<PAGE>


                                 EXHIBIT 10.3

<PAGE>


==============================================================================



                                $25,000,000.00



                                LOAN AGREEMENT



                                    BETWEEN



                            A.C. MOORE INCORPORATED



                                      AND



                         KEYBANK NATIONAL ASSOCIATION






                                March ___, 1998




==============================================================================



<PAGE>



                               TABLE OF CONTENTS




Article 1.   Definitions....................................................  1

Article 2.   Commitments; Loans; Collateral; Subordinations................. 14
         Section 2.1     Loans.............................................. 14
         Section 2.2     Notices Relating to Loans.......................... 14
         Section 2.3     Disbursement of Loan Proceeds...................... 14
         Section 2.4     Note............................................... 14
         Section 2.5     Payments........................................... 15
         Section 2.6     Fees............................................... 15
         Section 2.7     Use of Proceeds of Loans........................... 15
         Section 2.8     Advances........................................... 15
         Section 2.9     Computations....................................... 16
         Section 2.10    Time and Method of Payments........................ 16
         Section 2.11    [Intentionally Omitted]............................ 16
         Section 2.12    Several Obligations................................ 16
         Section 2.13    [Intentionally Omitted]............................ 16
         Section 2.14    Guaranties......................................... 16
         Section 2.15    Security........................................... 17
         Section 2.16    Subordinations..................................... 17
         Section 2.17    Pro Rata Treatment Among Bank...................... 18
         Section 2.18    ................................................... 18
         Section 2.19    Sharing of Payments
                                 and Set-Off Among Bank..................... 18
         Section 2.20    Additional Costs................................... 18
         Section 2.21    Conversion to Term Loan............................ 20

Article 3.   Representations and Warranties................................. 21
         Section 3.1     Organization....................................... 21
         Section 3.2     Power, Authority, Consents......................... 21
         Section 3.3     No Violation of Law or Agreements.................. 22
         Section 3.4     Due Execution, Validity, Enforceability............ 22
         Section 3.5     Properties, Priority of Liens...................... 22
         Section 3.6     Judgments, Actions, Proceedings.................... 23
         Section 3.7     No Defaults, Compliance With Laws.................. 23
         Section 3.8     Burdensome Documents............................... 23
         Section 3.9     Financial Statements; Pro Forma
                                 Balance Sheet; Projections................. 23
         Section 3.10    Tax Returns........................................ 24
         Section 3.11    Intangible Assets.................................. 24
         Section 3.12    Regulation U....................................... 24
         Section 3.13    Name Changes, Mergers,
                                 Acquisitions; Location of Collateral....... 25
         Section 3.14    Full Disclosure.................................... 25
         Section 3.15    Licenses and Approvals............................. 25
         Section 3.16    Labor Disputes; Collective Bargaining
                         Agreements; Employee Grievances.................... 25
         Section 3.17    Condition of Assets................................ 26
         Section 3.18    ERISA.............................................. 26

                                      -i-

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Article 4.   The Closing; Conditions to the Loans........................... 28
         Section 4.1     The Closing........................................ 28
         Section 4.2     Conditions to Initial Advances..................... 28
         Section 4.3     Conditions to Subsequent Advances.................. 30

Article 5.   Delivery of Financial Reports,
                     Documents and Other Information........................ 31
         Section 5.1     Annual Financial Statements........................ 31
         Section 5.2     Quarterly Financial Statements..................... 31
         Section 5.3     Compliance Information............................. 32
         Section 5.4     No Default Certificate............................. 32
         Section 5.5     Report of Accountants.............................. 32
         Section 5.6     Other Accounting Information....................... 32
         Section 5.7     Accountants' Reports............................... 33
         Section 5.8     Copies of Documents................................ 33
         Section 5.9     Notices of Defaults................................ 33
         Section 5.10    ERISA Notices...................................... 33
         Section 5.11    Additional Information............................. 34

Article 6.   Affirmative Covenants.......................................... 35
         Section 6.1     Books and Records.................................. 35
         Section 6.2     Inspections and Audits............................. 35
         Section 6.3     Maintenance and Repairs............................ 35
         Section 6.4     Continuance of Business............................ 35
         Section 6.5     Copies of Corporate Documents...................... 36
         Section 6.6     Perform Obligations................................ 36
         Section 6.7     Notice of Litigation............................... 36
         Section 6.8     Insurance.......................................... 36
         Section 6.9     Financial Covenants................................ 37
         Section 6.10    Intentionally Omitted.............................. 38
         Section 6.11    Notice of Certain Events........................... 38
         Section 6.12    Comply with ERISA.................................. 38
         Section 6.13    Environmental Compliance........................... 38
         Section 6.14    Deposit Accounts................................... 39
         Section 6.15    Retention of Earnings.............................. 39

Article 7.   Negative Covenants............................................. 40
         Section 7.1     Indebtedness....................................... 40
         Section 7.2     Liens.............................................. 40
         Section 7.3     Guaranties......................................... 41
         Section 7.4     Mergers, Acquisitions.............................. 41
         Section 7.5     Redemptions; Distributions......................... 42
         Section 7.6     Stock Issuance..................................... 42
         Section 7.7     Changes in Business................................ 42
         Section 7.8     Prepayments........................................ 42
         Section 7.9     Investments........................................ 42
         Section 7.10    Fiscal Year........................................ 43
         Section 7.11    ERISA Obligations.................................. 43
         Section 7.12    Amendments of Documents............................ 43
         Section 7.13    Intentionally Omitted.............................. 43
         Section 7.14    Intentionally Omitted.............................. 43
         Section 7.15    Intentionally Omitted.............................. 43
         Section 7.16    Transactions with Affiliates....................... 43

                                     -ii-

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         Section 7.17  Stock Transfer....................................... 43

Article 8.   Inter-Creditor Agreement....................................... 44

Article 9.   Events of Default.............................................. 44
         Section 9.1     Payments........................................... 44
         Section 9.2     Certain Covenants.................................. 44
         Section 9.3     Other Defaults..................................... 44
         Section 9.4     Representations and Warranties..................... 45
         Section 9.5     Bankruptcy......................................... 45
         Section 9.6     Judgments.......................................... 46
         Section 9.7     ERISA.............................................. 46
         Section 9.8     Liens.............................................. 46
         Section 9.9     Cross-Defaults..................................... 46

Article 10.   Miscellaneous Provisions...................................... 48
         Section 10.1    Fees and Expenses; Indemnity....................... 48
         Section 10.2    Taxes.............................................. 49
         Section 10.3    Payments........................................... 50
         Section 10.4    Survival of Agreements and
                                 Representations; Construction.............. 50
         Section 10.5    Lien on and Set-off of Deposits.................... 50
         Section 10.6    Modifications, Consents and
                                 Waivers; Entire Agreement.................. 51
         Section 10.7    Remedies Cumulative................................ 51
         Section 10.8    Further Assurances................................. 52
         Section 10.9    Notices............................................ 52
         Section 10.10   Counterparts....................................... 53
         Section 10.11   Severability....................................... 53
         Section 10.12   Binding Effect; No Assignment
                                 or Delegation by Borrower.................. 54
         Section 10.13   Assignments and Participations by Bank............. 54
         Section 10.14   GOVERNING LAW;
                                 CONSENT TO JURISDICTION;
                                 WAIVER OF TRIAL BY JURY.................... 56
         Section 10.15   Rights of Bank..................................... 57
         Section 10.16   Receipt by Bank of Payments........................ 57
         Section 10.17   Non-Reliance on other Bank......................... 58


                                     -iii-

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                                LOAN AGREEMENT


         AGREEMENT, made this ____ day of March, 1998, by and among:

         A.C. MOORE INCORPORATED a Delaware corporation (the
"Borrower") ; and

         KEYBANK NATIONAL ASSOCIATION a national banking association (the
"Bank").

                             W I T N E S S E T H:

         WHEREAS, the Borrower has requested that the Bank enter into a credit
facility with Borrower pursuant to which the Bank will make a revolving credit
loan facility (the "Loan") available to the Borrower and pursuant to which the
Bank will issue for the benefit of the Borrower banker's acceptances (the
"Banker's Acceptances"), commercial letters of credit (the "Commercial Letters
of Credit") and standby letters of credit (the "Standby Letters of Credit") on
the terms and conditions hereinafter set forth;

         NOW, THEREFORE, the parties hereto agree as follows:


         Article 1.   Definitions.

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

                  "Acceptable Payments" - as defined in Section 7.10
hereof.

                  "Accountant" - Price Waterhouse & Company or any other
independent certified public accountant selected by the Borrower and approved
by the Bank.

                  "Advance(s)" - the advance of Loan proceeds by the Bank
to the Borrower.

                  "Advance Account" - account number 323330006897 maintained
by the Borrower with the Bank.

                  "Affiliate" - as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control
with") shall mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person which owns directly or
indirectly 20% or more of the securities having ordinary voting power for the


<PAGE>



election of directors or other governing body of a corporation or 20% or more
of the partnership or other ownership interests of any other Person (other
than as a limited partner of such other Person) will be deemed to control such
corporation or other Person.

                  "Applicable Lending Office" - the Lending Office designated
on the signature pages hereof or such other office as the Bank may from time
to time specify to the Borrower.

                  "Bankers Acceptance Agreements" - the agreements executed by
the Borrower relating to the Bankers Acceptances.

                  "Bankruptcy Code" - the United States Bankruptcy Code as the
same may be amended from time to time.

                  "Borrower Security Agreement" - as defined in Section
2.10 hereof.

                  "Borrowing Notice" - as defined in Section  hereof.

                  "Business Day" - any day other than Saturday, Sunday or
other day on which commercial banks in New York, are authorized or required to
close under the laws of the State of New York.

                  "Capital Expenditures" - for any period, the aggregate
amount of all payments made by any Person directly or indirectly for the
purpose of acquiring, constructing or maintaining fixed assets, real property
or equipment which, in accordance with GAAP, would be added as a debit to the
fixed asset account of such Person, including, without limitation, all amounts
paid or payable with respect to Capitalized Lease Obligations and interest
which are required to be capitalized in accordance with GAAP.

                  "Capitalized Lease" - any lease the obligations to pay rent
or other amounts under which constitute Capitalized Lease Obligations.

                  "Capitalized Lease Obligations" - as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property
which obligations are required to be classified and accounted for as a capital
lease on a balance sheet of such Person under GAAP and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.

                  "Cash" - as to any Person, such Person's cash and cash
equivalents, as defined in accordance with GAAP.

                  "Closing" - as defined in Section  hereof.


                                       2

<PAGE>



                  "Code" - the Internal Revenue Code of 1986, as it may be
amended from time to time.

                  "Collateral" - as defined in Section 3.5 hereof.

                  "Commitment" - Twenty Five Million and no/100
($25,000,000.00) Dollars.

                  "Commitment Termination Date" - April 1, 2002.

                  "Compliance Certificate" - a certificate executed by the
president or chief financial officer of a Borrower to the effect that: (i) as
of the effective date of the certificate, no Event of Default under this
Agreement exists or would exist after giving effect to the action intended to
be taken by the Borrower as described in such certificate, including, without
limitation, that the covenants set forth in Section 6.8 hereof would not be
breached after giving effect to such action, together with a calculation in
reasonable detail, and in form and substance satisfactory to the Bank, of such
compliance, and (ii) the representations and warranties contained in Article
hereof are true and with the same effect as though such representations and
warranties were made on the date of such certificate, except for changes in
the ordinary course of business none of which, either singly or in the
aggregate, have had a Material Adverse Effect.

                  "Controlled Group" - all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrowers, are treated as a single
employer under Section 414(b), 414(c) or 414(m) of the Code and Section
4001(a)(2) of ERISA.

                  "Debt Service" - as to any Person as at any date, the sum of
all payments of principal and interest on Indebtedness of such Person for
borrowed money which are due and payable during the 365- day period
immediately succeeding such date; provided, however, that for the purposes of
this definition, with respect to: (i) each item of Indebtedness which bears
interest at a fixed rate throughout such 365-day period, such item shall be
deemed to bear interest at the actual fixed rate applicable thereto throughout
such 365-day period; and (ii) each item of Indebtedness which bears interest
at other than a fixed rate, such item shall be deemed to bear interest as
though the interest rate in effect throughout such 365-day period (or such
shorter period if such item of Indebtedness is to be repaid during such
365-day period) were the same as the interest rate in effect on such item of
Indebtedness on the date of the most recent scheduled interest payment date
for such item of Indebtedness.

                  "Debt Service Coverage Ratio" - as at any date, the ratio of
net income (loss) before taxes, plus interest expense, plus depreciation plus

                                       3

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amortization plus Rental Expense to interest expense, the current portion of
long term debt and Rental Expense.


                  "Default Rate" - those increased rates of interest as set
forth in the definition of Interest Rate which become effective on the
occurrence of certain Events of Default.

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

                  "Environmental Laws and Regulations" - all environmental,
health and safety laws, regulations, resolutions, and ordinances applicable to
the Borrower or any other Loan Party, or any of its respective assets or
properties, including, without limitation: (i) all regulations, resolutions,
ordinances, decrees, and other similar documents and instruments of all courts
and governmental authorities, bureaus and agencies, domestic and foreign,
whether issued by environmental regulatory agencies or otherwise, and (ii) all
laws, regulations, resolutions, ordinances and decrees relating to
Environmental Matters.

                  "Environmental Liability" - any liability under any
applicable law for any Release of a Hazardous Substance caused by the seeping,
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing of hazardous wastes or
other chemical substances, pollutants or contaminants into the environment,
and any liability for the costs of any clean-up or other remedial action
including, without limitation, costs arising out of security fencing,
alternative water supplies, temporary evacuation and housing and other
emergency assistance undertaken by any environmental regulatory body having
jurisdiction over the Borrower or any other Loan Party to prevent or minimize
any actual or threatened Release by the Borrower or any other Loan Party of
any Hazardous Substances or other chemical substances, pollutants and
contaminants into the environment that would endanger the public health or the
environment.

                  "Environmental Matter(s)" - a release of any toxic or
Hazardous Substance or other chemical substance, pollutant or contaminant into
the environment or the generation, treatment, storage or disposal of any toxic
or Hazardous Substances or other chemical substances.

                  "Environmental Proceeding" - any judgment, action,
proceeding or investigation pending before any court or governmental
authority, bureau or agency, including, without limitation, any environmental
regulatory body, with respect to or threatened against or affecting the
Borrower or any other Loan Party or relating to the assets or liabilities of
any of them, including, without limitation, in respect of any "facility"
owned, leased or operated by any of them under the Comprehensive

                                       4

<PAGE>



Environmental Response, Compensation and Liability Act of 1980, as amended, or
under any state, local or municipal statute, ordinance or regulation in
respect thereof, in connection with any release of any toxic or Hazardous
Substance or other chemical substance, pollutant or contaminant into the
environment, or with the generation, storage or disposal of any toxic or
Hazardous Substances or other chemical substances.

                  "ERISA" - the Employee Retirement Income Security Act of
1974, as it may be amended from time to time, and the regulations promulgated
thereunder.

                  "Event of Default" - as defined in Article 8 hereof.

                  "Facilities" - the Loan, the Banker's Acceptances, the
Commercial Letters of Credit and the Standby Letters of Credit.

                  "Final Period" - the period beginning July 1, 2000 through
and including the Commitment Termination Date.

                  "Final Period Sublimits" - as set forth in Section 2.1(c)
hereof.

                  "GAAP" - generally accepted accounting principles,
consistently applied.

                  "Hazardous Substances" - means, without limitation, any
flammables, explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated-biphenyls, petroleum and
petroleum based products or by-products, methane, hazardous materials, medical
waste, hazardous wastes, hazardous or toxic substances or related materials,
as defined in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801,
et seq.), The Toxic Substances Control Act, as amended (15 U.S.C. Sections
2601, et seq.), Articles 15 and 27 of the New York State Environmental
Conservation Law and in the regulations promulgated thereunder and as defined
in any other statute or regulation in effect from time to time in any other
state in which the Borrower conducts business. The term "Hazardous Substance"
does not include consumer products which are stored and used by a consumer
with reasonable care and for their intended use.

                  "Indebtedness" - with respect to any Person, all: (i)
liabilities or obligations, direct and contingent, which in accordance with
GAAP would be included in determining total liabilities as shown on the
liability side of a balance sheet of such Person at the date as of which
Indebtedness is to be determined, including, without limitation, contingent
liabilities which, in accordance with such principles, would be set forth in a
specific Dollar amount on the liability side of such balance sheet,

                                       5

<PAGE>



and Capitalized Lease Obligations of such Person; (ii) liabilities or
obligations of others for which such Person is directly or indirectly liable,
by way of guaranty (whether by direct guaranty, suretyship, discount,
endorsement, take-or-pay agreement, agreement to purchase or advance or keep
in funds or other agreement having the effect of a guaranty) or otherwise;
(iii) liabilities or obligations secured by Liens on any assets of such
Person, whether or not such liabilities or obligations shall have been assumed
by it; and (iv) liabilities or obligations of such Person, direct or
contingent, with respect to letters of credit issued for the account of such
Person (except letters of credit issued by Bank of New York and still
outstanding on the date of this Agreement) and bankers acceptances created for
such Person.

                  "Initial Period" - the period between the date of this
Agreement through and including June 30, 1999.

                  "Initial Period Sublimits" - as set forth in Section
2.1(a) hereof.

                  "Interest Rate" - as defined in the Note.

                  "Investment" - by any Person:

                           (a) the amount paid or committed to be paid, or the
value of property or services contributed or committed to be contributed, by
such Person for or in connection with the acquisition by such Person of any
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person; and

                           (b) the amount of any advance, loan or extension of
credit by such Person, to any other Person, or guaranty or other similar
obligation of such Person of such Person with respect to any Indebtedness of
such other Person, and (without duplication) any amount committed to be
advanced, loaned, or extended by such Person to any other Person, or any
amount the payment of which is committed to be assured by a guaranty or
similar obligation by such Person for the benefit of, such other Person.

                  "IRS" - Internal Revenue Service.

                  "Latest Balance Sheet" - as defined in Section
hereof.

                  "Letter of Credit Agreements" - the agreements executed by
the Borrower relating to the Letters of Credit.

                  "Letters of Credit" - the Commercial Letters of Credit
and the Standby Letters of Credit.


                                       6

<PAGE>



                  "Lien" - any mortgage, deed of trust, pledge, security
interest, encumbrance, lien or charge of any kind (including any agreement to
give any of the foregoing), any conditional sale or other title retention
agreement, any lease in the nature of any of the foregoing, and the filing of
or agreement to give any financing statement under the Uniform Commercial Code
or other statute, rule or regulations of any jurisdiction.

                  "Loan Documents" - this Agreement, the Note, the Security
Documents, the Bankers Acceptance Agreements, the Letter of Credit Agreements,
and all other documents executed and delivered in connection herewith or
therewith, including all amendments, modifications and supplements of or to
all such documents.

                  "Loan Party" - the Borrower, any Subsidiary and any other
Person (other than the Bank) which now or hereafter executes and delivers to
the Bank any Loan Document.

                  "Material Adverse Effect" - shall mean a material adverse
effect on the business, property, assets, financial condition or results of
operations of the Parent, the Borrower or any other Loan Party.

                  "Note" - as defined in subsection  hereof.

                  "Obligations" - the Indebtedness evidenced by the Note, the
Bankers Acceptance Agreements, the Letter of Credit Agreements and any other
liabilities and obligations of Borrower to the Bank.

                  "Parent" - A.C. Moore Arts & Crafts, Inc., a Pennsylvania
corporation.

                  "Payment Account" - account number 323330006897 maintained
by the Borrower with the Bank.

                  "Payment Dates" - those dates on which payments are due
under the Note.

                  "Payment Office" - the offices of the Bank specified to the
Borrower from time to time.

                  "PBGC" - Pension Benefit Guaranty Corporation.

                  "Period" - the Initial Period, the Second Period or the
Final Period.

                  "Permitted Liens" - as to any Person shall mean the
following:

                           (a) Liens for taxes, assessments or other
governmental charges the payment of which is being contested by

                                       7

<PAGE>



appropriate proceedings promptly instituted and diligently
conducted.

                           (b) Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers and materialmen and similar Liens incurred
in the ordinary course of business for sums not yet due or the payment of
which is being contested by appropriate proceedings promptly instituted and
diligently conducted.

                           (c) Liens incurred or deposits made incidental to
the conduct of such Person's business or the ownership of its property
including, without limitation, (i) pledges or deposits in connection with
workers' compensation, unemployment insurance and other social security
legislation, (ii) deposits to secure insurance, the performance of bids,
tenders, contracts, leases, licenses, franchises and statutory obligations,
each in the ordinary course of business, and (iii) other obligations which
were not incurred or made in connection with the borrowing of money, the
obtaining of advances or credit or the payment of the deferred purchase price
of property and which do not in the aggregate materially detract from the
value of the Collateral or materially impair the use of such Collateral in the
operation of such Person's business.

                           (d) Subsequent to the date of this Agreement, any
attachment or judgment lien under $500,000.00 in the aggregate at any time.

                           (e) Leases or subleases granted to others,
easements, rights-of-way, restrictions and other similar charges or
encumbrances, which, in each case, and in the aggregate, do not materially
interfere with the ordinary conduct of the business of such Person.

                           (f) Liens created in favor of the Bank in
connection with the transactions contemplated by this Agreement.

                           (g) Any Lien existing prior to the time of
acquisition upon any real or personal property acquired by such Person after
the date hereof through purchase, merger or consolidation or otherwise,
whether or not assumed by the Person or placed upon property at (or within 30
days after) the later of the time of acquisition or the completion of
construction by the Person to secure all or a portion of (or to secure
indebtedness incurred solely to pay all or a portion of) the purchase price or
cost of construction thereof, provided that (i) subsequent to the date of this
Agreement, written consent has been obtained by the Person from the Bank, (x)
to incur additional indebtedness, and (y) to make additional capital
expenditures if capital expenditures are involved which exceed any limits set
forth in Section hereof, (ii) any such Lien does not encumber any other
property of the Person, and (iii) the aggregate principal amount of the

                                       8

<PAGE>



indebtedness secured by any such Lien at no time exceeds 100% of the total
cost to the Person of the property subject to such Lien.

                           (h) Any Lien on any real or personal property
representing the interest of a lessor of such property in connection with any
capital lease entered into by the Person after the date hereof, provided that
as to those leases, upon which costs in connection therewith are required to
be capitalized on the balance sheet of the Person in accordance with GAAP, and
which the aggregate cost basis during a fiscal year may exceed any aggregate
amount limitation set forth in this Agreement; written consent has been
obtained by the Person from each Bank to incur the additional amount.

                           (i) The interest of any consignor in any property
on consignment with the Person.

                           (j) Any renewal, extension, refunding or
refinancing of or in respect of any Lien permitted by clause (g) or (h) of
this definition, provided that, in the case of clause (g), the principal
amount of purchase money indebtedness secured is not increased and, in either
case, the Lien is not extended to other property.

                           (k) Those Liens previously disclosed to the Bank.

                           (l) Liens created in favor of the Bank pursuant to
any security documents or instruments relating to the Loan Agreement dated the
date hereof between the Bank and the Borrower.

                  "Person" - an individual, a corporation, a partnership, a
joint venture, a trust or unincorporated organization, a joint stock company
or other similar organization, a government or any political subdivision
thereof, a court, or any other legal entity, whether acting in an individual,
fiduciary or other capacity.

                  "Plan" - at any time an employee pension benefit plan which
is covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code and is either: (i) maintained by the Borrower or
any member of the Controlled Group for employees of the Borrower, or by the
Borrower for any other member of such Controlled Group, or (ii) maintained
pursuant to a collective bargaining agreement or any other arrangement under
which more than one employer makes contributions and to which the Borrower or
any member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions.

                  "Regulation D" - Regulation D of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented from
time to time.


                                       9

<PAGE>



                  "Regulatory Change" - as to any Bank, any change after the
date of this Agreement in United States federal, state or foreign laws or
regulations (including Regulation D and the laws or regulations which
designate any assessment rate relating to certificates of deposit or otherwise
(including the "Assessment Rate" if applicable to any Facility)) or the
adoption or making after such date of any interpretations, directives or
requests applying to a class of banks, including such Bank, of or under any
United States federal, state or foreign laws or regulations (whether or not
having the force of law) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.

                  "Release" - means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping, or
disposing into the environment, including the abandonment or discarding of
barrels, containers, and other receptacles containing any Hazardous Substance.

                  "Rental Expense" - means the annualized base rent for
operating lease commitments.

                  "Second Period" - means the period commencing July 1, 1999
through and including June 30, 2000.

                  "Second Period Sublimits" - as set forth in Section
2.1(b) hereof.

                  "Security Documents" - as defined in subsection 2.10(b)
hereof.

                  "Store(s)" - retail arts and craft supply stores owned or
leased by the Borrower from time to time.

                  "Sublimit" - either the Final Period Sublimit, the
Initial Period Sublimit or the Second Period Sublimit.

                  "Subsidiary" - with respect to any Person, any corporation,
partnership or joint venture whether now existing or hereafter organized or
acquired: (i) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors (other
than securities having such power only by reason of the happening of a
contingency) are at the time owned by such Person and/or one or more
Subsidiaries of such Person, or (ii) in the case of a partnership or joint
venture in which such Person is a general partner or joint venturer or of
which a majority of the partnership or other ownership interests are at the
time owned by such Person and/or one or more of its Subsidiaries. Unless the
context otherwise requires, references in this Agreement to "Subsidiary" or
"Subsidiaries" shall be deemed to be references to a Subsidiary or
Subsidiaries of the Borrower.


                                      10

<PAGE>



                  "Tangible Net Worth" - the sum of paid-in capital, retained
earnings and capital stock minus intangibles and treasury stock, all as
determined in accordance with GAAP.

                  "Term" - the period commencing on the date of this Agreement
and ending on the Commitment Termination Date.

                  "Total Commitment" - the obligation of the Bank to make
Advances of Loan proceeds and to issue Banker's Acceptances and Letters of
Credit, subject to the limitations set forth herein or in any other Loan
Document.

                  "Unused Commitment" - as at any date, the difference if any
between the amount of the Sublimit in effect at the time of measurement minus
the then aggregate outstanding amount of the Loan, the Banker's Acceptances
and the Letters of Credit.

Any accounting terms used in this Agreement which are not specifically defined
herein shall have the meanings customarily given to them in accordance with
GAAP as in effect on the date of this Agreement, except that references in
Article to such principles shall be deemed to refer to such principles as in
effect on the date of the financial statements delivered pursuant thereto.

                                      11

<PAGE>





         Article 2.   Facilities; Sublimits; Collateral.

                  Section 2.1       Facilities and Sublimits.

                           The Bank and the Borrower agree that the Facilities
shall be available to the Borrower subject to the following limits:

                           (a) During the Initial Period: the aggregate of all
Facilities shall never exceed Fifteen Million and no/100 ($15,000,000.00)
Dollars subject to the following Sublimits (the "Initial Period Sublimits") to
the effect that: the Loan shall not exceed Fifteen Million and no/100
($15,000,000.00) Dollars, the total outstanding for Banker's Acceptances shall
not exceed Seven Million Five Hundred Thousand and no/100 ($7,500,000.00)
Dollars, the total outstanding for Commercial Letters of Credit shall not
exceed Seven Million Five Hundred Thousand and no/100 ($7,500,000.00) Dollars
and the total outstanding for Standby Letters of Credit shall not exceed Five
Million and no/100 ($5,000,000.00) Dollars.

                           (b) During the Second Period: the aggregate of all
Facilities may be increased to Twenty Million and no/100 ($20,000,000.00)
Dollars subject to the following Sublimits (the "Second Period Sublimits"):
the Loan shall not exceed Twenty Million and no/100 ($20,000,000.00) Dollars,
the total outstanding for Banker's Acceptances shall not exceed Seven Million
Five Hundred Thousand and no/100 ($7,500,000.00) Dollars, the total
outstanding for Commercial Letters of Credit shall not exceed Seven Million
Five Hundred Thousand and no/100 ($7,500,000.00) Dollars and the total
outstanding for Standby Letters of Credit shall not exceed Five Million and
no/100 ($5,000,000.00) Dollars.

                           (c) During the Final Period: the aggregate of all
Facilities may be increased to Twenty Five Million and no/100 ($25,000,000.00)
Dollars subject to the following Sublimits (the "Final Period Sublimits"): the
Loan shall not exceed Twenty Five Million and no/100 ($25,000,000.00) Dollars,
the total outstanding for Banker's Acceptances shall not exceed Ten Million
and no/100 ($10,000,000.00) Dollars, the total outstanding for Commercial
Letters of Credit shall not exceed Ten Million and no/100 ($10,000,000.00)
Dollars and the total outstanding for Standby Letters of Credit shall not
exceed Five Million and no/100 ($5,000,000.00) Dollars.

                  Section 2.2       Notices Relating to Advances of Loan
                                    Proceeds.

                           The Borrower shall give the Bank telecopied or
written, notice of each request for an Advance of the Loan (in each
case, a "Borrowing Notice").  Each Borrowing Notice shall be

                                      12

<PAGE>



irrevocable and shall be in the form of Exhibit A attached to the Note. With
respect to any Borrowing Notice received by the Bank on a Business Day, the
Bank shall, subject to the terms of this Loan Agreement, fund said request
within two Business Days thereafter.


                           Each Borrowing Notice shall specify the amount
thereof and the requested date of the Advance (which shall be a
Business Day).

                  Section 2.3       Disbursement of Facility Proceeds.

                           Not later than 1:00 P.M. New York City time, on the
date specified for each Advance hereunder, the Bank shall transfer to the
Advance Account, in immediately available funds, the amount of the Advance to
be made on such date.

                  Section 2.4       Note.

                           The Loan shall be evidenced by a line of credit note
(the "Note") which shall be dated the date of this Agreement and shall be
payable to the order of the Bank.


                  Section 2.5       Payments.

                           Borrower shall make payments required by the Note or
any other Loan Document (including, without limitation, regularly scheduled
payments of principal and interest) directly to the Bank. At any time that it
is determined that the aggregate balance of the Loan and the amount of
Banker's Acceptances and Letters of Credit exceeds the Total Commitment
available during the applicable Period, the Borrower shall promptly make
payment to the Bank of all amounts necessary to reduce the aggregate of the
Facilities outstanding to an amount less than or equal to the Total Commitment
available during the particular Period.

                  Section 2.6       Use of Facilities.

                           The Facilities shall be used for working capital
purposes and to support new Store openings.

                  Section 2.7       Computations.

                           Interest on the Loan shall be computed in accordance
with the terms of the Note.

                  Section 2.8       Time and Method of Payments.

                           All payments of principal, interest and other
amounts (including indemnities) payable hereunder shall be made in
Dollars, in immediately available funds, to the Bank at its Payment

                                      13

<PAGE>



Office not later than 11:00 a.m. New York time, on the date on which such
payment shall become due. Alternatively, the Bank will debit the Payment
Account to the extent money for payments is available therein. Additional
provisions relating to payments are set forth in the Note.

                  Section 2.9       Fees.

                           (a) Borrower shall pay an unused commitment fee
(the "Unused Commitment Fee") on the daily average amount of the Unused
Commitment for each quarter at the rate of one-eighth of one (.125%) percent
per annum. Accrued Unused Commitment Fee shall be payable on the fifteenth day
of each January, April, July and October in arrears and shall be computed on
the basis of the actual number of days elapsed divided by 360.

                           (b) Borrower will pay the following fees for the
issuance of Banker's Acceptances and Letters of Credit:

                                    (1) For Banker's Acceptances, one (1%)
         percent of the amount thereof, annually;

                                    (2) For Standby Letters of Credit, one
         (1%) percent of the amount thereof, annually, and

                                    (3) For Commercial Letters of Credit, one-
         eighth of one (.125%) percent of the amount thereof plus standard
         issuance fees.

                  Section 2.10      Security.

                           (a) In order to secure the due payment and
performance by the Borrower of all of the Obligations, the Borrower
will:

                                    (1) Grant to the Bank a Lien on all of the
Borrower's now and hereafter owned and/or hereafter acquired, wherever
located, personal property, including without limitation, all accounts
receivable, inventory, equipment, machinery, furniture, fixtures, contract
rights, goods, instruments, chattel paper, choses in action, general
intangibles (including but not limited to all trademarks) and all products and
proceeds thereof by the execution and delivery to the Bank of a Security
Agreement in form and substance satisfactory to the Bank (the "Borrower
Security Agreement");

                                    (2) Execute and deliver such other
agreements, instruments, documents and UCC-1 Financing Statements and other
UCC forms as the Bank may reasonably require in order to effect the purposes
of the Borrower Security Agreement, this Section 2.10 and this Agreement;


                                      14

<PAGE>



                           (b) All of the agreements, instruments and
documents provided for or referred to in this Section 2.10 are hereinafter
sometimes referred to collectively as the "Security Documents".



                                      15

<PAGE>





         Article 3.   Representations and Warranties.

                  The Borrower hereby represents and warrants to the Bank
that:

                  Section 3.1       Organization.

                           (a) The Borrower is duly organized and validly
existing under the laws of its state, province or country of organization and
has the power to own its assets and to transact the business in which it is
presently engaged and in which it proposes to be engaged.

                           (b) The Borrower is in good standing in its state,
province or country of organization and in each state in which it is qualified
to do business. There are no jurisdictions other than as set forth on Exhibit
A hereto in which the character of the properties owned or proposed to be
owned by the Borrower or in which the transaction of the business of the
Borrower as now conducted or as proposed to be conducted requires or will
require the Borrower to qualify to do business and as to which failure so to
qualify could have a Material Adverse Effect.

                  Section 3.2       Power, Authority, Consents.

                           The Borrower has the power to execute, deliver and
perform the Loan Documents to be executed by it. The Borrower has the power to
borrow hereunder and has taken all necessary corporate action to authorize the
borrowing hereunder on the terms and conditions of this Agreement. The
Borrower has taken all necessary action, corporate or otherwise, to authorize
the execution, delivery and performance of the Loan Documents to be executed
by it. No consent or approval of any Person (including, without limitation,
any stockholder or any partner), no consent or approval of any landlord or
mortgagee, no waiver of any Lien or right of distraint or other similar right
and no consent, license, certificate of need, approval, authorization or
declaration of any governmental authority, bureau or agency, is or will be
required in connection with the execution, delivery or performance by the
Borrower, or the validity, enforcement or priority, of the Loan Documents or
any Lien created and granted thereunder, except as set forth on Exhibit B
annexed hereto, each of which either has been duly and validly obtained on or
prior to the date hereof and is now in full force and effect, or is designated
on Exhibit B as waived by the Bank.

                  Section 3.3       No Violation of Law or Agreements.

                           The execution and delivery by the Borrower of each
Loan Document to which it is a party and performance by each

                                      16

<PAGE>



hereunder and thereunder, will not violate any provision of law and will not,
except as set forth on Exhibit B annexed hereto, conflict with or result in a
breach of any order, writ, injunction, ordinance, resolution, decree, or other
similar document or instrument of any court or governmental authority, bureau
or agency, domestic or foreign, or any certificate of incorporation or by-laws
of the Borrower, or create (with or without the giving of notice or lapse of
time, or both) a default under or breach of any agreement, bond, note or
indenture to which the Borrower is a party, or by which it is bound or any of
their respective properties or assets is affected, or result in the imposition
of any Lien of any nature whatsoever upon any of the properties or assets
owned by or used in connection with the business of the Borrower, except for
the Liens created and granted pursuant to the Security Documents.

                  Section 3.4       Due Execution, Validity, Enforceability.

                           The Loan Documents have each been duly executed and
delivered by Borrower and each constitutes the valid and legally binding
obligation of Borrower, enforceable in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws, now or hereafter in effect,
relating to or affecting the enforcement of creditors' rights generally and
except that the remedy of specific performance and other equitable remedies
are subject to judicial discretion; provided, however, that such laws shall
not materially interfere with the practical realization of the benefits of the
Security Documents or the Liens created thereby, except for: (i) possible
delay, (ii) situations which may arise under Chapter 11 of the Bankruptcy
Code, (iii) equitable orders of the Bankruptcy Court and (iv) general
principles of equity in the enforcement of creditors' rights.

                  Section 3.5       Properties, Priority of Liens.

                           All accounts, inventory, furniture, fixtures,
equipment and other personal property shown on a consolidated balance sheet of
the Parent, the Borrower and any other Subsidiary of the Parent (the
"Collateral") are owned by Borrower free and clear of any lien or claim of the
Parent or other Subsidiary. All of the properties and assets owned by the
Borrower are owned free and clear of any Lien of any nature whatsoever other
than Permitted Liens, except as provided for in the Security Documents, and as
permitted by Exhibit C annexed hereto. The Liens which have been created and
granted by the Security Documents constitute valid perfected first Liens on
the properties and assets covered by the Security Documents, subject to no
prior or equal Lien except those, if any, referred to on Exhibit C annexed
hereto as being prior or equal to such Liens so created and granted by the
Security Documents.


                                      17

<PAGE>



                  Section 3.6       Judgments, Actions, Proceedings.

                           Except as set forth on Exhibit D annexed hereto,
there are no outstanding judgments, actions or proceedings, including, without
limitation, any Environmental Proceeding, pending before any court or
governmental authority, bureau or agency, with respect to or, to the best of
the Borrower's knowledge, threatened against or affecting Borrower, involving,
in the case of any court proceeding, a claim or claims in excess of
$100,000.00 in the aggregate, nor, to the best of Borrower's knowledge, is
there any reasonable basis for the institution of any such action or
proceeding which is probable of assertion, nor are there any such actions or
proceedings in which Borrower is a plaintiff or complainant.

                  Section 3.7       No Defaults, Compliance With Laws.

                           Except as set forth on Exhibit E annexed hereto, no
Loan Party is in default under any agreement, ordinance, resolution, decree,
bond, note, indenture, order or judgment to which it or he is a party or by
which it or he is bound, or any other agreement or other instrument by which
any of the properties or assets owned by it or him or used in the conduct of
its or his business is affected, which default could have a Material Adverse
Effect. Each Loan Party has complied and is in compliance in all respects with
all applicable laws, ordinances and regulations, resolutions, ordinances,
decrees and other similar documents and instruments of all courts and
governmental authorities, bureaus and agencies, domestic and foreign,
including, without limitation, all applicable Environmental Laws and
Regulations, non-compliance with which could have a Material Adverse Effect.

                  Section 3.8       Burdensome Documents.

                           Except as set forth on Exhibit F annexed hereto,
Borrower is not a party to or bound by, nor are any of the properties or
assets owned by Borrower used in the conduct of its businesses affected by,
any agreement, ordinance, resolution, decree, bond, note, indenture, order or
judgment, including, without limitation, any of the foregoing relating to any
Environmental Matter, which has a Material Adverse Effect.

                  Section 3.9       Financial Statements; Pro Forma
                                    Balance Sheet; Projections.

                           Each financial statement prior to the date of this
Agreement (the "Financial Statements") submitted to the Bank is correct and
complete and presents fairly the financial position of the Borrower, as at its
date, and has been prepared, in accordance with GAAP. Neither the Borrower nor
the Parent has a material obligation, liability or commitment, direct or
contingent (including, without limitation, any Environmental Liability), which

                                      18

<PAGE>



is not reflected in the Financial Statements. There has been no material
adverse change in the financial position or operations of the Borrower or the
Parent since the date of the latest balance sheet included in the Financial
Statement (the "Latest Balance Sheet"). The fiscal year of the Borrower is the
twelve-month period ending on December 31 in each year.

                  Section 3.10      Tax Returns.

                           Borrower has filed all federal, state and local tax
returns required to be filed and has not failed to pay any taxes, or interest
and penalties relating thereto, on or before the due dates thereof. Except to
the extent that reserves therefor are reflected in the Financial Statements:
(i) there are no material federal, state or local tax liabilities of Borrower
due or to become due for any tax year relating to such Person, whether
incurred in respect of or measured by the income of such entity, which are not
properly reflected in the Financial Statement relating to such entity or
otherwise disclosed to the Bank, and (ii) there are no material claims pending
or, to the knowledge of Borrower proposed or threatened against Borrower for
past federal, state or local taxes, except those, if any, as otherwise
disclosed to the Bank.

                  Section 3.11      Intangible Assets.

                           The Borrower possesses all patents, trademarks,
service marks, trade names, and copyrights, and rights with respect to the
foregoing, necessary to conduct its business as now conducted and as proposed
to be conducted, without any conflict with the patents, trademarks, service
marks, trade names, copyrights and rights with respect to the foregoing, of
any other Person, and each of such patents, trademarks, service marks, trade
names, copyrights and rights with respect thereto, together with any pending
applications therefor, are listed on Exhibit G annexed hereto.

                  Section 3.12      Regulation U.

                           No part of the Loan proceeds will be used directly
or indirectly for: (a) any purpose other than as set forth Section 2.6 hereof,
or (b) the purpose of purchasing or carrying, or for payment in full or in
part of Indebtedness which was incurred for the purposes of purchasing or
carrying, any "margin stock", as such term is defined in ss.221.3 of
Regulation U of the Board of Governors of the Federal Reserve System, 12
C.F.R., Chapter II, Part 221.

                  Section 3.13      Name Changes, Mergers,
                                    Acquisitions; Location of Collateral.

                           (a) Except as set forth on Exhibit H annexed
hereto, Borrower has not within the six-year period immediately

                                      19

<PAGE>



preceding the date of this Agreement changed its name, been the surviving
entity of a merger or consolidation, or acquired all or substantially all of
the assets of any Person.

                           (b) Except as set forth on Exhibit H annexed hereto
and except for inventory in transit, no Collateral constituting personal
property having an aggregate fair market value in excess of $50,000.00 covered
by the Security Documents has, at any time during the four-month period
immediately preceding the date hereof, been located anywhere other than at its
location on the date hereof.

                  Section 3.14       Full Disclosure.

                           None of the Financial Statements nor any
certificate, opinion, or any other statement made or furnished in writing to
the Bank by or on behalf of Borrower in connection with this Agreement or the
transactions contemplated herein, contains any untrue statement of a material
fact, or omits to state a material fact necessary in order to make the
statements contained therein or herein not misleading, as of the date such
statement was made. There is no fact known to the Borrower which has, or would
in the now foreseeable future have, a material adverse effect on the business,
prospects or condition, financial or otherwise, of Borrower, which fact has
not been set forth herein, in the Financial Statements or any certificate,
opinion or other written statement so made or furnished to the Bank.

                  Section 3.15       Licenses and Approvals.

                           The Borrower has all necessary licenses, permits and
governmental authorizations, including, without limitation, licenses, permits
and authorizations relating to Environmental Matters, to own and operate its
properties and to carry on its business as now conducted where failure to have
such would result in a Material Adverse Effect.

                  Section 3.16      Labor Disputes; Collective Bargaining
                                    Agreements; Employee Grievances.

                           Except as set forth on Exhibit I annexed hereto:
(a) there are no collective bargaining agreements or other labor contracts
covering Borrower; (b) no such collective bargaining agreement or other labor
contract (if any) will expire during the term of this Agreement; (c) no union
or other labor organization is seeking to organize, or to be recognized as
bargaining representative for, a bargaining unit of employees of Borrower; (d)
there is no pending or threatened strike, work stoppage, material unfair labor
practice claim or charge, arbitration or other material labor dispute against
or affecting Borrower or its representative employees; (e) there has not been,
during the two (2) year period prior to the date hereof, a strike, work
stoppage,

                                      20

<PAGE>



material unfair labor practice claim or charge, arbitration or other material
labor dispute against or affecting Borrower or any of its representative
employees, and (f) there are no actions, suits, charges, demands, claims,
counterclaims or proceedings pending or, to the best of the Borrower's
knowledge, threatened against Borrower by or on behalf of, or with, its
employees, other than employee grievances arising in the ordinary course of
business which are not, in the aggregate, material.

                  Section 3.17      Condition of Assets.

                           All of the assets and properties of the Borrower
which are reasonably necessary for the operation of its business are in good
working condition, ordinary wear and tear excepted, and are able to serve the
function for which they are currently being used.

                  Section 3.18      ERISA.

                  The Borrower does not have, and has never had, any employee
pension benefit plan ("Plan") which is covered by Title IV of the employee
Retirement Income Security Act of 1984, as it may be amended from time to
time, and the regulations thereunder ("ERISA") in connection with which there
could arise a direct or contingent liability of the Borrower to the Pension
Benefit Guaranty Corporation ("PBGC"), the Department of Labor or the Internal
Revenue Service ("IRS"). The Borrower is not a participating employer in: (i)
any Plan under which more than one employer makes contributions as described
in Sections 4063 and 4064 of ERISA, or (ii) a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.

                  Section 3.19      Securities Compliance.

                  The Parent completed an initial public offering of common
stock in 1997 and the disclosures made in conjunction therewith complied in
all respects with applicable regulations of the Securities and Exchange
Commission (the "SEC") and other applicable statutes and regulations.

                  Section 3.20      Parent Authority.

                  The Parent has authorized Borrower's execution, delivery and
performance of the Loan Documents and no further authorization from the Parent
is necessary to carry out the intent of the Loan Documents.

                                      21

<PAGE>





         Article 4.   The Closing; Conditions to Closing.

                  Section 4.1       The Closing.

                           The Closing with respect to the Loan (the "Closing")
shall take place on the date of this Agreement. The Bankers Acceptances and
the Letters of Credit shall be issued from time to time by the Bank at the
request of the Borrower provided that no Event of Default or event which but
for the passage of time, the giving of notice or both would constitute an
Event of Default has occurred and is continuing hereunder. At the time of
issuance of any Bankers Acceptance or Letter of Credit, the Borrower will
execute such standard form documentation as the Bank customarily requires for
the issuance of Bankers Acceptances and Letters of Credit. The obligation of
the Bank to enter into this Agreement shall be subject to the fulfillment (to
the satisfaction of the Bank) on or before the date of the Closing of the
conditions precedent set forth in Section below. Subject to the fulfillment
(to the satisfaction of the Bank) of the conditions precedent set forth in
Section , the Closing shall take place on the date hereof at such place as the
parties hereto shall agree upon.

                  Section 4.2       Conditions to Closing.

                           The obligation of the Bank to enter into this
Agreement shall be subject to the fulfillment (to the satisfaction of the
Bank) of the following conditions precedent:

                           (a) The Borrower shall have executed and delivered
the Note.

                           (b) The Borrower shall have:

                                    (1) executed and delivered the Borrower
Security Documents;

                                    (2) executed and duly filed appropriate
Uniform Commercial Code financing statements in order to enable the Bank to
perfect and preserve its security interest in the Collateral;

                                    (3) delivered to the Bank: (A) copies of,
or certificates of the issuing companies with respect to, policies of
insurance owned by the Borrower covering or in any manner relating to the
Collateral, including insurance covering Collateral located outside of the
United States of America, if any, together with endorsements thereto which
comply with the terms of the Borrower Security Agreement and are otherwise in
form and substance satisfactory to the Bank, naming the Bank as additional
insured as

                                      22

<PAGE>



its interests may appear; and (B) evidence of the Borrower's liability
insurance policies; and

                                    (4) otherwise duly complied with all of
the terms and conditions of the Security Documents to be executed by it; and

                           (c) Counsel to the Borrower shall have delivered
its opinion to, and in form and substance satisfactory to, the
Bank.

                           (d) The Bank shall have received true and complete
copies of the following, each certified as such in a certificate
executed by an officer of the Borrower:

                                    (1) All of the consents, approvals and
waivers referred to on Exhibit B annexed hereto, except only those which, as
stated on Exhibit B, shall not be delivered;

                                    (2) The certificate of incorporation of
the Borrower;

                                    (3) The by-laws of the Borrower;

                                    (4) All corporate action taken by the
Parent and the Borrower to authorize the execution, delivery and performance
by the Borrower of each of the Loan Documents to which it is a party pursuant
hereto or in connection herewith;

                                    (5) Good standing certificates with
respect to the Borrower from the Secretary of State or other appropriate
official of its state of incorporation and each other state in which it
operates Stores; and

                                    (6) A General Certificate of the Borrower.

                           (e) (1) The Borrower shall have complied and shall
then be in compliance with all of the terms, covenants and
conditions of this Agreement;

                                    (2) There shall exist no Event of Default
hereunder;

                                    (3) The representations and warranties
contained in Article hereof shall be true and correct on the date hereof;

                           (f) The Bank shall have received such other
documents, certificates and opinions as the Bank deems necessary to
carry out the terms of this Agreement; and


                                      23

<PAGE>



                           (g) All legal matters incident to the Facilities
shall be reasonably satisfactory to counsel to the Bank.

                  Section 4.3       Conditions to Subsequent Advances.

                           The obligation of the Bank to make each Advance
subsequent to its initial Advance shall be subject to the
fulfillment of the following conditions precedent:

                           (a) The Bank shall have received a Borrowing Notice
in accordance with Section hereof.

                           (b) There shall exist no Event of Default
hereunder.

                           (c) Borrower shall have complied with all the
terms, covenants and conditions of the Loan Documents.

                                      24

<PAGE>





         Article 5.   Delivery of Financial Reports,
                      Documents and Other Information.

                  While the Commitment is outstanding, and, in the event any
Facility remains outstanding, so long as the Borrower is indebted to the Bank
and until payment in full of the Note and sums due the Bank under the Loan
Documents and the termination of any liability of the Bank under any Bankers
Acceptances or Letters of Credit and until full and complete performance of
all of its other obligations arising hereunder, the Parent shall deliver to
the Bank:

                  Section 5.1       Annual Financial Statements.

                           Annually, as soon as available, but in any event
within one hundred twenty (120) days after the last day of each of its fiscal
years, a copy of the 10K Report submitted to the SEC.

                  Section 5.2       Quarterly Financial Statements.

                           As soon as available, but in any event within forty-
five (45) days after the end of each of the Parent's fiscal quarterly periods,
a copy of the 10Q Report submitted to the SEC. At the time of delivery of the
10Q contemplated pursuant to this Section , the Parent shall forward to the
Bank a Compliance Certificate in the form of Exhibit "J" attached hereto.

                  Section 5.3       Other Accounting Information.

                           The Bank shall also receive the following from the
Borrower:

                           (a) On or before December 31 of each year, three
(3) years annual projected income statements, balance sheets and cash flow
statements, with the first year set forth on a quarterly basis and the
remaining years set forth on an annual basis.

                           (b) As soon as available, but in any event within
forty five (45) days after the end of each of the Borrower's fiscal quarterly
periods, internally prepared "Same Store Sales Analysis" statements which
compares actual sales to budget and to prior years sales.

                           (c) As soon as available, but in any event within
forty five (45) days after the end of each of the Borrower's fiscal quarterly
periods, a statement listing total base rent for the preceding quarter
(including stores and warehouses), said statement to be used to support the
calculation of Rental Expense.

                  Section 5.4       Compliance Information.

                                      25

<PAGE>




                           Promptly after a written request therefor, such
other financial data or information evidencing compliance with the
requirements of this Agreement, the Note and the other Loan Documents, as the
Bank may reasonably request from time to time.

                  Section 5.5       Report of Accountants.

                           At the same time as it delivers the financial
statements required under the provisions of Section hereof, a report of the
Accountant addressed specifically to both the Borrower and the Bank to the
effect that during the course of their audit of the operations of the Borrower
and its condition as of the end of its fiscal year, nothing has come to their
attention which would indicate that an Event of Default under Section 6.8
hereof has occurred or that there was any violation of the covenants of the
Borrower contained in said Sections, or, if such cannot be so certified,
specifying in reasonable detail the exceptions, if any, to such statement.

                  Section 5.6       Accountants' Reports.

                           Promptly upon receipt thereof, copies of all other
reports submitted to the Borrower by the Accountant in connection with any
annual or interim audit or review of the books of the Borrower made by such
Accountant, including, without limitation, any management letters.

                  Section 5.7       Copies of Documents.

                           Promptly upon their becoming available, copies of
any: (i) financial statements, projections, notices (other than routine
correspondence), requests for waivers and proxy statements, in each case,
delivered by the Borrower to any lending institution other than the Bank; (ii)
correspondence or notices received by the Borrower from any federal, state or
local governmental authority which regulates the operations of the Borrower
relating to an actual or threatened change or development which would be
materially adverse to the Borrower; (iii) registration statements and any
amendments and supplements thereto, and any regular and periodic reports, if
any, filed by the Borrower with any securities exchange or with the SEC or any
governmental authority succeeding to any or all of the functions of the SEC;
(iv) letters of comment or correspondence sent to the Borrower by any such
securities exchange or the SEC in relation to the Borrower and its affairs;
(v) written reports submitted by the Borrower by its independent accountants
in connection with any annual or interim audit of the books of the Borrower
made by such accountants; and (vi) any appraisals received by the Borrower
with respect to the properties or assets of the Borrower.


                                      26

<PAGE>



                  Section 5.8       Notices of Defaults.

                           Promptly, notice of the occurrence of any Event of
Default, or any event which would constitute or cause a material adverse
change in the condition, financial or otherwise, or the operations of the
Borrower.

                  Section 5.9       ERISA Notices.

                           (a) Concurrently with such filing, a copy of each
Form 5500 which is filed with respect to each Plan with the IRS; and

                           (b) Promptly, upon their becoming available, copies
of: (i) all correspondence with the PBGC, the Secretary of Labor or any
representative of the IRS with respect to any Plan, relating to an actual or
threatened change or development which would be materially adverse to the
Borrower; (ii) copies of all actuarial valuations received by the Borrower
with respect to any Plan; and (iii) copies of any notices of Plan termination
filed by any Plan Administrator (as those terms are used in ERISA) with the
PBGC and of any notices from the PBGC to the Borrowers with respect to the
intent of the PBGC to institute involuntary termination proceedings.

                  Section 5.10      Additional Information.

                           Permit the Bank to make or cause to be made at the
Bank's expense (subject to the limitation set forth below), inspections and
audits of any books, records and papers of the Borrower and to make extracts
therefrom and copies thereof, or to make inspections and examinations of any
properties and facilities of the Borrower, on reasonable notice, at all such
reasonable times and as often as the Bank may reasonably require, in order to
assure that the Borrower is and will be in compliance with its obligations
under the Loan Documents or to evaluate the Bank's investment in the Note.

                           The Borrower shall deliver to the Bank such other
information regarding the business, affairs and condition of the Borrowers as
the Bank may from time to time reasonably request.

                  Section 5.11      Notification of Opening of New Stores, Etc.

                           The Borrower shall

                           (a) Promptly notify the Bank of the opening of any
warehouse, office or other facility by the Borrower.

                           (b) Provide the Bank within thirty (30) days of the
close of each fiscal quarter with a list of all Stores opened

                                      27

<PAGE>



during said quarter indicating the location, annual rent (including all common
area maintenance charges, operating expense charges or other sums payable to a
landlord), term and number of square feet rented together with a projection of
the Stores Borrower anticipates opening during the next succeeding three
fiscal quarters.

                                      28

<PAGE>





         Article 6.   Affirmative Covenants.

                  While the Commitment is outstanding, and, in the event any
Facility remains outstanding, so long as the Borrower is indebted to the Bank,
and until payment in full of the Note and sums due the Bank under the Loan
Documents and the termination of any liability of the Bank under any Banker's
Acceptances or Letters of Credit and until full and complete performance of
all of its other obligations arising hereunder, the Borrower shall:

                  Section 6.1       Books and Records.

                           Keep proper books of record and account in a manner
reasonably satisfactory to the Bank in which full, true and correct entries
shall be made of all dealings or transactions in relation to its businesses
and activities.

                  Section 6.2       Maintenance and Repairs.

                           Maintain in good repair, working order and
condition, subject to normal wear and tear, all material properties and assets
from time to time owned by it and used in or necessary for the operation of
its business, and make all reasonable repairs, replacements, additions and
improvements thereto where the failure to do so would leave a Material Adverse
Effect.

                  Section 6.3       Continuance of Business.

                           Do, or cause to be done, all things reasonably
necessary to preserve and keep in full force and effect its corporate
existence and all permits, rights and privileges necessary for the proper
conduct of its business and the ability to continue to engage in the same line
of business and where the failure to do so would have a Material Adverse
Effect and comply in all material respects with all applicable laws,
regulations and orders. The Borrower shall continue to conduct its business
solely in the area of opening and operating Stores for the purpose of selling
arts and craft supplies.

                  Section 6.4       Copies of Corporate Documents.

                           Promptly deliver to the Bank copies of any
amendments or modifications to its certificate of incorporation and by-laws or
other comparable documents, certified with respect to the certificate of
incorporation by the Secretary of State or other appropriate official of its
state, province or country of incorporation and, with respect to the by-laws,
by its secretary or assistant secretary.


                                      29

<PAGE>



                  Section 6.5       Perform Obligations.

                           Pay and discharge all of its obligations and
liabilities, including, without limitation, all taxes, assessments and
governmental charges upon its income and properties when due, unless and to
the extent only that such obligations, liabilities, taxes, assessments and
governmental charges shall be contested in good faith and by appropriate
proceedings and that, to the extent required by GAAP then in effect, proper
and adequate book reserves relating thereto are established and then only to
the extent that a bond is filed in cases where the filing of a bond is
necessary to avoid the creation of a Lien (other than a Permitted Lien)
against any of its properties.

                  Section 6.6       Notice of Litigation.

                           Promptly notify the Bank in writing of any
litigation, legal proceeding or dispute, other than disputes in the ordinary
course of business or, whether or not in the ordinary course of business,
involving amounts in excess of $1,000,000.00 in the aggregate, affecting
Borrower and regardless of the subject matter thereof (excluding, however, any
actions fully covered by insurance).

                  Section 6.7       Insurance.

                           (a) Maintain with responsible insurance companies
such insurance on such of its properties, in such amounts and against such
risks as is customarily maintained by similar businesses; file with the Bank
upon request a detailed list of the insurance then in effect, stating the
names of the insurance companies and the amounts of the insurance, the dates
of the expiration thereof and the properties and risks covered thereby; and,
within ten (10) days after notice in writing from the Bank, obtain such
additional insurance as the Bank may reasonably request;

                           (b) Carry all insurance through the PBGC required
by ERISA; and


                  Section 6.8       Financial Covenants.

                  On a consolidated basis, the Parent, the Borrower and any
other Subsidiary of the Parent shall have or maintain:

                           (a) A ratio of total liabilities to Tangible Net
Worth (the "Leverage Ratio") not greater than 1.5 to 1 for each fiscal quarter
as reported on the 10Q required pursuant to Section 5.2.


                                      30

<PAGE>



                           (b) A Debt Service Coverage Ratio of not less than
one and one-quarter to one (1.25:1). Such Ratio shall be tested (i) each of
the first three fiscal quarters taking the sums of each account category for
the four most recent fiscal quarters of the Borrower as reported on the
statements required pursuant to Section 5.2 hereof and (ii) at each fiscal
year end from the statements required pursuant to Section 5.1 hereof.

                  Section 6.9       Notice of Certain Events.

                           (a) Borrower shall promptly notify the Bank in
writing of the occurrence of any Reportable Event, as defined in Section 4043
of ERISA, if a notice of such Reportable Event is required under ERISA to be
delivered to the PBGC within 30 days after the occurrence thereof, together
with a description of such Reportable Event and a statement of the action they
intend to take with respect thereto, together with a copy of the notice
thereof given to the PBGC.

                           (b) Borrower shall promptly notify the Bank in
writing if the Borrower receives: (i) any notice of any violation or
administrative or judicial complaint or order having been filed or about to be
filed against the Borrower alleging violations of any Environmental Law and
Regulation, or (ii) any notice from any governmental body or any other Person
alleging that the Borrower is or may be subject to any Environmental
Liability; and promptly upon receipt thereof, provide the Bank with a copy of
such notice together with a statement of the action the Borrower intends to
take with respect thereto.

                           (c) Borrower shall promptly notify the Bank in
writing if the Borrower receives any notice or communication from the SEC or
any other commission or entity regulating any securities issued by the Parent
which notice or communication deals in any way with a matter which would have
a Material Adverse Effect on the Parent, the Borrower or any other Subsidiary
of the Parent and shall provide the Bank with copies of such notice and any
other communications relating thereto together with a statement of the action
the Borrower intends to take with respect thereto.

                  Section 6.10      Comply with ERISA.

                           Comply with all applicable provisions of ERISA now
or hereafter in effect where failure to do so would have a Material
Adverse Effect.

                  Section 6.11      Environmental Compliance.

                           Operate all property owned or leased by it such that
no obligation, including a clean-up obligation, shall arise under any
Environmental Law and Regulation, which obligation would constitute a Lien on
any property of the Borrower; provided,

                                      31

<PAGE>



however, that in the event that any such claim is made or any such obligation
arises, the Borrower shall, at its own cost and expense, commence to satisfy
such claim or obligation.

                  Section 6.12      Deposit Accounts.

                           Where the Bank is offering competitive rates, open
and maintain its principal operating and other cash accounts with
the Bank.

                  Section 6.13      Collateral.

                           Retain title to the Collateral except for Collateral
disposed of to third parties (other than Parent or any other Subsidiary of
Parent) in the ordinary course of business, it being agreed that
notwithstanding the inclusion of the Collateral on the consolidated balance
sheet of the Parent, title to the Collateral shall remain in the Borrower.


                                      32

<PAGE>





         Article 7.   Negative Covenants.

                  While the Commitment is outstanding, and, in the event any
Facility remains outstanding, so long as the Borrower is indebted to the Bank
and until payment in full of the Note and sums due the Bank under the Loan
Documents and the termination of any liability of the Bank under any Bankers
Acceptances or Letters of Credit and until full and complete performance of
all of its other obligations arising hereunder, the Borrower, without the
prior written consent of the Bank, shall not do, agree to do, or permit to be
done, any of the following:

                  Section 7.1       Indebtedness.

                           Create, incur, permit to exist or have outstanding
any Indebtedness, except:

                           (a) Indebtedness of the Borrower to the Bank under
this Agreement and the Note;

                           (b) Taxes, assessments and governmental charges,
non-interest bearing accounts payable, trade debt and accrued liabilities
incurred in the ordinary course of business, in any case not more than 90 days
past due from the original due date thereof, and non-interest bearing deferred
liabilities other than for borrowed money (e.g., deferred compensation and
deferred taxes), in each case incurred and continuing in the ordinary course
of business;

                           (c) Indebtedness of not more than $1,000,000.00 in
any calendar year secured by the security interests referred to in subsection
7.2(c) hereof and Capitalized Lease Obligations;

                  Section 7.2       Liens.

                           Create, or assume or permit to exist, any Lien on
any of its properties or assets, whether now owned or hereafter
acquired, except:

                           (a) Those created and granted by the Security
Documents;

                           (b) Permitted Liens;

                           (c) Purchase money mortgages or security interests,
conditional sale arrangements and other similar security interests, on motor
vehicles and equipment acquired by the Borrower (hereinafter referred to
individually as a "Purchase Money Security Interest") with the proceeds of the
Indebtedness referred to in subsection 7.1(c) hereof; provided, however, that:

                                      33

<PAGE>




                                    (1) The transaction in which any Purchase
Money Security Interest is proposed to be created is not then prohibited by
this Agreement;

                                    (2) Any Purchase Money Security Interest
shall attach only to the property or asset acquired in such transaction and
shall not extend to or cover any other assets or properties of Borrower;

                                    (3) The Indebtedness secured or covered by
any Purchase Money Security Interest shall not exceed the lesser of the cost
or fair market value of the property or asset acquired and shall not be
renewed, extended or prepaid from the proceeds of any borrowing by the
Borrower; and

                                    (4) The aggregate amount of all
Indebtedness secured by Purchase Money Security Interests shall not at any
time exceed $1,000,000.00;

                           (d) The interests of the lessor under any
Capitalized Lease permitted hereunder.

                  Section 7.3       Guaranties.

                           Except as set forth on Exhibit K annexed hereto,
assume, endorse, be or become liable for, or guarantee, the obligations of any
Person, except by the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business. For the purposes hereof, the
term "guarantee" shall include any agreement, whether such agreement is on a
contingency or otherwise, to purchase, repurchase or otherwise acquire
Indebtedness of any other Person, or to purchase, sell or lease, as lessee or
lessor, property or services, in any such case primarily for the purpose of
enabling another person to make payment of Indebtedness, or to make any
payment (whether as an advance, capital contribution, purchase of an equity
interest or otherwise) to assure a minimum equity, asset base, working capital
or other balance sheet or financial condition, in connection with the
Indebtedness of another Person, or to supply funds to or in any manner invest
in another Person in connection with such Person's Indebtedness.

                  Section 7.4       Mergers, Acquisitions.

                           Merge or consolidate with any Person (whether or not
the Borrower is the surviving entity), or acquire all or substantially all of
the assets or any of the capital stock of any Person provided however,
Borrower may merge or consolidate or acquire assets or stock where the
aggregate cost of the merger or consolidation transactions or the acquisitions
to do not exceed $5,000,000.00 over the term of the Facilities or if such
activity

                                      34

<PAGE>



would not cause any violation of any covenant hereunder or in any
other Loan Document.

                  Section 7.5       Changes in Business.

                           Make any material change in its business, or in the
nature of its operation, or liquidate or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of any of its property, assets or business except in the
ordinary course of business and for a fair consideration or dispose of any
Indebtedness, whether now owned or hereafter acquired, or discount, sell,
pledge, hypothecate or otherwise dispose of accounts receivable.

                  Section 7.6       Investments.

                           Make, or suffer to exist, any Investment in any
Person, including, without limitation, any shareholder, director, officer or
employee of the Borrower, except investments in:

                                    (1) securities issued or guaranteed by the
United States of America, including those of the Government National Mortgage
Association, Federal Home Loan Bank, Federal Farm Credit Bank, Federal
National Mortgage Association, Student Loan Marketing Association, World Bank
and the Tennessee Valley Authority (securities shall include notes, discount
notes, medium term notes and floating rate notes);

                                    (2) certificates of deposit, bankers
acceptances and other "money market instruments" issued by the Bank or any
other bank or trust company organized under the laws of the United States of
America or any State thereof and having capital and surplus in an aggregate
amount of not less than $100,000,000.

                                    (3) corporate securities including
commercial paper rated A1/P1 or better and corporate debt instruments
including medium term notes and floating rate notes issued by foreign or
domestic corporations which pay in Dollars and carry a rating of A/A or
better.

                  Section 7.7       Fiscal Year.

                           Change its fiscal year.

                  Section 7.8       ERISA Obligations.

                           (a) Be or become obligated to the PBGC in excess of
$50,000 other than in respect of annual premium payments.

                           (b) Be or become obligated to the IRS in excess of
$50,000 with respect to excise or other penalty taxes provided for in Section
4975 of the Code.

                                      35

<PAGE>




                  Section 7.9       Amendments of Documents.

                           Modify, amend, supplement or terminate, or agree to
modify, amend, supplement or terminate, its certificate of incorporation or
by-laws, or any of the subordinated notes or other agreements or evidences of
indebtedness covered by the Subordination Agreement where result thereof is to
cause a Material Adverse Effect.

                  Section 7.10      Transactions with Affiliates.

                           Directly or indirectly: (a) make any Investment in
the Parent or any other Subsidiary of the Parent; (b) transfer, sell, lease,
assign or otherwise dispose of any assets to the Parent or any other
Subsidiary of the Parent except (i) dividends to the Parent and (ii) interest
and royalty fees to be paid to other Subsidiaries of the Parent (the
"Acceptable Payments") provided that the payment of any Acceptable Payments
shall not result in the violation of any covenant hereunder or in any other
Loan Document; (c) merge into or consolidate with or purchase or acquire
assets from an Affiliate; or (d) enter into any other transaction directly or
indirectly with or for the benefit of any Affiliate (including, without
limitation, guaranties and assumptions of obligations of an Affiliate).


                                      36

<PAGE>





         Article 8.   Events of Default.

                  If any one or more of the following events ("Events of
Default") shall occur and be continuing, the Commitment shall terminate and
the entire unpaid balance of the principal of and interest on the Note
outstanding and all other obligations and Indebtedness of the Borrower to the
Bank arising hereunder and under the other Loan Documents shall immediately
become due and payable upon written notice to that effect given to the
Borrower by the Bank (except that in the case of the occurrence of any Event
of Default described in Section 8.5 no such notice shall be required), without
further presentment or demand for payment, notice of non-payment, protest or
further notice or demand of any kind, all of which are expressly waived by the
Borrower:

                  Section  8.1      Payments.

                           Failure to make any payment of principal or interest
upon the Note within ten (10) days after notice to the Borrower of the failure
to make such payment pursuant to the terms of the Note.

                  Section 8.2 Certain Covenants. Failure of the Borrower to
comply with the provisions of Article 5 or Sections 6.8, 6.10, 6.11, 6.13,
7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.8, 7.9 or 7.10.

                  Section 8.3       Other Covenants.

                           Failure by the Borrower to perform or observe any
other agreements contained herein for thirty (30) days after the Bank has
given written notice of such failure to Borrower.

                  Section 8.4       Other Defaults.

                           (a) Failure by Borrower to perform or observe any
term, condition or covenant of any bond, note, debenture, loan agreement,
indenture, guaranty, trust agreement, mortgage or similar instrument to which
the Borrower is bound, or by which any of its properties or assets may be
affected, so that, as a result of any such failure to perform, the
Indebtedness included therein or secured or covered thereby is declared to be
due and payable prior to the date on which such Indebtedness would otherwise
become due and payable; or

                           (b) Any event or condition referred to in any Debt
Instrument shall occur or fail to occur, so that, as a result thereof, the
Indebtedness included therein or secured or covered thereby is declared to be
due and payable prior to the date on which such Indebtedness would otherwise
become due and payable; or


                                      37

<PAGE>



                           (c) Failure to pay any Indebtedness for borrowed
money due at final maturity or pursuant to demand.

                  Section 8.5       Representations and Warranties.

                           Any material representation or warranty made in
writing to the Bank in any of the Loan Documents or in connection with the
making of the Facilities, or any certificate, statement or report made or
delivered in compliance with this Agreement, shall have been false or
misleading in any material respect when made.

                  Section 8.6       Bankruptcy.

                           (a) Borrower shall make an assignment for the
benefit of creditors, file a petition in bankruptcy, be adjudicated insolvent,
petition or apply to any tribunal for the appointment of a receiver,
custodian, or any trustee for it or a substantial part of its assets, or shall
commence any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or the Borrower shall take
any corporate action to authorize any of the foregoing actions; or there shall
have been filed any such petition or application, or any such proceeding shall
have been commenced against it, which remains undismissed for a period of
sixty (60) days or more; or any order for relief shall be entered in any such
proceeding; or Borrower by any act or omission shall indicate its consent to
or, approval of or acquiescence in any such petition, application or
proceeding or the appointment of a custodian, receiver or any trustee for it
or any substantial part of any of its properties, or shall suffer any
custodianship, receivership or trusteeship to continue undischarged for a
period of sixty (60) days or more; or

                           (b) Borrower shall generally not pay its debts as
such debts become due; or

                           (c) Borrower shall have concealed, removed, or
permitted to be concealed or removed, any part of its property, with intent to
hinder, delay or defraud its creditors or any of them or made or suffered a
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or shall have made any transfer of its
property to or for the benefit of a creditor at a time when other creditors
similarly situated have not been paid; or shall have suffered or permitted,
while insolvent, any creditor to obtain a Lien upon any of its property
through legal proceedings or distraint which is not vacated within thirty (30)
days from the date thereof.

                  Section 8.7       Judgments.

                           Any judgment against the Borrower or any attachment,
levy or execution against any of its properties for any amount in

                                                        38

<PAGE>



excess of $500,000 in the aggregate (uncovered by insurance) shall remain
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of thirty (30) days or more.

                  Section 8.8       ERISA.

                           (a) The termination of any Plan or the institution
by the PBGC of proceedings for the involuntary termination of any Plan, in
either case, by reason of, or which results or could result in, a "material
accumulated funding deficiency" under Section 412 of the Code; or

                           (b) Failure by Borrower to make required
contributions, in accordance with the applicable provisions of ERISA, to each
of the Plans hereafter established or assumed by it.

                  Section 8.9       Liens.

                           Any of the Liens created and granted to the Bank
under the Security Documents shall fail to be valid, first, perfected Liens,
subject to no prior or equal Lien, except as permitted by Section hereof.

                  Section 8.10      Cross-Defaults.

                           The Borrower fails to comply with the terms of or an
"event of default" occurs under any other loan transaction or credit
arrangement of any kind with the Bank.


                                      39

<PAGE>




Article 9                  Miscellaneous Provisions.

                  Section 9.1       Fees and Expenses; Indemnity.

                           Except as otherwise provided herein, the Borrower
will promptly pay all reasonable costs of the Bank in preparing the Loan
Documents and all costs and expenses of the issue of the Notes and of the
Borrower's performance of and compliance with all agreements and conditions
contained herein on its part to be performed or complied with (including,
without limitation, all costs of filing or recording any assignments,
mortgages, financing statements and other documents), and the reasonable fees
and expenses and disbursements of counsel to the Bank in connection with the
preparation, execution and delivery, administration, interpretation and
enforcement of this Agreement, the other Loan Documents and all other
agreements, instruments and documents relating to this transaction, the
consummation of the transactions contemplated by all such documents, the
preservation of all rights of the Bank, the negotiation, preparation,
execution and delivery of any amendment, modification or supplement of or to,
or any consent or waiver under, any such document other than an assignment or
participation pursuant to Section 9.13 (or any such instrument which is
proposed but not executed and delivered) and with any claim or action
threatened, made or brought against the Bank arising out of or relating to any
extent to this Agreement, the other Loan Documents or the transactions
contemplated hereby or thereby. In addition, the Borrower will promptly pay
all reasonable costs and expenses (including, without limitation, reasonable
fees and disbursements of counsel) suffered or incurred by the Bank in
connection with its enforcement of the payment of the Notes or any other sum
due to it under this Agreement or any of the other Loan Documents or any of
its other rights hereunder or thereunder. In addition to the foregoing, the
Borrower shall indemnify the Bank and each of its directors, officers,
employees, attorneys and agents against, and hold each of them harmless from,
any loss, liabilities, damages, claims, costs and expenses (including
reasonable attorneys' fees and disbursements) suffered or incurred by any of
them arising out of, resulting from or in any manner connected with, the
execution, delivery and performance of each of the Loan Documents, the
Facilities and any and all transactions related to or consummated in
connection with the Facilities, including, without limitation, losses,
liabilities, damages, claims, costs and expenses suffered or incurred by the
Bank or any of their respective directors, officers, employees, attorneys or
agents arising out of or related to any Environmental Matter, Environmental
Liability or Environmental Proceeding, or in investigating, preparing for,
defending against, or providing evidence, producing documents or taking any
other action in respect of any commenced or threatened litigation,
administrative proceeding or investigation under any federal securities law or
any other statute of any jurisdiction, or any regulation, or at common

                                      40

<PAGE>



law or otherwise, which is alleged to arise out of or is based upon: (i) any
untrue statement or alleged untrue statement of any material fact of the
Borrower, and any Subsidiaries in any document or schedule filed with the SEC
or any other governmental body; (ii) any omission or alleged omission to state
any material fact required to be stated in such document or schedule, or
necessary to make the statements made therein, in light of the circumstances
under which made, not misleading; (iii) any acts, practices or omission or
alleged acts, practices or omissions of the Borrower or its agents related to
the making of any acquisition, purchase of shares or assets pursuant thereto,
financing of such purchases or the consummation of any other transactions
contemplated by any such acquisitions which are alleged to be in violation of
any federal securities law or of any other statute, regulation or other law of
any jurisdiction applicable to the making of any such acquisition, the
purchase of shares or assets pursuant thereto, the financing of such purchases
or the consummation of the other transactions contemplated by any such
acquisition; or (iv) any withdrawals, termination or cancellation of any such
proposed acquisition for any reason whatsoever; provided, however, the
Borrower shall not be required to indemnify the Bank in respect of any loss,
liability cost or expense incurred as the result of the negligence or willful
misconduct of the Bank. The indemnity set forth herein shall be in addition to
any other obligations or liabilities of the Borrower to the Bank hereunder or
at common law or otherwise. The provisions of this Section 9.1 shall survive
the payment of the Note and the termination of this Agreement.

                  Section 9.2       Taxes.

                           If, under any law in effect on the date of the
closing of the Facilities hereunder, or under any retroactive provision of any
law subsequently enacted, it shall be determined that any Federal, state or
local tax is payable in respect of the issuance of the Note, any Bankers
Acceptance or any Letter of Credit or in connection with the filing or
recording of any financing statements or other documents (whether measured by
the amount of Indebtedness secured or otherwise) as contemplated by this
Agreement, then the Borrower will pay any such tax and all interest and
penalties, if any, and will indemnify the Bank against and save it harmless
from any loss or damage resulting from or arising out of the nonpayment or
delay in payment of any such tax. If any such tax or taxes shall be assessed
or levied against the Bank or any other holder of the Note, the Bank, or such
other holder, as the case may be, may notify the Borrower and make immediate
payment thereof, together with interest or penalties in connection therewith,
and shall thereupon be entitled to and shall receive immediate reimbursement
therefor from the Borrower. Notwithstanding any other provision contained in
this Agreement, the covenants and agreements of the Borrower in this Section
9.2 shall survive payment of the Note and any sums due under the other

                                      41

<PAGE>



Loan Documents and the termination of any Banker's Acceptances and Letters of
Credit and this Agreement.

                  Section 9.3       Payments.

                           As set forth in Article  hereof, all payments by
the Borrower on account of principal, interest, fees and other charges
(including any indemnities) shall be made to the Bank at its Payment Office,
in lawful money of the United States of America, not later than 11:00 A.M. New
York City time on the date such payment is due. Any such payment made on such
date but after such time shall, if the amount paid bears interest, be deemed
to have been made on, and interest shall continue to accrue and be payable
thereon until, the next succeeding Business Day. If any payment of principal
or interest becomes due on a day other than a Business Day on which banks in
New York are required or permitted by law to remain closed, such payment may
be made on the next succeeding Business Day on which such banks are open and
such extension shall be included in computing interest in connection with such
payment. All payments hereunder and under the Note and the other Loan
Documents shall be made without set-off or counterclaim and in such amounts as
may be necessary in order that all such payments shall not be less than the
amounts otherwise specified to be paid under this Agreement, the Note and the
other Loan Documents (after withholding for or on account of: (i) any present
or future taxes, levies, imposts, duties or other similar charges of whatever
nature imposed by any government or any political subdivision or taxing
authority thereof, other than any tax (except those referred to in clause (ii)
below) on or measured by the net income of the Bank to which any such payment
is due pursuant to applicable federal, state and local income tax laws, and
(ii) deduction of amounts equal to the taxes on or measured by the net income
of the Bank payable by the Bank with respect to the amount by which the
payments required to be made under this sentence exceed the amounts otherwise
specified to be paid in this Agreement, the Note and the other Loan
Documents). Upon payment in full of the Note, the holder thereof shall mark
said Note "Paid" and return it to the Borrower.

                  Section 9.4       Survival of Agreements and
                                    Representations; Construction.

                           All agreements, representations and warranties made
herein shall survive the delivery of this Agreement and the Note. The headings
used in this Agreement and the table of contents are for convenience only and
shall not be deemed to constitute a part hereof. All uses herein of the
masculine gender or of singular or plural terms shall be deemed to include
uses of the feminine or neuter gender, or plural or singular terms, as the
context may require.


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                  Section 9.5       Lien on and Set-off of Deposits.

                           As security for the due payment and performance of
all the Obligations, the Borrower hereby grants to the Bank a Lien on any and
all deposits or other sums at any time credited by or due from the Bank to the
Borrower, whether in regular or special depository accounts or otherwise, and
any and all monies, securities and other property of the Borrower, and the
proceeds thereof, now or hereafter held or received by or in transit to the
Bank from or for the Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and any such deposits, sums, monies,
securities and other property, may at any time after the occurrence and during
the continuance of any Event of Default be set-off, appropriated and applied
by the Bank against any of the Obligations, whether or not any of such
Obligations are secured by any Collateral, or, if it is so secured, whether or
not the Collateral is considered to be adequate.

                  Section 9.6       Modifications, Consents and
                                    Waivers; Entire Agreement.

                           No modification, amendment or waiver of or with
respect to any provision of this Agreement, the Note, the Security Documents,
or any of the other Loan Documents and all other agreements, instruments and
documents delivered pursuant hereto or thereto, nor consent to any departure
by the Borrower from any of the terms or conditions thereof, shall in any
event be effective unless it shall be in writing and signed by the Bank. Any
such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No consent to or demand on the Borrower in
any case shall, of itself, entitle it to any other or further notice or demand
in similar or other circumstances. This Agreement and the other Loan Documents
embody the entire agreement and understanding among the Bank and the Borrower
and supersede all prior agreements and understandings relating to the subject
matter hereof.

                  Section 9.7       Remedies Cumulative.

                           Each and every right granted to the Bank hereunder
or under any other document delivered hereunder or in connection herewith, or
allowed it by law or equity, shall be cumulative and may be exercised from
time to time. No failure on the part of the Bank to exercise, and no delay in
exercising, any right shall operate as a waiver thereof, nor shall any single
or partial exercise of any right preclude any other or future exercise thereof
or the exercise of any other right. The due payment and performance of the
Obligations shall be without regard to any counterclaim, right of offset or
any other claim whatsoever which Borrower may have against the Bank and
without regard to any other obligation of any nature whatsoever which the Bank
may have to Borrower, and no such counterclaim or offset shall be asserted by

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<PAGE>



Borrower in any action, suit or proceeding instituted by the Bank for payment
or performance of the Obligations.

                  Section 9.8       Further Assurances.

                           At any time and from time to time, upon the request
of the Bank, the Borrower shall execute, deliver and acknowledge or cause to
be executed, delivered and acknowledged, such further documents and
instruments and do such other acts and things as the Bank may reasonably
request in order to fully effect the purposes of this Agreement, the other
Loan Documents and any other agreements, instruments and documents delivered
pursuant hereto or in connection with the Facilities.

                  Section 9.9       Notices.

                           All notices, requests, reports and other
communications pursuant to this Agreement shall be in writing, either by
letter (delivered by hand or commercial messenger service or sent by certified
mail, return receipt requested, except for routine reports delivered in
compliance with Article hereof which may be sent by ordinary first-class mail)
or telegram or telecopy, addressed as follows:

                           (a) If to the Borrower:

                               A.C. Moore Incorporated
                               500 University Court
                               Blackwood, New Jersey 08012
                               Attention:  John E. Parker, President
                               Telecopier No. (609) 273-1475

                               with a courtesy copy to:

                               Drake, Sommers, Loeb, Tarshis & Catania, P.C.
                               One Corwin Court
                               Post Office Box 1479
                               Newburgh, New York 12550
                               Attention:  Richard J. Drake, Esq.
                               Telecopier No. (914) 565-1999


                           (b) If to the Bank:

                               KeyBank National Association
                               711 Westchester Avenue, 4th Floor
                               White Plains, New York 10604
                               Attn:  Richard M. Kulbieda,
                                      District President
                               Telecopier No. (914) 681-8350

                               with a courtesy copy (other than in the case

                                      44

<PAGE>



                               of Borrowing Notices and reports and other
                               documents delivered in compliance with
                               Article hereof) to:

                               Hiscock & Barclay
                               One KeyCorp Plaza, Suite 1100
                               30 South Pearl Street
                               Albany, New York 12207-3411
                               Attention:  Edward J. Trombly, Esq.
                               Telecopier No.: (518) 434-2621

Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is telecopied to such party at the telecopier
number specified above or delivered by hand or such commercial messenger
service to such party at its address specified above, or, if sent by mail, on
the third Business Day after the day deposited in the mail, postage prepaid,
or in the case of telegraphic notice, when delivered to the telegraph company,
addressed as aforesaid. Any party may change the person, address or telecopier
number to whom or which notices are to be given hereunder, by notice duly
given hereunder; provided, however, that any such notice shall be deemed to
have been given hereunder only when actually received by the party to which it
is addressed. Failure to provide a courtesy copy shall not affect the validity
of any Notice.

                  Section 9.10      Counterparts.

                           This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.

                  Section 9.11      Severability.

                           The provisions of this Agreement are severable, and
if any clause or provision hereof shall be held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or unenforceability
shall affect only such clause or provision, or part thereof, in such
jurisdiction and shall not in any manner affect such clause or provision in
any other jurisdiction, or any other clause or provision in this Agreement in
any jurisdiction. Each of the covenants, agreements and conditions contained
in this Agreement is independent and compliance by the Borrower with any of
them shall not excuse non-compliance by the Borrower with any other. All
covenants hereunder shall be given independent effect so that if a particular
action or condition is not permitted by any of such covenants, the fact that
it would be permitted by an exception to, or be otherwise within the
limitations of, another covenant shall not avoid the occurrence of an Event of
Default if such action is taken or condition exists.



                                      45

<PAGE>



                  Section 9.12      Binding Effect; No Assignment
                                    or Delegation by Borrower.

                           This Agreement shall be binding upon and inure to
the benefit of the Borrower and its successors and to the benefit of the Bank
and successors and assigns. The rights and obligations of the Borrower under
this Agreement shall not be assigned or delegated without the prior written
consent of the Bank, and any purported assignment or delegation without such
consent shall be void.

                  Section 9.13      Assignments and Participations by Bank.

                           (a) The Bank may assign and/or the Borrower may
request the Bank to assign to one or more banks or other entities all or a
portion of the assigning Bank's rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the
Facilities owing to it, and the Notes); provided, however, that each such
assignment shall be of a constant, and not a varying, percentage of all of the
Bank's rights and obligations under this Agreement. Upon such execution,
delivery, acceptance and recording, from and after the effective date
specified in each assignment and acceptance, which effective date shall be at
least ten (10) Business Days after the execution thereof: (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such assignment and
acceptance, have the rights and obligations of the Bank hereunder, and (y) the
Bank shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such assignment and acceptance, relinquish its
rights and be released from its obligations under this Agreement (and, in the
case of an assignment and acceptance covering all or the remaining portion of
the Bank's rights and obligations under this Agreement, the Bank shall cease
to be a party hereto).

                           (b) By executing and delivering an assignment and
acceptance, the Bank and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such assignment and acceptance, the Bank makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) the Bank makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under this
Agreement or any other instrument or document furnished pursuant hereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of such financial

                                      46

<PAGE>



statements and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
assignment and acceptance; (iv) such assignee will, independently and without
reliance upon the Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee shall
enter into with the Bank (and any other party acting in the capacity of a
lender hereunder) an inter-creditor agreement in form and substance
satisfactory to the lending parties; and (vi) such assignee agrees that it
will perform in accordance with their terms all of the obligations which by
the terms of this Agreement are required to be performed by it as a Bank.

                           (c) The Bank may sell participations to one or more
banks or other entities in all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Commitment, the Facilities owing to it); provided, however, that: (i) the
Bank's obligations under this Agreement (including, without limitation, its
Commitment to the Borrower hereunder) shall remain unchanged, (ii) the Bank
shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the Bank shall remain the holder of the
Notes for all purposes of this Agreement, and the Borrower and the Bank shall
continue to deal solely and directly with such Bank in connection with the
Bank's rights and obligations under this Agreement, (iv) the Bank shall
continue to be able to agree to any action or forbearance to take action under
this Agreement or any other Loan Document, or to the exercise of any of its
rights under or in respect of any of the foregoing documents, or to any
modification or amendment of this Agreement or of any other Loan Document or
any waiver hereunder or thereunder, in each case without the consent, approval
or vote of any such participant or group of participants, other than actions,
forebearances, modifications, amendments and waivers that (1) postpone any
date fixed for any payment of, or reduce any payment of, principal of or
interest on any of the Notes, or (2) increase the amount of the Commitment, or
(3) change the interest rate payable under the Note, (v) the Borrower shall
have no obligation to pay the expenses associated with the participation of
any portion of the Facilities, and (vi) except as contemplated by the
preceding clause (iv), no participant shall be deemed to be or to have any of
the rights or obligations of a Bank hereunder or under any Loan Document.

                           (d) The Bank may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to the Bank by
or on behalf of the Borrower; provided that, prior to any such disclosure, the
assignee or participant or proposed assignee or participant shall agree to

                                      47

<PAGE>



preserve the confidentiality of any confidential information
relating to the Borrower received by it from the Bank.

                  Section 9.14      GOVERNING LAW;
                                    CONSENT TO JURISDICTION;
                                    WAIVER OF TRIAL BY JURY.

                           (a) EXCEPT AS OTHERWISE PROVIDED HEREIN OR THEREIN,
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL OTHER DOCUMENTS AND
INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH AND THEREWITH, SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.

                           (b) EXCEPT AS OTHERWISE PROVIDED HEREIN OR IN THE
APPLICABLE LOAN DOCUMENT, THE BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL
ACTION OR PROCEEDING BROUGHT BY THE BORROWER AGAINST THE BANK, UNDER, ARISING
OUT OF OR IN ANY MANNER RELATING TO THIS AGREEMENT, AND EACH OTHER LOAN
DOCUMENT WILL BE BROUGHT IN ANY COURT OF THE STATE OF NEW YORK OR IN THE
UNITED STATES DISTRICT COURT FOR A DISTRICT COURT WITHIN THE STATE OF NEW
YORK.

                           (c) THE BANK AND THE BORROWER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE HAD TO TRIAL BY
JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF (i) THIS AGREEMENT, (ii) ANY OF THE OTHER LOAN DOCUMENTS, OR
ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, (iii) THE
VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, (iv)
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR (v) ACTIONS OF THE BANK OR THE BORROWER. THE BORROWER ACKNOWLEDGES
AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS
PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK
ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.


                                      48

<PAGE>




         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the date first above written.

                                        A.C. MOORE INCORPORATED


                                        By /s/ John E. Parker
                                           -------------------------------------
                                           John E. Parker
                                           President








                                      49

<PAGE>




                                        KEYBANK NATIONAL ASSOCIATION


                                        By: /s/ Richard M. Kulbieda
                                            ------------------------------------
                                            Richard M. Kulbieda
                                            District President




                                      50