<PAGE>   1

                                                                      EXHIBIT 99


                               KMART CORPORATION





                                 $2,500,000,000

                              AMENDED AND RESTATED
                                CREDIT AGREEMENT



                                  May 6, 1997





                   MORGAN GUARANTY TRUST COMPANY OF NEW YORK
                              THE BANK OF NEW YORK
                                as Co-Arrangers


                             CHASE SECURITIES INC.
                                  as Arranger


                            THE CHASE MANHATTAN BANK
                            as Administrative Agent



<PAGE>   2


                               TABLE OF CONTENTS

                                                                            Page
                                                                            ----


<TABLE>
<S>                                                                                   <C>  
SECTION 1.  DEFINITIONS                                                                  1

      1.1  Defined Terms                                                                 1
      1.2  Other Definitional Provisions                                                39

SECTION 2.  [INTENTIONALLY OMITTED]                                                     39

SECTION 3.  AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS                            40

      3.1  Revolving Credit Commitments                                                 40
      3.2  Procedure for Revolving Credit Borrowing                                     40
      3.3  Commitment Fee                                                               40
      3.4  Termination or Reduction of Commitments                                      41
      3.5  Repayment of Revolving Credit Loans                                          41
      3.6  L/C Commitment                                                               41
      3.7  Procedure for Issuance of Letters of Credit                                  42
      3.8  Letter of Credit Fees, Commissions and Other Charges                         42
      3.9  L/C Participations                                                           43
      3.10  Letter of Credit Reimbursement Obligations                                  44
      3.11  Obligations Absolute                                                        44
      3.12  Letter of Credit Payments                                                   45
      3.13  Letter of Credit Applications                                               45
      3.14  CAF Advances                                                                45
      3.15  Procedure for CAF Advance Borrowing                                         45
      3.16  CAF Advance Payments                                                        48
      3.17  Certain Restrictions With Respect to CAF Advances                           48
      3.18  Requests for Bilateral Loan Offers                                          49
      3.19  Reports to Administrative Agent                                             49
      3.20  Repayments                                                                  49
      3.21  Swing Line Commitment                                                       49
      3.22  Procedure for Swing Line Borrowing                                          50
      3.23  Annual Revolving Credit Clean-Down                                          51

SECTION 4.  GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF                   
            CREDIT                                                                      51       

      4.1  Optional and Mandatory Prepayments                                           51 
      4.2  Conversion and Continuation Options                                          52
      4.3  Minimum Amounts and Maximum Number of Tranches                               53 
      4.4  Interest Rates and Payment Dates                                             53 
      4.5  Computation of Interest and Fees                                             53 
      4.6  Inability to Determine Interest Rate                                         54 
      4.7  Pro Rata Treatment and Payments                                              54 
      4.8  Illegality                                                                   55 
      4.9  Requirements of Law                                                          55         
</TABLE>
                                    - i -

<PAGE>   3
<TABLE> 
                                                                                    Page
                                                                                    ----

      <S>                                                                           <C>
      4.10  Indemnification for Taxes                                                   56
      4.11  Indemnity                                                                   58
      4.12  Change of Lending Office                                                    59
      4.13  Evidence of Debt                                                            59

SECTION 5.  REPRESENTATIONS AND WARRANTIES                                              61

      5.1  Financial Condition                                                          61
      5.2  No Change                                                                    61
      5.3  Corporate Existence; Compliance with Law                                     61
      5.4  Corporate Power; Authorization; Enforceable Obligations                      61
      5.5  No Legal Bar                                                                 62
      5.6  No Material Litigation                                                       62
      5.7  No Default                                                                   62
      5.8  No Burdensome Restrictions                                                   62
      5.9  Taxes                                                                        62
      5.10  Federal Regulations                                                         63
      5.11  ERISA                                                                       63
      5.12  Investment Company Act; Other Regulations                                   63
      5.13  Subsidiaries                                                                63
      5.14  Environmental Matters                                                       63
      5.15  The Security Documents                                                      65
      5.16  Ownership of Property; Liens                                                66
      5.17  Intellectual Property                                                       66
      5.18  Pledged Stock                                                               66
      5.19  Real Estate Matters                                                         66
      5.20  Continuing Letters of Credit                                                66
      5.21  Solvency                                                                    67
      5.22  Purpose of Loans                                                            67
      5.23  Accuracy of Information                                                     67

SECTION 6.  CONDITIONS                                                                  67

      6.1  Conditions to Effectiveness                                                  67
      6.2  Conditions to Each Extension of Credit                                       69

SECTION 7.  AFFIRMATIVE COVENANTS                                                       70

      7.1  Financial Statements                                                         70
      7.2  Certificates; Other Information                                              70
      7.3  Payment of Obligations                                                       71
      7.4  Conduct of Business and Maintenance of Existence                             71
      7.5  Maintenance of Property; Insurance                                           71
      7.6  Inspection of Property; Books and Records; Discussions                       72
      7.7  Notices                                                                      72
      7.8  Environmental Laws                                                           73
      7.9  Further Assurances                                                           73
      7.10  Mortgages; Etc                                                              73
</TABLE>

                                    - ii -

<PAGE>   4
<TABLE>
                                                                                     Page
                                                                                     ----
      <S>                                                                            <C>
      7.11  Additional Collateral                                                       74
      7.12  Cash Equivalents                                                            75

SECTION 8.  NEGATIVE COVENANTS                                                          75

      8.1  Financial Condition Covenants                                                76
      8.2  Limitation on Indebtedness                                                   76
      8.3  Limitation on Guarantee Obligations                                          77
      8.4  Limitation on Liens                                                          77
      8.5  Limitation on Fundamental Changes                                            79
      8.6  Limitation on Sale of Assets                                                 80
      8.7  Limitation on Dividends                                                      81
      8.8  Limitation on Capital Expenditures and "Property held for Resale"            81
      8.9  Limitation on Investments, Loans and Advances                                81
      8.10  Limitation on Optional Payments and Modifications of Debt Instruments       83
      8.11  Limitation on Transactions with Affiliates                                  83
      8.12  Limitation on Sales and Leasebacks                                          83
      8.13  Joint Ventures                                                              83

SECTION 9.  EVENTS OF DEFAULT                                                           84

SECTION 10.  THE ADMINISTRATIVE AGENT                                                   87

      10.1  Appointment                                                                 87
      10.2  Delegation of Duties                                                        87
      10.3  Exculpatory Provisions                                                      88
      10.4  Reliance by Administrative Agent                                            88
      10.5  Notice of Default                                                           88
      10.6  Non-Reliance on Administrative Agent and Other Lenders                      88
      10.7  Indemnification                                                             89
      10.8  Administrative Agent in Its Individual Capacity                             89
      10.9  Successor Administrative Agent                                              89

SECTION 11.  MISCELLANEOUS                                                              90

      11.1  Amendments and Waivers                                                      90
      11.2  Notices                                                                     90
      11.3  No Waiver; Cumulative Remedies                                              91
      11.4  Survival of Representations and Warranties                                  92
      11.5  Payment of Expenses and Taxes; Indemnity                                    92
      11.6  Successors and Assigns; Participations and Assignments                      92
      11.7  Replacement of Lenders under Certain Circumstances                          95
      11.8  Adjustments; Set-off                                                        95
      11.9  Counterparts                                                                96
      11.10  Severability                                                               96
      11.11  Integration                                                                96
      11.12  Termination                                                                96
      11.13  Collateral Release                                                         96
</TABLE>

                                   - iii -


<PAGE>   5
                                                                            Page
<TABLE>                                                                     ----

                                                                                       
                                                                                       
<S>                                                                         <C> 
      11.14  GOVERNING LAW                                                     96
      11.15  Submission To Jurisdiction; Waivers                               96
      11.16  Acknowledgements                                                  97
      11.17  WAIVERS OF JURY TRIAL                                             97
      11.18  Confidentiality                                                   97
      11.19  Judgment Currency                                                 98
      11.20  Section Headings                                                  98
      11.21  Exhibits                                                          98
      11.22  Special Provisions                                                99

</TABLE>




                                     - iv -

<PAGE>   6





ANNEXES


<TABLE>
      <S>                 <C>
      Annex A             Pricing Grid

      SCHEDULES

      Schedule 1.1(a)     Commitments
      Schedule 1.1(b)     Real Estate Eligibility Conditions
      Schedule 1.1(c)     Repurchased Put Bonds
      Schedule 5.1        Charges and Changes
      Schedule 5.4        Consents
      Schedule 5.13       Subsidiaries
      Schedule 5.15       Filing Jurisdictions and Chief Executive Offices
      Schedule 5.17       Intellectual Property Matters
      Schedule 5.19(a)    Material Real Property
      Schedule 5.19(b)    Put Bond Mortgages
      Schedule 5.19(c)    Designated Big Beaver Real Property
      Schedule 5.20       Continuing Letters of Credit
      Schedule 8.4(f)     Existing Liens
      Schedule 8.6(f)     Scheduled Asset Sales
      Schedule 8.9(i)(A)  Existing Investments
      Schedule 8.11       Transactions with Affiliates
      Schedule 11.2       Addresses



      EXHIBITS

      Exhibit A      Form of Addendum                                                      
      Exhibit B      Form of CAF Advance Confirmation                                      
      Exhibit C      Form of CAF Advance Offer                                             
      Exhibit D      Form of CAF Advance Request                                           
      Exhibit E      Form of Subsidiaries Guarantee                                        
      Exhibit F      Form of Trust Agreement                                               
      Exhibit G      Form of Revolving Credit Note                                         
      Exhibit H      Form of CAF Advance Note                                              
      Exhibit I      Form of Borrower Closing Certificate                                  
      Exhibit J-1    Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP           
      Exhibit J-2    Form of Opinion of General Counsel to Borrower                        
      Exhibit J-3    Form of Opinion of Simpson Thacher & Bartlett                         
      Exhibit K      Form of Borrowing Base Certificate                                    
      Exhibit L      Form of Assignment and Acceptance                                     
      Exhibit M      Form of Swing Line Participation Certificate                          

</TABLE>


                                     - v -
<PAGE>   7



          AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May 6, 1997,
among KMART CORPORATION, a Michigan corporation (the "Borrower"), the several
banks, financial institutions and other entities from time to time parties to
this Agreement (collectively, the "Lenders"; individually, a "Lender") and THE
CHASE MANHATTAN BANK, a New York banking corporation, as Administrative Agent
(as hereinafter defined) for the Lenders hereunder.


                             W I T N E S S E T H :


          WHEREAS, the Borrower, the Lenders and the Administrative Agent are
parties to that certain Credit Agreement, dated as of June 6, 1996 (the
"Existing Credit Agreement"); and

          WHEREAS, subject to the terms and conditions of this Agreement, the
Borrower, the Lenders and the Administrative Agent wish to amend and restate
the Existing Credit Agreement in its entirety as provided herein;

          NOW, THEREFORE, subject to the satisfaction of the conditions set
forth in subsection 6.1, the Borrower, the Lenders and the Administrative Agent
hereby agree to amend and restate the Existing Credit Agreement in its entirety
to read as follows:




                            SECTION 1.  DEFINITIONS

          1.1  Defined Terms.  As used in this Agreement, the following terms
shall have the following meanings:

          "ABR":  for any day, a rate per annum (rounded upwards, if necessary,
     to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in
     effect on such day, (b) the Base CD Rate in effect on such day plus 1% and
     (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%.
     For purposes hereof:  "Prime Rate" shall mean the rate of interest per
     annum publicly announced from time to time by the Administrative Agent as
     its prime rate in effect at its principal office in New York City (the
     Prime Rate not being intended to be the lowest rate of interest charged by
     the Administrative Agent in connection with extensions of credit to
     debtors); "Base CD Rate" shall mean the sum of (a) the product of (i) the 
     Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which 
     is one and the denominator of which is one minus the CD Reserve 
     Percentage and (b) the CD Assessment Rate; "Three-Month Secondary CD Rate"
     shall mean, for any day, the secondary market rate for three-month 
     certificates of deposit reported as being in effect on such day (or, if 
     such day shall not be a Business Day, the next preceding Business Day) by
     the Board of Governors through the public information telephone line of 
     the Federal Reserve Bank of New York (which rate will, under the current 
     practices of the Board of Governors, be published in Federal Reserve 
     Statistical Release H.15(519) during the week following such day), or,
     if such rate shall not be so reported on such day or such next preceding
     Business Day, the average of the secondary market quotations for
     three-month certificates of deposit of major money center banks in New
     York City received at approximately 10:00 A.M., New York City time, on
     such day (or, if such day shall not be a Business Day, on the next
     preceding Business Day) by the Administrative Agent from three New York
     City negotiable certificate of deposit dealers of recognized standing
     selected by it; "CD Assessment Rate" shall mean, for any day, the annual
     assessment rate in effect on such day which is payable by a member of the
     Bank Insurance Fund maintained by the FDIC classified as well-capitalized
     and within supervisory subgroup





<PAGE>   8


                                      2




     "B" (or a comparable successor assessment risk classification) within the
     meaning of 12 C.F.R. Section 327.4 (or any successor provision) to the
     FDIC for the FDIC's insuring time deposits at offices of such institution
     in the United States; "CD Reserve Percentage" shall mean, for any day,
     that percentage (expressed as a decimal) which is in effect on such day,
     as prescribed by the Board of Governors, for determining the maximum
     reserve requirement for a Depositary Institution (as defined in Regulation
     D of the Board of Governors or any successor provisions) in respect of new
     non-personal time deposits in Dollars having a maturity of 30 days or
     more; and "Federal Funds Effective Rate" shall mean, for any day, the
     weighted average of the rates on overnight federal funds transactions with
     members of the Federal Reserve System arranged by federal funds brokers,
     as published on the next succeeding Business Day by the Federal Reserve
     Bank of New York, or, if such rate is not so published for any day which
     is a Business Day, the average of the quotations for the day of such
     transactions received by the Administrative Agent from three federal funds
     brokers of recognized standing selected by it.  Any change in the ABR due
     to a change in the Prime Rate, the Three-Month Secondary CD Rate, the CD
     Assessment Rate, the CD Reserve Percentage or the Federal Funds Effective
     Rate shall be effective as of the opening of business on the effective day
     of such change in the Prime Rate, the Three-Month Secondary CD Rate, the
     CD Assessment Rate, the CD Reserve Percentage or the Federal Funds
     Effective Rate, respectively.

          "ABR Loans":  Revolving Credit Loans the rate of interest applicable
     to which is based upon the ABR.

          "Acquisition":  as to any Person, the acquisition by such Person of
     (a) all the Capital Stock of any other Person, (b) all or substantially
     all of the assets of any other Person or (c) assets constituting one or
     more business units of any other Person.

          "Addendum":  an instrument, substantially in the form of Exhibit A,
     by which a Lender becomes a party to this Agreement.

          "Additional Permitted Capital Expenditure Amount":  (a) with respect
     to the 1997 Fiscal Year, an amount equal to 50% of the amount (if any) by
     which EBITDA for the 1996 Fiscal Year exceeds $1,000,000,000 and (b) with
     respect to each Fiscal Year thereafter, an amount equal to 50% of the
     amount (if any) by which EBITDA for the immediately preceding Fiscal Year 
     exceeds $1,150,000,000.

          "Adjusted Eligible Inventory Amount":  as of the last day of any
     fiscal month, (a) the Inventory Value of all Inventory of the Borrower and
     the Subsidiary Guarantors that consists of finished goods as of such day
     minus (b) the sum of (i) the Ineligible Inventory Borrowing Base Amount as
     of such day plus (ii) the Markdown Reserve for such fiscal month.

          "Adjustment Date":  the second Business Day following receipt by the
     Administrative Agent of both (i) the financial statements (other than
     copies of the Form 10-K or Form 10-Q for the relevant fiscal period)
     required to be delivered pursuant to subsection 7.1(a) or 7.1(b), as the
     case may be, for the most recently completed fiscal period and (ii) the
     certificate required to be delivered pursuant to subsection 7.2(b) with
     respect to such fiscal period.

          "Administrative Agent":  Chase, together with its affiliates, as the
     arranger of the Commitments and as the agent for the Lenders under this
     Agreement and the other Loan Documents.





<PAGE>   9


                                      3




          "Affiliate":  as to any Person, any other Person which, directly or
     indirectly, is in control of, is controlled by, or is under common control
     with, such Person.  For purposes of this definition, "control" of a Person
     means the power, directly or indirectly, either to (a) vote 10% or more of
     the securities having ordinary voting power for the election of directors
     of such Person or (b) direct or cause the direction of the management and
     policies of such Person, whether by contract or otherwise.  For the
     purposes of this Agreement, the Borrower and its Restricted Subsidiaries
     shall not be deemed to be Affiliates of each other.

          "Aggregate Revolving Credit Outstandings":  at any time, an amount
     equal to the sum of (a) the Committed Revolving Credit Extensions of
     Credit of all the Lenders at such time, (b) the aggregate outstanding
     principal amount of CAF Advances of all the Lenders at such time and (c)
     the aggregate outstanding principal amount of Bilateral Option Loans of
     all the Lenders at such time.

          "Agreement":  this Amended and Restated Credit Agreement, as amended,
     supplemented or otherwise modified from time to time.

          "Agreement Currency":  as defined in subsection 11.19.

          "Applicable Commitment Fee Rate":  0.30%, provided that, from and
     after the last day of the first fiscal quarter of the 1997 Fiscal Year,
     the Applicable Commitment Fee Rate will be adjusted, on each Adjustment
     Date, to the Commitment Fee Rate set forth on Annex A opposite the Margin
     Level Status of the Borrower in effect on such Adjustment Date, and,
     provided, further, that, in the event the financial statements (other than
     copies of the Form 10-K or 10-Q for the relevant fiscal period) required
     to be delivered pursuant to subsection 7.1(a) or 7.1(b), as applicable,
     and the related certificate required pursuant to subsection 7.2(b) are not
     delivered when due, then, during the period from the date on which such
     financial statements were required to be delivered until two Business Days
     following the date upon which they actually are delivered, the Applicable
     Commitment Fee Rate shall be 0.50%.

          "Applicable Margin":  for each Type of Revolving Credit Loan, the
     rate per annum set forth under the relevant column heading below:


<TABLE>
<CAPTION>
               ABR Loans                Eurodollar Loans
               ---------                ----------------
                 <S>                         <C>
                 0.25%                       1.25%
</TABLE>

     provided that, from and after the last day of the first fiscal quarter of
     the 1997 Fiscal Year, the Applicable Margin for all Types of Revolving
     Credit Loans will be adjusted, on each Adjustment Date, to the Applicable
     Margin set forth on Annex A opposite the Margin Level Status of the
     Borrower in effect on such Adjustment Date, and provided, further, that,
     in the event that the financial statements (other than the copies of the
     Form 10-K or 10-Q for the relevant fiscal period) required to be delivered
     pursuant to subsection 7.1(a) or 7.1(b), as applicable, and the related
     certificate required pursuant to subsection 7.2(b), are not delivered when
     due, then, during the period from the date upon which such financial
     statements were required to be delivered until two Business Days following
     the date upon which they actually are delivered, the Applicable Margin for
     ABR Loans shall be 1.00% and the Applicable Margin for Eurodollar Loans
     will be 2.00%.





<PAGE>   10


                                      4



          "Applicant":  with respect to any Letter of Credit, the Borrower or
     any of its Subsidiaries.

          "Application":  an application or request, in such form as an Issuing
     Bank may specify from time to time, requesting such Issuing Bank to open a
     Letter of Credit.

          "Asset Sale":  any sale, transfer or other disposition (including any
     sales, transfers or other dispositions in connection with Sale-Leasebacks
     or Securitization Transactions) by the Borrower or any of its Restricted
     Subsidiaries of any property of the Borrower or any such Restricted
     Subsidiary (including property subject to any Lien under any Security
     Document).

          "Assignee":  as defined in subsection 11.6(c).

          "Assignment Financing Statement":  with respect to each Mortgage
     Assignment, a uniform commercial code financing statement naming the
     Trustee as the "secured party", on the appropriate state form, executed by
     the Borrower or a Subsidiary, as appropriate, and describing the
     appropriate Mortgage Assignment.

          "Available Revolving Credit Commitment":  as to any Lender, at any
     time, an amount equal to the excess, if any, of (a) such Lender's
     Revolving Credit Commitment over (b) such Lender's Committed Revolving
     Credit Extensions of Credit at such time; collectively, as to all the
     Lenders, the "Available Revolving Credit Commitments".

          "Big Beaver Companies":  the collective reference to [             ]

          "Big Beaver Joint Ventures":  the collective reference to [        ]

          "Big Beaver Joint Venture Agreements":  the collective reference to

     [           ]



<PAGE>   11


                                      5




          "Big Beaver Loan Agreements":  the collective reference to (a) the
     Loan Agreement dated as of January 21, 1992, among the borrowers
     thereunder, certain financial institutions party thereto, and [         ], 
     as managing agent, and (b) the Loan Agreement dated as of August 7, 1992,
     among the borrowers thereunder, certain financial institutions party 
     thereto, and, [       ] as agent, in each case as the same may be amended, 
     supplemented or otherwise modified from time to time.

          "Bilateral Option Loan":  a Loan made by a Lender to the Borrower
     pursuant to subsection 3.18.

          "Bilateral Option Loan Report":  as defined in subsection 3.19.

          "Board of Governors":  the Board of Governors of the Federal Reserve
     System and any Governmental Authority which succeeds to the powers and
     functions thereof.

          "Borrowing Base":  at any time, an amount, calculated based upon the
     most recent Borrowing Base Certificate delivered pursuant to this
     Agreement (or, until the first Borrowing Base Certificate is delivered 
     pursuant to subsection 7.2(c) subsequent to the Effective Date, subsection
     7.2(c) of the Existing Credit Agreement), equal to the sum of (a) the
     Eligible Inventory Borrowing Base Amount at such time, plus (b) 60% of the
     excess of (i) the sum of (A) the aggregate Mortgage Value of Eligible
     Mortgaged Real Property at such time, (B) the aggregate Mortgage Value of
     Eligible Put Bond Real Property at such time, (C) the aggregate Designated
     Value of Eligible Big Beaver Real Property at such time and (D) the 
     aggregate Mortgage Value of Eligible California Real Property at such 
     time over (ii) the Environmental Reserve Amount.  The Borrowing Base 
     established based upon a particular Borrowing Base Certificate shall 
     remain in effect until the delivery of a subsequent Borrowing Base 
     Certificate.

          "Borrowing Base Certificate":  as defined in subsection 7.2(c).

          "Borrowing Date":  any Business Day specified in a notice pursuant to
     subsection 3.2, 3.15(a), 3.18 or 3.22 as a date on which the Borrower
     requests the Lenders to make Loans hereunder.

          "Business":  as defined in subsection 5.14(b).

          "Business Day":  a day other than a Saturday, Sunday or other day on
     which commercial banks in New York City are authorized or required by law
     to close; provided, that when such term is used to describe a day on which
     a borrowing, payment or interest rate [                                  ]





<PAGE>   12

                                      6




     determination is to be made in respect of a LIBO Rate CAF Advance, such
     day shall also be a day on which dealings in foreign currencies and
     exchange between banks may be carried on in London, England.

          "CAF Advance":  as defined in subsection 3.14.

          "CAF Advance Availability Period":  the period from and including the
     Initial Closing Date to and including the date which is 14 days prior to
     the Revolving Credit Termination Date.

          "CAF Advance Confirmation":  each confirmation by the Borrower of its
     acceptance of CAF Advance Offers, which confirmation shall be
     substantially in the form of Exhibit B and shall be delivered to the
     Administrative Agent by facsimile transmission.

          "CAF Advance Interest Payment Date":  as to each CAF Advance, each
     interest payment date specified by the Borrower for such CAF Advance in
     the related CAF Advance Request.

          "CAF Advance Maturity Date":  as to any CAF Advance, the date
     specified by the Borrower in the related CAF Advance Request and confirmed
     pursuant to subsection 3.15(d)(ii) in its acceptance of the related CAF
     Advance Offer.

          "CAF Advance Note":  as defined in subsection 4.13(f).

          "CAF Advance Offer":  each offer by a Lender to make CAF Advances
     pursuant to a CAF Advance Request, which offer shall contain the
     information specified in Exhibit C and shall be delivered to the
     Administrative Agent by telephone, immediately confirmed by facsimile
     transmission.

          "CAF Advance Request":  each request by the Borrower for Lenders to
     submit bids to make CAF Advances, which request shall contain the
     information in respect of such requested CAF Advances specified in
     Exhibit D and shall be delivered to the Administrative Agent in writing,
     by facsimile transmission, or by telephone, immediately confirmed by
     facsimile transmission.

          "California Mortgage Note":  any promissory note, bond or other
     instrument issued by the Borrower to a Subsidiary Guarantor on terms
     reasonably satisfactory to the Administrative Agent which is secured by a 
     Lien on one or more parcels of Material Real Property of the Borrower 
     located in the State of California, Alaska, Nevada or Washington, as 
     amended, supplemented or otherwise modified from time to time with the 
     prior written consent of the Administrative Agent (which shall not be 
     unreasonably withheld).

          "Capital Funds":  of any Person, as of the date of determination
     thereof, the sum of Consolidated Net Worth of such Person at such date of
     determination and Consolidated Funded Debt of such Person at such date of
     determination.

          "Capital Stock":  any and all shares, interests, participations or
     other equivalents (however designated) of capital stock of a corporation,
     any and all equivalent ownership interests in a Person (other than a
     corporation) and any and all warrants or options to purchase





<PAGE>   13

                                      7




     any of the foregoing, provided that the Convertible Debentures shall not
     constitute Capital Stock of the Borrower.

          "Cash Collateral Account":  as defined in subsection 4.1(b).

          "Cash Interest Expense":  of any Person for any period, Consolidated
     Interest Expense of such Person for such period (a) minus, in each case to
     the extent included in determining such Consolidated Interest Expense for
     such period, the sum of the following: (i) non-cash expenses for interest
     payable in kind and non-cash interest expense related to closed stores and
     (ii) amortization of debt discount and fees and (b) plus the sum of the
     following in each case to the extent previously subtracted pursuant to
     clause (a) of this definition: cash payments made by such Person or any
     Consolidated Subsidiary of such Person during such period in respect of
     the items referred to in such clause (a), provided that Cash Interest
     Expense shall in no event include any fees or amortization of debt
     discount associated with the transactions contemplated hereby or the
     Convertible Preferred Securities.

          "Chase":  The Chase Manhattan Bank, a New York banking corporation,
     and its successors.

          "Co-Arrangers":  collectively, Morgan Guaranty Trust Company of New
     York and The Bank of New York.

          "Code":  the Internal Revenue Code of 1986, as amended from time to
     time.

          "Collateral":  the collective reference to the Pledged Stock, the
     Mortgaged Properties, the Mortgage Assignments, all Security (as defined
     in each Security Agreement), all Pledged Securities (as defined in the
     Pledge Agreement) and all other property which is part of the Trust
     Estate.

          "Collateral Release Date":  the date upon which the Liens on the
     Collateral granted pursuant to the Security Documents are released
     pursuant to subsection 11.13.

          "Collateral Release Event":  shall occur at any time, so long as no
     Default or Event of Default shall have occurred and be continuing at such
     time: (a) if the senior long-term unsecured debt of the Borrower is rated
     at least Baa3 by Moody's and the corporate credit rating of the Borrower 
     is rated at least BBB- by S&P; or (b) if, as of the last day of the most 
     recent fiscal quarter of the Borrower ending on or prior to such time:  
     (i) the Fixed Charge Coverage Ratio as of such day and as of the last day 
     of the immediately preceding fiscal quarter is greater than or equal to 
     2.0 to 1.0 and (ii) the Leverage Ratio as of such day is less than or 
     equal to 0.375 to 1.0.

          "Commercial L/C Fee Rate":  at any time, the rate per annum equal to
     50% of the Applicable Margin then in effect for Eurodollar Loans.

          "Commercial Letter of Credit":  as defined in subsection 3.6(b)(i).

          "Committed Loan":  any Revolving Credit Loan or Swing Line Loan, as
     the case may be.





<PAGE>   14


                                      8



          "Committed Revolving Credit Extensions of Credit":  as to any Lender
     at any time, an amount equal to the sum of (a) the aggregate principal
     amount of all Revolving Credit Loans made by such Lender then outstanding
     and (b) such Lender's Revolving Credit Commitment Percentage of the sum of
     (i) the aggregate principal amount of Swing Line Loans then outstanding
     and (ii) the L/C Obligations then outstanding.

          "Commonly Controlled Entity":  an entity, whether or not
     incorporated, which is under common control with the Borrower within the
     meaning of Section 4001 of ERISA or is part of a group which includes the
     Borrower and which is treated as a single employer under Section 414 of
     the Code.

          "Confectionery Reserve":  as of the last day of any fiscal month, an
     amount equal to the amount, if any, by which the Inventory Value of
     Inventory consisting of candy and other confectionery items exceeds an
     amount equal to 2% of the Inventory Value of all Inventory as of such day.

          "Confidential Information":  as defined in subsection 11.18.

          "Consolidated":  when used in connection with any defined term, and
     not otherwise defined, means such term as it applies to any Person and its
     Subsidiaries on a consolidated basis, after eliminating all intercompany
     items.

          "Continuing Directors": as defined in Section 9(j).

          "Continuing Letter of Credit":  each letter of credit outstanding on
     the date hereof that was issued pursuant to the Existing Credit Agreement 
     by an Issuing Bank which is a Lender.

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

          "Convertible Debentures":  the Convertible Junior Subordinated
     Debentures issued by the Borrower to the Convertible Trust pursuant to the
     Convertible Debenture Indenture, including any Convertible Junior
     Subordinated Debentures issued in connection with the exercise of the
     underwriters' over-allotment option, and any debentures (with the same
     terms) issued in exchange therefor pursuant to the Convertible Debenture
     Indenture as in effect on the Initial Closing Date.

          "Convertible Debenture Indenture":  the Indenture, dated as of June
     6, 1996, between the Borrower and The Bank of New York, as Trustee, as
     amended, supplemented or otherwise modified from time to time in
     accordance with this Agreement.

          "Convertible Preferred Securities":  the Trust Convertible Preferred
     Securities issued by the Convertible Trust on the Initial Closing Date and
     any Trust Convertible Preferred Securities issued by the Convertible Trust
     in connection with the exercise of the underwriters' over-allotment
     option.

          "Convertible Trust":  Kmart Financing I, a Delaware statutory
     business trust.





<PAGE>   15

                                      9



          "Corporate Trustee":  [           ] and its successors as Corporate 
     Trustee under the Trust Agreement, for the benefit of the Secured Parties,
     unless express reference herein is made to, or the context hereof requires 
     that the reference be to, the Individual Trustee.
        
          "Cost Complement":  with respect to any fiscal month, the percentage
     which the Inventory Value of all Inventory purchased by the Borrower and
     the Subsidiary Guarantors from the beginning of the relevant Fiscal Year
     through the end of such fiscal month represents of total original selling
     price (exclusive of markdowns) of such Inventory.  For the purposes of the
     definition of "Markdown Reserve", the Cost Complement shall be calculated
     separately for Builders Square, Inc. and its Subsidiaries which are
     Subsidiary Guarantors, on the one hand, and the Borrower and the other
     Subsidiary Guarantors, on the other hand.

          "Debt":  as to any Person at the date of any determination thereof,
     the sum of the following to the extent such items should be reflected on
     the consolidated balance sheet of such Person (excluding any such items
     which appear only in the notes to such consolidated balance sheet) at such
     date (without duplication): (a) all indebtedness for borrowed money or for
     the deferred purchase price of property or services (other than current
     trade liabilities incurred in the ordinary course of business and payable
     in accordance with customary practices), (b) any other indebtedness which
     is evidenced by a note, bond, debenture or similar instrument, (c) all
     obligations under Financing Leases, (d) all obligations in respect of
     acceptances issued or created for the account of such Person, and (e) all
     liabilities secured by any Lien on any property owned by such Person even
     though such Person has not assumed or otherwise become liable for the
     payment thereof, provided that (i) the item which in conformity with GAAP
     would reflect the amount of Convertible Preferred Securities and/or the
     Convertible Debentures (and the obligations of such Person with respect
     thereto) on the consolidated balance sheet of such Person at such date of
     determination shall in no event constitute Debt of such Person and (ii)
     Debt of the Borrower shall include any outstanding Qualified Big Beaver
     Indebtedness.

          "Default":  any of the events specified in Section 9, whether or not
     any requirement for the giving of notice, the lapse of time, or both, or
     any other condition, has been satisfied.

          "Designated Big Beaver Real Property":  the collective reference to
     the real property owned by the Big Beaver Joint Ventures as of the Initial
     Closing Date and designated as such on Schedule 5.19(c).

          "Designated Lenders":  as defined in subsection 6.1(a).

          "Designated Value":  with respect to any parcel of Eligible Big
     Beaver Real Property at any time, the lesser of (a) the aggregate of the
     aggregate then outstanding principal amount of Purchased Credit Facilities
     and amounts advanced by the Borrower prior to and after the Initial
     Closing Date to complete construction of the related projects (i) owed by
     the owner of such Eligible Big Beaver Real Property and (ii) with respect
     to which the related promissory note or other evidence of indebtedness is
     then subject to a perfected security interest in favor of the Trustee
     subject to no prior Liens other than as permitted by subsection 8.4(a) and
     (b) the value of such Eligible Big Beaver Real Property set forth in the
     Final Appraisal or Preliminary Appraisal delivered with respect thereto,
     provided that, (x) if a Final Appraisal was not delivered with respect to
     any parcel of Eligible Big Beaver Real Property as of the [             ]





<PAGE>   16

                                     10



     Initial Closing Date, then upon delivery of such Final Appraisal (i) the
     value of such parcel of Eligible Big Beaver Real Property for purposes of
     this clause (b) shall be the value of such parcel of Eligible Big Beaver
     Real Property set forth in such Final Appraisal and (ii) the Borrowing
     Base shall (to the extent required) be adjusted to reflect such value
     effective as of the delivery of the Borrowing Base Certificate in respect
     of the fiscal month in which such Final Appraisal is delivered to the
     Administrative Agent and (y) if, at the time such Final Appraisal is
     delivered, the relevant parcel of Eligible Big Beaver Real Property is
     still under construction, (i) the Borrower may request that the
     Administrative Agent obtain another Final Appraisal with respect to such
     parcel of Eligible Big Beaver Real Property and (ii) if the Administrative
     Agent obtains any such Final Appraisal, then, upon delivery of such Final
     Appraisal (A) the value of such parcel of Eligible Big Beaver Real
     Property for purposes of this clause (b) shall be the value of such parcel
     of Eligible Big Beaver Real Property set forth in such Final Appraisal and
     (B) the Borrowing Base shall be adjusted to reflect such value effective
     as of the last day of the fiscal month in which such Final Appraisal is
     delivered.

          "Discontinued Inventory Reserve":  as of the last day of any fiscal
     month, an amount equal to 75% of the Inventory Value of all Inventory
     which has been designated as "discontinued" by the Borrower or any
     Subsidiary Guarantor at least 18 months prior to such day on a basis
     consistent with the Borrower's or the relevant Subsidiary Guarantor's
     current and historical accounting practice.

          "Dollar Equivalent":  at any date of determination thereof with
     respect to the face amount of any Letter of Credit issued in any currency
     other than Dollars or any Reimbursement Obligations in respect of any such
     Letter of Credit, an amount in Dollars equivalent to such face amount
     calculated at the rate of exchange quoted by the Administrative Agent on
     such date of determination (at the hour on such date of determination at
     which it customarily makes such determination) to prime banks in the
     interbank market where its foreign currency exchange operations in respect
     of the currency in which such Letter of Credit is issued are then being
     conducted for the spot purchase of such currency with Dollars.

          "Dollars" and "$":  dollars in lawful currency of the United States
     of America.

          "Domestic Subsidiary":  any Subsidiary of the Borrower organized
     under the laws of any jurisdiction (including territories) within the
     United States of America, excluding the Convertible Trust, Securitization
     Entities, Inactive Subsidiaries, Special Purpose Subsidiaries and Foreign
     Holding Companies.

          "EBITDA":  with respect to any period, EBITDAR for such period minus,
     to the extent included in EBITDAR for such period, the Consolidated Rental
     Expense of the Borrower for such period.

          "EBITDAR":  with respect to any period, Consolidated Net Income of
     the Borrower for such period (a) plus, in each case to the extent deducted
     in determining such Consolidated Net Income for such period, the sum of
     the following: (i) Consolidated Interest Expense of the Borrower, (ii)
     consolidated income tax expense of the Borrower and its Consolidated
     Subsidiaries, (iii) consolidated depreciation and amortization expense of
     the Borrower and its Consolidated Subsidiaries, (iv) Consolidated Rental
     Expense of the Borrower, (v) other consolidated non-recurring non-cash
     charges of the Borrower and its Consolidated Subsidiaries and non-cash
     losses realized by the Borrower and its Consolidated Subsidiaries upon the
     sale,





<PAGE>   17

                                     11

     disposition or refinancing of Existing Real Properties and/or Repurchased
     Put Bonds and (vi) cash payments received by the Borrower or any
     Consolidated Subsidiary during such period in respect of non-recurring
     non-cash gains of the Borrower taken subsequent to the first day of
     February 1996, and (b) minus the sum of the following: (i) cash payments
     made by the Borrower or any Consolidated Subsidiary during such period in
     respect of non-recurring non-cash charges taken subsequent to the first
     day of February 1996 and (ii) consolidated non-recurring non-cash gains of
     the Borrower and its Consolidated Subsidiaries during such period.
        
          "Effective Date":  the date on which the conditions set forth in
     subsection 6.1 are satisfied.

          "Eligible Big Beaver Real Property":  at any time, any parcel of
     Designated Big Beaver Real Property as to which each of the following
     conditions shall have been satisfied at such time:

               (a)  the Administrative Agent shall have received a copy of an
          as-built survey of such parcel of Designated Big Beaver Real
          Property, if available;

               (b)  the Administrative Agent shall have received in respect of
          such parcel of Designated Big Beaver Real Property a title report,
          preliminary title certificate or commitment dated a date reasonably
          satisfactory to the Administrative Agent to the effect that title to
          such real property is vested in the owner thereof free and clear of
          all mortgage liens and all defects and encumbrances (other than those
          of a type that would constitute Permitted Mortgage Liens), except
          such defects and encumbrances as may be approved by the
          Administrative Agent;

               (c)  the Administrative Agent shall have received a Final
          Appraisal or Preliminary Appraisal with respect to such parcel of
          Designated Big Beaver Real Property; and

               (d)  such parcel of Designated Big Beaver Real Property shall be
          in compliance with all of the terms, covenants, conditions,
          representations and warranties set forth in Schedule 1.1(b), provided
          that, (i) if any such term, covenant, condition, representation or
          warranty shall reference any provision of this Agreement, such
          reference shall be read without giving effect to any qualification 
          or limitation contained therein regarding a Material Adverse Effect 
          and (ii) if such parcel of Designated Big Beaver Real Property 
          ceases to be in compliance with any of the terms, covenants, 
          conditions, representations or warranties set forth in Schedule
          1.1(b), such parcel of Designated Big Beaver Real Property shall
          cease (effective as of the delivery of the next succeeding Borrowing
          Base Certificate) to be Eligible Big Beaver Real Property during the
          continuation of such non-compliance if such non-compliance could
          reasonably be expected to have a material adverse effect on the value
          of such parcel of Designated Big Beaver Real Property, but such
          non-compliance shall not constitute, in and of itself, a Default or
          Event of Default.

     If a parcel of Designated Big Beaver Real Property becomes a parcel of
     Eligible Big Beaver Real Property and is thereafter subsequently developed
     or the development thereof is subsequently completed, the Borrower may, at
     its option deliver a notice to the Administrative Agent to the effect that
     the Borrower wishes to cause such parcel of Designated Big Beaver Real 
     Property to satisfy the requirements of this definition as if (x) such 
     parcel of Designated





<PAGE>   18

                                     12



     Big Beaver Real Property became a parcel of Designated Big Beaver Real
     Property as of the date of such notice and (y) such parcel of Designated
     Big Beaver Real Property was not then a parcel of Eligible Big Beaver Real
     Property.  Upon delivery of any such notice, the Administrative Agent
     shall commission a new Final Appraisal with respect to such parcel of
     Designated Big Beaver Real Property.  Upon satisfaction of the conditions
     set forth in this definition following such date with respect to such
     parcel of Designated Big Beaver Real Property (other than the condition
     set forth in clause (a) above and, in satisfaction of clause (b) above,
     the Borrower may provide an updated title report, preliminary title
     certificate or commitment dated from and after the date of the title
     report, preliminary title certificate or commitment delivered as of the
     Initial Closing Date on the same conditions as such title report,
     preliminary title certificate or commitment and otherwise satisfying the
     requirements of such clause (b)), such parcel of Designated Big Beaver
     Real Property shall, without duplication, be deemed to become a parcel of
     Eligible Big Beaver Real Property as of the date such conditions are
     satisfied and the Designated Value of such parcel of Eligible Big Beaver
     Real Property shall be included in the Borrowing Base effective as of the
     delivery of the Borrowing Base Certificate in respect of the fiscal month
     in which such conditions are satisfied.
        
          "Eligible California Real Property":  at any time, any parcel of
     Material Real Property of the Borrower located in the State of California,
     Alaska, Nevada or Washington as to which each of the following conditions
     has been satisfied at such time:

               (a)  (i) Such parcel of Material Real Property (A) is comprised
          of a developed retail store, distribution center, shopping center or
          office building with respect to which a certificate of occupancy or
          temporary certificate of occupancy or the local equivalent thereof
          (or any other similar proof of completion) shall have been issued by
          the relevant Governmental Authority or (B) is undeveloped and has a
          book value (excluding soft costs) of at least $1,000,000, (ii) a Lien
          on such parcel of Material Real Property shall have been granted by
          the Borrower, in favor of a Subsidiary Guarantor pursuant to a
          Subsidiary Mortgage securing California Mortgage Notes, (iii) such
          Subsidiary Mortgage shall be in full force and effect in favor of
          such Subsidiary Guarantor at such time, (iv) such Subsidiary Mortgage
          shall have been recorded in the appropriate jurisdiction or
          jurisdictions to perfect the Lien granted pursuant to such Subsidiary
          Mortgage, (v) all applicable mortgage recording taxes shall have been
          paid, provided that such Subsidiary Mortgage need not have been so
          recorded (and any such mortgage recording taxes need not have been so
          paid) if an effective title insurance policy (naming such Subsidiary
          Guarantor as the insured thereunder) shall have been issued that
          otherwise complies with the requirements of clause (c) of this
          definition and that provides "gap" coverage insuring against any
          exceptions that may arise prior to the actual recording of such
          Subsidiary Mortgage (and the payment of any such recording taxes),
          (vi) the California Mortgage Note or Notes secured by the applicable
          Subsidiary Mortgage shall have been pledged and delivered to the
          Trustee pursuant to the Pledge Agreement at such time and (vii) a
          Mortgage Assignment, in recordable form, and Assignment Financing
          Statements, in recordable form, shall have been executed and
          delivered with respect to such California Mortgage Note or Notes and
          shall be in full force and effect in favor of the Trustee at such
          time;

               (b)  the Administrative Agent shall have received (i) and the
          title insurance company issuing the policy referred to in clause (c)
          of this definition shall have received, maps or plats of an as-built
          survey of the sites of the Material Real Property





<PAGE>   19

                                     13



          covered by such  Subsidiary Mortgage certified to the Administrative
          Agent and such title insurance company in a manner reasonably
          satisfactory to them, dated a date reasonably satisfactory to the
          Administrative Agent and such title insurance company, by an
          independent professional licensed land surveyor reasonably
          satisfactory to the Administrative Agent and such title insurance
          company, which maps or plats and the surveys on which they are based
          shall be made in accordance with the Minimum Standard Detail
          Requirements for Land Title Surveys jointly established and adopted
          by the American Land Title Association and the American Congress on
          Surveying and Mapping in 1992, and, without limiting the generality
          of the foregoing, there shall be surveyed and shown on such maps,
          plats or surveys the following: (A) the locations on such sites of
          all the buildings, structures and other improvements and the
          established building setback lines (where setback information is
          readily obtainable); (B) the lines of streets abutting such sites and
          the width thereof; (C) all access and other easements appurtenant to
          such sites or necessary to use such sites; (D) all roadways, paths,
          driveways, easements, encroachments and overhanging projections and
          similar encumbrances affecting such sites, whether recorded, apparent
          from a physical inspection of such sites or otherwise known to the
          surveyor; (E) any encroachments on any adjoining property by the
          building structures and improvements on such sites; and (F) if such
          sites are described as being on a filed map, a legend or other
          information relating the survey to said map or (ii) in the case of
          any such parcel of Material Real Property subject to a Subsidiary
          Mortgage as of the Initial Closing Date, a copy of an as-built survey
          of such parcel of Material Real Property if such parcel of Material
          Real Property was developed as of the Initial Closing Date or a
          boundary survey of such parcel of Material Real Property if such
          parcel of Material Real Property was undeveloped as of the Initial
          Closing Date, in each case prepared within five years prior to the
          Initial Closing Date;

               (c)  the Administrative Agent shall have received in respect of
          such parcel of Material Real Property a mortgagee's title policy (or
          policies) or marked up unconditional binder for such insurance dated
          the Initial Closing Date (in the case of any such parcel of Material
          Real Property subject to a Subsidiary Mortgage as of the Initial 
          Closing Date) or a date reasonably satisfactory to the Administrative
          Agent otherwise.  Each such policy shall (i) be in an amount equal 
          to the Mortgage Value (as of the date such parcel of  Material Real
          Property becomes a parcel of Eligible California Real Property) of
          such parcel of Material Real Property; (ii) be issued at ordinary
          rates; (iii) insure that the Subsidiary Mortgage insured thereby
          creates a valid first Lien on such parcel of Material Real Property
          free and clear of all defects and encumbrances, except such as may be
          approved by the Administrative Agent, Permitted Mortgage Liens and
          any Mortgage Assignment; (iv) name the applicable Subsidiary
          Guarantor and the Trustee as the insured as their interests may
          appear thereunder; (v) be in the form of ALTA Loan Policy - 1992;
          (vi) contain a comprehensive lender's endorsement and (vii) be issued
          by Chicago Title Insurance Company, First American Title Insurance
          Company or any other title company reasonably satisfactory to the
          Administrative Agent (including any such title companies acting as
          co-insurers or reinsurers, at the option of the Administrative
          Agent).  The Administrative Agent shall have received (x) evidence
          satisfactory to it that all premiums in respect of each such policy
          have been paid and (y) a copy of all documents referred to, or listed
          as exceptions to title, in such title policy (or policies);



<PAGE>   20

                                     14



               (d) the Administrative Agent shall have received a Final
          Appraisal with respect to such parcel of Material Real Property or,
          in the case of any such parcel of Material Real Property subject to a
          Subsidiary Mortgage as of the Initial Closing Date, a Preliminary
          Appraisal with respect to such parcel of Material Real Property;

               (e) with respect to any parcel of Material Real Property (other
          than any parcel of Material Real Property subject to a Subsidiary
          Mortgage as of the Initial Closing Date), a Phase I environmental
          report with respect to such parcel of Material Real Property, dated a
          date not more than one year prior to the date of delivery of the
          related Subsidiary Mortgage, showing no material condition of
          environmental concern shall have been delivered to the Administrative
          Agent and in form reasonably satisfactory to the Administrative
          Agent;

               (f) if such parcel of Material Real Property is subject to a
          ground lease in favor of the Borrower as lessee, no consent shall be
          required under such ground lease to mortgage or foreclose upon such
          parcel of Material Real Property (or such consent shall have been
          obtained); and

               (g)  such parcel of Material Real Property shall be in
          compliance, or, as applicable, the owner or lessee thereof, shall be
          in compliance, with all of the terms, covenants, conditions,
          representations and warranties set forth in Schedule 1.1(b), provided
          that, (i) if any such term, covenant, condition, representation or
          warranty shall reference any provision of this Agreement, such
          reference shall be read without giving effect to any qualification or
          limitation contained therein regarding a Material Adverse Effect, and
          (ii) if such parcel of Material Real Property or, as applicable, the
          owner or lessee thereof ceases to be in compliance with any of the
          terms, covenants, conditions, representations or warranties set forth
          in Schedule 1.1(b), such parcel of Material Real Property shall cease
          (effective as of the delivery of the next succeeding Borrowing Base
          Certificate) to be Eligible California Real Property during the
          continuation of such non-compliance if such non-compliance could
          reasonably be expected to have a material adverse effect on the value
          of such parcel of Material Real Property, but such non-compliance 
          shall not constitute, in and of itself, a Default or Event of Default.

     If a parcel of Material Real Property of the type described in clause
     (a)(i)(B) of this definition becomes a parcel of Eligible California Real
     Property and is thereafter subsequently developed such that such parcel of
     Material Real Property satisfies the requirements of clause (a)(i)(A) of
     this definition, the Borrower may, at its option, deliver a notice to the
     Administrative Agent to the effect that the Borrower wishes to cause such
     parcel of Material Real Property to satisfy the requirements of this
     definition as if (x) such parcel of Material Real Property became a parcel
     of Material Real Property as of the date of such notice, (y) such parcel
     of Material Real Property was not then a parcel of Eligible California
     Real Property and (z) if applicable, such parcel of Material Real Property
     was not subject to a Subsidiary Mortgage as of the Initial Closing Date.
     Upon delivery of any such notice, the Administrative Agent shall
     commission a new Final Appraisal with respect to such parcel of Material
     Real Property.  Upon satisfaction of the conditions set forth in this
     definition following such date with respect to such parcel of Material
     Real Property (other than the condition set forth in clause (e) above and,
     in satisfaction of clause (c) above, the Borrower may provide a date-down
     endorsement to the mortgagee's title policy or binder delivered as of the
     Initial Closing Date on the same conditions as such policy or binder and
     otherwise satisfying the requirements of such clause as

<PAGE>   21

                                     15



     to title insurance), such parcel of Material Real Property shall, without
     duplication, be deemed to become a parcel of Eligible California Real
     Property as of the date such conditions are satisfied and the Mortgage
     Value of such parcel of Eligible California Real Property shall be
     included in the Borrowing Base effective as of the delivery of the
     Borrowing Base Certificate in respect of the fiscal month in which such
     conditions are satisfied.

          "Eligible Inventory Amount":  as of the last day of any fiscal month,
     (a) the Inventory Value of all Inventory of the Borrower and the
     Subsidiary Guarantors that consists of finished goods as of such day minus
     (b) the Ineligible Inventory Borrowing Base Amount as of such day.  For
     the purposes of the definition of "Markdown Reserve", Builders Square,
     Inc. and its Subsidiaries which are Subsidiary Guarantors shall be treated
     as an entity separate from the Borrower and the other Subsidiary
     Guarantors, and such amounts shall be calculated separately for Builders
     Square, Inc. and its Subsidiaries which are Subsidiary Guarantors, on the
     one hand, and the Borrower and the other Subsidiary Guarantors, on the
     other hand.

          "Eligible Inventory Borrowing Base Amount":  as of the last day of
     any fiscal month, an amount equal to (a) 55% of the Adjusted Eligible
     Inventory Amount as of such day minus (b) the sum of (i) the Flow Through
     Center Reserve for such fiscal month, (ii) the Special Order Reserve for
     such fiscal month and (iii) the aggregate amount of gift certificates then
     outstanding entitling the holder thereof to use all or a portion thereof
     to pay all or a portion of the purchase price for any Inventory as of such
     day which are not being held for escheatment or which have not been
     escheated as of such day.

          "Eligible Mortgaged Real Property":  at any time, any parcel of
     Material Real Property of the Borrower or any Subsidiary Guarantor (other
     than parcels of Material Real Property of the Borrower located in the
     State of California, Alaska, Nevada or Washington) as to which each of the
     following conditions has been satisfied at such time:

               (a)  (i) Such parcel of Material Real Property (A) is comprised
          of a developed retail store, distribution center, shopping center or
          office building with respect to which a certificate of occupancy or
          temporary certificate of occupancy or the local equivalent thereof
          (or any other similar proof of completion) shall have been issued by 
          the relevant Governmental Authority or (B) is undeveloped and has a 
          book value (excluding soft costs) of at least $1,000,000, (ii) a 
          Lien on such parcel of Material Real Property shall have been granted
          by the Borrower or such Subsidiary Guarantor, as the case may be,
          in favor of the Trustee pursuant to a Mortgage, (iii) such Mortgage
          shall be in full force and effect in favor of the Trustee at such
          time, (iv) such Mortgage shall have been recorded in the appropriate
          jurisdiction or jurisdictions to perfect the Lien granted pursuant to
          such Mortgage and (v) all applicable mortgage recording taxes shall
          have been paid, provided that such Mortgage need not have been so
          recorded (and any such mortgage recording taxes need not have been so
          paid) if an effective title insurance policy (naming the Trustee for
          the benefit of the Secured Parties as the insured thereunder) shall
          have been issued that otherwise complies with the requirements of
          clause (c) of this definition and that provides "gap" coverage
          insuring against any exceptions that may arise prior to the actual
          recording of such Mortgage (and the payment of any such recording
          taxes);


               (b)  the Administrative Agent shall have received (i) and the
          title insurance company issuing the policy referred to in clause (c)
          of this definition shall have received, maps or plats of an as-built
          survey of the sites of the Material Real Property





<PAGE>   22



                                     16




          covered by such Mortgage certified to the Administrative Agent and
          such title insurance company in a manner reasonably satisfactory to
          them, dated a date reasonably satisfactory to the Administrative
          Agent and such title insurance company, by an independent
          professional licensed land surveyor reasonably satisfactory to the
          Administrative Agent and such title insurance company, which maps or
          plats and the surveys on which they are based shall be made in
          accordance with the Minimum Standard Detail Requirements for Land
          Title Surveys jointly established and adopted by the American Land
          Title Association and the American Congress on Surveying and Mapping
          in 1992, and, without limiting the generality of the foregoing, there
          shall be surveyed and shown on such maps, plats or surveys the
          following: (A) the locations on such sites of all the buildings,
          structures and other improvements and the established building
          setback lines (where setback information is readily obtainable); (B)
          the lines of streets abutting such sites and the width thereof; (C)
          all access and other easements appurtenant to such sites or necessary
          to use such sites; (D) all roadways, paths, driveways, easements,
          encroachments and overhanging projections and similar encumbrances
          affecting such sites, whether recorded, apparent from a physical
          inspection of such sites or otherwise known to the surveyor; (E) any
          encroachments on any adjoining property by the building structures
          and improvements on such sites; and (F) if such sites are described
          as being on a filed map, a legend or other information relating the
          survey to said map or (ii) in the case of any such parcel of Material
          Real Property subject to a Mortgage as of the Initial Closing Date, a
          copy of an as-built survey of such parcel of Material Real Property
          if such parcel of Material Real Property was developed as of the
          Initial Closing Date or a boundary survey of such parcel of Material
          Real Property if such parcel of Material Real Property was
          undeveloped as of the Initial Closing Date, in each case prepared
          within five years prior to the Initial Closing Date;

               (c)  the Administrative Agent shall have received in respect of
          such parcel of Material Real Property a mortgagee's title policy (or
          policies) or marked up unconditional binder for such insurance dated
          the Initial Closing Date (in the case of any such parcel of Material
          Real Property subject to a Mortgage as of the Initial Closing Date)
          or a date reasonably satisfactory to the Administrative Agent 
          otherwise.  Each such policy shall (A) be in an amount equal to the
          Mortgage Value (as of the date such parcel of Material Real Property
          becomes a parcel of Eligible Mortgaged Real Property) of such
          parcel of Material Real Property, (B) be issued at ordinary rates,
          (C) insure that the Mortgage insured thereby creates a valid first
          Lien on such parcel of Material Real Property free and clear of all
          defects and encumbrances, except such as may be approved by the
          Administrative Agent and Permitted Mortgage Liens, (D) name the
          Trustee for the benefit of the Secured Parties as the insured
          thereunder, (E) be in the form of ALTA Loan Policy - 1992, (F)
          contain a comprehensive lender's endorsement and (G) be issued by
          Chicago Title Insurance Company, First American Title Insurance
          Company or any other title company reasonably satisfactory to the
          Administrative Agent (including any such title companies acting as
          co-insurers or reinsurers, at the option of the Administrative
          Agent).  The Administrative Agent shall have received (x) evidence
          satisfactory to it that all premiums in respect of each such policy
          have been paid and (y) a copy of all documents referred to, or listed
          as exceptions to title, in such title policy (or policies);

               (d) the Administrative Agent shall have received a Final
          Appraisal with respect to such parcel of Material Real Property or,
           in the case of any such parcel of Material   

<PAGE>   23

                                     17



          Real Property subject to a Mortgage as of the Initial Closing Date, a
          Preliminary Appraisal with respect to such parcel of Material Real
          Property;
        
               (e) with respect to any parcel of Material Real Property (other
          than any parcel of Material Real Property subject to a Mortgage as of
          the Initial Closing Date), a Phase I environmental report with
          respect to such parcel of Material Real Property, dated a date not
          more than one year prior to the date of delivery of the related
          Mortgage, showing no material condition of environmental concern
          shall have been delivered to the Administrative Agent and in form
          reasonably satisfactory to the Administrative Agent;


               (f) if such parcel of Material Real Property is subject to a
          ground lease in favor of the Borrower or any Subsidiary Guarantor as 
          lessee, no consent shall be required under such ground lease to 
          mortgage or foreclose upon such parcel of Material Real Property (or 
          such consent shall have been obtained); and

               (g)  such parcel of Material Real Property shall be in
          compliance, or, as applicable, the owner or lessee thereof, shall be
          in compliance, with all of the terms, covenants, conditions,
          representations and warranties set forth in Schedule 1.1(b), provided
          that, (i) if any such term, covenant, condition, representation or
          warranty shall reference any provision of this Agreement, such
          reference shall be read without giving effect to any qualification or
          limitation contained therein regarding a Material Adverse Effect, and
          (ii) if such parcel of Material Real Property or, as applicable, the
          owner or lessee thereof ceases to be in compliance with any of the
          terms, covenants, conditions, representations or warranties set forth
          in Schedule 1.1(b), such parcel of Material Real Property shall cease
          (effective as of the delivery of the next succeeding Borrowing Base
          Certificate) to be Eligible Mortgaged Real Property during the
          continuation of such non-compliance if such non-compliance could
          reasonably be expected to have a material adverse effect on the value
          of such parcel of Material Real Property, but such non-compliance
          shall not constitute, in and of itself, a Default or Event of
          Default.

     If a parcel of Material Real Property of the type described in clause
     (a)(i)(B) of this definition becomes a parcel of Eligible Mortgaged Real
     Property and is thereafter subsequently developed such that such parcel of
     Material Real Property satisfies the requirements of clause (a)(i)(A) of
     this definition, the Borrower may, at its option, deliver a notice to the
     Administrative Agent to the effect that the Borrower wishes to cause such
     parcel of Material Real Property to satisfy the requirements of this
     definition as if (x) such parcel of Material Real Property became a parcel
     of Material Real Property as of the date of such notice, (y) such parcel
     of Material Real Property was not then a parcel of Eligible Mortgaged Real
     Property and (z) if applicable, such parcel of Material Real Property was
     not subject to a Mortgage as of the Initial Closing Date.  Upon delivery
     of any such notice, the Administrative Agent shall commission a new Final
     Appraisal with respect to such parcel of Material Real Property.  Upon
     satisfaction of the conditions set forth in this definition following 
     such date with respect to such parcel of Material Real Property (other
     than the condition set forth in clause (e) above and, in satisfaction
     of clause (c) above, the Borrower may provide a date-down endorsement to
     the mortgagee's title policy or binder delivered as of the Initial Closing
     Date on the same conditions as such policy or binder and otherwise
     satisfying the requirements of such clause as to title insurance), such
     parcel of Material Real Property shall, without duplication, be deemed to
     become a parcel of Eligible Mortgaged Real Property as of the date such
     conditions are





<PAGE>   24

                                     18




     satisfied and the Mortgage Value of such parcel of Eligible Mortgaged Real
     Property shall be included in the Borrowing Base effective as of the
     delivery of the Borrowing Base Certificate in respect of the fiscal month
     in which such conditions are satisfied.

          "Eligible Put Bond Real Property":  at any time, any parcel of Put
     Bond Real Property as to which each of the following conditions shall have
     been satisfied at such time:

               (a) (i) such parcel of Put Bond Real Property shall be subject
          to a Lien granted under a Put Bond Mortgage or Mortgages and such
          Lien shall be in full force and effect and shall not have been
          released, (ii) the Repurchased Put Bonds secured by such parcel of
          Put Bond Real Property shall have been pledged and delivered to the
          Trustee pursuant to the Pledge Agreement at such time and (iii) to
          the extent required to perfect the Lien in the Repurchased Put Bonds
          created in favor of the Trustee pursuant to the Pledge Agreement, a
          Mortgage Assignment and Assignment Financing Statements, in
          recordable form, shall have been executed and delivered with respect
          to such Put Bond Mortgages and shall be in full force and effect in
          favor of the Trustee at such time;

               (b)  the Administrative Agent shall have received a copy of an
          as-built survey of such parcel of Put Bond Real Property, if
          available;

               (c)  the Administrative Agent shall have received in respect of
          such parcel of Put Bond Real Property a title report, preliminary
          title certificate or commitment dated a date reasonably satisfactory
          to the Administrative Agent to the effect that the mortgage lien
          securing the relevant Repurchased Put Bonds is a first priority
          mortgage Lien;

               (d) the Administrative Agent shall have received a Final
          Appraisal or Preliminary Appraisal with respect to such parcel of Put
          Bond Real Property;

               (e) if such parcel of Put Bond Real Property is subject to a
          ground lease in favor of the Borrower or any Subsidiary Guarantor as
          lessee, no consent shall have been required under such ground lease
          to mortgage or foreclose upon such parcel of Put Bond Real Property
          (or such consent shall have been obtained); and

               (f)  such parcel of Put Bond Real Property shall be in
          compliance with all of the terms, covenants, conditions,
          representations and warranties set forth in Schedule 1.1(b), provided
          that, (i) if any such term, covenant, condition, representation or
          warranty shall reference any provision of this Agreement, such
          reference shall be read without giving effect to any qualification or
          limitation contained therein regarding a Material Adverse Effect, or
          (ii) if such parcel of Put Bond Real Property ceases to be in
          compliance with any of the terms, covenants, conditions,
          representations or warranties set forth in Schedule 1.1(b), such
          parcel of Put Bond Real Property shall cease (effective as of the
          delivery of the next succeeding Borrowing Base Certificate) to be
          Eligible Put Bond Real Property during the continuation of such
          non-compliance if such non-compliance could reasonably be expected to
          have a material adverse effect on the value of such parcel of Put
          Bond Real Property, but such non-compliance shall not constitute, in
          and of itself, a Default or Event of Default.





<PAGE>   25

                                     19




          "Environmental Laws":  any and all foreign, federal, state, local or
     municipal laws, rules, orders, regulations, statutes, ordinances, codes,
     decrees, requirements of any Governmental Authority or other Requirements
     of Law (including common law) regulating, relating to or imposing
     liability or standards of conduct concerning protection of human health or
     the environment, as are now or may at any time hereafter be in effect.

          "Environmental Reserve Amount":  at any time, an amount equal to the
     product of (a) $150,000 and (b) the number of parcels of Eligible
     Mortgaged Real Property, Eligible Big Beaver Real Property, Eligible Put
     Bond Real Property and Eligible California Real Property which is included
     in the Borrowing Base at such time.

          "ERISA":  the Employee Retirement Income Security Act of 1974, as
     amended from time to time.

          "Eurocurrency Reserve Requirements":  for any day as applied to a
     Eurodollar Loan, the aggregate (without duplication) of the rates
     (expressed as a decimal) of reserve requirements in effect on such day
     (including, without limitation, basic, supplemental, marginal and
     emergency reserves under any regulations of the Board of Governors or
     other Governmental Authority having jurisdiction with respect thereto)
     prescribed for eurocurrency funding (currently referred to as
     "Eurocurrency Liabilities" in Regulation D of the Board of Governors)
     maintained by a member bank of the Federal Reserve System.

          "Eurodollar Base Rate":  with respect to each day during each
     Interest Period pertaining to a Eurodollar Loan, the rate per annum equal
     to the rate for deposits in Dollars for the period commencing on the first
     day of such Interest Period and ending on the last day of such Interest
     Period which appears on Telerate Page 3750 as of 10:00 A.M., New York City
     time, two Business Days prior to the beginning of such Interest Period.
     If at least two rates appear on such Telerate Page for such Interest
     Period, the "Eurodollar Base Rate" shall be the arithmetic mean of such
     rates.  If the "Eurodollar Base Rate" cannot be determined in accordance
     with the immediately preceding sentences with respect to any Interest
     Period, the "Eurodollar Base Rate" with respect to each day during such
     Interest Period shall be the rate per annum equal to the average (rounded
     upward to the nearest 1/100th of 1%) of the respective rates notified to
     the Administrative Agent by each of the Reference Lenders as the rate at 
     which such Reference Lender is offered Dollar deposits at or about 
     10:00 A.M., New York City time, two Business Days prior to the beginning 
     of such Interest Period in the interbank eurodollar market where the 
     eurodollar and foreign currency and exchange operations in respect of its 
     Eurodollar Loans are then being conducted for delivery on the first day 
     of such Interest Period for the number of days comprised therein and in 
     an amount comparable to the amount of its Eurodollar Loan to be 
     outstanding during such Interest Period.

          "Eurodollar Loans":  Revolving Credit Loans the rate of interest
     applicable to which is based upon the Eurodollar Rate.

          "Eurodollar Rate":  with respect to each day during each Interest
     Period pertaining to a Eurodollar Loan, a rate per annum determined for
     such day in accordance with the following formula (rounded upward to the
     nearest 1/100th of 1%):

                             Eurodollar Base Rate 
                  ----------------------------------------
                  1.00 - Eurocurrency Reserve Requirements





<PAGE>   26


                                     20



          "Event of Default":  any of the events specified in Section 9,
     provided that any requirement for the giving of notice, the lapse of time,
     or both, or any other condition, has been satisfied.

          "Existing Credit Facilities":  collectively, the Refinanced Credit
     Facilities, the Purchased Credit Facilities and the Letter of Credit
     Issuance Agreement.

          "Existing Real Property":  the collective reference to all parcels of
     Material Real Property as of the Initial Closing Date other than any
     parcel of Material Real Property which was undeveloped as of the Initial
     Closing Date.

          "Existing Issuing Bank":  each Person that has issued one or more
     Continuing Letters of Credit.

          "Existing Receivables Transactions":  collectively, the transactions
     contemplated under (i) the [           ] Program Agreement, dated April 
     12, 1996, by and between [           ] and Builders Square, Inc. and (ii)
     various store programs pursuant to which receivables generated in 
     connection with the sale of Inventory are sold to various financing 
     companies, in each case as such agreements and programs may be amended, 
     replaced, supplemented or otherwise modified from time to time.

          "Exiting Revolving Credit Lenders":  as defined in subsection 6.1(h).

          "Extension of Credit":  with respect to any Lender, (a) the making of
     a Loan by such Lender and (b) the issuance or extension of a Letter of
     Credit; collectively, as to all the Lenders, the "Extensions of Credit".

          "FDIC":  the Federal Deposit Insurance Corporation and any
     Governmental Authority which succeeds to the powers and functions thereof.

          "Federal Funds Effective Rate":  as defined in the definition of
     "ABR" contained in this subsection 1.1.

          "Final Appraisal":  with respect to any parcel of Material Real
     Property, Put Bond Real Property or Designated Big Beaver Real Property, a
     final complete appraisal of the value of such parcel of Material Real
     Property, Put Bond Real Property or Designated Big Beaver Real Property,
     as the case may be, commissioned in connection with the Existing
     Credit Agreement or this Agreement and valued on an "alternative use"
     basis which in the reasonable judgment of the Administrative Agent
     satisfies all applicable requirements of FIRREA and the Uniform Standards
     of Professional Appraisal Practice.

          "Financing Lease":  any lease of property, real or personal, the
     obligations of the lessee in respect of which are required in accordance
     with GAAP to be capitalized on a balance sheet of such lessee.

          "FIRREA":  the Financial Institutions Reform, Recovery and
     Enforcement Act of 1989, as amended.





<PAGE>   27

                                     21




          "Fiscal Year":  each fiscal year of the Borrower.  Fiscal Years are
     referred to herein by reference to the calendar year in which the first
     day of such Fiscal Year falls.

          "Fixed Charge Coverage Ratio":  as of the last day of any fiscal
     quarter of the Borrower, the quotient of (A) EBITDAR for the period of
     four fiscal quarters ending on the last day of such quarter divided by (B)
     the sum of (i) Consolidated Cash Interest Expense of the Borrower plus
     (ii) Consolidated Rental Expense of the Borrower, in each case for such
     period.   For purposes of computing the "Fixed Charge Coverage Ratio" for
     any fiscal quarter, Builder's Square Inc. and its Subsidiaries shall, for
     so long as Builder's Square, Inc. remains a Subsidiary of the Borrower or
     until the Borrower and the Administrative Agent otherwise agree, be
     accounted for as Consolidated Subsidiaries of the Borrower notwithstanding
     anything to the contrary under GAAP.

          "Fixed Rate CAF Advance":  any CAF Advance made pursuant to a Fixed
     Rate CAF Advance Request.

          "Fixed Rate CAF Advance Request":  any CAF Advance Request requesting
     the Lenders to offer to make CAF Advances at an absolute rate which is not
     determined by reference to an external source.

          "Flow Through Center Reserve":  with respect to any fiscal month, the
     sum of (a) the average monthly amount paid by the Borrower and any
     Subsidiary Guarantors in respect of fees charged by flow through centers
     or distribution centers during the immediately preceding 12 fiscal month
     period and (b) any such fees which are then overdue for less than 60 days.

          "Foreign Holding Company":  any Subsidiary organized under the laws
     of any jurisdiction (including territories) within the United States of
     America whose sole assets (exclusive of assets with an aggregate book
     value not exceeding $10,000,000 and assets consisting of advances or loans
     to the Borrower or any of its Subsidiaries) consist of the Capital Stock
     of one or more Foreign Subsidiaries or other Foreign Holding Companies.

          "Foreign Subsidiary":  any Subsidiary of the Borrower organized under
     the laws of any jurisdiction outside the United States of America, 
     excluding Securitization Entities, Inactive Subsidiaries and Special 
     Purpose Subsidiaries, but including in any event Foreign Holding Companies.

          "Foreign L/C Commitment Sublimit":  at any time (a) prior to January
     1, 1998, $150,000,000 and (b) thereafter, $200,000,000.

          "Funded Debt":  as to any Person at the date of any determination
     thereof, all Debt of such Person which by its terms or by the terms of any
     instrument or agreement relating thereto matures more than one year after
     the date of determination thereof, and any such Debt maturing within one
     year from such date of determination which is directly or indirectly
     renewable or extendible at the option of such Person to a date more than
     one year from such date of determination (including an option of such
     Person under a revolving credit or similar agreement obligating the lender
     or lenders to extend credit over a period of more than one year from such
     date of incurrence); provided, however, that for the purposes of any
     determination of the Leverage Ratio hereunder the amount of Funded Debt
     attributable to the Revolving Credit Loans, the Swing Line Loans, the CAF
     Advances and the Bilateral Option Loans shall


<PAGE>   28


                                     22




     be the average daily outstanding amounts thereof for the period of four
     fiscal quarters ending on or immediately preceding such date of
     determination, except that in connection with any determination of the
     Leverage Ratio prior to the end of the second fiscal quarter of the 1997
     Fiscal Year, the amount of Funded Debt attributable to the Revolving
     Credit Loans, the Swing Line Loans, the CAF Advances and the Bilateral
     Option Loans shall be (a) $692,000,000 for each day during the fourth
     fiscal quarter of the 1995 Fiscal Year, (b) $322,000,000 for each day
     during the first fiscal quarter of the 1996 Fiscal Year,
     and (c) $104,000,000 for each day during the second fiscal quarter of the
     1996 Fiscal Year.

          "GAAP":  generally accepted accounting principles in the United
     States of America in effect from time to time, provided that, solely for
     purposes of determining compliance with subsection 8.1, "GAAP" shall mean
     generally accepted accounting principles in the United States of America
     as in effect on the date hereof.

          "Governmental Authority":  any nation or government, any state or
     other political subdivision thereof and any entity exercising executive,
     legislative, judicial, regulatory or administrative functions of or
     pertaining to government.

          "Greeting Card Reserve":  as of the last day of any fiscal month, the
     excess of (a) the Inventory Value of all Inventory consisting of greeting
     cards as of such day over (b) $37,500,000.

          "Guarantee Obligation":  as to any Person (the "guaranteeing
     person"), any obligation of (a) the guaranteeing person or (b) another
     Person (including, without limitation, any bank under any letter of
     credit) to induce the creation of which the guaranteeing person has issued
     a guarantee, reimbursement, counterindemnity or similar obligation, in
     either case guaranteeing or in effect guaranteeing any Indebtedness
     (collectively, the "primary obligations") of any other third Person (the
     "primary obligor"), in any manner, whether directly or indirectly, or
     which guarantee, reimbursement, counterindemnity or similar obligation
     should be reflected in a consolidated balance sheet of the guaranteeing
     person (or in the notes thereto); provided, however, that the term
     Guarantee Obligation shall not include endorsements of instruments for
     deposit or collection in the ordinary course of business.  The amount
     of any Guarantee Obligation of any guaranteeing person shall be deemed to
     be the lower of (a) an amount equal to the stated or determinable amount
     of the primary obligation in respect of which such Guarantee Obligation is
     made and (b) the maximum amount for which such guaranteeing person may be
     liable pursuant to the terms of the instrument embodying such Guarantee
     Obligation, unless such primary obligation and the maximum amount for
     which such guaranteeing person may be liable are not stated or
     determinable, in which case the amount of such Guarantee Obligation shall
     be such guaranteeing person's maximum reasonably anticipated liability in
     respect thereof as determined by the Borrower in good faith.

          "Inactive Subsidiary":  any Subsidiary of the Borrower which (and
     only for so long as such Subsidiary) (a) does not own assets with an
     aggregate book value in excess of $10,000,000 and (b) is not then engaged
     in any business.

          "Indebtedness":  of any Person at any date, (a) all indebtedness of
     such Person for borrowed money or for the deferred purchase price of
     property or services (other than current trade liabilities and current
     accounts payable incurred in the ordinary course of business and payable
     in accordance with customary practices), (b) any other indebtedness of
     such Person





<PAGE>   29


                                     23




     which is evidenced by a note, bond, debenture or similar instrument, (c)
     all obligations (to the extent capitalized for accounting purposes) of
     such Person under Financing Leases, (d) all obligations of such Person in
     respect of acceptances issued or created for the account of such Person,
     (e) all obligations of the types described in the other clauses of this
     definition secured by any Lien on any property owned by such Person even
     though such Person has not assumed or otherwise become liable for the
     payment thereof and (f) all obligations of such Person in respect of
     interest rate and currency hedging agreements.  For purposes of this
     Agreement, the amount of any Indebtedness referred to in clause (f) of the
     preceding sentence shall be the net amounts, including any net termination
     payments, required to be paid to a counterparty rather than any notional
     amount with regard to which payments may be calculated.

          "Indemnified Liabilities":  as defined in subsection 11.5.

          "Individual Trustee":  [       ] and his successors as Individual 
     Trustee under the Trust Agreement, for the benefit of the Secured Parties.

          "Ineligible Inventory":  as of the last day of any fiscal month, all
     Inventory of the Borrower and the Subsidiary Guarantors that falls in any
     one or more of the following categories as of such day:

               (a)  the Inventory (i) is not owned solely by the Borrower or
          any such Subsidiary Guarantor, (ii) is leased by or on consignment to
          the Borrower or any Subsidiary Guarantor or (iii) is contained in a
          vending machine;

               (b)  the Inventory (including Inventory in transit from vendors)
          that is not located at property that is owned or leased by the
          Borrower or any Subsidiary Guarantor, other than with respect to (i)
          Inventory which is located at flow through centers or distribution
          centers (excluding timber reload centers) or (ii) Inventory which is
          in transit from one property that is owned or leased by the Borrower
          or any Subsidiary Guarantor (or a flow through center or a
          distribution center) to another property that is owned or leased by
          the Borrower or any Subsidiary Guarantor (or a flow through center or
          a distribution center);

               (c)  the Inventory consists of packaged delicatessen goods,
          dairy goods, meat products, produce or seafood;

               (d)  the Inventory is intended for sale through the restaurant,
          bakery or delicatessen operations of the Borrower or any Subsidiary
          Guarantor;

               (e)  the Inventory consists of (i) books available for sale in
          connection with the "Reader's Market" operations of the Borrower or
          any Subsidiary Guarantor or (ii) magazines;

               (f)  the Inventory is subject to a layaway purchase by any
          customer;

               (g)  the Inventory is located at any return center used by the
          Borrower or any Subsidiary Guarantor;





<PAGE>   30



                                     24




               (h)  the Inventory (i) is not located in the United States of
          America (excluding territories and possessions thereof) or (ii)
          without limiting clause (i) above, is located in Puerto Rico, the
          Virgin Islands or Guam; or

               (i)  the Inventory is not subject to a perfected security
          interest in favor of the Trustee or is subject to Liens other than
          Permitted Inventory Liens.

          "Ineligible Inventory Amount":  as of the last day of any fiscal
     month, the sum of (a) the Inventory Value of all Ineligible Inventory of
     the Borrower and the Subsidiary Guarantors that consists of finished goods
     as of such day, plus (b) any profit included in the Inventory Value of
     Inventory as a result of a transfer of such Inventory from the Borrower to
     a Subsidiary or by any Subsidiary to the Borrower or any other Subsidiary,
     plus (c) the Confectionery Reserve at such time, plus (d) the Discontinued
     Inventory Reserve at such time, plus (e) the Shrinkage Reserve at such
     time, plus (f) the Return Reserve at such time, plus (g) the Greeting Card
     Reserve at such time, plus (h) the Packaway Reserve, plus (i) the
     Prescription Drug Reserve at such time.

          "Ineligible Inventory Borrowing Base Amount":  as of the last day of
     any fiscal month, the Ineligible Inventory Percentage of the Inventory
     Value of all Inventory of the Borrower and the Subsidiary Guarantors that
     consists of finished goods as of such day.

          "Ineligible Inventory Percentage":  as of the last day of any fiscal
     month, (a) with respect to the Inventory of the Borrower and its
     Subsidiaries (other than Builders' Square, Inc. and its Subsidiaries),
     11.4% and (b) with respect to the Inventory of Builder's Square, Inc. and
     its Subsidiaries, 12.8%, provided that the "Ineligible Inventory
     Percentage" shall be recalculated in connection with the delivery of the
     Borrowing Base Certificate with respect to the sixth and twelfth fiscal
     months of each Fiscal Year as follows:  (i) such Borrowing Base
     Certificate shall include a calculation of the Ineligible Inventory Amount
     with respect to the Inventory of the Borrower and its Subsidiaries (other
     than Builders' Square, Inc. and its Subsidiaries) and of Builder's Square,
     Inc. and its Subsidiaries, in each case as of the last day of such fiscal
     month; and (ii) if the sum of (x) the percentage which the Ineligible 
     Inventory Amount with respect to the Inventory of the Borrower and its 
     Subsidiaries (other than Builders' Square, Inc. and its Subsidiaries) and 
     of Builder's Square, Inc. and its Subsidiaries, in each case as of such 
     last day, then constitutes of the Inventory Value of all Inventory of
     the Borrower and its Subsidiaries (other than Builders' Square, Inc. and
     its Subsidiaries) and of Builder's Square, Inc. and its Subsidiaries,
     respectively, in each case that consists of finished goods as of such last
     day, plus (y) in each case, 2.5%, is greater than the Ineligible Inventory
     Percentage then in effect with respect to the Inventory of the Borrower
     and its Subsidiaries (other than Builders' Square, Inc. and its
     Subsidiaries) or with respect to the Inventory of Builder's Square, Inc.
     and its Subsidiaries, then the Ineligible Inventory Percentage with
     respect to such Inventory of the Borrower and its Subsidiaries (other than
     Builders' Square, Inc. and its Subsidiaries) or of Builder's Square, Inc.
     and its Subsidiaries, as the case may be, shall be changed (effective at
     the end of such fiscal month) to be equal to such higher percentage
     (rounded to the nearest 1/10 of 1%), provided that, in the event that the
     excess of the Borrowing Base over the Aggregate Revolving Credit 
     Outstandings shall be less than $1,000,000,000 for any period of five
     consecutive Business Days, the Ineligible Inventory Percentage shall also
     thereafter be recalculated in accordance with the foregoing in connection
     with the delivery of the Borrowing Base Certificate with respect to the
     third and ninth fiscal months of each Fiscal Year thereafter unless
     subsequent to the end of such period there shall occur a period of ten
     consecutive Business Days during which the excess of the Borrowing
        

<PAGE>   31


                                     25




     Base over the Aggregate Revolving Credit Outstandings shall be greater
     than or equal to $1,000,000,000.  In addition, (A) the Borrower may, at
     its option by so indicating in the relevant Borrowing Base Certificate,
     require that the Ineligible Inventory Percentage with respect to the
     Inventory of the Borrower and its Subsidiaries (other than Builders'
     Square, Inc. and its Subsidiaries) and/or of Builder's Square, Inc. and
     its Subsidiaries be calculated based upon the actual Ineligible Inventory
     Amount as of the last day of any fiscal month (and the Borrowing Base
     Certificate with respect to such fiscal month shall include a calculation
     of the Ineligible Inventory Amount with respect to the Inventory of the
     Borrower and its Subsidiaries (other than Builders' Square, Inc. and its
     Subsidiaries) and/or of Builder's Square, Inc. and its Subsidiaries or, if
     a Borrowing Base Certificate shall have been delivered with respect to the
     immediately preceding fiscal month, the Borrower may redeliver such
     Borrowing Base Certificate to include such calculation)  in which case the
     Ineligible Inventory Percentage solely with respect to such fiscal month
     shall be the Ineligible Inventory Percentage as so calculated and the
     Ineligible Inventory Percentage with respect to any other fiscal month for
     which an election is not made pursuant to this clause (A) shall be
     determined in accordance with the first sentence of this definition and
     (B) in the event that in the reasonable judgment of the Administrative
     Agent there are any changes in the business of the Borrower or any of the
     Subsidiaries that impact in any material respect the composition or
     ownership of the Inventory, the Administrative Agent may require that the
     Ineligible Inventory Percentage with respect to the Inventory of the
     Borrower and its Subsidiaries (other than Builders' Square, Inc. and its
     Subsidiaries) and/or of Builder's Square, Inc.  and its Subsidiaries be
     recalculated based upon the actual Ineligible Inventory Amount as of the
     last day of any fiscal month (and the Borrowing Base Certificate with
     respect to such fiscal month shall include a calculation of the Ineligible
     Inventory Amount with respect to the Inventory of the Borrower and its
     Subsidiaries (other than Builders'  Square, Inc. and its
     Subsidiaries) and/or of Builder's Square, Inc. and its Subsidiaries in
     which case the Ineligible Inventory  Percentage with respect to such
     fiscal month shall be the Ineligible  Inventory Percentage as so
     calculated and the Ineligible Inventory  Percentage with respect to any
     other fiscal month for which recalculation  is not required pursuant to
     this clause (B) shall be determined in  accordance with the first sentence
     of this definition.
        
          "Initial Closing Date":  June 17, 1996.

          "Insolvency":  with respect to any Multiemployer Plan, the condition
     that such Plan is insolvent within the meaning of Section 4245 of ERISA.

          "Intellectual Property":  as defined in subsection 5.17.

          "Interest Expense":  of any Person for any period, (a) the amount of
     interest expense, both expensed and capitalized, of such Person and its
     Consolidated Subsidiaries determined on a consolidated basis in accordance
     with GAAP for such period minus (b) the amount of interest income of such
     Person and its Consolidated Subsidiaries determined on a consolidated
     basis in accordance with GAAP for such period, provided that (i) in no
     event shall Interest Expense include any distributions in respect of the
     Convertible Preferred Securities or interest payments on the Convertible
     Debentures or any fees or amortization of debt discount associated with
     the transactions contemplated hereby, by the Existing Credit Agreement or
     by the Convertible Preferred Securities, and the calculation of Interest
     Expense shall not be impacted or affected by the sale or other disposition
     of the Repurchased Put Bonds and (ii) Interest Expense of the Borrower for
     any period shall include any Interest Expense in respect of Qualified Big
     Beaver Indebtedness for such period.





<PAGE>   32

                                     26




          "Interest Payment Date":  (a) as to any ABR Loan, the last day of
     each April, July, October and January, (b) as to any Eurodollar Loan
     having an Interest Period of three months or less, the last day of such
     Interest Period, (c) as to any Eurodollar Loan having an Interest Period
     longer than three months, each day which is three months, or a whole
     multiple thereof, after the first day of such Interest Period and the last
     day of such Interest Period and (d) as to any Swing Line Loan, the fifth
     Business Day following the day on which such Swing Line Loan is made.

          "Interest Period":  with respect to any Eurodollar Loan:

               (a)  initially, the period commencing on the borrowing or
          conversion date, as the case may be, with respect to such Eurodollar
          Loan and ending one, two, three or six months thereafter, as selected
          by the Borrower in its notice of borrowing or notice of conversion,
          as the case may be, given with respect thereto; and

               (b)  thereafter, each period commencing on the last day of the
          next preceding Interest Period applicable to such Eurodollar Loan and
          ending one, two, three or six months thereafter, as selected by the
          Borrower by irrevocable notice to the Administrative Agent not less
          than three Business Days prior to the last day of the then current
          Interest Period with respect thereto;

          provided that, all of the foregoing provisions relating to Interest
          Periods are subject to the following:

                    (1)  if any Interest Period would otherwise end on a day
               that is not a Business Day, such Interest Period shall be
               extended to the next succeeding Business Day unless the result
               of such extension would be to carry such Interest Period into
               another calendar month in which event such Interest Period shall
               end on the immediately preceding Business Day;

                    (2) any Interest Period that would otherwise extend beyond
               the Revolving Credit Termination Date shall end on the Revolving
               Credit Termination Date; and

                    (3) any Interest Period that begins on the last Business
               Day of a calendar month (or on a day for which there is no
               numerically corresponding day in the calendar month at the end
               of such Interest Period) shall end on the last Business Day of a
               calendar month.

          "Inventory Security Agreement":  the Inventory Security Agreement,
     dated as of June 17, 1996, made by the Borrower and the Subsidiary
     Guarantors (other than the Big Beaver Companies) in favor of the Trustee,
     substantially in the form of Exhibit A-2 to the Trust Agreement, as the
     same may be amended, supplemented or otherwise modified from time to time.

          "Inventory Value":  with respect to any Inventory of the Borrower or
     any Subsidiary Guarantor, the value of such Inventory valued at cost on a
     basis consistent with the Borrower's or such Subsidiary Guarantor's
     current and historical accounting practice (without giving effect to LIFO
     reserves, general ledger reserves for discontinued inventory, markdowns,
     inter-company profit, rebates and discounts, any cut off adjustments,
     revaluation adjustments,





<PAGE>   33

                                     27





     purchase price adjustments or adjustments with respect to the
     capitalization of buying, occupancy, distribution and other overhead costs
     reflected on the consolidated balance sheet of the Borrower and its
     Consolidated Subsidiaries in respect of Inventory) plus freight charges
     incurred in connection therewith.  The value of the Inventory as set forth
     above will, without duplication, be calculated net of the reserve
     established by the Borrower or any Subsidiary Guarantor on a basis
     consistent with the Borrower's or such Subsidiary Guarantor's current and
     historical accounting practice in respect of lost, misplaced or stolen
     Inventory at such time.

          "Investment":  as defined in subsection 8.9.

          "Issuing Banks":  initially, (a) each Lender specified on Schedule
     1.1(a) as an Issuing Bank and (b) each Existing Issuing Bank listed on
     Schedule 5.20, in each case in its capacity as issuer of a Letter of
     Credit.  Additional Lenders may from time to time be designated as
     "Issuing Banks" by the Borrower (with the consent of such Lender and with
     the consent (which shall not be unreasonably withheld) of the
     Administrative Agent) by written notice to such effect from the Borrower
     to the Administrative Agent.

          "Judgment Currency":  as defined in subsection 11.19.

          "L/C Commitment":  at any time, the lesser of (a)(i) prior to
     January 1, 1998, $1,250,000,000 and (ii) thereafter, $1,500,000,000, and
     (b) the Revolving Credit Commitments then in effect.

          "L/C Fee Payment Date":  the last day of each April, July, October
     and January and the Revolving Credit Termination Date.

          "L/C Obligations":  at any time, an amount equal to the sum of (a)
     the aggregate then undrawn and unexpired amount of the then outstanding
     Letters of Credit issued in Dollars, (b) the Dollar Equivalent of the
     aggregate then undrawn and unexpired amount of the then outstanding
     Letters of Credit issued in currencies other than Dollars (such Dollar
     Equivalent to be calculated as of the date of issuance of such Letters of
     Credit), (c) the aggregate amount of Reimbursement Obligations in respect
     of Letters of Credit issued in Dollars which have not then been paid
     pursuant to subsection 3.10(a) and (d) the Dollar Equivalent of the
     aggregate amount of Reimbursement Obligations in respect of Letters of 
     Credit issued in currencies other than Dollars which have not then been 
     paid pursuant to subsection 3.10(a) (such Dollar Equivalent to be 
     calculated as of the date such Reimbursement Obligation becomes due and
     payable).

          "L/C Participants":  the collective reference to all the Lenders.

          "Lenders":  as defined in the preamble to this Agreement.

          "Letter of Credit Issuance Agreement":  the Letter of Credit Issuance
     Agreement, dated as of February 29, 1996, among the Borrower, [        ]
     as agent, and the financial institutions parties thereto, as amended.

          "Letters of Credit":  as defined in subsection 3.6(a).





<PAGE>   34


                                     28




          "Leverage Ratio":  as of any date of determination thereof, the
     quotient of (a) Consolidated Funded Debt of the Borrower as of such date
     of determination divided by (b) Consolidated Capital Funds of the Borrower
     as of such date of determination.

          "LIBO Rate":  in respect of any LIBO Rate CAF Advance, the London
     interbank offered rate for deposits in Dollars for the period commencing
     on the date of such CAF Advance and ending on the CAF Advance Maturity
     Date with respect thereto which appears on Telerate Page 3750 as of 11:00
     A.M., London time, two Business Days prior to the beginning of such
     period.

          "LIBO Rate CAF Advance":  any CAF Advance made pursuant to a LIBO
     Rate CAF Advance Request.

          "LIBO Rate CAF Advance Request":  any CAF Advance Request requesting
     the Lenders to offer to make CAF Advances at an interest rate equal to the
     LIBO Rate plus (or minus) a margin.

          "Lien":  any mortgage, pledge, hypothecation, assignment, deposit
     arrangement, encumbrance, lien (statutory or other), charge or other
     security interest or any preference, priority or other security agreement
     or preferential arrangement of any kind or nature whatsoever (including,
     without limitation, any conditional sale or other title retention
     agreement and any Financing Lease having substantially the same economic
     effect as any of the foregoing).

          "Loan":  any Revolving Credit Loan, Swing Line Loan, Bilateral Option
     Loan or CAF Advance, as the case may be.

          "Loan Documents":  this Agreement, any Notes, the Trust Agreement,
     the Subsidiaries Guarantee, the Security Documents and any Applications.

          "Loan Parties":  the collective reference to the Borrower, the
     Subsidiary Guarantors and any other Subsidiary from time to time party to
     any Loan Document.

          "Majority Lenders":  at any time, Lenders the Voting Percentages of
     which aggregate more than 50%.

          "Margin Level Status":  as to the Borrower, the existence of Margin 
     Level I Status, Margin Level II Status, Margin Level III Status, Margin 
     Level IV Status, Margin Level V Status, Margin Level VI Status or Margin 
     Level VII Status, as the case may be.

          "Margin Level I Status":  as to the Borrower, shall exist on an
     Adjustment Date if the Fixed Charge Coverage Ratio as of the last day of
     the period covered by the financial statements relating to such Adjustment
     Date is less than or equal to 1.75 to 1.00.

          "Margin Level II Status":  as to the Borrower, shall exist on an
     Adjustment Date if the Fixed Charge Coverage Ratio as of the last day of
     the period covered by the financial statements relating to such Adjustment
     Date is greater than 1.75 to 1.00 but less than or equal to 2.00 to 1.00.





<PAGE>   35


                                     29




          "Margin Level III Status":  as to the Borrower, shall exist on an
     Adjustment Date if the Fixed Charge Coverage Ratio as of the last day of
     the period covered by the financial statements relating to such Adjustment
     Date is greater than 2.00 to 1.00 but less than or equal to 2.25 to 1.00.

          "Margin Level IV Status":  as to the Borrower, shall exist on an
     Adjustment Date if the Fixed Charge Coverage Ratio as of the last day of
     the period covered by the financial statements relating to such Adjustment
     Date is greater than 2.25 to 1.00 but less than or equal to 2.50 to 1.00.

          "Margin Level V Status":  as to the Borrower, shall exist on an
     Adjustment Date if the Fixed Charge Coverage Ratio as of the last day of
     the period covered by the financial statements relating to such Adjustment
     Date is greater than 2.50 to 1.00 but less than or equal to 2.75 to 1.00.

          "Margin Level VI Status":  as to the Borrower, shall exist on an
     Adjustment Date if the Fixed Charge Coverage Ratio as of the last day of
     the period covered by the financial statements relating to such Adjustment
     Date is greater than 2.75 to 1.00 but less than or equal to 3.00 to 1.00.

          "Margin Level VII Status":  as to the Borrower, shall exist on an
     Adjustment Date if the Fixed Charge Coverage Ratio as of the last day of
     the period covered by the financial statements relating to such Adjustment
     Date is greater than 3.00 to 1.00.

          "Markdown Percentage":  with respect to any fiscal month, the
     percentage which the aggregate amount of markdowns by the Borrower and the
     Subsidiary Guarantors from the beginning of the relevant Fiscal Year
     through the end of such fiscal month represents of total sales of the
     Borrower and the Subsidiary Guarantors from the beginning of the relevant
     Fiscal Year through the end of such fiscal month.  The "Markdown
     Percentage" shall be calculated separately for Builders Square, Inc. and
     its Subsidiaries which are Subsidiary Guarantors, on the one hand, and the
     Borrower and the other Subsidiary Guarantors, on the other hand.

          "Markdown Reserve":  with respect to any fiscal month, an amount 
     equal to the product of (x) an amount equal to 50% of the Eligible 
     Inventory Amount as of the last day of such fiscal month times (y) the 
     product of (i) the Markdown Percentage for such fiscal month and (ii) the 
     Cost Complement for such fiscal month.  The "Markdown Reserve" shall be 
     calculated separately for Builders Square, Inc. and its Subsidiaries which
     are Subsidiary Guarantors, on the one hand, and the Borrower and the other 
     Subsidiary Guarantors, on the other hand, and then combined to produce 
     the "Markdown Reserve".

          "Material Adverse Effect":  a material adverse effect on (a) the
     business, operations, property, condition (financial or otherwise) or
     prospects of the Borrower and its Subsidiaries taken as a whole or (b) the
     validity or enforceability of this Agreement or any of the other Loan
     Documents or the material rights or remedies of the Trustee, the
     Administrative Agent or the Lenders hereunder or thereunder; it being
     understood that any past or future reduction in the Borrower's or any
     Subsidiary's credit rating or decline in the market price of the
     Borrower's or any Subsidiary's equity securities shall not in and of
     themselves be deemed to constitute a Material Adverse Effect.





<PAGE>   36


                                     30




          "Material Real Property":  real property not subject to a mortgage,
     deed of trust or other similar instrument (other than pursuant hereto)
     that (a) (i) is owned in fee by the Borrower or any Subsidiary Guarantor
     and is not subject to a ground lease in favor of any other Person as
     lessee, (ii) is located in the United States or Puerto Rico and (iii) (A)
     has been developed with a retail store, distribution center, shopping
     center or office building with respect to which a certificate of occupancy
     or temporary certificate of occupancy shall have been issued by the
     relevant Governmental Authority, (B) is being developed with a retail
     store, distribution center, shopping center or office building which is
     under construction as of the Initial Closing Date or (C) is undeveloped
     and has a book value (excluding soft costs) of at least $1,000,000 or (b)
     (i) (A) consists of a developed retail store, distribution center,
     shopping center or office building with respect to which a certificate of
     occupancy or temporary certificate of occupancy shall have been issued by
     the relevant Governmental Authority, or (B) is being developed with a
     retail store, distribution center, shopping center or office building
     which was under construction as of the Initial Closing Date, (ii) is
     located on property which is subject to a ground lease in favor of the
     Borrower or any Subsidiary Guarantor as lessee and no consent shall be
     required under such ground lease to mortgage or foreclose upon such
     property (or such consent shall have been obtained), (iii) is or, upon
     completion, will be classified as an owned retail store, distribution
     center, shopping center or office building by the Borrower or such
     Subsidiary Guarantor and (iv) is located in the United States or Puerto
     Rico.

          "Materials of Environmental Concern":  any gasoline or petroleum
     (including crude oil or any fraction thereof) or petroleum products or any
     hazardous or toxic substances, materials or wastes, defined or regulated
     as such in or under any Environmental Law, including, without limitation,
     asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.

          "Meldisco":  the collective reference to the Meldisco Shoe Company
     subsidiaries which operate the footwear departments in the Borrower's
     retail stores.

          "Moody's":  Moody's Investors Service, Inc.

          "Mortgage Value":  (a) with respect to any parcel of Eligible 
     Mortgaged Real Property or Eligible California Real Property, the
     lesser of (i) the maximum amount secured by the Lien on such parcel of
     Eligible Mortgaged Real Property or Eligible California Real Property, as
     the case may be, granted in favor of the applicable secured mortgagee
     pursuant to the relevant Mortgage or Subsidiary Mortgage, as the case may
     be, and (ii) the value of such parcel of Eligible Mortgaged Real Property
     or Eligible California Real Property, as the case may be, set forth in the
     Final Appraisal delivered with respect thereto or, in the case of any
     parcel of Eligible Mortgaged Real Property or Eligible California Real
     Property as of the Initial Closing Date, set forth in the Preliminary
     Appraisal with respect thereto, provided that, if a Final Appraisal was
     not delivered with respect to any parcel of Eligible Mortgaged Real
     Property or Eligible California Real Property as of the Initial Closing
     Date, then upon delivery of such Final Appraisal (A) the value of such
     parcel of Eligible Mortgaged Real Property or Eligible California Real
     Property, as the case may be, for purposes of clause (ii) above shall be
     the value of such parcel of Eligible Mortgaged Real Property or Eligible
     California Real Property, as the case may be, set forth in such Final
     Appraisal and (B) the Borrowing Base shall be adjusted to reflect such
     value effective as of the delivery of the Borrowing Base Certificate in
     respect of the fiscal month in which such Final Appraisal is delivered to
     the Administrative Agent, provided, further, that in no event shall the
     Mortgage Value of any parcel of Eligible California Real Property exceed
     the amount secured by the Lien on such parcel of Eligible





<PAGE>   37

                                     31




     California Real Property under the related California Mortgage Note or
     Notes and (b) with respect to any parcel of Eligible Put Bond Real
     Property at any time, the least of (i) the aggregate principal amount of
     Repurchased Put Bonds (not including any principal which has not accreted
     on the date of valuation) (A) which is secured by a Lien on such parcel of
     Eligible Put Bond Real Property created pursuant to the applicable Put
     Bond Mortgages and (B) with respect to which the related promissory note
     or other evidence of indebtedness is then subject to a perfected security
     interest in favor of the Trustee, (ii) the maximum amount secured by the
     Lien on such parcel of Eligible Put Bond Real Property created pursuant to
     the applicable Put Bond Mortgages and (iii) the value of such parcel of
     Eligible Put Bond Real Property set forth in the Final Appraisal or
     Preliminary Appraisal delivered with respect thereto, provided that, if a
     Final Appraisal was not delivered with respect to any parcel of Eligible
     Put Bond Real Property as of the Initial Closing Date, then upon delivery
     of such Final Appraisal (A) the value of such parcel of Eligible Put Bond
     Real Property for purposes of this clause (iii) shall be the value of such
     parcel of Eligible Put Bond Real Property set forth in such Final
     Appraisal and (B) the Borrowing Base shall (to the extent required) be
     adjusted to reflect such value effective as of the delivery of the
     Borrowing Base Certificate in respect of the fiscal month in which such
     Final Appraisal is delivered to the Administrative Agent.

          "Mortgages":  the collective reference to the fee and ground
     leasehold mortgages, deeds of trust and other similar documents executed
     and delivered from time to time by the Borrower and the Subsidiary
     Guarantors in favor of the Trustee, pursuant to the Trust Agreement or
     this Agreement, substantially in the form of Exhibit B to the Trust
     Agreement or, if such Exhibit is not appropriate under applicable law in
     the jurisdiction in which the relevant real property is located, in such
     other form as shall be reasonably satisfactory to the Borrower and the
     Administrative Agent, as each of the same may be amended, supplemented or
     otherwise modified from time to time.

          "Multiemployer Plan":  a Plan which is a multiemployer plan as
     defined in Section 4001(a)(3) of ERISA.

          "Net Income":  of any Person for any period, net income of such
     Person and its Consolidated Subsidiaries, determined on a consolidated
     basis in accordance with GAAP for such period.

          "Net Revenue":  of any Person for any period, net revenue of such
     Person and its Consolidated Subsidiaries, determined on a consolidated
     basis in accordance with GAAP for such period.

          "Net Worth":  of any Person, as of the date of determination thereof,
     the sum of (without duplication) (a) Shareholders' Equity of such Person
     as of such date of determination, and (b) the excess, if any, of (i) the
     aggregate amount of net after-tax non-cash charges resulting from the
     write-down of assets that have the effect of reducing the amount set forth
     in clause (a) above, taken after the end of the 1995 Fiscal Year in
     connection with the sale or other disposition of any asset the sale of
     which would constitute a Scheduled Asset Sale over (ii) any reversal of
     any of the foregoing charges.

          "Non-Excluded Taxes":  as defined in subsection 4.10.


<PAGE>   38

                                     32




          "Non-Executing Persons":  as defined in subsection 6.1(a).

          "Notes":  the collective reference to any Revolving Credit Notes, any
     Swing Line Notes and any CAF Advance Notes.

          "Packaway Reserve":  $10,000,000.

          "parcel":  when used in connection with any parcel of real property,
     means such parcel of real property, together with all of the structures,
     buildings and other improvements located thereon and all other property
     associated therewith and, when used in connection with any parcel of real
     property subject to a ground lease in favor of the Borrower or any
     Subsidiary Guarantor as lessee, means the leasehold interest in such
     ground lease.

          "Participant":  as defined in subsection 11.6(b).

          "PBGC":  the Pension Benefit Guaranty Corporation established
     pursuant to Subtitle A of Title IV of ERISA, or any Governmental Authority
     which succeeds to the powers and functions thereof.

          "Permitted Inventory Liens":  the collective reference to Liens
     permitted by subsections 8.4(a), 8.4(b) and 8.4(m).

          "Permitted Mortgage Liens":  the collective reference to Liens
     permitted by subsections 8.4(a), 8.4(b), 8.4(e) and 8.4(m).

          "Permitted Sale-Leaseback":  as defined in subsection 8.12.

          "Person":  an individual, partnership, corporation, business trust,
     joint stock company, trust, unincorporated association, joint venture,
     limited liability company, Governmental Authority or other entity of
     whatever nature.

          "Plan":  at a particular time, any employee benefit plan which is
     covered by ERISA and in respect of which the Borrower or a Commonly
     Controlled Entity is (or, if such plan were terminated at such time, would
     under Section 4069 of ERISA be deemed to be) an "employer" as defined in
     Section 3(5) of ERISA.

          "Pledge Agreement":  the Securities Pledge Agreement, dated as of
     June 17, 1996, made by the Borrower and certain of the Subsidiary
     Guarantors in favor of the Trustee, in substantially the form of Exhibit C
     to the Trust Agreement, as the same may be amended, supplemented or
     otherwise modified from time to time.

          "Pledgors":  the collective reference to the pledgors parties to the
     Pledge Agreement.

          "Preliminary Appraisal":  with respect to any parcel of Material Real
     Property, Put Bond Real Property or Designated Big Beaver Real Property as
     of the Initial Closing Date, a preliminary appraisal in summary form of
     the value of such parcel of Material Real Property, Put Bond Real Property
     or Designated Big Beaver Real Property, as the case may be, commissioned
     in connection with the Existing Credit Agreement and valued on an
     "alternative use" basis which in the reasonable judgment of the
     Administrative Agent satisfies all





<PAGE>   39


                                     33




     applicable requirements of FIRREA and the Uniform Standards of
     Professional Appraisal Practice.

          "Prescription Drug Reserve":  as of the last day of any fiscal month,
     an amount equal to 50% of the Inventory Value of all Inventory consisting
     of prescription drugs as of such day.

          "Purchased Credit Facilities":  collectively, the credit facilities
     under the Big Beaver Loan Agreements.

          "Put Bond Mortgages":  as defined in subsection 5.19(b).

          "Put Bond Real Property":  any parcel of real property subject to a
     Lien created pursuant to the Put Bond Mortgages to secure the repayment of
     all or a portion of the Repurchased Put Bonds.

          "Qualified Big Beaver Indebtedness":  as defined in subsection 8.13

          "Reference Lenders":  Chase, Bank of America National Trust and
     Savings Association and The Bank of New York.

          "Register":  as defined in subsection 11.6(d).

          "Regulation U":  Regulation U of the Board of Governors as in effect
     from time to time.

          "Reimbursement Obligation":  the obligation of the Borrower pursuant
     to subsection 3.10(a) to reimburse each Issuing Bank for amounts drawn 
     under any Letter of Credit issued by such Issuing Bank.

          "Rental Expense":  of any Person for any period, the aggregate amount
     of fixed and contingent rentals payable by such Person for such period in
     accordance with GAAP with respect to leases of real property minus the
     aggregate amount of rental income (including licensee related income from
     licensees operating on the store premises of the Borrower and its
     Subsidiaries) payable to such Person for such period in accordance with
     GAAP with respect to leases of real and personal property.

          "Reorganization":  with respect to any Multiemployer Plan, the
     condition that such plan is in reorganization within the meaning of
     Section 4241 of ERISA.

          "Reportable Event":  any of the events set forth in Section 4043(b)
     of ERISA, other than those events as to which the thirty day notice period
     is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
     Section 2615.

          "Repurchased Put Bonds":  collectively, the bonds or notes or
     certificates issued pursuant to the agreements described on Schedule
     1.1(c) under the heading "Repurchased Put Bonds", as amended,
     supplemented, substituted, replaced or otherwise modified from time to
     time.

          "Requested Bilateral Lender":  as defined in subsection 3.18.





<PAGE>   40

                                     34




          "Required Lenders":  at any time, Lenders the Voting Percentages of
     which aggregate more than 66-2/3%.

          "Requirement of Law":  as to any Person, the Certificate of
     Incorporation and By-Laws or other organizational or governing documents
     of such Person, and any law, statute, ordinance, code, decree, treaty,
     rule or regulation or determination of an arbitrator or a court or other
     Governmental Authority, in each case applicable to or binding upon such
     Person or any of its property or to which such Person or any of its
     property is subject (including, without limitation, laws, ordinances and
     regulations pertaining to the zoning, occupancy and subdivision of real
     property).

          "Responsible Officer":  the chief executive officer, the president,
     any executive vice president, the chief financial officer or the treasurer
     of the Borrower or, with respect to financial matters, the chief executive
     officer, the president, the executive vice president-finance, the chief
     financial officer or treasurer of the Borrower, provided that, for
     purposes of Section 9(d) only, a "Responsible Officer" shall also include
     any other senior executive officer of the Borrower, as well as the general
     counsel, vice president - real estate finance, vice president - real
     estate and any assistant treasurer of the Borrower.

          "Restricted Payments":  as defined in subsection 8.7.

          "Restricted Subsidiaries":  collectively, the Domestic Subsidiaries
     and Significant Foreign Subsidiaries.

          "Return Reserve":  with respect to any fiscal month, the average
     monthly amount of Inventory transferred by the Borrower and the Subsidiary
     Guarantors to return centers during the immediately preceding 12 fiscal
     month period.

          "Revolving Credit Commitment":  as to any Lender, the obligation of
     such Lender to make Revolving Credit Loans to and/or participate in Swing
     Line Loans to and/or issue or participate in Letters of Credit issued on
     behalf of the Borrower hereunder in an aggregate principal and/or face
     amount at any one time outstanding not to exceed the amount set forth
     opposite such Lender's name on Schedule 1.1(a) under the heading
     "Revolving Credit Commitment", as such amount may be reduced from time to
     time pursuant to this Agreement or as such amount may be adjusted from 
     time to time pursuant to subsection 11.6; collectively, as to all such 
     Lenders, the "Revolving Credit Commitments".

          "Revolving Credit Commitment Percentage":  as to any Lender (a) at
     any time prior to the termination of the Revolving Credit Commitments, the
     percentage of the Revolving Credit Commitments then constituted by such
     Lender's Revolving Credit Commitment and (b) at any time after the
     termination of the Revolving Credit Commitments, the percentage which (i)
     the sum of (x) such Lender's Revolving Credit Loans then outstanding plus
     (y) the product of such Lender's Revolving Credit Commitment Percentage
     immediately prior to the termination of the Revolving Credit Commitments
     (after giving effect to any permitted assignment pursuant to subsection
     11.6) times the sum of (1) the aggregate principal amount of Swing Line
     Loans then outstanding plus (2) the L/C Obligations then outstanding then
     constitutes of (ii) the sum of (x) the aggregate principal amount of
     Revolving Credit Loans of all the Lenders then outstanding plus (y) the
     aggregate principal amount of all Swing Line Loans then outstanding plus
     (z) the aggregate L/C Obligations then outstanding.





<PAGE>   41


                                     35




          "Revolving Credit Commitment Period":  the period from and including
     the Initial Closing Date to but not including the Revolving Credit
     Termination Date or such earlier date on which the Revolving Credit
     Commitments shall terminate as provided herein.

          "Revolving Credit Loans":  as defined in subsection 3.1.

          "Revolving Credit Note":  as defined in subsection 4.13(d).

          "Revolving Credit Termination Date":  June 17, 2000.

          "Sale-Leaseback":  as defined in subsection 8.12.

          "S&P":  Standard & Poor's Ratings Group.

          "Scheduled Asset Sales":  as defined in subsection 8.6(f).

          "SEC":  the Securities and Exchange Commission and any Governmental
     Authority which succeeds to the powers and functions thereof.

          "Securitization Entity":  with respect to the Borrower or any
     Subsidiary, a corporation, partnership, trust, limited liability company
     or other entity that is formed by the Borrower or such Subsidiary for the
     purpose of effecting or facilitating a Securitization Transaction and
     which engages in no business and incurs no Indebtedness or other
     liabilities other than those related to or incidental to a Securitization
     Transaction.

          "Securitization Transactions":  a transaction or series of related
     transactions pursuant to which a corporation, partnership, trust, limited
     liability company or other entity incurs obligations or issues interests,
     the proceeds of which are used to finance a discrete pool (which may be
     fixed or revolving) of receivables, leases or other financial assets, or a
     discrete portfolio of real property or equipment.

          "Security Agreement":  the Security Agreement, dated as of June 17,
     1996, made by the Borrower and the Subsidiary Guarantors (other than the
     Big Beaver Companies) in favor of the Trustee, substantially in the form
     of Exhibit A-1 to the Trust Agreement, as the same may be amended, 
     supplemented or otherwise modified from time to time.

          "Shareholders' Equity":  of any Person, as of the date of
     determination thereof, the sum of (a) all items which in conformity with
     GAAP would be included under shareholders' equity on a consolidated
     balance sheet of such Person and its Consolidated Subsidiaries at such
     date of determination and (b) the item which in conformity with GAAP would
     reflect the amount of Convertible Preferred Securities and/or the
     Convertible Debentures (and the obligations of such Person with respect
     thereto) on the consolidated balance sheet of such Person and its
     Consolidated Subsidiaries at such date of determination.

          "Shrinkage Reserve":  at any time, an amount equal to the excess, if
     any, of (a) an amount equal to the product of (i) the average percentage
     of Inventory which was identified as lost, misplaced or stolen Inventory
     (expressed as a percentage of total sales of the Borrower and the
     Subsidiary Guarantors for the relevant period) in connection with the then
     two most recent year-end physical inventories conducted by the Borrower
     and the Subsidiary Guarantors





<PAGE>   42

                                     36




     and (ii) the product of (A) the total sales of the Borrower and the
     Subsidiary Guarantors for the period commencing at the beginning of the
     Fiscal Year in which such determination is made and ending at the end of
     the most recently ended fiscal month and (B) the Cost Complement with
     respect to the most recently ended fiscal month over (b) the reserve
     established by the Borrower or any Subsidiary Guarantor on a basis
     consistent with the Borrower's or such Subsidiary Guarantor's current and
     historical accounting practice in respect of lost, misplaced or stolen
     Inventory at such time.

          "Significant Foreign Subsidiary":  any Foreign Subsidiary which is a
     Significant Subsidiary.

          "Significant Subsidiary":  any Subsidiary (a) the Total Assets of
     which exceed 10% of the Total Assets of the Borrower and its Consolidated
     Subsidiaries as of the end of the most recently completed Fiscal Year or
     (b) the Net Revenue of which exceeds 10% of the Net Revenue of the
     Borrower and its Consolidated Subsidiaries as of the end of the most
     recently completed Fiscal Year.

          "Single Employer Plan":  any Plan which is covered by Title IV of
     ERISA, but which is not a Multiemployer Plan.

          "Solvent":  when used with respect to any Person, means that, as of
     any date of determination, (a) the amount of the "present fair saleable
     value" of the assets of such Person and its Subsidiaries, taken as a
     whole, will, as of such date, exceed the amount that will be required to
     pay all "liabilities of such Person and its Subsidiaries, taken as a
     whole, contingent or otherwise", as of such date (as such quoted terms are
     determined in accordance with applicable federal and state laws governing
     determinations of the insolvency of debtors) as such debts become absolute
     and matured, (b) such Person and its Subsidiaries, taken as a whole, will
     not have, as of such date, an unreasonably small amount of capital with
     which to conduct their businesses, and (c) such Person and its
     Subsidiaries, taken as a whole, will be able to pay their debts as they
     mature, taking into account the timing of and amounts of cash to be
     received by such Person and its Subsidiaries, taken as a whole, and the
     timing of and amounts of cash to be payable on or in respect of
     indebtedness of such Person and its Subsidiaries, taken as a whole; in
     each case after giving effect to (A) as of the Effective Date the making
     of the extensions of credit to be made on the Effective Date and to the
     application of the proceeds of such extensions of credit and (B) on any
     date after the Effective Date, the making of any extension of credit to 
     be made on such date, and to the application of the proceeds of such 
     extension of credit.  For purposes of this definition, (i) "debt" means 
     liability on a "claim", and (ii) "claim" means any (x) right to payment, 
     whether or not such a right is reduced to judgment, liquidated, 
     unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
     legal or equitable, secured or unsecured or (y) right to an equitable
     remedy for breach of performance if such breach gives rise to a right to
     payment, whether or not such right to an equitable remedy is reduced to
     judgment, fixed, contingent, matured or unmatured, disputed, undisputed,
     secured or unsecured.  For purposes of representations and warranties made
     pursuant to subsection 5.21 on any date after the Effective Date on which
     an Extension of Credit is made hereunder, the Borrower may, in making such
     representation, assume that the Aggregate Revolving Credit Outstandings
     will be refinanced at the maturity thereof.





<PAGE>   43

                                     37




          "Special Order Reserve":  with respect to any fiscal month, an amount
     equal to 50% of the average monthly special order sales of the Borrower
     and the Subsidiary Guarantors during the immediately preceding 12 fiscal
     month period.

          "Special Purpose Subsidiary":  any Subsidiary of the Borrower
     organized solely for the purpose of (a) holding a license or permit issued
     by any Governmental Authority and used in connection with the business of
     the Borrower and/or its Subsidiaries or (b) providing employee services
     for use in the foreign operations of the Borrower or any of its
     Subsidiaries, provided that such Subsidiary shall only be a "Special
     Purpose Subsidiary" for so long as such Subsidiary does not own any assets
     (other than any such license or permit and other than other assets with a
     book value not exceeding $10,000,000 in the aggregate) and does not engage
     in any business (other than holding such license or permit and activities
     directly related thereto).

          "Standby L/C Fee Rate":  at any time, the rate per annum equal to the
     Applicable Margin then in effect for Eurodollar Loans.

          "Standby Letter of Credit":  as defined in subsection 3.6(b)(i).

          "Subsidiaries Guarantee":  the Guarantee, dated as of June 17, 1996,
     executed and delivered by each Subsidiary Guarantor, substantially in the
     form of Exhibit E, as the same may be amended, supplemented or otherwise
     modified from time to time.

          "Subsidiary":  as to any Person, a corporation, partnership or other
     entity of which shares of stock or other ownership interests having
     ordinary voting power (other than stock or such other ownership interests
     having such power only by reason of the happening of a contingency) to
     elect a majority of the board of directors or other managers of such
     corporation, partnership or other entity are at the time owned, or the
     management of which is otherwise controlled, directly or indirectly
     through one or more intermediaries, or both, by such Person.  Unless
     otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries"
     in this Agreement shall refer to a Subsidiary or Subsidiaries of the
     Borrower.

          "Subsidiary Guarantor":  each Subsidiary set forth on Schedule 5.13 
     under the heading "Initial Subsidiary Guarantors", together with each 
     other Subsidiary that becomes a party to the Subsidiaries Guarantee in 
     compliance with subsection 7.11(b).

          "Subsidiary Mortgage":  with respect to any parcel of Material Real
     Property of the Borrower located in the State of California, Alaska,
     Nevada or Washington, a Mortgage (otherwise satisfying the requirements of
     the definition thereof, except that such Mortgage shall be executed and
     delivered by the Borrower in favor of a Subsidiary Guarantor and shall
     secure the applicable California Mortgage Note or Notes instead of the
     Senior Secured Obligations) on such parcel of Material Real Property.

          "Swing Line Commitment":  the lesser of (a) $150,000,000 and (b) the
     Revolving Credit Commitments then in effect.

          "Swing Line Lender":  Chase, in its capacity as provider of the Swing
     Line Loans.

          "Swing Line Loans":  as defined in subsection 3.21.





<PAGE>   44

                                     38




          "Swing Line Loan Participation Certificate":  a certificate,
     substantially the form of Exhibit M.

          "Swing Line Note":  as defined in subsection 4.13(e).

          "Swing Line Rate":  with respect to any Swing Line Loan, an interest
     rate equal to the sum of (a) the rate of interest determined by the Swing
     Line Lender in respect thereof (which determination shall be conclusive
     absent manifest error) to be the cost to the Swing Line Lender of funding
     such Swing Line Loan, (b) the Applicable Margin then in effect for
     Eurodollar Loans and (c) 0.75%.

          "Telerate Page 3750":  the display page currently so designated on
     the Dow Jones Telerate Service (or such other page as may replace that
     service for the purpose of displaying comparable rates or prices).

          "Temporary Cash Equivalent Investments":  Cash Equivalents with a
     maturity of less than 14 days.

          "Term Loan":  as defined in the Existing Credit Agreement.

          "Total Assets":  of any Person for any period, the total assets of
     such Person and its Consolidated Subsidiaries, determined on a
     consolidated basis in accordance with GAAP for such period.

          "Tranche":  the collective reference to Eurodollar Loans the then
     current Interest Periods with respect to all of which begin on the same
     date and end on the same later date (whether or not such Eurodollar Loans
     shall originally have been made on the same day).

          "Transferee":  as defined in subsection 11.6(f).

          "Trust Agreement":  the Trust Agreement, dated as of June 17, 1996,
     made by the Borrower and each other Obligor in favor of the Trustee, in
     substantially the form of Exhibit F, as the same may be amended,
     supplemented or otherwise modified from time to time.

          "Trustee":  collectively, the Corporate Trustee and the Individual
     Trustee.

          "Type":  as to any Revolving Credit Loan, its nature as an ABR Loan
     or a Eurodollar Loan.

          "UCC":  the Uniform Commercial Code as in effect in the State of New
     York from time to time.

          "UCC Filing Collateral":  Collateral (other than fixtures) as to
     which filing financing statements under the uniform commercial code of the
     applicable jurisdiction is an appropriate method of perfection of a
     security interest in such Collateral.

          "UCC Local Filing Collateral":  with respect to any State, UCC Filing
     Collateral located in such State as to which a security interest may be
     perfected only by filing a uniform





<PAGE>   45

                                     39




     commercial code financing statement in each county or other local filing
     office of such State in which such Collateral is located.

          "Uniform Customs":  the Uniform Customs and Practice for Documentary
     Credits (1993 Revision), International Chamber of Commerce Publication No.
     500, as the same may be amended or revised from time to time.

          "Voting Percentage":  as to any Lender (a) at any time prior to the
     termination of the Revolving Credit Commitments, the percentage which (i)
     such Lender's Revolving Credit Commitment then constitutes of the
     Revolving Credit Commitments of all the Lenders, and (b) at any time after
     the termination of the Revolving Credit Commitments, the percentage which
     (i) the sum of (x) the principal amount of such Lender's Revolving Credit
     Loans then outstanding plus (y) the product of such Lender's Revolving
     Credit Commitment Percentage times the sum of (A) the aggregate principal
     amount of Swing Line Loans then outstanding plus (B) the L/C Obligations
     then outstanding then constitutes of (ii) the sum of (x) the aggregate
     principal amount of Committed Loans of all the Lenders then outstanding
     plus (y) the aggregate L/C Obligations of all the Lenders then
     outstanding.

                   

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

          (b)  As used herein and in any other Loan Document, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Borrower and its Subsidiaries not defined in
subsection 1.1 and accounting terms partly defined in subsection 1.1, to the
extent not defined, shall have the respective meanings given to them under
GAAP.

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

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

          (e)  The definitions of "Debt" and "Indebtedness" in subsection 1.1
shall be independent in construction, interpretation and application.

          (f)  As used in this Agreement, the following terms defined in the
Trust Agreement shall have the meanings set forth therein:  Cash Equivalents,
Collateral Account, Instruments, Inventory, Investment Securities, Kmart Credit
Agreement Obligations, Mortgage Assignment, Mortgaged Property, Notice of
Acceleration, Notice of Default, Obligor, Pledged Stock, Related Patents and
Trademarks, Restricted Jurisdictions, Secured Obligations, Secured Parties,
Securities Account, Security Documents, Trustee Fees and Trust Estate.

                      SECTION 2.  [INTENTIONALLY OMITTED]





<PAGE>   46

                                     40






   SECTION 3.  AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS

          3.1  Revolving Credit Commitments.  (a)  Subject to the terms and 
conditions hereof, each Lender severally agrees to make revolving credit loans
("Revolving Credit Loans") to the Borrower from time to time during the
Revolving Credit Commitment Period in an aggregate principal amount at any one
time outstanding which, when added to such Lender's Revolving Credit Commitment
Percentage of an amount equal to the sum of the sum of (i) the aggregate 
principal amount of Swing Line Loans then outstanding plus (ii) the then
outstanding L/C Obligations plus (iii) the aggregate principal amount of all
Bilateral Option Loans and CAF Advances then outstanding (after giving effect
to the use of proceeds of such Revolving Credit Loans), does not exceed the
amount of such Lender's Revolving Credit Commitment, provided that no Lender
shall be required to make a Revolving Credit Loan prior to the Collateral
Release Date to the extent that, after giving effect thereto, the Aggregate
Revolving Credit Outstandings at such time would exceed the Borrowing Base at
such time.  During the Revolving Credit Commitment Period, the Borrower may use
the Revolving Credit Commitments by borrowing, prepaying and reborrowing the
Revolving Credit Loans in whole or in part, all in accordance with the terms
and conditions hereof.
        
          (b)  The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined
by the Borrower and notified to the Administrative Agent in accordance with
subsections 3.2 and 4.2, provided that no Revolving Credit Loan shall be made
as a Eurodollar Loan after the day that is one month prior to the Revolving
Credit Termination Date.

          3.2  Procedure for Revolving Credit Borrowing.   The Borrower may
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrower shall give
the Administrative Agent irrevocable notice (which notice must be received by
the Administrative Agent prior to 11:00 A.M., New York City time, (a) three
Business Days prior to the requested Borrowing Date, if all or any part of the
requested Revolving Credit Loans are to be initially Eurodollar Loans or (b) on
the requested Borrowing Date, otherwise), specifying (i) the amount to be
borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to
be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the
borrowing is to be entirely or partly of Eurodollar Loans, the respective
amounts of each such Type of Loan and the respective lengths of the initial
Interest Periods therefor.  Each borrowing under the Revolving Credit 
Commitments shall be in an amount equal to (x) in the case of ABR Loans,
$5,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the
excess  of the then Available Revolving Credit Commitments over the aggregate
principal amount of all Bilateral Option Loans and CAF Advances then
outstanding is less than $5,000,000, such lesser amount) and (y) in the case of
Eurodollar Loans, $10,000,000 or a whole multiple of $1,000,000 in excess
thereof.  Upon receipt of any such notice from the Borrower, the Administrative
Agent shall promptly notify each Lender thereof.  Each Lender will make the
amount of its pro rata share of each borrowing available to the Administrative
Agent for the account of the Borrower at the office of the Administrative Agent
specified in subsection 11.2 prior to 12:00 noon, New York City time, on the
Borrowing Date requested by the Borrower in Dollars and in funds immediately
available to the Administrative Agent.  Such borrowing will be made available
to the Borrower on or prior to 1:00 P.M., New York City time, by the
Administrative Agent crediting the account of the Borrower on the books of such
office of the Administrative Agent with the aggregate of the amounts made
available to the Administrative Agent by the Lenders and in like funds as
received by the Administrative Agent.

          3.3  Commitment Fee.  The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee for the
period from and including the first day of the





<PAGE>   47
                                     41




Revolving  Credit  Commitment Period  to  but  not including  the Revolving
Credit Termination Date,  computed at a rate per  annum equal to the Applicable
Commitment Fee Rate then in effect on the average daily amount of the Available
Revolving Credit Commitment of such Lender during the period (calculated as  if
no Swing Line Loans were outstanding  during such period) for which  payment is
made, payable quarterly in arrears on the last day of each April, July, October
and January and  on  the  Revolving  Credit Termination  Date or such  earlier 
date  as the  Revolving Credit Commitments shall terminate as provided herein, 
commencing on the first of such dates to occur after the date hereof.
        
          3.4   Termination  or  Reduction of  Commitments.   The Borrower
shall have the right,  upon not less  than two Business Days'  notice  to  the
Administrative Agent,  to  terminate  the Revolving Credit Commitments or, from
time to time, to reduce the amount of the Revolving Credit Commitments,
provided that no such termination  or reduction  shall  be permitted  if, after
giving effect  thereto and  to any prepayments  of the  Revolving Credit Loans
made on the effective date thereof, the aggregate principal amount of the
Revolving Credit Loans then outstanding, when added to  the  then  outstanding
L/C Obligations,  Swing  Line  Loans, Bilateral  Option  Loans  and  CAF
Advances,  would  exceed  the Revolving  Credit Commitments then in effect.
Any such reduction shall be in an amount equal to $10,000,000 or a whole
multiple of $1,000,000  in excess  thereof and  shall reduce  permanently the
Revolving Credit Commitments then in effect.  Upon receipt of any notice
pursuant to this  subsection 3.4, the Administrative Agent shall promptly
notify each Lender thereof.

          3.5  Repayment of Revolving Credit Loans.  The Borrower hereby
unconditionally  promises to  pay  to the  Administrative Agent  for the
account of  each Lender the  then unpaid principal amount  of each  Revolving
Credit Loan  of  such Lender  on  the Revolving Credit Termination Date (or
such earlier date on which the  Revolving Credit Loans  become due  and payable
pursuant to Section 9).  The  Borrower hereby further agrees to  pay interest
on the unpaid principal amount of the Revolving Credit Loans from time  to time
outstanding from  the date hereof  until payment in full thereof at the rates
per annum, and on the  dates, set forth in subsection 4.4.

          3.6  L/C  Commitment.  (a)   Subject  to the terms  and conditions
hereof,  each  Issuing   Bank,  in  reliance  on  the agreements  of the other
Lenders set forth in subsection 3.9(a), agrees to  issue letters of credit 
("Letters of Credit") for the account of the Borrower on  any Business Day
during the Revolving Credit Commitment Period  in such form as  may be approved
from  time to time  by such Issuing Bank;  provided that no  Issuing Bank shall
have  any obligation to  issue any  Letter  of Credit  if, after giving effect
to such issuance, (i) the L/C Obligations  at such time  would  exceed  the  
L/C Commitment,  (ii)  the  Aggregate Revolving  Credit  Outstandings at  such
time  would exceed  the aggregate amount of the Revolving Credit Commitments 
at such time, (iii) in the case of Letters of Credit issued prior to the 
Collateral Release Date, the Aggregate Revolving Credit Outstandings at such 
time would exceed the Borrowing Base at such time or (iv) in the case of 
Letters of Credit issued in currencies other than Dollars  only, the L/C        
Obligations in respect of Letters of Credit issued in currencies other than 
Dollars would exceed  the Foreign L/C Commitment Sublimit at such time.   Each
Continuing  Letter of Credit  shall be deemed  to be issued  under this
Agreement on the Effective Date (to the extent such Continuing Letter of Credit
has not  been fully drawn or has not  expired or  been terminated  as of the
Effective  Date) and shall be (x) a  Letter of Credit  for all purposes hereof 
(other than  subsection  3.7) and  the other  Loan  Documents and  (y) a
Commercial Letter of  Credit or  a Standby Letter  of Credit,  as applicable,
for  purposes  of  subsections  3.8(b)  and  3.8(c), respectively.
        
<PAGE>   48


                                     42


          (b)  Each Letter of Credit shall:

               (i)  be  denominated  in  Dollars  or  such  other currency that
     as  of the date of issuance thereof  is in the reasonable  judgment of
     the  relevant  Issuing Bank  (which shall be binding on the L/C
     Participants) freely convertible or exchangeable  into Dollars as the
     Borrower, the relevant Issuing Bank and the  Administrative Agent may from
     time to time  agree, and  shall be  either (A)  a standby  letter of
     credit  issued to support  obligations of the  Borrower or a Subsidiary,
     contingent  or otherwise (a  "Standby Letter  of Credit"), or  (B) a
     commercial letter  of credit  issued in respect of  the  purchase of
     inventory  or other  goods  or services  by  the  Borrower  and  its
     Subsidiaries  in  the ordinary  course   of  business  (a  "Commercial
     Letter  of Credit"), and

              (ii)  expire no later than  the earlier of (A) five Business Days
     prior to the Revolving Credit Termination Date and  (B)  one year  after
     the  date  of  issuance  thereof, provided that,  subject to clause  (A)
     above, any  Letter of Credit may, at the request of the Applicant  as set
     forth in the applicable Application, be automatically renewed on each
     anniversary of the issuance thereof for an additional period of one year
     unless the Issuing Bank which issued such Letter of  Credit  shall have
     given  prior written  notice  to the Borrower  and the beneficiary of such
     Letter of Credit that such Letter of Credit will not be renewed.

          (c)   Each  Letter of  Credit shall  be subject  to the Uniform
Customs  and, to  the extent not  inconsistent therewith, the laws of the State
of New York.

          (d)  No Issuing Bank shall at any time be  obligated to issue  any
Letter of  Credit  hereunder if  such  issuance would conflict  with, or cause
such Issuing Bank or any L/C Participant to  exceed any limits  imposed by, any
applicable Requirement of Law.

          3.7  Procedure for  Issuance of Letters of Credit.   An Applicant
may from  time to  time request  that an  Issuing Bank issue  a Letter of
Credit by delivering  (a) to such Issuing Bank at its address for notices
specified herein in such manner as may be agreed by or be acceptable to such
Issuing Bank (including by electronic transmission) an Application therefor,
completed to the satisfaction of such Issuing Bank, and such other 
certificates, documents and other papers and information as such Issuing Bank
may request and (b) a notice to the Administrative Agent  that such  Letter
of Credit  has  been requested.    Upon receipt of  any Application, each 
Issuing Bank agrees to process such Application and the certificates,
documents and other papers and information delivered to it in connection 
therewith in accordance with its customary procedures and shall promptly
issue the Letter of Credit requested thereby (but in no event shall such 
Issuing Bank be required to issue any Letter of Credit earlier than two  
Business Days after its receipt of the Application therefor and all such
other certificates, documents and other papers and information relating
thereto) by issuing the original of such Letter of Credit to the beneficiary 
thereof or as otherwise may be agreed by such Issuing Bank and the Borrower. 
Each Issuing Bank  shall furnish a copy of each Letter of Credit issued   by  
such Issuing Bank to the Borrower and the Administrative Agent promptly
following the issuance thereof.

          3.8    Letter of  Credit  Fees,  Commissions and  Other Charges.  (a)
The Borrower shall pay to the relevant Issuing Bank with respect to each
Letter of Credit issued by such Issuing Bank under this Agreement, for the
account of such Issuing Bank, a fronting fee with  respect to  the period
from the date of issuance of such Letter of Credit to the expiration or 
termination date of such Letter of Credit, computed at a rate per annum to be 
agreed upon by the Borrower and such Issuing Bank on  the average aggregate 
amount available to be drawn under such Letter of Credit during the period for 
which such fee is calculated.  Such fronting fee shall be payable in arrears 
on each L/C Fee Payment
<PAGE>   49

                                     43



Date to occur after the issuance of such Letter of  Credit and on the Revolving
Credit Termination Date (or on such earlier date as the  Revolving Credit
Commitments  shall  terminate as  provided herein) and shall be nonrefundable.

          (b)    The Borrower  shall  pay  to the  Administrative Agent,  for
the account  of the  L/C  Participants, a  letter of credit  commission  with
respect  to  each  Commercial Letter  of Credit  issued under this  Agreement
with  respect to  the period from the date of issuance of such  Commercial
Letter of Credit to the expiration  or termination  date of  such  Letter of
Credit, computed at a rate per annum equal to the Commercial L/C Fee Rate on
the average aggregate amount available to be drawn under such Commercial
Letter of Credit during the period for which such fee is calculated.  Such
commission shall be shared ratably among the L/C Participants  in accordance
with  their respective  Revolving Credit Commitment Percentages.   Such
commission shall be payable in  arrears on  each  L/C Fee  Payment  Date to
occur  after the issuance of such  Letter of  Credit and on  the Revolving
Credit Termination Date (or on such earlier date as the Revolving Credit
Commitments  shall terminate  as  provided herein)  and shall  be
nonrefundable.

          (c)    The Borrower  shall  pay  to the  Administrative Agent,  for
the account  of the  L/C  Participants, a  letter of credit commission with
respect to each Standby  Letter of Credit with  respect to the  period from
the date  of issuance  of such Standby Letter of Credit to the expiration or
termination date of such Letter of Credit, computed at  a rate per annum equal
to the Standby L/C Fee Rate of the average aggregate amount available to be
drawn under such Standby  Letter of Credit  during the period for which such
fee is  calculated.    Such  commission shall  be shared  ratably among  the
L/C Participants  in accordance  with their respective Revolving Credit
Commitment Percentages.   Such commission  shall be payable in  arrears on each
L/C Fee Payment Date to  occur after the issuance of such Letter of Credit and
on the Revolving Credit Termination Date (or on such earlier date as the
Revolving Credit  Commitments  shall  terminate as  provided herein) and shall
be nonrefundable.

          (d)  In addition to the foregoing fees and commissions, the  Borrower
shall pay or  reimburse each Issuing  Bank for such normal and customary costs
and expenses as  may be agreed upon by the Borrower  and such Issuing  Bank in
connection  with issuing, effecting payment under, amending  or otherwise
administering any Letter of Credit issued by such Issuing Bank.

          (e)  The Administrative Agent shall, promptly following its  receipt
thereof, distribute to each Issuing Bank and the L/C Participants   all  fees
and   commissions   received  by   the Administrative Agent  for their
respective  accounts pursuant  to this subsection.

          3.9    L/C  Participations.   (a) Each Issuing Bank irrevocably  
agrees  to  grant  and  hereby  grants  to  each L/C Participant (other than 
such Issuing Bank), and, to induce such Issuing Bank to issue Letters of 
Credit hereunder, each such L/C Participant irrevocably agrees to accept and
purchase and hereby accepts  and purchases from such  Issuing Bank, on  the
terms and conditions  hereinafter stated,  for such  L/C  Participant's own
account and risk an undivided interest equal to such L/C Participant's 
Revolving Credit Commitment Percentage  in  such Issuing Bank's obligations
and rights under each Letter of Credit issued  by such Issuing Bank  hereunder
and  the amount  of each draft  paid by  such  Issuing Bank  thereunder.   Each 
such  L/C Participant  unconditionally  and irrevocably  agrees  with each
Issuing Bank that, if a draft is paid under any Letter of Credit issued by such
Issuing  Bank for which such  Issuing Bank is not reimbursed in full by  the
Borrower in accordance with  the terms of  this Agreement,  such  L/C 
Participant  shall  pay  to  the Administrative Agent for the account  of such
Issuing  Bank upon demand an amount equal to such L/C Participant's Revolving
Credit Commitment  Percentage of the amount  of such draft,  or any part
thereof, which is not so reimbursed.
<PAGE>   50

                                     44



          (b)   If any amount required to be paid by any L/C Participant to 
any Issuing Bank pursuant to subsection 3.9(a) in respect of any unreimbursed 
portion of any payment made by such Issuing Bank under any Letter of Credit 
issued by such Issuing Bank is paid to such Issuing Bank within three Business 
Days after the date such payment is due, such L/C Participant shall pay to 
such Issuing Bank on demand an amount equal to the product of (i) such amount, 
times (ii) the daily average Federal Funds Effective  Rate, during the period 
from and including the date such payment is required to the date on which such 
payment is immediately available  to such  Issuing  Bank, times (iii) a 
fraction the numerator of which is the number of days that elapse during such 
period  and the denominator of which is 360.  If any such amount required to be
paid by any L/C Participant pursuant to subsection 3.9(a) is not in fact made 
available to any Issuing Bank by such L/C Participant within three Business 
Days after the date  such payment is due, such Issuing Bank shall be entitled 
to recover from such L/C Participant, on demand, such amount with interest 
thereon calculated from such  due date at the rate per annum applicable to ABR
Loans  hereunder.  A  certificate of any Issuing Bank submitted to any L/C 
Participant with respect to any amounts owing under this subsection shall be 
conclusive in the absence of manifest error.

          (c)  Whenever, at  any time after any Issuing  Bank has made  payment
under any Letter  of Credit issued  by such Issuing Bank and has received from
any L/C Participant its pro rata share of such payment in accordance with
subsection 3.9(a), such Issuing Bank receives any  payment related to  such 
Letter of Credit (whether directly from  the Borrower  or otherwise, including 
proceeds of collateral applied thereto by such Issuing Bank), or  any payment
of interest on account thereof, such Issuing Bank will distribute to such L/C
Participant its pro rata share thereof.
        
          (d)    If  any  payment received  by  any  Issuing Bank pursuant  to
subsection 3.10 with respect to any Letter of Credit issued  by it shall  be
required to  be returned  by such Issuing Bank, each L/C Participant shall pay
to such Issuing Bank its pro rata share thereof.

          3.10  Letter of  Credit Reimbursement Obligations.  (a) The Borrower
agrees to reimburse each Issuing Bank for the amount of (i)  any draft paid by
such Issuing Bank under  any Letter of Credit  issued by  such Issuing  Bank
and  (ii) any  taxes, fees, charges  or other costs or expenses incurred by
such Issuing Bank in connection with such payment.  Each such payment shall be
made to the relevant Issuing Bank at its address for notices specified herein
in the currency in which the relevant Letter of Credit was issued and in
immediately available funds in such currency.

          (b)   If any draft shall be presented for payment under any Letter of
Credit issued  by any Issuing  Bank, such  Issuing Bank  shall promptly notify
the  Borrower of the  date and amount thereof.  The Borrower shall reimburse
each Issuing Bank pursuant to subsection 3.10(a)  with  respect to  any 
drawing under  any Letter of Credit issued by such Issuing Bank on the next
Business Day  following the  date of such drawing  and interest  shall be
payable on the amount of such drawing for such period at the rate then 
applicable to ABR Loans  hereunder.  If  any amount payable under this
subsection  is not paid when due, interest shall be payable  on such amount
from the date such amount becomes payable under this subsection until  payment
in full thereof at  the rate which  would be payable on  any outstanding ABR 
Loans which were then overdue.

          3.11  Obligations Absolute.   (a) The Borrower's obligations under 
this Section 3 in respect of Letters of Credit shall be absolute and
unconditional under any and all circumstances and irrespective of any set-off, 
counterclaim  or defense to payment which  the Borrower or any Applicant may 
have or have had against any Issuing Bank or any beneficiary of any Letter of 
Credit.
<PAGE>   51

                                     45



          (b)   The Borrower also  agrees with each  Issuing Bank that  such
Issuing  Bank shall  not be  responsible for,  and the Borrower's
Reimbursement Obligations  shall not be  affected by, among  other things, (i)
the validity  or genuineness of documents or  of any endorsements thereon, even
though such documents shall in  fact prove  to be  invalid, fraudulent or
forged, or (ii) any dispute between or among the Borrower, any Applicant 
and any beneficiary of any Letter of Credit or any other party to which such
Letter of Credit may be transferred or (iii) any claims whatsoever of the 
Borrower  or  any   Applicant  against  any beneficiary of such Letter of
Credit or any such transferee.
        
          (c)  No  Issuing Bank  shall be liable  for any  error, omission,
interruption or  delay  in  transmission, dispatch  or delivery  of  any
message  or advice,  however  transmitted,  in connection with any Letter of
Credit issued by such Issuing Bank, except for  errors  or omissions  caused by
such Issuing  Bank's gross negligence or willful misconduct.

          (d)   The  Borrower  agrees that  any  action taken  or omitted  by
any Issuing  Bank under  or  in connection  with any Letter  of  Credit issued
by such  Issuing  Bank or  the related drafts or documents, if  done in the
absence of  gross negligence or willful  misconduct and  in accordance  with
the standards  of care specified in  the UCC, shall be binding on  the Borrower
and shall  not result in  any liability of  such Issuing  Bank to the Borrower.

          3.12  Letter of Credit Payments.  The responsibility of each  Issuing
Bank to the  Borrower in connection  with any draft presented for payment under
any Letter of Credit issued  by such Issuing  Bank  shall,  in  addition  to
any  payment  obligation expressly  provided for in such  Letter of Credit,  be
limited to determining  that the documents  (including each draft) delivered
under such Letter of Credit  in connection with such  presentment are in
conformity with such Letter of Credit.

          3.13   Letter of  Credit Applications.   To  the extent that  any
provision of any  Application related to  any Letter of Credit is inconsistent
with  the provisions of this Section  3 or any other terms of this Agreement or
any other Loan Document, the provisions of this Section 3 shall apply.

          3.14    CAF  Advances.    Subject  to   the  terms  and conditions of
this Agreement, the Borrower  may request advances ("CAF Advances") from time
to time on any Business Day during the CAF Advance Availability  Period.  CAF
Advances  may be requested and made in amounts such that, after giving  effect
to the making of  such CAF Advance and the application of proceeds thereof, (a)
the  Aggregate Revolving Credit  Outstandings at any  time do not exceed the
aggregate amount of the  Revolving Credit Commitments at such  time and (b)  in
the case  of CAF Advances  requested or made prior to the Collateral    
Release  Date,  the  Aggregate Revolving Credit Outstandings at such time do 
not exceed  the Borrowing Base  at such  time.   Within  the  limits and  on 
the conditions hereinafter set forth  with respect to  CAF Advances, the
Borrower from time to time may borrow, repay and reborrow CAF Advances.

          3.15  Procedure  for CAF  Advance Borrowing.   (a) The Borrower
shall request  CAF Advances by delivering  a CAF Advance Request  to the
Administrative  Agent, not later  than 12:00 Noon (New York City  time) four
Business Days prior  to the  proposed Borrowing Date (in the case of a LIBO
Rate  CAF Advance Request), and not later  than 10:00 A.M. (New York  City
time) one Business Day prior to the proposed Borrowing Date (in the case  of a
Fixed Rate  CAF  Advance  Request).   The  Borrower  shall  pay to  the
Administrative  Agent a fee of $2,000 in connection with each CAF Advance
Request  delivered by the Borrower  to the Administrative Agent.  Each CAF
Advance Request in respect of any Borrowing Date may  solicit bids for CAF
Advances on such  Borrowing Date in an aggregate principal amount of
$10,000,000 or an integral multiple of $1,000,000
<PAGE>   52
                                     46




in excess thereof and having not more than three alternative CAF Advance
Maturity Dates.   The CAF Advance Maturity Date  for each CAF Advance shall be
the date set forth therefor in the relevant CAF Advance  Request, which date
shall be  (i) not less  than 14 days nor more than 180 days after the Borrowing
Date therefor, in the case of a Fixed Rate CAF Advance, (ii) one, two, three or
six months after the Borrowing  Date therefor, in the case  of a LIBO Rate  CAF
Advance and (iii)  not later than  the Revolving Credit Termination Date, in
the case of any CAF Advance.  The Administrative Agent shall notify each 
Lender promptly by facsimile transmission of the contents of each CAF Advance 
Request received by the Administrative Agent.

          (b)  In the  case of a LIBO  Rate CAF Advance  Request, upon receipt
of  notice from  the  Administrative Agent  of  the contents of such CAF
Advance Request, each Lender may  elect, in its sole discretion, to offer
irrevocably to make one or more CAF Advances at the  applicable LIBO  Rate plus
(or minus) a margin determined  by such Lender in  its sole discretion  for
each such CAF Advance.  Any such irrevocable offer shall be made by delivering  
a CAF Advance  Offer to the Administrative Agent, before 10:30 A.M. (New York 
City time)  on the day that is three Business Days before the proposed 
Borrowing Date, setting forth:

               (i)   the maximum amount  of CAF Advances for each CAF Advance
     Maturity Date and the  aggregate maximum amount of  CAF Advances for  all
     CAF  Advance Maturity  Dates which such  Lender would  be willing to  make
     (which  amounts may, subject to  subsection 3.14, exceed such  Lender's
     Revolving Credit Commitments); and

               (ii)   the  margin above  or below  the applicable LIBO Rate at
     which such Lender is willing to  make each such CAF Advance.

The Administrative  Agent shall advise the  Borrower before 11:00 A.M. (New
York City time)  on the  date which is  three Business Days before the proposed
Borrowing Date of the contents  of each such CAF Advance  Offer received  by
it.   If the  Administrative Agent,  in its  capacity as  a Lender, shall
elect, in  its sole discretion, to make any  such CAF Advance Offer, it  shall
advise the  Borrower of  the contents  of its  CAF Advance  Offer before 10:15
A.M.  (New York  City  time) on  the date  which  is three Business Days before
the proposed Borrowing Date.

          (c)  In the case  of a Fixed Rate CAF  Advance Request, upon  receipt
of  notice  from the  Administrative  Agent of  the contents of such CAF
Advance Request, each Lender may  elect, in its sole discretion, to offer
irrevocably to make one or more CAF Advances at  a rate of interest determined
by such Lender in its sole  discretion for each such CAF Advance.  Any such
irrevocable offer  shall be  made by  delivering a  CAF Advance Offer  to the
Administrative Agent before 9:30 A.M. (New York City time) on the proposed
Borrowing Date, setting forth:

               (i)   the maximum amount of CAF  Advances for each CAF Advance
     Maturity Date,  and the aggregate maximum amount for all CAF Advance
     Maturity  Dates, which such Lender would be willing to make (which amounts
     may, subject to subsection 3.14,  exceed such  Lender's Revolving  Credit
     Commitments); and

               (ii)  the rate of interest at which such Lender is willing to
     make each such CAF Advance.

The Administrative Agent shall advise the Borrower before 10:00 A.M. (New York  
City time) on the proposed  Borrowing Date of the contents of each such CAF 
Advance Offer received by it.  If the Administrative Agent, in its capacity as  
a Lender, shall elect, in its sole discretion, to make any such 
<PAGE>   53

                                     47



CAF Advance Offer, it  shall advise the Borrower of  the contents of its CAF 
Advance Offer before 9:15 A.M. (New York City time) on the proposed Borrowing 
Date.

          (d)    Before  11:30 A.M.  (New York City  time)  three Business
Days before the proposed Borrowing Date (in the case of CAF  Advances requested
by a  LIBO Rate CAF  Advance Request) and before 10:30 A.M. (New York City
time) on the proposed Borrowing Date (in the case of  CAF Advances requested by
a Fixed  Rate CAF Advance  Request),  the  Borrower, in  its  absolute
discretion, shall:

               (i)   cancel the  relevant CAF Advance  Request by giving  the
     Administrative Agent  telephonic notice  to that effect, or

               (ii)     by  giving   telephonic  notice   to  the
     Administrative  Agent (immediately confirmed  by delivery to the
     Administrative  Agent of  a CAF Advance  Confirmation by facsimile
     transmission) (A)  subject to  the  provisions of subsection 3.15(e),
     accept one or more of the offers made by any  Lender or  Lenders  pursuant
     to  subsection 3.15(b)  or subsection 3.15(c), as the  case may be, and
     (B)  reject any remaining  offers made  by  Lenders  pursuant to
     subsection 3.15(b) or subsection 3.15(c), as the case may be.

          (e)    The Borrower's  acceptance of CAF Advances in response to any
CAF Advance Offers shall be subject to the following limitations:

               (i)  the amount of CAF  Advances accepted for each CAF Advance
     Maturity Date specified by any Lender in its CAF Advance Offer shall  not
     exceed the maximum amount  for such CAF  Advance Maturity  Date  specified
     in  such CAF  Advance Offer;

              (ii) the aggregate amount of CAF Advances accepted for all CAF 
     Advance Maturity Dates specified by any Lender in its  CAF Advance Offer  
     shall not exceed the aggregate maximum amount specified in such CAF 
     Advance Offer for all such CAF Advance Maturity Dates;

             (iii) the  Borrower may not accept offers for CAF Advances for
     any  CAF Advance Maturity Date  in an aggregate principal amount  in
     excess of the  maximum principal amount of CAF Advances requested for such
     CAF Advance Maturity Date in the related CAF Advance Request; and

               (iv)    if the  Borrower accepts  any of  such CAF Advance
     Offers, it  must  accept offers  based solely  upon pricing for each
     relevant CAF Advance Maturity Date and upon no other  criteria whatsoever,
     and if  two or more  Lenders submit CAF Advance Offers for  any CAF
     Advance Maturity Date at  identical pricing and  the Borrower accepts  any
     of such CAF Advance Offers but  does not wish  to (or, by reason  of the
     limitations  set  forth  in  subsection  3.14  or  this subsection 3.15,
     cannot) borrow  the total amount offered by such Lenders with such
     identical pricing, the Borrower shall accept CAF  Advance  Offers  from
     all of  such  Lenders  in amounts  allocated  among them  pro  rata
     according to  the amounts offered by such Lenders (with  appropriate
     rounding, in  the sole discretion of the Borrower, to assure that each
     accepted CAF Advance is an integral multiple of $1,000,000); provided
     that  if the  number  of Lenders  that  submit CAF Advance  Offers  for
     any  CAF Advance  Maturity  Date  with identical pricing  is such that,
     after  the Borrower accepts such  offers  pro  rata  in accordance  with
     the  foregoing provisions  of this paragraph, the CAF Advance to be made
     by any  such Lender  would  be less  than $5,000,000  principal amount,
     the number of such Lenders shall be reduced
<PAGE>   54

                                     48



     by the Administrative Agent by lot until the CAF Advances to be  made by
     each  such  remaining  Lender  would  be  in  a principal amount  of
     $5,000,000  or an integral  multiple of $1,000,000 in excess thereof.

          (f)  If the  Borrower notifies the Administrative Agent that a CAF
Advance Request is  cancelled pursuant to  subsection 3.15(d)(i), the
Administrative Agent shall give prompt telephonic notice thereof to the
Lenders.

          (g)   If  the Borrower  accepts pursuant  to subsection 3.15(d)(ii)
one or more  of the CAF  Advance Offers made  by any Lender or Lenders, the
Administrative Agent promptly shall notify each Lender  which has made  such a
CAF  Advance Offer of (i) the aggregate amount of such CAF Advances  to be made
on the relevant Borrowing  Date and the CAF  Advance Maturity Date  for each
such CAF Advance and (ii) the acceptance or rejection of any CAF Advance Offers
to  make such CAF  Advances made by  such Lender.   Before 12:00 Noon (New York
City time) on the Borrowing  Date specified in the  applicable CAF  Advance
Request,  each  Lender whose  CAF Advance  Offer has  been  accepted shall
make  available to  the Administrative Agent at its  office set forth in
subsection 11.2 the amount of CAF Advances to  be made by such Lender, in
Dollars and  in immediately  available funds.   The  Administrative Agent will
make  such  funds available  to  the  Borrower  as soon  as practicable on
such date  at such  office of  the Administrative Agent in like funds.  As soon
as practicable after each Borrowing Date, the Administrative  Agent shall
notify  each Lender of  the aggregate amount  of CAF Advances advanced on such
Borrowing Date and the respective CAF Advance Maturity Dates thereof.

          3.16  CAF Advance Payments.  (a)  The Borrower shall pay to the
Administrative Agent, for the account of each Lender which has made a CAF
Advance, on the CAF Advance Maturity  Date of such CAF Advance  (or on such
earlier  date on which  such CAF Advance becomes due  and  payable pursuant  to
Section  9) the  principal amount of  such CAF  Advance.   The Borrower  shall
not  have the right to prepay any  principal amount of any CAF  Advance without
the consent of the Lender to which such CAF Advance is owed.

          (b)  The Borrower shall pay to the Administrative Agent for  the
account  of each  Lender which  has made  a CAF  Advance interest  on the
unpaid principal amount of such CAF Advance from the  Borrowing  Date with
respect  thereto  to the  CAF  Advance Maturity  Date  of  such CAF  Advance
at  the  rate of  interest specified  in the CAF Advance  Offer accepted by
the Borrower in connection  with such CAF Advance  (calculated on the  basis of
a 360-day year for actual days elapsed), payable on each applicable CAF Advance
Interest Payment Date.

          (c)    If any  principal of,  or  interest on,  any CAF Advance
shall  not  be paid  when  due  (whether  at the  stated maturity, by
acceleration or  otherwise), such CAF Advance shall, without limiting any
rights of  any Lender under this  Agreement, bear interest  from the date on
which such payment was  due at a rate per annum which is  2% above the rate
which  would otherwise be  applicable to such CAF  Advance until the  stated
CAF Advance Maturity Date  of such CAF Advance,  and for each day  after such
stated CAF Advance Maturity Date at  a rate per annum which is 2% above the
ABR,  in each case until paid in full (as well after as before judgment).
Interest  accruing pursuant to this subsection 3.16(c) shall be payable from
time to time on demand.

          3.17     Certain  Restrictions  With  Respect   to  CAF Advances.
A CAF Advance Request may request CAF Advance Offers for CAF Advances to be
made on not more than one  Borrowing Date and to  mature on not more than three
CAF Advance Maturity Dates.  No CAF Advance Request
<PAGE>   55


                                     49


may be submitted earlier than five Business Days after submission
of any other CAF Advance Request.

          3.18  Requests  for Bilateral  Loan Offers.   (a)   From time to time
during the period from the  Effective Date until the Revolving Credit
Termination Date, the Borrower  may request any or  all of the Lenders (each
such  Lender to which such a request is made, a "Requested  Bilateral Lender")
to make offers  to make Bilateral  Option  Loans,  provided  that  (i)
immediately after giving effect to the making of any such Bilateral Option Loan
and the use of proceeds  thereof, (A) the aggregate principal  amount of  all
Bilateral  Option Loans  then outstanding  do not  exceed $250,000,000, (B)
the Aggregate Revolving Credit Outstandings at such time do  not exceed  the
aggregate  amount of  the Revolving Credit Commitments at such time and  (C) in
the case of Bilateral Option  Loans  made prior  to  the Collateral  Release
Date, the Aggregate  Revolving  Credit Outstandings  at  such  time do  not
exceed the Borrowing  Base at  such time and  (ii) the  aggregate principal
amount  of each  such  Bilateral Option  Loan shall  be equal to $5,000,000 or
a whole multiple of $1,000,000  in excess thereof.  Any such request shall
specify the principal amount and maturity  date  of  the Bilateral  Option
Loans  for which the Borrower  is requesting offers, and  the time by  which
offers to make such Bilateral Option  Loans must be made by  such Requested
Bilateral  Lender and by which  such offers shall  be accepted or rejected by
such Borrower.  Each Requested  Bilateral Lender may, but shall have no
obligation  to, make such offers on such  terms and conditions  as are
satisfactory to such  Requested Bilateral Lender,  and the Borrower may,  but
shall have  no obligation to, accept  any such  offers.   No Bilateral  Option
Loan  may mature after the Revolving Credit Termination Date.

          (b)  The Borrower and Requested Bilateral Lender shall separately
agree as  to the  procedures,  documentation, lending office and other matters
relating to any Bilateral Option Loan.

          3.19   Reports to  Administrative Agent.   The Borrower shall
deliver to the Administrative Agent a report in respect of each Bilateral
Option Loan (a  "Bilateral Option Loan Report") by 2:00 P.M.  (New  York  City
time) on the date on which the Borrower accepts  any Bilateral Option Loan, on
the date on which any principal amount thereof is repaid prior to the scheduled
maturity date, or on the scheduled maturity date if payment thereof is not made
on such scheduled maturity date, specifying  for such Bilateral Option Loan the
date on which such Bilateral Option Loan was or will be made, such amount of
principal is  or will be repaid or such payment was not made, as the case may
be, and the principal amount of such Bilateral Option Loan or principal
prepayment or repayment or the amount paid.
        
          3.20   Repayments.   Each Borrower shall  repay to each Lender which
has  made a  Bilateral Option Loan  on the  maturity date of each Bilateral
Option Loan (such maturity date being that specified in  the documentation
referred to in  subsection 3.19, but in any event not later than fourteen 
Business Days after such Bilateral Option Loan is  made) the then unpaid 
principal  amount of such Bilateral Option Loan.

          3.21   Swing Line Commitment.  Subject to the terms and conditions
hereof,  the Swing  Line Lender agrees  to make  swing line loans ("Swing Line
Loans") to the Borrower from time to time during  the Revolving  Credit
Commitment  Period in  an aggregate principal  amount at any one  time
outstanding not  to exceed the Swing Line Commitment, provided that, after
giving effect to  any such  Swing  Line  Loans,  (a)  the  Aggregate  Revolving
Credit Outstandings at such time would  not exceed the  Revolving Credit
Commitments  in effect at such time and  (b) in the case of Swing Line  Loans
made  prior  to  the  Collateral  Release Date,  the Aggregate Revolving
Credit Outstandings  at such time  would not exceed the Borrowing  Base at
such time.   During the  Revolving Credit Commitment Period,
<PAGE>   56

                                     50



the Borrower  may use  the  Swing Line  Commitment by  borrowing, prepaying
the  Swing  Line  Loans  in  whole  or  in  part,  and reborrowing,  all in
accordance  with the  terms and  conditions hereof.

          3.22  Procedure  for Swing  Line Borrowing.   (a)   The Borrower may
borrow  under the Swing  Line Commitment during  the Revolving Credit
Commitment Period  on any Business Day, provided that  the Borrower  shall
give the  Swing  Line Lender  and  the Administrative  Agent irrevocable
notice (which  notice must  be received  by the Swing Line Lender  prior to
11:00 A.M., New York City time) on the requested  Borrowing Date specifying the
amount of the requested Swing Line  Loan which shall be in  an aggregate
minimum amount of $5,000,000 or a whole multiple of $1,000,000 in excess
thereof.  The proceeds of the Swing Line Loan will be made available by the
Swing Line Lender to the  Borrower at the office of the  Swing Line Lender by
12:00 Noon, New York  City time, on the  Borrowing Date by crediting  the
account of  the Borrower at such office with such proceeds.  The Borrower may
at any time and from time to time prepay the  Swing Line Loans, in  whole or
in part, without  premium or  penalty, by  notifying the  Swing Line Lender
prior to 11:00 A.M., New  York City time, on any Business Day of the date and
amount of prepayment.  If  any such notice is given,  the  amount specified  in
such  notice  shall be  due and payable on the date specified therein.  Partial
prepayments shall be  in an  aggregate principal  amount of  $5,000,000 or  a
whole multiple of $1,000,000 in excess thereof.

          (b)   The  Swing Line  Lender shall,  on behalf  of the Borrower
(which hereby irrevocably  directs the Swing Line Lender to  act  on its
behalf)  and on  the  earlier of  (i)  the fifth Business Day  following the
Borrowing  Date with  respect to  any Swing Line Loan or (ii) on the date on
which the Revolving Credit Commitments shall  terminate pursuant to Section  9,
request each Lender  (including the  Swing Line  Lender) to  make a  Revolving
Credit  Loan (which  shall be  an ABR  Loan, unless  the Borrower notified the
Administrative Agent pursuant to subsection 3.2 that such Revolving  Credit
Loans  shall be  Eurodollar  Loans) in  an amount   equal  to  such  Lender's
Revolving  Credit  Commitment Percentage  of  the principal  amount  of such
Swing  Line Loan.  Unless any of  the events described in paragraph (f) of
Section 9 shall  have occurred with respect to the Borrower (in which event the
procedures  of paragraph  (d) of  this subsection 3.22  shall apply)  each
Lender  shall  make the  proceeds  of its  Revolving Credit Loan available to
the Administrative Agent for the account of the  Swing Line  Lender  at the
Administrative Agent's  office specified  in or pursuant to subsection 11.2
prior to 11:00 A.M., New  York City time, in funds immediately available in
Dollars on the Business Day next  succeeding the date such notice  is given.
The proceeds of such Revolving Credit Loans shall  be immediately applied  to
repay the relevant Swing Line Loan.  Effective on the day such Revolving Credit
Loans are made, the relevant Swing Line Loan so paid shall no longer  be
outstanding as a Swing Line Loan and  shall no longer be due under the Swing 
Line Note.  The Borrower authorizes the Swing Line Lender to charge the 
Borrower's accounts with the Swing Line Lender (up to the amount available
in each such account) in order to immediately pay the amount of its 
outstanding Swing Line Loans to the extent amounts received from the Lenders
are not sufficient to repay in full such outstanding Swing Line Loans.

          (c)   Notwithstanding anything herein to  the contrary, the Swing
Line Lender shall not make any Swing Line Loans if the Swing Line Lender has
received written notice that the conditions set forth in subsection 6.2 have 
not been satisfied in connection with the making of such Swing Line Loans.

          (d)   If prior to the making of a Revolving Credit Loan pursuant  to
paragraph (b) of  subsection 3.22 one  of the events described in paragraph (f)
of Section 9 shall have  occurred and be  continuing with respect to the
Borrower, each Lender will, on the  date  such  Revolving Credit  Loan  was  to
have been  made pursuant to the notice in subsection 3.22,  purchase an
undivided participating
<PAGE>   57

                                     51



interest in the outstanding  Swing Line Loans in an  amount equal to (i)  its
Revolving Credit Commitment Percentage times (ii) the aggregate principal
amount of  Swing Line Loans then outstanding.  Each Lender will immediately
transfer to the Swing  Line Lender, in immediately available funds,  the amount
of its participation, and  upon receipt thereof the  Swing Line Lender  will
deliver to such Lender a Swing Line Loan Participation Certificate dated the
date of receipt of such funds and in such amount.

          (e)    Whenever,  at  any  time  after  any  Lender has purchased a
participating interest  in a  Swing  Line Loan,  the Swing Line  Lender
receives any  payment on account  thereof, the Swing   Line  Lender   will
distribute  to   such  Lender   its participating interest in such amount
(appropriately adjusted, in the  case of  interest payments,  to reflect  the
period  of time during which such Lender's participating interest was
outstanding and  funded); provided,  however,  that in  the  event that  such
payment  received  by the  Swing Line  Lender  is required  to be returned,
such Lender will return  to the Swing  Line Lender any portion thereof
previously distributed by the  Swing Line Lender to it.

          (f)   Each  Lender's obligation  to make  the Revolving Credit  Loans
referred to  in subsection 3.22(b)  and to purchase participating interests
pursuant  to subsection 3.22(d)  shall be absolute  and unconditional  and
shall not  be  affected by  any circumstance, including,  without  limitation,
(i)  any  set-off, counterclaim,  recoupment,  defense  or  other  right which
such Lender  or the Borrower may  have against the  Swing Line Lender, the
Borrower or any other Person for any reason whatsoever, (ii) the  occurrence
or  continuance of  a  Default  or  an Event  of Default, (iii) any adverse
change in the condition  (financial or otherwise)  of the Borrower, (iv) any
breach of this Agreement or any  other Loan Document by  the Borrower, any
Subsidiary or any other Lender, or  (v) any other circumstance,  happening or
event whatsoever, whether or not similar to any of the foregoing.

          3.23  Annual Revolving Credit Clean-Down.  The Borrower agrees that
during each Fiscal Year there shall be a period of at least 30 consecutive days
during which the sum of  the aggregate principal  amount of  all  outstanding
Committed  Loans plus  the aggregate  principal amount of  all outstanding
Bilateral Option Loans plus the  aggregate principal amount of all outstanding
CAF Advances shall not exceed $750,000,000.


SECTION 4.  GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT

          4.1   Optional  and  Mandatory Prepayments.    (a)   The Borrower may,
at any  time and  from  time to  time, prepay  the Revolving Credit Loans, in
whole or in part, without  premium or penalty  (except,  with  respect  to
Eurodollar  Loans  that  are prepaid on  a date other than the last day of the
Interest Period with respect  thereto, as  provided under subsection  4.11), 
upon (in the case of prepayments  of Eurodollar Loans)  at least  two Business 
Days' irrevocable notice to the Administrative Agent and upon (in the case of 
prepayments of ABR Loans) irrevocable notice to the Administrative Agent prior 
to 11:00 A.M., New York City time, on the  date of  such prepayment, specifying 
the date and amount of prepayment and whether the prepayment is of Eurodollar 
Loans, ABR Loans or a combination thereof, and, if of a combination thereof, 
the amount allocable to each.   Upon receipt of any such notice the 
Administrative Agent shall promptly notify each  affected Lender thereof.  If  
any such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with any amounts payable 
pursuant to subsection 4.11 in connection therewith.  Partial prepayments 
under this subsection 4.1(a) shall be in an aggregate principal amount of 
$10,000,000 or a whole multiple of $1,000,000 in excess thereof.
<PAGE>   58

                                     52



          (b)   If, at any  time prior to  the Collateral Release Date, the
Aggregate Revolving  Credit Outstandings at  such time exceed  the  Borrowing
Base  at  such time,  the  Borrower shall, without notice or demand,
immediately repay the Revolving Credit Loans  and/or Swing Line  Loans in an
aggregate principal amount equal to the lesser of (i) the amount of such excess
and (ii) the aggregate principal  amount of  Revolving Credit Loans  and Swing
Line Loans  then outstanding,  together with interest  accrued to the  date of
such  payment or  prepayment  on the  principal  so prepaid  and  any  amounts
payable  under  subsection  4.11  in connection  therewith.  To the extent that
after giving effect to any prepayment of the Revolving Credit Loans and Swing
Line Loans required  by  the  preceding  sentence,  the Aggregate  Revolving
Credit Outstandings  at such  time exceed the  Borrowing Base  at such  time,
the  Borrower   shall,  without  notice  or  demand, immediately  deposit  in a
Cash  Collateral  Account upon  terms reasonably satisfactory  to the
Administrative  Agent an  amount equal  to  the  lesser  of  (i)  the
aggregate  then outstanding Bilateral Option Loans, CAF Advances and L/C
Obligations and (ii) the amount  of such remaining  excess.  The
Administrative Agent shall apply any cash deposited in the Cash Collateral
Account (to the  extent thereof) to repay  each Bilateral Option  Loan on the
date such Bilateral Option Loan becomes due, to repay on each CAF Advance
Maturity Date  to occur thereafter the CAF Advances which become due on  such
CAF Advance Maturity Dates and/or  to pay any Reimbursement  Obligations which
become  due thereafter, provided that the  Administrative Agent shall release
to  the Borrower (x) from time  to time such portion  of the amount on  deposit
in the Cash Collateral Account which is equal to the amount by which the
Borrowing Base  at such time  plus the  amount on deposit  in the Cash
Collateral Account  exceeds the Aggregate  Revolving Credit Outstandings  at
such time and (y)  all amounts on deposit in the Cash Collateral Account  on
the Collateral  Release Date.   "Cash Collateral Account" means an  account
established by the Borrower with the  Administrative Agent and over  which the
Administrative Agent shall  have exclusive  dominion and control,  including
the right  of  withdrawal for  application  in  accordance with  this
subsection 4.1(b).  The Borrower  shall also prepay the Revolving Credit Loans
to  the extent  required to  comply with  subsection 3.23.

          4.2    Conversion and  Continuation  Options.  (a)   The Borrower
may, subject to paragraph (b) below, elect from time to time  to  convert
Eurodollar  Loans to  ABR  Loans by  giving the Administrative Agent
irrevocable notice of such election prior to 11:00  A.M. on  the date  of
conversion,  provided that  any such conversion of Eurodollar  Loans may only
be made on  the last day of an Interest  Period with  respect thereto.   The
Borrower  may elect from time to time to convert ABR Loans to  Eurodollar Loans
by  giving the Administrative Agent at least three Business Days' prior
irrevocable notice of such  election.  Any  such notice of conversion to
Eurodollar Loans shall  specify the length  of the initial  Interest  Period or
Interest  Periods  therefor.   Upon receipt  of  any  such  notice  the
Administrative  Agent  shall promptly notify each affected Lender thereof.  All
or any part of outstanding Eurodollar  Loans and ABR  Loans may be  converted
as provided herein, provided that  (i) no ABR Loan may  be converted into a
Eurodollar Loan when any Event of Default has occurred and is  continuing  and
the  Administrative  Agent  has notified  the Borrower that it  has determined
that such a  conversion is  not appropriate  and (ii)  no  ABR  Loan  may  be
converted  into  a Eurodollar Loan  after the date  that is  one month prior
to the Revolving Credit Termination Date.

          (b)  Any Eurodollar Loans may be continued as such upon the
expiration of the  then current Interest Period  with respect thereto  by  the
Borrower  giving  notice  to the  Administrative Agent, in accordance  with the
applicable provisions of  the term "Interest Period" set forth  in subsection
1.1, of the  length of the  next Interest  Period to  be applicable  to such
Eurodollar Loans,  provided that no Eurodollar Loan may be continued as such
(i) when any  Event of Default has occurred and is continuing and the
Administrative  Agent has notified  the Borrower that  it has determined that
such a continuation  is not appropriate  or (ii) after the  date that is  one
month prior to  the Revolving Credit Termination  Date, and  provided, further,
that if  the Borrower shall fail to give such notice or if such
<PAGE>   59

                                     53



continuation  is not  permitted  such Eurodollar  Loans shall  be automatically
converted to ABR Loans on the last day of such then expiring Interest Period.
Upon receipt of any notice pursuant to this subsection  4.2(b), the
Administrative  Agent shall  notify each affected Lender thereof.

          4.3   Minimum Amounts  and Maximum Number  of Tranches.  All
borrowings, conversions and continuations of Revolving Credit Loans hereunder
and all  selections of Interest Periods hereunder shall be in such  amounts and
be made pursuant to  such elections so  that, after  giving effect  thereto,
the  aggregate principal amount of Eurodollar Loans comprising each Tranche
shall be equal to  $10,000,000  or  a whole  multiple  of  $1,000,000 in
excess thereof.    In no  event shall  there  be more  than  30 Tranches
outstanding at any time.

          4.4   Interest Rates and Payment Dates.   (a) Each Eurodollar Loan 
shall bear interest for each day during each Interest Period with respect 
thereto at a rate per annum equal to the Eurodollar Rate determined for such 
day plus the Applicable Margin.

          (b) Each ABR  Loan shall  bear interest at  a rate  per annum equal
to the ABR plus the Applicable Margin.

          (c)  Each Swing Line Loan shall bear interest at a rate per annum
equal to the Swing Line Rate.

          (d)   If all or a  portion of (i) any  principal of any Loan or (ii)
any interest payable thereon shall not be paid when due  (whether   at  the
stated  maturity,   by  acceleration  or otherwise), the principal of  all
Loans shall bear interest  at a rate  per annum  which  is  the  rate  that
would  otherwise  be applicable thereto pursuant  to this Agreement  plus 2%
from  the date  of such  non-payment  until such  overdue principal  and/or
interest is  paid in full (as well after as before judgment).  If all or  a
portion of (i)  any interest payable on  any Loan, (ii) any commitment  fee or
(iii)  any other amount  payable hereunder shall not be  paid when due
(whether at the stated  maturity, by acceleration or otherwise), any such
overdue interest, commitment fee or other amount shall bear interest at a rate
per annum which is  the rate described in  paragraph (b) of  this subsection
plus 2%, in each  case from the  date of  such non-payment until  such overdue
interest, commitment fee or other amount is paid in full (as well after as
before judgment).

          (e)   Interest  shall  be payable  in  arrears on  each Interest
Payment  Date,  provided  that  (i)  interest  accruing pursuant  to subsection
4.4(d) shall be payable from time to time on  demand, and (ii) interest on the
Revolving Credit Loans shall also  be due and payable on the Revolving Credit
Termination Date (or  such earlier date on which the Revolving Credit Loans
become due and payable pursuant to Section 9).

          4.5  Computation of  Interest and Fees.  (a)   Whenever it is
calculated on the  basis of the Prime Rate,  interest shall be  calculated on
the basis  of a 365- (or 366-,  as the case may be)  day  year  for  the
actual days  elapsed;  and,  otherwise, interest, commitment fees and fees and
commissions in  respect of Letters of  Credit shall be calculated on  the basis
of a 360-day year for the actual days elapsed.  The Administrative Agent shall
as  soon as  practicable  notify the  Borrower  and the  affected Lenders of
each determination  of a Eurodollar Rate.   Any change in the interest rate on
a Revolving  Credit Loan resulting from a change in  the ABR or the
Eurocurrency Reserve Requirements shall become effective  as of  the opening of
business on  the day  on which such  change becomes  effective.  The
Administrative Agent shall as soon as practicable notify the Borrower and the
affected Lenders of the effective date and  the amount of each such change in
interest rate.
<PAGE>   60

                                     54



          (b)   Each determination  of an  interest  rate by  the
Administrative Agent pursuant to  any provision of this Agreement shall  be
conclusive and binding on the Borrower and the affected Lenders in the absence
of manifest error.

          (c)   If any Reference  Lender shall for  any reason no longer  have
a  Commitment or  any Loans,  such Reference  Lender shall thereupon  cease to
be a  Reference Lender,  and if,  as a result, there  shall only be one
Reference  Lender remaining, the Administrative Agent  (after consultation
with  the Lenders  and with the consent of the Borrower (which shall not be
unreasonably withheld))  shall,  by notice  to the  Borrower and  the Lenders,
designate another Lender that is a commercial bank as a Reference Lender so
that there shall at all times be at least two Reference Lenders.

          (d)  Each Reference Lender  shall use its best  efforts to  furnish
quotations  of rates to  the Administrative  Agent as contemplated  hereby.  If
any  of the Reference  Lenders shall be unable  or shall  otherwise  fail to
supply  such rates  to  the Administrative  Agent  upon its  request,  the
rate of  interest shall,  subject to  the  provisions of  this  subsection 4.5,
be determined  on  the basis  of  the  quotations  of the  remaining Reference
Lenders or Reference Lender.

          4.6  Inability to Determine Interest Rate.  If prior to the first day
of any Interest Period:

          (a)   the  Administrative  Agent shall  have determined (which
     determination  shall be  conclusive and  binding upon the Borrower) that,
     by reason of circumstances affecting the relevant market, adequate and
     reasonable means do not exist for  ascertaining the  Eurodollar  Rate  for
     such  Interest Period, or

          (b)    the  Administrative  Agent  shall  have received notice from
     the Majority  Lenders that the  Eurodollar Rate determined or to be
     determined for such Interest Period will not adequately and fairly
     reflect the cost to  the Majority Lenders  (as conclusively  certified  by
     such  Lenders)  of making or maintaining their affected Revolving  Credit
     Loans during such Interest Period,

the  Administrative  Agent  shall give  facsimile  or  telephonic notice
thereof to the  Borrower and the affected Lenders  as soon as  practicable
thereafter.   If such  notice  is given  (x) any Eurodollar Loans  requested to
be made  on the first day  of such Interest Period shall  be made  as ABR
Loans,  (y) any ABR  Loans that  were  to have  been  converted on  the  first
day of  such Interest Period  to Eurodollar  Loans shall be  continued as  ABR
Loans and (z) any outstanding Eurodollar Loans which the Borrower has requested
to  continue as such pursuant  to subsection 4.2(b) shall be converted, on the
first day  of such Interest Period, to ABR  Loans.  Until such notice has been 
withdrawn by the Administrative Agent, no further Eurodollar Loans shall be 
made or continued as such, nor shall the Borrower have the right to convert 
ABR Loans to Eurodollar Loans.

          4.7  Pro  Rata Treatment and  Payments.  (a)   Except as otherwise
provided in subsections 3.14 through 3.22, all payments (including
prepayments) to  be made  by the  Borrower hereunder, whether  on account  of
principal,  interest, fees  or otherwise, shall be made without  set off or
counterclaim and shall  be made prior to 12:00 Noon, New York  City time, on
the due date thereof to  the Administrative Agent, for  the account of  the
Lenders at the  Administrative Agent's  office specified  in or  pursuant to
subsection 11.2 (except as  otherwise provided herein) in Dollars and  in
immediately  available funds.   The  Administrative Agent shall distribute such
payments to the Lenders entitled to receive the same promptly upon receipt in
like funds as received.  If any payment  hereunder (other  than payments  on
Eurodollar  Loans or LIBO Rate CAF Advances) becomes due and payable on a day
<PAGE>   61

                                     55



other than a Business Day, such payment shall be extended to the next
succeeding Business Day, and, with respect to payments of principal, interest 
thereon shall be payable at the then applicable rate during such extension.   
If any payment on a Eurodollar Loan or a LIBO Rate CAF Advance becomes due and 
payable on a day other than a Business Day, the maturity thereof shall be 
extended to the next succeeding Business Day (and, with respect to payments of  
principal, interest thereon shall be payable at the then applicable rate 
during such extension) unless the result of such extension would be to extend 
such payment into another calendar month, in which event such payment shall be 
made on the immediately preceding Business Day.

          (b)   Unless the  Administrative Agent shall  have been notified in
writing by any Lender  prior to a borrowing that such Lender will not make the
amount that would constitute its portion of  such borrowing  available  to the
Administrative Agent,  the Administrative Agent may assume that  such Lender is
making  such amount   available   to  the   Administrative   Agent,   and  the
Administrative Agent may, in  reliance upon such assumption, make available to
the Borrower a corresponding amount.  If such amount is not made available to
the Administrative Agent by the required time on the Borrowing Date therefor,
such Lender shall pay to the Administrative  Agent,  on  demand,  such  amount
with  interest thereon  at a  rate  equal to  the  daily average  Federal
Funds Effective Rate for the period until such Lender makes such amount
immediately available to the Administrative Agent.  A certificate of the
Administrative Agent submitted to any Lender with  respect to any amounts owing
under this subsection shall be conclusive in the absence of  manifest error.
If such Lender's portion of such borrowing is not  made available to  the
Administrative Agent  by such Lender  within three Business  Days of such
Borrowing Date, the Administrative Agent  shall also be entitled to  recover
such amount  with interest thereon at the rate per annum applicable to ABR
Loans hereunder, on demand, from the Borrower.

          (c)  Each borrowing by the Borrower of Revolving Credit Loans shall
be made  ratably from the Lenders in  accordance with their  respective
Revolving  Credit Commitment Percentages.   Any reduction  of  the Revolving
Credit  Commitments  shall be  made ratably among  the Lenders,  in accordance
with  their respective Revolving Credit Commitment Percentages.  Each payment
(including each prepayment) by the  Borrower on account of principal  of and
interest on the  Revolving Credit  Loans shall be  made pro  rata according to
the respective  outstanding principal amounts of the Revolving Credit Loans
then held by the Lenders.

          4.8  Illegality.   Notwithstanding any other  provision herein,  if
the adoption  of or any change  in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender  to
make or maintain Eurodollar  Loans or LIBO Rate CAF Advances as contemplated by
this Agreement, (a) the commitment  of such  Lender hereunder  to make
Eurodollar Loans, continue  Eurodollar  Loans  as  such and  convert  ABR
Loans to Eurodollar Loans  shall forthwith be suspended  during the period of
illegality,  (b)  such  Lender's Loans  then  outstanding  as Eurodollar Loans,
if any, shall be converted automatically to ABR Loans  on the respective last
days of the  then current Interest Periods  with respect to such Loans or
within such earlier period as required by  law and (c)  the Borrower shall,
with  respect to any LIBO  Rate CAF Advance  of such Lender,  take such action
as such Lender may  reasonably request.  If any such conversion of a Eurodollar
Loan occurs on a  day which is not the last day of the then current  Interest
Period with respect  thereto, the Borrower shall pay to such Lender such
amounts, if any, as may be required pursuant to subsection 4.11.

          4.9   Requirements of Law.   (a)  If the  adoption of or any change in
any Requirement of  Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether  or not having
the force of law)  from any central bank  or other Governmental Authority  made
subsequent to the date hereof (or, in the case of LIBO Rate CAF Advances, made
<PAGE>   62

                                     56



subsequent to acceptance by the Borrower of the CAF Advance Offer relating to
such LIBO Rate CAF Advance):

               (i)  shall subject any  Lender to any  tax of any kind
     whatsoever  with respect  to this Agreement,  any Note, any  Eurodollar
     Loan, any Swing  Line Loan or  any LIBO Rate CAF  Advance  made by  it,
     any  Letter  of Credit  issued or participated  in by  it or  any
     Application,  or change  the basis of  taxation  of payments  to such
     Lender in  respect thereof (except for Non-Excluded Taxes covered by
     subsection 4.10  and changes  in  the rate  of tax  on the  overall net
     income of such Lender);

              (ii)  shall impose,  modify or hold applicable any reserve,
     special  deposit,  compulsory   loan  or  similar requirement  against
     assets  held  by,  deposits  or  other liabilities in  or for  the account
     of, advances,  loans or other extensions of credit by,  or any other
     acquisition  of funds by, any office  of such Lender which is  not
     otherwise included in  the determination of the Eurodollar Rate or the
     Swing Line Rate hereunder; or

             (iii)  shall impose on  such Lender any other condition; 

and the result of any of the foregoing is to increase the cost to such Lender, 
by an amount which such Lender deems to be material, of making, converting 
into, continuing or maintaining Eurodollar Loans, Swing Line Loans or LIBO 
Rate CAF Advances or issuing or participating in Letters of Credit or to 
reduce any amount receivable hereunder in respect thereof, then, in any such 
case, within 15 days after demand therefor (accompanied by the certificate 
contemplated by subsection 4.9(c) with respect thereto) the Borrower shall pay  
such Lender such additional amount or amounts as will compensate such Lender 
for such increased cost or reduced amount receivable.

          (b)   If  any  Lender shall  have  determined that  the adoption of
or  any change  in any Requirement  of Law  regarding capital adequacy or in
the interpretation or application thereof or compliance by such Lender or any
corporation  controlling such Lender with  any request or directive  regarding
capital adequacy (whether  or not having the  force of law)  from any
Governmental Authority  made subsequent  to  the date  hereof  shall have  the
effect of reducing the  rate of return  on such Lender's or  such corporation's
capital  as  a  consequence  of  its  obligations hereunder or  under or in
respect of any  Letter of Credit  to a level below that which such Lender or
such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such  Lender's or such corporation's
policies with respect to capital adequacy)  by an amount deemed by  such Lender
to  be material,  then from  time to  time, within 15  days after demand
therefor (accompanied  by the certificate  contemplated by subsection 4.9(c)
with respect thereto), the  Borrower shall pay to such Lender such additional  
amount  or  amounts  as  will compensate such Lender for such reduction.

          (c)    If  any Lender  becomes  entitled  to claim  any additional
amounts pursuant  to  this subsection  4.9, it  shall promptly notify the
Borrower (with a copy to  the Administrative Agent) of the event by reason of
which it has become so entitled.  A certificate  as to any  additional amounts
payable  pursuant to this subsection  4.9  submitted by  such Lender  to the
Borrower (with  a copy  to  the  Administrative  Agent) setting  forth  in
reasonable detail the calculation  of such amounts and the  basis therefor
shall  be conclusive in  the absence of  manifest error.  The agreements  in
this subsection shall  survive the termination of this  Agreement and  the
payment  of the  Loans and all  other amounts payable hereunder.

          4.10   Indemnification for  Taxes.   (a)   All payments made  by the
Borrower under this Agreement and any Notes shall be made  free and clear of,
and without deduction or withholding for or
<PAGE>   63

                                     57



on  account  of, any  present or  future  income, stamp  or other taxes,
levies, imposts,  duties,  charges, fees,  deductions  or withholdings,  now
or  hereafter  imposed,   levied,  collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise  and excise
taxes (imposed in  lieu of net  income taxes)  imposed on  the  Administrative
Agent  or any Lender  as a result of a present or former connection between the
Administrative Agent or  such Lender and the  jurisdiction of the Governmental
Authority  imposing  such  tax  or  any   political subdivision or  taxing
authority  thereof or therein  (other than any such connection arising  solely
from the Administrative Agent or  such  Lender  having  executed, delivered  or
performed  its obligations  or  received  a  payment under,  or  enforced,
this Agreement  or any Note).  If any such non-excluded taxes, levies, imposts,
duties,  charges,  fees   deductions  or  withholdings ("Non-Excluded  Taxes")
are required  to  be  withheld from  any amounts  payable  to  the
Administrative  Agent  or  any  Lender hereunder  or under  any  Note, the
amounts  so payable  to  the Administrative  Agent or  such Lender shall  be
increased  to the extent  necessary to  yield to  the Administrative Agent  or
such Lender (after payment of all  Non-Excluded Taxes) interest or any such
other  amounts payable  hereunder at  the  rates or  in the amounts specified
in this  Agreement, provided, however, that the Borrower shall  not  be
required  to  increase any  such  amounts payable to any Lender that is not
organized under the laws of the United States of America or a  state thereof if
such Lender fails to  comply  with  the  requirements  of  paragraph  (b)  of
this subsection 4.10.  Whenever any Non-Excluded Taxes are payable  by the
Borrower, as  promptly as  possible thereafter  the Borrower shall send to the
Administrative Agent for its own account or for the account of such Lender, as
the case may be,  a certified copy of an original official receipt received by
the  Borrower showing payment thereof.  If  the Borrower fails to pay  any
Non-Excluded Taxes  when due to the  appropriate taxing authority  or fails to
remit to the Administrative Agent  the required receipts or other required
documentary  evidence, the Borrower shall  indemnify the Administrative Agent
and the Lenders for  any incremental taxes, interest   or  penalties   that
may  become   payable  by   the Administrative  Agent or  any  Lender as  a
result of  any  such failure.  The  agreements in  this subsection  shall
survive  the termination  of this Agreement and  the payment of  the Loans and
all other amounts payable hereunder.

          (b) Each Lender  that is  not incorporated  under the laws of the
United States of America or a state thereof shall:

              (i) in the  case of a Lender or a Transferee that is a "bank"
     under Section 881(c)(3)(A) of the Code:

                    (A)  on or before the date it becomes a party to this
          Agreement (or, in the case of a Participant, on or  before   the
          date such Participant becomes a Participant hereunder), deliver
          to the Borrower and the Administrative Agent (I)  two duly completed
          copies  of United  States  Internal Revenue  Service  Form 1001 or 
          4224, or successor applicable form, as the case may be, and (II) an  
          Internal Revenue Service Form  W-8 or W-9, or successor applicable 
          form, as the case may be;

                    (B)    deliver  to   the  Borrower  and   the
          Administrative Agent  two  further copies  of any  such form or
          certification on or  before the date  that any such form or
          certification expires or becomes  obsolete and  after  the occurrence
          of  any  event requiring  a change in the most  recent form
          previously delivered by it to the Borrower; and

                    (C)    obtain  such  extensions  of time  for filing and
          complete such forms or certifications as may reasonably  be
          requested  by  the   Borrower  or  the Administrative Agent; and
<PAGE>   64

                                     58



             (ii) in the case of  a Lender or a Transferee that is not a "bank" 
     under Section 881(c)(3)(A) of the Code:

                  (A)  on or before  the date it becomes a party  to this
          Agreement (or, in the case of a Participant, on or before the date
          such Participant becomes  a Participant hereunder),   deliver   to
          the   Borrower   and   the Administrative Agent (I) a statement under
          penalties of perjury  that such  Lender or Transferee  (x) is  not a
          "bank" under  Section 881(c)(3)(A) of the  Code, is not subject to
          regulatory or  other legal requirements as a bank in any
          jurisdiction, and has not been treated as a bank  for purposes of any
          tax,  securities law or other filing  or   submission   made  to
          any   Governmental Authority, any  application made to a  rating
          agency or qualification  for any  exemption from  tax, securities law
          or   other  legal  requirements,  (y)   is  not  a 10-percent
          shareholder within  the meaning  of Section 881(c)(3)(B) of  the Code
          and  (z) is not  a controlled foreign  corporation receiving interest
          from a related person within  the meaning  of Section  881(c)(3)(C)
          of the  Code  and  (II)  a  properly  completed  and  duly executed
          Internal   Revenue   Service  Form   W-8   or applicable successor
          form;

                  (B)  deliver to the Borrower and the Administrative Agent 
          two further properly completed and duly executed copies of such Form 
          W-8, or any successor applicable form,  on or before the date that 
          any such Form W-8 expires or becomes obsolete or after the occurrence
          of any event requiring a change in the most recent form previously 
          delivered by it to the Borrower or upon the request of the Borrower; 
          and

               (C)  obtain such extensions of time for filing and completing
          such forms or certifications as may be reasonably requested by the 
          Borrower or the Administrative Agent;

unless in any such case an event (including,  without limitation, any  change
in treaty, law  or regulation) has  occurred prior to the date on which  any
such delivery would otherwise  be required which renders all such forms
inapplicable or which would prevent such  Lender from duly  completing and
delivering any  such form with respect  to it and such  Lender so advises  the
Borrower and the Administrative Agent.   Each Lender that is not  incorporated
under the laws of the United States of America or a state thereof shall certify
(i) in the case of a Form  1001 or 4224, that it is entitled  to  receive
payments   under  this  Agreement  without deduction  or withholding  of  any
United  States federal  income taxes and (ii) in the case of a Form W-8 or W-9
provided pursuant to  subsection  4.10(b)(i)(A)(II),  that  it is  entitled  to
an exemption from United States backup withholding tax.  Each Person that  
shall  become  a  Lender  or  a  Participant  pursuant   to subsection 11.6 
shall,  upon  the effectiveness  of the  related transfer,  be required to
provide all of the forms and statements required pursuant to this  subsection,
provided that in  the case of a Participant such Participant shall furnish all
such required forms and  statements  to  the  Lender  from  which  the  related
participation shall have been purchased.

          4.11  Indemnity.  The Borrower agrees to indemnify each Lender  and
to  hold  each  Lender  harmless  from  any  loss  or reasonable  expense which
such Lender  may sustain or  incur as a consequence of (a) default by the
Borrower in making a borrowing of, conversion  into or  continuation of
Eurodollar  Loans, Swing Line  Loans, Bilateral  Option  Loans or  CAF Advances
after the Borrower has  given a  notice requesting the  same in  accordance
with  the  provisions of  this  Agreement,  (b)  default  by  the Borrower in
making any  prepayment of  a Eurodollar  Loan, Swing Line  Loan,  Bilateral
Option  Loan  or  CAF Advance  after  the Borrower  has given  a  notice
thereof  in accordance  with  the provisions of this Agreement or (c) the
making of a prepayment or conversion  of  Eurodollar  Loans,  Swing  Line
Loans,  Bilateral Option Loans  or CAF Advances on a day  which is not the last
day of an
<PAGE>   65

                                     59



Interest Period,  the date  such  Swing Line  Loans or  Bilateral Option Loans
are due (which, in  the case of any Swing Line Loan, shall be the fifth
Business Day following the Borrowing Date with respect thereto) or the
applicable CAF  Advance Maturity Date, as the case may be, with respect
thereto, which  loss shall be equal to, in the case of Eurodollar Loans or CAF
Advances,  the excess, if any, of (i) the amount of interest which would have
accrued on the amount so prepaid or converted, or not so borrowed, converted or
continued, for the period from  the date of such prepayment or conversion or of
such  failure to borrow, convert or  continue to the  last  day  of such
Interest  Period  (or  proposed Interest Period) or, in the case of CAF
Advances, the CAF Advance Maturity Date (or  proposed CAF  Advance Maturity
Date),  respectively, in each  case at the applicable rate of interest for such
Eurodollar Loans or  CAF Advances  provided for herein  (excluding, however,
the Applicable Margin  or any positive  margin applicable to  CAF Advances
included  therein, if  any)  over  (ii) the  amount  of interest (as
reasonably determined  by such Lender)  which would have accrued to such Lender
on such amount by placing such amount on  deposit for  a comparable  period
with  leading banks  in the interbank eurodollar  market.   A certificate  as
to  any amounts payable pursuant to this subsection 4.11  submitted by any
Lender to the Borrower (with  a copy to the Administrative  Agent) shall be
conclusive in the absence  of manifest error.   This covenant shall  survive
the termination of  this Agreement and the payment of the Loans and all other
amounts payable hereunder.

          4.12   Change  of Lending Office.   Each  Lender agrees that if it
makes  any demand for payment under  subsection 4.9 or 4.10(a), or if  any
adoption or change  of the type  described in subsection  4.8 shall  occur
with respect  to  it, it  will  use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions and so long as such
efforts would not be  disadvantageous to it, as  determined in its sole
discretion) to designate a different lending  office if the making of  such a
designation  would reduce or obviate the need for the Borrower to make payments
under subsection 4.9 or 4.10(a), or would eliminate or  reduce  the effect  of
any  adoption  or change  described in subsection 4.8.

          4.13    Evidence  of Debt.    (a)    Each Lender  shall maintain  in
accordance  with its  usual  practice an  account or accounts evidencing
indebtedness of the Borrower  to such Lender resulting from the Loans of such
Lender, including the amounts of principal  and interest payable and paid to
such Lender from time to time under this Agreement.

          (b)    The  Administrative  Agent  shall  maintain  the Register
pursuant to subsection 11.6(d), and a subaccount therein for each  Lender, in
which shall  be recorded (i) in  the case of Committed Loans and/or Bilateral
Option Loans, the  amount of each Committed Loan  or Bilateral Option Loan made 
hereunder, the Type thereof and each  Interest Period  (if  any) applicable 
thereto, (ii)  in  the case  of CAF Advances,  the amount of each CAF Advance
made hereunder, the CAF Advance  Maturity  Date  thereof, the  interest  rate 
applicable thereto  and each  CAF Advance  Interest Payment  Date applicable
thereto,  (iii) the amount of  any principal or  interest due and payable or 
to become due and  payable from the Borrower  to each Lender hereunder and (iv)
both the amount of  any sum received by the  Administrative Agent  hereunder
from  the Borrower  and each Lender's share thereof.
        
          (c)   The entries made in the Register and the accounts of each
Lender maintained pursuant to  subsection 4.13(a) shall, to  the extent
permitted  by  applicable  law,  be  prima  facie evidence of the existence
and amounts of the obligations  of the Borrower therein recorded; provided,
however, that the failure of any  Lender or the Administrative Agent  to
maintain the Register or  any such  account, or  any error  therein, shall  not
in  any manner  affect  the obligation  of  the Borrower  to  repay (with
applicable interest)  the Loans in  accordance with the  terms of this
Agreement.
<PAGE>   66
                                     60




          (d)   The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver  to
such  Lender  a  promissory  note  of  the  Borrower evidencing   the
Revolving  Credit   Loans   of   such  Lender, substantially in  the  form of
Exhibit  G (a  "Revolving  Credit Note"),  payable to the order  of such Lender
and in a principal amount equal to the Revolving Credit Commitment of such
Lender on the date of issuance of such  Revolving Credit Note.  Each Lender is
hereby authorized to record the date,  Type and amount of each Revolving Credit
Loan of such Lender, the date and amount of each payment or prepayment of
principal thereof, each continuation of all or a portion thereof as the same
Type, each conversion of all or a  portion  thereof  to  another  Type and,  in
the  case  of Eurodollar  Loans,  the  length   of  each  Interest  Period  and
Eurodollar Rate  with respect  thereto, on  the schedule (or  any continuation
of the schedule) annexed  to and constituting a part of its  Revolving Credit
Note, as  the case may be,  and any such recordation  shall, to  the extent
permitted by  applicable law, constitute  prima   facie  evidence   of  the
accuracy   of  the information so  recorded, provided that  the failure to
make any such  recordation  (or any  error therein)  shall not  affect the
obligation of  the Borrower  to repay (with  applicable interest) the Revolving
Credit Loans  in accordance with the terms  of this Agreement.

          (e)   The Borrower agrees that, upon the request to the
Administrative Agent by the Swing Line Lender, the Borrower  will execute and
deliver to the Swing Line Lender a promissory note of the  Borrower evidencing
the Swing  Line Loans of  the Swing Line Lender, in a form  
reasonably satisfactory to the Borrower and the Swing Line Lender (a "Swing  
Line Note"), payable  to the order of  the Swing Line Lender  and in a
principal amount equal to  the Swing Line Commitment.   The Swing Line Lender
is hereby authorized to record the date and amount of each Swing Line  Loan and
the date and amount  of each payment or prepayment  of principal  thereof  on 
the   schedule  (or  any continuation of the schedule) annexed to and
constituting a  part of  its  Swing Line  Note,  as  the case may  be,  and any 
such recordation  shall, to  the extent  permitted by applicable law,
constitute  prima   facie  evidence   of  the  accuracy   of the information so 
recorded, provided that  the failure to  make any such recordation (or  any
error  therein)  shall not  affect the obligation of  the Borrower  to repay
(with  applicable interest) the  Swing  Line  Loans in accordance  with  the 
terms of  this Agreement.
        
          (f)   The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver  to
such  Lender  a  promissory  note  of  the  Borrower evidencing the CAF
Advances of such Lender, substantially  in the form of Exhibit I (a "CAF
Advance Note"), payable to the order of such Lender and  representing the
obligation  of the Borrower  to pay  the  lesser of  (a) the  aggregate  amount
of  the Revolving Credit Commitments and (b) the unpaid principal amount of all
CAF Advances  made  by  such  Lender,  with  interest  on  the unpaid principal
amount  from  time to  time  outstanding  of  each CAF Advance evidenced
thereby as  prescribed in  subsection 3.16(b).  Each Lender is hereby
authorized to record the date and amount of each  CAF Advance made by  such
Lender, the  CAF Advance Maturity Date  thereof, the date and  amount of each
payment of principal thereof  and the  interest  rate with  respect  thereto
on  the schedule (or  any continuation  of the  schedule) annexed  to and
constituting  a part  of  its  CAF  Advance  Note  and  any  such recordation
shall, to  the extent  permitted by  applicable law, constitute  prima   facie
evidence   of  the  accuracy   of  the information so  recorded, provided that
the failure to  make any such  recordation  (or any  error therein)  shall not
affect the obligation of  the Borrower  to repay (with  applicable interest)
the  CAF Advances in accordance with the terms of this Agreement.  Each  CAF
Advance Note shall  be dated the  Initial Closing Date, and each  CAF Advance
evidenced  thereby shall bear  interest for the  period from  and including
the Borrowing  Date of  such CAF Advance  on the unpaid principal amount
thereof from time to time outstanding  at  the  applicable  rate per  annum
determined  as provided  in, and such interest shall be payable as specified
in, subsection 3.16(b).
<PAGE>   67

                                     61



                   SECTION 5.  REPRESENTATIONS AND WARRANTIES

          To induce  the Administrative Agent and  the Lenders to enter into
this Agreement  and to make the Extensions  of Credit, the Borrower hereby
represents and warrants to the Administrative Agent and each Lender that:

          5.1   Financial  Condition.   The consolidated  balance sheet  of the
Borrower and  its Consolidated Subsidiaries  as at January  29,  1997 and  the
related  consolidated statements  of income and of cash flows for the Fiscal
Year ended  on such date, reported  on  by  Price  Waterhouse  LLP,  copies  of
which  have heretofore  been  furnished  to  each Lender,  are  complete  and
correct  in   all  material  respects  and   present  fairly  the consolidated
financial   condition  of  the  Borrower   and  its Consolidated Subsidiaries
as at such date,  and the consolidated results of their operations and their
consolidated cash flows for the  Fiscal Year  then  ended.   All  such
financial  statements, including  the related  schedules  and notes  thereto,
have  been prepared in accordance with  GAAP applied consistently throughout
the  periods involved (except as approved  by such accountants or Responsible
Officer,  as  the  case  may  be,  and  as  disclosed therein).  Except as set
forth on Schedule 5.1 or as permitted by the Existing  Credit Agreement,
neither  the Borrower nor  any of its Consolidated Subsidiaries had, at the
date of the most recent balance   sheet  referred  to   above,  any   material
Guarantee Obligation, material contingent liability or liability for taxes, or
any material  long-term lease or unusual  forward or long-term commitment,
including,  without limitation, any interest  rate or foreign  currency  swap
or  exchange  transaction,  which is  not reflected  in the foregoing
statements or in  the notes thereto.  Except as  set  forth on  Schedule  5.1
or  as  permitted by  the Existing  Credit Agreement,  during the  period from
January 29, 1997 to and  including the  date hereof there  has been no  sale,
transfer  or  other disposition  by the  Borrower  or any  of its Consolidated
Subsidiaries of any material part of its business or property  and no purchase
or other acquisition of any business or property  (including  any  capital
stock of  any  other  Person) material in  relation to the consolidated
financial condition of the  Borrower and  its Consolidated  Subsidiaries at
January 29, 1997.

          5.2  No Change.  Since January 29, 1997, there has been no
development or  event which  has had  or could  reasonably be expected to have
a Material Adverse Effect.

          5.3  Corporate Existence; Compliance with Law.  Each of the  Borrower
and  its   Restricted  Subsidiaries  (a)  is  duly organized, validly existing
and in good standing under  the laws of the jurisdiction  of its organization,
(b) has the  corporate power and authority, and the legal  right, to own and
operate its property,  to lease  the property  it operates  as lessee  and to
conduct the business  in which  it is currently  engaged, (c)  is duly 
qualified  as a  foreign corporation  and  in good  standing under the laws of
each jurisdiction where its ownership, lease or operation of property  or the
conduct of  its business  requires such qualification and (d) is in compliance
with all Requirements of  Law  except,  in  each  case,  where  the  failure
to be  so organized,  existing,  in  good  standing or  qualified,  or  the
failure to have  such power or authority  or to so  comply, could not,
individually or in the aggregate, reasonably  be expected to have a Material
Adverse Effect.

          5.4    Corporate   Power;  Authorization;   Enforceable Obligations.
Each   of  the   Borrower  and   its  Restricted Subsidiaries has the corporate
power and authority, and the legal right, to make, deliver  and perform the
Loan Documents  to which it is a  party and (in  the case of  the Borrower) to
borrow and obtain the other Extensions of Credit hereunder and has taken all
necessary corporate action to  authorize the Extensions of Credit on the terms
and conditions of  this Agreement and any Notes  and to authorize  the
execution, delivery and performance of the Loan Documents to which  it is a
party.   No consent or  authorization of, filing with, notice to, or other act
by or in respect of, any Governmental  Authority  or  any  other  Person  is
required  in connection with the Extensions of Credit
<PAGE>   68
                                     62




hereunder or with the  execution, delivery, performance, validity or
enforceability of the Loan Documents to which the Borrower or any of its
Restricted  Subsidiaries is a party  except as may  be necessary to perfect the
Liens created pursuant to  the Security Documents  and the Trust Agreement and
except those described on Schedule  5.4, all of which  have been obtained,
made or waived.  This  Agreement has been, and  each other Loan  Document will
be, duly executed and delivered on behalf of the Borrower and each of its
Restricted  Subsidiaries  that  is a  party  thereto.   This Agreement
constitutes, and each other Loan Document when executed and  delivered  will
constitute,  a  legal,  valid  and  binding obligation   of  the   Borrower
and   each  of   its  Restricted Subsidiaries  that is  a  party thereto
enforceable against  the Borrower and  each such Restricted Subsidiary  in
accordance with its  terms, subject  to  the effects  of bankruptcy,
insolvency, fraudulent  conveyance,  reorganization,  moratorium   and  other
similar  laws   relating  to   or  affecting   creditors'  rights generally,
general equitable principles (whether considered in a proceeding in equity or
at law)  and an implied covenant of  good faith and fair dealing.

          5.5    No  Legal  Bar.   The  execution,  delivery  and performance
of the Loan Documents to which the Borrower or any of its  Restricted
Subsidiaries is a party, the Extensions of Credit hereunder  and the use of
the proceeds thereof  will not violate any Requirement of Law or  Contractual
Obligation of the Borrower or of any of its Restricted Subsidiaries and  will
not result in, or require, the creation or imposition of any Lien on  any of
its or their respective properties  or revenues pursuant to any  such
Requirement of Law or Contractual Obligation (other than pursuant to  the Loan
Documents),  except to  the  extent that  any  such violations   (individually
or   in  the  aggregate)   could  not reasonably be expected to have a Material
Adverse Effect.

          5.6     No   Material  Litigation.     No   litigation, investigation
or  proceeding  of  or before  any  arbitrator  or Governmental  Authority is
pending or, to  the knowledge  of the Borrower, threatened by  or against  the
Borrower or  any of  its Restricted Subsidiaries or against any of its or their
respective properties  or revenues  (a)  with respect  to  any of  the  Loan
Documents  or  any of  the  transactions  contemplated hereby  or thereby  or
(b) which  could reasonably  be  expected to  have a Material Adverse Effect.

          5.7  No  Default.  Neither the Borrower  nor any of its Restricted
Subsidiaries is  in default under  or with respect  to any  of its  Contractual
Obligations  in any respect  which could reasonably  be expected to have a
Material Adverse Effect.  After giving  effect  to  the  initial  Extensions of
Credit  and  the application  of the  proceeds  thereof, no  Default  or Event
of Default has occurred and is continuing.

          5.8  No Burdensome Restrictions.  No Requirement of Law or
Contractual Obligation of the Borrower or any of its Restricted Subsidiaries 
could reasonably  be expected to  have a Material Adverse Effect.

          5.9   Taxes.  Each  of the Borrower  and its Restricted Subsidiaries
has filed  or caused  to be  filed all  tax returns which, to the knowledge of
the Borrower, are required to be filed and has  paid all  taxes  shown to  be
due  and  payable on  said returns or  on any  assessments made  against it  or
any of  its property  (including,  without  limitation,  any   Material  Real
Property) and all other  taxes, fees or other charges  imposed on it  or any of
its  property by any  Governmental Authority (other than any  such taxes,  fees
or other  charges (i)  the amount  or validity  of  which are  then being
contested  in good  faith by appropriate  proceedings and  with respect  to
which  reserves in conformity  with  GAAP have  been provided  on  the books
of the Borrower or its Subsidiaries, as the case may  be, or (ii) which, if
not paid,  could reasonably  be expected  to have  a Material Adverse  Effect);
no  tax  Lien  has  been  filed,  and,  to  the knowledge  of  the Borrower,
no  claim is  being  asserted, with respect to any such tax, fee or
<PAGE>   69
                                     63




other  charge (other than  with respect to  any such tax,  fee or other  charge
the  amount  or validity  of  which is  then  being contested  in  good faith
by  appropriate  proceedings and  with respect  to  which reserves  in
conformity with  GAAP  have been provided on the books of the Borrower or its
Subsidiaries, as the case  may  be)  which could  reasonably  be  expected  to
have  a Material Adverse Effect.

          5.10   Federal Regulations.  No part of the proceeds of any
Extension  of  Credit  will  be  used  for  "purchasing"  or "carrying" any
"margin stock" within the  respective meanings of each of the quoted  terms
under Regulation  G or Regulation U  of the Board of Governors as now and from
time to  time hereafter in effect.   If requested by any Lender or the
Administrative Agent, the  Borrower will furnish  to the Administrative  Agent
and each Lender a statement to the foregoing effect in conformity with the
requirements of  FR Form G-1 or  FR Form U-1 referred  to in said Regulation G
or Regulation U, as the case may be.

          5.11   ERISA.    Neither  a  Reportable  Event  nor  an "accumulated
funding deficiency" (within  the meaning of Section 412  of the Code or Section
302 of ERISA) which could reasonably be expected to have a Material Adverse
Effect has occurred during the  five-year   period  prior   to  the  date   on
which   this representation is made or  deemed made with respect to  any Plan.
Each  Plan  has  complied  in  all  material  respects  with  the applicable
provisions of ERISA  and the  Code, except  where the failure to  so comply
could not reasonably  be expected to have a Material  Adverse Effect.   No
termination of a  Single Employer Plan  has occurred,  except where  such a
termination could  not reasonably  be expected to have a Material Adverse
Effect, and no Lien  in favor  of the  PBGC or  a Plan  has arisen,  during
such five-year  period.   The present  value  of all  accrued benefits under
each Single  Employer Plan (based on those assumptions used to fund such Plan)
did not,  as of the last annual valuation date prior to the date  on which this
representation is made or deemed made, exceed  the value of the  assets of such
Plan  allocable to such  accrued benefits,  except  to the  extent  any such
excess (individually  or  in  the  aggregate) could  not  reasonably  be
expected to have a Material Adverse Effect.  Neither the Borrower nor  any
Commonly Controlled Entity has had a complete or partial withdrawal  from  any
Multiemployer  Plan,  except   where  such withdrawal could not  reasonably be
expected  to have a  Material Adverse  Effect,  and  neither  the  Borrower
nor  any  Commonly Controlled  Entity would  become subject  to any  liability
under ERISA if the Borrower or any such Commonly Controlled Entity were to
withdraw completely  from all  Multiemployer Plans as  of the valuation  date
most  closely preceding  the date  on which  this representation  is  made  or
deemed  made,  except  where  such liability could  not reasonably be  expected
to  have a  Material Adverse  Effect.  No such Multiemployer Plan is in
Reorganization or Insolvency.

          5.12   Investment Company Act; Other  Regulations.  The Borrower is  
not an "investment company", or a company "controlled" by an "investment 
company", within the  meaning of the Investment Company Act of 1940, as 
amended.  To the best knowledge of the Borrower, the Borrower is not subject 
to regulation under any federal or state statute or regulation (other than 
Regulation X of the Board of Governors) which limits its ability to incur 
Indebtedness.

          5.13  Subsidiaries.  Schedule  5.13 sets forth all  the Subsidiaries
of the Borrower at the date hereof.

          5.14  Environmental Matters.   To the best knowledge of the Borrower:

          (a)   The Mortgaged Properties do not contain, and have not
     previously  contained, any  Materials  of Environmental Concern  in
     amounts  or   concentrations  or   under  such conditions which (i)
     constitute or constituted  a violation of, or (ii) could reasonably be
     expected to give
<PAGE>   70
                                     64




     rise to  liability under,  any Environmental Law,  except in either case
     insofar as  such violation or liability, or  any aggregation  thereof,
     could  not reasonably  be expected  to have a Material Adverse Effect.

          (b)  The Mortgaged Properties and all operations at the Mortgaged
     Properties are in  compliance, and have within the periods  covered by
     the applicable  statute of  limitations been  in  compliance,  in  all
     material  respects  with  all applicable Environmental Laws, and there is
     no contamination at, under  or about the Mortgaged Properties or violation
     of any  Environmental  Law   with  respect  to  the   Mortgaged Properties
     or the business  operated by the Borrower  or any of its Restricted
     Subsidiaries (the "Business")  which could reasonably be expected to have
     a Material Adverse Effect.

          (c)  Neither  the Borrower nor any  of its Subsidiaries has received
     any notice  of  violation, alleged  violation, non-compliance, liability
     or  potential liability  regarding environmental matters or  compliance
     with Environmental Laws with  regard  to any  of  the  Mortgaged
     Properties  or  the Business, nor does the Borrower have  knowledge or
     reason to believe  that any such notice  will be received  or is being
     threatened,  except insofar  as  such  notice or  threatened notice,  or
     any aggregation  thereof,  does  not involve  a matter or matters that
     could  reasonably be expected to have a Material Adverse Effect.

          (d)  Materials of Environmental Concern  have not been transported
     or disposed of  from the Mortgaged Properties in violation of,  or in a
     manner  or to a location  which could reasonably be expected to give rise
     to liability  under, any Environmental Law, nor  have any Materials of
     Environmental Concern been  generated, treated, stored or  disposed of at,
     on or under any of the Mortgaged Properties in violation of, or in a
     manner that  could reasonably be  expected to  give rise to  liability
     under, any  applicable Environmental  Law except insofar  as any such
     violation  or liability referred to in this paragraph, or  any aggregation
     thereof, could not reasonably be expected to have a Material Adverse
     Effect.

          (e)  No judicial proceeding or governmental or administrative action 
     is pending or threatened under any Environmental Law to which the 
     Borrower or any Restricted Subsidiary is or will be named as a party with 
     respect to the Mortgaged Properties or the Business, nor are there  any
     consent decrees or other decrees, consent orders, administrative orders 
     or other orders, or other administrative or judicial requirements 
     outstanding under any Environmental Law  with respect to the Mortgaged 
     Properties or the Business except insofar as such proceeding, action,  
     decree, order or other  requirement, or any aggregation thereof, could 
     not reasonably be expected to have a Material Adverse Effect.

          (f)  There has been no release or threat of release  of Materials of
     Environmental Concern  at or from the Mortgaged Properties, or arising
     from or  related to the operations of the Borrower or any Restricted
     Subsidiary in connection with the Mortgaged Properties or otherwise in
     connection with the Business, in violation of or in amounts or in a
     manner that could reasonably give rise to liability  under Environmental
     Laws  except  insofar as  any  such  violation or  liability referred to
     in this paragraph, or  any aggregation thereof, could not reasonably be
     expected to have a Material  Adverse Effect.

          (g)  Each of the representations and warranties set forth in 
     subsections 5.14(a) through (f) is true and correct with  respect to each
     parcel of real property owned or operated by the Borrower or any of its  
     Restricted Subsidiaries (other than the Mortgaged Properties) except to
<PAGE>   71
                                     65




     the extent that the facts and circumstances giving rise to any  such
     failure  to be  so  true  and  correct could  not reasonably be expected
     to have a Material Adverse Effect.

          5.15   The Security Documents.  (a)  The provisions of the  Security
Agreement are effective  to create in  favor of the Trustee a legal and  valid
security interest in all  right, title and interest  of the Borrower  or any
Subsidiary  Guarantor party thereto in  the collateral described therein
(subject to Section 10  thereof), and  when the financing  statements referred
to on Schedule  5.15  and subsection  7.11(a)(ii)  have  been filed  as
specified  in  Schedule 5.15  and  subsection   7.11(a)(ii),  the Trustee has a
fully perfected  security interest  in all  right, title and interest of the
Borrower or such  Subsidiary Guarantor, as   the  case  may  be,  in  all
"accounts",  "chattel  paper", "inventory"  or "general intangibles" (other
than "uncertificated securities")  (each   as  defined   in  the   applicable
uniform commercial  code)  described in  such  financing statements,  all other
UCC  Filing  Collateral   (other  than  UCC  Local  Filing Collateral)
described  in such  financing statements and,  to the best knowledge of  the
Borrower, all UCC  Local Filing Collateral described in such financing
statements, in each case superior (to the extent  that  priority  can  be
obtained  by  filing  uniform commercial  code financing statements)  in right
to  any Liens of any third  person against  such collateral or  interests
therein, subject only to Liens permitted  under subsection 8.4 (other than
subsection 8.4(k));

          (b)   The provisions of the  Pledge Agreement, together with
possession by  the  Trustee (or  any  agent acting  on  its behalf) of the
Pledged  Securities described therein (or,  in the case  of Pledged Securities
constituting "securities" (as defined in  the applicable  uniform commercial
code), together  with the "transfer" to the Trustee (or any agent acting on its
behalf)  of such Pledged Securities in accordance with the applicable uniform
commercial code), are effective to create in favor of the Trustee a  legal  and
valid  security interest  in  all right,  title and interest  of  the  Borrower
or any  Subsidiary  Guarantor  party thereto, as the case  may be, in the
Pledged  Securities (subject to Section 14 of the Pledge Agreement).  The
Trustee  has a fully perfected security  interest in the  Pledged Stock and
all other Pledged Securities  described in  the Pledge Agreement  which are
then in the possession of the Trustee (or any agent acting on its behalf)  (or,
in the  case  of  Pledged Securities  constituting "securities"  (as defined
in the  applicable uniform  commercial code), which have been "transferred" to
the Trustee (or any agent acting on its behalf)  in accordance with the
applicable  uniform commercial code), which security  interest is (i) in the
case of Pledged Stock, superior in right to any Liens of any third person
against such collateral or  interests therein, subject to Section 14   of  the
Pledge  Agreement  and  to  Liens  permitted  under subsection  8.4(a)  and
(ii)  in the  case  of all  other Pledged Securities, superior (to the extent
that priority can be obtained by possession or "transfer" of such other
Pledged Securities) in right to any Liens of any third person against such 
collateral or interests therein,  subject to Section 14 of the Pledge 
Agreement and to Liens permitted by subsection 8.4(a);

          (c)  Each Mortgage  is effective to create in  favor of the  Trustee,
a legal, valid  and enforceable Lien  on all right, title and interest  of the
Borrower  or any Subsidiary  Guarantor party  thereto, as  the case  may be,
in the  Mortgaged Property thereunder.  When each Mortgage  and the related
fixture  filings are  duly recorded in the  appropriate office or  offices and
the mortgage recording fees and taxes in respect thereof are paid and
compliance is otherwise had with the formal requirements of state law
applicable  to  the   recording  of  real  estate  mortgages generally, such
Mortgage shall  constitute a fully perfected Lien on and security interest in
such Mortgaged Property (prior to all mortgages  on the Mortgaged Property
other than those which have been assigned to  the Trustee), subject only  to
the encumbrances and exceptions to  title expressly  set forth or  referred to
in such Mortgage, and  to Liens permitted  by subsection 8.4  (other than
subsection 8.4(k));
<PAGE>   72
                                     66




subject,  in  the  case of  clauses  (a)  through  (c) above,  to bankruptcy,
insolvency,  reorganization,  moratorium or  similar laws affecting the
enforcement of creditors' rights generally and to principles  of equity whether
considered in  a proceeding  in equity or at law.

          5.16    Ownership of  Property;  Liens.   Each  of  the Borrower  and
each Restricted  Subsidiary has  good title  in fee simple  to,  or  valid
ground  leasehold  interests  in,  their respective  Material Real  Properties
and  has good title  in fee simple to their other owned real property that is
material to the operation of  their respective businesses, subject  to defects
in title and leasehold and other interests which are not material to the
business, operations and  financial condition of the Borrower and its
Restricted Subsidiaries  taken as a whole and  other than those items referred
to in  the applicable Mortgages  or in  the schedules to the applicable
Mortgages, and none  of such property is  subject  to  any  Lien  other  than
Liens  permitted   under subsection 8.4. 

          5.17  Intellectual Property.  The  Borrower and each of its
Restricted Subsidiaries  owns,  or is  licensed to  use, all trademarks,
tradenames,  copyrights,  technology,  know-how  and processes necessary for
the conduct of its business as currently conducted  except for those the
failure to own  or license which could not  reasonably  be expected  to  have a
Material  Adverse Effect  (the "Intellectual  Property").  Except  as set
forth on Schedule 5.17, no claim  has been asserted and is  pending by any
Person   challenging  or   questioning  the   use  of   any  such Intellectual
Property or  the validity  or effectiveness  of any such Intellectual Property,
which could reasonably  be expected to have a Material Adverse Effect, nor
does the  Borrower know of any  valid basis  for any  such claim.   Except  as
set  forth on Schedule  5.17, the  use  of such  Intellectual  Property by  the
Borrower and its Restricted Subsidiaries does not infringe on the rights of any
Person, except for  such claims and  infringements that,  in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.

          5.18  Pledged Stock.  On the Effective Date, the shares of Capital
Stock  listed on  Schedule A to  the Pledge  Agreement will constitute all  the
issued and outstanding shares of Capital Stock of the issuers thereof listed on
said Schedule owned by the Borrower  or  the  Subsidiary  Guarantors  party  to
the  Pledge Agreement;  all such shares have been duly and validly issued and
are fully  paid and nonassessable;  the relevant Pledgor  of said shares is the
record and  beneficial owner of  said shares;  and said  shares are  free of
any  Liens or  options in  favor of, or claims  of, any  other  Person, except
the  Lien of  the  Pledge Agreement  (subject to  Section 14  thereof) and
Liens permitted under subsection 8.4(a).

          5.19   Real  Estate Matters.   (a) The real property described on 
Schedule 5.19(a) constitutes all of the Material Real Property of the Borrower 
or any Subsidiary Guarantor on the date hereof.   The Borrower shall have the 
right to  supplement Schedule 5.19(a) at  any time prior to the Effective Date 
to add additional parcels of real property by written notice thereof to the 
Administrative Agent on or prior to the Effective Date.

          (b)   Schedule 5.19(b) sets  forth a true  and complete list as  of
the date hereof  of all mortgages and  deeds of trust (collectively, as
amended, supplemented, substituted, replaced or otherwise modified from time
to time, the "Put Bond  Mortgages") pursuant  to which a  Lien has been
granted on real  property to secure the Repurchased Put Bonds.

          (c)   Schedule 5.19(c)  sets forth a  true and complete list of all
real property owned by the  Big Beaver Joint Ventures as of the date hereof.

          5.20  Continuing Letters of Credit.  Schedule 5.20 is a true  and
complete  list, by  reference  to  the  aggregate face amounts of letters of
credit issued by the Persons listed thereon that are
<PAGE>   73
                                     67




also  Lenders  (but which  are  not designated  as  Issuing Banks pursuant to
clause (a) or the last sentence of the definition of Issuing  Bank)  of
letters  of credit  issued  by  such  Persons outstanding as of the dates set
forth in such Schedule.

          5.21  Solvency.  As of the Effective Date and each date on which an
Extension  of Credit is made hereunder,  after giving effect to the
transactions contemplated to occur on the Effective Date or on such other date,
the Borrower is Solvent.

          5.22   Purpose of Loans.  The proceeds of the Revolving Credit Loans,
Swing Line Loans,  Bilateral Option Loans  and CAF Advances, if any, shall be
used for general corporate purposes.

          5.23   Accuracy  of  Information.   All statements  and other
information  (other   than  statements   and  information constituting
projections)  contained in any written  documents or other  materials provided
to  the Administrative  Agent and  the Lenders by the Borrower, including all
such statements and  other information contained in the Preliminary
Confidential Information Memorandum  dated April  1997 (as  supplemented
through  the date hereof,  the  "Information Memorandum"),  are,  when  taken
as  a whole,  correct in all material  respects and do  not contain any untrue
statements  of a material fact or omit to state a material fact necessary in
order to make the statements contained therein not  materially misleading  in
light  of the  circumstances under which  such  statements  were  made.   All
statements  and other information  constituting projections which  are
contained in any written   documents   or   other  materials   provided   to
the Administrative Agent  and the Lenders by  the Borrower, including the
Information Memorandum,  were prepared  based on  good faith estimates  and
assumptions  of   the  Borrower  believed  to  be reasonable at the time such
projections were prepared.


                             SECTION 6.  CONDITIONS

          6.1  Conditions to Effectiveness.  This agreement shall become
effective upon the satisfaction or waiver of the following conditions (except
that subsections 11.22(c) and (d) shall become effective upon satisfaction of
the condition set forth in Section 6.1(i)):

          (a)   Execution  of Loan Documents and Addenda.  The Administrative 
     Agent shall have received (i) this Agreement, executed and delivered by a 
     duly authorized  officer of the Borrower, with a counterpart for the 
     Administrative Agent and each Lender, (ii) an executed Addendum (or a  
     copy thereof by facsimile transmission) from each Person listed on 
     Schedule 1.1(a),  provided, that,  notwithstanding the foregoing, in the 
     event that an Addendum has not  been duly executed and delivered by each  
     Person listed  on Schedule 1.1(a) on the date (which shall be no earlier 
     than the date hereof) on which this Agreement shall have been executed and
     delivered  by each  of the  Borrower and  the Administrative Agent, the
     condition set forth in this subsection 6.1(a)(ii) shall,  subject  to
     satisfaction of  the  other  conditions precedent set forth in  this
     subsection 6.1, nevertheless be satisfied  on such date with respect  to
     those Persons which have  executed and delivered  an Addendum on  or
     before such date if  on such  date the  Borrower and the  Administrative
     Agent  shall have  designated one  or more  banks, financial institutions
     or other  entities ("Designated  Lenders")  to assume, in the aggregate,
     all of the Commitments which would have been held by the Persons listed on
     Schedule 1.1(a) (the "Non-Executing  Persons")  which  have  not so
     executed  an Addendum  (subject to  each such  Designated  Lender's prior
     written consent in its sole discretion and its  execution of an Addendum)
     (Schedule 1.1(a)  shall automatically be deemed to  be amended to reflect
     the respective Commitments of the Designated Lenders and the omission of
     the Non-Executing
<PAGE>   74
                                     68




     Persons as Lenders hereunder)  and (iii) a Consent, executed and
     delivered   by  a  duly  authorized   officer  of  each Subsidiary
     Guarantor, consenting  to the  amendment of  the Existing Credit
     Agreement pursuant  to  this Agreement  and otherwise in form  and
     substance reasonably satisfactory  to the Administrative Agent.

          (b)   Closing  Certificate.   The Administrative  Agent shall  have
     received,  with  a  copy  for  each  Lender,  a certificate  of  the
     Borrower, dated  the  Effective  Date, substantially  in the  form of
     Exhibit I,  with appropriate insertions   and  attachments,  satisfactory
     in  form  and substance  to the  Administrative  Agent,  executed  by  the
     President or  any Vice President  and the  Secretary or  any Assistant
     Secretary of the Borrower.

          (c)   Borrower Incumbency Certificate.  The Administrative Agent 
     shall have  received, with a  copy for each  Lender, a  certificate  of 
     the Borrower, dated the Effective Date, as to the incumbency and 
     signature of the officers of the Borrower executing any Loan Document 
     satisfactory in form and substance to the Administrative Agent, executed 
     by the President or any Vice President and the Secretary or any Assistant
     Secretary of the Borrower.

          (d)   Subsidiary  Incumbency  Certificates.  The Administrative 
     Agent  shall have  received, with a  copy for each Lender, a certificate  
     of each Restricted Subsidiary of the  Borrower which is a party to a Loan 
     Document, dated the Effective Date,  as to the  incumbency and signature  
     of the officers of such Subsidiary  acknowledging and consenting to the  
     execution and  delivery of this Agreement by the Borrower, satisfactory  
     in form and substance to the Administrative Agent, executed by the 
     President or any Vice President and the Secretary or any Assistant 
     Secretary of such Subsidiary.

          (e)   Legal Opinions.  The Administrative Agent shall have received,  
     with a copy for each Lender, the following executed legal opinions:

                 (i)  the executed legal opinion of Skadden, Arps,  Slate,
          Meagher  &  Flom  LLP,  counsel  to  the Borrower and  the other Loan
          Parties, substantially in the form of Exhibit J-1;

                (ii)  the executed legal opinion  of Anthony N. Palizzi, 
          general counsel of the Borrower, substantially in the form of
          Exhibit J-2; and

               (iii)  the executed legal opinion  of Simpson Thacher & 
          Bartlett, counsel to the Administrative Agent and the  Lenders,
          substantially in the  form of Exhibit J-3.

     Each such legal opinion shall cover such matters incident to the
     transactions  contemplated  by  this  Agreement  as the Administrative
     Agent may reasonably require.

          (f)  UCC Lien Searches.  The Administrative Agent shall have
     received the results of  a recent lien  search in such jurisdictions as
     shall be satisfactory to the Administrative Agent  which   shall  reflect
     the  filings   made  in  such jurisdictions to  perfect the Liens granted
     pursuant to the Security  Documents  and  shall  otherwise be  in  form
     and substance  reasonably  satisfactory  to  the  Administrative Agent.

          (g)   Borrowing Base  Certificate.   The Administrative Agent  shall
     have  received the  most recent  Borrowing Base Certificate required to be
     delivered pursuant to  subsection 7.2(c)
<PAGE>   75
                                     69




     of the Existing Credit  Agreement, executed and delivered by a duly
     authorized officer of the Borrower.

          (h)   Exiting Revolving Credit Lenders.  The Administrative Agent 
     shall have received evidence satisfactory to it that (i) all Revolving 
     Credit Loans (as defined in the Existing Credit Agreement) of the 
     Revolving Credit Lenders (as defined in the Existing Credit Agreement) 
     which will not execute and deliver an Addendum (and will not have a 
     Revolving Credit Commitment hereunder)  with respect to  this  Agreement
     ("Exiting  Revolving  Credit Lenders") shall have been or  shall
     concurrently  be repaid  in full, together with  any accrued interest
     thereon  and any accrued fees payable to such  Exiting Revolving Credit
     Lenders under the Existing Credit Agreement to but excluding the Effective
     Date, and (ii) the  Revolving Credit Commitments (as defined in the
     Existing Credit  Agreement) of such Exiting Revolving Credit  Lenders
     shall  have  been or  shall concurrently  be terminated.

          (i)  Majority Lenders under Existing  Credit Agreement.  The
     Administrative  Agent shall  have received  Addenda from Revolving Credit
     Lenders (as  defined in the Existing Credit Agreement)  which constitute
     Majority Lenders  and Majority Revolving  Credit Lenders (as such  terms
     are defined in the Existing Credit Agreement).

          (j)  Additional Matters.    All  corporate and  other proceedings,
     and all documents,  instruments and other legal matters in connection with
     the transactions contemplated  by this  Agreement  and  the  other  Loan
     Documents  shall  be reasonably   satisfactory  in  form  and  substance
     to  the Administrative Agent,  and  the Administrative  Agent  shall have
     received such  other documents  and legal  opinions in respect  of any
     aspect or  consequence of  the transactions contemplated  hereby  or
     thereby  as  it  shall  reasonably request.

          6.2   Conditions  to  Each Extension  of  Credit.   The agreement  of
each  Lender  to  make  any  Extension  of  Credit requested  to be  made  by
it  on  any date  (including,  without limitation,  its initial Extension  of
Credit) is  subject to the satisfaction of the following conditions precedent:

          (a)    Representations and  Warranties.    Each of  the
     representations and  warranties made by the  Loan Parties in or pursuant
     to the Loan Documents (excluding those set forth on  Schedule   1.1(b)
     and  excluding,  on   and  after  the Collateral  Release Date, the
     representations and warranties contained in subsections 5.15, 5.18 and
     5.19) shall  be true and  correct in all material respects on and as of
     such date as if made on and as of such date.

          (b)  No Default.  No Default or Event of Default  shall have occurred
     and be continuing on such date or after giving effect  to the Extension of
     Credit requested to  be made on such date.

          (c)   Borrowing  Base.  After giving  effect  to  the Extensions
     of Credit requested to be made on any such date prior to the Collateral
     Release Date and the use of proceeds thereof, the Aggregate  Revolving
     Credit Outstandings  at such time shall not exceed the Borrowing Base at
     such time.

Each  Extension  of  Credit   to  the  Borrower  hereunder  shall constitute a
representation and warranty  by the Borrower  as of the date thereof that the
conditions contained in this subsection have been satisfied.
<PAGE>   76

                                      70



                       SECTION 7.  AFFIRMATIVE COVENANTS

          The  Borrower  hereby  agrees  that,  so  long  as  the Commitments
remain in  effect or  any  Letter of  Credit remains outstanding  or  any
amount  is  owing  to  any  Lender  or  the Administrative Agent hereunder or
under any other Loan Document, the  Borrower  shall  and (except  in  the  case
of delivery  of financial information,  reports and notices) shall  cause each
of its Restricted Subsidiaries to:

          7.1   Financial Statements.  Furnish to the Administrative Agent 
with a copy for each Lender:

          (a)  as soon as  available, but in any event within  95 days after
     the  end of each  Fiscal Year of the  Borrower, a copy of the consolidated
     balance  sheet of the Borrower  and its Consolidated Subsidiaries as at
     the end of such year and the related consolidated statements  of income
     and  retained earnings and of cash  flows for such year, setting  forth in
     each  case in comparative form the  figures as of the end of and  for the
     previous  Fiscal Year,  reported on  without a qualification  arising out
     of the  scope  of the  audit, by Price Waterhouse LLP  or other
     independent  certified public accountants of nationally recognized
     standing, together with a  copy of the  Borrower's Form 10-K filed  with
     the SEC for such Fiscal Year; and

          (b)  as soon as available,  but in any event not  later than  50 days
     after  the end  of each  of  the first  three quarterly  periods of each
     Fiscal Year  of the Borrower, the unaudited consolidated balance sheet of
     the Borrower and its Consolidated Subsidiaries as  at the end of such
     quarter and the related unaudited consolidated statements of  income and
     retained  earnings and of cash flows of the Borrower and its Consolidated
     Subsidiaries  for such quarter  and the portion of  the Fiscal Year
     through the end of such quarter, setting forth in each case  in
     comparative form the figures  for the previous Fiscal Year  as set  forth
     in  the Borrower's  Form 10-Q filed with the SEC for such quarterly
     period, certified by a  Responsible  Officer as  being  fairly stated  in
     all material   respects  (subject   to  normal   year-end  audit
     adjustments).

All such financial  statements shall be  complete and correct  in all material
respects (subject  to, in the case of  the financial statements referred  to in
paragraph (b) above,  normal year-end adjustments) and shall  be prepared in
reasonable detail and  in accordance with GAAP applied  consistently throughout
the periods reflected therein and  with prior periods (except as  approved by
such  accountants or officer, as  the case may  be, and disclosed therein).

          7.2   Certificates; Other Information.  Furnish to the 
Administrative Agent with a copy for each Lender:

          (a)   concurrently with  the delivery of  the financial statements
     referred to  in subsection 7.1(a), a  certificate of the independent
     certified public accountants reporting on such  financial  statements
     stating  that  in   making  the examination necessary therefor no
     knowledge was obtained of any Default or Event of Default, except as
     specified in such certificate;

          (b)   concurrently with  the delivery of  the financial statements
     referred to  in  subsections 7.1(a)  and (b),  a certificate of  a
     Responsible Officer (i)  stating that such Responsible Officer has 
     obtained no knowledge of any Default or Event of Default with respect to
     the period covered by such financial statements except as specified  in
     such certificate and (ii) setting forth,  in reasonable  detail, a
     calculation of the financial  covenants set  forth  in subsection  8.1 for 
     the period corresponding to such financial statements; 
<PAGE>   77
                                     71




          (c)  on  or prior to the twentieth day  (or if such day is not  a
     Business  Day, the  next succeeding  Business Day) following  the  end of
     each  fiscal month  (other  than any fiscal month  ending after the
     Collateral  Release Date), an officer's certificate substantially in the
     form of Exhibit K (a "Borrowing Base Certificate"), certified by a
     Responsible Officer as true and correct;

          (d)  concurrently with  the delivery of  the financial statements
     referred to in subsections 7.1(a) and (b), unless the Collateral Release
     Date has occurred, a certificate of a Responsible Officer setting forth  a
     list of all  stores and distribution centers owned or leased and
     classified as owned by  the Borrower or  any of its  Restricted
     Subsidiaries for which a certificate of  occupancy or a temporary
     certificate of occupancy  has been issued  during the period  covered by
     such financial statements;

          (e)  not later than 90 days after the beginning of each Fiscal  Year
     of the Borrower,  a copy of  the projections by the Borrower of the
     operating budget and cash flow budget of the Borrower and its Subsidiaries
     for such Fiscal Year, such projections  to  be  accompanied   by  a
     certificate  of  a Responsible Officer to the effect that such projections
     have been prepared on  the basis of assumptions  believed to have been
     reasonable when made;

          (f)  promptly after the  same are sent,  copies of all financial
     statements and reports which the Borrower sends to its  stockholders, and
     promptly after  the same  are filed, copies of all  reports on  Form 8-K
     which  the Borrower  may make to, or file with, the SEC; and

          (g)  promptly,  such additional  financial  and  other information
     as the Administrative Agent (on behalf of itself or any Lender) may from
     time to time reasonably request.

          7.3  Payment  of  Obligations.  Pay, discharge or otherwise satisfy
at or before maturity or before they become delinquent, as the case may be, 
all its obligations  of whatever nature,  except where the amount or validity 
thereof is currently being  contested in  good  faith by  appropriate 
proceedings  and reserves in conformity  with GAAP with respect  thereto have
been provided on the books of the Borrower or its Subsidiaries, as the case may
be, and except where the failure to so pay, discharge or otherwise satisfy
such obligation could not,  individually or in the aggregate, reasonably be
expected  to have a Material Adverse Effect.

          7.4  Conduct of  Business and Maintenance of Existence.  Continue to
engage  in business of the  same general type  as now conducted  by the
Borrower and  its Restricted  Subsidiaries and preserve, renew and keep  in
full force and effect  its corporate existence and take all reasonable action 
to maintain all  rights, privileges and  franchises necessary  or desirable in 
the normal conduct of its business except as otherwise permitted pursuant to    
subsection 8.5  and except where the failure to maintain such rights, 
privileges  and franchises could not, individually or in the  aggregate,
reasonably be expected to have a Material Adverse Effect; comply with all
Contractual Obligations  and Requirements of Law except  to the  extent that 
failure to  comply therewith could  not, individually  or  in the  aggregate, 
be  reasonably expected to have a Material Adverse Effect.

          7.5   Maintenance  of  Property; Insurance.   Keep  its property
necessary  in its  business in  good working  order and condition,  ordinary
wear and tear excepted, if the failure to do so  could  reasonably be  expected
to  have  a Material  Adverse Effect; maintain  with financially sound  and
reputable insurance companies  insurance on all its property in at least such
amounts and against at least such risks as are usually insured against in the
same general  area by similar  companies of  comparable size engaged in the
same or a similar business and owning or operating similar properties
<PAGE>   78
                                     72




in localities where the  Borrower and its Restricted Subsidiaries operate   and
furnish  upon   the   written   request  of   the Administrative Agent
information as to the insurance carried.

          7.6    Inspection  of  Property;   Books  and  Records; Discussions.
Keep proper  books of records and account  in which full,  true and correct
entries  in conformity with  GAAP and all Requirements  of   Law  shall  be
made  of  all   dealings  and transactions  in relation  to  its business  and
activities;  and permit  representatives  of  the  Administrative  Agent,  at
the request of any Lender, to visit and inspect any of its properties and
examine and make abstracts from any of its books and  records at any
reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and  other   condition  of   the
Borrower  and   its  Restricted Subsidiaries with officers  and employees of
the Borrower and its Restricted  Subsidiaries and  in  the presence  of a
Responsible Officer with its independent certified public accountants.

          7.7    Notices.  Promptly give notice to the Administrative Agent 
(which shall promptly give notice thereof to each Lender) of:

          (a)  the occurrence of any Default or Event of Default;

          (b)  any  (i) default  or event  of default  under any Contractual
     Obligation  of  the  Borrower  or  any  of  its Restricted Subsidiaries
     which  could reasonably be  expected to  have  a  Material  Adverse Effect
     or  (ii)  litigation, investigation  or proceeding  which  may exist  at
     any  time between  the  Borrower or  any of  its Subsidiaries  and any
     Governmental Authority,  which (A) in  the case of  any such litigation,
     investigation  or  proceeding  in  the ordinary course  of business, could
     reasonably  be expected to have a Material Adverse Effect  and (B)  in the
     case  of any  other litigation,  investigation  or   proceeding,  if
     adversely determined, could reasonably be  expected to have a Material
     Adverse Effect;

          (c)  any  litigation  or   proceeding  affecting  the Borrower  or
     any  of  its Subsidiaries  in which  the amount involved is $50,000,000 or
     more to the extent not covered by insurance or in which injunctive or
     similar relief is sought which  (A) in the case of any such litigation, or
     proceeding in  the ordinary  course  of business,  could reasonably  be
     expected  to have a Material  Adverse Effect and  (B) in the case  of any
     other litigation  or proceeding,  if adversely determined, could
     reasonably be  expected to have a Material Adverse Effect; and

          (d)  the following  events, as soon as possible  and in any event
     within  30 days  after the Borrower  knows or  has reason  to know
     thereof:   (i) the  occurrence or  expected occurrence of any Reportable
     Event with respect to any Plan, a failure to make  any required 
     contribution to a  Plan, the creation of any Lien in favor  of the PBGC 
     or a Plan or any withdrawal from, or the termination, Reorganization  or 
     Insolvency of,  any Multiemployer Plan which, in  any case, could  
     reasonably be  expected  to have  a Material  Adverse Effect or (ii) the 
     institution of proceedings or the taking of any  other action by the  
     PBGC or the Borrower or any Commonly Controlled Entity or any 
     Multiemployer Plan with respect to the withdrawal from, or the 
     termination, Reorganization  or Insolvency  of,  any Plan  which, in  any
     case,  could  reasonably  be expected to  have  a  Material Adverse
     Effect.

Each notice pursuant to this subsection shall be accompanied by a statement of
a  Responsible Officer setting forth details  of the occurrence  referred  to
therein  and stating  what  action  the Borrower proposes to take with respect
thereto.
<PAGE>   79
                                     73




        7.8 Environmental Laws. (a) Comply with all applicable Environmental    
Laws and obtain and comply in all material respects with and maintain any and
all licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws except in any such case to the extent that
failure to do so could not be reasonably expected to have a Material Adverse
Effect.

        (b) Conduct and complete all investigations, studies, sampling and      
testing, and all remedial, removal and other actions required under
Environmental Laws, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect, and promptly comply in all material
respects with all lawful orders and directives of all Governmental Authorities
regarding Environmental Laws except to the extent that the same are being
contested in good faith by appropriate proceedings and the pendency of such
proceedings could not be reasonably expected to have a Material Adverse Effect.

        7.9 Further Assurances. Upon the request of the Administrative Agent at 
any time prior to the Collateral Release Date, promptly perform or cause to be
performed any and all acts and execute or cause to be executed any and all
documents (including, without limitation, financing statements and continuation
statements) for filing under the provisions of the Uniform Commercial Code or
any other Requirement of Law which are necessary or, in the reasonable opinion
of the Administrative Agent, advisable to maintain in favor of the Trustee
Liens on the Collateral that are duly perfected (to the extent that the same
are contemplated to be so perfected under the terms of the Loan Documents) in
accordance with all applicable Requirements of Law.

        7.10 Mortgages; Etc. Unless the Collateral Release Date shall have
occurred:

        (a) (i) With respect to any parcel of property that qualifies as a 
parcel of Material Real Property during any fiscal quarter (other than any
parcel of Material Real Property of the Borrower located in the State of
California, Alaska, Nevada or Washington), on or before the last day of the
succeeding fiscal quarter, execute and deliver to the Administrative Agent a 
Mortgage with respect to such parcel of Material Real Property unless (A) a 
Lien is granted in favor of third parties on such parcel of Material Real 
Property pursuant to subsection 8.4(g), (i), (j) or (k) or (B) the  recordation
of such Mortgage would result in the payment of a material mortgage recording
tax and (ii) with respect to any parcel of property that  qualifies as a parcel
of Material Real Property of the Borrower during any fiscal quarter which is
located in the State of California, Alaska, Nevada  or Washington, on or before
the last day of the succeeding fiscal quarter, execute and deliver a Subsidiary
Mortgage to a Subsidiary Guarantor  securing all California Mortgage Notes
issued by the Borrower to such Subsidiary Guarantor then outstanding, together
with an additional California Mortgage Note in an aggregate principal amount,
or an increase in the aggregate principle amount of such outstanding California
Mortgage  Notes in an amount, at least equal to the fair market value, as
determined by the Borrower, of such parcel of Material Real Property unless (A)
a  Lien is granted in favor of third parties on such parcel of Material Real
Property pursuant to subsection 8.4(g), (i), (j) or (k) or (B) the recordation
of such Subsidiary Mortgage would result in the payment of a material mortgage
recording tax, provided that, upon the occurrence of a Collateral Release
Event, the Borrower and its Restricted Subsidiaries shall not thereafter be
required to (but may) execute any Mortgages or Subsidiary Mortgages pursuant to
this paragraph.
        
        (b) Cause to be delivered to the Corporate Trustee all Repurchased Put  
Bonds acquired after the Initial Closing Date to be held by the Corporate 
Trustee (or its agent or custodian) as Pledged Securities, subject to the terms
of the Pledge Agreement, as collateral security for the Secured Obligations.


<PAGE>   80

                                     74




        (c) Cause to be delivered to the Corporate Trustee all California       
Mortgage Notes issued on or after the Initial Closing Date to be held by the
Corporate Trustee (or its agent or custodian) as Pledged Securities, subject to
the terms of the Pledge Agreement, as collateral security for the Secured
Obligations, provided that, upon the occurrence of a Collateral Release Event,
the Borrower and its Restricted Subsidiaries shall not thereafter be required
to (but may) deliver any California Mortgage Notes pursuant to this paragraph.

        (d) Cause to be delivered to the Corporate Trustee a certificate or     
certificates evidencing 65% of the Capital Stock of Kmart Taiwan Limited owned
by Kmart Overseas Corporation promptly upon the receipt thereof by the Borrower
or Kmart Overseas Corporation.

        7.11 Additional Collateral. Unless the Collateral Release Date shall
have occurred:

        (a) With respect to any assets acquired after the Initial Closing Date  
by the Borrower or any Subsidiary Guarantor that are intended to be subject to
the Lien created by any of the Security Documents but which are not so subject
(other than any assets described in subsection 7.10 or paragraph (b), (c) or
(d) of this subsection), promptly (and in any event within 30 days after the
acquisition thereof): (i) execute and deliver to the Administrative Agent such
amendments to the relevant Security Documents or such other documents as the
Administrative Agent shall deem necessary or advisable to grant to the Trustee
a Lien on such assets, (ii) take all actions reasonably deemed necessary or
advisable by the Administrative Agent to cause such Lien to be duly perfected
(to the extent contemplated therein and in the other Loan Documents) in
accordance with all applicable Requirements of Law, including, without
limitation, the filing of financing statements in such jurisdictions as may be
requested by the Administrative Agent (it being agreed that no action shall be
required pursuant to this clause (ii) to perfect a Lien (1) in assets that
would not constitute UCC Filing Collateral or (2) in assets constituting UCC
Filing Collateral if such perfection relates to assets with an aggregate book
value of less than $1,000,000), and (iii) with respect to assets constituting
UCC Filing Collateral with a book value in excess of $1,000,000 that are
perfected under the laws of any jurisdiction, if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described in clauses (i) and (ii) immediately
preceding, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent.
        
        (b) With respect to any Person that, subsequent to the Initial Closing
Date, becomes a Domestic Subsidiary, promptly upon the request of the
Administrative Agent: (i) execute and deliver to the Trustee a new pledge
agreement or such amendments to the relevant Pledge Agreement as the
Administrative Agent shall deem necessary or advisable to grant to the Trustee
a Lien on the Capital Stock of such Domestic Subsidiary which is owned by the
Borrower or any of its Subsidiaries, (ii) deliver to the Trustee the
certificates representing such Capital Stock, together with undated stock
powers executed and delivered in blank by a duly authorized officer of the
Borrower or such Domestic Subsidiary, as the case may be, (iii) cause such new
Domestic Subsidiary (A) to become a party to the Subsidiaries Guarantee and the
Subsidiaries Security Agreement, in each case pursuant to documentation which
is in form and substance satisfactory to the Administrative Agent, and (B) to
take all actions reasonably deemed necessary or advisable by the Administrative
Agent to cause the Lien created by the Subsidiaries Security Agreement to be
duly perfected (to the extent contemplated therein and in the other Loan
Documents) in accordance with all applicable Requirements of Law, including,
without limitation, the filing of financing statements in such jurisdictions as
may be requested by the Administrative Agent (it being agreed that no action
shall be required pursuant to this clause (iii) to perfect a Lien in assets
that would not constitute UCC Filing Collateral or in assets constituting UCC
Filing Collateral if such perfection relates to assets with an aggregate book
value of less than $1,000,000) and (iv) with respect to assets of any such
Domestic Subsidiary with a book
        

<PAGE>   81
                                     75




value in excess of $1,000,000 that are perfected under the laws of any  
jurisdiction, if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described in
clauses (i), (ii) and (iii) immediately preceding, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.

        (c) With respect to any Person that, subsequent to the Initial Closing  
Date, becomes a Foreign Subsidiary with a net worth in excess of $10,000,000,
promptly upon the request of the Administrative Agent: (i) execute and deliver
to the Trustee a new pledge agreement or such amendments to the relevant Pledge
Agreement as the Administrative Agent shall deem necessary or advisable to
grant to the Trustee a Lien on the Capital Stock of such Subsidiary which is
owned by the Borrower or any of its Subsidiaries (provided that in no event
shall more than 65% of the Capital Stock of any such Subsidiary be required to
be so pledged) and (ii) deliver to the Trustee any certificates representing
such Capital Stock, together with undated stock powers executed and delivered
in blank by a duly authorized officer of the Borrower or such Subsidiary, as
the case may be, and take or cause to be taken all such other actions under the
law of the jurisdiction of organization of such Foreign Subsidiary as may be
necessary or advisable to perfect such Lien on such Capital Stock.
        
        (d) If the Borrower or any Subsidiary Guarantor shall acquire any       
Investment Securities (other than Investment Securities of any issuer
aggregating less than $10,000,000) prior to the Collateral Release Date, such
Loan Party shall deliver certificates representing such Investment Securities
to the Corporate Trustee or its agent or custodian (or otherwise "transfer"
such Investment Security (within the meaning of the applicable uniform
commercial code) to the Corporate Trustee or its agent or custodian), together
with, when necessary or appropriate, undated powers as provided in Section 2(b)
of the Pledge Agreement, to be held by the Corporate Trustee (or its agent or
custodian) as Pledged Securities, subject to the terms of the Pledge Agreement,
as collateral security for the Secured Obligations.

        7.12 Cash Equivalents. Except as otherwise permitted by clause (c),     
(d), (f), (i) (to the extent applicable), (j) or (k) of subsection 8.4, the
Borrower and each Subsidiary Guarantor will, at all times prior to the
Collateral Release Date, maintain all its Cash Equivalents in accounts
established with a custodian which shall have agreed to hold such property in
the name of the Trustee subject to the provisions of the Pledge Agreement,
provided that the Borrower and the Subsidiary Guarantors shall not be required
to maintain Temporary Cash Equivalent Investments in such accounts to the
extent such investments in such Temporary Cash Equivalent Investments are
reasonably necessary for the operation of the business of the Borrower and the
Subsidiary Guarantors consistent with past practices.


                        SECTION 8. NEGATIVE COVENANTS

        The Borrower hereby agrees that, so long as the Commitments remain in   
effect or any Letter of Credit remains outstanding or any amount is owing to
any Lender or the Administrative Agent hereunder or under any other Loan
Document, the Borrower shall not, and (except in the case of subsection 8.1)
shall not permit any of its Restricted Subsidiaries to, directly or indirectly:

        8.1 Financial Condition Covenants.

        (a) Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio
       as of the last day of any fiscal quarter to be less than 1.25 to 1.00.

<PAGE>   82
                                     76




        (b) Leverage Ratio. Permit at any time the Leverage Ratio to exceed
    0.50 to 1.00.

        8.2 Limitation on Indebtedness. Create, incur, assume or suffer to      
exist any Indebtedness, except:

        (a) Indebtedness of the Borrower (i) under this Agreement and (ii)
    under the Convertible Debentures;

        (b) (i) Indebtedness of the Borrower to any Subsidiary and of any
    Subsidiary Guarantor to the Borrower or any other Subsidiary and (ii)
    Indebtedness of the Borrower in respect of cash advances from Meldisco in
    anticipation of dividends, income distributions and royalties due from
    Meldisco to the Borrower;

        (c) Indebtedness of the Borrower and any of its Restricted Subsidiaries
    incurred after the Initial Closing Date to finance the acquisition,
    construction or completion of fixed or capital assets (whether pursuant to
    a loan, a Financing Lease or otherwise), provided that the principal amount
    of such Indebtedness shall at no time exceed 100% of the original
    acquisition, construction or completion cost, as the case may be, of such
    assets;

        (d) Indebtedness of Significant Foreign Subsidiaries incurred for
    working capital or other operating purposes;

        (e) Indebtedness outstanding on the Effective Date;

        (f) Indebtedness of a corporation which becomes a Restricted Subsidiary
    after the Effective Date, provided that (i) such Indebtedness existed at
    the time such corporation became a Restricted Subsidiary and was not
    created in anticipation thereof and (ii) immediately after giving effect to
    the acquisition of such corporation by the Borrower or any other Restricted
    Subsidiary no Default or Event of Default shall have occurred and be
    continuing;

        (g) Indebtedness in respect of interest rate and currency hedging
    transactions entered into in the ordinary course of business and not for
    speculative purposes;

        (h) subject to subsection 8.9(g), Indebtedness of any Foreign
    Subsidiary to the Borrower or any Subsidiary;

        (i) Indebtedness not otherwise permitted by this subsection 8.2 not
    exceeding (as to the Borrower and all its Restricted Subsidiaries),
    together with any then outstanding Qualified Big Beaver Indebtedness,
    $500,000,000 in aggregate principal amount at any one time outstanding; and

        (j) any refinancings, refundings, renewals or extensions of
    Indebtedness permitted hereunder, provided that if the principal amount of
    such Indebtedness is increased, such increased amount is permitted to be
    incurred under subsection 8.2(i);

provided that, notwithstanding the foregoing, no Indebtedness of any Person     
shall be designated as "Permitted Pari Passu Senior Debt" and no Indebtedness
created, incurred, assumed or suffered to exist pursuant to this subsection 8.2
shall constitute "Permitted Pari Passu Senior Debt" for purposes of the Trust
Agreement.


<PAGE>   83
                                     77




        8.3 Limitation on Guarantee Obligations. Create, incur, assume or       
suffer to exist any Guarantee Obligation except:

        (a) the Subsidiaries Guarantee and any Guarantee Obligations arising    
    under any of the other Loan Documents;

        (b) Guarantee Obligations in existence on the Effective Date;

        (c) Guarantee Obligations of the Borrower or any Restricted Subsidiary
    of obligations of any Restricted Subsidiary or the Borrower which
    obligations are otherwise permitted under this Agreement;

        (d) Guarantee Obligations of the Borrower under its guaranty of the
    obligations of the Convertible Trust under, or as contemplated by, the
    Convertible Preferred Securities Documents as in effect on the Initial
    Closing Date;

        (e) Guarantee Obligations entered into in connection with surety,
    appeal, payment and performance bonds (and other obligations of a like
    nature) incurred in the ordinary course of business;

        (f) Guarantee Obligations of the Borrower or any Restricted Subsidiary
    of Indebtedness or other obligations of Securitization Entities incurred in
    connection with Securitization Transactions;

        (g) subject to subsection 8.9(g), Guarantee Obligations of the Borrower
    or any Restricted Subsidiary of Indebtedness or other obligations incurred
    in the ordinary course of business of Foreign Subsidiaries;

        (h) Guarantee Obligations in respect of obligations of vendors to the
    Borrower and its Restricted Subsidiaries created in the ordinary course of
    business; and

        (i) Guarantee Obligations (not otherwise permitted pursuant to this
    subsection 8.3) incurred after the Effective Date in an aggregate amount
    for the Borrower and its Restricted Subsidiaries not to exceed $200,000,000
    at any one time outstanding.

        8.4 Limitation on Liens. Create, incur, assume or suffer to exist any   
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:

        (a) Liens for taxes not yet due or which are being contested in good
    faith by appropriate proceedings, provided that adequate reserves with
    respect thereto are maintained on the books of the Borrower or its
    Subsidiaries, as the case may be, in conformity with GAAP (or, in the case
    of Significant Foreign Subsidiaries, generally accepted accounting
    principles in effect from time to time in their respective jurisdictions of
    incorporation);

        (b) carriers', warehousemen's, mechanics', landlord's, materialmen's,
    repairmen's or other like Liens arising in the ordinary course of business
    securing amounts which are not overdue for a period of more than 60 days or
    which are being contested in good faith by appropriate proceedings;


<PAGE>   84
                                     78




        (c) (i) pledges or deposits in connection with workers' compensation,
    unemployment insurance and other social security legislation and deposits
    securing liability to insurance carriers under insurance or self-insurance
    arrangements and (ii) Liens granted to banks in the ordinary course of
    business in connection with deposit, disbursement or concentration accounts
    (other than in connection with borrowed money) maintained with such banks
    on funds and other items in such accounts;

        (d) Liens granted and deposits made to secure the performance of bids,
    trade contracts and real estate related contracts entered into in the
    ordinary course of business (in each case, other than for borrowed money),
    utilities, leases, statutory obligations, surety and appeal bonds,
    performance bonds and other obligations of a like nature incurred in the
    ordinary course of business;

        (e) easements, rights-of-way, restrictions, subdivisions,
    parcelizations and other similar encumbrances incurred in the ordinary
    course of business which do not in any case materially detract from the
    value of the property subject thereto or materially interfere with the
    ordinary conduct of the business of the Borrower or such Restricted
    Subsidiary;

        (f) Liens in existence on the date hereof (or arising at any time
    during the period from the date hereof through the Effective Date) and (i)
    listed on Schedule 8.4(f) securing Indebtedness or other obligations
    described on such Schedule or (ii) otherwise securing Indebtedness or other
    obligations not exceeding $10,000,000 in the aggregate;

        (g) Liens securing Indebtedness of the Borrower and its Restricted
    Subsidiaries permitted by subsection 8.2(c), provided that (i) such Liens
    do not at any time encumber any property other than the property financed
    by such Indebtedness and (ii) the amount of Indebtedness secured thereby is
    not increased;

        (h) Liens on assets of any Significant Foreign Subsidiary securing
    Indebtedness of such Significant Foreign Subsidiary permitted by subsection
    8.2(d) and other obligations incurred in the ordinary course of business;

        (i) Liens on the property or assets of a corporation which becomes a
    Restricted Subsidiary after the Effective Date and Liens existing on assets
    acquired by the Borrower or a Restricted Subsidiary after the Effective
    Date, in either case securing Indebtedness permitted by subsection 8.2(c)
    or 8.2(f), provided that (i) such Liens existed at the time such
    corporation became a Restricted Subsidiary or such asset was acquired and
    were not created in anticipation thereof, (ii) any such Lien is not spread
    to cover any property or assets of such corporation after the time such
    corporation becomes a Restricted Subsidiary or such asset is acquired, and
    (iii) the amount of Indebtedness secured thereby is not increased;

        (j) Liens securing Indebtedness permitted under subsection 8.2(j) to
    the extent such Indebtedness was originally permitted to be secured
    pursuant to this subsection; provided that the principal amount of such
    Indebtedness is not increased (other than by an amount equal to any costs
    and expenses incurred in connection with such refunding or refinancing) and
    that no such Lien is spread to cover additional property;

        (k) Liens (not otherwise permitted hereunder) which secure obligations
    not exceeding (as to the Borrower and all its Restricted Subsidiaries)
    $100,000,000 in aggregate principal or face amount at any time outstanding;


<PAGE>   85
                                     79



        (l) Liens granted in accordance with the terms of the Put Bond
    Mortgages or the Repurchased Put Bonds as in effect on the Initial Closing
    Date on property or assets in substitution for or replacement of property
    or assets subject to the Liens granted pursuant to the Put Bond Mortgages
    to the extent such substitution or replacement is required thereunder in
    accordance with the provisions thereof;

        (m) Liens created pursuant to the Security Documents to secure, among
    other things, the Kmart Credit Agreement Obligations and Liens created
    pursuant to any Subsidiary Mortgages; and

        (n) Liens created in favor of any Person who delivers goods under a
    consignment to the Borrower or a Restricted Subsidiary, provided that the
    Borrower or such Restricted Subsidiary treats and designates on its books
    and records such goods as "goods on consignment" for all purposes and such
    goods are not included as Inventory of the Borrower or such Restricted
    Subsidiary, as the case may be, on the books of the Borrower or such
    Restricted Subsidiary, as the case may be;

provided that, notwithstanding the foregoing, no Lien created, incurred,        
assumed or suffered to exist pursuant to this subsection 8.4 (other than
subsections 8.4(a), (b), (m) or (n) shall be a Lien on Inventory of the 
Borrower or any of its Restricted Subsidiaries.

        8.5 Limitation on Fundamental Changes. Enter into any merger,   
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all of its property,
business or assets except:

        (a) any Restricted Subsidiary of the Borrower may be merged or
    consolidated with or into the Borrower (provided that the Borrower shall be
    the continuing or surviving corporation) or with or into any one or more
    wholly owned Restricted Subsidiaries of the Borrower (provided that the
    wholly owned Restricted Subsidiary or Restricted Subsidiaries shall be the
    continuing or surviving corporation and provided that if one of the parties
    to such transaction is a Subsidiary Guarantor then the continuing or
    surviving corporation shall be a Subsidiary Guarantor);

        (b) any Restricted Subsidiary may convey, sell, lease, transfer, assign
    or otherwise dispose of any or all of its assets (upon voluntary
    liquidation or otherwise) to the Borrower or any other wholly owned
    Restricted Subsidiary of the Borrower (provided that if such selling
    Restricted Subsidiary is a Subsidiary Guarantor then the acquiring
    Restricted Subsidiary shall be a Subsidiary Guarantor); and

        (c) any Restricted Subsidiary may be merged or consolidated with or
    into, or convey, sell, lease, transfer, assign or otherwise dispose of any
    or all of its assets to, any Person to the extent that the sale or other
    disposition of the assets of such Restricted Subsidiary would be permitted
    under subsection 8.6.

        8.6 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer 
or otherwise dispose of any of its property, business or assets (including,
without limitation, receivables and leasehold interests), whether now owned or
hereafter acquired, or, in the case of any Restricted Subsidiary, issue or sell
any shares of such Restricted Subsidiary's Capital Stock to any Person (other
than the Borrower or any wholly owned Subsidiary Guarantor or, if such
Restricted Subsidiary is not a


<PAGE>   86
                                     80




wholly-owned Restricted Subsidiary, pro-rata to the owners of the equity        
securities of such Restricted Subsidiary), except:

        (a) the sale or other disposition of obsolete, surplus or worn out
    property in the ordinary course of business or in connection with real
    estate development activities;

        (b) the sale of inventory in the ordinary course of business (including
    sales of inventory in connection with closed stores and sales of
    discontinued inventory) and transfers of inventory and equipment among the
    Borrower and the Subsidiary Guarantors pursuant to reasonable business
    requirements;

        (c) (i) the sale or discount of accounts receivable arising in the
    ordinary course of business in connection with the compromise or collection
    thereof or pursuant to the Existing Receivables Transactions and (ii) sales
    or other dispositions of Cash Equivalents or Temporary Cash Equivalent
    Investments in the ordinary course of business;

        (d) as permitted by subsection 8.5(b);

        (e) sales and dispositions of real property and related assets in
    connection with (i) Permitted Sale-Leasebacks or (ii) Securitization
    Transactions; provided that, in the opinion of a Responsible Officer, the
    purchase price with respect to each such sale or disposition represents the
    fair value of the assets so sold;

        (f) the transactions described on Schedule 8.6(f) or any sale or other
    disposition of any asset received in exchange for any asset described on
    such Schedule in connection with any transaction described on such Schedule
    (the "Scheduled Asset Sales"), provided that, in the opinion of a
    Responsible Officer the purchase price with respect to each such sale
    represents the fair value of the assets so sold;

        (g) the sale by the Borrower or any Restricted Subsidiary of all or a
    portion of (or any interest in) the Purchased Credit Facilities and the
    Repurchased Put Bonds;

        (h) the sale or other disposition of any property (other than any sale
    or other disposition which is otherwise permitted under this subsection
    8.6), provided that (i) at the time of and after giving effect to such sale
    or disposition, the aggregate book value of all assets so sold or disposed
    of in any Fiscal Year shall not exceed an amount equal to 10% of
    Shareholders' Equity at the beginning of such Fiscal Year and (ii) in the
    opinion of a Responsible Officer the purchase price with respect to such
    sale or other disposition (except with respect to sales or other
    dispositions the aggregate purchase price with respect to which does not
    exceed $10,000,000) represents the fair value of the assets so sold or
    disposed of;

        (i) subject to the other terms and provisions hereof, leases or
    subleases (or assignment of leases) of real property in the ordinary course
    of business; and

        (j) the sale or other disposition of the Investments described as items
    1 and 2 in Schedule 8.9(i)(A) under the heading "Kmart Corporation Other
    Investments".

        8.7 Limitation on Dividends. Declare or pay any dividend (other than    
dividends payable solely in common stock of the Borrower) on, or make any
payment on account of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or


<PAGE>   87
                                     81



other acquisition of, any shares of any class of Capital Stock of the Borrower
or any warrants or options to purchase any such Stock, whether now or
hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations
of the Borrower or any Restricted Subsidiary (such declarations, payments,
setting apart, purchases, redemptions, defeasances, retirements,
acquisitions and distributions being herein called "Restricted Payments"),
except that:

        (a) the Borrower may purchase or exchange then-existing employee stock
    options for consideration consisting solely of new employee stock options
    and may purchase Capital Stock or options to acquire the same from
    directors, officers and employees of the Borrower and its Restricted
    Subsidiaries in connection with employment and severance arrangements; and

        (b) so long as after giving effect thereto no Default or Event of
    Default has occurred and is continuing, the Borrower may make Restricted
    Payments with respect to its Common Stock commencing in the 1997 Fiscal
    Year, provided that no Restricted Payment may be made pursuant to this
    paragraph if, after giving effect thereto, the aggregate amount of all
    Restricted Payments made pursuant to this paragraph would exceed 50% of the
    Consolidated Net Income of the Borrower for the period (taken as one
    accounting period) from the beginning of the 1997 Fiscal Year through the
    last day of the most recent fiscal quarter ended prior to the date such
    Restricted Payment is made.

        8.8 Limitation on Capital Expenditures and "Property held for Resale".  
Make (by way of the acquisition of securities of a Person or otherwise) any
expenditure in respect of the purchase or other acquisition of fixed or capital
assets (excluding any such asset acquired in connection with normal replacement
and maintenance programs properly charged to current operations but including
expenditures in respect of the construction or development of "property held
for resale") except for expenditures not exceeding, in the aggregate for the
Borrower and its Restricted Subsidiaries during any Fiscal Year of the
Borrower, $1,000,000,000; provided that, (a) with respect to any Fiscal Year
(other than the 1996 Fiscal Year), the Borrower and its Restricted Subsidiaries
shall be permitted to make additional capital expenditures in an amount not to
exceed the Additional Permitted Capital Expenditure Amount for such Fiscal
Year, (b) the amount for the 2000 Fiscal Year shall be pro rated for the period
from the beginning of such Fiscal Year to the Revolving Credit Termination Date
and (c) up to 100% of any amount permitted to be expended in any Fiscal Year
(without giving effect to this clause (c)) if not so expended in the Fiscal
Year for which it is permitted above, may be carried over for expenditure in
the next following Fiscal Year.

        8.9 Limitation on Investments, Loans and Advances. Make any advance,    
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of any Person (an "Investment"), except for:

        (a) extensions of trade credit and prepaid expenses made in the
    ordinary course of business;

        (b) Investments in Cash Equivalents and Temporary Cash Equivalent
    Investments;

        (c) (i) Investments resulting from the acquisition by the Borrower or a
    Restricted Subsidiary of the Indebtedness under the Purchased Credit
    Facilities and the Repurchased Put Bonds and (ii) subject to subsection
    8.8, loans made by the Borrower or a Restricted Subsidiary to the Big
    Beaver Joint Ventures to finance construction of the related projects prior
    and subsequent to the date hereof;


<PAGE>   88

                                      82



        (d) loans to officers of the Borrower or any Subsidiary;

        (e) loans and advances to employees of the Borrower or its Subsidiaries
    for travel, entertainment and relocation expenses in the ordinary course of
    business;

        (f) Investments by the Borrower in Subsidiary Guarantors and
    Investments by Restricted Subsidiaries in the Borrower and in Subsidiary
    Guarantors;

        (g) Investments by the Borrower and Restricted Subsidiaries in Foreign
    Subsidiaries, provided that, after giving effect to such Investment, the
    aggregate then outstanding amount of all such Investments (including
    Investments in the nature of sales and transfers of assets (including,
    pursuant to a transaction permitted under subsection 8.5) for less than
    fair market value and Guarantee Obligations pursuant to subsection 8.3(g))
    made subsequent to the Effective Date in Foreign Subsidiaries shall not
    exceed $150,000,000, provided, further, that the conversion of any
    Indebtedness owed to the Borrower or any Restricted Subsidiary by any
    Foreign Subsidiary into equity of such Foreign Subsidiary shall not
    constitute an additional Investment in such Foreign Subsidiary by the
    Borrower or such Restricted Subsidiary for purposes of the limitation
    contained in the immediately preceding proviso;

        (h) loans by the Borrower to its employees (other than to officers of
    the Borrower or any Subsidiary) in connection with management incentive
    plans in an aggregate amount not to exceed $20,000,000 at any one time
    outstanding;

        (i) Investments (A) existing on the Effective Date and listed on
    Schedule 8.9(i)(A), (B) in the Convertible Trust contemplated by the
    Declaration of Trust for the Convertible Trust or the Convertible Debenture
    Indenture as in effect on the Initial Closing Date and (C) in
    Securitization Entities formed or established in connection with
    Securitization Transactions;

        (j) Investments received in connection with the collection of accounts
    receivable in the ordinary course of business;

        (k) Investments received in connection with any Asset Sale or other
    disposition permitted hereunder;

        (l) loans and advances to suppliers in the ordinary course of business
    consistent with past practice; and

        (m) Acquisitions and other Investments made by the Borrower or any of
    its Restricted Subsidiaries, provided that, after giving effect to any such
    Acquisition or Investment, the aggregate then outstanding amount of all
    such Acquisitions and such other Investments (including assumed
    Indebtedness) made at any time after the Effective Date shall not exceed an
    amount equal to 10% of Shareholders' Equity as of the end of the most
    recent fiscal quarter for which financial statements have been delivered
    pursuant to subsection 7.1.

        8.10 Limitation on Optional Payments and Modifications of Debt  
Instruments. (a) Make any optional payment or prepayment on or optionally
redeem or purchase any Indebtedness (other than the Loans and the Convertible
Debentures) of the Borrower or any Subsidiary, (b) make any payment or
prepayment on account of the principal of or interest on, or redeem or
purchase, any Convertible Debentures, provided that (i) so long as after giving
effect thereto no Event of Default shall have then occurred and be continuing,
the Borrower may pay interest on the Convertible


<PAGE>   89
                                     83




Debentures pursuant to the terms of the Convertible Debenture Indenture and     
(ii) the conversion of the Convertible Debentures into common stock of the
Borrower (and any related cash payments made in lieu of fractional shares)
shall not be deemed to be a payment or prepayment on account of or a redemption
or purchase of the Convertible Debentures or (c) amend, modify or change, or
consent or agree to any amendment, modification or change to any of the terms
relating to the payment or prepayment of principal of or interest on, any such
Indebtedness or the Convertible Debenture or the Convertible Debenture
Indenture (other than any such amendment, modification or change which would
extend the maturity or reduce the amount of any payment of principal thereof or
which would reduce the rate or extend the date for payment of interest
thereon); provided, that the Borrower and its Restricted Subsidiaries may
prepay Indebtedness (other than the Convertible Debenture) (i) from the
proceeds of new Indebtedness incurred to refinance such Indebtedness pursuant
to subsection 8.2(j), (ii) under Financing Leases for stores and other property
no longer occupied or used by the Borrower or such Restricted Subsidiary in
connection with the settlement, termination or assignment of such Financing
Lease, (iii) secured by assets in connection with any sale or other disposition
of such assets permitted under subsection 8.6, (iv) under the Refinanced Credit
Facilities (as defined in the Existing Credit Agreement) on the Initial Closing
Date, (v) incurred after the Initial Closing Date pursuant to subsection
8.2(i), and (vi) in an aggregate amount, in addition to payments otherwise
permitted under this subsection 8.10, not to exceed $300,000,000.
        
        8.11 Limitation on Transactions with Affiliates. Except as set forth on 
Schedule 8.11, enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of property or the rendering of any service,
with any Affiliate unless such transaction is (a) otherwise permitted under
this Agreement and (b) upon fair and reasonable terms no less favorable to the
Borrower or such Restricted Subsidiary, as the case may be, than it would
obtain in a comparable arm's length transaction with a Person which is not an
Affiliate.

        8.12 Limitation on Sales and Leasebacks. Enter into any arrangement     
with any Person providing for the leasing by the Borrower or any Restricted
Subsidiary of real or personal property which has been or is to be sold or
transferred by the Borrower or such Restricted Subsidiary to such Person or to
any other Person to whom funds have been or are to be advanced by such Person
on the security of such property or rental obligations of the Borrower or such
Restricted Subsidiary (such arrangement, a "Sale-Leaseback") except for
Sale-Leasebacks in the ordinary course of the Borrower's or such Restricted
Subsidiary's business, consistent with past practice and at market rates and
subject to compliance with subsection 8.6(e) ("Permitted Sale-Leasebacks"). For
the avoidance of doubt, Sale-Leasebacks that result in a Financing Lease shall
be treated as Indebtedness for all purposes of this Agreement.

        8.13 Joint Ventures. Consent to or approve the incurrence or assumption 
of any Indebtedness (other than (a) Indebtedness under the Purchased Credit
Facilities and any amounts advanced by the Borrower or any Subsidiary Guarantor
to complete construction of the related projects and (b) Indebtedness not
exceeding, together with Indebtedness permitted under subsection 8.2(i),
$500,000,000 in aggregate principal amount at any one time outstanding (any
such Indebtedness described in this clause (b) being referred to herein as
"Qualified Big Beaver Indebtedness")) by any of the Big Beaver Joint Ventures
or consent to or approve the creation, assumption or incurrence of any Lien
(other than any Lien in favor of the Borrower or any Subsidiary Guarantor) by
any of the Big Beaver Joint Ventures, except in a transaction which results in
the repayment in full of the related Indebtedness of such Big Beaver Joint
Venture under the Purchased Credit Facilities or any amounts advanced by the
Borrower or any Subsidiary Guarantor to such Big Beaver Joint Venture to
complete construction of the related projects.


<PAGE>   90
                                     84




                        SECTION 9. EVENTS OF DEFAULT

        If any of the following events shall occur and be continuing:

        (a) The Borrower shall fail to pay any principal of any Loan when due
    in accordance with the terms hereof; or the Borrower shall fail to pay any
    Reimbursement Obligation within two Business Days after such Reimbursement
    Obligation becomes due in accordance with the terms hereof; or the Borrower
    shall fail to pay any interest on any Loan, or any other amount payable
    hereunder, within five days after any such interest or other amount becomes
    due in accordance with the terms hereof; or

        (b) Any representation or warranty made or deemed made by the Borrower
    or any other Loan Party herein or in any other Loan Document or which is
    contained in any certificate, document or financial or other statement
    furnished by it at any time under or in connection with this Agreement or
    any such other Loan Document shall prove to have been incorrect in any
    material respect on or as of the date made or deemed made; or

        (c) The Borrower shall default in the observance or performance of any
    agreement contained in Section 8 or the Borrower shall fail to deliver a
    Borrowing Base Certificate pursuant to subsection 7.2(c) within 10 days
    after such Borrowing Base Certificate was due pursuant to such subsection;
    or

        (d) The Borrower or any other Loan Party shall default in the
    observance or performance of any other agreement contained in this
    Agreement or any other Loan Document (other than as provided in paragraphs
    (a) through (c) of this Section), and such default shall continue
    unremedied for a period of 30 days after the earlier of (i) the date upon
    which written notice thereof is given to the Borrower by the Administrative
    Agent or the Majority Lenders or (ii) the date upon which a Responsible
    Officer becomes aware of such default; or

        (e) The Borrower or any of its Restricted Subsidiaries shall
    (i) default in any payment of principal of or interest on any Indebtedness
    (other than the Loans) or in the payment of any Guarantee Obligation,
    beyond the period of grace, if any, provided in the instrument or agreement
    under which such Indebtedness or Guarantee Obligation was created; or (ii)
    default in the observance or performance of any other agreement or
    condition relating to any such Indebtedness or Guarantee Obligation or
    contained in any instrument or agreement evidencing, securing or relating
    thereto, or any other event shall occur or condition exist, the effect of
    which default or other event or condition is to cause, or to permit the
    holder or holders of such Indebtedness or beneficiary or beneficiaries of
    such Guarantee Obligation (or a trustee or agent on behalf of such holder
    or holders or beneficiary or beneficiaries) to cause, with the giving of
    notice if required (but after the expiration of all grace periods
    applicable thereto), such Indebtedness to become due prior to its stated
    maturity or such Guarantee Obligation to become payable; provided, however,
    that no Default or Event of Default shall exist under this paragraph unless
    the aggregate amount of Indebtedness and/or Guarantee Obligations in
    respect of which any default or other event or condition referred to in
    this paragraph shall have occurred shall be equal to at least $100,000,000;
    or

        (f) (i) The Borrower or any of its Restricted Subsidiaries shall
    commence any case, proceeding or other action (A) under any existing or
    future law of any jurisdiction, domestic or foreign, relating to
    bankruptcy, insolvency, reorganization or relief of debtors, seeking to
    have an order for relief entered with respect to it, or seeking to
    adjudicate it a bankrupt or insolvent,

<PAGE>   91
                                     85




    or seeking reorganization, arrangement, adjustment, winding-up,     
    liquidation, dissolution, composition or other relief with respect to it or
    its debts, or (B) seeking appointment of a receiver, trustee, custodian,
    conservator or other similar official for it or for all or any substantial
    part of its assets, or the Borrower or any of its Restricted Subsidiaries
    shall make a general assignment for the benefit of its creditors; or (ii)
    there shall be commenced against the Borrower or any of its Restricted
    Subsidiaries any case, proceeding or other action of a nature referred to
    in clause (i) above which (A) results in the entry of an order for relief
    or any such adjudication or appointment or (B) remains undismissed,
    undischarged or unbonded for a period of 60 days; or (iii) there shall be
    commenced against the Borrower or any of its Restricted Subsidiaries any
    case, proceeding or other action seeking issuance of a warrant of
    attachment, execution, distraint or similar process against all or any
    substantial part of its assets which results in the entry of an order for
    any such relief which shall not have been vacated, discharged, or stayed or
    bonded pending appeal within 60 days from the entry thereof; or (iv) the
    Borrower or any of its Restricted Subsidiaries shall take any action in
    furtherance of, or indicating its consent to, approval of, or acquiescence
    in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v)
    the Borrower or any of its Restricted Subsidiaries shall generally not, or
    shall be unable to, or shall admit in writing its inability to, pay its
    debts as they become due; or

        (g) (i) Any Person shall engage in any "prohibited transaction" (as
    defined in Section 406 of ERISA or Section 4975 of the Code) involving any
    Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
    of ERISA), whether or not waived, shall exist with respect to any Plan or
    any Lien in favor of the PBGC or a Plan shall arise on the assets of the
    Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
    occur with respect to, or proceedings shall commence to have a trustee
    appointed, or a trustee shall be appointed, to administer or to terminate,
    any Single Employer Plan, which Reportable Event or commencement of
    proceedings or appointment of a trustee is, in the reasonable opinion of
    the Majority Lenders, likely to result in the termination of such Plan for
    purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
    terminate for purposes of Title IV of ERISA, (v) the Borrower or any
    Commonly Controlled Entity shall, or in the reasonable opinion of the
    Majority Lenders is likely to, incur any liability in connection with a
    withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
    Plan or (vi) any other event or condition shall occur or exist with respect
    to a Plan; and in each case in clauses (i) through (vi) above, such event
    or condition, together with all other such events or conditions, if any,
    could reasonably be expected to have a Material Adverse Effect; or

        (h) One or more judgments or decrees shall be entered against the
    Borrower or any of its Restricted Subsidiaries involving in the aggregate a
    liability (to the extent not paid or covered by insurance) of $100,000,000
    or more, and such judgments or decrees shall not have been vacated,
    discharged, stayed or bonded pending appeal within 60 days from the entry
    thereof; or

        (i) (i) For any reason (other than any act on the part of the
    Administrative Agent, the Trustee or any Lender) the Trust Agreement, the
    Subsidiaries Guarantee or any Security Document ceases to be or is not in
    full force and effect (except in accordance with its terms or pursuant to
    subsection 11.13) in any material respect and such default shall continue
    unremedied for 30 days after the earlier of receipt by the Borrower of
    notice of such default from the Administrative Agent or actual knowledge of
    such default by a Responsible Officer, (ii) the Borrower or any of its
    Restricted Subsidiaries shall assert in writing that the Trust Agreement,
    the Subsidiaries Guarantee or any Security Document has ceased to be or is
    not in


<PAGE>   92
                                     86




    full force and effect (except in accordance with its terms or pursuant
    to subsection 11.13) or (iii) the Lien created by any of the Security
    Documents shall cease to be enforceable and of the same effect and priority
    purported to be created thereby except to the extent contemplated hereunder
    and under the other Loan Documents; or

        (j) (i) Any Person or "group" (within the meaning of Section 13(d) or
    14(d) of the Securities Exchange Act of 1934, as amended) (A) shall have
    acquired beneficial ownership of 33% or more of any outstanding class of
    Capital Stock having ordinary voting power in the election of directors of
    the Borrower or (B) shall obtain the power (whether or not exercised) to
    elect a majority of the Borrower's directors or (ii) the Board of Directors
    of the Borrower shall not consist of a majority of Continuing Directors;
    "Continuing Directors" shall mean the directors of the Borrower on the
    Initial Closing Date and each other director, if such other director's
    nomination for election to the Board of Directors of the Borrower is
    recommended by a majority of the then Continuing Directors;

then, and in any such event, (A) if such event is an Event of Default
specified in clause (i) or (ii) of paragraph (f) of this Section with
respect to the Borrower, automatically the Commitments shall immediately
terminate and the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the
then outstanding Letters of Credit shall have presented the documents required
thereunder) shall immediately become due and payable, and (B) if such event
is any other Event of Default, either or both of the following actions may be
taken: (i) with the consent of the Majority Lenders, the Administrative
Agent may, or upon the request of the Majority Lenders, the Administrative
Agent shall, by notice to the Borrower declare the Commitments to be
terminated forthwith, whereupon the Commitments shall immediately terminate;
and (ii) with the consent of the Majority Lenders, the Administrative Agent
may, or upon the request of the Majority Lenders, the Administrative
Agent shall, by notice to the Borrower, declare the Loans hereunder
(with accrued interest thereon) and all other amounts owing under this
Agreement (including, without limitation, all amounts of L/C Obligations,
whether or not the beneficiaries of the then outstanding Letters of Credit
shall have presented the documents required thereunder) to be due and
payable forthwith, whereupon the same shall immediately become due and
payable. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.

        With respect to all Letters of Credit with respect to which presentment 
for honor shall not have occurred at the time of an acceleration pursuant to
the preceding paragraph, the Borrower shall at such time deposit in a cash
collateral account opened by the Administrative Agent an amount equal to the
aggregate then undrawn and unexpired amount of such Letters of Credit. The
Borrower hereby grants to the Administrative Agent, for the benefit of each
Issuing Bank and the L/C Participants, a security interest in such cash
collateral to secure all obligations of the Borrower under this Agreement and
the other Loan Documents. Amounts held in such cash collateral account shall be
applied by the Administrative Agent to the payment of drafts drawn under such
Letters of Credit, and the unused portion thereof after all such Letters of
Credit shall have expired or been fully drawn upon, if any, shall be applied to
repay other obligations of the Borrower hereunder and under the Notes. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations
of the Borrower hereunder and under the Notes shall have been paid in full, the
balance, if any, in such cash collateral account shall be returned to the
Borrower. The Borrower shall execute and deliver to the Administrative Agent,
for the account of each Issuing Bank and the L/C Participants, such further
documents and instruments as the Administrative Agent may reasonably request to
evidence the creation and perfection of the security interest in such cash
collateral account.


<PAGE>   93
                                     87




        Whenever the Loans hereunder (with accrued interest thereon) and all    
    other amounts owing under this Agreement and any Notes shall have become
    immediately due and payable in accordance with clause (A) or clause (B) of
    the second preceding paragraph, the Administrative Agent shall forthwith
    deliver a Notice of Acceleration to the Corporate Trustee, provided that,
    by written notice to the Borrower and the Administrative Agent, the
    Majority Lenders may, for such periods and/or subject to such conditions as
    may be specified in such notice, withdraw any declaration of acceleration
    effected in accordance with clause (B) above. If a declaration of
    acceleration in accordance with clause (B) immediately preceding shall have
    been withdrawn in accordance with the proviso to the immediately preceding
    sentence, the Administrative Agent shall forthwith deliver to the Corporate
    Trustee a notice of cancellation of the respective Notice of Acceleration
    theretofore delivered to the Corporate Trustee. In addition, if the
    Administrative Agent shall have previously delivered a Notice of Default to
    the Corporate Trustee relating to a particular Event of Default which
    Notice of Default is then in effect, the Administrative Agent shall deliver
    a cancellation of such Notice of Default upon the waiver or cure of such
    Event of Default, provided that no other Event of Default shall have
    occurred and be continuing at such time.


                    SECTION 10. THE ADMINISTRATIVE AGENT

        10.1 Appointment. Each Lender hereby irrevocably designates and
    appoints the Administrative Agent as the agent of such Lender under this
    Agreement and the other Loan Documents, and each Lender irrevocably
    authorizes the Administrative Agent, in such capacity, to take such action
    on its behalf under the provisions of this Agreement and the other Loan
    Documents and to exercise such powers and perform such duties as are
    expressly delegated to the Administrative Agent by the terms of this
    Agreement and the other Loan Documents, together with such other powers as
    are reasonably incidental thereto, including, without limitation, all
    powers, rights and remedies provided in the Trust Agreement.
    Notwithstanding any provision to the contrary elsewhere in this Agreement,
    the Administrative Agent shall not have any duties or responsibilities,
    except those expressly set forth herein, or any fiduciary relationship with
    any Lender, and no implied covenants, functions, responsibilities, duties,
    obligations or liabilities shall be read into this Agreement or any other
    Loan Document or otherwise exist against the Administrative Agent.

        10.2 Delegation of Duties. The Administrative Agent may execute any of
    its duties under this Agreement and the other Loan Documents by or through
    agents or attorneys-in-fact and shall be entitled to advice of counsel
    concerning all matters pertaining to such duties. The Administrative Agent
    shall not be responsible for the negligence or misconduct of any agents or
    attorneys in-fact selected by it with reasonable care.

        10.3 Exculpatory Provisions. Neither the Administrative Agent nor any
    of its officers, directors, employees, agents, attorneys-in-fact or
    Affiliates shall be (i) liable for any action lawfully taken or omitted to
    be taken by it or such Person under or in connection with this Agreement or
    any other Loan Document (except for its or such Person's own gross
    negligence or willful misconduct) or (ii) responsible in any manner to any
    of the Lenders for any recitals, statements, representations or warranties
    made by the Borrower or any officer thereof contained in this Agreement or
    any other Loan Document or in any certificate, report, statement or other
    document referred to or provided for in, or received by the Administrative
    Agent under or in connection with, this Agreement or any other Loan
    Document or for the value, validity, effectiveness, genuineness,
    enforceability or sufficiency of this Agreement or any other Loan Document
    or for any failure of the Borrower to perform its obligations hereunder or
    thereunder. The Administrative Agent shall not be under any obligation to
    any Lender to ascertain or to inquire as to the observance or performance
    of any of the agreements contained in, or


<PAGE>   94
                                     88




    conditions of, this Agreement or any other Loan Document, or to inspect the
    properties, books or records of the Borrower.

        10.4 Reliance by Administrative Agent. The Administrative Agent shall
    be entitled to rely, and shall be fully protected in relying, upon any
    Note, writing, resolution, notice, consent, certificate, affidavit, letter,
    facsimile, telex or teletype message, statement, order or other document or
    conversation believed by it to be genuine and correct and to have been
    signed, sent or made by the proper Person or Persons and upon advice and
    statements of legal counsel (including, without limitation, counsel to the
    Borrower), independent accountants and other experts selected by the
    Administrative Agent. The Administrative Agent may deem and treat the payee
    of any Note as the owner thereof for all purposes unless a written notice
    of assignment, negotiation or transfer thereof shall have been filed with
    the Administrative Agent. The Administrative Agent shall be fully justified
    in failing or refusing to take any action under this Agreement or any other
    Loan Document unless it shall first receive such advice or concurrence of
    Lenders entitled to so act in accordance with the terms of this Agreement
    as it deems appropriate or it shall first be indemnified to its
    satisfaction by the Lenders against any and all liability and expense which
    may be incurred by it by reason of taking or continuing to take any such
    action. The Administrative Agent shall in all cases be fully protected in
    acting, or in refraining from acting, under this Agreement and the other
    Loan Documents in accordance with a request of Lenders entitled to so act
    in accordance with the terms of this Agreement, and such request and any
    action taken or failure to act pursuant thereto shall be binding upon all
    the Lenders and all future holders of the Loans.
        
        10.5 Notice of Default. The Administrative Agent shall not be deemed to
    have knowledge or notice of the occurrence of any Default or Event of
    Default hereunder unless the Administrative Agent has received notice from
    a Lender or the Borrower referring to this Agreement, describing such
    Default or Event of Default and stating that such notice is a "notice of
    default". In the event that the Administrative Agent receives such a
    notice, the Administrative Agent shall promptly give notice thereof to the
    Lenders. The Administrative Agent shall take such action with respect to
    such Default or Event of Default as shall be reasonably directed by Lenders
    entitled to so act in accordance with the terms of this Agreement; provided
    that unless and until the Administrative Agent shall have received such
    directions, the Administrative Agent may (but shall not be obligated to)
    take such action, or refrain from taking such action, with respect to such
    Default or Event of Default as it shall deem advisable in the best
    interests of the Lenders.

        10.6 Non-Reliance on Administrative Agent and Other Lenders. Each
    Lender expressly acknowledges that neither the Administrative Agent nor any
    of its officers, directors, employees, agents, attorneys-in-fact or
    Affiliates has made any representations or warranties to it and that no act
    by the Administrative Agent hereafter taken, including any review of the
    affairs of the Borrower, shall be deemed to constitute any representation
    or warranty by the Administrative Agent to any Lender. Each Lender
    represents to the Administrative Agent that it has, independently and
    without reliance upon the Administrative Agent or any other Lender, and
    based on such documents and information as it has deemed appropriate, made
    its own appraisal of and investigation into the business, operations,
    property, financial and other condition and creditworthiness of the
    Borrower and made its own decision to make its Loans hereunder and enter
    into this Agreement. Each Lender also represents that it will,
    independently and without reliance upon the Administrative Agent or any
    other Lender, and based on such documents and information as it shall deem
    appropriate at the time, continue to make its own credit analysis,
    appraisals and decisions in taking or not taking action under this
    Agreement and the other Loan Documents, and to make such investigation as
    it deems necessary to inform itself as to the business, operations,
    property, financial and other condition and creditworthiness of the
    Borrower. Except for notices, reports and other documents expressly
    required

<PAGE>   95
                                     89



    to be furnished to the Lenders by the Administrative Agent hereunder, the
    Administrative Agent shall not have any duty or responsibility to provide 
    any Lender with any credit or other information concerning the business,
    operations, property, condition (financial or otherwise), prospects or
    creditworthiness of the Borrower which may come into the possession of the
    Administrative Agent or any of its officers, directors, employees, agents,
    attorneys-in-fact or Affiliates.

        10.7 Indemnification. The Lenders agree to indemnify the Administrative
    Agent in its capacity as such (to the extent not reimbursed by the Borrower
    and without limiting the obligation of the Borrower to do so), ratably
    according to their respective Voting Percentages in effect on the date on
    which indemnification is sought, from and against any and all liabilities,
    obligations, losses, damages, penalties, actions, judgments, suits, costs,
    expenses or disbursements of any kind whatsoever which may at any time
    (including, without limitation, at any time following the payment of the
    Loans) be imposed on, incurred by or asserted against the Administrative
    Agent in any way relating to or arising out of, the Commitments, this
    Agreement, any of the other Loan Documents or any documents contemplated by
    or referred to herein or therein or the transactions contemplated hereby or
    thereby or any action taken or omitted by the Administrative Agent under or
    in connection with any of the foregoing; provided that no Lender shall be
    liable for the payment of any portion of such liabilities, obligations,
    losses, damages, penalties, actions, judgments, suits, costs, expenses or
    disbursements resulting solely from the Administrative Agent's gross
    negligence or willful misconduct. The agreements in this subsection shall
    survive the payment of the Loans and all other amounts payable hereunder.

        10.8 Administrative Agent in Its Individual Capacity. The
    Administrative Agent and its Affiliates may make loans to, accept deposits
    from and generally engage in any kind of business with the Borrower as
    though the Administrative Agent were not the Administrative Agent hereunder
    and under the other Loan Documents. With respect to the Loans made by it or
    any Letter of Credit issued or participated in by it, the Administrative
    Agent shall have the same rights and powers under this Agreement and the
    other Loan Documents as any Lender and may exercise the same as though it
    were not the Administrative Agent, and the terms "Lender" and "Lenders"
    shall include the Administrative Agent in its individual capacity.

        10.9 Successor Administrative Agent. The Administrative Agent may
    resign as Administrative Agent upon 10 days' notice to the Borrower and the
    Lenders. If the Administrative Agent shall resign as Administrative Agent
    under this Agreement and the other Loan Documents, then the Majority
    Lenders shall appoint from among the Lenders a successor agent for the
    Lenders, which successor agent (provided that it shall have been approved
    by the Borrower), shall succeed to the rights, powers and duties of the
    Administrative Agent hereunder. Effective upon such appointment and
    approval, the term "Administrative Agent" shall mean such successor agent,
    and the former Administrative Agent's rights, powers and duties as
    Administrative Agent shall be terminated, without any other or further act
    or deed on the part of such former Administrative Agent or any of the
    parties to this Agreement or any holders of the Loans. After any retiring
    Administrative Agent's resignation as Administrative Agent, the provisions
    of this Section 10 shall inure to its benefit as to any actions taken or
    omitted to be taken by it while it was Administrative Agent under this
    Agreement and the other Loan Documents.


                          SECTION 11. MISCELLANEOUS

        11.1 Amendments and Waivers. Neither this Agreement nor any other Loan
    Document, nor any terms hereof or thereof may be amended, supplemented or
    modified except in


<PAGE>   96
                                     90




accordance with the provisions of this subsection. The Majority Lenders may,    
or, with the written consent of the Majority Lenders, the Administrative Agent
may, from time to time, (a) enter into with the applicable Loan Party or
Parties written amendments, supplements or modifications hereto and to the
other Loan Documents for the purpose of adding, deleting or revising any
provisions to this Agreement or the other Loan Documents or changing in any
manner the rights of the Lenders or of the Borrower hereunder or thereunder or
(b) waive, on such terms and conditions as the Majority Lenders or the
Administrative Agent, as the case may be, may specify in such instrument, any
of the requirements of this Agreement or the other Loan Documents or any
Default or Event of Default and its consequences; provided, however, that no
such waiver and no such amendment, supplement or modification shall (i) reduce
the amount or extend the scheduled date of maturity of any Loan or of any
installment thereof, or reduce the stated rate of any interest or fee payable
hereunder or extend the scheduled date of any payment thereof or increase the
amount or extend the expiration date of any Lender's Commitments, in each case
without the consent of each Lender adversely affected thereby, (ii) (A) amend,
modify or waive any provision of this subsection or of subsection 11.13, or
consent to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement and the other Loan Documents or, except as
provided in subsection 11.13, release or subordinate the interest of the
Trustee in all or substantially all of the Collateral, in each case without the
written consent of all the Lenders, or (B) reduce the percentage specified in
the definition of Majority Lenders or Required Lenders without the written
consent of all the Lenders, (iii) increase any percentage set forth in the
definition of Borrowing Base or Eligible Inventory Borrowing Base Amount
without the consent of the Required Lenders, (iv) amend, modify or waive any
provision of subsections 3.6 through 3.13 without the consent of each Issuing
Bank adversely affected in any material respect thereby, (v) amend, modify or
waive any provision of subsections 3.21 or 3.22 without the consent of the
Swing Line Lender or (vi) amend, modify or waive any provision of Section 10
without the written consent of the then Administrative Agent. Any such waiver
and any such amendment, supplement or modification shall apply equally to each
of the Lenders  and shall be binding upon the Borrower, the Lenders,  the
Administrative Agent and all future holders of the Loans. In the case of any
waiver, the Borrower, the Lenders,  and the Administrative Agent shall be
restored to their former positions and rights hereunder and under the other
Loan Documents, and any Default or Event of Default waived shall be deemed to
be cured and not continuing; no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
        
        11.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made (a) in the case of delivery
by hand (including by overnight courier), when delivered, (b) in the case
of delivery by mail, three days after being deposited in the mails, postage
prepaid, or (c) in the case of delivery by facsimile transmission, when
sent and receipt has been confirmed, addressed as follows in the case of
the Borrower and the Administrative Agent, and as set forth in Schedule
11.2 in the case of the other parties hereto, or to such other address as
may be hereafter notified by the respective parties hereto:

                                                                 
       The Borrower:                   Kmart Corporation
                                       3100 West Big Beaver Road
                                       Troy, Michigan 48084

                                        (a) For all notices:

                                            Attention: Treasurer
                                            Fax: (810) 643-5398

<PAGE>   97

                                      91



                         (b) For notices other than pursuant to Sections 3
                             Attention: Chief Financial Officer
                             Fax: (810) 643-5787

                             and

                             Attention: General Counsel
                             Fax: (810) 643-1054


The Administrative
      Agent:             The Chase Manhattan Bank
                         270 Park Avenue
                         New York, New York 10017
                         Attention [            ]

                         With a copy to:

                         Chase Agent Bank Services
                         140 East 45th Street, 29th Floor
                         New York, New York 10017
                         [                    ]

provided that any notice, request or demand to or upon the Administrative
Agent or the Lenders pursuant to subsection 3.2, 3.4, 3.6, 3.15, 3.18, 3.22,
4.1, 4.2 or 4.7 shall not be effective until received. Whenever the
Administrative Agent sends a notice by mail, the Administrative Agent will use
reasonable efforts to also send such notice by one of the other means of notice
permitted hereunder, provided that the failure to do so shall not affect in any
way the validity of any delivery by mail pursuant to this subsection or
otherwise result in any liability to the Administrative Agent or the Lenders.

        11.3 No Waiver; Cumulative Remedies. No failure to exercise and no
    delay in exercising, on the part of the Administrative Agent or any Lender,
    any right, remedy, power or privilege hereunder or under the other Loan
    Documents shall operate as a waiver thereof; nor shall any single or
    partial exercise of any right, remedy, power or privilege hereunder
    preclude any other or further exercise thereof or the exercise of any other
    right, remedy, power or privilege. The rights, remedies, powers and
    privileges herein provided are cumulative and not exclusive of any rights,
    remedies, powers and privileges provided by law.

        11.4 Survival of Representations and Warranties. All representations
    and warranties made hereunder, in the other Loan Documents and in any
    document, certificate or statement delivered pursuant hereto or in
    connection herewith shall survive the execution and delivery of this
    Agreement and the making of the Loans hereunder.

        11.5 Payment of Expenses and Taxes; Indemnity. The Borrower agrees (a)
    to pay or reimburse the Administrative Agent for all its reasonable
    out-of-pocket costs and expenses incurred in connection with the
    development, preparation and execution of, and any amendment, supplement or
    modification to, this Agreement and the other Loan Documents and any other
    documents prepared in
<PAGE>   98
                                     92


connection herewith or therewith, and the consummation and administration of    
the transactions contemplated hereby and thereby, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent, (b) (i) to pay or reimburse the Administrative Agent for
all its reasonable out-of-pocket costs and expenses incurred in connection with
the enforcement or preservation of any rights under this Agreement, the other
Loan Documents and any such other documents, including, without limitation, the
fees and disbursements of counsel (including the allocated fees and expenses of
in-house counsel) to the Administrative Agent, and (ii) to pay or reimburse
each Lender for all its reasonable out-of-pocket costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement, the other Loan Documents and any such other documents following the
occurrence and during the continuation of a Default or an Event of Default,
including, without limitation, the fees and disbursements of counsel (including
the allocated fees and expenses of in-house counsel) to each Lender, (c) to
pay, indemnify, and hold each Lender and the Administrative Agent (and their
respective directors, officers, employees and agents) harmless from, any and
all recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise (other than excise taxes
imposed in lieu of net income taxes) and other similar taxes, if any, which may
be payable or determined to be payable in connection with the execution and
delivery of, or consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, the other Loan Documents and
any such other documents, and (d) to pay, indemnify, and hold each Lender and
the Administrative Agent (and their respective directors, officers, employees
and agents) harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits and
reasonable out-of-pocket costs, expenses or disbursements of any kind or nature
whatsoever with respect to any claim, litigation, investigation or proceeding
relating to the execution, delivery, enforcement, performance and
administration of this Agreement and the other Loan Documents and any such
other documents or any use of any of the Extensions of Credit, including,
without limitation, any of the foregoing relating to the violation of,
noncompliance with or liability under, any Environmental Law applicable to the
operations of the Borrower, any of its Subsidiaries or any of the Properties
(all the foregoing in this clause (d), collectively, the "Indemnified
Liabilities"), provided that the Borrower shall have no obligation hereunder to
the Administrative Agent or any Lender (or their respective directors,
officers, employees or agents) with respect to Indemnified Liabilities arising
from the gross negligence or willful misconduct of the Administrative Agent or
any such Lender (or their respective directors, officers, employees or agents,
as the case may be).  The agreements in this subsection shall survive the
termination of this Agreement and the repayment of the Loans and all other
amounts payable hereunder.

   11.6  Successors and Assigns; Participations and Assignments.  (a)  This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Administrative Agent and their respective successors and assigns,
except that the Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each
Lender.

   (b)  Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
owing to such Lender, any interest of such Lender in any Letter of Credit, any
Commitment of such Lender or any other interest of such Lender hereunder and
under the other Loan Documents.  In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Administrative Agent
shall

<PAGE>   99

                                     93




continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Loan
Documents.  No Lender shall be entitled to create in favor of any Participant,
in the participation agreement pursuant to which such Participant's
participating interest shall be created or otherwise, any right to vote on,
consent to or approve any matter relating to this Agreement or any other Loan
Document except for those specified in clauses (i) and (ii) of the proviso to
subsection 11.1.  The Borrower agrees that if amounts outstanding under this
Agreement are due or unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each Participant
shall, to the maximum extent permitted by applicable law, be deemed to have the
right of setoff in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this Agreement, provided
that, in purchasing such participating interest, such Participant shall be
deemed to have agreed to share with the Lenders the proceeds thereof as
provided in subsection 11.8(a) as fully as if it were a Lender hereunder.  The
Borrower also agrees that each Participant shall be entitled to the benefits of
subsections 4.9, 4.10 and 4.11 with respect to its participation in the
Commitments and the Loans outstanding from time to time as if it were a Lender;
provided that, in the case of subsection 4.10, such Participant shall have
complied with the requirements of said subsection and provided, further, that
no Participant shall be entitled to receive any greater amount pursuant to any
such subsection than the transferor Lender would have been entitled to receive
in respect of the amount of the participation transferred by such transferor
Lender to such Participant had no such transfer occurred.

   (c)  Any Lender may, in the ordinary course of its business of making or
investing in loans and in accordance with applicable law, at any time and from
time to time assign to any Lender or any affiliate thereof or, with the consent
of the Borrower and the Administrative Agent (which in each case shall not be
unreasonably withheld), to an additional bank, financial institution or other
entity that is then engaged in the business of lending money (an "Assignee")
all or any part of its rights and obligations under this Agreement and the
other Loan Documents pursuant to an Assignment and Acceptance, substantially in
the form of Exhibit L, executed by such Assignee and such assigning Lender
(and, in the case of an Assignee that is not then a Lender or an affiliate
thereof, by the Borrower and the Administrative Agent) and delivered to the
Administrative Agent for its acceptance and recording in the Register, with a
copy thereof to the Borrower, provided that (a) in the case of any such
assignment to an additional bank or financial institution, the sum of the
aggregate principal amount of the Committed Loans, the aggregate amount of the
L/C Obligations and the aggregate amount of the unused Commitments being
assigned and, if such assignment is of less than all of the rights and
obligations of the assigning Lender, the sum of the aggregate principal amount
of the Committed Loans, the aggregate amount of the L/C Obligations and the
aggregate amount of the unused Commitments remaining with the assigning Lender
are each not less than $10,000,000 (or such lesser amount as may be agreed to
by the Borrower and the Administrative Agent) and (b) assignments shall not be
required to be made on a ratable basis between the Commitments and/or Committed
Loans held by any Lender. Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder with a Commitment as set forth therein,
and (y) the assigning Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding any provision of this paragraph (c) and paragraph (e) of this
subsection, the consent of the Borrower shall not be required, and, unless
requested by the Assignee and/or the assigning Lender, new Notes shall not be
required to be executed

<PAGE>   100

                                     94



and delivered by the Borrower, for any assignment which occurs at any time when
any of the events described in Section 9(f) shall have occurred and be
continuing.

   (d)  The Administrative Agent, on behalf of the Borrower, shall maintain at
the address of the Administrative Agent referred to in subsection 11.2 a copy
of each Assignment and Acceptance delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Lenders and
the Commitments of, and principal amounts of the Loans owing to, each Lender
from time to time.  The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Administrative Agent and the
Lenders may (and, in the case of any Loan or other obligation hereunder not
evidenced by a Note, shall) treat each Person whose name is recorded in the
Register as the owner of a Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary.  Any assignment of any Loan or
other obligation hereunder shall be effective only upon appropriate entries
with respect thereto being made in the Register.  The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.

   (e)  Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Administrative
Agent) together with payment to the Administrative Agent of a registration and
processing fee of $3,000, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Borrower.

   (f)  The Borrower authorizes each Lender to disclose to any Participant or
Assignee (each, a "Transferee") and any prospective Transferee, subject to the
provisions of subsection 11.18, any and all financial information in such
Lender's possession concerning the Borrower and its Affiliates which has been
delivered to such Lender by or on behalf of the Borrower pursuant to this
Agreement or which has been delivered to such Lender by or on behalf of the
Borrower in connection with such Lender's credit evaluation of the Borrower and
its Affiliates prior to becoming a party to this Agreement.

   (g)  For avoidance of doubt, the parties to this Agreement acknowledge that
the provisions of this subsection concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve
Bank in accordance with applicable law.

   11.7  Replacement of Lenders under Certain Circumstances.  The Borrower shall
be permitted to replace any Lender which (a) requests reimbursement for amounts
owing pursuant to subsection 4.9 or 4.10 (other than with respect to Bilateral
Option Loans or LIBO Rate CAF Advances) or (b) is affected in the manner
described in subsection 4.8 (other than with respect to Bilateral Option Loans
or LIBO Rate CAF Advances) and as a result thereof any of the actions described
in said subsection are required to be taken; provided that (i) such replacement
does not conflict with any Requirement of Law, (ii) no Event of Default shall
have occurred and be continuing at the time of such replacement, (iii) the
Borrower shall repay (or the replacement bank or institution shall purchase, at
par) all Loans and other amounts owing to such replaced Lender prior to the
date of replacement, (iv) the Borrower shall be liable to such replaced Lender
under subsection 4.11 if any Eurodollar Loan owing to such replaced Lender
shall be prepaid (or purchased) other than on the last

<PAGE>   101

                                     95



day of the Interest Period relating thereto, any Bilateral Option Loans shall
be paid prior to its maturity or any CAF Advance owing to such replaced Lender
shall be paid other than on the relevant CAF Advance Maturity Date, (v) the
replacement bank or institution, if not already a Lender, and the terms and
conditions of such replacement, shall be reasonably satisfactory to the
Administrative Agent, (vi) the replaced Lender shall be obligated to make such
replacement in accordance with the provisions of subsection 11.6 (provided that
the Borrower shall be obligated to pay the registration and processing fee
referred to therein), (vii) until such time as such replacement shall be
consummated, the Borrower shall pay all additional amounts (if any) required
pursuant to subsection 4.9 or 4.10, as the case may be, and (viii) any such
replacement shall not be deemed to be a waiver of any rights which the
Borrower, the Administrative Agent or any other Lender shall have against the
replaced Lender.

   11.8  Adjustments; Set-off.  (a)  If any Lender (a "benefitted Lender")
shall at any time receive any payment of all or part of its Loans or the
Reimbursement Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by
set-off, pursuant to events or proceedings of the nature referred to in Section
9(f), or otherwise), and, after giving effect to any such payment or the
receipt of any such collateral, such benefitted Lender shall have received a
greater proportionate payment (determined in accordance with subsection 4.7) or
interest in collateral than that received by any other Lender, if any, in
respect of such other Lender's Loans or the Reimbursement Obligations owing to
it, or interest thereon, such benefitted Lender shall purchase for cash from
the other Lenders a participating or other similar interest in such portion of
each such other Lender's Loans or the Reimbursement Obligations owing to it, or
shall provide such other Lenders with the benefits of any such collateral, or
the proceeds thereof, as shall be necessary to cause such benefitted Lender to
share the excess payment or benefits of such collateral or proceeds ratably
with each of the Lenders entitled to the same under this subsection; provided,
however, that if all or any portion of such excess payment or benefits is
thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.

   (b)  In addition to any rights and remedies of the Lenders provided by law,
each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) which
is not paid when due to set-off and appropriate and apply against such amount
any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by such Lender or any branch or
agency thereof to or for the credit or the account of the Borrower.  Each
Lender agrees promptly to notify the Borrower and the Administrative Agent
after any such set-off and application made by such Lender, provided that the
failure to give such notice shall not affect the validity of such set-off and
application.

   (c)  The Borrower hereby irrevocably waives and agrees not to assert, for the
benefit of the applicable Secured Parties, all rights of set-off, counterclaim
or defense to payment, whether now existing or hereafter arising, that the
Borrower may have in respect of any Repurchased Put Bonds or California
Mortgage Notes now or hereafter held by any Subsidiary Guarantor.

   11.9  Counterparts.  This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.  A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.


<PAGE>   102

                                     96




   11.10  Severability.  Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

   11.11  Integration.  This Agreement and the other Loan Documents     
represent the entire agreement of the Borrower, the Administrative Agent and
the Lenders with respect to the subject matter hereof and thereof, and there
are no promises, undertakings, representations or warranties by the
Administrative Agent or any Lender relative to subject matter hereof or thereof
not expressly set forth or referred to herein or in the other Loan Documents.

   11.12  Termination.  This Agreement shall terminate when the Commitments have
terminated or expired, no Letter of Credit is outstanding (other than Letters
of Credit which have been cash collateralized in the manner contemplated
pursuant to the penultimate paragraph of Section 9) and the other Kmart Credit
Agreement Obligations have been paid in full.

   11.13  Collateral Release.  Upon the occurrence of a Collateral Release      
Event at any time after the delivery of financial statements pursuant to
subsection 7.1(a) in respect of the 1997 Fiscal Year, the Liens on the
Collateral granted pursuant to the Security Documents or otherwise securing
Secured Obligations shall be released automatically.  Within one Business Day
following the satisfaction of the foregoing conditions and the receipt by the
Administrative Agent of a certificate of a Responsible Officer certifying that
such conditions have been satisfied, the Administrative Agent shall deliver to
the Trustee the notice required pursuant to Section 7.10(a) of the Trust
Agreement.

   11.14  GOVERNING LAW.  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

   11.15  Submission To Jurisdiction; Waivers.  The Borrower hereby     
irrevocably and unconditionally:

                 (a)  submits for itself and its property in any legal action or
         proceeding relating to this Agreement and the other Loan Documents to
         which it is a party, or for recognition and enforcement of any
         judgment in respect thereof, to the non-exclusive general jurisdiction
         of the Courts of the State of New York, the courts of the
         United States of America for the Southern District of New York, and
         appellate courts from any thereof;

                 (b)  to the extent permitted by applicable law, consents that
         any such action or proceeding may be brought in such courts and waives
         any objection that it may now or hereafter have to the venue of any
         such action or proceeding in any such court or that such action or
         proceeding was brought in an inconvenient court and agrees not to
         plead or claim the same;

                 (c)  agrees that service of process in any such action or
         proceeding may be effected by mailing a copy thereof by registered or
         certified mail (or any substantially similar form of mail), postage
         prepaid, to the Borrower at its address set forth in subsection 11.2
         or at such other address of which the Administrative Agent shall have
         been notified pursuant thereto;


<PAGE>   103
                                     97




                (d)  agrees that nothing herein shall affect the right to
         effect service of process in any other manner permitted by law or
         shall limit the right to sue in any other jurisdiction; and

                (e)  waives, to the maximum extent not prohibited by law, any
         right it may have to claim or recover in any legal action or
         proceeding referred to in this subsection any special, exemplary,
         punitive or consequential damages.

                11.16  Acknowledgements.  The Borrower hereby acknowledges 
                        that:

                (a)  it has been advised by counsel in the negotiation,
         execution and delivery of this Agreement and the other Loan Documents;

                (b)  neither the Administrative Agent nor any Lender has any
         fiduciary relationship with or fiduciary duty to the Borrower arising
         out of or in connection with this Agreement or any of the other Loan
         Documents, and the relationship between the Administrative Agent and
         the Lenders, on the one hand, and the Borrower, on the other hand, in
         connection herewith or therewith is solely that of debtor and
         creditor; and

                (c)  no joint venture is created hereby or by the other Loan
         Documents or otherwise exists by virtue of the transactions
         contemplated hereby among the Lenders or among the Borrower and the
         Lenders or among the Borrower and the Administrative Agent.

                11.17  WAIVERS OF JURY TRIAL.  THE BORROWER, THE ADMINISTRATIVE
AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

                11.18  Confidentiality.  Each Lender agrees to keep confidential
all information provided to it by the Borrower or the Administrative Agent
pursuant to or in connection with this Agreement that is designated by the
Borrower in writing as confidential (the "Confidential Information"); provided
that nothing herein shall prevent any Lender from disclosing any such
Confidential Information (i) to the Administrative Agent or any other Lender,
(ii) to any Transferee or prospective Transferee which receives such
Confidential Information having been made aware of the confidential nature
thereof and which has agreed in writing to be bound by the terms of this
subsection 11.18, (iii) to its directors, officers, employees, employees of
affiliates, examiners and professional advisers who have a need to know such
Confidential Information in accordance with customary banking practices and who
receive such Confidential Information having been made aware of the
restrictions of this subsection and, in the case of professional advisers,
having agreed to be bound thereby, (iv) upon the request or demand of any
Governmental Authority having jurisdiction over such Lender, (v) in response to
any order of any court or other Governmental Authority or as may otherwise be
required pursuant to any Requirement of Law, (vi) in connection with the
exercise of any remedy hereunder, (vii) which is now or hereafter becomes
generally available to the public other than as a result of a disclosure by
such Lender or a disclosure known to such Lender to have been made by any
person or entity to which such Lender has delivered such Confidential
Information, (viii) which was available to such Lender prior to its disclosure
to such Lender by the Borrower, or (ix) which becomes available to such Lender
from a source other than the Borrower, provided that such source is not (1)
known to such Lender to be bound by a confidentiality agreement with the
Borrower or (2) known to such Lender to be otherwise prohibited from
transmitting the information to such Lender by a contractual, legal or
fiduciary obligation.


<PAGE>   104
                                     98




                11.19  Judgment Currency.  The obligation of the Borrower under
this Agreement to make payments in respect of each Reimbursement Obligation in
the currency in which it is outstanding (the "Agreement Currency") shall not be
discharged or satisfied by any tender or recovery pursuant to any judgment
expressed in or converted into any other currency (the "Judgment Currency")
except to the extent that such tender or recovery of the Judgment Currency
results in the effective receipt by the Lenders or the relevant Issuing Banks,
as the case may be, of the full amount of the Agreement Currency payable under
this Agreement and the Borrower agrees to indemnify the Lenders or the relevant
Issuing Banks, as the case may be (and the Lenders or the relevant Issuing
Banks, as the case may be, shall have an additional legal claim) for any
difference between such full amount and the amount effectively received by such
Lenders or such Issuing Banks, as the case may be, pursuant to any such tender
or recovery.  Each Lender's or Issuing Bank's determination of amounts
effectively received by such Lender or Issuing Bank shall be conclusive absent
manifest error.  If a judgment in respect of the obligations of the Borrower
hereunder is rendered in a currency other than the Agreement Currency and if,
upon receipt of the full amount of such judgment in such currency and the
conversion into, and receipt of such amount in the Agreement Currency, such
amount of the Agreement Currency exceeds the obligations of the Borrower
hereunder, such excess amount shall be remitted to the Borrower by the Lenders
or the relevant Issuing Banks, as the case may be.  The obligations of the
Borrower under this subsection shall survive the termination of this Agreement
and the repayment of the Loans and all other amounts payable hereunder.

                11.20  Section Headings.  The Section and subsection headings in
this Agreement are for convenience in reference only and shall not deemed to
alter or affect the interpretation of any provisions hereof.

                11.21  Exhibits.  Exhibits B, C, D, E, F, H, I and M to the
Existing Credit Agreement are not being amended in connection with the
execution and delivery of this Agreement and all such Exhibits are being
attached hereto, for convenience of reference, as Exhibits B, C, D, E, F, G, H
and L, respectively.  Without limiting any provisions thereof, (a) the
Borrower, the Administrative Agent and the Lenders hereby confirm that all
references to the "Credit Agreement" in the Loan Documents (as defined in the
Existing Credit Agreement) and in such Exhibits shall refer to this Agreement
and (b) CAF Advance Confirmations, CAF Advance Offers, CAF Advance Requests,
Revolving Credit Notes, CAF Advance Notes and Assignment and Acceptances
executed on or after the Effective Date may be modified to include a specific
reference to this Agreement.
<PAGE>   105
                                       99


                11.22  Special Provisions.  (a)  (i)  The Borrower and the
Administrative Agent hereby acknowledge that the Term Loans (as defined in the
Existing Credit Agreement) have been repaid in full and (ii) the Borrower, the
Administrative Agent and the Lenders agree that the Term Loan Lenders will not
be parties to this Agreement or have any obligations or liabilities under this
Agreement with respect to the period from and after the Effective Date and that
the Term Loan Lenders shall not have any rights under the Existing Credit
Agreement, this Agreement or any other Loan Document (other than rights under 
the Existing Credit Agreement expressly stated to survive the termination of 
the Existing Credit Agreement and the repayment of amounts outstanding 
thereunder).

                (b)  From and after the Effective Date, (i) each Exiting
Revolving Credit Lender shall cease to be a party to this Agreement, (ii) no
Exiting Revolving Credit Lender shall have any obligations or liabilities under
this Agreement with respect to the period from and after the Effective Date
and, without limiting the foregoing, no Exiting Revolving Credit Lender shall
have any Revolving Credit Commitment under this Agreement or any participation
on any Letter of Credit outstanding hereunder and (iii) no Exiting Revolving
Credit Lender shall have any rights under the Existing Credit Agreement, this
Agreement or any other Loan Document (other than rights under the Existing 
Credit Agreement expressly stated to survive the termination of the Existing 
Credit Agreement and the repayment of amounts outstanding thereunder).

                (c)  The Lenders (which are Revolving Credit Lenders under the
Existing Credit Agreement) hereby waive any requirements for notice of
prepayment, minimum amounts of prepayments of Revolving Credit Loans (as
defined in the Existing Credit Agreement), ratable reductions of Revolving
Credit Commitments (as defined in the Existing Credit Agreement) and ratable
payments on account of the principal or interest of any Revolving Credit Loan
(as defined in the Existing Credit Agreement) under the Existing Credit
Agreement to the extent such prepayment, reductions or payments are required
pursuant to subsection 6.1(h).

                (d)  The Lenders hereby authorize the Administrative Agent and
the Borrower to request borrowings from the Lenders, to make prepayments of
Revolving Credit Loans (as defined in the Existing Credit Agreement) and to
reduce Revolving Credit Commitments (as defined in the Existing Credit
Agreement) among the Revolving Credit Lenders (as defined in the Existing
Credit Agreement) in order to ensure that, upon the effectiveness of this
Agreement, the Revolving Credit Loans of the Lenders shall be outstanding on a
ratable basis in accordance with their Revolving Credit Commitment Percentages
and that the Revolving Credit Commitments shall be as set forth on Schedule
1.1(a) hereto and no such borrowing, prepayment or reduction shall violate any
provisions of the Existing Credit Agreement or this Agreement.  The Lenders
hereby confirm that, from and after the Effective Date, all participations of
the Lenders in respect of Letters of Credit outstanding hereunder pursuant to
subsection 3.9(a) shall be based upon the Revolving Credit Commitment
Percentages of the Lenders (after giving effect to this Agreement).

                (e)  The Borrower hereby terminates, effective as of the
Effective Date, in full the Revolving Credit Commitments (as defined in the
Existing Credit Agreement) of the Exiting Revolving Credit Lenders.


<PAGE>   106
                                     100



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

                                          KMART CORPORATION


                                          By:/s/ Michael J. Viola
                                             -----------------------------------
                                             Name:  Michael J. Viola
                                             Title: Vice President and Treasurer


                                           THE CHASE MANHATTAN BANK, as
                                            Administrative Agent


                                          By:/s/ William P. Rindfuss
                                             -----------------------------------
                                              Name:  William P. Rindfuss
                                              Title: Vice President





<PAGE>   107
                                                                         ANNEX A

                                  PRICING GRID



<TABLE>
<CAPTION>
     Margin Level          Applicable Margin for        Applicable Margin for
       Status                 Eurodollar Loans                ABR Loans              Commitment Fee Rate
<S>                              <C>                           <C>                        <C>
Margin Level I Status             2.00%                        1.00%                       0.50%
Margin Level II Status            1.50%                        0.50%                       0.50%
Margin Level III Status           1.25%                        0.25%                       0.30%
Margin Level IV Status            1.00%                         0%                         0.25%
Margin Level V Status            0.875%                         0%                        0.225%
Margin Level VI Status            0.75%                         0%                        0.225%
Margin Level VII Status           0.50%                         0%                         0.20%
</TABLE>