LOAN AND SECURITY AGREEMENT

                                  BY AND AMONG


                   CONGRESS FINANCIAL CORPORATION (NORTHWEST)
                                    AS LENDER

                                       AND

                 UNITED GROCERS, INC. AND UNITED RESOURCES, INC.
                                  AS BORROWERS


                             DATED: AUGUST 25, 1998

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                                TABLE OF CONTENTS

1. DEFINITIONS.................................................................1
2. CREDIT FACILITIES..........................................................15
   2.1Revolving Loans.........................................................15
   2.2Letter of Credit Accommodations.........................................17
   2.3Term Loan...............................................................19
   2.4Availability Reserves...................................................20
3. INTEREST AND FEES..........................................................20
   3.1Interest................................................................20
   3.2Closing Fee.............................................................22
   3.3 [deleted]..............................................................22
   3.4Servicing Fee...........................................................22
   3.5 [deleted]..............................................................22
   3.6Changes in Laws and Increased Costs of Loans............................22
4. CONDITIONS PRECEDENT.......................................................23
   4.1Conditions Precedent to Initial Loans and 
      Letter of Credit Accommodations.........................................23
   4.2Conditions Precedent to All Loans and Letter of Credit Accommodations...25
5. GRANT OF SECURITY INTEREST.................................................26
6. COLLECTION AND ADMINISTRATION..............................................27
   6.1Borrowers'  Loan Account(s).............................................27
   6.2Statements..............................................................27
   6.3Collection of Accounts..................................................28
   6.4Payments................................................................29
   6.5Authorization to Make Loans.............................................29
   6.6Use of Proceeds.........................................................30
7. COLLATERAL REPORTING AND COVENANTS.........................................30
   7.1Collateral Reporting....................................................30
   7.2Accounts Covenants......................................................30
   7.3Inventory Covenants.....................................................32
   7.4Equipment Covenants.....................................................33
   7.5Note Covenants..........................................................33
   7.6Power of Attorney.......................................................33
   7.7Right to Cure...........................................................34
   7.8Access to Premises......................................................34
8. REPRESENTATIONS AND WARRANTIES.............................................35
   8.1Corporate Existence, Power and Authority; Subsidiaries..................35
   8.2Financial Statements; No Material Adverse Change........................35
   8.3Chief Executive Office; Collateral Locations............................35
   8.4Priority of Liens; Title to Properties..................................36
   8.5Tax Returns.............................................................36
   8.6Litigation..............................................................36
   8.7Compliance with Other Agreements and Applicable Laws....................36
   8.8Environmental Compliance................................................36
   8.9Employee Benefits.......................................................37
   8.10Bank Accounts..........................................................38
   8.11Accuracy and Completeness of Information...............................38
   8.12Eligible Notes.........................................................38

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   8.13Survival of Warranties; Cumulative.....................................39
9. AFFIRMATIVE AND NEGATIVE COVENANTS.........................................39
   9.1Maintenance of Existence................................................39
   9.2New Collateral Locations................................................39
   9.3Compliance with Laws, Regulations, Etc..................................39
   9.4Payment of Taxes and Claims.............................................41
   9.5Insurance...............................................................42
   9.6Financial Statements and Other Information..............................43
   9.7Sale of Assets, Consolidation, Merger, Dissolution, Etc.................44
   9.8Encumbrances............................................................45
   9.9Indebtedness............................................................45
   9.10Loans, Investments, Guarantees, Etc....................................46
   9.11Dividends and Redemptions..............................................47
   9.12Transactions with Affiliates...........................................47
   9.13Additional Bank Accounts...............................................47
   9.14Compliance with ERISA..................................................48
   9.15 [deleted].............................................................48
   9.16Adjusted Net Worth.....................................................48
   9.17Costs and Expenses.....................................................48
   9.18Further Assurances.....................................................49
   9.19Year 2000 Compliance...................................................49
   9.20Amendment of Bylaws....................................................50
   9.21Accounts Receivable Turnover...........................................50
   9.22Fill Rate Covenants....................................................50
   9.23Management.............................................................52
   9.24Agricultural Products..................................................52
10. EVENTS OF DEFAULT AND REMEDIES............................................52
   10.1Events of Default......................................................52
   10.2Remedies...............................................................54
11. JURY TRIAL WAIVER; OTHER WAIVERS..........................................56
   11.1Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver..56
   11.2Waiver of Notices......................................................57
   11.3Amendments and Waivers.................................................57
   11.4Waiver of Counterclaims................................................58
   11.5Indemnification........................................................58
12. TERM OF AGREEMENT; MISCELLANEOUS..........................................58
   12.1Term...................................................................58
   12.2Notices................................................................60
   12.3Partial Invalidity.....................................................60
   12.4Successors.............................................................60
   12.5Participant's Security Interest........................................60
   12.6Joint and Several Liability............................................60
   12.7Entire Agreement.......................................................61

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                                    INDEX TO
                             EXHIBITS AND SCHEDULES


         Exhibit A                  Information Certificates

         Exhibit 1.11               Notice of Assignment

         Schedule 8.2               Exceptions to Section 8.2

         Schedule 8.4               Existing Liens

         Schedule 8.7               Exceptions to Section 8.7

         Schedule 8.8               Environmental Disclosures

         Schedule 8.10              Bank Accounts

         Schedule 9.9               Existing Indebtedness

         Schedule 9.10              Existing Loans, Advances and Guarantees

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                           LOAN AND SECURITY AGREEMENT


         This Loan and Security  Agreement,  dated  August 25, 1998,  is entered
into  by  and  among  Congress  Financial  Corporation  (Northwest),  an  Oregon
corporation ("Lender"),  United Grocers, Inc. ("UGI"), an Oregon corporation and
United  Resources,   Inc.  ("URI"),   an  Oregon  corporation  and  wholly-owned
subsidiary  of  UGI.  UGI  and  URI  are  referred  to  herein  collectively  as
"Borrowers," and each individually as "Borrower".


                              W I T N E S S E T H:
                              --------------------

         WHEREAS,  Borrowers  have  requested  that  Lender  enter into  certain
financing  arrangements  with Borrowers  pursuant to which Lender may make loans
and provide other financial accommodations to Borrowers; and

         WHEREAS,  Lender  is  willing  to make  such  loans  and  provide  such
financial accommodations on the terms and conditions set forth herein;

         NOW,   THEREFORE,   in  consideration  of  the  mutual  conditions  and
agreements set forth herein, and for other good and valuable consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:


1.       DEFINITIONS

         All terms used  herein  which are  defined in Article 1 or Article 9 of
the  Uniform  Commercial  Code  shall have the  meanings  given  therein  unless
otherwise  defined in this Agreement.  All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless the
context otherwise  requires.  All references to Borrowers and Lender pursuant to
the definitions set forth in the recitals hereto, or to any other person herein,
shall include  their  respective  successors  and assigns.  The words  "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this  Agreement  shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified,  supplemented,  extended,  renewed, restated or replaced. The
word  "including"  when used in this Agreement  shall mean  "including,  without
limitation".  An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or is cured in a
manner  satisfactory  to  Lender,  if such  Event of Default is capable of being
cured as determined by Lender.  Any accounting term used herein unless otherwise
defined in this Agreement shall have the meaning  customarily given to such term
in accordance  with GAAP. For purposes of this  Agreement,  the following  terms
shall have the respective meanings given to them below:

         1.1  "Accounts"  shall  mean all  present  and  future  rights  of each
Borrower to payment for goods sold or leased or for services rendered, which are
not  evidenced by  instruments  or chattel  paper,  and whether or not earned by
performance.

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<PAGE>

         1.2  "Adjusted  Eurodollar  Rate"  shall  mean,  with  respect  to each
Interest  Period  for any  Eurodollar  Rate  Loan,  the rate per annum  (rounded
upwards,  if necessary,  to the next  one-sixteenth  (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a
percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof,  "Reserve Percentage" shall mean the reserve percentage,  expressed as a
decimal,  prescribed  by any United  States or  foreign  banking  authority  for
determining the reserve  requirement which is or would be applicable to deposits
of United  States  dollars in a non-United  States or an  international  banking
office of Reference  Bank used to fund a Eurodollar  Rate Loan or any Eurodollar
Rate Loan made with the proceeds of such  deposit,  whether or not the Reference
Bank  actually  holds or has  made any such  deposits  or  loans.  The  Adjusted
Eurodollar  Rate shall be adjusted on and as of the  effective day of any change
in the Reserve Percentage.

         1.3 "Adjusted  Net Worth" shall mean as to any Person,  at any time, in
accordance with GAAP (except as otherwise  specifically  set forth below),  on a
consolidated  basis for such Person and its  subsidiaries  (if any),  the amount
equal to: (a) the  difference  between:  (i) the aggregate net book value of all
assets  of such  Person  and its  subsidiaries,  calculating  the book  value of
inventory for this purpose on a  first-in-first-out  basis, after deducting from
such book value all appropriate  reserves in accordance with GAAP (including all
reserves for doubtful receivables, obsolescence,  depreciation and amortization)
and (ii) the aggregate amount of the indebtedness and other  liabilities of such
Person and its  subsidiaries  (including tax and other proper accruals) plus (b)
indebtedness of such Person and its subsidiaries  which is subordinated in right
of payment to the full and final payment of all of the  Obligations on terms and
conditions acceptable to Lender.

         1.4   "Availability   Reserves"   shall   mean,   as  of  any  date  of
determination, such amounts as Lender may from time to time establish and revise
in good  faith  reducing  the  amount of  Revolving  Loans and  Letter of Credit
Accommodations which would otherwise be available to Borrowers under the lending
formula(s) provided for herein: (a) to reflect events, conditions, contingencies
or risks which,  as determined by Lender in good faith,  do or may affect either
(i) the Collateral or any other  property which is security for the  Obligations
or its value, (ii) the assets,  business or prospects of Borrowers, or either of
them, or any Obligor or (iii) the security  interests and other rights of Lender
in  the  Collateral  (including  the  enforceability,  perfection  and  priority
thereof) or (b) to reflect Lender's good faith belief that any collateral report
or financial  information  furnished by or on behalf of Borrowers,  or either of
them,  or any Obligor to Lender is or may have been  incomplete,  inaccurate  or
misleading  in any  material  respect  or (c) to reflect  outstanding  Letter of
Credit  Accommodations  as  provided  in  Section  2.2  hereof or (d) to reflect
dilution  in excess of three  percent  (3%) as provided in Section 2.4 hereof or
(e) to reflect any  liquidated  damages  payable or alleged to be payable by any
Person  under  Section  18 of the  Supply  Agreement  or under any other  supply
agreement  with any other customer or (f) in respect of any state of facts which
Lender  determines  in good faith  constitutes  an Event of Default or may, with
notice or  passage  of time or both,  constitute  an Event of  Default.  Without
limiting the generality of the foregoing,  Lender shall be entitled at all times
to establish  Availability  Reserves  reducing the amount of the Revolving Loans
and Letter of Credit  Accommodations  which  would  otherwise  be  available  to
Borrowers,  and to increase and decrease such Availability Reserves from time to
time,  in respect of any or all amounts owed or which may under any  contingency
be owed by Borrowers to any Farm  Products  Sellers or other third party,  which
amounts are or may be secured by any of the Collateral, or if Lender believes in
good faith such  Availability  Reserves  are or may be  necessary  to protect it
against  statutory  or common law liens or trust fund 

                                       2
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claims or other liens in favor of any Farm Products Sellers or any lender to any
Farm Products Seller or any other person with a security  interest in the assets
of such supplier or seller or any category of indebtedness  or other  obligation
or liability owed to a third party, the payment of which is or may be secured by
a  statutory  or common law lien or  entitled to the benefit of a trust or other
lien upon any of the assets and properties of Borrowers, or either of them.

         1.5 "Blocked  Accounts" shall have the meaning set forth in Section 6.3
hereof.

         1.6 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which  commercial  banks are  authorized or required to close under
the laws of the State of Oregon or the State of New York, and a day on which the
Reference Bank and Lender are open for the transaction of business,  except that
if a determination  of a Business Day shall relate to any Eurodollar Rate Loans,
the term  Business  Day shall also exclude any day on which banks are closed for
dealings in dollar deposits in the London  interbank  market or other applicable
Eurodollar Rate market.

         1.7 "Code"  shall mean the Internal  Revenue Code of 1986,  as the same
now exists or may from time to time hereafter be amended,  modified,  recodified
or  supplemented,  together  with all  rules,  regulations  and  interpretations
thereunder or related thereto.

         1.8 "Collateral" shall have the meaning set forth in Section 5 hereof.

         1.9 "Eligible  Accounts"  shall mean Accounts  created by UGI which are
and continue to be  acceptable  to Lender based on the criteria set forth below.
In general, Accounts shall be Eligible Accounts if:

              (a) such  Accounts  arise  from the  actual and bona fide sale and
delivery of goods by UGI or rendition of services by UGI in the ordinary  course
of its business,  which  transactions are completed in accordance with the terms
and provisions contained in any documents related thereto;

              (b) such Accounts are not unpaid more than  twenty-nine  (29) days
after the original due date for them or thirty-nine  (39) days after the date of
the original invoice for them, whichever first occurs;

              (c) such Accounts  comply with the terms and conditions  contained
in Section 7.2 (c) of this Agreement;

              (d)  such  Accounts  do  not  arise  from  sales  on  consignment,
guaranteed sale, sale and return,  sale on approval,  or other terms under which
payment by the account debtor may be conditional or contingent;


(e) the chief  executive  office of the  account  debtor  with  respect  to such
Accounts is located in the United States of America,  or, at Lender's option, if
either:  (i) the account  debtor has delivered to UGI an  irrevocable  letter of
credit issued or confirmed by a bank  satisfactory to Lender and payable only in
the  United  States of America  and in U.S.  dollars,  sufficient  to cover such
Accounts,  in form and  substance  satisfactory  to Lender  and,  if required by
Lender,  the  original of such letter of credit has been  delivered to Lender or
Lender's agent 

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<PAGE>

and the issuer thereof notified of the assignment of the proceeds of such letter
of credit to Lender,  or (ii) such  Accounts  are  subject  to credit  insurance
payable to Lender issued by an insurer and on terms and in an amount  acceptable
to Lender,  or (iii) such Accounts are  otherwise  acceptable in all respects to
Lender  (subject to such  lending  formula  with  respect  thereto as Lender may
determine);

              (f) such  Accounts do not consist of progress  billings,  bill and
hold invoices or retainage  invoices,  except as to bill and hold  invoices,  if
Lender shall have received an agreement in writing from the account  debtor,  in
form  and  substance  satisfactory  to  Lender,   confirming  the  unconditional
obligation of the account debtor to take the goods related  thereto and pay such
invoice;

              (g) the  account  debtor  with  respect to such  Accounts  has not
asserted a  counterclaim,  defense or  dispute  and does not have,  and does not
engage in transactions  which may give rise to, any right of setoff against such
Accounts,  except a setoff by UGI if authorized by Lender as provided in Section
7.2(c) hereof (but the portion of the Accounts of such account  debtor in excess
of the  amount  at any time and from  time to time  owed by UGI to such  account
debtor or claimed owed by such account debtor may be deemed Eligible Accounts);

              (h) there are no facts,  events or occurrences  which would impair
the validity,  enforceability  or  collectability of such Accounts or reduce the
amount payable or delay payment thereunder;

              (i) such  Accounts  are subject to the first  priority,  valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof,  subject to any liens except those
permitted in this Agreement;

              (j) [deleted];

              (k) the account  debtors with respect to such Accounts are not any
foreign  government,   the  United  States  of  America,  any  State,  political
subdivision,  department,  agency or  instrumentality  thereof,  unless,  if the
account  debtor  is  the  United  States  of  America,   any  State,   political
subdivision,  department,  agency  or  instrumentality  thereof,  upon  Lender's
request,  the  Federal  Assignment  of Claims Act of 1940,  as  amended,  or any
similar  State or local law, if  applicable,  has been complied with in a manner
satisfactory to Lender;

              (l) there are no  proceedings  or actions which are  threatened or
pending  against the account  debtors  with respect to such  Accounts  which are
likely to result in any material  adverse  change in any such  account  debtor's
financial condition;

              (m) [deleted];

              (n)  such  Accounts  are not  owed by an  account  debtor  who has
Accounts unpaid more than  twenty-nine (29) days after the original due date for
them or thirty-nine  (39) days after the date of the original  invoice for them,
whichever  first occurs,  which  constitute more than fifty percent (50%) of the
total Accounts of such account debtor;

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<PAGE>

              (o)  such  Accounts  are  owed  by  account  debtors  whose  total
indebtedness to Borrowers does not exceed the credit limits with respect to such
account  debtors as  determined  by Lender from time to time (but the portion of
the  Accounts  not in  excess  of  such  credit  limit  may be  deemed  Eligible
Accounts); and

              (p) such Accounts are owed by account debtors deemed  creditworthy
at all times by Lender, as determined by Lender.

General criteria for Eligible  Accounts may be established and revised from time
to time by Lender in good faith.  Any Accounts  which are not Eligible  Accounts
shall nevertheless be part of the Collateral.

         1.10 "Eligible  Inventory" shall mean Inventory  consisting of finished
goods held for resale in the  ordinary  course of the  business of UGI which are
acceptable to Lender based on the criteria set forth below. In general, Eligible
Inventory shall not include (a)  work-in-process;  (b) components  which are not
part of  finished  goods;  (c) spare  parts for  equipment;  (d)  packaging  and
shipping  materials;  (e)  supplies  used or  consumed  in UGI's  business;  (f)
Inventory at premises  other than those owned and  controlled by UGI,  except if
Lender shall have received an agreement in writing from the person in possession
of such  Inventory  and/or the owner or  operator  of such  premises in form and
substance  satisfactory to Lender acknowledging Lender's first priority security
interest in the Inventory,  waiving security interests and claims by such person
against the Inventory and  permitting  Lender access to, and the right to remain
on, the premises so as to exercise  Lender's  rights and remedies and  otherwise
deal with the Collateral;  (g) Inventory  subject to a security interest or lien
in  favor of any  person  other  than  Lender  except  those  permitted  in this
Agreement;  (h) bill and hold goods; (i) unserviceable,  obsolete or slow moving
Inventory;  (j) Inventory which is not subject to the first priority,  valid and
perfected  security interest of Lender;  (k) returned,  damaged and/or defective
Inventory;  (l) Inventory purchased or sold on consignment;  (m) dairy products;
and (n) fresh produce and meat.  General criteria for Eligible  Inventory may be
established and revised from time to time by Lender in good faith. Any Inventory
which is not Eligible Inventory shall nevertheless be part of the Collateral.

         1.11 "Eligible Notes  Receivable"  means  promissory  notes held by and
payable to URI which are and  continue to be  acceptable  to Lender based on the
criteria set forth below. In general,  promissory  notes shall be Eligible Notes
Receivable if:

              (a)  at  least  one of the  obligors  on  each  such  note  is and
continues to be a Member or is another  person  acceptable to Lender in its sole
discretion;

              (b) the notes are acceptable to Lender in form and substance;

              (c) no payment  due under such notes or any other note  payable to
Borrowers,  or  either  of  them,  or any  note  payable  to  National  Consumer
Cooperative  Bank that was assigned or in any way  originated by  Borrowers,  or
either of them (after giving effect to any  applicable  grace  periods)  remains
unpaid,  in whole or in part,  more than thirty (30) days past the scheduled due
date;

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<PAGE>

              (d) the chief executive  offices of the obligors on such notes are
located in the United States of America,  and the note  originated in the United
States;

              (e) the  obligors  with  respect to such notes have not asserted a
counterclaim,  defense  or  dispute  and do not  have,  and  do  not  engage  in
transactions  which may give rise to,  any right of setoff  against  such  notes
except a set-off by UGI if  authorized  by Lender as  provided  in  Section  7.2
hereof  (but the  portion  of the notes in excess of the  amount at any time and
from time to time owed by URI to such note obligors or claimed owed by such note
obligors may be deemed Eligible Notes Receivable);

              (f) there are no facts,  events or occurrences  which would impair
the  validity,  enforceability  or  collectability  of such  notes or reduce the
amount  payable or delay payment  thereunder,  and each note, at the time it was
made complied and as of the date  delivered to Lender,  continued to comply,  in
all material  respects with applicable  state and federal laws and  regulations,
including usury, equal credit opportunity, disclosure and recording laws;

              (g) such  notes  are  subject  to the  first  priority,  valid and
perfected  security  interest  of Lender and have been  assigned,  endorsed  and
delivered to Lender;

              (h) the are no  proceedings  or actions  which are  threatened  or
pending  against the note  obligors  which might result in any material  adverse
change in such obligors' financial condition;

              (i) such notes are not owed by obligors who have  Accounts  unpaid
more  than  twenty-nine  (29)  days  after  the  original  due  date for them or
thirty-nine  (39) days after the  original  due date for them,  whichever  first
occurs,  which constitute more than fifty percent (50%) of the total Accounts of
such obligors to UGI;

              (j) each Related Document that is a security or similar  agreement
requires  the  maker  and  guarantor  (if any)  thereunder,  at its own cost and
expense, to maintain the tangible collateral pledged to secure the note, in good
repair,  condition and working order,  and to the best of Borrowers'  knowledge,
each maker and  guarantor  of that note is  currently  in  compliance  with this
requirement;

              (k) such notes comply with the terms and  conditions  contained in
Section 7.2(c) of this Agreement;

              (l) such notes have not been  amended,  modified  or  supplemented
except as has been disclosed to and accepted by Lender;

              (m) such notes are owed by obligors  whose total  indebtedness  to
Borrowers  does not exceed the credit  limits with  respect to such  obligors as
determined  by Lender  from time to time  (but the  portion  of the notes not in
excess of such credit limit may be deemed Eligible Notes Receivable);

              (n) the executed  original of each such note has been  endorsed by
an  authorized  officer of the  assigning  Borrower as follows:  "Holder  hereby
endorses and assigns,  with full recourse,  all of its right, title and interest
in and to this Promissory Note to Congress Financial 

                                       6
<PAGE>

Corporation  (Northwest),  or  its  order,  for  security  purposes,"  and  such
endorsement,  together with all prior and intervening  endorsements,  evidence a
complete chain of endorsement from the original payee to Lender;

              (o) the executed  original  counterpart of the Related  Documents,
together with executed originals of all modifications or amendments thereof have
been delivered to Lender;

              (p) documents evidencing or related to any insurance policies have
been delivered to Lender;

              (q) with  respect to notes  secured by mortgages or deeds of trust
on real  property,  Lender  shall have  received  (A) either:  (i) the  original
mortgage or deed of trust,  with evidence of recording  thereon,  (ii) a copy of
the mortgage certified as a true copy by an officer of the beneficiary where the
original has been  transmitted  for recording until such time as the original is
returned  by the  public  recording  officer  or duly  licensed  title or escrow
officer or (iii) a copy of the mortgage or deed of trust certified by the public
recording office in those instances where the original recorded mortgage or deed
of trust has been lost;  (B) either (i) an  original  assignment  of mortgage or
deed of  trust  from the  assigning  Borrower  to  Lender  in form an  substance
satisfactory to Lender;  or (ii) a copy of such assignment,  certified as a true
copy by an  officer  of the  assigning  Borrower  where  the  original  has been
transmitted  for  recording;  and (C) either (i)  originals  of all  intervening
assignments,  if any,  showing  a  complete  chain  of title  from the  original
beneficiary  to Lender,  including  warehousing  assignments,  with  evidence of
recording  thereon  if  such  assignments  were  recorded;  (ii)  copies  of any
assignments  certified  as true copies by an officer of the  assigning  Borrower
where the originals  have been  submitted  for recording  until such time as the
originals are returned by the public recording  officer,  or (iii) copies of any
assignments  certified by the public recording office in any instances where the
original recorded assignments have been lost;

              (r) Lender  shall have  received any UCC-1  financing  statements,
UCC-3  assignments or other  instruments that Lender  determines is necessary to
perfect  Lender's  security  interest  in  the  notes  and  the  other  property
transferred  to  Lender  in  connection  with  the  notes,   and  to  deliver  a
file-stamped copy of such financing  statements or other evidence of such filing
to Lender;

              (s)  Lender  shall  have  received  a  duly  executed   Notice  of
Assignment in the form annexed  hereto as Exhibit  1.11,  addressed to the maker
and any other  obligor of each note and no maker or guarantor of that note shall
have objected to the assignment of the note to Lender or to any provision of the
Notice of Assignment;

              (t) the notes of a single Member, together with its affiliates, do
not  constitute  more  than  twenty-five  percent  (25%)  of all  notes  held by
Borrowers  (but the portion of the note not in excess of such  percentage may be
deemed an Eligible Note);

              (u) Lender  shall have  determined  that each  representation  and
warranty of Borrowers set forth in Section 8.12 shall be true and correct in all
material  respects,  and a duly  authorized  officer of Borrowers  shall have so
certified in writing;

                                       7
<PAGE>

              (v) the note and the Related Documents are dated prior to the date
of this Agreement;

              (w) Lender shall have received a Note Schedule for each such note;

              (x) there is no material  default,  breach,  violation or event of
acceleration  existing  under any such  note or  Related  Document  and no event
which,  with the passage of time or with notice and the  expiration of any grace
or cure period, or both, would constitute a material default,  breach, violation
or event of acceleration,  and Borrowers, or either of them, have not waived any
such default, breach, violation or event of acceleration,  and Borrowers have no
reason to believe  that the makers and  guarantors  of the note will not perform
their respective obligations thereunder;

              (y) the note and Related Documents to which any maker or guarantor
is a party bears the original  signature of such maker and guarantor  (and not a
copy), and the maker and/or any guarantor of each such note is personally liable
(i.e.  the note is with full  recourse) for the payment and  performance  of its
obligations  under that note,  and pursuant to the terms of the note and Related
Documents,  each maker and guarantor thereof is absolutely  required to make all
payments and perform all obligations  due under the note and Related  Documents,
without abatement, deferment or defense of any kind or for any reason (except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of
general  application  relating to or affecting  creditors  rights and by general
principles of equity);

              (z) Uniform  Commercial  Code Financing  Statements have been duly
filed in all places where filing is  necessary,  and all other  additional  acts
have been  taken as are  necessary  to  perfect  Borrowers'  security  interests
arising pursuant to the Related  Documents,  and, except as provided in the Note
Schedule,  such  security  interests  constitute  a first  priority,  valid  and
perfected lien in and to all of the collateral  identified in the Note Schedule,
and except as noted in the Note Schedule,  will be enforceable against all third
parties in all  jurisdictions  as security for the  obligations of the makers of
the note and the Related Documents; and

              (aa) the maker of each note is generally paying its obligations as
they  become due and to  Borrowers'  knowledge,  has no  present  intent to seek
relief under the federal bankruptcy laws; and

              (bb) such notes are owed by obligors otherwise deemed creditworthy
at all times by Lender, as determined by Lender.

         1.12 "Environmental  Laws" shall mean all applicable foreign,  Federal,
State  and  local  laws  (including  common  law),  legislation,  rules,  codes,
licenses,  permits (including any conditions  imposed therein),  authorizations,
judicial or administrative decisions, injunctions or agreements between Borrower
and any  governmental  authority,  (a) relating to pollution and the protection,
preservation  or restoration  of the  environment  (including  air, water vapor,
surface water,  ground water,  drinking  water,  drinking water supply,  surface
land, subsurface land, plant and animal life or any other natural resource),  or
to human health or safety  (including under the  Occupational  Health and Safety
Act),  (b)  relating  to the  exposure  to,  or  the  use,  storage,  recycling,
treatment, generation, manufacture,  processing,  distribution,  transportation,
handling, labeling,  production,  release or disposal, or threatened release, of
Hazardous Materials,  or 

                                        8
<PAGE>

(c) relating to all laws with regard to record keeping, notification, disclosure
and   reporting   requirements   respecting   Hazardous   Materials.   The  term
"Environmental  Laws"  includes  (i)  the  Federal  Comprehensive  Environmental
Response,  Compensation  and  Liability  Act  of  1980,  the  Federal  Superfund
Amendments and  Reauthorization  Act, the Federal Water Pollution Control Act of
1972,  the Federal  Clean  Water Act,  the  Federal  Clean Air Act,  the Federal
Resource  Conservation  and Recovery Act of 1976  (including  the  Hazardous and
Solid Waste  Amendments  thereto),  the Federal Solid Waste Disposal Act and the
Federal Toxic  Substances  Control Act, the Federal  Insecticide,  Fungicide and
Rodenticide  Act,  and  the  Federal  Safe  Drinking  Water  Act of  1974,  (ii)
applicable  state  counterparts  to such  laws,  and  (iii)  any  common  law or
equitable  doctrine  that may impose  liability or  obligations  for injuries or
damages due to, or threatened as a result of, the presence of or exposure to any
Hazardous Materials.

         1.13  "Equipment"  shall mean all equipment,  machinery,  computers and
computer  hardware and software  (whether owned or licensed),  vehicles,  tools,
furniture and fixtures now owned or hereafter  acquired by Borrowers,  or either
of them,  all  attachments,  accessions  and property  now or hereafter  affixed
thereto or used in connection  therewith,  and  substitutions  and  replacements
thereof, wherever located.

         1.14 "ERISA" shall mean the United States  Employee  Retirement  Income
Security Act of 1974, as the same now exists or may hereafter  from time to time
be amended,  modified,  recodified  or  supplemented,  together  with all rules,
regulations and interpretations thereunder or related thereto.

         1.15 "ERISA  Affiliate" shall mean any person required to be aggregated
with Borrowers,  or either of them, or any of their  Subsidiaries under Sections
414(b), 414(c), 414(m) or 414(o) of the Code.

         1.16  "Eurodollar  Rate" shall mean with respect to the Interest Period
for a Eurodollar  Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded  upwards,  if necessary,  to
the next  one-sixteenth  (1/16) of one (1%) percent) at which  Reference Bank is
offered  deposits of United States  dollars in the London  interbank  market (or
other Eurodollar Rate market selected by Borrowers and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the  commencement
of such Interest Period in amounts  substantially  equal to the principal amount
of  the  Eurodollar  Rate  Loans  requested  by and  available  to  Borrower  in
accordance  with this Agreement,  with a maturity of comparable  duration to the
Interest Period selected by Borrowers.

         1.17 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which  interest is payable based on the Adjusted  Eurodollar  Rate in accordance
with the terms hereof.

         1.18 "Event of Default"  shall mean the  occurrence or existence of any
event or condition described in Section 10.1 hereof.

         1.19 "Excess  Availability"  shall mean the amount,  as  determined  by
Lender,  calculated at any time,  equal to: (a) the lesser of: (i) the amount of
the  Revolving  Loans  available  to  Borrowers  as of such  time  based  on the
applicable  lending formulas  multiplied by the Net Amount of Eligible  Accounts
and Eligible Notes Receivable and the Value of Eligible Inventory, as determined
by Lender,  and subject to the sublimits and Availability  Reserves from 

                                        9
<PAGE>

time to time established by Lender hereunder,  and (ii) the Maximum Credit (less
the then outstanding  principal amount of the Term Loans), minus the sum of: (i)
the amount of all then outstanding and unpaid Obligations (but not including for
this purpose the then outstanding principal amount of the Term Loans), plus (ii)
the  aggregate  amount of all then  outstanding  and unpaid  trade  payables  of
Borrowers  which are more than thirty  (30) days past due as of such time,  plus
(iii) the amount of checks  issued by Borrowers to pay trade  payables,  but not
yet sent and the book overdrafts of Borrowers.

         1.20 "Farm Products Sellers" shall mean, individually and collectively,
sellers or suppliers to  Borrowers,  or either of them,  of any farm product (as
such term is defined in both the Food  Security  Act and the UCC) and  including
any  perishable  agricultural  commodity  (as defined in PACA) or livestock  (as
defined in the PSA),  meat,  meat food  products or livestock  products  derived
therefrom.

         1.21 "Fill Rate" means, for any period, (a) the aggregate dollar amount
(based upon UGI's landed net cost as of the date of the corresponding orders) of
all goods shipped or made available for pick-up by UGI's  customers  pursuant to
orders submitted  during the period,  divided by (b) the aggregate dollar amount
(based upon UGI's  landed net cost as of the date of the various  orders) of all
goods  included in orders  submitted to UGI by its customers  during the period,
expressed  as a  percentage.  For  purposes of  calculating  the Fill Rate,  the
aggregate dollar amount attributable to goods that have been discontinued,  that
were unauthorized or that were unavailable or out-of-stock  (including  vendor's
scratches,  vendor  out-of-stock and vendor  out-of-pack) shall be deducted from
the  aggregate  dollar  amount  of goods  included  in orders  submitted  to UGI
described in part (b) above.  For purposes of calculating  the Fill Rate,  UGI's
"landed  net cost" shall mean the actual  invoiced  cost to UGI for such item of
merchandise,   including   cross-docking   costs,  the  out-of-pocket   cost  of
transportation,  handling  and  insurance  in  connection  with the shipment and
warehousing  of  such  item  of  merchandise  to the  UGI  warehouse,  less  all
applicable  discounts,  rebates and allowances actually allowed (including those
allowed by or with  respect to  purchases  of All  Kitchen,  Western  Family and
tobacco products) to UGI in connection  therewith,  but excluding all applicable
state and federal excise taxes on cigarettes and tobacco products.  In addition,
and  notwithstanding  the preceding,  discounts and allowances  granted by UGI's
vendors for a specific  duration  shall be  reallowed  to UGI's  customers  with
respect to orders  submitted  during that duration  only,  and in no event shall
UGI's  landed net cost be reduced  by, nor shall UGI be  required  to reallow or
pass through to any of its customers, any dividend or other distribution, or any
allocation (or similar benefit arising out of that customer's ownership interest
in Western Family)  declared,  paid,  awarded or given to UGI from or by Western
Family.  In calculating  the landed net cost of any item,  any  fractional  cent
shall be rounded up or down to the nearest cent.

         1.22 "Food  Security  Act" shall mean the Food  Security Act of 1984, 7
U.S.C.  Section 1631, et seq., as the same now exists or may hereafter from time
to time be amended,  modified,  recodified  or  supplemented,  together with all
rules and regulations thereunder.

         1.23 "Food  Security Act Notices"  shall mean any notice  received by a
Borrower from any person (i) that farm products  purchased or to be purchased by
Borrower are or may be subject to a security interest created by a Farm Products
Seller or (ii) that purports to be given under the Food Security Act,  including
in each case, any such notice received from any Farm Products Seller, any lender
or any central filing system established under the Food Security Act.

                                       10
<PAGE>

         1.24 "Financing  Agreements" shall mean,  collectively,  this Agreement
and all notes, guarantees,  security agreements and other agreements,  documents
and  instruments  now or at any time  hereafter  executed  and/or  delivered  by
Borrowers,  or  either  or them,  or by any  Obligor  in  connection  with  this
Agreement,  as the  same  now  exist  or may  hereafter  be  amended,  modified,
supplemented, extended, renewed, restated or replaced.

         1.25 "GAAP" shall mean generally accepted accounting  principles in the
United  States of  America  as in  effect  from time to time as set forth in the
opinions and pronouncements of the Accounting  Principles Board and the American
Institute of Certified Public  Accountants and the statements and pronouncements
of  the  Financial  Accounting  Standards  Board  which  are  applicable  to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.16 hereof,  GAAP shall be  determined  on the basis of
such  principles in effect on the date hereof and consistent  with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.

         1.26 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances,  materials and wastes,  including hydrocarbons  (including naturally
occurring  or  man-made  petroleum  and  hydrocarbons),   flammable  explosives,
asbestos,  urea  formaldehyde  insulation,   radioactive  materials,  biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or  contaminants  (including  materials  which include
hazardous  constituents),  sewage, sludge,  industrial slag, solvents and/or any
other  similar  substances,   materials,  or  wastes  and  including  any  other
substances,  materials or wastes that are or become subject to regulation  under
any  Environmental Law (including any that are or become classified as hazardous
or toxic under any Environmental Law).

         1.27 "Information  Certificate" shall mean the Information  Certificate
of each Borrower  included in Exhibit A hereto containing  material  information
with respect to each Borrower, its business and assets, provided by or on behalf
of Borrowers to Lender in connection  with the preparation of this Agreement and
the other  Financing  Agreements  and the  financing  arrangements  provided for
herein.

         1.28  "Interest  Period"  shall mean for any  Eurodollar  Rate Loan,  a
period of  approximately  one (1),  two (2),  or three (3)  months  duration  as
Borrowers may elect,  the exact duration to be determined in accordance with the
customary  practice in the applicable  Eurodollar Rate market;  provided,  that,
Borrowers may not elect an Interest  Period which will end after the last day of
the then-current term of this Agreement.

         1.29 "Interest Rate" shall mean, as to Prime Rate Loans, the Prime Rate
and, as to  Eurodollar  Rate  Loans,  a rate of one and  three-quarters  (1.75%)
percent  per annum in  excess  of the  Adjusted  Eurodollar  Rate  (based on the
Eurodollar  Rate  applicable for the Interest Period selected by Borrowers as in
effect  three  (3)  Business  Days  after the date of  receipt  by Lender of the
request of Borrowers for such Eurodollar Rate Loans in accordance with the terms
hereof,  whether such rate is higher or lower than any rate previously quoted to
Borrowers); provided, that, the Interest Rate shall mean the rate of two percent
(2.0%) per annum in excess of the Prime Rate as to Prime Rate Loans and the rate
of three and three-quarters  percent (3.75%) per annum in excess of the Adjusted
Eurodollar Rate as to Eurodollar Rate Loans, at Lender's option, without notice,
(a) for the period  (i) from and after the date of  termination  or  non-renewal
hereof

                                       11
<PAGE>

until  Lender  has  received   full  and  final   payment  of  all   Obligations
(notwithstanding  entry of a judgment against Borrowers,  or either of them) and
(ii) from and after the date of the  occurrence  of an Event of  Default  for so
long as such Event of Default is continuing as determined by Lender,  and (b) on
the Revolving Loans at any time  outstanding in excess of the amounts  available
to Borrowers under Section 2 (whether or not such excess(es),  arise or are made
with or without  Lender's  knowledge or consent and whether made before or after
an Event of Default);  provided, further, that Borrowers shall be eligible for a
reduction of the Interest Rate as to Eurodollar  Rate Loans to a rate of one and
one-half  percent  (1.50%) per annum in excess of the Adjusted  Eurodollar  Rate
after  the  second  anniversary  of the date of this  Agreement  but only (x) if
Borrower  submits to Lender profit  projections  that are satisfactory to Lender
and if, for fiscal years ending September, 1999 and September,  2000, Borrowers'
profits  (before  taxes,  dividends  and  extraordinary  gains) are no less than
eighty percent (80%) of those projections (before taxes, dividends and excluding
extraordinary  gains), as evidenced by Borrower's  audited financial  statements
prepared by  PricewaterhouseCoopers  or other independent  certified accountants
selected by Borrowers and reasonably acceptable to Lender, and (y) if Lender has
not  declared  an Event  of  Default  between  the  date of this  Agreement  and
Borrowers' fiscal year ending September, 2000.

         1.30  "Inventory"  shall  mean  all raw  materials,  work  in  process,
finished goods and all other inventory of whatsoever kind or nature now owned or
hereafter  existing  or  acquired  by  Borrowers,  or either  of them,  wherever
located.

         1.31  "Letter  of Credit  Accommodations"  shall  mean the  letters  of
credit,  merchandise  purchase or other  guaranties  which are from time to time
either (a) issued or opened by Lender for the  account of UGI or any  Obligor or
(b) with  respect  to which  Lender  has  agreed  to  indemnify  the  issuer  or
guaranteed  to the  issuer the  performance  by UGI of its  obligations  to such
issuer.

         1.32 "Loans" shall mean the Revolving Loans and the Term Loans.

         1.33 "Maximum Credit" shall mean the amount of $135,000,000.

         1.34  "Member"  shall  mean a Person who has  applied  for and has been
accepted as a member of UGI, has satisfied all  requirements for such membership
including the purchase of UGI capital stock, remains a member of and shareholder
in UGI, and has not given notice of withdrawal or been given notice of expulsion
from membership in UGI.

         1.35 "Mortgages" shall mean, individually and collectively, each of the
following  (as the  same  now  exist  or may  hereafter  be  amended,  modified,
supplemented,  extended,  renewed,  restated or  replaced):  (a) the Trust Deed,
Assignment of Rents,  Security Agreement and Fixture Filing,  dated of even date
herewith,  by UGI in favor of  Lender  with  respect  to the real  property  and
related  assets of UGI located in Clackamas  County,  Oregon,  and (b) the Trust
Deed,  Assignment of Rents, Security Agreement and Fixture Filing, dated of even
date  herewith,  by UGI in favor of Lender with respect to the real property and
related assets of Borrower located in Jackson County, Oregon.

         1.36 "NCCB" shall mean National Consumer Cooperative Bank.

                                       12
<PAGE>

         1.37 "Net Amount of Eligible  Accounts"  shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, rebates,  discounts,  claims, credits and allowances of
any nature at any time issued, owing, granted, outstanding, available or claimed
with respect thereto.

         1.38 "Note  Schedule"  shall mean the schedule for each Eligible  Notes
delivered by Borrowers to Lender from time to time.  The Eligible  Note Schedule
will  identify  each  Eligible  Note by the name and address of the maker of the
note (and if different  from that address,  the location of the grocery store to
which such Eligible  Note  relates) and setting forth as to each Eligible  Note:
(i) the date the note was made and the original  principal  balance of the note;
(ii)  the  unpaid  principal  balance  of the  note as of the  date  the note is
delivered  to  Lender;  (iii) the  aggregate  principal  and  interest  payments
received  by  Borrowers  with  respect to the note  through the date of the Note
Schedule;  (iv) the  original  number  of months to  maturity  and the  original
amortization  period, in months, of the note, together with the actual number of
months remaining to maturity as of the date the note is delivered to Lender; (v)
the date the first  monthly  payment  under the note was due;  (vi) the interest
rate  payable by the maker  under the note,  including  the  minimum and maximum
rates payable,  if applicable;  (vii) the  amortization  method and period;  and
(viii) the type and priority of the collateral securing the note.

         1.39 "Obligations"  shall mean any and all Revolving Loans, Term Loans,
Letter  of Credit  Accommodations  and all other  obligations,  liabilities  and
indebtedness of every kind, nature and description owing by Borrowers, or either
of them,  to  Lender  and/or  its  affiliates,  including  principal,  interest,
charges,  fees,  costs and expenses,  however  evidenced,  whether as principal,
surety, endorser,  guarantor or otherwise,  whether arising under this Agreement
or otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal  term of this  Agreement or after the
commencement of any case with respect to Borrowers, or either of them, under the
United States  Bankruptcy Code or any similar statute  (including the payment of
interest  and other  amounts  which  would  accrue  and  become  due but for the
commencement of such case,  whether or not such amounts are allowed or allowable
in whole or in part in such  case),  whether  direct or  indirect,  absolute  or
contingent,  joint or several, due or not due, primary or secondary,  liquidated
or unliquidated, secured or unsecured, and however acquired by Lender.

         1.40 "Obligor" shall mean any guarantor,  endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than a Borrower.

         1.41 "PACA" shall mean the  Perishable  Agricultural  Commodities  Act,
1930, as amended, 7 U.S.C,  Section 499a, et seq., as the same now exists or may
from time to time hereafter be amended,  modified,  recodified or  supplemented,
together with all rules,  regulations and interpretations  thereunder or related
thereto.

         1.42 "Participant" shall mean any person which at any time participates
with  Lender in  respect of the Loans,  the Letter of Credit  Accommodations  or
other Obligations or any portion thereof.

         1.43 "Payment  Account" shall have the meaning set forth in Section 6.3
hereof.

                                       13
<PAGE>

         1.44   "Person"   or   "person"   shall  mean  any   individual,   sole
proprietorship, partnership, corporation (including any corporation which elects
subchapter  S status  under the  Internal  Revenue  Code of 1986,  as  amended),
limited  liability  company,  limited  liability  partnership,  business  trust,
unincorporated  association,  joint stock  corporation,  trust, joint venture or
other entity or any  government  or any agency or  instrumentality  or political
subdivision thereof.

         1.45 "Prime Rate" shall mean the rate announced by the Reference  Bank,
or its  successors,  from time to time as its prime  rate,  whether  or not such
announced rate is the best rate available at such bank.

         1.46  "Prime  Rate  Loans"  shall mean any Loans or portion  thereof on
which  interest is payable based on the Prime Rate in accordance  with the terms
hereof.

         1.47 "PSA" shall mean the Packers and  Stockyard  Act of 1921, 7 U.S.C.
Section 181, et seq., as the same now exists or may from time to time  hereafter
be amended,  modified,  recodified  or  supplemented,  together  with all rules,
regulations and interpretations thereunder or related thereto.

         1.48 "Real Property" shall mean the real property and related assets of
UGI which is located in Clackamas County, Oregon, and Jackson County, Oregon and
which is to be subject to the Mortgages.

         1.49  "Records"  shall mean all of each  Borrower's  present and future
books of  account  of  every  kind or  nature,  purchase  and  sale  agreements,
invoices, ledger cards, bills of lading and other shipping evidence, statements,
correspondence,   memoranda,  credit  files  and  other  data  relating  to  the
Collateral or any account debtor,  together with the tapes, disks, diskettes and
other data and software  storage media and devices,  file cabinets or containers
in or on which the foregoing are stored  (including any rights of Borrowers,  or
either of them,  with respect to the foregoing  maintained  with or by any other
person).

         1.50  "Reference  Bank" shall mean First Union  National  Bank, or such
other bank as Lender may from time to time designate.

         1.51 "Related  Documents"  shall mean with respect to each note that is
or may become an Eligible Note, a loan agreement,  security agreement,  mortgage
or deed of trust,  assignment of lease,  UCC financing  statements and all other
documents,  instruments or assignments  (including  amendments or  modifications
thereof)  executed  by the maker of the  Eligible  Note or other  person on that
maker's behalf, including any guaranties.

         1.52  "Revolving  Loans" shall mean the loans now or hereafter  made by
Lender to or for the  benefit of  Borrowers,  or either of them,  on a revolving
basis  (involving  advances,  repayments and readvances) as set forth in Section
2.1 hereof.

         1.53 "Supply Agreement" shall mean the Supply Agreement dated as of May
15, 1998 between UGI and Smart & Final, Inc.

         1.54  "Term  Loans"  shall mean the term loans made by Lender to UGI as
provided for in Section 2.3 hereof, and "Term Loan" shall mean any such loan.

                                       14
<PAGE>

         1.55 "Value" shall mean,  as  determined by Lender in good faith,  with
respect to  Inventory,  the lower of (a) cost  computed on a  first-in-first-out
basis in accordance with GAAP or (b) market value.

         1.56 [deleted].


2.       CREDIT FACILITIES

         2.1 Revolving Loans.

              (a) Subject to and upon the terms and conditions contained herein,
Lender  agrees  to make  Revolving  Loans  to UGI from  time to time in  amounts
requested by UGI up to the amount equal to the sum of:

              (i) ninety  percent (90%) of the Net Amount of Eligible  Accounts,
     plus

              (ii) the lesser of: (A) seventy-five percent (75%) of the Value of
     Eligible Inventory or (B) $70,000,000, less

              (iii) any Availability Reserves.

              (b) In  addition to the amount  described  in  subsection  2.1(a),
subject to and upon the terms and conditions contained herein,  Lender agrees to
make Revolving Loans to UGI from time to time during the periods described below
in amounts requested by UGI up to the amount equal to the sum of:

              (i) (x)  during  not more than two (2)  separate  periods of sixty
     (60)  consecutive  days each year (a "year" for purposes of this subsection
     (i) being the period from August 31 of each year  through  August 30 of the
     following  year) the  lesser of (A)  ninety  percent  (90%) of the Value of
     Eligible  Inventory  designated  by UGI and  acceptable  to  Lender  in its
     discretion  as "Special  Purchase  Inventory" or (B)  $10,000,000,  and (y)
     during one additional and separate period of ninety (90)  consecutive  days
     each year,  the lesser of (A) ninety percent (90%) of the Value of Eligible
     Inventory  designated by UGI and  acceptable to Lender in its discretion as
     "Special Purchase Inventory," or (B) $15,000,000; less

              (ii) (without duplication) any Availability Reserves.

              (c) Subject to and upon the terms and conditions contained herein,
Lender  agrees  to make  Revolving  Loans  to URI from  time to time in  amounts
requested by URI up to the amount equal to the sum of:

              (i) the lesser of (A) sixty percent (60%) of the then  outstanding
     principal balance of Eligible Notes Receivable, or (B) $5,000,000, less

                                       15
<PAGE>


              (ii) (without duplication) any Availability Reserves.

              (d) The  aggregate  amount of  Revolving  Loans under  subsections
2.1(a), (b) and (c) outstanding at any time shall not exceed $100,000,000.

              (e) Lender may,  in its  discretion,  from time to time,  upon not
less than five (5) days  prior  notice to  Borrowers,  (i)  reduce  the  lending
formula with respect to Eligible  Accounts to the extent that Lender  determines
in good faith that:  (A) the  dilution  with  respect to Accounts for any period
(based on the ratio of (1) the aggregate  amount of reductions in Accounts other
than as a result of payments in cash to (2) the aggregate amount of total sales)
has  increased  in any  material  respect or may be  reasonably  anticipated  to
increase in any material  respect above  historical  levels,  or (B) the general
creditworthiness  of account  debtors  has  declined  or (ii) reduce the lending
formula(s)  with  respect  to  Eligible  Inventory  to the  extent  that  Lender
determines that: (A) the number of days of the turnover of the Inventory for any
period has changed in any material  respect or (B) the liquidation  value of the
Eligible Inventory,  or any category thereof,  has decreased,  or (C) the nature
and  quality of the  Inventory  has  deteriorated  or (iii)  reduce the  lending
formula  with  respect to Eligible  Notes  Receivable  to the extent that Lender
determines in good faith that the general  creditworthiness of note obligors has
declined.  In determining whether to reduce the lending  formula(s),  Lender may
consider events, conditions, contingencies or risks which are also considered in
determining Eligible Accounts, Eligible Inventory,  Eligible Notes Receivable or
in establishing Availability Reserves.

              (f) Except in Lender's  discretion,  the  aggregate  amount of the
Loans and the Letter of Credit Accommodations  outstanding at any time shall not
exceed  the  Maximum  Credit.  In the event that the  outstanding  amount of any
component of the Loans,  or the aggregate  amount of the  outstanding  Loans and
Letter of Credit Accommodations,  exceed the amounts available under the lending
formulas, the sublimits for Letter of Credit Accommodations set forth in Section
2.2(d) or the Maximum Credit, as applicable,  such event shall not limit,  waive
or otherwise  affect any rights of Lender in that  circumstance or on any future
occasions and Borrowers shall,  upon demand by Lender,  which may be made at any
time or from time to time,  immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded.

              (g) [deleted].

         2.2      Letter of Credit Accommodations.

              (a) Subject to and upon the terms and conditions contained herein,
at the request of UGI,  Lender agrees to provide or arrange for Letter of Credit
Accommodations for the account of UGI containing terms and conditions acceptable
to Lender  and the issuer  thereof.  Any  payments  made by Lender to any issuer
thereof  and/or  related  parties  in  connection  with  the  Letter  of  Credit
Accommodations  shall constitute  additional  Revolving Loans to UGI pursuant to
this Section 2.

              (b) In addition to any  charges,  fees or expenses  charged by any
bank or issuer in connection with the Letter of Credit Accommodations, UGI shall
pay to Lender a letter of credit fee at a rate equal to one  percent  (1.0%) per
annum on the daily  outstanding  balance of the Letter of Credit  Accommodations
for the immediately preceding month (or part thereof),  payable

                                       16
<PAGE>

in arrears as of the first day of each succeeding  month,  except that UGI shall
pay to Lender such letter of credit fee, at Lender's option,  without notice, at
a rate equal to two percent (2.0%)  percent per annum on such daily  outstanding
balance  for:  (i)  the  period  from  and  after  the  date of  termination  or
non-renewal  hereof  until  Lender has  received  full and final  payment of all
Obligations (notwithstanding entry of a judgment against Borrowers, or either of
them) and (ii) the period from and after the date of the  occurrence of an Event
of Default for so long as such Event of Default is  continuing  as determined by
Lender.  Such letter of credit fee shall be  calculated  on the basis of a three
hundred sixty (360) day year and actual days elapsed,  and the obligation of UGI
to pay such fee shall survive the termination or non-renewal of this Agreement.

              (c) No Letter of Credit  Accommodations  shall be available unless
on the date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving  Loans  available  to UGI  (subject  to the  Maximum  Credit  and  any
Availability  Reserves)  are equal to or  greater  than an  amount  equal to one
hundred (100%) percent of the face amount thereof and all other  commitments and
obligations  made or incurred by Lender with respect  thereto.  Effective on the
issuance of each Letter of Credit  Accommodation,  an Availability Reserve shall
be established in the amount described above in this Section 2.2(c).

              (d) Except in Lender's  discretion,  the amount of all outstanding
Letter of Credit  Accommodations  and all other commitments and obligations made
or incurred  by Lender in  connection  therewith  shall not at any time prior to
February 26, 1999 exceed the sum of  $11,000,000  and will not at any time on or
after  February 26, 1999 exceed the sum of  $5,000,000.  At any time an Event of
Default exists or has occurred and is  continuing,  upon Lender's  request,  UGI
will either furnish cash collateral to secure the  reimbursement  obligations to
the issuer in  connection  with any Letter of Credit  Accommodations  or furnish
cash collateral to Lender for the Letter of Credit Accommodations, and in either
case,  the Revolving  Loans  otherwise  available to UGI shall not be reduced as
provided in Section 2.2(c) to the extent of such cash collateral.

              (e) UGI shall  indemnify and hold Lender harmless from and against
any and all losses,  claims,  damages,  liabilities,  costs and  expenses  which
Lender   may  suffer  or  incur  in   connection   with  any  Letter  of  Credit
Accommodations and any documents, drafts or acceptances relating thereto (except
to the extent  such losses are caused by Lender's  gross  negligence  or willful
misconduct),  including  any losses,  claims,  damages,  liabilities,  costs and
expenses due to any action taken by any issuer or correspondent  with respect to
any Letter of Credit  Accommodation.  UGI assumes all risks with  respect to the
acts or  omissions of the drawer  under or  beneficiary  of any Letter of Credit
Accommodation  and for such purposes the drawer or  beneficiary  shall be deemed
UGI's agent. UGI assumes all risks for, and agrees to pay, all foreign, Federal,
State and local taxes,  duties and levies  relating to any goods  subject to any
Letter  of  Credit  Accommodations  or  any  documents,  drafts  or  acceptances
thereunder.  UGI hereby  releases and holds Lender harmless from and against any
acts, waivers, errors, delays or omissions, whether caused by UGI, by any issuer
or  correspondent  or  otherwise  with  respect to or  relating to any Letter of
Credit  Accommodation.  The  provisions of this Section 2.2(e) shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.

              (f) Nothing contained herein shall be deemed or construed to grant
Borrowers,  or either of them,  any right or  authority  to pledge the credit of
Lender in any manner. Lender 

                                       17
<PAGE>

shall  have no  liability  of any kind  with  respect  to any  Letter  of Credit
Accommodation  provided by an issuer  other than Lender  unless  Lender has duly
executed  and  delivered  to such  issuer  the  application  or a  guarantee  or
indemnification in writing with respect to such Letter of Credit  Accommodation.
UGI shall be bound by any  interpretation  made in good faith by Lender,  or any
other issuer or  correspondent  under or in connection with any Letter of Credit
Accommodation   or   any   documents,    drafts   or   acceptances   thereunder,
notwithstanding   that  such   interpretation   may  be  inconsistent  with  any
instructions  of UGI.  Lender  shall  have  the  sole and  exclusive  right  and
authority  to, and UGI shall not: (i) at any time an Event of Default  exists or
has  occurred  and is  continuing,  (A)  approve or  resolve  any  questions  of
non-compliance  of  documents,  (B) give any  instructions  as to  acceptance or
rejection of any documents or goods or (C) execute any and all  applications for
steamship or airway guaranties,  indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts,  acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of  the  terms  or  conditions  of any of the  applications,  Letter  of  Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit  included in the  Collateral.  Lender may take such actions either in its
own name or in UGI's name.

              (g)  Any  rights,  remedies,  duties  or  obligations  granted  or
undertaken  by UGI to any issuer or  correspondent  in any  application  for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been  granted or  undertaken  by UGI to Lender.  Any duties or  obligations
undertaken by Lender to any issuer or  correspondent  in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been  undertaken by UGI to Lender and to apply in all respects to
UGI.

         2.3 Term Loan.  Subject to and upon the terms and conditions  contained
herein, Lender will make two Term Loans to UGI as follows:

              (a) One Term Loan (the  "Real  Estate  Term  Loan")  will be in an
amount equal to the lesser of (A) $25,000,000 or (B) sixty-five percent (65%) of
the fair market value of the Real Property,  determined by appraisals  which are
satisfactory  to Lender.  Such  appraisals  are to be  conducted,  at Borrower's
expense,  by Moscato,  Ofner & Henningsen,  Inc. If Lender funds the Real Estate
Term  Loan  prior  to  receipt  and  approval  of final  appraisals  on both the
Clackamas County and Jackson County Real Property,  Lender will be authorized to
reserve  $5,000,000  of the Real  Estate  Term Loan until such time,  if any, as
Lender has received the appraisals and has determined that they are satisfactory
in all respects. If Lender is not fully satisfied with the appraisal, Lender may
decline to advance  all or any part of the  $5,000,000  reserved  portion of the
Real  Estate  Term  Loan.  If Lender  funds the Real  Estate  Term Loan prior to
receipt and approval of Phase II environmental  assessment  reports with respect
to the Real  Property,  Lender  will be  authorized  to  reserve  an  additional
$1,000,000  of the Real Estate Term Loan until  Lender has received the Phase II
environmental  assessment reports (including estimates of any remediation costs)
and has determined that they are  satisfactory in all respects.  Lender may have
such reports reviewed by an independent  environmental  consulting firm selected
by Lender,  and Borrower shall reimburse Lender for the cost of said review.  If
Lender  is not fully  satisfied  with the  Phase II  environmental  assessments,
Lender  may  decline  to  advance  all or any  part of the  $1,000,000  reserved
portions  of the Real  Estate Term Loan.  Borrowers  acknowledge  that they will
perform

                                       18
<PAGE>

all remediation  required or recommended in the Phase II  environmental  report,
even if the cost of such remediation exceeds the amount reserved by Lender under
this  subsection;  provided that with respect to remediation that is recommended
(rather than required),  Borrower shall be obligated to perform that remediation
only if Lender  determines in its sole  discretion,  that failure to do so would
not (A) affect the  marketability  of that parcel of Real Property or (B) have a
material  adverse effect on the value of that parcel of Real  Property.  If they
fail or refuse to do so, Lender is authorized, but not required, to perform such
remediation,  at the expense of Borrowers. The Real Estate Term Loan will (i) be
evidenced by one or more Term  Promissory  Notes duly  executed and delivered by
UGI;  (ii) bear  interest  at the  Interest  Rate,  with such  interest  payable
monthly;  (iii) be  repayable in equal  monthly  principal  payments  each in an
amount equal to one-one  hundred  twentieth  (1/120th) of the initial  principal
balance,  the first  principal  payment  to be due on the first day of  February
1999;  (iv)  subject to Section  3.1(b)(vi),  be  repayable in full on the fifth
anniversary  of the date of this  Agreement or upon the earlier  termination  or
expiration of this  Agreement;  (v) be secured by all the  Collateral;  and (vi)
subject to  Section  3.1(b)(vi),  be  repayable  in advance at any time  without
premium  provided that no Event of Default has occurred and is then  continuing.
Provided  that no Event of Default has occurred and is then  continuing,  Lender
agrees to release or reconvey  the  Mortgages  upon  payment in full of the Real
Estate Term Loan,  including  interest  thereon,  notwithstanding  the fact that
other Obligations may then be outstanding.

              (b) The second  term loan (the  "Smart & Final Term Loan") will be
in an amount equal to the lesser of (A)  $10,000,000  or (B) sixty percent (60%)
of the principal  outstanding  balance of the Promissory Note dated May 15, 1998
in the original  principal sum of  $17,500,000  made by Smart & Final,  Inc. and
payable to UGI (the "Smart & Final  Note") as of the date of initial  funding of
the Smart & Final Term Loan.  The Smart & Final Term Loan will: (i) be evidenced
by a Term Promissory Note duly executed and delivered by UGI; (ii) bear interest
at the Interest Rate, with such interest payable monthly;  (iii) be repayable in
four equal annual principal payments of $2,500,000 each on May 15, 1999, May 15,
2000,  May 15,  2001  and May 15,  2002;  (iv) be  repayable  in full  upon  the
termination  or  expiration  of  this  Agreement;  (v) be  secured  by  all  the
Collateral;  and (vi) be  repayable  in  advance  at any time  without  premium,
provided that no Event of Default has occurred and is then continuing. The Smart
& Final Note shall be assigned,  endorsed and  delivered to Lender to be held as
part of the Collateral.  UGI shall not amend,  compromise or make any settlement
or waiver  with  respect to, the Smart & Final Note  without  the prior  written
consent of Lender.  Provided  that no Event of Default has  occurred and is then
continuing,  Lender agrees to assign, endorse (without recourse) and deliver the
Smart & Final  Note to UGI upon  payment in full of the Smart & Final Term Loan,
including all interest thereon,  notwithstanding the fact that other Obligations
may then be outstanding.

         2.4 Availability  Reserves.  All Revolving Loans otherwise available to
Borrowers pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's  continuing right
to  establish  and revise  Availability  Reserves.  In the event  dilution  with
respect  to  Accounts  for any period  (based on the ratio of (1) the  aggregate
amounts  of  reductions  in  Accounts  other  than  payments  in cash to (2) the
aggregate  amount of total sales)  exceeds three  percent (3%), an  Availability
Reserve satisfactory to Lender shall be established with respect thereto.

                                       19
<PAGE>

3.       INTEREST AND FEES

         3.1  Interest.

              (a)  Borrowers  shall pay to Lender  interest  on the  outstanding
principal  amount of the  non-contingent  Obligations  at the Interest Rate. All
interest  accruing  hereunder  on and after the date of any Event of  Default or
termination or non-renewal hereof shall be payable on demand.

              (b)  Borrowers may from time to time request that Prime Rate Loans
be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional  Interest  Period.  Such request from Borrowers shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans  (subject  to the limits set forth  below) and the  Interest  Period to be
applicable to such  Eurodollar  Rate Loans.  Subject to the terms and conditions
contained  herein,  three (3)  Business  Days after  receipt by Lender of such a
request from  Borrowers,  such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such  Eurodollar  Rate Loans shall  continue,  as the case may be,
provided,  that, (i) no Event of Default,  or event which with notice or passage
of time or both would  constitute an Event of Default exists or has occurred and
is continuing, (ii) no party hereto shall have sent any notice of termination or
non-renewal of this  Agreement,  (iii)  Borrowers  shall have complied with such
customary  procedures  as are  established  by Lender and specified by Lender to
Borrowers from time to time for requests by Borrowers for Eurodollar Rate Loans,
(iv) no more than four (4)  Interest  Periods  may be in effect at any one time,
(v) the aggregate  amount of the Eurodollar  Rate Loans must be in an amount not
less than  $5,000,000 or an integral  multiple of $1,000,000 in excess  thereof,
(vi) the maximum  amount of the  Eurodollar  Rate Loans at any time requested by
Borrowers  shall not exceed the amount equal to (A) the principal  amount of the
Term Loans which it is anticipated will be outstanding as of the last day of the
applicable Interest Period plus (B) ninety (90%) percent of the lowest principal
amount of the Revolving Loans which it is anticipated will be outstanding during
the applicable  Interest Period,  in each case as determined by Lender (but with
no  obligation  of Lender to make such  Revolving  Loans) and (vii) Lender shall
have  determined  that  the  Interest  Period  or  Adjusted  Eurodollar  Rate is
available to Lender through the Reference Bank and can be readily  determined as
of the date of the  request  for such  Eurodollar  Rate Loan by  Borrowers.  Any
request by Borrowers to convert Prime Rate Loans to Eurodollar  Rate Loans or to
continue   any   existing   Eurodollar   Rate   Loans   shall  be   irrevocable.
Notwithstanding  anything to the contrary contained herein, Lender and Reference
Bank shall not be required  to purchase  United  States  Dollar  deposits in the
London interbank  market or other applicable  Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions  hereof shall be deemed to apply as if
Lender and  Reference  Bank had purchased  such deposits to fund the  Eurodollar
Rate Loans.

              (c) Any Eurodollar Rate Loans shall automatically convert to Prime
Rate Loans upon the last day of the applicable  Interest  Period,  unless Lender
has received and approved a request to continue  such  Eurodollar  Rate Loans at
least  three (3)  Business  Days prior to such last day in  accordance  with the
terms hereof.  Any Eurodollar Rate Loans shall, at Lender's option,  upon notice
by Lender to  Borrowers,  convert  to Prime  Rate Loans in the event that (i) an
Event of Default or event which,  with notice or passage of time, or both, would
constitute an Event of Default, shall exist, (ii) this Agreement shall terminate
or not be renewed,  

                                       20
<PAGE>

or (iii) the  aggregate  principal  amount of the Prime  Rate  Loans  which have
previously been converted to Eurodollar  Rate Loans or existing  Eurodollar Rate
Loans  continued,  as the case may be, at the  beginning  of an Interest  Period
shall at any time during such  Interest  Period  exceed either (A) the aggregate
principal  amount  of the  Loans  then  outstanding,  or (B) the sum of the then
outstanding  principal  amount of the Term Loans plus the  Revolving  Loans then
available to Borrowers  under Section 2 hereof.  Borrowers  shall pay to Lender,
upon demand by Lender (or Lender may, at its option,  charge any loan account(s)
of Borrowers) any amounts required to compensate  Lender,  the Reference Bank or
any  participant  with  Lender  for any  loss  (including  loss  of  anticipated
profits), cost or expense incurred by such person, as a result of the conversion
of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing.

              (d) Interest  shall be payable by  Borrowers to Lender  monthly in
arrears  not  later  than the  first  day of each  calendar  month  and shall be
calculated  on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non-contingent  Obligations (other than Eurodollar
Rate Loans) shall  increase or decrease by an amount  equal to each  increase or
decrease  in the Prime Rate  effective  on the first day of the month  after any
change in such Prime Rate is announced  based on the Prime Rate in effect on the
last day of the month in which any such change occurs. In no event shall charges
constituting  interest  payable by Borrowers to Lender exceed the maximum amount
or the rate permitted  under any  applicable law or regulation,  and if any such
part or  provision  of this  Agreement  is in  contravention  of any such law or
regulation, such part or provision shall be deemed amended to conform thereto.

         3.2  Closing  Fee.  Borrowers  shall pay to Lender as a closing fee the
amount of  $675,000,  which shall be fully  earned as of and payable on the date
hereof.

         3.3  [deleted].

         3.4  Servicing  Fee.  Borrowers shall pay to Lender monthly a servicing
fee in an amount equal to $4,000 in respect of Lender's  services for each month
(or part  thereof)  while  this  Agreement  remains  in  effect  and for so long
thereafter as any of the Obligations are  outstanding,  which fee shall be fully
earned as of and  payable in advance on the date  hereof and on the first day of
each month hereafter.

         3.5  [deleted].

         3.6  Changes in Laws and Increased Costs of Loans.

              (a) Notwithstanding anything to the contrary contained herein, all
Eurodollar  Rate Loans  shall,  upon notice by Lender to  Borrowers,  convert to
Prime  Rate  Loans  in the  event  that  (i) any  change  in  applicable  law or
regulation (or the  interpretation or  administration  thereof) shall either (A)
make it  unlawful  for  Lender,  Reference  Bank or any  participant  to make or
maintain  Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs
to  Lender,  Reference  Bank or any  participant  of making or  maintaining  any
Eurodollar  Rate  Loans by an amount  deemed by  Lender to be  material,  or (C)
reduce the amounts  received or receivable by Lender in respect  thereof,  by an
amount  deemed by Lender to be  material  or (ii) the cost to Lender,  Reference
Bank or any participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material. Borrowers shall
pay to Lender,  upon 

                                       21
<PAGE>

demand by Lender (or Lender may, at its option,  charge any loan  account(s)  of
Borrowers) any amounts required to compensate  Lender, the Reference Bank or any
participant  with Lender for any loss (including  loss of anticipated  profits),
cost or expense incurred by such person as a result of the foregoing, including,
without  limitation,  any such loss,  cost or expense  incurred by reason of the
liquidation or  reemployment  of deposits or other funds acquired by such person
to make or  maintain  the  Eurodollar  Rate  Loans  or any  portion  thereof.  A
certificate  of Lender  setting  forth the basis for the  determination  of such
amount  necessary  to  compensate  Lender as  aforesaid  shall be  delivered  to
Borrowers and shall be conclusive, absent manifest error.

              (b) If any payments or  prepayments  in respect of the  Eurodollar
Rate Loans are received by Lender  other than on the last day of the  applicable
Interest Period (whether pursuant to acceleration,  upon maturity or otherwise),
including any payments  pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral,  Borrowers shall
pay to Lender upon  demand by Lender (or Lender  may, at its option,  charge any
loan  account(s) of Borrowers) any amounts  required to compensate  Lender,  the
Reference Bank or any participant with Lender for any additional loss (including
loss of  anticipated  profits),  cost or expense  incurred  by such  person as a
result of such prepayment or payment,  including,  without limitation, any loss,
cost or  expense  incurred  by  reason of the  liquidation  or  reemployment  of
deposits  or other  funds  acquired  by such  person  to make or  maintain  such
Eurodollar Rate Loans or any portion thereof.

4.       CONDITIONS PRECEDENT

         4.1  Conditions  Precedent  to  Initial  Loans  and  Letter  of  Credit
Accommodations.  Each of the following is a condition precedent to Lender making
the initial  Loans and  providing  the initial  Letter of Credit  Accommodations
hereunder:

              (a) Lender shall have received, in form and substance satisfactory
to Lender,  all releases,  terminations  and such other  documents as Lender may
request to evidence and  effectuate the  termination  by the existing  lender or
lenders to Borrowers of their respective  financing  arrangements with Borrowers
and the  termination  and  release  by it or them,  as the  case may be,  of any
interest in and to any assets and properties of Borrowers and each Obligor, duly
authorized,  executed and  delivered by it or each of them,  including,  but not
limited to, (i) UCC  termination  statements  for all UCC  financing  statements
previously  filed by it or any of them or their  predecessors,  as secured party
and Borrowers or any Obligor, as debtor and (ii) satisfactions and discharges of
any  mortgages,  deeds of trust or deeds  to  secure  debt by  Borrowers  or any
Obligor in favor of such  existing  lender or lenders,  in form  acceptable  for
recording in the appropriate government office;

              (b) Lender shall have  received  evidence,  in form and  substance
satisfactory  to Lender,  that  Lender has valid  perfected  and first  priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the  Obligations  or the liability of any Obligor
in respect thereof,  subject only to the security  interests and liens permitted
herein or in the other Financing Agreements;

                                       22
<PAGE>

              (c) all requisite  corporate  action and proceedings in connection
with this Agreement and the other Financing  Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents,  including  records of requisite  corporate  action and
proceedings  which  Lender may have  requested  in  connection  therewith,  such
documents  where  requested  by  Lender  or  its  counsel  to  be  certified  by
appropriate corporate officers or governmental authorities;

              (d) no material  adverse change shall have occurred in the assets,
business  or  prospects  of  Borrowers,  or  either  of them,  since the date of
Lender's  latest field  examination  and no change or event shall have  occurred
which would impair the ability of  Borrowers,  or either of them, or any Obligor
to  perform  its  obligations  hereunder  or under  any of the  other  Financing
Agreements  to which it is a party or of Lender to enforce  the  Obligations  or
realize upon the Collateral;

              (e) Lender shall have  completed a field review of the Records and
such other information with respect to the Collateral as Lender may require, and
Lender shall have received  current  agings of  receivables,  current  perpetual
inventory records and/or rollforwards of accounts and inventory through the date
of closing,  and  documentation  with respect to inventory in transit,  goods in
bonded warehouses or at other third-party locations,  to determine the amount of
Revolving  Loans  available  to  Borrowers,   the  results  of  which  shall  be
satisfactory to Lender,  not more than three (3) business days prior to the date
hereof;

              (f) Lender shall have received, in form and substance satisfactory
to Lender,  all consents,  waivers,  acknowledgments  and other  agreements from
third persons  which Lender may deem  necessary or desirable in order to permit,
protect and perfect its security  interests in and liens upon the  Collateral or
to  effectuate  the  provisions  or  purposes  of this  Agreement  and the other
Financing  Agreements,  including  acknowledgments  by lessors,  mortgagees  and
warehousemen of Lender's security  interests in the Collateral,  waivers by such
persons of any security interests,  liens or other claims by such persons to the
Collateral and agreements  permitting  Lender access to, and the right to remain
on, the premises to exercise its rights and remedies and otherwise deal with the
Collateral;

              (g) Lender  shall have  received  environmental  assessments  with
respect  to  the  Real  Property  conducted  by  an  independent   environmental
consulting  firm  acceptable  to  Lender,  and in form,  scope  and  methodology
satisfactory to Lender,  confirming (i) that such property and the owner and all
occupants thereof are in material  compliance with all applicable  Environmental
Laws and (ii) the  absence of any  material  environmental  problems;  provided,
however,  that if such  assessments  have not been delivered to Lender as of the
date of this Agreement and Lender  nevertheless  elects to fund the Loans,  such
assessments shall be delivered to Lender no later than October 31, 1998;

              (h) Lender shall have received, in form and substance satisfactory
to  Lender,  valid  and  effective  title  insurance  policies  (or  commitments
therefor)  issued by a company and agent  acceptable  to Lender (i) insuring the
priority,  amount and  sufficiency  of the  Mortgages,  and (ii)  containing any
legally available endorsements, assurances or affirmative coverages requested by
Lender for protection of its interests;

                                       23
<PAGE>

              (i) Lender shall have received appraisals or opinions of value, in
form,  scope and  substance  satisfactory  to Lender,  with  respect to the Real
Property;  provided, however, that if such appraisals have not been delivered to
Lender as of the date of this Agreement and Lender  nevertheless  elects to fund
the Loans, such appraisals shall be delivered to Lender no later than August 15,
1998 for the Real  Property in Clackamas  County and  September 15, 1998 for the
Real Property in Jackson County;

              (j) The Smart & Final  Note shall  have been  assigned,  endorsed,
negotiated,   and   delivered  to  Lender,   Lender   shall  have   received  an
acknowledgment of such assignment from Smart & Final, Inc. in form and substance
satisfactory to Lender, and Lender shall have confirmed the  creditworthiness of
Smart & Final, Inc. to its satisfaction;

              (k)  The  Eligible  Notes  shall  have  been  assigned,  endorsed,
negotiated,   and   delivered  to  Lender,   and  Lender  shall  have   received
acknowledgments  of assignment from such of the makers of the Eligible Notes, in
form and substance  satisfactory  to Lender,  as Lender shall have determined in
its sole discretion;

              (l) Lender  shall have  entered  into all such  subordination  and
intercreditor   agreements   with  third  parties  as  Lender  requires  in  its
discretion, all in form and substance satisfactory to Lender;

              (m) Lender  shall have  received  evidence of  insurance  and loss
payee endorsements  required hereunder and under the other Financing Agreements,
in form and substance  satisfactory  to Lender,  and  certificates  of insurance
policies and/or endorsements naming Lender as loss payee;

              (n) the Excess  Availability  as determined  by Lender,  as of the
date hereof,  shall be  satisfactory  to Lender in its  discretion  after giving
effect  to  the  initial  Loans  made  or  to  be  made  and  Letter  of  Credit
Accommodations   issued  or  to  be  issued  in  connection   with  the  initial
transactions hereunder;

              (o) Lender shall have received, in form and substance satisfactory
to Lender,  such  opinion  letters of counsel to  Borrowers  with respect to the
Financing Agreements and such other matters as Lender may request; and

              (p)  the  other  Financing  Agreements  and  all  instruments  and
documents  hereunder and thereunder  shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.

         4.2   Conditions   Precedent   to  All  Loans  and   Letter  of  Credit
Accommodations.  Each of the following is an additional  condition  precedent to
Lender  making  Loans  and/or  providing  Letter  of  Credit  Accommodations  to
Borrowers,  including the initial Loans and Letter of Credit  Accommodations and
any future Loans and Letter of Credit Accommodations:

              (a) all representations and warranties contained herein and in the
other Financing  Agreements  shall be true and correct in all material  respects
with the same effect as though such representations and warranties had been made
on and as of the date of the  making of 



                                       24
<PAGE>

each such Loan or providing each such Letter of Credit  Accommodation  and after
giving effect thereto; and

              (b) no Event of  Default  and no event or  condition  which,  with
notice or passage of time or both, would  constitute an Event of Default,  shall
exist or have  occurred and be continuing on and as of the date of the making of
such Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.

5.       GRANT OF SECURITY INTEREST

         To secure payment and performance of all  Obligations,  Borrowers,  and
each of them,  hereby grant to Lender a continuing  security interest in, a lien
upon,  and a right of setoff  against,  and hereby assign to Lender as security,
the following property and interests in property of Borrowers, and each of them,
whether  now owned or  hereafter  acquired or  existing,  and  wherever  located
(collectively,     the     "Collateral").     All    Obligations    are    fully
cross-collateralized;  the  Collateral  owned by each Borrower  shall secure not
only its own Obligations, but also the Obligations of the other Borrower:

         5.1  Accounts;

         5.2  all  present  and  future  contract  rights,  general  intangibles
(including  tax  and  duty  refunds,   registered  and   unregistered   patents,
trademarks,  service  marks,  copyrights,  trade  names,  applications  for  the
foregoing, trade secrets, goodwill, processes,  drawings,  blueprints,  customer
lists,  licenses,  whether as licensor or  licensee,  choses in action and other
claims and existing and future leasehold interests in equipment, real estate and
fixtures),   chattel  paper,  documents,   instruments,   securities  and  other
investment property, letters of credit, bankers' acceptances and guaranties;

         5.3  all  present  and  future  monies,  securities,  credit  balances,
deposits,  deposit  accounts and other property of Borrowers,  and each of them,
now or hereafter  held or received by or in transit to Lender or its  affiliates
or at any other  depository  or other  institution  from or for the  account  of
Borrowers,  and  each  of  them,  whether  for  safekeeping,   pledge,  custody,
transmission,  collection  or  otherwise,  and all  present  and  future  liens,
security interests,  rights,  remedies, title and interest in, to and in respect
of Accounts and other  Collateral,  including  (a) rights and remedies  under or
relating to guaranties,  contracts of  suretyship,  letters of credit and credit
and other  insurance  related  to the  Collateral,  (b)  rights of  stoppage  in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid  vendor,  lienor or  secured  party,  (c) goods  described  in  invoices,
documents,  contracts or instruments with respect to, or otherwise  representing
or evidencing, Accounts or other Collateral, including returned, repossessed and
reclaimed  goods,  and (d) deposits by and property of account  debtors or other
persons securing the obligations of account debtors;

         5.4  Inventory;

         5.5  Equipment;

                                       25
<PAGE>

         5.6  Records;

         5.7  Real Property; and

         5.8 all products and proceeds of the foregoing,  in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.

6.       COLLECTION AND ADMINISTRATION

         6.1  Borrowers' Loan Account(s). Lender shall maintain one or more loan
account(s)  on its books in which  shall be  recorded  (a) all Loans,  Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on  behalf  of  Borrowers,  or  either  of  them,  and (c) all  other
appropriate  debits and credits as provided in this  Agreement,  including fees,
charges,  costs, expenses and interest. All entries in the loan account(s) shall
be made in accordance with Lender's  customary  practices as in effect from time
to time.

         6.2  Statements.   Lender  shall  render  to  Borrowers  each  month  a
statement setting forth the balance in Borrowers' loan account(s)  maintained by
Lender for Borrowers  pursuant to the  provisions of this  Agreement,  including
principal,  interest,  fees,  costs and expenses.  Each such statement  shall be
subject to subsequent  adjustment by Lender but shall, absent manifest errors or
omissions,   be  considered   correct  and  deemed  accepted  by  Borrowers  and
conclusively  binding upon  Borrowers as an account  stated except to the extent
that Lender receives a written notice from Borrowers of any specific  exceptions
of Borrowers  thereto  within thirty (30) days after the date such statement has
been  mailed by  Lender.  Until  such  time as Lender  shall  have  rendered  to
Borrowers a written  statement as provided above, the balance in Borrowers' loan
account(s) shall be presumptive  evidence of the amounts due and owing to Lender
by Borrowers.

                                       26
<PAGE>

         6.3  Collection of Accounts.

              (a) Borrowers  shall  establish and  maintain,  at their  expense,
blocked  accounts or  lockboxes  and related  blocked  accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable to
Lender into which  Borrowers  shall  promptly  deposit and direct their  account
debtors  and note  obligors to directly  remit all  payments on Accounts  and on
notes and all payments constituting proceeds of Inventory or other Collateral in
the identical  form in which such payments are made,  whether by cash,  check or
other  manner.  The banks at which the Blocked  Accounts are  established  shall
enter into an agreement, in form and substance satisfactory to Lender, providing
that all items received or deposited in the Blocked Accounts are the property of
Lender,  that the depository  bank has no lien upon, or right to setoff against,
the Blocked Accounts,  the items received for deposit therein, or the funds from
time to time on deposit  therein  and that the  depository  bank will  wire,  or
otherwise transfer,  in immediately available funds, on a daily basis, all funds
received or deposited  into the Blocked  Accounts to such bank account of Lender
as Lender may from time to time designate for such purpose ("Payment  Account").
Borrowers  agree that all payments made to such Blocked  Accounts or other funds
received  and  collected  by  Lender,  whether  on the  Accounts  or notes or as
proceeds of Inventory or other Collateral,  or otherwise,  shall be the property
of Lender.

              (b) For purposes of calculating  the amount of the Loans available
to Borrowers,  such payments will be applied (conditional upon final collection)
to the  Obligations  on the  business  day of receipt  by Lender of  immediately
available funds in the Payment Account provided such payments and notice thereof
are received in  accordance  with Lender's  usual and customary  practices as in
effect from time to time and within  sufficient  time to credit  Borrowers' loan
account(s)  on such day,  and if not,  then on the next  business  day.  For the
purposes of  calculating  interest on the  Obligations,  such  payments or other
funds  received  will be  applied  (conditional  upon final  collection)  to the
Obligations  one (1) business day following  the date of receipt of  immediately
available funds by Lender in the Payment Account provided such payments or other
funds and notice  thereof are received in  accordance  with  Lender's  usual and
customary practices as in effect from time to time and within sufficient time to
credit  Borrowers'  loan  account(s)  on such day, and if not,  then on the next
business day.

              (c)   Borrowers   and   all  of   their   respective   affiliates,
subsidiaries,  shareholders,  directors,  employees or agents  shall,  acting as
trustee for Lender,  receive,  as the  property of Lender,  any monies,  checks,
notes,  drafts or any other payment  relating to and/or  proceeds of Accounts or
other  Collateral  which come into their  possession  or under their control and
immediately  upon  receipt  thereof,  shall  deposit  or  cause  the  same to be
deposited  in the  Blocked  Accounts,  or remit the same or cause the same to be
remitted,  in kind, to Lender.  In no event shall the same be commingled  with a
Borrower's  own funds.  Borrowers  agree to  reimburse  Lender on demand for any
amounts owed or paid to any bank at which a Blocked  Account is  established  or
any  other  bank or  person  involved  in the  transfer  of funds to or from the
Blocked Accounts arising out of Lender's payments to or  indemnification of such
bank or person. The obligation of Borrowers to reimburse Lender for such amounts
pursuant to this Section 6.3 shall survive the  termination  or  non-renewal  of
this Agreement.

         6.4  Payments. All Obligations  shall be payable to the Payment Account
as provided in Section 6.3 or such other place as Lender may designate from time
to time. Prior to the occurrence of an Event of Default,  Lender shall not apply
payments  received or collected from  

                                       27
<PAGE>

Borrowers under Section 6.3 to prepay the Term Loans,  unless  Borrowers  direct
Lender to do so. Except as provided in the preceding sentence,  Lender may apply
payments  received or collected  from  Borrowers or for the account of Borrowers
(including  the monetary  proceeds of  collections  or of  realization  upon any
Collateral) to such of the  Obligations,  whether or not then due, in such order
and manner as Lender determines.  At Lender's option,  all principal,  interest,
fees,  costs,  expenses and other charges  provided for in this Agreement or the
other  Financing  Agreements may be charged  directly to the loan  account(s) of
Borrowers.  Borrowers shall make all payments to Lender on the Obligations  free
and clear of, and without  deduction  or  withholding  for or on account of, any
setoff,  counterclaim,  defense, or any duties,  taxes, levies,  imposts,  fees,
deductions,  withholding,  restrictions  or  conditions  of any  kind.  If after
receipt of any payment of, or proceeds of Collateral  applied to the payment of,
any of the  Obligations,  Lender is required to surrender or return such payment
or proceeds to any Person for any reason,  then the  Obligations  intended to be
satisfied by such payment or proceeds  shall be reinstated and continue and this
Agreement shall continue in full force and effect as if such payment or proceeds
had not been received by Lender. Borrowers shall be liable to pay to Lender, and
Borrowers,  and each of them, do hereby  indemnify and hold Lender harmless for,
the amount of any payments or proceeds surrendered or returned. This Section 6.4
shall remain effective notwithstanding any contrary action which may be taken by
Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive
the  payment of the  Obligations  and the  termination  or  non-renewal  of this
Agreement.

         6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit  Accommodations  based upon telephonic or other
instructions received from anyone purporting to be an officer of either Borrower
or other  authorized  person or, at the discretion of Lender,  if such Loans are
necessary to satisfy any  Obligations.  URI hereby appoints UGI and each officer
of UGI as its agent and  attorney-  in-fact for  purposes of  requesting  Loans;
giving other instructions and directions of every nature to Lender in connection
with the financing  arrangements  provided for in this Agreement;  executing and
delivering   certificates,   instruments   and   other   documents;   furnishing
information;  and taking any and all actions of every nature in connection  with
this Agreement,  the other Financing  Agreements and matters  relating  thereto.
Lender  shall  be  authorized  to rely  upon  such  requests,  instructions  and
directions  without  confirmation  by URI.  All  requests for Loans or Letter of
Credit  Accommodations  hereunder  shall specify the date on which the requested
advance is to be made or Letter of Credit Accommodations  established (which day
shall be a business day) and the amount of the requested Loan. Requests received
after 11:00 a.m.  Portland,  Oregon time on any day shall be deemed to have been
made as of the opening of business on the  immediately  following  business day.
All Loans and  Letter of Credit  Accommodations  under this  Agreement  shall be
conclusively  presumed  to have been made to, and at the  request of and for the
benefit  of, a  Borrower  when  deposited  to the  credit  of such  Borrower  or
otherwise  disbursed or established in accordance with the  instructions of such
Borrower or its agent or in  accordance  with the terms and  conditions  of this
Agreement.

         6.6  Use of Proceeds.  Borrowers  shall use the initial proceeds of the
Loans  provided by Lender to Borrowers  hereunder only for: (a) payments to each
of the  persons  listed  in  the  disbursement  direction  letter  furnished  by
Borrowers to Lender on or about the date hereof and (b) costs, expenses and fees
in connection with the preparation,  negotiation, execution and delivery of this
Agreement and the other Financing Agreements.  All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrowers pursuant to the provisions
hereof 

                                       28
<PAGE>

shall be used by Borrowers only for general operating, working capital and other
proper  corporate  purposes of Borrowers not  otherwise  prohibited by the terms
hereof.  None of the  proceeds  will be used,  directly or  indirectly,  for the
purpose of  purchasing  or carrying  any margin  security or for the purposes of
reducing or retiring any indebtedness which was originally  incurred to purchase
or carry any margin  security or for any other  purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, as amended.

7.       COLLATERAL REPORTING AND COVENANTS

         7.1  Collateral  Reporting.  Borrowers  shall  provide  Lender with the
following  documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender, a schedule of Accounts,  sales made, credits issued and cash
received;  (b) on a monthly basis or more frequently as Lender may request,  (i)
perpetual inventory reports, (ii) inventory reports by category and (iii) agings
of  accounts  payable,  (c)  upon  Lender's  request,  (i)  copies  of  customer
statements  and credit  memos,  remittance  advices and  reports,  and copies of
deposit  slips  and bank  statements,  (ii)  copies  of  shipping  and  delivery
documents,  and (iii) copies of purchase orders, invoices and delivery documents
for  Inventory  and  Equipment  acquired  by  Borrowers;  (d) agings of accounts
receivable on a monthly basis or more frequently as Lender may request;  and (e)
such other  reports as to the  Collateral  as Lender shall  request from time to
time. If any of Borrowers'  records or reports of the Collateral are prepared or
maintained by an accounting  service,  contractor,  shipper or other agent, each
Borrower  hereby  irrevocably  authorizes such service,  contractor,  shipper or
agent to deliver such records,  reports,  and related documents to Lender and to
follow Lender's  instructions  with respect to further services at any time that
an Event of Default exists or has occurred and is continuing.

         7.2  Accounts Covenants.

              (a)  Each  Borrower  shall  notify  Lender  promptly  of:  (i) any
material delay in such  Borrower's  performance of any of its obligations to any
account   debtor  or  the  assertion  of  any  claims,   offsets,   defenses  or
counterclaims  by any  account  debtor or note  obligor,  or any  disputes  with
account debtors or note obligors,  or any  settlement,  adjustment or compromise
thereof,  (ii)  all  material  adverse  information  relating  to the  financial
condition  of any  account  debtor  or note  obligor  and  (iii)  any  event  or
circumstance which, to Borrower's knowledge,  would cause Lender to consider any
then existing Accounts as no longer  constituting  Eligible Accounts or any then
existing notes as no longer constituting  Eligible Notes Receivable.  No credit,
discount,  allowance,  rebate or extension or agreement for any of the foregoing
shall be granted to any account debtor or note obligor without Lender's consent,
except in the  ordinary  course of a  Borrower's  business  in  accordance  with
practices and policies previously  disclosed in writing to Lender. So long as no
Event of  Default  exists or has  occurred  and is  continuing,  Borrower  shall
settle, adjust or compromise any claim, offset, counterclaim or dispute with any
account  debtor or note obligor other than an obligor under an Eligible Note. In
no event  shall  Borrowers  settle,  adjust or  compromise  any  claim,  offset,

                                       29
<PAGE>

counterclaim or dispute with respect to any Eligible Note without Lender's prior
written  consent  which it may give or withhold in its sole  discretion.  At any
time that an Event of Default exists or has occurred and is  continuing,  Lender
shall, at its option,  have the exclusive right to settle,  adjust or compromise
any claim, offset, counterclaim or dispute with account debtors or note obligors
or grant any credits, discounts, allowances or rebates.

              (b) Without  limiting the  obligation  of Borrowers to deliver any
other  information  to Lender,  Borrowers  shall  promptly  report to Lender any
return of  Inventory by any one account  debtor if the  inventory so returned in
such case has a value in  excess  of  $25,000.  At any time  that  Inventory  is
returned, reclaimed or repossessed, the Account (or portion thereof) which arose
from the sale of such returned,  reclaimed or repossessed Inventory shall not be
deemed an Eligible  Account.  In the event any account debtor returns  Inventory
when an Event of Default  exists or has  occurred and is  continuing,  Borrowers
shall,  upon  Lender's  request,  (i) hold the  returned  Inventory in trust for
Lender,  (ii) segregate all returned  Inventory from all of its other  property,
(iii)  dispose  of  the  returned   Inventory   solely   according  to  Lender's
instructions,  and (iv) not issue any  credits,  discounts  or  allowances  with
respect thereto without Lender's prior written consent.

              (c) With respect to each Account and each note receivable: (i) the
amounts shown on any invoice  delivered to Lender or schedule thereof  delivered
to Lender  shall be true and  complete,  (ii) no payments  shall be made thereon
except  payments  immediately  delivered to Lender pursuant to the terms of this
Agreement,  (iii)  no  credit,  discount,  allowance,  rebate  or  extension  or
agreement for any of the foregoing shall be granted except as reported to Lender
in accordance with this Agreement and except for credits, discounts, allowances,
rebates  or  extensions  made or  given in the  ordinary  course  of  Borrower's
business in  accordance  with  practices  and policies  previously  disclosed to
Lender,  (iv)  there  shall  be  no  setoffs,  deductions,   contras,  defenses,
counterclaims  or disputes  existing or asserted with respect  thereto except as
reported to Lender in accordance with the terms of this  Agreement,  (v) none of
the  transactions  giving rise  thereto  will  violate any  applicable  State or
Federal laws or regulations,  all documentation relating thereto will be legally
sufficient  under such laws and regulations and all such  documentation  will be
legally enforceable in accordance with its terms. Neither Borrower shall make or
allow any offset or deduct  from or against any  Account or note  receivable  on
account of any  obligation  owing to such Borrower by the account debtor or note
obligor  without  the prior  written  approval  of Lender.  Lender  agrees  that
Borrower may discount  Accounts to adjust for  overstatements,  damaged goods or
other  overcharges,  but only in the  ordinary  course  of  Borrowers'  business
consistent  with past  practice  and only in  amounts  of  $10,000  or less with
respect to any invoice.

              (d) Lender shall have the right at any time or times,  in Lender's
name or in the name of a nominee of Lender,  to verify the  validity,  amount or
any other matter relating to any Account,  note receivable or other  Collateral,
by mail, telephone, facsimile transmission or otherwise.

              (e)  Borrowers,  and each of them,  shall  deliver  or cause to be
delivered to Lender,  with  appropriate  endorsement and  assignment,  with full
recourse  to  the  assigning  Borrower,  all  chattel  paper,  notes  and  other
instruments  which  either  Borrower  now  owns  or  may  at  any  time  acquire
immediately upon such Borrower's receipt thereof, except as Lender may otherwise
agree.

              (f)  Lender  may,  at any time or times  that an Event of  Default
exists or has occurred and is continuing,  (i) notify any or all account debtors
or note obligors that the

                                       30
<PAGE>

Accounts  and notes have been  assigned to Lender and that Lender has a security
interest  therein  and Lender may direct  any or all  account  debtors  and note
obligors to make payment of Accounts and notes  directly to Lender,  (ii) extend
the time of payment of, compromise, settle or adjust for cash, credit, return of
merchandise  or  otherwise,  and  upon  any  terms  or  conditions,  any and all
Accounts,  notes or other  obligations  included in the  Collateral  and thereby
discharge  or release the  account  debtor,  note  obligor or any other party or
parties in any way liable  for  payment  thereof  without  affecting  any of the
Obligations,  (iii) demand, collect or enforce payment of any Accounts, notes or
such other  obligations,  but without any duty to do so, and Lender shall not be
liable for its  failure to collect or enforce  the  payment  thereof nor for the
negligence  of its  agents  or  attorneys  with  respect  thereto  and (iv) take
whatever  other action Lender may deem necessary or desirable for the protection
of its  interests.  At any time that an Event of Default  exists or has occurred
and is continuing,  at Lender's request, all invoices and statements sent to any
account  debtor or note  obligor  shall state that the  Accounts  and such other
obligations  have been  assigned to Lender and are payable  directly and only to
Lender,  and  Borrowers  shall  deliver to Lender such  originals  of  documents
evidencing the sale and delivery of goods or the  performance of services giving
rise to any Accounts as Lender may require.

         7.3  Inventory Covenants. With respect to the Inventory:  (a) Borrowers
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate  records  itemizing and describing the kind,  type,
quality and  quantity of  Inventory,  the  Borrower's  cost  therefor  and daily
withdrawals  therefrom and  additions  thereto;  (b)  Borrowers  shall conduct a
physical  count of the  Inventory  at least once each  year,  but at any time or
times as  Lender  may  request  on or after an Event of  Default,  and  promptly
following such physical  inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such  physical  count;  (c) Borrowers  shall not remove any  Inventory  from the
locations set forth or permitted  herein,  without the prior written  consent of
Lender,  except for sales of Inventory  in the  ordinary  course of a Borrower's
business and except to move  Inventory  directly  from one location set forth or
permitted  herein to another such  location;  (d) upon  Lender's  request,  each
Borrower  shall,  at its  expense,  no more than once in any  twelve  (12) month
period,  but at any time or times as Lender may  request on or after an Event of
Default,  deliver  or  cause  to be  delivered  to  Lender  written  reports  or
appraisals  as to the  Inventory in form,  scope and  methodology  acceptable to
Lender and by an  appraiser  acceptable  to Lender,  addressed to Lender or upon
which Lender is expressly  permitted to rely; (e) Borrowers shall produce,  use,
store and maintain the  Inventory  with all  reasonable  care and caution and in
accordance  with  applicable  standards of any insurance and in conformity  with
applicable laws (including the  requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules,  regulations and orders related thereto);
(f) each  Borrower  assumes all  responsibility  and  liability  arising from or
relating to the production, use, sale or other disposition of its Inventory; (g)
Borrowers  shall not sell  Inventory to any  customer on approval,  or any other
basis which entitles the customer to return or may obligate  either  Borrower to
repurchase  such  Inventory;  (h) Borrowers shall keep the Inventory in good and
marketable condition;  and (i) Borrowers shall not, without prior written notice
to Lender, acquire or accept any Inventory on consignment or approval.

         7.4  Equipment  Covenants.  With  respect  to the  Equipment:  (a) upon
Lender's  request,  Borrowers  shall, at their expense,  at any time or times as
Lender  may  request  on or after an Event of  Default,  deliver  or cause to be
delivered to Lender  written  reports or appraisals as to the Equipment in form,
scope and  methodology  acceptable

                                       31
<PAGE>

to Lender and by an appraiser acceptable to Lender; (b) Borrowers shall keep the
Equipment in good order, repair, running and marketable condition (ordinary wear
and tear  excepted);  (c) Borrowers  shall use the Equipment with all reasonable
care and caution and in accordance  with  applicable  standards of any insurance
and in conformity  with all  applicable  laws; (d) the Equipment is and shall be
used in a Borrower's business and not for personal, family, household or farming
use; (e) Borrowers  shall not remove any Equipment  from the locations set forth
or  permitted  herein,  except to the  extent  necessary  to have any  Equipment
repaired or maintained  in the ordinary  course of the business of a Borrower or
to move  Equipment  directly from one location set forth or permitted  herein to
another such  location and except for the movement of motor  vehicles used by or
for the  benefit of a  Borrower  in the  ordinary  course of  business;  (f) the
Equipment is now and shall remain  personal  property  and  Borrowers  shall not
permit  any of the  Equipment  to be or  become  a part  of or  affixed  to real
property; and (g) each Borrower assumes all responsibility and liability arising
from the use of its Equipment.

         7.5  Note Covenants. Borrowers shall (a) cause the  representations and
warranties  contained  in Section 8.12 to continue to be true and correct at all
times;  (b) use its best effort to collect and service all notes  including  the
Eligible  Notes;  (c) use its best efforts to preserve the holder's rights under
all notes,  including all Eligible Notes, and under all Related  Documents;  (d)
use its best efforts to preserve all collateral  securing the Eligible Notes and
all other notes,  including the filing of all  continuation  statements  for any
financing  statements that relate to those notes; (e) immediately  notify Lender
in the  event  any  Eligible  Note  remains  unpaid  more  than 30 days past any
scheduled  payment date;  and (f) promptly  notify Lender in the event any other
criteria  set forth in Section 1.11 fails at any time to remain true and correct
with respect to an Eligible Note.

         7.6  Power of Attorney. Borrowers, and each of them, hereby irrevocably
designate  and appoint  Lender (and all  persons  designated  by Lender) as each
Borrower's true and lawful  attorney-in-fact,  and authorize Lender, in Lender's
name or in the names of  Borrowers,  or either of them,  to:  (a) at any time an
Event of  Default or event  which  with  notice or passage of time or both would
constitute  an Event of Default  exists or has  occurred and is  continuing  (i)
demand  payment on  Accounts,  notes or other  proceeds  of  Inventory  or other
Collateral,  (ii) enforce  payment of Accounts or notes by legal  proceedings or
otherwise,  (iii) exercise all of Borrower's  rights and remedies to collect any
Account,  note or other  Collateral,  (iv) sell or assign any Account  upon such
terms,  for such amount and at such time or times as the Lender deems advisable,
(v)  settle,  adjust,  compromise,  extend  or renew an  Account  or note,  (vi)
discharge  and  release  any  Account  or  note,  (vii)  prepare,  file and sign
Borrower's  name on any proof of claim in bankruptcy  or other similar  document
against  an  account  debtor or note  obligor,  (viii)  notify  the post  office
authorities  to change the address for  delivery of each  Borrower's  mail to an
address  designated  by Lender,  and open and dispose of all mail  addressed  to
either  Borrower,  and (ix) do all acts  and  things  which  are  necessary,  in
Lender's  determination,  to fulfill Borrowers' obligations under this Agreement
and the other  Financing  Agreements  and (b) at any time to (i) take control in
any manner of any item of payment or proceeds  thereof,  (ii) have access to any
lockbox or postal box into which  either  Borrower's  mail is  deposited,  (iii)
endorse  Borrowers'  names  upon any items of payment or  proceeds  thereof  and
deposit the same in the Lender's  account for  application  to the  Obligations,
(iv) endorse  Borrowers'  names upon any chattel  paper,  document,  instrument,
invoice,  or similar document or agreement relating to any Account,  note or any
goods pertaining  thereto or any other Collateral,  (v) sign Borrowers' names on
any  verification of Accounts or notes receivable and notices thereof to account
debtors and note

                                       32
<PAGE>

obligors; (vi) execute in Borrowers' names and file any UCC financing statements
or amendments  thereto;  and (vii) execute,  deliver,  file, record or otherwise
deal  with  the  collateral  and  Related  Documents  for  each  Eligible  Note.
Borrowers,  and each of them, hereby release Lender and its officers,  employees
and designees from any liabilities arising from any act or acts under this power
of attorney  and in  furtherance  thereof,  whether of  omission or  commission,
except as a result of Lender's own gross  negligence  or willful  misconduct  as
determined  pursuant  to a final  non-appealable  order of a court of  competent
jurisdiction.

         7.7  Right to Cure. Lender may, at its option,  (a) cure any default by
Borrowers,  or either of them,  under any agreement with a third party or pay or
bond on appeal any judgment  entered against  Borrowers,  or either of them, (b)
discharge taxes,  liens,  security  interests or other  encumbrances at any time
levied on or existing  with  respect to the  Collateral  and (c) pay any amount,
incur any expense or perform any act which, in Lender's  judgment,  is necessary
or appropriate to preserve,  protect,  insure or maintain the Collateral and the
rights of Lender with respect thereto. Lender may add any amounts so expended to
the Obligations and charge Borrowers'  account(s)  therefor,  such amounts to be
repayable by Borrowers on demand.  Lender shall be under no obligation to effect
such  cure,  payment or  bonding  and shall not,  by doing so, be deemed to have
assumed any  obligation  or  liability of either  Borrower.  Any payment made or
other action taken by Lender  under this Section  shall be without  prejudice to
any right to assert an Event of Default hereunder and to proceed accordingly.

         7.8  Access to Premises. From time to time as  requested by Lender,  at
the cost and  expense  of  Borrowers,  (a)  Lender or its  designee  shall  have
complete access to all of Borrowers'  respective premises during normal business
hours  upon at least  twenty-four  (24)  hours'  prior  notice  to the  affected
Borrower, or at any time and without notice if an Event of Default exists or has
occurred  and is  continuing,  for the  purposes of  inspecting,  verifying  and
auditing the Collateral and all of Borrowers'  books and records,  including the
Records,  and (b) Borrowers shall promptly furnish to Lender such copies of such
books and  records or  extracts  therefrom  as Lender may  request,  and (c) use
during normal business hours such of Borrowers' personnel,  equipment,  supplies
and premises as may be reasonably necessary for the foregoing and if an Event of
Default  exists or has occurred and is continuing for the collection of Accounts
and notes and realization of other Collateral.


8.       REPRESENTATIONS AND WARRANTIES

         Borrowers, and each of them, hereby represent and warrant to Lender the
following  (which shall survive the  execution and delivery of this  Agreement),
the truth and  accuracy  of which are a  continuing  condition  of the making of
Loans and providing Letter of Credit Accommodations by Lender to Borrowers:

         8.1  Corporate  Existence,  Power  and  Authority;  Subsidiaries.  Each
Borrower is a corporation  duly organized and validly existing under the laws of
its state of incorporation and is duly qualified as a foreign corporation and in
good standing in all states or other  jurisdictions  where the nature and extent
of  the  business  transacted  by it or  the  ownership  of  assets  makes  such
qualification necessary,  except for those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the Borrower's  financial
condition, results of 

                                       33
<PAGE>

operation  or business  or the rights of Lender in or to any of the  Collateral.
The execution,  delivery and performance of this Agreement,  the other Financing
Agreements and the  transactions  contemplated  hereunder and thereunder are all
within each Borrower's  corporate powers,  have been duly authorized and are not
in contravention of law or the terms of each Borrower's  respective  articles of
incorporation,  bylaws, or other organizational documentation, or any indenture,
agreement or undertaking to which either  Borrower is a party or by which either
Borrower or its  property  are bound.  This  Agreement  and the other  Financing
Agreements  constitute legal,  valid and binding  obligations of Borrowers,  and
each of them,  enforceable in accordance with their  respective  terms.  Neither
Borrower  has  any   subsidiaries   except  as  set  forth  on  its  Information
Certificate.

         8.2  Financial  Statements;  No Material Adverse Change.  All financial
statements  relating  to  Borrowers,  or either of them,  which have been or may
hereafter  be  delivered by  Borrowers,  or either of them,  to Lender have been
prepared in accordance with GAAP and fairly present the financial  condition and
the results of  operation  of  Borrowers as at the dates and for the periods set
forth therein. Except as disclosed in any interim financial statements furnished
by  Borrowers,  or either of them,  or except as otherwise set forth in Schedule
8.2, to Lender prior to the date of this  Agreement,  there has been no material
adverse change in the assets, liabilities,  properties and condition,  financial
or otherwise, of Borrowers, or either of them, since the date of the most recent
audited financial  statements furnished by Borrowers to Lender prior to the date
of this Agreement.

         8.3  Chief Executive Office; Collateral Locations.  The chief executive
office of each  Borrower and each  Borrower's  Records  concerning  Accounts are
located  only at the  address  set  forth  below  and its only  other  places of
business and the only other  locations of Collateral,  if any, are the addresses
set forth in the Information Certificates, subject to the right of each Borrower
to establish new locations in accordance with Section 9.2 below. The Information
Certificates  correctly  identify any of such locations which are not owned by a
Borrower and set forth the owners  and/or  operators  thereof and to the best of
each Borrower's knowledge, the holders of any mortgages on such locations.

         8.4  Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing  Agreements
constitute  valid and perfected  first priority liens and security  interests in
and upon the  Collateral  subject  only to the liens  indicated  on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Each Borrower has
good and  marketable  title to all of its  properties  and assets  subject to no
liens, mortgages,  pledges,  security interests,  encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically  listed
on Schedule 8.4 hereto or permitted under Section 9.8 hereof.

         8.5  Tax Returns. Each Borrower has filed,  or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it (without  requests for extension  except as previously  disclosed in
writing  to  Lender).   All  information  in  such  tax  returns,   reports  and
declarations  is complete and accurate in all material  respects.  Each Borrower
has paid or  caused  to be paid all taxes due and  payable  or  claimed  due and
payable in any assessment received by it, except taxes the validity of which are
being contested in good faith by appropriate  proceedings diligently pursued and
available to such Borrower and with respect to which adequate reserves have been
set aside on its books.  Adequate provision has been made for 

                                       34
<PAGE>

the payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.

         8.6  Litigation. Except as set forth on the  Information  Certificates,
there is no present  investigation by any governmental agency pending, or to the
best of either  Borrower's  knowledge  threatened,  against or affecting  either
Borrower,  its assets or business and there is no action,  suit,  proceeding  or
claim by any  Person  pending,  or to the best of  either  Borrower's  knowledge
threatened,  against  either  Borrower or its assets or goodwill,  or against or
affecting any  transactions  contemplated by this Agreement,  which if adversely
determined  against such Borrower would result in any material adverse change in
the assets,  business or prospects of such  Borrower or would impair the ability
of such Borrower to perform its obligations  hereunder or under any of the other
Financing  Agreements  to  which  it is a party  or of  Lender  to  enforce  any
Obligations or realize upon any Collateral.

         8.7  Compliance with Other  Agreements and Applicable  Laws.  Except as
set forth in  Schedule  8.7,  neither  Borrower  is in default  in any  material
respect under,  or in violation in any material  respect of any of the terms of,
any agreement,  contract, instrument, lease or other commitment to which it is a
party or by which it or any of its  assets  are  bound and each  Borrower  is in
compliance  in all material  respects  with all  applicable  provisions of laws,
rules,  regulations,  licenses,  permits,  approvals  and orders of any foreign,
Federal, State or local governmental authority.

         8.8  Environmental Compliance.

              (a) Except as set forth on Schedule 8.8 hereto,  neither  Borrower
has  generated,  used,  stored,  treated,  transported,  manufactured,  handled,
produced or disposed of any Hazardous Materials, on or off its premises (whether
or not owned by it) in any  manner  which at any time  violates  any  applicable
Environmental  Law or any  license,  permit,  certificate,  approval  or similar
authorization  thereunder and the operations of Borrowers comply in all material
respects with all Environmental  Laws and all licenses,  permits,  certificates,
approvals and similar authorizations thereunder.

              (b) Except as set forth on Schedule 8.8 hereto,  there has been no
investigation,  proceeding,  complaint,  order,  directive,  claim,  citation or
notice by any  governmental  authority or any other person nor is any pending or
to the  best  of each  Borrower's  knowledge  threatened,  with  respect  to any
non-compliance with or violation of the requirements of any Environmental Law by
a Borrower or the release,  spill or  discharge,  threatened  or actual,  of any
Hazardous Material or the generation, use, storage,  treatment,  transportation,
manufacture,  handling, production or disposal of any Hazardous Materials or any
other  environmental,  health or safety matter, which affects either Borrower or
its  business,  operations  or assets or any  properties at which a Borrower has
transported, stored or disposed of any Hazardous Materials.

              (c) Neither  Borrower has any material  liability  (contingent  or
otherwise)  in  connection  with a release,  spill or  discharge,  threatened or
actual, of any Hazardous Materials or the generation,  use, storage,  treatment,
transportation,  manufacture,  handling, production or disposal of any Hazardous
Materials.

                                       35
<PAGE>

              (d)  Each  Borrower  has  all  licenses,  permits,   certificates,
approvals  or  similar  authorizations  required  to be  obtained  or  filed  in
connection with the operations of such Borrower under any  Environmental Law and
all of such licenses, permits, certificates, approvals or similar authorizations
are valid and in full force and effect.

         8.9  Employee Benefits.

              (a) To  Borrowers'  knowledge  after  due  investigation,  neither
Borrower has engaged in any material  transaction in connection  with which such
Borrower  or any of its ERISA  Affiliates  could be subject to either a material
civil penalty  assessed  pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code,  including any material accumulated funding deficiency
described in Section 8.9(c) hereof and any material  deficiency  with respect to
vested accrued benefits described in Section 8.9(d) hereof.

              (b) To Borrowers'  knowledge after due investigation,  no material
liability to the Pension Benefit Guaranty Corporation has been or is expected by
either  Borrower to be incurred  with  respect to any  employee  benefit plan of
either  Borrower or any of its ERISA  Affiliates.  There has been no  reportable
event  (within  the  meaning of Section  4043(b) of ERISA) or any other event or
condition with respect to any employee  pension  benefit plan of either Borrower
or any of its ERISA  Affiliates which presents a risk of termination of any such
plan by the Pension Benefit Guaranty Corporation.

              (c) To Borrowers' knowledge after due investigation,  full payment
has been made of all amounts which each Borrower or any of its ERISA  Affiliates
is required  under Section 302 of ERISA and Section 412 of the Code to have paid
under the terms of each employee  benefit plan as  contributions to such plan as
of the last day of the most  recent  fiscal year of such plan ended prior to the
date  hereof,  and no material  accumulated  funding  deficiency  (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists
with  respect  to any  employee  benefit  plan,  including  any  penalty  or tax
described in Section 8.9(a) hereof and any material  deficiency  with respect to
vested accrued benefits described in Section 8.9(d) hereof.

              (d) To Borrowers'  knowledge after due investigation,  the current
value of all vested accrued benefits under all employee benefit plans maintained
by either  Borrower  that are  subject  to Title IV of ERISA does not exceed the
current  value of the  assets of such plans  allocable  to such  vested  accrued
benefits,  including any penalty or tax  described in Section  8.9(a) hereof and
any material  accumulated funding deficiency described in Section 8.9(c) hereof.
The terms "current value" and "accrued  benefit" have the meanings  specified in
ERISA.  

              (e) With  respect  to any  multiemployer  plan  (as  such  term is
defined in Section  400(a)(3)  of ERISA) in which  either  Borrower or any ERISA
Affiliate  participates or has participated,  (i) neither Borrower nor any ERISA
Affiliate  has  withdrawn,  partially  withdrawn,  or received any notice of any
claim or demand for withdrawal liability or partial withdrawal  liability,  (ii)
neither  Borrower nor any ERISA  Affiliate has received any notice that any such
plan is in reorganization, that increased contributions may be required to avoid
a reduction in plan  benefits or the  imposition  of any excise tax, or that any
such plan is or may  become  insolvent,  (iii)  neither  Borrower  nor any ERISA
Affiliate has failed to make any required 

                                       36
<PAGE>

contributions,  (iv) no such plan is a party to any  pending  merger or asset or
liability  transfer,  and (v) there are no PBGC proceedings against or affecting
any such plan.

         8.10 Bank Accounts. All of the deposit accounts, investment accounts or
other  accounts  in the  name  of or used  by  Borrowers,  or  either  of  them,
maintained at any bank or other financial  institution are set forth on Schedule
8.10 hereto,  subject to the right of  Borrowers  to  establish  new accounts in
accordance with Section 9.13 below.

         8.11 Accuracy  and   Completeness  of  Information.   All  information
furnished by or on behalf of Borrowers,  or either of them, in writing to Lender
in connection  with this Agreement or any of the other  Financing  Agreements or
any transaction contemplated hereby or thereby, including all information on the
Information  Certificates,  is true and correct in all material  respects on the
date as of which such  information  is dated or certified  and does not omit any
material fact necessary in order to make such  information  not  misleading.  No
event or circumstance has occurred which has had or could reasonably be expected
to have a  material  adverse  affect on the  business,  assets or  prospects  of
Borrowers,  or either of them, which has not been fully and accurately disclosed
to Lender in writing.

         8.12 Eligible Notes.  With respect to each note that Borrower  proposes
become an Eligible Note and with respect to each Related Document:

              (a) The  information  in each  Note  Schedule,  together  with any
documentation supporting such information, is true and correct.

              (b) There exists only one original of such note,  and the original
and all of the other original or certified  documents  described in Section 1.11
have been  delivered  or will be  delivered  to Lender  before  Lender makes any
advances with respect to that note.

              (c)  Immediately  prior to  delivery  of the note and the  related
endorsement(s)  to Lender,  the assigning  Borrower  held good and  indefeasible
title  to,  and was the sole  owner of each  such  note,  subject  to no  liens,
charges,  mortgages,  encumbrances  or  rights of others  and  immediately  upon
delivery  of the note to  Lender,  Lender  will have a first  priority  security
interest  in  such  note,  subject  to  no  other  liens,  charges,   mortgages,
encumbrances or rights of others.

              (d) The note and Related  Documents  delivered to Lender are true,
correct,  and complete  original  counterparts  of all instruments and documents
evidencing  or in any way  relating  to that note and the  related  indebtedness
referred to therein.

              (e)  Borrowers  have  caused  all copies of any note  retained  by
Borrowers to be identified  with an appropriate  legend  clearly  disclosing the
fact that  Lender has  possession  of and a security  interest  in such note and
Related Documents.

         8.13  Survival  of  Warranties;  Cumulative.  All  representations  and
warranties  contained in this Agreement or any of the other Financing Agreements
shall survive the  execution and delivery of this  Agreement and shall be deemed
to have been made again to Lender on the date of each  additional  borrowing  or
other credit accommodation  hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation



                                       37
<PAGE>

made or information  possessed by Lender. The representations and warranties set
forth herein shall be cumulative and in addition to any other representations or
warranties which Borrowers shall now or hereafter give, or cause to be given, to
Lender.

9.       AFFIRMATIVE AND NEGATIVE COVENANTS

         9.1  Maintenance  of  Existence.  Each  Borrower  shall  at  all  times
preserve,  renew and keep in full force and effect its  corporate  existence and
rights and franchises with respect thereto and maintain in full force and effect
all  permits,  licenses,  trademarks,  trade names,  approvals,  authorizations,
leases and contracts necessary to carry on its business as presently or proposed
to be conducted.  Each Borrower shall give Lender thirty (30) days prior written
notice of any  proposed  change in its  corporate  name,  which notice shall set
forth the new name, and Borrower shall deliver to Lender a copy of the amendment
to the  Articles  of  Incorporation  of Borrower  providing  for the name change
certified by the  Secretary of State of the  jurisdiction  of  incorporation  of
Borrower as soon as it is available.

         9.2  New  Collateral  Locations.  Either  Borrower  may  open  any  new
location within the  continental  United States provided such Borrower (a) gives
Lender thirty (30) days prior written notice of the intended opening of any such
new  location  and (b)  executes  and  delivers,  or causes to be  executed  and
delivered, to Lender such agreements,  documents,  and instruments as Lender may
deem  reasonably  necessary  or  desirable  to  protect  its  interests  in  the
Collateral at such location, including UCC financing statements.

         9.3  Compliance with Laws, Regulations, Etc.

              (a) Borrowers shall, at all times, comply in all material respects
with all laws,  rules,  regulations,  licenses,  permits,  approvals  and orders
applicable to them and duly observe all  requirements  of any Federal,  State or
local governmental authority,  including the Employee Retirement Security Act of
1974, as amended,  the  Occupational  Safety and Health Act of 1970, as amended,
PACA,  the PSA,  the Fair  Labor  Standards  Act of 1938,  as  amended,  and all
statutes,  rules,  regulations,  orders,  permits and  stipulations  relating to
environmental  pollution  and employee  health and safety,  including all of the
Environmental Laws; except that Borrowers' failure to file the reports described
on Schedule 8.7 shall not  constitute a breach of this  provision so long as (i)
the failure to file such reports does not violate any  governmental  order;  and
(ii) all such reports have been filed,  or the  circumstances  have changed such
that filing is no longer necessary,  in either case by no later than January 31,
1999.

              (b) Borrowers  shall establish and maintain,  at their expense,  a
system to assure and monitor their continued  compliance with all  Environmental
Laws in all of their  operations,  which system shall include  annual reviews of
such  compliance  by employees or agents of Borrowers  who are familiar with the
requirements of the Environmental  Laws.  Copies of all  environmental  surveys,
audits, assessments,  feasibility studies and results of remedial investigations
shall be promptly furnished,  or caused to be furnished, by Borrowers to Lender.
Borrowers  shall  take  prompt  and   appropriate   action  to  respond  to  any
non-compliance  with any of the Environmental Laws and shall regularly report to
Lender on such response.

                                       38
<PAGE>

              (c)  Borrowers  shall give both oral and written  notice to Lender
immediately  upon  a  Borrower's  receipt  of any  notice  of,  or a  Borrower's
otherwise  obtaining knowledge of, (i) the occurrence of any event involving the
release, spill or discharge,  threatened or actual, of any Hazardous Material or
(ii) any investigation, proceeding, complaint, order, directive, claim, citation
or notice  with  respect to: (A) any  non-compliance  with or  violation  of any
Environmental  Law by a  Borrower  or  (B)  the  release,  spill  or  discharge,
threatened  or actual,  of any  Hazardous  Material  except in  compliance  with
applicable Environmental Laws; or (C) the generation,  use, storage,  treatment,
transportation,  manufacture,  handling, production or disposal of any Hazardous
Materials  except in compliance with applicable  Environmental  Laws; or (D) any
other  environmental,  health or safety matter,  which affects a Borrower or its
business,  operations  or  assets or any  properties  at which  either  Borrower
transported, stored or disposed of any Hazardous Materials.

              (d) Without  limiting the  generality of the  foregoing,  whenever
Lender reasonably determines that there is non-compliance with any Environmental
Law, or any condition which requires any action by or on behalf of Borrowers, or
either  of  them,  in  order  to avoid  any  material  non-compliance,  with any
Environmental Law, Borrowers shall, at Lender's request and Borrowers'  expense:
(i)  cause an  independent  environmental  consultant  acceptable  to  Lender to
conduct  such tests of the site  where a  Borrower's  non-compliance  or alleged
non-compliance   with  such   Environmental   Laws  has   occurred  as  to  such
non-compliance   and  prepare  and  deliver  to  Lender  a  report  as  to  such
non-compliance  setting  forth the  results of such tests,  a proposed  plan for
responding to any environmental  problems described therein,  and an estimate of
the costs  thereof  and (ii)  provide  to Lender a  supplemental  report of such
consultant  whenever the scope of such  non-compliance,  or Borrowers'  response
thereto or the estimated costs thereof, shall change in any material respect.

              (e)  Borrowers  shall  indemnify  and hold  harmless  Lender,  its
directors,  officers, employees, agents, invitees,  representatives,  successors
and assigns, from and against any and all losses, claims, damages,  liabilities,
costs, and expenses  (including  attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use,  generation,  manufacture,
reproduction,  storage, release, threatened release, spill, discharge,  disposal
or presence  of a Hazardous  Material,  including  the costs of any  required or
necessary repair, cleanup or other remedial work with respect to any property of
Borrowers,  or either of them, and the  preparation  and  implementation  of any
closure,  remedial or other required  plans.  All  representations,  warranties,
covenants and  indemnifications in this Section 9.3 shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.

         9.4  Payment of Taxes and Claims.

         (a) Each Borrower shall duly pay and discharge all taxes,  assessments,
contributions  and governmental  charges upon or against it or its properties or
assets, except for taxes the validity of which are being contested in good faith
by appropriate proceedings diligently pursued and available to such Borrower and
with respect to which adequate reserves have been set aside on its books.

         (b)  Borrowers  shall be liable for any taxes or  penalties  imposed on
Lender  as a result of the  financing  arrangements  provided  for  herein,  and
Borrowers  agree to  indemnify  and hold  Lender  harmless  with  respect to the
foregoing,  and to repay to Lender on demand the



                                       39
<PAGE>

amount  thereof,  and until paid by  Borrowers  such  amount  shall be added and
deemed part of the Revolving Loans,  provided,  that,  nothing  contained herein
shall be  construed to require  Borrowers to pay any income,  franchise or other
similar taxes  attributable to the net income of Lender from any amounts charged
or paid hereunder to Lender.  The foregoing  indemnity shall survive the payment
of the Obligations and the termination or non-renewal of this Agreement.

              (c) In the event  Lender  shall  assign all or any interest in the
Obligations  to an assignee that is organized  under the laws of a  jurisdiction
outside the United  States,  such assignee  shall provide  Borrowers with an IRS
Form  4224 or Form  1001 or  other  applicable  form,  certificate  or  document
prescribed by the Internal  Revenue  Service  certifying  as to such  assignee's
entitlement to full exemption from United States withholding tax with respect to
all payments to be made to such assignee  under this  Agreement and under any of
the other Financing  Agreements  (unless such assignee of Lender is unable to do
so by reason of a change in law  (including,  without  limitation,  any statute,
treaty,  ruling,  determination  or  regulation)  occurring  subsequent  to  the
effective  date of such  assignment).  Unless  Borrowers  have received forms or
other  documents  reasonably  satisfactory  to  them  indicating  that  payments
hereunder  or under any of the other  Financing  Agreements  are not  subject to
United  States of  America  withholding  tax,  Borrowers  shall,  in the case of
payments  to or for  any  assignee  of  Lender  organized  under  the  laws of a
jurisdiction  outside the United States (i) withhold taxes from such payments at
the applicable  statutory rate, or at a rate reduced by an applicable tax treaty
(provided that Borrowers have received forms or other documents  satisfactory to
them  indicating that such reduced rate applies) and (ii) pay such assignee such
payment  net of any  taxes  withheld.  Such  assignee  will be  required  to use
reasonable efforts  (including  reasonable efforts to change its lending office)
to avoid or to minimize any amounts which might otherwise be payable by Borrower
pursuant to this Section 9.4;  provided,  that, such efforts shall not cause the
imposition  on such  assignee  of any  additional  costs or legal or  regulatory
burdens deemed by such assignee in good faith to be material.

         9.5  Insurance.   Borrowers   shall,   at  all  times,   maintain  with
financially  sound  and  reputable   insurers  insurance  with  respect  to  the
Collateral  against  loss or damage and all other  insurance of the kinds and in
the  amounts   customarily   insured  against  or  carried  by  corporations  of
established  reputation  engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to form,
amount  and  insurer.   Borrowers  shall  furnish   certificates,   policies  or
endorsements to Lender as Lender shall require as proof of such insurance,  and,
if Borrowers  fail to do so, Lender is authorized,  but not required,  to obtain
such  insurance at the expense of Borrowers.  All policies  shall provide for at
least thirty (30) days prior  written  notice to Lender of any  cancellation  or
reduction  of coverage and that Lender may act as attorney  for  Borrowers,  and
each of them,  in obtaining,  and at any time an Event of Default  exists or has
occurred and is  continuing,  adjusting,  settling,  amending and canceling such
insurance.  Borrowers  shall  cause  Lender  to be named as a loss  payee and an
additional  insured  (but without any  liability  for any  premiums)  under such
insurance  policies and Borrowers  shall obtain  non-contributory  lender's loss
payable   endorsements   to  all  insurance   policies  in  form  and  substance
satisfactory to Lender.  Such lender's loss payable  endorsements  shall specify
that the proceeds of such insurance  shall be payable to Lender as its interests
may appear and further  specify that Lender shall be paid  regardless of any act
or omission by Borrowers or any of their affiliates.  At its option,  Lender may
apply  any  insurance  proceeds  received  by  Lender at any time to the cost of
repairs or  replacement  of  Collateral  and/or to  payment of the  Obligations,

                                       40
<PAGE>

whether or not then due, in any order and in such manner as Lender may determine
or hold such proceeds as cash collateral for the Obligations.

                                     WARNING

                   UNLESS  BORROWERS  PROVIDE  LENDER WITH EVIDENCE OF
                   THE   INSURANCE   COVERAGE   AS  REQUIRED  BY  THIS
                   AGREEMENT,   LENDER  MAY   PURCHASE   INSURANCE  AT
                   BORROWERS'  EXPENSE TO PROTECT  LENDER'S  INTEREST.
                   THIS  INSURANCE  MAY,  BUT NEED NOT,  ALSO  PROTECT
                   BORROWERS'  INTEREST.  IF  THE  COLLATERAL  BECOMES
                   DAMAGED,  THE COVERAGE LENDER PURCHASES MAY NOT PAY
                   ANY CLAIM  BORROWERS MAKE OR ANY CLAIM MADE AGAINST
                   BORROWERS. BORROWERS MAY LATER CANCEL THIS COVERAGE
                   BY PROVIDING  EVIDENCE THAT BORROWERS HAVE OBTAINED
                   THE REQUIRED COVERAGE ELSEWHERE.

                   BORROWERS  ARE  RESPONSIBLE  FOR  THE  COST  OF ANY
                   INSURANCE  PURCHASED  BY  LENDER.  THE COST OF THIS
                   INSURANCE MAY BE ADDED TO  BORROWERS'  LIABILITIES.
                   IF THE COST IS ADDED TO BORROWERS' LIABILITIES, THE
                   INTEREST RATE  APPLICABLE  TO THE  REVOLVING  LOANS
                   WILL APPLY TO THIS ADDED AMOUNT. THE EFFECTIVE DATE
                   OF  COVERAGE  MAY  BE  THE  DATE  BORROWERS'  PRIOR
                   COVERAGE  LAPSED  OR THE DATE  BORROWERS  FAILED TO
                   PROVIDE PROOF OF COVERAGE.

                   THE COVERAGE  LENDER  PURCHASES MAY BE CONSIDERABLY
                   MORE EXPENSIVE THAN INSURANCE  BORROWERS CAN OBTAIN
                   ON  THEIR  OWN AND MAY NOT  SATISFY  ANY  NEED  FOR
                   PROPERTY DAMAGE COVERAGE OR ANY MANDATORY LIABILITY
                   INSURANCE REQUIREMENTS IMPOSED BY APPLICABLE LAW.

         9.6  Financial Statements and Other Information.

              (a)  Borrowers  shall keep proper  books and records in which true
and  complete  entries  shall be made of all dealings or  transactions  of or in
relation to the Collateral and the business of Borrowers and their  subsidiaries
(if any) in accordance  with GAAP,  and  Borrowers  shall furnish or cause to be
furnished  to  Lender:  (i) within  thirty-five  (35) days after the end of each
fiscal month, monthly unaudited  consolidated financial statements (including in
each case balance  sheets,  statements  of income and loss,  and  statements  of
shareholders' equity), all in reasonable detail, fairly presenting the financial
position and the results of the  operations of 

                                  41
<PAGE>

Borrowers and their subsidiaries as of the end of and through such fiscal month;
(ii) within forty-five (45) days after the end of each of the first three fiscal
quarters,   internally  prepared  quarterly  unaudited   consolidated  financial
statements and unaudited  consolidating  financial statements (including in each
case balance sheets, statements of income and loss, statements of cash flow, and
statements of shareholders'  equity),  all in reasonable detail and certified by
Borrowers' chief financial officer as fairly  presenting the financial  position
and the results of the operations of Borrowers and their  subsidiaries as of the
end of and through  such fiscal  quarter and;  (iii)  within one hundred  twenty
(120) days after the end of each fiscal  year,  audited  consolidated  financial
statements and audited consolidating financial statements of Borrowers and their
subsidiaries  (including in each case balance  sheets,  statements of income and
loss,  statements of cash flow and statements of shareholders'  equity), and the
accompanying  notes thereto,  all in reasonable  detail,  fairly  presenting the
financial  position and the results of the  operations  of  Borrowers  and their
subsidiaries  as of the end of and for  such  fiscal  year,  together  with  the
unqualified  opinion  of  independent   certified  public   accountants,   which
accountants  shall be an independent  accounting  firm selected by Borrowers and
reasonably  acceptable  to  Lender,  that such  financial  statements  have been
prepared in accordance  with GAAP,  and present fairly the results of operations
and financial condition of Borrowers and their subsidiaries as of the end of and
for the fiscal year then ended.

              (b)  Borrowers  shall  promptly  notify  Lender in  writing of the
details of (i) any loss,  damage,  investigation,  action,  suit,  proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations  or which  would  result in any  material  adverse  change in either
Borrower's business,  properties,  assets,  goodwill or condition,  financial or
otherwise and (ii) the  occurrence of any Event of Default or event which,  with
the passage of time or giving of notice or both,  would  constitute  an Event of
Default.

              (c) Borrowers  shall  promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrowers
send to their stockholders  generally and copies of all reports and registration
statements  which  either  Borrower  files  with  the  Securities  and  Exchange
Commission,  any national  securities  exchange or the National  Association  of
Securities Dealers, Inc.

              (d)  Borrowers  shall  furnish or cause to be  furnished to Lender
such  budgets,  forecasts,  projections  and other  information  respecting  the
Collateral and the business of Borrowers,  and each of them, as Lender may, from
time to time, reasonably request.  Lender is hereby authorized to deliver a copy
of any financial statement or any other information  relating to the business of
Borrowers,  and each of them, to any court or other government  agency or to any
Participant or assignee or prospective Participant or assignee.  Borrowers,  and
each of them,  hereby  irrevocably  authorize  and  direct  all  accountants  or
auditors to deliver to Lender,  at Borrowers'  expense,  copies of the financial
statements of Borrowers, and each of them, and any reports or management letters
prepared by such  accountants  or auditors  on behalf of  Borrowers,  or each of
them, and to disclose to Lender such  information as they may have regarding the
business of  Borrowers.  Any  documents,  schedules,  invoices  or other  papers
delivered to Lender may be destroyed or otherwise  disposed of by Lender one (1)
year after the same are delivered to Lender,  except as otherwise  designated by
Borrowers to Lender in writing.

              (e)  Borrowers  shall  furnish  to Lender  upon  receipt a copy of
PricewaterhouseCoopers'  Management  Letter for the fiscal year ending September
1998 and all

                                       42
<PAGE>

other   management   letters  prepared  by  Borrowers'   independent   certified
accountants for each fiscal year thereafter.

         9.7  Sale of Assets, Consolidation,  Merger, Dissolution,  Etc. Neither
Borrower  shall,  directly or indirectly,  (a) merge into or with or consolidate
with any  other  Person  or permit  any  other  Person to merge  into or with or
consolidate with it, except as expressly  provided in Section 9.10 below, or (b)
sell,  assign,  lease,  transfer,  abandon or otherwise  dispose of any stock or
indebtedness  to any  other  Person or any of its  assets  to any  other  Person
(except for (i) sales of Inventory in the ordinary course of business;  (ii) the
disposition of worn-out or obsolete Equipment or Equipment no longer used in the
business of Borrower so long as, if an Event of Default  exists or has  occurred
and is  continuing,  any proceeds  are paid to Lender),  (iii) sales of notes to
NCCB on the terms set forth in various  agreements with NCCB as in effect on the
date of this Agreement,  consistent  with past practice;  and (iv) sale of UGI's
Real Property located in Jackson County,  Oregon so long as the net proceeds are
paid to  Lender),  or (c)  form or  acquire  any  subsidiaries,  or (d) wind up,
liquidate or dissolve or (e) agree to do any of the foregoing.

         9.8  Encumbrances.  Neither  Borrower  shall create,  incur,  assume or
suffer to exist any security interest,  mortgage,  pledge, lien, charge or other
encumbrance  of any  nature  whatsoever  on any of  its  assets  or  properties,
including the Collateral,  except:  (a) liens and security  interests of Lender;
(b) liens securing the payment of taxes,  either not yet overdue or the validity
of which are being contested in good faith by appropriate proceedings diligently
pursued  and  available  to such  Borrower  and with  respect to which  adequate
reserves have been set aside on its books;  (c)  non-consensual  statutory liens
(other than liens securing the payment of taxes) arising in the ordinary  course
of such Borrower's  business to the extent:  (i) such liens secure  indebtedness
which is not overdue or (ii) such liens secure  indebtedness  relating to claims
or  liabilities  which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being  contested in good faith by
appropriate  proceedings  diligently pursued and available to such Borrower,  in
each case prior to the commencement of foreclosure or other similar  proceedings
and with respect to which  adequate  reserves  have been set aside on its books;
(d) zoning restrictions,  easements,  licenses, covenants and other restrictions
affecting  the use of real  property  which  do not  interfere  in any  material
respect with the use of such real  property or ordinary  conduct of the business
of either Borrower as presently conducted thereon or materially impair the value
of the real property which may be subject  thereto;  (e) purchase money security
interests in Equipment  (including  capital leases) and purchase money mortgages
on real estate so long as such security  interests and mortgages do not apply to
any property of a Borrower  other than the Equipment or real estate so acquired,
and the  indebtedness  secured thereby does not exceed the cost of the Equipment
or real estate so acquired,  as the case may be; (f) the security  interests and
liens set forth on Schedule 8.4 hereto;  and (g) security  interests  granted to
NCCB in  connection  with the  sales of notes to NCCB on the  terms set forth in
various  agreements  with  NCCB as in  effect  on the  date  of this  Agreement,
consistent with past practice;.

         9.9  Indebtedness. Neither Borrower shall incur, create, assume, become
or be liable in any manner with respect to, or permit to exist,  any obligations
or indebtedness,  except: (a) the Obligations;  (b) trade obligations and normal
accruals in the ordinary  course of business  not yet due and  payable,  or with
respect to which a Borrower is  contesting  in good faith the amount or validity
thereof by  appropriate  proceedings  diligently  pursued and  available to such
Borrower, and with respect to which adequate reserves have been set aside on its
books; (c) purchase money indebtedness  (including capital leases) to the extent
not incurred or secured by liens (including

                                       43
<PAGE>

capital  leases) in violation  of any other  provision  of this  Agreement;  (d)
indebtedness incurred in connection with the sales of notes to NCCB on the terms
set  forth in  various  agreements  with  NCCB as in  effect on the date of this
Agreement,  consistent with past practice; and (e) the indebtedness set forth on
Schedule  9.9 hereto;  provided,  that,  (i)  Borrower  may only make  regularly
scheduled  payments of principal and interest in respect of such indebtedness in
accordance  with the terms of the agreement or  instrument  evidencing or giving
rise to such  indebtedness as in effect on the date hereof,  (ii) Borrower shall
not,  directly or indirectly,  (A) amend,  modify,  alter or change the terms of
such indebtedness or any agreement, document or instrument related thereto as in
effect on the date hereof, or (B) redeem, retire, defease, purchase or otherwise
acquire such indebtedness,  or set aside or otherwise deposit or invest any sums
for such  purpose,  and (iii)  Borrower  shall  furnish to Lender all notices or
demands in connection with such  indebtedness  either received by Borrower or on
its behalf,  promptly after the receipt  thereof,  or sent by Borrower or on its
behalf,   concurrently   with  the  sending   thereof,   as  the  case  may  be.
Notwithstanding  the  foregoing  provisions of this Section 9.9, UGI may redeem,
retire or prepay all or any portion of its outstanding  Subordinated  Redeemable
Capital  Investment  Notes from time to time,  provided that no Event of Default
has occurred and is then  continuing,  provided further that after giving effect
to such  redemption,  retirement  or  prepayment,  Borrowers  have no less  than
$10,000,000 of Excess Availability.

         9.10 Loans, Investments, Guarantees, Etc. Except as expressly set forth
below, neither Borrower shall, directly or indirectly, make any loans or advance
money or property to any person, or invest in (by capital contribution, dividend
or otherwise) or purchase or repurchase  the stock or  indebtedness  or all or a
substantial part of the assets or property of any person, or guarantee,  assume,
endorse,  or otherwise  become  responsible  for  (directly or  indirectly)  the
indebtedness, performance, obligations or dividends of any Person or agree to do
any of the foregoing,  except: (a) the endorsement of instruments for collection
or  deposit  in the  ordinary  course  of  business;  (b)  investments  in:  (i)
short-term direct obligations of the United States  Government,  (ii) negotiable
certificates of deposit issued by any bank  satisfactory  to Lender,  payable to
the  order of a  Borrower  or to  bearer  and  delivered  to  Lender,  and (iii)
commercial  paper rated A1 or P1;  provided  that,  as to any of the  foregoing,
unless  waived in writing by Lender,  Borrowers  shall take such  actions as are
deemed  necessary by Lender to perfect the  security  interest of Lender in such
investments;  (c) a one-time  investment of up to $10,000,000 in a joint venture
to be formed  between UGI and Associated  Grocers,  provided that at the time of
such  investment  no Event  of  Default  has  occurred  and is then  continuing;
provided  further  that UGI's  interest  in such  venture  shall be  assigned as
collateral to Lender by documents  satisfactory in form and substance to Lender;
provided further that after giving effect to such investment,  Borrowers have no
less than $10,000,000 of Excess Availability; (d) loans, advances and guaranties
issued to or on behalf of Members;  provided that the aggregate amount of (i)all
sums advanced under those loans and advances, (ii) any increase in the amount of
any existing  loans,  advances or  guaranties  as a part of  restructuring  such
obligations,  and (iii)  the  maximum  amount  being  guarantied  under any such
guaranty,  shall not exceed the sum of $2,000,000 in any fiscal year  (excluding
for purposes of this calculation,  any guaranties made by UGI for the benefit of
NCCB);  and (e) the loans,  advances,  investment  and  guarantees  set forth on
Schedule 9.10 hereto;  provided,  that, as to loans,  advances,  investment  and
guarantees  related in any way to Eligible Notes,  Borrowers shall not, directly
or  indirectly,  (A) amend,  modify,  alter or change  the terms of such  loans,
advances,  investment  or guarantees  or any  agreement,  document or instrument
related thereto, or (B) as to such guarantees, redeem, retire, defease, purchase
or otherwise acquire the obligations arising pursuant to such guarantees, or set
aside or  otherwise 

                                       44
<PAGE>

deposit or invest any sums for such  purpose,  and provided  further,  that with
respect to any  loans,  advances,  investments  and  guaranties,  whether or not
related to the Eligible Notes or to the notes purchased by NCCB, Borrowers shall
furnish  to Lender  all  notices  or  demands  in  connection  with such  loans,
advances,  investment  or  guarantees  or  other  indebtedness  subject  to such
guarantees either received by Borrowers,  or either of them, or on their behalf,
promptly after the receipt thereof, or sent by Borrowers,  or either of them, or
on their behalf, concurrently with the sending thereof, as the case may be.

         9.11  Dividends  and  Redemptions.  Borrowers  shall not,  directly  or
indirectly,  declare or pay any  dividends on account of any shares of any class
of capital  stock of  Borrower  now or  hereafter  outstanding,  or set aside or
otherwise  deposit  or invest  any sums for such  purpose,  or  redeem,  retire,
defease,  purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise  deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing,  except that URI may declare and pay
dividends to UGI and UGI (a) may redeem shares of its capital stock from persons
who withdraw or are expelled as Members,  (b) may redeem a pro rata share of its
capital  stock from  persons  who remain  Members but who close less than all of
their  stores as set forth  below;  and (c) may  redeem  the number of shares in
excess  of 4,000  held by any  Member,  provided  in each  case that no Event of
Default has  occurred and is then  continuing,  such shares are redeemed at Book
Value as provided in UGI's current bylaws, and the redemption price is paid over
the maximum period  allowed by such bylaws.  The pro rata share of capital stock
that UGI may redeem under  subsection (b) above shall be equal to the product of
the total number of shares of UGI stock held by the relevant  Member  multiplied
by a fraction, the numerator of which is the gross sales from the store(s) being
closed by that Member and the  denominator  of which is the gross sales from all
of that Member's stores,  including the stores to be closed, in each case during
the full twelve (12) calendar months  preceding the redemption.  Notwithstanding
the foregoing  provisions of this Section 9.11, UGI may pay patronage  dividends
to its Members  based upon the  respective  amounts of net income  generated  by
sales to such  Members,  provided  that no Event of Default has  occurred and is
then continuing, provided further that after giving effect to all such patronage
dividend   payments,   Borrowers  have  no  less  than   $10,000,000  of  Excess
Availability;  and provided further that no patronage  dividends will be paid in
or for the fiscal year ending September 1998.

         9.12 Transactions with Affiliates.  Neither Borrower shall, directly or
indirectly,  (a) purchase, acquire or lease any property from, or sell, transfer
or lease  any  property  to,  any  officer,  director,  agent  or  other  person
affiliated with such Borrower,  except in the ordinary course of and pursuant to
the  reasonable  requirements  of such  Borrower's  business  and upon  fair and
reasonable  terms no less  favorable  to the Borrower  than the  Borrower  would
obtain in a comparable arm's length  transaction with an unaffiliated  person or
(b) make any payments of management,  consulting or other fees for management or
similar  services,  or of  any  indebtedness  owing  to any  officer,  employee,
shareholder,  director  or  other  person  affiliated  with  a  Borrower  except
reasonable  compensation  to  officers,  employees  and  directors  for services
rendered  to a  Borrower  in the  ordinary  course  of  business  and  regularly
scheduled   payments  to  Members  or  former  Members  under  notes   currently
outstanding or hereafter made in accordance with the terms of this Agreement. No
payments  shall be made on any such note if an Event of Default has occurred and
is then continuing.

                                       45
<PAGE>

         9.13 Additional  Bank Accounts.  Neither  Borrower  shall,  directly or
indirectly,  open, establish or maintain any deposit account, investment account
or any other account with any bank or other  financial  institution,  other than
the Blocked Accounts and the accounts set forth in Schedule 8.10 hereto, except:
(a)  as to any  new  or  additional  Blocked  Accounts  and  other  such  new or
additional  accounts which contain any Collateral or proceeds thereof,  with the
prior written consent of Lender and subject to such conditions thereto as Lender
may  establish  and (b) as to any accounts used by Borrowers to make payments of
payroll, taxes or other obligations to third parties, after prior written notice
to Lender.

         9.14 Compliance with ERISA.

              (a)  Borrowers  shall not with  respect to any  "employee  benefit
plans"  maintained  by  Borrowers,  or  either  of  them,  or any  of its  ERISA
Affiliates:  (i) terminate any of such employee benefit plans so as to incur any
liability to the Pension Benefit Guaranty  Corporation  established  pursuant to
ERISA, (ii) allow or suffer to exist any prohibited transaction involving any of
such employee benefit plans or any trust created  thereunder which would subject
either  Borrower  or any  such  ERISA  Affiliate  to a tax or  penalty  or other
liability on prohibited  transactions  imposed under Section 4975 of the Code or
ERISA,  (iii) fail to pay to any such  employee  benefit  plan any  contribution
which it is obligated to pay under Section 302 of ERISA, Section 412 of the Code
or the terms of such plan, (iv) allow or suffer to exist any accumulated funding
deficiency,  whether or not waived,  with respect to any such  employee  benefit
plan, (v) allow or suffer to exist any  occurrence of a reportable  event or any
other event or condition  which  presents a material risk of  termination by the
Pension Benefit Guaranty Corporation of any such employee benefit plan that is a
single  employer plan,  which  termination  could result in any liability to the
Pension Benefit Guaranty Corporation or (vi) incur any withdrawal liability with
respect to any multiemployer pension plan.

              (b) As used in this  Section  9.14,  the terms  "employee  benefit
plans",  "accumulated  funding deficiency" and "reportable event" shall have the
respective  meanings  assigned  to  them in  ERISA,  and  the  term  "prohibited
transaction"  shall have the meaning  assigned to it in Section 4975 of the Code
and ERISA.

         9.15 [deleted].

         9.16  Adjusted  Net Worth.  Borrowers  shall,  at all  times,  maintain
Adjusted Net Worth of not less than $65,000,000  minus (a) amounts actually paid
by  Borrowers  to redeem  subordinated  debt  during the  forty-two  (42) months
following the date of this  Agreement,  in an amount not  exceeding  $8,000,000;
minus (b) amounts  actually  paid by  Borrowers  in  connection  with  scheduled
redemptions of UGI's capital  investment  notes during the forty-two (42) months
following the date of this  Agreement,  in an amount not  exceeding  $7,000,000;
minus (c) all amounts  actually paid by Borrowers in connection  with  mandatory
redemptions  of UGI's capital  investment  notes  resulting  from the death of a
holder of one or more of those notes;  and minus (d) the amount actually written
off by  Borrowers  in  connection  with tax  planning  for  fiscal  year  ending
September, 1998, in an amount not exceeding $5,000,000.

         9.17 Costs and  Expenses.  Borrowers  shall pay to Lender on demand all
costs,  expenses,  filing fees and taxes paid or payable in connection  with the
preparation,   negotiation,  execution,  delivery,  recording,   administration,
collection,  liquidation,  enforcement and defense 

                                       46
<PAGE>

of the Obligations, Lender's rights in the Collateral, this Agreement, the other
Financing  Agreements  and  all  other  documents  related  hereto  or  thereto,
including  any  amendments,  supplements  or  consents  which may  hereafter  be
contemplated  (whether or not  executed) or entered  into in respect  hereof and
thereof, including: (a) all costs and expenses of filing or recording (including
Uniform Commercial Code financing  statement filing taxes and fees,  documentary
taxes,  intangibles taxes and mortgage recording taxes and fees, if applicable);
(b) costs and expenses and fees for insurance  premiums,  environmental  audits,
surveys,  assessments,  engineering reports and inspections,  appraisal fees and
search  fees;  (c) costs and  expenses of remitting  loan  proceeds,  collecting
checks and other items of payment,  and establishing and maintaining the Blocked
Accounts,  together  with  Lender's  customary  charges  and fees  with  respect
thereto;  (d)  charges,  fees or  expenses  charged  by any  bank or  issuer  in
connection with the Letter of Credit  Accommodations;  (e) costs and expenses of
preserving  and  protecting  the  Collateral;  (f)  costs and  expenses  paid or
incurred in connection with obtaining payment of the Obligations,  enforcing the
security interests and liens of Lender,  selling or otherwise realizing upon the
Collateral,  and otherwise  enforcing the  provisions of this  Agreement and the
other  Financing  Agreements or defending any claims made or threatened  against
Lender  arising  out  of  the  transactions   contemplated  hereby  and  thereby
(including preparations for and consultations  concerning any such matters); (g)
all out-of-pocket  expenses and costs heretofore and from time to time hereafter
incurred  by Lender  during the course of  periodic  field  examinations  of the
Collateral and Borrowers' operations, plus a per diem charge at the rate of $650
per person per day for Lender's  examiners in the field and office;  and (h) the
fees and  disbursements  of counsel  (including  legal  assistants) to Lender in
connection with any of the foregoing.

         9.18 Further Assurances.  At the request of Lender at any time and from
time to time, Borrowers, and each of them, shall, at their expense, duly execute
and  deliver,  or  cause  to  be  duly  executed  and  delivered,  such  further
agreements,  documents and instruments,  and do or cause to be done such further
acts as may be necessary or proper to  evidence,  perfect,  maintain and enforce
the  security  interests  and the  priority  thereof  in the  Collateral  and to
otherwise  effectuate the provisions or purposes of this Agreement or any of the
other Financing Agreements. Lender may at any time and from time to time request
a certificate from an officer of each Borrower  representing that all conditions
precedent to the making of Loans and providing  Letter of Credit  Accommodations
contained herein are satisfied.  In the event of such request by Lender,  Lender
may,  at its  option,  cease to make any  further  Loans or provide  any further
Letter of Credit  Accommodations until Lender has received such certificate and,
in addition,  Lender has determined  that such  conditions are satisfied.  Where
permitted  by law,  Borrowers,  and each of them,  hereby  authorize  Lender  to
execute and file one or more UCC financing statements signed only by Lender.

         9.19 Year 2000  Compliance.  Borrowers shall make inquiry of Borrowers'
key suppliers and customers  with respect to the ability of their computer based
systems to  effectively  process data  including  dates on and after  January 1,
2000.  Borrowers shall take all actions  necessary to assure that their computer
based systems are able to effectively  process data including dates on and after
January  1,  2000,  and shall take all such  actions  as are  reasonably  within
Borrowers'  control  to  prevent  any  inadequacies  in the  systems  of any key
suppliers or customers from having a material adverse effect upon Borrowers,  or
either of them. At the request of Lender,  Borrowers  shall provide  Lender with
assurance reasonably acceptable 

                                       47
<PAGE>

to Lender of  Borrowers'  Year 2000  capability  and of  Borrowers'  review with
respect to key suppliers and customers.

         9.20  Amendment of Bylaws.  On or before  January 31,  1999,  UGI shall
submit  to its  Members  for  approval  amendments  to its  bylaws  in form  and
substance approved by Lender. The amendments shall include,  among other things,
a prohibition of offset or deduction by any Member against any account,  note or
other  obligation  payable  by the Member to UGI or any of its  subsidiaries  or
affiliates and shall not impair Lender's rights or the Collateral. UGI shall not
otherwise  amend its  bylaws or  articles  of  incorporation  without  the prior
written consent of Lender.

         9.21 Accounts Receivable Turnover. The average time between the date of
Borrowers'  invoices  and the date those  invoices  are fully and finally  paid,
(weighted on the basis of dollars) shall not exceed  twenty-five  (25) days. The
preceding  shall  be  calculated  by  multiplying   Borrowers'   trade  accounts
receivable  at the  beginning  of each month,  by 30, and  dividing  the product
thereof by Borrowers' gross cash derived from collection of their trade accounts
receivable  during  that  month.  Compliance  with this  Section  9.21  shall be
calculated  monthly.  Lender  agrees to eliminate  by written  amendment to this
Agreement,  this Section 9.21 when UGI shall have amended its bylaws in a manner
satisfactory to Lender and such amendment(s) have been approved by UGI's Members
as provided in Section 9.20.

         9.22 Fill Rate Covenants.

              (a) UGI shall  provide  to Lender a report on Tuesday of each week
for the preceding week (the "Weekly Reports") for all customers (including Smart
& Final under the Supply  Agreement),  which Weekly Reports shall conform in all
respects to the fill ratio  reports  that UGI  customarily  produces,  copies of
which have been previously furnished to Lender. The parties acknowledge that the
Weekly  Report  shall be  calculated  on a "per  unit"  basis and shall show the
relationship,  expressed as a percentage,  between the goods actually shipped or
made  available  for  pick-up by UGI's  customers  for that  week,  to the goods
ordered  for  shipment  or  availability  during  the  same  week.  The  parties
acknowledge  that the  resulting  percentage  will  differ from the Fill Rate as
defined and applied  herein.  In addition,  no later than five (5) Business Days
following the end of each month,  UGI shall furnish to Lender a Fill Rate report
for the  previously  month (the "Monthly  Report"),  which Monthly  Report shall
separately  show the Fill Rate (as defined in Section  1.21,  and subject to the
adjustments  called for in Section  9.22(b)  below) (a) for all customers of UGI
(including Smart & Final), and (b) for Smart & Final under the Supply Agreement.
In addition,  UGI shall also provide to Lender copies of (A) any and all reports
or  communications  that UGI  regularly  provides to Smart & Final Inc., or that
Smart & Final Inc. provides to UGI, including, but not limited to, Service Level
Reconciliation  Reports and notices of Service Level Breaches (as such terms are
defined  in the  Supply  Agreement)communication,  or (B)  similar  reports  and
communications  that UGI provides to or receives from any other  customer  under
any  supply  agreement,  in  each  case  within  one  Business  Day of  receipt.
Compliance  with  the  covenants  in  subsections  (b) and (c)  below  shall  be
determined monthly,  notwithstanding any different period of determination under
the Supply Agreement or any other agreement.

              (b) UGI shall at all times  maintain an aggregate  Fill Rate of no
less than  ninety-five  percent  (95%)  with  respect  to all of its  customers,
including with respect to Smart & 

                                       48
<PAGE>

Final,  Inc. under the Supply  Agreement.  UGI's failure to comply with the Fill
Rate covenant in this  subsection (b) for any month will  constitute an Event of
Default unless either (i) Borrowers'  Excess  Availability as of the end of such
month, or determined by lender,  is at least  $15,000,000,  or (ii) within sixty
(60) days  thereafter,  either (A) Borrower's  Excess  Availability  is at least
$15,000,000  or (B) UGI's Fill Rate is no less than  ninety-five  percent (95%).
Lender agrees to eliminate by written amendment to this Agreement, the Fill Rate
covenant in this  subsection  (b) with respect to all UGI  customers  other than
Smart &  Final,  Inc.  when  UGI  shall  have  amended  its  bylaws  in a manner
satisfactory to Lender and such amendment(s) have been approved by UGI's Members
as provided in Section 9.20.  Notwithstanding  that this Agreement is amended to
eliminate the  application  of this Section  9.22(b) with respect to those other
customers,  this  Section  9.22(b)  shall at all times  remain in full force and
effect with respect to Smart & Final, Inc. and the Supply Agreement.

              (c) UGI shall at all times  maintain an aggregate  Fill Rate of no
less than ninety percent (90%) with respect to all of its  customers,  including
with respect to Smart & Final, Inc. under the Supply Agreement. UGI's failure to
comply with the covenant in this  subsection (c) for any month shall be an Event
of Default without respect to Borrowers' Excess Availability.  The provisions of
this  Section  9.22(c)  shall  continue  to  apply  to all of  UGI's  customers,
notwithstanding  the  amendment of UGI's bylaws as  described  under  Subsection
9.22(b) above.

              (d) The calculation of Fill Rate will not be adversely affected by
any error by a UGI customer in booking advertising and feature items,  including
sales levels of feature items in excess of projections made by that customer. In
addition,  the  calculation  of Fill Rate will not be adversely  affected if UGI
fails to maintain the required Fill Rate as the result of (A) a material default
by a UGI customer  under any supply  agreement it has with UGI; (B) picketing or
other labor disputes at any UGI facility or any customer  facility;  (C) a force
majeure event such as a strike or other labor  disturbance,  riot or other civil
disturbance,   fire,  accident,   flood,   interference  by  civil  or  military
authorities,  shortages of labor,  raw  material,  power fuel,  water,  means of
containers or  transportation  facilities  or common lack of other  necessities,
plant or traffic disturbances,  delays in transportation,  failure of suppliers,
compliance with any law, rule, regulation or governmental order that (x) becomes
effective after the date of this Agreement and (y) is binding on the party whose
performance is affected thereby,  and compliance  therewith by such party is not
voluntary or optional,  (D) the  establishment  by producers or manufacturers of
goods of allocation or restriction  on quantities of goods  available to a party
(in which  case  performance  will be  excused  only to the extent of amounts in
excess  of  the  other  party's  fair   allocable   share);   and/or  any  other
circumstances  beyond its  reasonable  control;  or (E) failure by a customer to
provide  UGI on a timely  basis,  any  ad/display  requirements  or new  product
projections as required by any written contract between them.

              (e)  The  covenants  in  this  Agreement  are  independent  of the
covenants  in the  Supply  Agreement,  and  UGI's  failure  to  comply  with the
covenants in this Section 9.22 will be an Event of Default hereunder even though
UGI may not have  committed a Service Level Breach or Major Service Level Breach
under the Supply Agreement and  notwithstanding any cure periods provided in the
Supply Agreement.

         9.23 Management. Borrowers will not make any changes in or additions to
their  executive  management  team (including  chief  executive  officer,  chief
operating  officer,  and chief 

                                       49
<PAGE>

financial  officer) without the prior approval of Lender. All new members of the
executive  management  team will be required to have  significant  experience in
wholesale grocery distribution.

         9.24 Agricultural Products.

              (a)  Borrowers  have  complied  with and  shall,  in all  material
respects,  continue to comply with,  all  existing and future Food  Security Act
Notices  during their  periods of  effectiveness  under the Food  Security  Act,
including, without limitation,  directions to make payments to the Farm Products
Seller by issuing payment instruments directly to the secured party with respect
to any  assets  of the Farm  Products  Seller  or  jointly  payable  to the Farm
Products  Seller and any secured  party with  respect to the assets of such Farm
Products  Seller,  as  specified  in the  Food  Security  Act  Notice,  so as to
terminate or release the security  interest in any farm  products  maintained by
such Farm  Products  Seller or any secured  party with  respect to the assets of
such Farm Products Seller under the Food Security Act.

              (b)  Borrowers  shall take all other  actions as may be reasonably
required, if any, to ensure that any perishable agricultural commodity, poultry,
livestock (in whatever form) or other farm products are purchased free and clear
of any security interest, lien or other claim by any Farm Products Seller or any
secured  party  with  respect  to the  assets of any Farm  Products  Seller.  In
connection  therewith,  Borrowers  shall  register,  and  shall  maintain  their
registration,  as  purchasers  of farm products in each state that has a central
filing system if a Farm Products Seller is located in that state.

              (c) Borrowers  shall notify Lender in writing  within  twenty-four
(24)  hours  after  receipt  by a Borrower  of any Food  Security  Act Notice or
amendment to a previous  Food  Security Act Notice and including any notice from
any Farm  Products  Seller  of the  intention  of such Farm  Products  Seller to
preserve the benefits of any trust  applicable  to any assets of  Borrowers,  or
either  of them,  established  in favor of such  Farm  Products  Seller or other
person under the  provisions  of PACA,  the PSA or any local law and within such
twenty-four  (24) hours Borrowers shall provide Lender with a true,  correct and
complete copy of such Food Security Act Notice or amendment or other notice,  as
the  case  may be,  and  including  any  master  lists  of  effective  financing
statements  delivered  to  Borrowers,  or either of them,  pursuant  to the Food
Security Act. Borrowers shall, upon Lender's reasonable request, at any time and
from time to time,  furnish  Lender with a true,  correct and  complete  list of
persons  from whom  Borrowers  purchase any  livestock or livestock  products or
by-products,  perishable agricultural commodities or other farm products and the
outstanding amounts owed by Borrowers to such persons.

10.      EVENTS OF DEFAULT AND REMEDIES

         10.1 Events of Default.  The occurrence or existence of any one or more
of the  following  events are  referred to herein  individually  as an "Event of
Default",  and  collectively as "Events of Default." All Obligations are subject
to  cross-default;  an Event of Default  with respect to either  Borrower  shall
constitute an Event of Default with respect to both Borrowers.

                                       50
<PAGE>

              (a) Borrowers,  or either or them, fail to pay when due any of the
Obligations  or fail to  perform  any of the  terms,  covenants,  conditions  or
provisions contained in this Agreement or any of the other Financing Agreements;

              (b) any  representation,  warranty  or  statement  of fact made by
Borrowers,  or either or them, to Lender in this Agreement,  the other Financing
Agreements  or  any  other  agreement,  schedule,   confirmatory  assignment  or
otherwise  shall when made or deemed made be false or misleading in any material
respect;

              (c) any Obligor revokes, terminates or fails to perform any of the
terms,  covenants,  conditions or provisions of any  guarantee,  endorsement  or
other agreement of such party in favor of Lender;

              (d) any  judgment  for the  payment of money is  rendered  against
Borrowers,  or either of them,  or any  Obligor in excess of $250,000 in any one
case or in excess of $250,000 in the aggregate and shall remain  undischarged or
unvacated  for a period in excess of thirty (30) days or execution  shall at any
time not be effectively  bonded  against and stayed,  or any judgment other than
for the payment of money, or injunction, attachment, garnishment or execution is
rendered  against  Borrowers,  or either of them, or any Obligor or any of their
assets;

              (e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership)  dies or either Borrower or any Obligor which is
a partnership,  limited liability  company,  limited liability  partnership or a
corporation, dissolves or suspends or discontinues doing business;

              (f) Borrowers, or either of them, or any Obligor becomes insolvent
(however  defined  or  evidenced),  makes  an  assignment  for  the  benefit  of
creditors,  makes or sends  notice of a bulk  transfer or calls a meeting of its
creditors or principal creditors;

              (g) a case or proceeding  under the bankruptcy  laws of the United
States  of  America  now  or  hereafter  in  effect  or  under  any  insolvency,
reorganization,  receivership,  readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrowers,  or either of them, or any Obligor or all
or any part of its  properties and such petition or application is not dismissed
within thirty (30) days after the date of its filing or Borrowers,  or either of
them,  or any Obligor  shall file any answer  admitting or not  contesting  such
petition or application or indicates its consent to, acquiescence in or approval
of, any such action or proceeding or the relief requested is granted sooner;

              (h) a case or proceeding  under the bankruptcy  laws of the United
States  of  America  now  or  hereafter  in  effect  or  under  any  insolvency,
reorganization,  receivership,  readjustment of debt, dissolution or liquidation
law or statute of any  jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by  Borrowers,  or either of them, or any Obligor or for all
or any part of its property; or

              (i) any default by  Borrowers,  or either of them,  or any Obligor
under any agreement,  document or instrument  relating to any  indebtedness  for
borrowed money owing to any person other than Lender,  or any capitalized  lease
obligations, contingent indebtedness in 

                                       51
<PAGE>

connection  with any guarantee,  letter of credit,  indemnity or similar type of
instrument in favor of any person other than Lender, in any case in an amount in
excess of $250,000,  which default  continues for more than the applicable  cure
period, if any, with respect thereto, or any default by Borrowers,  or either of
them, or any Obligor,  is declared by any other party to any material  contract,
lease,  license or other  obligation or as a result of any default by Borrowers,
or either of them,  or any Obligor,  the other party to any  material  contract,
lease,  license or other obligation to any person other than Lender,  terminates
or ceases to perform its obligations thereunder;

              (j) any change in the controlling ownership of Borrower;

              (k) the  indictment  or threatened  indictment  of  Borrowers,  or
either of them, or any Obligor under any criminal  statute,  or  commencement or
threatened  commencement of criminal or civil proceedings against Borrowers,  or
either of them,  or any Obligor,  pursuant to which statute or  proceedings  the
penalties  or remedies  sought or  available  include  forfeiture  of any of the
property of Borrowers, or either of them, or such Obligor;

              (l) More  than  $1,000,000  of any  notes  purchased  by  National
Consumer  Cooperative  Bank from Borrowers,  or either of them, shall constitute
"Defaulted  Loans" (as that term is defined  under the relevant  agreement  with
National  Consumer  Cooperative  Bank)  within any  calendar  month.  The amount
attributable to the notes for each Defaulted Loan under this subsection 10.1(l),
shall equal the sum of the unpaid principal balance of such notes, together with
all accrued and unpaid interest and other costs under the notes.

              (m) Borrowers,  or either of them shall have received  notice of a
default under the Vehicle Lease Services  Agreement between Bay Area Foods, Inc.
(which  interest has been  assigned to UGI) and Penske Truck  Leasing Co.,  L.P.
dated April 14, 1995, as it may be modified, amended, supplemented,  restated or
replaced.

              (n) An event of  default  shall  have  occurred  under the  Supply
Agreement.

              (o) there  shall be a  material  adverse  change in the  business,
assets or prospects of  Borrowers,  or either of them,  or any Obligor after the
date hereof; or

              (p)  there  shall be an event of  default  under  any of the other
Financing Agreements.

         10.2 Remedies.

              (a) At any time an Event of Default  exists or has occurred and is
continuing,  Lender  shall  have  all  rights  and  remedies  provided  in  this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrowers  or any Obligor,  except as such notice or consent is
expressly  provided  for  hereunder or required by  applicable  law. All rights,
remedies  and  powers  granted  to  Lender  hereunder,  under  any of the  other
Financing  Agreements,  the Uniform Commercial Code or other applicable law, are
cumulative,   not   exclusive   and   enforceable,   in   Lender's   discretion,
alternatively,  successively,  or concurrently on any one or more occasions, and
shall include,  without limitation,  the right to apply to a court of equity for
an  injunction  to restrain a breach or  threatened  breach by Borrowers of this
Agreement

                                       52
<PAGE>

or any of the other  Financing  Agreements.  Lender  may,  at any time or times,
proceed directly against Borrowers, or either of them, or any Obligor to collect
the Obligations without prior recourse to the Collateral.

              (b)  Without  limiting  the  foregoing,  at any  time an  Event of
Default exists or has occurred and is continuing,  Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided,  that, upon the occurrence of any
Event of Default  described  in Sections  10.1(g) and 10.1(h),  all  Obligations
shall  automatically  become immediately due and payable),  (ii) with or without
judicial process or the aid or assistance of others,  enter upon any premises on
or in which any of the  Collateral  may be located  and take  possession  of the
Collateral  or  complete  processing,  manufacturing  and  repair  of all or any
portion of the Collateral,  (iii) require Borrowers,  at Borrowers'  expense, to
assemble and make  available to Lender any part or all of the  Collateral at any
place  and  time  designated  by  Lender,  (iv)  collect,  foreclose,   receive,
appropriate,  setoff and realize upon any and all Collateral,  (v) remove any or
all of the  Collateral  from any premises on or in which the same may be located
for the purpose of effecting the sale,  foreclosure or other disposition thereof
or for any other  purpose,  (vi)  sell,  lease,  transfer,  assign,  deliver  or
otherwise dispose of any and all Collateral  (including  entering into contracts
with respect thereto,  public or private sales at any exchange,  broker's board,
at any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing  being free from any right or equity of redemption of
Borrowers,  which right or equity of redemption is hereby  expressly  waived and
released by Borrowers,  and each of them, and/or (vii) terminate this Agreement.
If any of the  Collateral  is sold or leased by Lender upon credit  terms or for
future delivery,  the Obligations shall not be reduced as a result thereof until
payment  therefor is finally  collected by Lender.  If notice of  disposition of
Collateral is required by law, five (5) days prior notice by Lender to Borrowers
designating  the time and place of any public  sale or the time after  which any
private sale or other intended disposition of Collateral is to be made, shall be
deemed to be reasonable  notice thereof and Borrowers waive any other notice. In
the event  Lender  institutes  an  action to  recover  any  Collateral  or seeks
recovery of any Collateral by way of  prejudgment  remedy,  Borrowers  waive the
posting of any bond which might otherwise be required.

              (c)  Lender may apply the cash  proceeds  of  Collateral  actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations,  in whole or in part and in such order
as Lender may elect,  whether or not then due.  Borrowers shall remain liable to
Lender for the payment of any  deficiency  with  interest  at the  highest  rate
provided for herein and all costs and  expenses of  collection  or  enforcement,
including attorneys' fees and legal expenses.

              (d) Without  limiting the  foregoing,  upon the  occurrence  of an
Event of Default or an event  which with notice or passage of time or both would
constitute an Event of Default,  Lender may, at its option,  without notice, (i)
cease making Loans or arranging  for Letter of Credit  Accommodations  or reduce
the  lending  formulas  or  amounts  of  Revolving  Loans  and  Letter of Credit
Accommodations  available to Borrowers  and/or (ii)  terminate  any provision of
this Agreement providing for any future Loans or Letter of Credit Accommodations
to be made by Lender to Borrowers.

                                       53
<PAGE>


         11.  JURY TRIAL WAIVER; OTHER WAIVERS
              AND CONSENTS; GOVERNING LAW

         11.1 Governing  Law;  Choice of Forum;  Service of Process;  Jury Trial
Waiver.

              (a) The validity, interpretation and enforcement of this Agreement
and  the  other  Financing  Agreements  and  any  dispute  arising  out  of  the
relationship  between the parties hereto,  whether in contract,  tort, equity or
otherwise,  shall be  governed  by the  internal  laws of the  State  of  Oregon
(without giving effect to principles of conflicts of law).

              (b) Borrowers,  and each of them, and Lender  irrevocably  consent
and submit to the  non-exclusive  jurisdiction of the Circuit Court of the State
of Oregon for  Multnomah  County and the United  States  District  Court for the
District  of  Oregon  and  waive  any  objection  based on  venue  or forum  non
conveniens  with respect to any action  instituted  therein  arising  under this
Agreement or any of the other Financing  Agreements or in any way connected with
or related or  incidental  to the  dealings of the parties  hereto in respect of
this  Agreement or any of the other  Financing  Agreements  or the  transactions
related  hereto or  thereto,  in each case  whether now  existing  or  hereafter
arising, and whether in contract,  tort, equity or otherwise, and agree that any
dispute  with  respect  to any such  matters  shall be heard  only in the courts
described  above (except that Lender shall have the right to bring any action or
proceeding against Borrowers, or either of them, or their property in the courts
of any other  jurisdiction  which Lender deems necessary or appropriate in order
to  realize  on the  Collateral  or to  otherwise  enforce  its  rights  against
Borrowers, or either of them, or their property).

              (c) Borrowers,  and each of them, hereby waive personal service of
any and all process and consent  that all such service of process may be made by
certified mail (return receipt requested) directed to Borrowers' address(es) set
forth on the signature  pages hereof,  and service so made shall be deemed to be
completed  five (5) days after the same shall have been so deposited in the U.S.
mails,  or, at Lender's  option,  by service upon  Borrowers in any other manner
provided under the rules of any such courts.  Within thirty (30) days after such
service,  Borrowers  shall  appear  in  answer to such  process,  failing  which
Borrowers  shall be deemed in  default  and  judgment  may be  entered by Lender
against Borrowers for the amount of the claim and other relief requested.

              (d) BORROWERS, AND EACH OF THEM, AND LENDER EACH HEREBY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY  CLAIM,  DEMAND,  ACTION  OR CAUSE OF  ACTION  (i)
ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN
ANY WAY  CONNECTED  WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING  AGREEMENTS OR
THE TRANSACTIONS  RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER  ARISING,  AND  WHETHER  IN  CONTRACT,   TORT,  EQUITY  OR  OTHERWISE.
BORROWERS, AND EACH OF THEM, AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY
SUCH CLAIM,  DEMAND,  ACTION OR CAUSE OF ACTION  SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT BORROWERS OR LENDER MAY FILE AN ORIGINAL

                                       54
<PAGE>

COUNTERPART OR A COPY OF THIS  AGREEMENT  WITH ANY COURT AS WRITTEN  EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

              (e) Lender shall not have any liability to Borrowers, or either of
them (whether in tort,  contract,  equity or otherwise),  for losses suffered by
Borrower,  or either of them, in connection with,  arising out of, or in any way
related to the transactions or relationships  contemplated by this Agreement, or
any act,  omission  or event  occurring  in  connection  herewith,  unless it is
determined  by a final and  non-appealable  judgment or court  order  binding on
Lender, that the losses were the result of acts or omissions  constituting gross
negligence  or  willful  misconduct.  In any such  litigation,  Lender  shall be
entitled  to the  benefit of the  rebuttable  presumption  that it acted in good
faith and with the  exercise of ordinary  care in the  performance  by it of the
terms of this Agreement.

         11.2 Waiver of Notices.  Borrowers,  and each of them, hereby expressly
waive demand, presentment,  protest and notice of protest and notice of dishonor
with respect to any and all  instruments  and  commercial  paper  included in or
evidencing  any of the  Obligations  or the  Collateral,  and any and all  other
demands  and  notices  of any kind or  nature  whatsoever  with  respect  to the
Obligations,  the  Collateral and this  Agreement,  except such as are expressly
provided  for herein.  No notice to or demand on  Borrowers,  or either of them,
which Lender may elect to give shall  entitle  Borrowers,  or either of them, to
any  other  or  further  notice  or  demand  in  the  same,   similar  or  other
circumstances.

         11.3 Amendments and Waivers.  Neither this Agreement nor any provision
hereof shall be amended,  modified,  waived or discharged orally or by course of
conduct,  but only by a written  agreement  signed by an  authorized  officer of
Lender,  and as to amendments,  as also signed by an authorized  officer of each
Borrower.  Lender shall not, by any act, delay,  omission or otherwise be deemed
to have expressly or impliedly waived any of its rights,  powers and/or remedies
unless such waiver  shall be in writing and signed by an  authorized  officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein.  A waiver by Lender of any right,  power and/or remedy on any one
occasion  shall not be construed as a bar to or waiver of any such right,  power
and/or remedy which Lender would otherwise have on any future occasion,  whether
similar in kind or otherwise.

         11.4 Waiver of  Counterclaims.  Borrowers,  and each of them, waive all
rights to interpose  any claims,  deductions,  setoffs or  counterclaims  of any
nature (other then  compulsory  counterclaims)  in any action or proceeding with
respect to this Agreement, the Obligations, the Collateral or any matter arising
therefrom or relating hereto or thereto.

         11.5 Indemnification.  Borrowers, and each of them, shall indemnify and
hold Lender, and its directors, agents, employees and counsel, harmless from and
against  any and all losses,  claims,  damages,  liabilities,  costs or expenses
imposed on,  incurred by or asserted  against any of them  (except to the extent
caused by Lender's gross  negligence or willful  misconduct) in connection  with
any  litigation,  investigation,  claim or  proceeding  commenced or  threatened
related  to the  negotiation,  preparation,  execution,  delivery,  enforcement,
performance or administration of this Agreement, any other Financing Agreements,
or any undertaking or proceeding related to any of the transactions contemplated
hereby or any act, omission,  event or transaction related or attendant thereto,
including amounts paid in settlement,  court costs, 

                                       55
<PAGE>

and the fees and  expenses of counsel.  To the extent  that the  undertaking  to
indemnify,  pay and hold harmless set forth in this Section may be unenforceable
because it violates any law or public  policy,  Borrowers  shall pay the maximum
portion  which  they are  permitted  to pay  under  applicable  law to Lender in
satisfaction of indemnified matters under this Section.  The foregoing indemnity
shall survive the payment of the  Obligations and the termination or non-renewal
of this Agreement.

         12.  TERM OF AGREEMENT; MISCELLANEOUS

         12.1 Term.

              (a) This Agreement and the other Financing Agreements shall become
effective  as of the date set forth on the first page hereof and shall  continue
in full force and effect for a term  ending on the date  forty-two  (42)  months
after the date hereof (the "Renewal  Date"),  and from year to year  thereafter,
unless sooner terminated  pursuant to the terms hereof.  Lender or Borrowers may
terminate this  Agreement and the other  Financing  Agreements  effective on the
Renewal Date or on the  anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice;  provided,  that,
this  Agreement  and  all  other   Financing   Agreements   must  be  terminated
simultaneously.  Upon the effective  date of  termination  or non-renewal of the
Financing  Agreements,  Borrowers shall pay to Lender,  in full, all outstanding
and unpaid  Obligations  and shall  furnish  cash  collateral  to Lender in such
amounts as Lender  determines  are  reasonably  necessary to secure  Lender from
loss, cost, damage or expense,  including attorneys' fees and legal expenses, in
connection  with any contingent  Obligations,  including  issued and outstanding
Letter of Credit  Accommodations  and  checks  or other  payments  provisionally
credited to the Obligations and/or as to which Lender has not yet received final
and indefeasible  payment.  Such payments in respect of the Obligations and cash
collateral  shall be  remitted by wire  transfer  in Federal  funds to such bank
account of Lender as Lender  may,  in its  discretion,  designate  in writing to
Borrowers for such purpose.  Interest  shall be due until and including the next
business day, if the amounts so paid by Borrowers to the bank account designated
by Lender are  received in such bank  account  later than 12:00 noon,  Portland,
Oregon time.

              (b) No  termination  of  this  Agreement  or the  other  Financing
Agreements  shall  relieve or discharge  Borrowers of their  respective  duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all  Obligations  have been fully and  finally  discharged  and paid,  and
Lender's  continuing  security  interest  in the  Collateral  and the rights and
remedies  of  Lender  hereunder,   under  the  other  Financing  Agreements  and
applicable  law,  shall  remain in effect until all such  Obligations  have been
fully and finally discharged and paid.

              (c) If for any reason this  Agreement is  terminated  prior to the
end of the then current term or renewal term of this  Agreement,  in view of the
impracticality  and extreme  difficulty of  ascertaining  actual  damages and by
mutual agreement of the parties as to a reasonable  calculation of Lender's lost
profits  as a  result  thereof,  Borrowers  agree  to pay to  Lender,  upon  the
effective date of such  termination,  an early termination fee in the amount set
forth below if such termination is effective in the period indicated:

                                       56
<PAGE>

          Amount                Period
--------- --------------------- ------------------------------------------------
  (i)     2% of Maximum Credit  From the date hereof to and  including the first
                                anniversary of such date

 (ii)     1% of Maximum Credit  After the first  anniversary  of the date hereof
                                to and including the second  anniversary of such
                                date

 (iii)    .5% of Maximum Credit Any time  after the  second  anniversary  of the
                                date hereof

Such  early  termination  fee shall be  presumed  to be the  amount  of  damages
sustained by Lender as a result of such early  termination  and Borrowers  agree
that it is reasonable under the circumstances  currently existing.  In addition,
Lender shall be entitled to such early  termination  fee upon the  occurrence of
any Event of Default  described in Sections 10.1(g) and 10.1(h) hereof,  even if
Lender does not exercise its right to terminate this Agreement,  but elects,  at
its option, to provide financing to Borrowers,  or either of them, or permit the
use of cash  collateral  under the  United  States  Bankruptcy  Code.  The early
termination  fee provided  for in this Section 12.1 shall be deemed  included in
the Obligations.  Notwithstanding the foregoing provisions of this Section 12.1,
no early  termination  fee shall be payable to Lender:  (a) with  respect to any
prepayment of the Term Loans, except upon occurrence of an Event of Default; (b)
with respect to or reduction in the limit on Revolving Loans provided in Section
2.1 as a  consequence  of the  formation  of a  joint  venture  between  UGI and
Associated Grocers; or (c) on termination of this Agreement in connection with a
sale or merger  transaction,  provided that Lender is given the  opportunity  to
submit a proposal to provide  financing  to the  successor  entity;  or (d) upon
termination of this Agreement in connection with full payment of the Obligations
by Borrowers  within the last sixty (60) days of the initial term or any renewal
term of this Agreement.

              (d) At such  time as this  Agreement  shall  have  terminated  and
Borrowers  shall have paid and discharged all the  Obligations,  Borrowers,  and
each of  them,  shall  execute  and  deliver  to  Lender a  release  in form and
substance  satisfactory to Lender,  of all obligations and liabilities of Lender
and its  officers,  directors,  employees,  agents,  parents,  subsidiaries  and
affiliates to Borrowers,  and each of them,  and Lender shall,  upon  Borrowers'
request,  execute  and  deliver to  Borrowers  a release  in form and  substance
satisfactory to them, of all obligations and liabilities of Borrower to Lender.

         12.2 Notices.  All notices,  requests and demands hereunder shall be in
writing and (a) made to Lender at its  address set forth below and to  Borrowers
at their chief  executive  office set forth below,  or to such other  address as
either party may  designate by written  notice to the other in  accordance  with
this  provision,  and (b) deemed to have been  given or made:  if  delivered  in
person,   immediately  upon  delivery;   if  by  telex,  telegram  or  facsimile
transmission,  immediately upon sending and upon confirmation of receipt;  if by
nationally recognized overnight courier service with instructions to deliver the
next business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.

                                       57
<PAGE>

         12.3 Partial Invalidity.  If any provision of this Agreement is held to
be invalid or  unenforceable,  such  invalidity  or  unenforceability  shall not
invalidate  this Agreement as a whole,  but this Agreement shall be construed as
though  it did not  contain  the  particular  provision  held to be  invalid  or
unenforceable  and the rights and  obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.

         12.4 Successors. This Agreement, the other Financing Agreements and any
other document  referred to herein or therein shall be binding upon and inure to
the benefit of and be  enforceable  by Lender,  Borrowers  and their  respective
successors and assigns, except that neither Borrower may assign its rights under
this Agreement,  the other Financing  Agreements and any other document referred
to herein or therein  without the prior written  consent of Lender.  Lender may,
after notice to Borrowers,  assign its rights and delegate its obligations under
this Agreement and the other  Financing  Agreements  and further may assign,  or
sell  participations  in,  all or any part of the  Loans,  the  Letter of Credit
Accommodations or any other interest herein to another financial  institution or
other person,  in which event,  the assignee or  participant  shall have, to the
extent of such assignment or  participation,  the same rights and benefits as it
would have if it were the Lender hereunder,  except as otherwise provided by the
terms of such assignment or participation.

         12.5  Participant's  Security  Interest.  If a Participant shall at any
time participate with Lender in the Loans,  Letter of Credit  Accommodations  or
other  Obligations,   Borrower  hereby  grants  to  such  Participant  and  such
Participant  shall have and is hereby given,  a continuing  lien on and security
interest in any money,  securities and other property of Borrower in the custody
or possession of the Participant,  including the right of setoff,  to the extent
of the  Participant's  participation  in the  Obligations,  and such Participant
shall  be  deemed  to have  the  same  right  of  setoff  to the  extent  of its
participation in the Obligations, as it would have if it were a direct lender.

         12.6 Joint and Several Liability.  Except as otherwise provided in this
Agreement, all Obligations of Borrowers shall be joint and several.

         12.7 Entire Agreement.  This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be  delivered  in  connection  herewith  or  therewith  represent  the entire
agreement and  understanding  concerning  the subject  matter hereof and thereof
between  the  parties  hereto,   and  supersede  all  other  prior   agreements,
understandings,  negotiations  and  discussions,  representations,   warranties,
commitments,  proposals,  offers and  contracts  concerning  the subject  matter
hereof,  whether oral or written. In the event of any inconsistency  between the
terms of this  Agreement and any schedule or exhibit  hereto,  the terms of this
Agreement shall govern.

                                       58
<PAGE>

         IN WITNESS WHEREOF,  Lender and Borrowers have caused these presents to
be duly executed as of the day and year first above written.

LENDER                              BORROWER:
------                              --------

CONGRESS FINANCIAL CORPORATION      UNITED GROCERS, INC.
     (NORTHWEST)


By: /s/ [illegible]                  By: /s/ Charles E. Carlbom

Title: S.V.P                             Title:  Pres. & C.E.O.

Address:                            Chief Executive Office:

101 S.W. Main Street, Suite 725     6433 S.E. Lake Road
Portland, OR 97204                  Portland, OR 97222

                                    UNITED RESOURCES, INC.


                                    By: /s/ Charles E. Carlbom

                                    Title:  Vice President

                                    Chief Executive Office:
                                    6433 S.E. Lake Road
                                    Portland, OR 97222



                                       59
<PAGE>

                                    INDEX TO
                             EXHIBITS AND SCHEDULES


         Exhibit A                  Information Certificates

         Exhibit 1.11               Notice of Assignment

         Schedule 8.2               Exceptions to Section 8.2

         Schedule 8.4               Existing Liens

         Schedule 8.7               Exceptions to Section 8.7

         Schedule 8.8               Environmental Disclosures

         Schedule 8.10              Bank Accounts

         Schedule 9.9               Existing Indebtedness

         Schedule 9.10              Existing Loans, Advances and Guarantees