reorganization, dissolution,
arrangement, readjustment of debts, the appointment of a custodian, trustee,
receiver or similar official for it or all or a substantial part of its
properties or any other relief under the Bankruptcy Code or under any other
applicable bankruptcy, insolvency or similar law now or hereafter in effect, and
such petition or case shall continue undismissed and unstayed for a period of
sixty (60) days; or an order, judgment or decree approving or ordering any of
the foregoing shall be entered in any such proceeding;

     (i) Any one or more money judgments, writs or warrants of attachment,
executions or similar processes involving an aggregate amount (exclusive of
amounts fully bonded or covered by insurance as to which the surety or insurer,
as the case may be, has acknowledged its liability in 

                                      -79-
<PAGE>
 
writing) in excess of $1,000,000 shall be entered or filed against the Borrower
or any other Credit Party or any of their respective properties and the same
shall not be dismissed, stayed or discharged for a period of thirty (30) days or
in any event later than five days prior to the date of any proposed sale
thereunder;

     (j) Any ERISA Event shall occur or exist with respect to any Plan or
Multiemployer Plan, and such ERISA Event, together with all other ERISA Events
then existing, if any, could be reasonably expected to have a Material Adverse
Effect;

     (k) The Petersen License Agreement shall be terminated or shall, for any
other reason, fail to be in full force and effect and enforceable in accordance
with its terms in all material respects;

     (l) Any Security Document to which any Credit Party is now or hereafter a
party shall for any reason cease to be in full force and effect or cease to be
effective to give the Administrative Agent a valid and perfected security
interest in and Lien upon any material portion of the Collateral purported to be
covered thereby, subject to no Liens other than Permitted Liens, in each case
unless any such cessation occurs in accordance with the terms thereof or
pursuant to a transaction permitted under clause (iii) or (iv) of SECTION 8.1 or
is due to any act or failure to act on the part of the Administrative Agent, or
any Lender, or any Credit Party shall assert any of the foregoing;

     (m) The Parent Guaranty or any Subsidiaries Guaranty shall cease to be in
full force and effect (unless any such cessation occurs in accordance with the
terms thereof or pursuant to a transaction permitted under clause (iii) or (iv)
of SECTION 8.1), or either Parent or Holdings or any Person acting on its behalf
shall deny or disaffirm such Credit Party's obligations under the Parent
Guaranty, or any Subsidiary or any Person acting on its behalf shall deny or
disaffirm such Subsidiary's obligations under any Subsidiaries Guaranty; or

     (n) Any of the following shall occur:  (i) Parent shall cease to own,
directly or indirectly, 100% of the outstanding Capital Stock of the Borrower;
(ii) Parent shall cease to have, directly or indirectly, the sole right and
authority to exercise control over the management of the Borrower; (iii) any
Person or group of Persons acting in concert as a partnership or other group
(other than the Permitted Holders) shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or otherwise, have
become, after the date hereof, the beneficial owner of securities of Parent
representing 30% or more of the combined voting power of the then outstanding
securities of Parent ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors; (iv) the
Board of Directors of Parent shall cease to consist of a majority of the
individuals who constituted the Board of Directors as of the date hereof or who
shall have become a member thereof subsequent to the date hereof after having
been nominated, or otherwise approved in writing, by at least a majority of
individuals who constituted the Board of Directors of Parent as of the date
hereof (or their replacements approved as herein required); or (v) a Change of
Control (as defined in the Subordinated Note Indenture) shall occur under the
Subordinated Note Indenture or a "change of control" or similar event within the
meaning of any agreement or instrument governing or evidencing Permitted
Refinancing Indebtedness shall occur thereunder.

      9.2  Remedies: Termination of Commitments, Acceleration, etc.  Upon and at
           -------------------------------------------------------              
any time after the occurrence and during the continuance of any Event of
Default, the Administrative Agent

                                      -80-
<PAGE>
 
shall at the direction, or may with the consent, of the Required Lenders, take
any or all of the following actions at the same or different times:

     (a) Declare the Commitments, the Swingline Commitment, and the Issuing
Lender's obligation to issue Letters of Credit, to be terminated, whereupon the
same shall terminate (provided that, upon the occurrence of an Event of Default
                      --------                                                 
pursuant to SECTION 9.1(g) or SECTION 9.1(h), the Commitments, the Swingline
Commitment, and the Issuing Lender's obligation to issue Letters of Credit shall
automatically be terminated);

     (b) Declare all or any part of the outstanding principal amount of the
Loans to be immediately due and payable, whereupon the principal amount so
declared to be immediately due and payable, together with all interest accrued
thereon and all other amounts payable under this Agreement, the Notes and the
other Credit Documents, shall become immediately due and payable without
presentment, demand, protest, notice of intent to accelerate or other notice or
legal process of any kind, all of which are hereby knowingly and expressly
waived by the Borrower (provided that, upon the occurrence of an Event of
                        --------                                         
Default pursuant to SECTION 9.1(g) or SECTION 9.1(h), all of the outstanding
principal amount of the Loans and all other amounts described in this subsection
(b) shall automatically become immediately due and payable without presentment,
demand, protest, notice of intent to accelerate or other notice or legal process
of any kind, all of which are hereby knowingly and expressly waived by the
Borrower);

     (c) Direct the Borrower to deposit (and the Borrower hereby agrees,
forthwith upon receipt of notice of such direction from the Administrative
Agent, to deposit) with the Administrative Agent from time to time such
additional amount of cash as is equal to the aggregate Stated Amount of all
Letters of Credit then outstanding (whether or not any beneficiary under any
Letter of Credit shall have drawn or be entitled at such time to draw
thereunder), such amount to be held by the Administrative Agent in the Cash
Collateral Account as security for the Letter of Credit Exposure as described in
SECTION 3.9; and

     (d) Exercise all rights and remedies available to it under this Agreement,
the other Credit Documents and applicable law.

      9.3  Remedies: Set-Off.  In addition to all other rights and remedies
           -----------------                                               
available under the Credit Documents or applicable law or otherwise, upon and at
any time after the occurrence and during the continuance of any Event of
Default, each Lender may, and each is hereby authorized by the Borrower, at any
such time and from time to time, to the fullest extent permitted by applicable
law, without presentment, demand, protest or other notice of any kind, all of
which are hereby knowingly and expressly waived by the Borrower, to set off and
to apply any and all deposits (general or special, time or demand, provisional
or final) and any other property at any time held (including at any branches or
agencies, wherever located), and any other indebtedness at any time owing, by
such Lender to or for the credit or the account of the Borrower against any or
all of the Obligations to such Lender now or hereafter existing, whether or not
such Obligations may be contingent or unmatured, the Borrower hereby granting to
each Lender a continuing security interest in and Lien upon all such deposits
and other property as security for such Obligations.  Each Lender agrees to
notify the Borrower promptly after any such set-off and application; provided,
                                                                     -------- 
however, that the failure to give such notice shall not affect the validity of
-------                                                                       
such set-off and application.

                                      -81-
<PAGE>
 
                                   ARTICLE X

                            THE ADMINISTRATIVE AGENT

      10.1 Appointment.  Each Lender hereby irrevocably appoints and authorizes
           -----------                                                         
First Union to act as Administrative Agent hereunder and under the other Credit
Documents and to take such actions as agent on its behalf hereunder and under
the other Credit Documents, and to exercise such powers and to perform such
duties, as are specifically delegated to the Administrative Agent by the terms
hereof or thereof, together with such other powers and duties as are reasonably
incidental thereto.

      10.2 Nature of Duties.  The Administrative Agent shall have no duties or
           ----------------                                                   
responsibilities other than those expressly set forth in this Agreement and the
other Credit Documents.  The Administrative Agent shall not have, by reason of
this Agreement or any other Credit Document, a fiduciary relationship in respect
of any Lender; and nothing in this Agreement or any other Credit Document,
express or implied, is intended to or shall be so construed as to impose upon
the Administrative Agent any obligations or liabilities in respect of this
Agreement or any other Credit Document except as expressly set forth herein or
therein.  The Administrative Agent may execute any of its duties under this
Agreement or any other Credit Document by or through agents or attorneys-in-fact
and shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact that it selects with reasonable care.  The Administrative
Agent shall be entitled to consult with legal counsel, independent public
accountants and other experts selected by it with respect to all matters
pertaining to this Agreement and the other Credit Documents and its duties
hereunder and thereunder and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts.  The Lenders hereby acknowledge that the Administrative
Agent shall not be under any duty to take any discretionary action permitted to
be taken by it pursuant to the provisions of this Agreement or any other Credit
Document unless it shall be requested in writing to do so by the Required
Lenders (or, where a higher percentage of the Lenders is expressly required
hereunder, such Lenders).

      10.3 Exculpatory Provisions.  Neither the Administrative Agent nor any of
           ----------------------                                              
its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action taken or omitted to be taken by it or such
Person under or in connection with the Credit Documents, except for its or such
Person's own gross negligence or willful misconduct, (ii) responsible in any
manner to any Lender for any recitals, statements, information, representations
or warranties herein or in any other Credit Document or in any document,
instrument, certificate, report or other writing delivered in connection
herewith or therewith, for the execution, effectiveness, genuineness, validity,
enforceability or sufficiency of this Agreement or any other Credit Document, or
for the financial condition of the Borrower, its Subsidiaries or any other
Person, or (iii) required to ascertain or make any inquiry concerning the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any other Credit Document or the existence or possible existence of
any Default or Event of Default, or to inspect the properties, books or records
of the Borrower or any of its Subsidiaries.

      10.4 Reliance by Administrative Agent.  The Administrative Agent shall be
           --------------------------------                                    
entitled to rely, and shall be fully protected in relying, upon any notice,
statement, consent or other communication (including, without limitation, any
thereof by telephone, telecopy, telex, telegram or cable) believed by it in good
faith to be genuine and correct and to have been signed, sent or made by 

                                      -82-
<PAGE>
 
the proper Person or Persons. The Administrative Agent may deem and treat each
Lender as the owner of its interest hereunder for all purposes hereof unless and
until a written notice of the assignment, negotiation or transfer thereof shall
have been given to the Administrative Agent in accordance with the provisions of
this Agreement. The Administrative Agent shall be entitled to refrain from
taking or omitting to take any action in connection with this Agreement or any
other Credit Document (i) if such action or omission would, in the reasonable
opinion of the Administrative Agent, violate any applicable law or any provision
of this Agreement or any other Credit Document or (ii) unless and until it shall
have received such advice or concurrence of the Required Lenders (or, where a
higher percentage of the Lenders is expressly required hereunder, such Lenders)
as it deems appropriate or it shall first have been indemnified to its
satisfaction by the Lenders against any and all liability and expense (other
than liability and expense arising from its own gross negligence or willful
misconduct) that may be incurred by it by reason of taking, continuing to take
or omitting to take any such action. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against the Administrative Agent as a
result of the Administrative Agent's acting or refraining from acting hereunder
or under any other Credit Document in accordance with the instructions of the
Required Lenders (or, where a higher percentage of the Lenders is expressly
required hereunder, such Lenders), and such instructions and any action taken or
failure to act pursuant thereto shall be binding upon all of the Lenders
(including all subsequent Lenders).

      10.5 Non-Reliance on Administrative Agent and Other Lenders.  Each Lender
           ------------------------------------------------------              
expressly acknowledges that neither the Administrative Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representation or warranty to it and that no act by the Administrative Agent
or any such Person hereafter taken, including any review of the affairs of the
Borrower and its Subsidiaries, shall be deemed to constitute any representation
or warranty by the Administrative Agent to any Lender.  Each Lender represents
to the Administrative Agent that (i) it has, independently and without reliance
upon the Administrative Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, properties, financial
and other condition and creditworthiness of the Borrower and its Subsidiaries
and made its own decision to enter into this Agreement and extend credit to the
Borrower hereunder, and (ii) it will, independently and without reliance upon
the Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action
hereunder and under the other Credit Documents and to make such investigation as
it deems necessary to inform itself as to the business, prospects, operations,
properties, financial and other condition and creditworthiness of the Borrower
and its Subsidiaries. Except as expressly provided in this Agreement and the
other Credit Documents, the Administrative Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Lender
with any credit or other information concerning the business, prospects,
operations, properties, financial or other condition or creditworthiness of the
Borrower, its Subsidiaries or any other Person that may at any time come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.

      10.6 Notice of Default.  The Administrative Agent shall not be deemed to
           -----------------                                                  
have knowledge or notice of the occurrence of any Default or Event of Default
unless the Administrative Agent shall have received written notice from the
Borrower or a Lender referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default."  In the
event that the Administrative Agent receives such a notice, the Administrative
Agent will give notice thereof to the Lenders as soon as reasonably practicable;
provided, however, that if any such 
--------  -------                                                        

                                      -83-
<PAGE>
 
notice has also been furnished to the Lenders, the Administrative Agent shall
have no obligation to notify the Lenders with respect thereto. The
Administrative Agent shall (subject to SECTIONS 10.4 and 11.6) take such action
with respect to such Default or Event of Default as shall reasonably be directed
by the Required Lenders; provided that, unless and until the Administrative 
                         --------                 
Agent shall have received such directions, the Administrative Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem advisable in
the best interests of the Lenders.

      10.7 Indemnification.  To the extent the Administrative Agent is not
           ---------------                                                
reimbursed by or on behalf of the Borrower, and without limiting the obligation
of the Borrower to do so, the Lenders agree (i) to indemnify the Administrative
Agent and its officers, directors, employees, agents, attorneys-in-fact and
Affiliates, ratably in proportion to their respective percentages as used in
determining the Required Lenders as of the date of determination, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including, without limitation,
attorneys' fees and expenses) or disbursements of any kind or nature whatsoever
that may at any time (including, without limitation, at any time following the
repayment in full of the Loans and the termination of the Commitments) be
imposed on, incurred by or asserted against the Administrative Agent in any way
relating to or arising out of this Agreement or any other Credit Document or any
documents contemplated by or referred to herein or the transactions contemplated
hereby or thereby or any action taken or omitted by the Administrative Agent
under or in connection with any of the foregoing, and (ii) to reimburse the
Administrative Agent upon demand, ratably in proportion to their respective
percentages as used in determining the Required Lenders as of the date of
determination, for any expenses incurred by the Administrative Agent in
connection with the preparation, negotiation, execution, delivery,
administration, amendment, modification, waiver or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement or any of the other Credit
Documents (including, without limitation, reasonable attorneys' fees and
expenses and compensation of agents and employees paid for services rendered on
behalf of the Lenders); provided, however, that no Lender shall be liable for
                        --------  -------                                    
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements to the extent
resulting from the gross negligence or willful misconduct of the party to be
indemnified.

      10.8 The Administrative Agent in its Individual Capacity.  With respect to
           ---------------------------------------------------                  
its Commitment, the Loans made by it, the Letters of Credit issued or
participated in by it and the Note or Notes issued to it, the Administrative
Agent in its individual capacity and not as Administrative Agent shall have the
same rights and powers under the Credit Documents as any other Lender and may
exercise the same as though it were not performing the agency duties specified
herein; and the terms "Lenders," "Required Lenders," "holders of Notes" and any
similar terms shall, unless the context clearly otherwise indicates, include the
Administrative Agent in its individual capacity.  The Administrative Agent and
its Affiliates may accept deposits from, lend money to, make investments in, and
generally engage in any kind of banking, trust, financial advisory or other
business with the Borrower, any of its Subsidiaries or any of their respective
Affiliates as if the Administrative Agent were not performing the agency duties
specified herein, and may accept fees and other consideration from any of them
for services in connection with this Agreement and otherwise without having to
account for the same to the Lenders.

      10.9 Successor Administrative Agent.  The Administrative Agent may resign
           ------------------------------                                      
at any time by giving ten (10) days' prior written notice to the Borrower and
the Lenders.  Upon any such notice 

                                      -84-
<PAGE>
 
of resignation, the Required Lenders will, with the prior written consent of the
Borrower (which consent shall not be unreasonably withheld), appoint from among
the Lenders a successor to the Administrative Agent (provided that the
                                                     --------         
Borrower's consent shall not be required in the event a Default or Event of
Default shall have occurred and be continuing). If no successor to the
Administrative Agent shall have been so appointed by the Required Lenders and
shall have accepted such appointment within such ten-day period, then the
retiring Administrative Agent may, on behalf of the Lenders and after consulting
with the Lenders and the Borrower, appoint a successor Administrative Agent from
among the Lenders. Upon the acceptance of any appointment as Administrative
Agent by a successor Administrative Agent, such successor Administrative Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder and under the other Credit Documents. After any retiring
Administrative Agent's resignation as Administrative Agent, the provisions of
this Article shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent. If no successor to the
Administrative Agent has accepted appointment as Administrative Agent by the
thirtieth (30th) day following a retiring Administrative Agent's notice of
resignation, the retiring Administrative Agent's resignation shall nevertheless
thereupon become effective, and the Lenders shall thereafter perform all of the
duties of the Administrative Agent hereunder and under the other Credit
Documents until such time, if any, as the Required Lenders appoint a successor
Administrative Agent as provided for hereinabove.

      10.10 Collateral Matters.  (a)  The Administrative Agent is hereby
            ------------------                                          
authorized on behalf of the Lenders, without the necessity of any notice to or
further consent from the Lenders, from time to time (but without any obligation)
to take any action with respect to the Collateral and the Security Documents
that may be necessary to perfect and maintain perfected the Liens upon the
Collateral granted pursuant to the Security Documents.

     (b) The Lenders hereby irrevocably authorize the Administrative Agent, at
its option and in its discretion, to release any Lien granted to or held by the
Administrative Agent upon any Collateral (i) upon termination of the
Commitments, termination or expiration of all outstanding Letters of Credit and
payment in full of all of the Obligations, (ii) constituting property sold or to
be sold or disposed of as part of or in connection with any disposition
expressly permitted hereunder or under any other Credit Document or to which the
Required Lenders have consented or (iii) otherwise pursuant to and in accordance
with the provisions of any applicable Credit Document.  Upon request by the
Administrative Agent at any time, the Lenders will confirm in writing the
Administrative Agent's authority to release Collateral pursuant to this
subsection (b).

      10.11 Documentation Agent, etc.  Notwithstanding any other provision of
            ------------------------                                         
this Agreement or any of the other Credit Documents, the Documentation Agent and
any Managing Agent, Co-Agent or similarly designated Lender are named as such
for recognition purposes only, and in their capacities as such shall have no
powers, rights, duties, responsibilities or liabilities with respect to this
Agreement and the other Credit Documents and the transactions contemplated
hereby and thereby.

      10.12 Issuing Lender and Swingline Lender.  The provisions of this ARTICLE
            -----------------------------------                                 
X (other than SECTION 10.9) shall apply to the Issuing Lender and the Swingline
Lender mutatis mutandis to the same extent as such provisions apply to the
       ------- --------                                                   
Administrative Agent.

                                      -85-
<PAGE>
 
                                  ARTICLE XI

                                 MISCELLANEOUS

      11.1  Fees and Expenses.  The Borrower agrees (i) whether or not the
           -----------------                                             
transactions contemplated by this Agreement shall be consummated, to pay upon
demand all reasonable out-of-pocket costs and expenses of the Administrative
Agent and the Documentation Agent (including, without limitation, the reasonable
fees and expenses of counsel to the Administrative Agent and counsel to the
Documentation Agent, and the allocated costs of internal counsel) in connection
with the preparation, negotiation, execution, delivery and syndication of this
Agreement and the other Credit Documents, and all reasonable out-of-pocket costs
and expenses of the Administrative Agent (including, without limitation, the
reasonable fees and expenses of counsel to the Administrative Agent, and the
allocated costs of internal counsel) in connection with any amendment,
modification or waiver hereof or thereof or consent with respect hereto or
thereto, (ii) to pay upon demand all reasonable out-of-pocket costs and expenses
of the Administrative Agent and each Lender (including, without limitation, the
reasonable fees and expenses of counsel to the Administrative Agent or any
Lender, including the allocated costs of internal counsel) in connection with
(y) after the occurrence and during the continuance of an Event of Default, any
refinancing or restructuring of the credit arrangement provided under this
Agreement, whether in the nature of a "work-out," in any insolvency or
bankruptcy proceeding or otherwise and whether or not consummated, and (z) the
enforcement, attempted enforcement or preservation of any rights or remedies
under this Agreement or any of the other Credit Documents, whether in any
action, suit or proceeding (including any bankruptcy or insolvency proceeding)
or otherwise, and (iii) to pay and hold harmless the Administrative Agent and
each Lender from and against all liability for any intangibles, documentary,
stamp or other similar taxes, fees and excises, if any, including any interest
and penalties, and any finder's or brokerage fees, commissions and expenses
(other than any fees, commissions or expenses of finders or brokers engaged by
the Administrative Agent or any Lender), that may be payable in connection with
the transactions contemplated by this Agreement and the other Credit Documents.

      11.2 Indemnification.  The Borrower agrees, whether or not the
           ---------------                                          
transactions contemplated by this Agreement shall be consummated, to indemnify
and hold harmless the Administrative Agent and each Lender and each of their
respective directors, officers, employees, agents and Affiliates (each, an
"Indemnified Person") from and against any and all claims, losses, damages,
obligations, liabilities, penalties, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) of any kind or nature
whatsoever, whether direct, indirect or consequential (collectively,
"Indemnified Costs"), that may at any time be imposed on, incurred by or
asserted against any such Indemnified Person as a result of, arising from or in
any way relating to the preparation, execution, performance or enforcement of
this Agreement or any of the other Credit Documents, any of the transactions
contemplated herein or therein or any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of any Loans or
Letters of Credit, or any action, suit or proceeding (including any inquiry or
investigation) by any Person, whether threatened or initiated, related to any of
the foregoing, and in any case whether or not such Indemnified Person is a party
to any such action, proceeding or suit or a subject of any such inquiry or
investigation; provided, however, that no Indemnified Person shall have the
               --------  -------                                           
right to be indemnified hereunder for any Indemnified Costs to the extent
resulting from the gross negligence or willful misconduct of such Indemnified
Person.  All of the foregoing Indemnified Costs of any Indemnified Person shall
be paid or reimbursed by the Borrower, as and when incurred and upon demand.

                                      -86-
<PAGE>
 
      11.3 Governing Law; Consent to Jurisdiction.  THIS AGREEMENT AND THE OTHER
           --------------------------------------                               
CREDIT DOCUMENTS HAVE BEEN EXECUTED, DELIVERED AND ACCEPTED IN, AND SHALL BE
DEEMED TO HAVE BEEN MADE IN, NORTH CAROLINA AND SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA (WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF); PROVIDED
                                                                      --------
THAT EACH LETTER OF CREDIT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT OR, IF NO
SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR
DOCUMENTARY CREDITS, INTERNATIONAL CHAMBER OF COMMERCE, AS IN EFFECT FROM TIME
TO TIME (THE "UNIFORM CUSTOMS"), AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM
CUSTOMS, THE LAWS OF THE STATE OF NORTH CAROLINA (WITHOUT REGARD TO THE
CONFLICTS OF LAW PROVISIONS THEREOF).  EACH OF PARENT AND THE BORROWER HEREBY
CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE COURT WITHIN MECKLENBURG
COUNTY, NORTH CAROLINA OR ANY FEDERAL COURT LOCATED WITHIN THE WESTERN DISTRICT
OF THE STATE OF NORTH CAROLINA FOR ANY PROCEEDING INSTITUTED HEREUNDER OR UNDER
ANY OF THE OTHER CREDIT DOCUMENTS, OR ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS, OR ANY PROCEEDING TO WHICH THE
ADMINISTRATIVE AGENT, ANY LENDER, PARENT OR THE BORROWER IS A PARTY, INCLUDING
ANY ACTIONS BASED UPON, ARISING OUT OF, OR IN CONNECTION WITH, ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
THE ADMINISTRATIVE AGENT, ANY LENDER, PARENT OR THE BORROWER.  EACH OF PARENT
AND THE BORROWER IRREVOCABLY AGREES TO BE BOUND (SUBJECT TO ANY AVAILABLE RIGHT
OF APPEAL) BY ANY JUDGMENT RENDERED OR RELIEF GRANTED THEREBY AND FURTHER WAIVES
ANY OBJECTION THAT IT MAY HAVE BASED ON LACK OF JURISDICTION OR IMPROPER VENUE
OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY SUCH PROCEEDING.  EACH OF PARENT
   --------------------                                                       
AND THE BORROWER CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY REGISTERED OR
CERTIFIED MAIL DIRECTED TO IT AT ITS ADDRESS SET FORTH HEREINBELOW, AND SERVICE
SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT
THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER
POSTAGE PREPAID AND PROPERLY ADDRESSED.  NOTHING IN THIS SECTION SHALL AFFECT
THE RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF ANY PARTY TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY
IN THE COURTS OF ANY OTHER JURISDICTION.

      11.4 Waiver of Jury Trial; Arbitration; Preservation and Limitation of
           -----------------------------------------------------------------
Remedies. (a)  TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, EACH OF
-------- 
PARENT, THE BORROWER, THE LENDERS AND THE ADMINISTRATIVE AGENT HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT AND THE
OTHER CREDIT DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.

                                      -87-
<PAGE>
 
     (b) Upon demand of the Borrower, on the one hand, or the Administrative
Agent (with the approval of the Required Lenders) on the other, whether made
before or after institution of any judicial proceeding, any dispute, claim or
controversy arising out of, connected with or relating to this Agreement or any
other Credit Document ("Disputes") between or among the Borrower, the
Administrative Agent and the Lenders, or any of them, shall be resolved by
binding arbitration as provided herein.  Institution of a judicial proceeding by
a party does not waive the right of that party to demand arbitration hereunder.
Disputes may include, without limitation, tort claims, counterclaims, claims
brought as class actions, claims arising from documents executed in the future,
or claims arising out of or connected with the transactions contemplated by this
Agreement and the other Credit Documents.  Arbitration shall be conducted under
and governed by the Commercial Financial Disputes Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA"), as in
effect from time to time, and Title 9 of the U.S. Code, as amended.  All
arbitration hearings shall be conducted in the city in which the principal
office of the Administrative Agent is located.  The expedited procedures set
forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims
                 -- ---                                                        
of less than $1,000,000.  All applicable statutes of limitation shall apply to
any Dispute.  A judgment upon the award may be entered in any court having
jurisdiction.  The panel from which all arbitrators are selected shall be
comprised of licensed attorneys.  The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted.  Notwithstanding the foregoing, this arbitration provision does not
apply to Disputes under or related to Interest Rate Protection Agreements.

     (c) Notwithstanding the preceding binding arbitration provisions, the
parties hereto agree to preserve, without diminution, certain remedies that any
party hereto may employ or exercise freely, either alone, in conjunction with or
during a Dispute.  Any party hereto shall have the right to proceed in any court
of proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose against any Collateral by
exercising a power of sale granted pursuant to any of the Credit Documents or
under applicable law or by judicial foreclosure and sale, including a proceeding
to confirm the sale; (ii) all rights of self-help, including peaceful occupation
of real property and collection of rents, set-off, and peaceful possession of
personal property; (iii) obtaining provisional or ancillary remedies, including
injunctive relief, sequestration, garnishment, attachment, appointment of a
receiver and filing an involuntary bankruptcy proceeding; and (iv) when
applicable, a judgment by confession of judgment.  Preservation of these
remedies does not limit the power of an arbitrator to grant similar remedies
that may be requested by a party in a Dispute.  The parties hereto agree that no
party shall have a remedy of punitive or exemplary damages against any other
party in any Dispute, and each party hereby waives any right or claim to
punitive or exemplary damages that it has now or that may arise in the future in
connection with any Dispute, whether such Dispute is resolved by arbitration or
judicially.

      11.5 Notices.  All notices and other communications provided for hereunder
           -------                                                              
shall be in writing (including telegraphic, telex, facsimile transmission or
cable communication) and mailed, telegraphed, telexed, telecopied, cabled or
delivered to the party to be notified at the following addresses:

           (a) if to Parent or the Borrower, to it at 6420 Wilshire Blvd., Los
     Angeles, California 90048, Attention: Neal Vitale and Richard Willis,
     Telecopy No. (213) 782-2041;

                                      -88-
<PAGE>
 
           (b) if to the Administrative Agent, to First Union National Bank, One
     First Union Center, TW-10, 301 South College Street, Charlotte, North
     Carolina 28288-0608, Attention: Syndication Agency Services, Telecopy No.
     (704) 383-0288; and

           (c) if to any Lender, to it at the address for notices set forth on
     its signature page hereto (or if to any Lender not a party hereto as of the
     date hereof, at the address for notices set forth in its Assignment and
     Acceptance);

or in each case, to such other address as any party may designate for itself by
like notice to all other parties hereto.  All such notices and communications
shall be deemed to have been given (i) if mailed as provided above by any method
other than overnight delivery service, on the third Business Day after deposit
in the mails, (ii) if mailed by overnight delivery service, telegraphed,
telexed, telecopied or cabled, when delivered for overnight delivery, delivered
to the telegraph company, confirmed by telex answerback, transmitted by
telecopier or delivered to the cable company, respectively, or (iii) if
delivered by hand, upon delivery; provided that notices and communications to
                                  --------                                   
the Administrative Agent shall not be effective until received by the
Administrative Agent.

      11.6 Amendments, Waivers, etc.  No amendment, modification, waiver or
           ------------------------                                        
discharge or termination of, or consent to any departure by the Borrower from,
any provision of this Agreement or any other Credit Document, shall be effective
unless in a writing signed by the Required Lenders (or by the Administrative
Agent at the direction or with the consent of the Required Lenders), and then
the same shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no such amendment,
                         --------  -------                         
modification, waiver, discharge, termination or consent shall:

     (a) unless agreed to by each Lender directly affected thereby, (i) reduce
or forgive the principal amount of any Loan, reduce the rate of or forgive any
interest thereon, or reduce or forgive any fees or other Obligations (other than
fees payable to the Administrative Agent for its own account), or (ii) extend
the Maturity Date or any other date fixed for the payment of any principal of or
interest on any Loan (other than additional interest payable under SECTION
2.8(b) at the election of the Required Lenders, as provided therein), any fees
(other than fees payable to the Administrative Agent for its own account) or any
other Obligations, or (unless such Letter of Credit has been fully cash
collateralized or is backed by one or more letters of credit issued in favor of
the Issuing Lender for the account of the Borrower on terms and by an issuer
satisfactory to the Issuing Bank and the Administrative Agent) extend the expiry
date of any Letter of Credit beyond the seventh day prior to the Maturity Date;

     (b) unless agreed to by all of the Lenders, (i) increase or extend any
Commitment of any Lender (it being understood that a waiver of any Event of
Default, if agreed to by the requisite Lenders hereunder, shall not constitute
such an increase or extension), (ii) change the percentage of the aggregate
Commitments or of the aggregate unpaid principal amount of the Loans, or the
number or percentage of Lenders, that shall be required for the Lenders or any
of them to take or approve, or direct the Administrative Agent to take or
approve, any action hereunder (including as set forth in the definition of
"Required Lenders"), (iii) except as may be otherwise specifically provided in
this Agreement or in any other Credit Document, release all or substantially all
of the Collateral, release Parent or Holdings from the Parent Guaranty, or
release any material Guarantor from a Subsidiaries Guaranty, or (iv) change any
provision of SECTION 2.15 or this SECTION 11.6; and

                                      -89-
<PAGE>
 
     (c) unless agreed to by the Issuing Lender, the Swingline Lender or the
Administrative Agent in addition to the Lenders required as provided hereinabove
to take such action, affect the respective rights or obligations of the Issuing
Lender, the Swingline Lender or the Administrative Agent, as applicable,
hereunder or under any of the other Credit Documents;
and provided further that the Fee Letter and any Interest Rate Protection
    -------- -------                                                     
Agreement to which any Lender is a party may be amended or modified, and any
rights thereunder waived, in a writing signed by the parties thereto.

      11.7 Assignments, Participations.  (a)  Each Lender may assign to one or
           ---------------------------                                        
more other Eligible Assignees (each, an "Assignee") all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment, the outstanding Loans made by it, the Note or
Notes held by it and its participations in Letters of Credit); provided,
                                                               -------- 
however, that (i) any such assignment (other than an assignment to a Lender or
-------                                                                       
an Affiliate of a Lender) shall not be made without the prior written consent of
the Administrative Agent, the Issuing Lender and the Borrower (to be evidenced
by their counterexecution of the relevant Assignment and Acceptance), which
consents shall not be unreasonably withheld, provided that the Borrower's
                                             --------                    
consent shall not be required in the event a Default or Event of Default shall
have occurred and be continuing, (ii) each such assignment by a Lender shall be
made in such manner so that the same portion of its Commitment, Loans, Note or
Notes and other interests is assigned to the relevant Assignee, (iii) except in
the case of an assignment to a Lender or an Affiliate of a Lender, no such
assignment shall be in an aggregate principal amount (determined as of the date
of the Assignment and Acceptance with respect to such assignment) less than (y)
in the case of Revolving Loans, $5,000,000, determined by combining the amount
of the assigning Lender's outstanding Revolving Loans, L/C Exposure and
Unutilized Commitment being assigned pursuant to such assignment (or, if less,
the entire Commitment of the assigning Lender), or (z) in the case of Swingline
Loans, the entire Swingline Commitment and the full amount of the outstanding
Swingline Loans, (iv) unless the assigning Lender ceases to be a Lender, the
aggregate amount of the Loans owing to and unused Commitments of such Lender
after giving effect to such assignment shall not be less than $5,000,000, and
(v) the parties to each such assignment will execute and deliver to the
Administrative Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance, together with any Note or Notes subject to such
assignment, and will pay a nonrefundable processing fee of $3,000 to the
Administrative Agent for its own account. Upon such execution, delivery,
acceptance and recording of the Assignment and Acceptance, from and after the
effective date specified therein, which effective date shall be at least five
Business Days after the execution thereof (unless the Administrative Agent shall
otherwise agree), (A) the Assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, shall have the rights and
obligations of the assigning Lender hereunder with respect thereto and (B) the
assigning Lender shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights (other than rights under the provisions of this Agreement and the other
Credit Documents relating to indemnification or payment of fees, costs and
expenses, to the extent such rights relate to the time prior to the effective
date of such Assignment and Acceptance) and be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of such assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto).  The terms
and provisions of each Assignment and Acceptance shall, upon the effectiveness
thereof, be incorporated into and made a part of this Agreement, and the
covenants, agreements and obligations of each Lender set forth therein shall be

                                      -90-
<PAGE>
 
deemed made to and for the benefit of the Administrative Agent and the other
parties hereto as if set forth at length herein.

     (b) The Administrative Agent will maintain at its address for notices
referred to herein a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Lenders and the Commitments of, and principal amount of the Loans owing to,
each Lender from time to time (the "Register").  The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Administrative Agent and the Lenders may treat each Person whose
name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement.  The Register shall be available for inspection by the Borrower and
each Lender at any reasonable time and from time to time upon reasonable prior
notice.

     (c) Upon its receipt of a duly completed Assignment and Acceptance executed
by an assigning Lender and an Assignee and counterexecuted by the Borrower (if
required) and the Issuing Lender, together with the Note or Notes subject to
such assignment and the processing fee referred to in subsection (a) above, the
Administrative Agent will (i) accept such Assignment and Acceptance, (ii) on the
effective date thereof, record the information contained therein in the Register
and (iii) give notice thereof to the Borrower and the Lenders.  Within five (5)
Business Days after its receipt of such notice, the Borrower, at its own
expense, will execute and deliver to the Administrative Agent, in exchange for
the surrendered Note or Notes, a new Note or Notes to the order of the Assignee
(and, if the assigning Lender has retained any portion of its rights and
obligations hereunder, to the order of the assigning Lender), prepared in
accordance with the applicable provisions of SECTION 2.4 as necessary to
reflect, after giving effect to the assignment, the Commitment of the Assignee
and (to the extent of any retained interests) the assigning Lender, dated the
date of the replaced Note or Notes and otherwise in substantially the form of
EXHIBITS B-1 and B-2, as applicable.  The Administrative Agent will return
cancelled Notes to the Borrower.

     (d) Each Lender may, without the consent of the Borrower, the
Administrative Agent or any other Lender, sell to one or more other Persons
(each, a "Participant") participations in any portion comprising less than all
of its rights and obligations under this Agreement (including, without
limitation, a portion of its Commitment, the outstanding Loans made by it, the
Note or Notes held by it and its participations in Letters of Credit); provided,
                                                                       -------- 
however, that (i) such Lender's obligations under this Agreement shall remain
-------                                                                      
unchanged and such Lender shall remain solely responsible for the performance of
such obligations, (ii) no Lender shall sell any participation that, when taken
together with all other participations, if any, sold by such Lender, covers all
of such Lender's rights and obligations under this Agreement, (iii) the
Borrower, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and no Lender shall permit any Participant to
have any voting rights or any right to control the vote of such Lender with
respect to any amendment, modification, waiver, consent or other action
hereunder or under any other Credit Document (except as to actions that would
(x) reduce or forgive the principal amount of any Loan, reduce the rate of or
forgive any interest thereon, or reduce or forgive any fees or other
Obligations, (y) extend the Maturity Date or any other date fixed for the
payment of any principal of or interest on any Loan, any fees or any other
Obligations, or (z) increase or extend any Commitment of any Lender), and (iv)
no Participant shall have any rights under this Agreement or any of the other
Credit Documents, each Participant's rights against the granting Lender in
respect of any participation to be those set forth in the participation
agreement, and all amounts payable by the Borrower hereunder shall be determined
as if 

                                      -91-
<PAGE>
 
such Lender had not granted such participation. Notwithstanding the foregoing,
each Participant shall have the rights of a Lender for purposes of SECTIONS
2.16(a), 2.16(b), 2.17, 2.18 and 9.3, and shall be entitled to the benefits
thereto, to the extent that the Lender granting such participation would be
entitled to such benefits if the participation had not been made, provided that
                                                                  -------- 
no Participant shall be entitled to receive any greater amount pursuant to any
of such Sections than the Lender granting such participation would have been
entitled to receive in respect of the amount of the participation made by such
Lender to such Participant had such participation not been made.

     (e) Nothing in this Agreement shall be construed to prohibit any Lender
from pledging or assigning all or any portion of its rights and interest
hereunder or under any Note to any Federal Reserve Bank as security for
borrowings therefrom; provided, however, that no such pledge or assignment shall
                      --------  -------                                         
release a Lender from any of its obligations hereunder.

     (f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section, disclose to the
Assignee or Participant or proposed Assignee or Participant any information
relating to Parent and its Subsidiaries furnished to it by or on behalf of any
other party hereto, provided that such Assignee or Participant or proposed
                    --------                                              
Assignee or Participant agrees in writing to keep such information confidential
to the same extent required of the Lenders under SECTION 11.13.

      11.8 No Waiver.  The rights and remedies of the Administrative Agent and
           ---------                                                          
the Lenders expressly set forth in this Agreement and the other Credit Documents
are cumulative and in addition to, and not exclusive of, all other rights and
remedies available at law, in equity or otherwise.  No failure or delay on the
part of the Administrative Agent or any Lender in exercising any right, power or
privilege shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege or be
construed to be a waiver of any Default or Event of Default.  No course of
dealing between any of Parent, the Borrower and the Administrative Agent or the
Lenders or their agents or employees shall be effective to amend, modify or
discharge any provision of this Agreement or any other Credit Document or to
constitute a waiver of any Default or Event of Default.  No notice to or demand
upon Parent or the Borrower in any case shall entitle Parent or the Borrower to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the right of the Administrative Agent or any Lender to
exercise any right or remedy or take any other or further action in any
circumstances without notice or demand.

      11.9 Successors and Assigns.  This Agreement shall be binding upon, inure
           ----------------------                                              
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, and all references herein to any party shall be deemed to
include its successors and assigns; provided, however, that (i) neither Parent
                                    --------  -------                         
nor the Borrower shall sell, assign or transfer any of its rights, interests,
duties or obligations under this Agreement or any other Credit Document without
the prior written consent of all of the Lenders and (ii) any Assignees shall
have such rights and obligations with respect to this Agreement and the other
Credit Documents as are provided for under and pursuant to the provisions of
SECTION 11.7.

      11.10 Survival.  All representations, warranties and agreements made by or
            --------                                                            
on behalf of Parent, the Borrower or any of their Subsidiaries in this Agreement
and in the other Credit Documents shall survive the execution and delivery
hereof or thereof, the making and repayment of the Loans and the issuance and
repayment of the Letters of Credit.  In addition, notwithstanding 

                                      -92-
<PAGE>
 
anything herein or under applicable law to the contrary, the provisions of this
Agreement and the other Credit Documents relating to indemnification or payment
of fees, costs and expenses, including, without limitation, the provisions of
SECTIONS 2.16(a), 2.16(b), 2.17, 2.18, 10.7, 11.1 and 11.2, shall survive the
payment in full of all Loans and Letters of Credit, the termination of the
Commitments and all Letters of Credit, and any termination of this Agreement or
any of the other Credit Documents.

      11.11 Severability.  To the extent any provision of this Agreement is
            ------------                                                   
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in such jurisdiction, without prohibiting or invalidating
such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.

      11.12 Construction.  The headings of the various articles, sections and
            ------------                                                     
subsections of this Agreement have been inserted for convenience only and shall
not in any way affect the meaning or construction of any of the provisions
hereof.  Except as otherwise expressly provided herein and in the other Credit
Documents, in the event of any inconsistency or conflict between any provision
of this Agreement and any provision of any of the other Credit Documents, the
provision of this Agreement shall control.

      11.13 Confidentiality.  Each Lender agrees to keep confidential, pursuant
            ---------------                                                    
to its customary procedures for handling confidential information of a similar
nature and in accordance with safe and sound banking practices, all nonpublic
information provided to it by or on behalf of Parent or any of its Subsidiaries
in connection with this Agreement or any other Credit Document; provided,
                                                                -------- 
however, that any Lender may disclose such information (i) to its directors,
-------                                                                     
employees and agents and to its auditors, counsel and other professional
advisors, (ii) at the demand or request of any bank regulatory authority, court
or other Governmental Authority having or asserting jurisdiction over such
Lender, as may be required pursuant to subpoena or other legal process, or
otherwise in order to comply with any applicable Requirement of Law, (iii) in
connection with any proceeding to enforce its rights hereunder or under any
other Credit Document or any other litigation or proceeding related hereto or to
which it is a party, (iv) to the Administrative Agent or any other Lender, (v)
to the extent the same has become publicly available other than as a result of a
breach of this Agreement and (vi) pursuant to and in accordance with the
provisions of SECTION 11.7(f).

      11.14 Counterparts.  This Agreement may be executed in any number of
            ------------                                                  
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.  This Agreement shall
become effective upon the execution of a counterpart hereof by each of the
parties hereto and receipt by the Administrative Agent and the Borrower of
written or telephonic notification of such execution and authorization of
delivery thereof.

      11.15 Disclosure of Information.  Each of Parent and the Borrower agrees
            -------------------------                                         
and consents to the Administrative Agent's disclosure of information relating to
this transaction to Gold Sheets and other similar bank trade publications.  Such
                    -----------                                                 
information will consist of deal terms and other information customarily found
in such publications, but will not include any information subject to the
provisions of SECTION 11.13.

                                      -93-
<PAGE>
 
      11.16 Entire Agreement.  THIS AGREEMENT AND THE OTHER DOCUMENTS AND
            ----------------                                             
INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH (A) EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND THERETO RELATING TO
THE SUBJECT MATTER HEREOF AND THEREOF, (B) SUPERSEDE ANY AND ALL PRIOR
AGREEMENTS AND UNDERSTANDINGS OF SUCH PERSONS, ORAL OR WRITTEN, RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF, INCLUDING THE COMMITMENT LETTER FROM FIRST
UNION TO THE BORROWER DATED AUGUST 18, 1997, BUT SPECIFICALLY EXCLUDING THE FEE
LETTER, AND (C) MAY NOT BE AMENDED, SUPPLEMENTED, CONTRADICTED OR OTHERWISE
MODIFIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES.

                                     -94-

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



                         THE PETERSEN COMPANIES, INC.


                         By:     /s/ Richard S Willis
                                --------------------------------------------

                         Title: Executive Vice President and Chief Financial
                                --------------------------------------------
                                Officer
                                -------



                         PETERSEN PUBLISHING COMPANY, L.L.C.


                         By:     /s/ Richard S Willis
                                --------------------------------------------

                         Title: Executive Vice President and Chief Financial
                                --------------------------------------------
                                Officer
                                -------



                            (signatures continued)

                                      S-1
<PAGE>
 
                         FIRST UNION NATIONAL BANK, as Administrative
                           Agent and as a Lender


                         By:    /s/ Bruce W. Loftin
                                --------------------------------------------
Commitment:
$96,250,000              Title: Senior Vice President
                                --------------------------------------------


                         Instructions for wire transfers to the
                           Administrative Agent:

                         First Union National Bank
                         ABA Routing No. 053000219
                         Charlotte, North Carolina
                         General Ledger No. 465906, RC No. 5007
                         Attention: Syndication Agency Services
                         Re:  Petersen Publishing Company, L.L.C.

                         Address for notices (as a Lender):

                         First Union National Bank
                         One First Union Center, 5th Floor
                         301 South College Street
                         Charlotte, North Carolina 28288-0735
                         Attention: James W. Wood
                         Telephone: (704) 374-3242
                         Telecopy: (704) 374-4092

                         Lending Office:

                         First Union National Bank
                         One First Union Center, 5th Floor
                         301 South College Street
                         Charlotte, North Carolina 28288-0735
                         Attention: James W. Wood
                         Telephone: (704) 374-3242
                         Telecopy: (704) 374-4092


                            (signatures continued)

                                      S-2
<PAGE>
 
                         CIBC INC., as Documentation Agent and as
                           a Lender


                         By:    /s/ Susan Hanna
                                --------------------------------------------
Commitment:
$78,750,000              Title: Director, CIBC Wood Gundy Securities Corp., 
                                --------------------------------------------
                                as Agent
                                --------


                         Address for Notices of Borrowing, Notices of
                         Conversion/Continuation and Letter of Credit Notices:

                         2727 Paces Ferry Road, Suite 1200
                         Atlanta, Georgia 30339
                         Attention: Aleks Dymanus
                         Telephone: (770) 319-4826
                         Telecopy: (770) 319-4950

                         Address for all other notices:

                         425 Lexington Avenue
                         New York New York 10017
                         Attention: Susan Hanna
                         Telephone: (212) 856-3839
                         Telecopy: (212) 856-3558

                         Lending Office:

                         2727 Paces Ferry Road, Suite 1200
                         Atlanta, Georgia 30339
                         Attention: Aleks Dymanus
                         Telephone: (770) 319-4826
                         Telecopy: (770) 319-4950


                                      S-3
<PAGE>
 
                                    ANNEX I
                                    -------

                         APPLICABLE MARGIN PERCENTAGES

<TABLE>
<CAPTION>
                                                                          Applicable Margin
                                                      Applicable Margin     Percentage for
                                                        Percentage for     Revolving Credit
                  Leverage Ratio                         LIBOR Loans        Commitment Fee
                  --------------                         -----------        --------------
<S>                                                   <C>                  <C>
 
         Greater than or equal to 4.0 to 1.0                 1.0%               0.25%
 
         Greater than or equal to 3.5 to 1.0
             but less than 4.0 to 1.0                        0.75%              0.25%
 
         Greater than or equal to 3.0 to 1.0
             but less than 3.5 to 1.0                        0.625%             0.2%
 
         Greater than or equal to 2.0 to 1.0
             but less than 3.0 to 1.0                        0.5%               0.175%
 
               Less than 2.0 to 1.0                          0.375%             0.15%
</TABLE>