<PAGE> 1                                                             Exhibit 4.1

                           REVOLVING CREDIT AGREEMENT
                            Dated as of July 21, 1997


         REVOLVING  CREDIT  AGREEMENT,  dated as of July 21, 1997, among PAYLESS
CASHWAYS,   INC.,  an  Iowa   corporation   (the   "Borrower"),   a  debtor  and
debtor-in-possession in the Case (as hereinafter defined), each of the financial
institutions  from time to time party  hereto as lenders  (the  "Lenders"),  the
Underwriters  (as  hereinafter  defined) and CANADIAN  IMPERIAL BANK OF COMMERCE
(acting through one or more of its agencies,  branches, or affiliates,  "CIBC"),
as the issuer of standby letters of credit, FIRST BANK NATIONAL ASSOCIATION,  in
its  capacity  as the  issuer of  documentary  letters  of credit  (and not as a
lender) and CIBC, as coordinating  and collateral  agent (in such capacity,  the
"Agent") for the Lenders,  the Fronting Banks (as  hereinafter  defined) and the
Underwriters.

                             INTRODUCTORY STATEMENT

         On July 21, 1997,  the  Borrower  filed a voluntary  petition  with the
Bankruptcy  Court initiating the Case and has continued in the possession of its
assets and in the management of its business  pursuant to Sections 1107 and 1108
of the Bankruptcy Code.
         The Borrower has applied to the Lenders for revolving credit and letter
of credit facilities in an aggregate principal amount not to exceed $125,000,000
(subject to the  limitation  set forth in Section  2.1(a) and to  mandatory  and
optional reductions in accordance with Sections 2.9 and 2.12).
         The proceeds of the Loans will be used to provide  working  capital for
the  Borrower,  and  for  other  general  corporate  purposes  of the  Borrower,
including for capital expenditures.
         To provide security for the repayment of the Loans,  the  reimbursement
of any  draft  drawn  under a Letter  of  Credit  and the  payment  of the other
obligations of the Borrower  hereunder and under the other Loan  Documents,  the
Borrower  will  provide to the Agent,  the Lenders,  the  Fronting  Bank and the
Underwriters the following (each as more fully described herein):
                  (a) an  allowed  administrative  expense  claim  in  the  Case
                  pursuant to Section  364(c)(1) of the  Bankruptcy  Code having
                  priority  over  all   administrative   expenses  of  the  kind
                  specified  in  Sections  503(b) and  507(b) of the  Bankruptcy
                  Code; 

                  (b) a perfected first priority Lien, pursuant to Section
                  364(c)(2)  of the  Bankruptcy  Code,  upon  substantially  all
                  unencumbered  properties  and  interests  in  property  of the
                  Borrower  (including,   with  limitation,  all  After-Acquired
                  Property) and all cash and cash  equivalents  in the Letter of
                  Credit Account but excluding Consignor Property;
                             
                  (c) a perfected  Lien,  pursuant to Section  364(c)(3)  of the
                  Bankruptcy Code, upon all property of the Borrower (other than
                  the  property  referred  to in  paragraph  (d) 

<PAGE> 2


                  below  that is  subject to the  valid and perfected Liens that
                  presently secure the  Borrower's   pre-petition   Debt   under
                  the Existing Agreements)that is subject to valid and perfected
                  Liens in  existence on the Filing Date,  junior to  such valid
                  and  perfected  Liens and  the Consignor  Property;  and
 
                  (d)   a perfected  first  priority priming  Lien,  pursuant to
                  Section 364(d)(1)of the Bankruptcy Code, upon  all property of
                  the Borrower (including, without limitation,  accounts receiv-
                  able, inventory, equipment, general intangibles,  intellectual
                  property and vehicles of the Borrower)  that is subject to the
                  existing   Liens  that   presently   secure   the   Borrower's
                  pre-petition Debt under the Existing  Agreements and any Liens
                  granted after the Filing Date to provide  adequate  protection
                  in respect of the Existing Agreements,  which Lien in favor of
                  the  Agent,   the  Lenders,   the   Fronting   Banks  and  the
                  Underwriters  shall be senior in all  respects  to all of such
                  existing  Liens and to any Liens granted after the Filing Date
                  to provide adequate protection in respect thereof.

         All of the claims and the Liens  granted  hereunder  in the Case to the
Agent, the Lenders,  the Fronting Banks and the Underwriters shall be subject to
the Carve-Out to the extent  provided in Section 2.22 and to the prior rights of
(x) the Credit Card Banks under the GE Credit Program  Documents with respect to
certain accounts  receivable,  returned  merchandise and general intangibles and
(y)  Commerce  under  the  Commerce  Bank  Agreement  with  respect  to  certain
documents, inventory and related collateral.

         Accordingly, the parties hereto hereby agree as follows:

SECTION 1.   DEFINITIONS.
         SECTION 1.1.  Defined Terms.

         As used in this Agreement,  the following terms shall have the meanings
specified  below:  
         "ABR Loan" shall mean any Loan bearing interest at a rate determined by
reference  to  the  Alternate Base Rate  in  accordance with  the  provisions of
Section 2.
         "Additional Credit" shall have the meaning set forth in Section 4.2(d).

         "Adjusted  LIBOR  Rate"  shall  mean,  with  respect to any  Eurodollar
Borrowing for any Interest Period,  an interest rate per annum (rounded upwards,
if  necessary,  to the next 1/100 of 1%) equal to the  quotient of (a) the LIBOR
Rate in effect for such Interest  Period divided by (b) a percentage  (expressed
as a decimal) equal to 100% minus Statutory  Reserves.  For purposes hereof, the
term "LIBOR Rate" shall mean the rate (rounded  upwards,  if  necessary,  to the
next 1/100 of 1%) at which  dollar  deposits  approximately  equal in  principal
amount  to such  Eurodollar  Borrowing  and for a  maturity  comparable  to such
Interest  Period are  offered  to the  principal  London  office of the 

<PAGE> 3


Agent  in  immediately  available  funds  in  the  London  interbank  market  at
approximately    11:00 a.m.,  London   time,  two   Business Days prior  to  the
commencement  of such Interest Period.

         "Affiliate"  shall mean,  as to any  Person,  any other  Person  which,
directly or  indirectly,  is in control of, is controlled by, or is under common
control  with  such  Person.  For  purposes  of this  definition,  a  Person  (a
"Controlled  Person")  shall be deemed to be  "controlled  by" another Person (a
"Controlling   Person")  if  the  Controlling  Person  possesses,   directly  or
indirectly,  power to  direct  or cause  the  direction  of the  management  and
policies of the Controlled Person whether by contract or otherwise.

         "After-Acquired   Property"  shall  have  the  meaning   set  forth  in
Section 5.11.

         "Agent" shall have the meaning set forth in the Introduction.

         "Agreement" shall mean this Revolving Credit Agreement, as the same may
be amended, amended and restated, modified or supplemented from time to time.

         "Alternate  Base Rate" shall mean,  for any day, a rate per annum equal
to the higher of (a) the rate of interest most recently announced by CIBC at its
Domestic  Lending  Office as its base rate;  and (b) the  Federal  Funds Rate in
effect  on such day plus 1/2 of 1%.  If for any  reason  the  Agent  shall  have
determined (which  determination shall be conclusive absent manifest error) that
it is unable to ascertain the Federal  Funds Rate for any reason,  including the
inability or failure of the Agent to obtain sufficient  quotations in accordance
with the terms  hereof,  the  Alternate  Base Rate shall be  determined  without
regard  to  clause  (b) of the  first  sentence  of this  definition,  until the
circumstances  giving rise to such inability no longer exist.  Any change in the
Alternate  Base Rate due to a change in CIBC's  base rate or the  Federal  Funds
Rate shall be effective on the effective date of such change in CIBC's base rate
or the Federal Funds Rate, respectively.

         "Annual Budget" shall have the meaning set forth in Section 5.1(f).

         "Assignment  and  Acceptance"  shall mean an assignment  and acceptance
entered  into by a Lender and an Eligible  Assignee,  and accepted by the Agent,
substantially in the form of Exhibit E.

         "Bankruptcy  Code"  shall mean The  Bankruptcy  Reform Act of 1978,  as
heretofore and hereafter amended, and codified as 11 U.S.C. Section 101 et seq.

         "Bankruptcy  Court" shall mean the United States  Bankruptcy  Court for
the Western District of Missouri or any other court having jurisdiction over the
Case from time to time.

         "Beneficial Ownership" by a Person when used with respect to any Voting
Shares shall mean  beneficial  ownership by such Person of such Voting Shares as
defined in Rule 13d-3 of the Exchange Act.


<PAGE> 4


         "Board" shall mean the Board of Governors of the Federal Reserve System
 of the United States.

         "Borrower" shall have the meaning set forth in the Introduction.

         "Borrowing"  shall mean the  incurrence of Loans of a single  Type made
from all the  Lenders  on a single date and having, in  the case  of Eurodollar 
Loans, a single Interest Period (with any ABR Loan made pursuant to Section 2.15
being  considered  a part of the related Borrowing of Eurodollar Loans).

         "Business  Day"  shall mean any day other  than a  Saturday,  Sunday or
other day on which  banks in New York City are  required or  permitted  to close
(and,  for a Letter of Credit,  other than a day on which the relevant  Fronting
Bank issuing such Letter of Credit is closed); provided, however, that when used
in connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which  banks  are not open for  dealings  in dollar  deposits  in the
London interbank market.

         "Business  Plan" shall mean the revised  financial  projections  of the
Borrower  dated on or about June 27, 1997 and as amended  from time to time in a
manner not inconsistent with the terms and provisions of this Agreement.

         "Capitalized  Lease" shall mean, as applied to any Person, any lease of
property by such Person as lessee which would be  capitalized on a balance sheet
of such Person prepared in accordance with GAAP.

         "Carve-Out" shall have the meaning set forth in Section 2.22.

         "Case" shall mean the Chapter 11 Case of the  Borrower pending  in  the
Bankruptcy Court.

         "Cash   Collateral  Order"   shall  have   the  meaning  set  forth  in
Section 4.1(d).

         "Change  of  Control"  shall  mean  the  occurrence  of  either  of the
following  events:  (x) any Person or any Persons  acting  together  which would
constitute  a Group,  together  with any  Affiliates  thereof,  shall  after the
Closing Date acquire or hold Voting Shares of the Borrower such that such Person
or Group,  together with such  Affiliates,  have Beneficial  Ownership of Voting
Shares of the  Borrower  entitling  such  Person or  Group,  together  with such
Affiliates, to exercise at least 40% of the total voting power of all classes of
Voting  Shares of the  Borrower;  or (y) any  Person  or any  Group of  Persons,
together  with any  Affiliates  thereof,  shall  succeed in having a  sufficient
number  of its or  their  nominees  elected  to the  Board of  Directors  of the
Borrower  such that such  nominees  so elected  (whether  new or  continuing  as
directors)  shall  constitute  a  majority  of the  Board  of  Directors  of the
Borrower.

         "CIBC" shall have the meaning set forth in the Introduction.


<PAGE> 5


         "CIBC Wood Gundy" shall mean CIBC Wood Gundy Securities Corp.

         "Closing  Date"  shall mean the date on which this  Agreement  has been
executed and the conditions  precedent to the making of the initial Loans or the
issuance  of the  initial  Letter of Credit set forth in  Section  4.1 have been
satisfied or waived, which date shall occur promptly, but no later than 10 days,
after the entry of the Interim Order.

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

         "Collateral" shall mean  the  Collateral under  the Security and Pledge
Agreement.

         "Commerce" shall mean Commerce Bank, N.A.

         "Commerce  Bank  Agreement"  shall mean that  certain  Letter of Credit
Issuance and Reimbursement Agreement,  dated as of November 18, 1994, as amended
by that  certain  First  Amendment,  effective  as of October  3, 1996,  between
Commerce and the Borrower.

         "Commitment"  shall mean,  with respect to each Lender,  its  Revolving
Credit  Commitment  and its  Standby  L/C  Commitment  in the  amount  set forth
opposite its name on Annex A hereto or as may  subsequently  be set forth in the
Register  from  time to  time,  as the  same may be  reduced  from  time to time
pursuant to Sections 2.9 and 2.12.

         "Commitment Fee" shall have the meaning set forth in Section 2.19.

         "Commitment  Letter" shall mean that certain Commitment  Letter,  dated
July 17, 1997, among the Agent, the Underwriters and the Borrower.

         "Commitment  Percentage"  shall mean at any time,  with respect to each
Lender,  the percentage  obtained by dividing its Commitment at such time by the
Total Commitment at such time.

         "Consignor   Property"  shall  mean  goods  held  by  the  Borrower  on
consignment to which it does not have title and the proceeds therefrom.

         "Consummation Date" shall mean the date which is the earlier of (x) the
date on which the  substantial  consummation  (as defined in Section 1101 of the
Bankruptcy Code) of a Reorganization Plan occurs and (y) the effective date of a
Reorganization  Plan which is confirmed  pursuant to an order of the  Bankruptcy
Court.

         "Credit  Card Banks" shall mean  General  Electric  Credit  Corporation
and Monogram  Credit Card Bank of Georgia.



<PAGE> 6


         "Debt" of any Person means, at any date, without  duplication,  (i) all
obligations  of such Person for borrowed  money,  (ii) all  obligations  of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services,  except  trade  accounts  payable  arising in the  ordinary  course of
business,  (iv) all  obligations  of such  Person  as lessee  under  Capitalized
Leases,  (v) all Debt of others secured by (or for which the holder of such Debt
has an existing right,  contingent or otherwise, to be secured by) a Lien on any
asset  of such  Person,  including  (without  limitation)  the  Synthetic  Lease
Obligations,  whether or not such Debt is assumed by such Person,  (vi) all Debt
of others Guaranteed by such Person, directly or indirectly, or by an instrument
having the effect of  assuring  another's  payment or  performance  of any Debt,
(vii) indebtedness and other obligations arising under acceptance facilities and
the face amount of all  letters of credit  issued for the account of such Person
and,  without  duplication,  all drafts  drawn  thereunder  or payment  requests
honored with respect  thereto,  (viii) all obligations of such Person in respect
of interest rate protection agreements,  foreign currency exchange agreements or
other  interest or exchange  rate  hedging  arrangements  (other than fully paid
interest  rate cap  arrangements),  (ix) all  obligations  of such Person  under
conditional  sale or other title  retention  agreements  relating to property or
assets  purchased  by such Person,  and (x) any  withdrawal  or other  liability
incurred  under ERISA by such Person  (or, if such Person is the  Borrower,  the
Borrower and its ERISA Affiliates) to a Multiemployer Plan.

         "Designated Collateral" shall mean (i) inventory at the 29 stores to be
closed  pursuant to the Business  Plan,  (ii) the real estate  interests at 9 of
such stores to be closed (and the 7 properties  currently held for sale) and any
relaxed fixtures and equipment,  which as of the Filing Date secure the Existing
Secured  Obligations,  (iii) the tax  refund  projected  to be  received  by the
Borrower  during the Case and (iv) the proceeds of the promissory  notes (in the
aggregate principal amount of approximately $1,050,000) presently pledged to the
Existing  Secured  Lenders in connection with the prior store  dispositions  and
which mature on December 1, 1997.

         "Disclosure  Statement" shall mean the Borrower's  disclosure statement
prepared in connection with the Proposed Plan.

         "Documentary  Letter of  Credit"  shall  mean a  documentary  letter of
credit in form and substance  customarily  issued by the relevant  Fronting Bank
from time to time and in form and substance acceptable to the Agent.

         "Documentary  Letter of Credit  Fronting  Bank" shall mean the Fronting
Bank which has committed to issue Documentary Letters of Credit hereunder.

         "Documentary  Letter of Credit  Outstandings"  shall mean, at any time,
the sum of (i) the aggregate undrawn stated amount of all Documentary Letters of
Credit  then  outstanding  plus  (ii)  all  amounts   theretofore   drawn  under
Documentary Letters of Credit and not then reimbursed.

         "Documentary   Reserve"   shall   have  the   meaning   set   forth  in
Section 2.2(a).


<PAGE> 7


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

         "Domestic Lending Office" shall mean initially,  as to each Lender, its
office  designated  as such  on the  signature  pages  to  this  Agreement,  and
thereafter, upon notice to the Borrower and the Agent, such other office of such
Lender, if any, which shall be making or maintaining ABR Loans.

         "Dual Path Capital  Expenditures" shall mean capital  expenditures made
or  accrued in  connection  with the  Business  Plan and  identified  as such in
Section 6.4.

         "EBITDA" shall mean, for any period,  the  consolidated  net income (or
net loss) of the  Borrower  for such  period  before  deduction  of  "Chapter 11
expenses" (or "administrative  costs reflecting Chapter 11 expenses") (excluding
extraordinary,   unusual  or   non-recurring   gains  and  losses  or   (without
duplication) special charges),  plus without duplication in accordance with GAAP
the sum of (i)  interest  and tax expense of the Borrower for such period to the
extent  deducted  in  determining   such   consolidated  net  income  plus  (ii)
depreciation  and  amortization  expense of the  Borrower for such period to the
extent  deducted in  determining  such  consolidated  net income as shown on the
Borrower's consolidated statement of income for such period.

         "Eligible  Assignee"  shall mean (i) a  commercial  bank  having  total
assets in excess of $1,500,000,000 and (ii) a finance company, insurance company
or other  financial  institution or fund, in each case  acceptable to the Agent,
which in the ordinary course of business extends credit of the type evidenced by
the Notes and has total assets in excess of  $250,000,000  and whose becoming an
assignee  would not  constitute a prohibited  transaction  under Section 4975 of
ERISA.

        "Environmental Law" shall have the meaning set forth in Section 6.14(e).

         "Environmental  Lien"  shall  mean a Lien in favor of any  Governmental
Authority for (i) any liability  under  federal or state  environmental  laws or
regulations, or (ii) damages arising from or costs incurred by such Governmental
Authority in response to a release or threatened release of a hazardous or toxic
waste, substance or constituent, or other substance into the environment.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings issued
thereunder.

         "ERISA  Affiliate"  shall mean any trade or  business  (whether  or not
incorporated) which is a member of a group of which the Borrower is a member and
which is under common control within the meaning of Section 414(b) or (c) of the
Code and the regulations promulgated and rulings issued thereunder.

         "Eurocurrency  Liabilities"  shall have the meaning assigned thereto in
Regulation D issued by the Board, as in effect from time to time.

         "Eurodollar Borrowing" shall mean a  Borrowing comprised  of Eurodollar
Loans.


<PAGE> 8


         "Eurodollar  Loan"  shall  mean any  Loan  bearing  interest  at a rate
determined  by  reference  to the  Adjusted  LIBOR Rate in  accordance  with the
provisions of Section 2.

         "Event of Default" shall have the meaning set forth in Section 7.

         "Existing Agreements" shall mean the Existing Credit Agreement and each
of the agreements  listed on Schedule 1.1 hereto,  the notes delivered  pursuant
thereto,  and all of the  agreements  granting  security  interests and liens in
property and assets of the Borrower to the Existing  Lenders,  including without
limitation,  the security  agreements,  mortgages,  deeds of trust and leasehold
mortgages  listed on Schedule 1.1 hereto,  each of which  documents was executed
and delivered (to the extent party  thereto) by the Borrower prior to the Filing
Date,  as each  may  have  been  amended,  amended  and  restated,  modified  or
supplemented from time to time.

         "Existing  Credit  Agreement"  shall  mean  that  certain  Amended  and
Restated Credit Agreement,  dated as of October 3, 1996, among the Borrower, the
Existing  Lenders and the Agent, as amended,  amended and restated,  modified or
supplemented from time to time.

         "Existing  Credit Agreement Agent" shall mean CIBC in its capacities as
Administrative Agent and Collateral Agent under the Existing Credit Agreement.

         "Existing  Lenders" shall mean,  collectively,  those certain financial
institutions  which have  provided  loans and other  extensions of credit to the
Borrower under the Existing Agreements,  together with any successors or assigns
thereof.

         "Existing Secured Obligations" shall mean the Secured  Obligations,  as
such term is defined in the Existing Credit Agreement.

         "Existing Secured Parties" shall mean the Secured Parties, as such term
is defined in the Existing Credit Agreement.

         "Exit Facility"  shall  mean  the Exit Facility referred to in  Section
9.3(b).

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

         "Fees" shall mean, collectively,  the Commitment Fees and the Letter of
Credit Fees, together with the other fees referred to in Section 2.18.


<PAGE> 9


         "Filing Date" shall mean July 21, 1997.

         "Final Order" shall have the meaning set forth in Section 4.2(d).

         "Financial  Officer" shall  mean  the  Chief  Financial  Officer,  Vice
President  Finance or the Treasurer of the Borrower.

         "Fronting  Banks"  shall mean (i) with  respect  to Standby  Letters of
Credit, CIBC and (ii) with respect to Documentary Letters of Credit,  First Bank
National  Association  ("First  Bank");  or, in each se,  such  other  Lender or
Lenders  or  financial  institutions  or  institutions  (which  other  financial
institution  or  institutions  shall have been chosen by the  Borrower  with the
approval of the Required  Lenders) as may agree with the then existing  Fronting
Bank to act in such capacity.

         "GAAP" shall mean generally accepted accounting principles applied on a
basis consistent with those used in preparing the financial  statements referred
to in Section 3.4.

         "GE Credit Program  Documents"  shall mean (a) the Amended and Restated
Monogram  Credit Card Bank of Georgia  Program  Agreement,  dated as of July 20,
1997,  between the Borrower and  Monogram  Credit Card Bank of Georgia,  as such
agreement  may  hereafter  be  amended,   amended  and  restated,   modified  or
supplemented  from  time to  time to the  extent  permitted  by this  Agreement,
together with any  agreements  entered into by the Borrower and Monogram  Credit
Card Bank of Georgia, or any affiliate,  in replacement of such agreement to the
extent  permitted  by this  Agreement;  and (b) the Second  Amended and Restated
Commercial  Credit Account Purchase and Service Program  Agreement,  dated as of
July 20, 1997, between the Borrower and General Electric Capital Corporation, as
such agreement may hereafter be further amended, amended and restated,  modified
or  supplemented  from time to time to the extent  permitted by this  Agreement,
together  with any agreement  entered into by the Borrower and General  Electric
Capital Corporation,  or any affiliate,  in replacement of such agreement to the
extent permitted by this Agreement.

         "Governmental  Authority" shall mean any Federal,  state,  municipal or
other   governmental   department,   commission,   board,   bureau,   agency  or
instrumentality  or any court,  in each case  whether  of the  United  States or
foreign.

         "Group" shall  mean  a  "group"  for   purposes of Section 13(d) of the
Exchange Act.

         "Guarantee"  by  any  Person  means  any   obligation,   contingent  or
otherwise,  of such Person Directly or indirectly guaranteeing any Debt or other
obligation  of any other  Person and,  without  limiting the  generality  of the
foregoing,  any obligation,  purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation (whether arising by virtue
of  partnership  arrangements,  by agreement to keep-well,  to purchase  assets,
goods,  securities  or  services,  to  take-or-pay,  or  to  maintain  financial
statement  conditions  or  otherwise)  or (ii)  entered  into for the purpose of
assuring in any other manner the obligee of such Debt or other obligation of


<PAGE> 10

the payment thereof or  to protect such obligee against loss in  respect thereof
(in whole  or in  part); provided, that the  term Guarantee  shall  not  include
endorsements  for collection or deposit in the ordinary course of business.  The
term "Guarantee" used as a verb has a corresponding meaning.

         "Hazardous Substances"  shall  have  the  meaning set forth  in Section
6.14(e).

         "Hedging Agreement" means that certain ISDA Master Agreement,  dated as
of May 22, 1995,  between CIBC and the  Borrower,  together  with all  Schedules
executed in connection therewith, as amended, amended and restated,  modified or
supplemented from time to time.

         "Insufficiency"  shall mean,  with respect to any Plan, the amount,  if
any,  of  its  unfunded  benefit  liabilities  within  the  meaning  of  Section
4001(a)(18) of ERISA.

         "Interim Order" shall have the meaning set forth in Section 4.1(c).

         "Interest  Payment Date" shall mean (i) as to any Eurodollar  Loan, the
last  day of such  Interest  Period,  and  (ii) as to all ABR  Loans,  the  last
calendar  day of each  month and the date on which any ABR Loans are  refinanced
with Eurodollar Loans pursuant to Section 2.11.

         "Interest  Period" shall mean, as to any Borrowing of Eurodollar Loans,
the period commencing on the date of such Borrowing  (including as a result of a
refinancing  of ABR Loans) or on the last day of the preceding  Interest  Period
applicable to such Borrowing and ending on the numerically corresponding day (or
if there is no corresponding day, the last day) in the calendar month that is 1,
2 or 3 months  thereafter,  as the  Borrower  may  elect in the  related  notice
delivered pursuant to Sections 2.5(b) or 2.11;  provided,  however,  that (i) if
any Interest  Period would end on a day which shall not be a Business  Day, such
Interest  Period  shall be extended to the next  succeeding  Business Day unless
such next  succeeding  Business Day would fall in the next  calendar  month,  in
which case such Interest Period shall end on the next preceding Business Day and
(ii) no Interest Period shall end later than the Termination Date.

         "Investments"  shall have the meaning set forth in Section 6.9.

         "Lenders" shall have the meaning set forth in the Introduction.

         "Letter of Credit" shall mean any  irrevocable  letter of credit issued
pursuant to Section 2.2, which letter of credit shall be (i) a Standby Letter of
Credit or a  Documentary  Letter of Credit,  (ii) issued for such  purposes  for
which the  Borrower has  historically  obtained  letters of credit,  or for such
other  purposes  as are  reasonably  acceptable  to the Agent  and the  relevant
Fronting Bank,  (iii)  denominated in Dollars and (iv) otherwise in such form as
may be  reasonably  approved  from time to time by the  Agent  and the  relevant
Fronting Bank.

         "Letter  of Credit  Accounts"  shall  mean (i) with  respect to Standby
Letters of Credit,  the account  established  by the Borrower under the sole and
exclusive  control  of the Agent  maintained


<PAGE> 11


at the office of the Agent at 425  Lexington  Avenue,  New York,  New York 10017
designated as the "Payless Cashways,  Inc. Standby Letter of Credit Account" and
(ii) with respect to Documentary  Letters of Credit, the account  established by
the  Borrower  under  the sole and  exclusive  control  of First  Bank  National
Association,  maintained at the office of First Bank National Association at 601
2nd  Avenue  South,  Minneapolis,   Minnesota  55402,  designated  the  "Payless
Cashways,  Inc.  Documentary  Letter of Credit  Account," each of which shall be
used solely for the purposes set forth in Sections 2.2(c) and 2.12.

         "Letter  of Credit  Fees"  shall  mean the fees  payable  in respect of
Letters of Credit pursuant to Section 2.20.

         "Letter of Credit  Outstandings" shall mean, at any time, the aggregate
amount of all Documentary Letters of Credit Outstandings and all Standby Letters
of Credit Outstandings.

         "Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind whatsoever  (including any conditional  sale or other
title retention agreement or any lease in the nature thereof).

         "Loan" shall have the meaning set forth in Section 2.1.

         "Loan Documents"  shall mean this Agreement,  the Notes, the Letters of
Credit, the Security and Pledge Agreement, and any other instrument or agreement
executed and delivered in connection  herewith,  including (without  limitation)
documentation  between  the  respective  Fronting  Banks and the  Borrower  with
respect to Letters of Credit.

         "Lumberjack" shall mean Lumberjack Stores, Inc.

         "Maturity Date" shall mean July 21, 1998.

         "Minority Lenders" shall have the meaning set forth in Section 9.10(b).

         "Moody's" shall mean Moody's Investors Service, Inc. or if such company
shall cease to issue ratings,  another nationally recognized  statistical rating
company  selected  in good  faith  by  mutual  agreement  of the  Agent  and the
Borrower.

         "Multiemployer  Plan" shall mean a  "multiemployer  plan" as defined in
Section  4001(a)(3)  of ERISA to which the  Borrower or any ERISA  Affiliate  is
making or accruing an obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make contributions.

         "Multiple  Employer Plan" shall mean a Single Employer Plan,  which (i)
is maintained  for employees of the Borrower or an ERISA  Affiliate and at least
one  Person  other than the  Borrower  and its ERISA  Affiliates  or (ii) was so
maintained and in respect of which the Borrower or an ERISA


<PAGE> 12

Affiliate could have liability under Section 4064 or 4069 of ERISA in  the event
such Plan has been or were to be terminated.

         "Net Cash  Proceeds"  shall  mean,  with  respect  to any sale,  lease,
transfer or other disposition of property or other assets: (a) the cash proceeds
received by the Borrower or its Subsidiary (including,  without limitation,  all
cash proceeds received by way of (i) deferred payment of principal pursuant to a
note or installment  receivable or otherwise,  but only as and when received and
(ii)  receivables and other assets retained by the Borrower as part of the sales
consideration),  minus (b) reasonable and customary  brokerage  commissions  and
other  reasonable  and customary  fees and expenses  (including  reasonable  and
customary fees and expenses of counsel and investment bankers and reasonable and
customary inventory liquidation costs) related to such financing, sale, lease or
other  disposition  or issuance,  minus (c) payments  made to retire Debt (other
than Debt  outstanding  under the  Existing  Credit  Agreement)  secured by such
assets  being  sold or  otherwise  disposed  of where  payment  of such  Debt is
required in connection with such sale or disposition.

         "Notes" shall mean the promissory notes of the Borrower,  substantially
in the form of hereto, each payable to the order of a Lender, evidencing Loans.

         "Obligations"  shall mean (a) the due and punctual payment of principal
of and interest on the Loans and the Notes and the  reimbursement of all amounts
drawn under Letters of Credit,  and (b) the due and punctual payment of the Fees
and all other present and future,  fixed or contingent,  monetary obligations of
the Borrower to the Lenders,  the Fronting Banks, the Underwriters and the Agent
under the Loan Documents.

         "Orders"  shall  mean the  Interim  Order  and the  Final  Order of the
Bankruptcy Court referred to in Sections 4.1(c) and 4.2(d).

         "Other Taxes" shall have the meaning set forth in Section 2.17.

         "PBGC"  shall mean the Pension  Benefit  Guaranty  Corporation,  or any
successor agency or entity performing substantially the same functions.

         "Pad  Site"  shall  have the  meaning  set forth in the  definition  of
"Permitted  Pad Sale."  

         "Pension  Plan" shall mean a defined benefit pension or retirement plan
which meets and is subject to the requirements of Section 401(a) of the Code.

         "Permitted  Liens"  shall mean (i) Liens  imposed  by law  (other  than
Environmental Liens and any Lien imposed under ERISA) for taxes,  assessments or
charges of any Governmental  Authority for claims not yet due or which are being
contested  in good faith by  appropriate  proceedings  and with respect to which
adequate  reserves  or other  appropriate  provisions  are being  maintained  in
accordance  with GAAP;  (ii) statutory Liens of landlords and Liens of carriers,
warehousemen,  mechanics,  materialmen and other Liens (other than Environmental
Liens and any Lien imposed  


<PAGE>  13

under  ERISA)  imposed by law created in the  ordinary  course of  business  for
amounts not yet due or which are being  contested  in good faith by  appropriate
proceedings  and with respect to which  adequate  reserves or other  appropriate
provisions are being maintained in accordance with GAAP; (iii) Liens (other than
any Lien imposed under ERISA)  incurred or deposits made in the ordinary  course
of business  (including,  without limitation,  surety bonds and appeal bonds) in
connection with workers' compensation, unemployment insurance and other types of
social security benefits or to secure the performance of tenders,  bids, leases,
contracts  (other than for the  repayment of Debt),  statutory  obligations  and
other  similar  obligations  or arising as a result of progress  payments  under
government contracts; (iv) easements (including, without limitation,  reciprocal
easement agreements and utility agreements), rights-of-way, covenants, consents,
reservations,  encroachments,  variations  and  zoning  and other  restrictions,
charges  or  encumbrances  (whether  or not  recorded),  which do not  interfere
materially  with the ordinary  conduct of the business of the Borrower and which
do not materially detract from the value of the property to which they attach or
materially impair the use thereof to the Borrower; (v) purchase money Liens upon
or in any property acquired or held in the ordinary course of business to secure
the  purchase  price of such  property  or to secure Debt  permitted  by Section
6.3(iii)  solely for the purpose of financing the  acquisition  of such property
and Capitalized  Leases  permitted by Section 6.3(iv) and true leases on account
of which financing statements have been filed; and (vi) extensions,  renewals or
replacements  of any Lien  referred  to in  paragraphs  (i)  through  (v) above;
provided,  that the principal  amount of the obligation  secured  thereby is not
increased and that any such extension,  renewal or replacement is limited to the
property originally encumbered thereby.

         "Permitted  Pad Sale"  shall  mean any sale of that  portion  (any such
portion,  a "Pad Site") of any real property  acquired by the Borrower in excess
of the portion thereof needed for the operation of the facility located on or to
be constructed on such real property,  as reasonably determined by the Borrower;
provided,  that (i) the  acquisition of such real property was not prohibited by
any provision of this Agreement,  (ii) the aggregate acreage of all Pad Sites on
any such real  property  does not exceed  50% of the total  acreage of such real
property  and  (iii)  such  sale  is  completed  within  twelve  months  of  the
acquisition of such real property.

         "Person"  shall mean any  natural  person,  corporation,  division of a
corporation,   limited  liability   company,   limited  liability   partnership,
partnership, trust, joint venture, association,  company, estate, unincorporated
organization or government or any agency or political subdivision thereof.

         "Plan" shall mean a Single Employer Plan or a Multiemployer Plan.

         "Prepayment  Date"  shall mean  thirty (30) days after the entry of the
Interim Order by the Bankruptcy Court if the Final Order has not been entered by
the Bankruptcy Court prior to the expiration of such thirty (30) day period.


<PAGE> 14


         "Pre-Petition  Payment"  shall  mean a  payment  (by  way  of  adequate
protection or otherwise) of principal or interest or otherwise on account of any
pre-petition Debt or payables, except (i) pre-petition Debt permitted to be paid
in connection  with  dispositions  of assets  permitted under Section 6.10, (ii)
payment  of  employee  and  independent   contractor   compensation,   vacation,
severance,  health and other benefits, retiree health and Pension Plan benefits,
withholding,  sales and use  taxes,  customer  deposits  and gift  certificates,
amounts required to cure defaults under assumed executory  contracts and leases,
operating expenses,  the failure to pay which after the Filing Date would have a
material  adverse  effect  on the  Borrower's  business,  operations,  condition
(financial or  otherwise),  assets or  prospects,  (iii) other amounts which are
necessary  to be  paid  in the  reasonable  judgment  of the  Borrower  and  are
satisfactory to the Required Lenders in their judgment reasonably  exercised and
(iv) other priority  claims;  provided,  that all such amounts  described in the
foregoing  clauses (ii),  (iii) and (iv) are paid in the ordinary  course of the
Borrower's  business with the prior approval of the Bankruptcy  Court and do not
exceed in the aggregate the amount for such  pre-petition  payments set forth in
the Business Plan and (v) to the extent permitted by the Bankruptcy Court, other
pre-petition Debt or payables in an aggregate amount not to exceed $1,000,000.

         "Property" shall have the meaning set forth in Section 6.14(a).

         "Proposed Plan" shall have the meaning set forth in Section 4.1(f).

         "Register" shall have the meaning set forth in Section 9.3(d).

         "Remedial Work" shall have the meaning set forth in Section 6.14(c).

         "Reorganization Plan" shall mean a plan of reorganization in the Case.

         "Required  Lenders" shall mean, at any time,  Lenders  (including CIBC)
holding Loans representing in excess of 51% of the aggregate principal amount of
such Loans  outstanding  or, if no such Loans are  outstanding,  Lenders  having
Commitments representing in excess of 51% of the Total Commitment.

         "Revolving Credit  Commitment" shall mean the commitment of each Lender
to make Loans and to purchase a participation  in Documentary  Letters of Credit
issued,  as set forth in Section 2.1, as the same may be  increased  pursuant to
Section  2.1(a) and as the same may be  reduced  from time to time  pursuant  to
Sections 2.9 and 2.12.

         "S&P"  shall  mean  Standard & Poor's  Ratings  Group,  a  division  of
McGraw-Hill,  Inc.,  or if such company  shall cease to issue  ratings,  another
nationally  recognized  statistical  rating  company  selected  in good faith by
mutual agreement of the Agent and the Borrower.

         "Security and Pledge Agreement" shall  have  the  meaning  set forth in
Section 4.1(e).


<PAGE> 15


         "Single Employer Plan" shall mean a single employer plan, as defined in
Section  4001(a)(15)  of ERISA,  that (i) is  maintained  for  employees  of the
Borrower or an ERISA Affiliate or (ii) was so maintained and in respect of which
the Borrower could have liability  under Section 4069 of ERISA in the event such
Plan has been or were to be terminated.

         "Standby  Letter of Credit"  shall  mean a standby  Letter of Credit in
form and substance customarily issued by the relevant Fronting Bank from time to
time and in form and substance acceptable to the Agent.

         "Standby  Letter of Credit  Fronting Bank" shall mean the Fronting Bank
which has committed to issue Standby Letters of Credit hereunder.

         "Standby  Letter of Credit  Outstandings"  shall mean, at any time, the
sum of (i) the aggregate  undrawn stated amount of all Standby Letters of Credit
then outstanding plus (ii) all amounts  theretofore  drawn under Standby Letters
of Credit and not then reimbursed.

         "Standby L/C  Commitment"  shall mean the  commitment of each Lender to
purchase a  participation  in Standby  Letters of Credit  issued as set forth in
Section 2.2.

         "Statutory  Reserves" shall mean on any date the percentage  (expressed
as a decimal)  established by the Board and any other banking authority which is
the then stated maximum rate for all reserves  (including but not limited to any
emergency,  supplemental or other marginal reserve  requirements)  applicable to
any  member  bank of the  Federal  Reserve  System in  respect  of  Eurocurrency
Liabilities (or any successor  category of liabilities under Regulation D issued
by the Board, as in effect from time to time).  Such reserve  percentages  shall
include,  without  limitation,  those imposed pursuant to said  Regulation.  The
Statutory  Reserves shall be adjusted  automatically  on and as of the effective
date of any change in such percentage.

         "Subsidiary" shall mean, with respect to any Person (herein referred to
as the "parent"), any corporation, association or other business entity (whether
now  existing  or  hereafter  organized)  of which at  least a  majority  of the
securities or other  ownership  interests  having  ordinary voting power for the
election of  directors  is, at the time as of which any  determination  is being
made,  owned or  controlled  by the  parent or one or more  subsidiaries  of the
parent or by the parent and one or more subsidiaries of the parent.

         "Super-Majority Lenders" shall  have the  meaning set forth  in Section
9.10(b).

         "Superpriority  Claim"  shall mean a claim  against the Borrower in the
Case which is an  administrative  expense claim having  priority over any or all
administrative  expenses of the kind  specified in Sections  503(b) or 507(b) of
the Bankruptcy Code.



<PAGE> 16


         "Synthetic Lease Banks" shall mean the banks and financial institutions
party to the Synthetic Lease Participation Agreement.

         "Synthetic Lease Documents" shall mean the Participation  Agreement and
the Lease,  the Loan Documents and the Trust  Agreement  (each as defined in the
Synthetic Lease Participation  Agreement) and any and all documents,  agreements
and instruments related thereto, each as amended, amended and restated, modified
or supplemented to the extent permitted by this Agreement.

         "Synthetic  Lease  Obligations"  shall  mean  the  obligations  of  the
Borrower under the Synthetic  Lease Documents  (whether or not such  obligations
constitute Capital Lease obligations).

         "Synthetic Lease Participation  Agreement" shall mean the Participation
Agreement,  dated as of February 23, 1995, among the Borrower,  Wilmington Trust
Company,  as  Certificate  Trustee,  the  Synthetic  Lease Banks as  Certificate
Purchasers   and/or   Lenders   and  BA  Leasing  &  Capital   Corporation,   as
administrative agent for the Certificate  Purchasers and the lenders, as amended
by Amendment  No. 1, dated as of November 22,  1995,  and as hereafter  amended,
amended and restated,  modified or supplemented to the extent  permitted by this
Agreement.

         "Taxes" shall have the meaning set forth in Section 2.17.

         "Temporary  Cash  Investments"  shall mean any Investment in (i) direct
obligations  of  the  United  States  or  any  agency  thereof,  or  obligations
guaranteed  by the United  States or any agency  thereof,  in each case maturing
within one year from the date of the  acquisition  thereof by the  Borrower,  or
(ii) (x) commercial  paper rated in the highest grade (A1+/P1 or its equivalent)
by S&P or Moody's or (y) time deposits with,  including  certificates of deposit
issued by, any office  located in the United States of any bank or trust company
that has  capital,  surplus  and  undivided  profits  aggregating  at least U.S.
$500,000,000,  and  whose  long  term Debt is rated A or higher by S&P and A2 or
higher  by  Moody's,  in each  case  maturing  within  180 days from the date of
acquisition thereof by the Borrower.

         "Termination  Date"  shall  mean  the  earliest  to  occur  of (i)  the
Prepayment Date, (ii) the Maturity Date,  (iii) the  Consummation  Date and (iv)
the  acceleration  of the Loans and the  termination of the Total  Commitment in
accordance with the terms hereof.

         "Termination  Event" shall mean (i) a "reportable  event", as such term
is  described  in Section 4043 of ERISA and the  regulations  issued  thereunder
(other than a "reportable  event" not subject to the provision for 30-day notice
to the  PBGC  under  Section  4043 of  ERISA  or such  regulations)  or an event
described  in  Section  4068 of ERISA  excluding  events  described  in  Section
4043(c)(9)  of ERISA or 29 CFR  ss.ss.2615.21  or 2615.23 and  excluding  events
which would not be reasonably likely (as reasonably  determined by the Agent) to
have a material adverse effect on the financial condition, operations, business,
properties or assets of the Borrower taken as a whole, or (ii) the withdrawal of

<PAGE> 17


the Borrower or any ERISA Affiliate from a Multiple  Employer Plan during a plan
year in  which it was a  "substantial  employer",  as such  term is  defined  in
Section  4001(c) of ERISA, or the incurrence of liability by the Borrower or any
ERISA  Affiliate  under Section 4064 of ERISA upon the termination of a Multiple
Employer Plan, or (iii) providing  notice of intent to terminate a Plan pursuant
to  Section  4041(c)  of  ERISA  or  the  treatment  of a  Plan  amendment  as a
termination  under Section 4041 of ERISA, or (iv) the institution of proceedings
to terminate a Plan by the PBGC under  Section  4042 of ERISA,  or (v) any other
event or condition  (other than the  commencement of the Case and the failure to
have made any  contribution  accrued as of the Filing  Date but not paid)  which
would  reasonably be expected to constitute  grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan,
or the  imposition of any liability  under Title IV of ERISA (other than for the
payment of premiums to the PBGC).

         "Total  Commitment"  shall  mean,  at any  time,  the sum of the  Total
Revolving Credit Commitments and the Total Standby L/C Commitments at such time.

         "Total Revolving Credit  Commitments"  shall mean, at any time, the sum
of the Revolving Credit Commitments at such time.

         "Total Standby L/C Commitments" shall mean, at any time, the sum of the
Standby L/C Commitments at such time.

         "Transferee" shall have the meaning set forth in Section 2.17.

         "Type" when used in respect of any Loan or Borrowing shall refer to the
rate of interest  by  reference  to which  interest on such Loan or on the Loans
comprising such Borrowing is determined.  For purposes hereof, "rate" shall mean
the Adjusted LIBOR Rate and the Alternate Base Rate.

         "Underwriters" shall mean CIBC Wood Gundy, NationsBank,  N.A.,  Goldman
Sachs Credit Partners,  L.P. and Lehman Commercial Paper Inc.

         "Unused  Total  Commitment"  shall  mean,  at any  time,  (i) the Total
Commitment less (ii) the sum of (x) the aggregate  outstanding  principal amount
of all Loans and (y) the aggregate Letter of Credit Outstandings.

         "Voting  Shares"  shall mean,  with  respect to any  Person,  shares of
capital stock of any class or classes (however designated) having general voting
power for the election of the board of  directors,  managers or trustees of such
Person  (irrespective  of whether or not at the time capital  stock of any other
class or  classes  shall  have or might  have  voting  power  by  reason  of the
happening of any contingency).

         "Withdrawal Liability" shall have the meaning set forth under Part I of
Subtitle E of Title IV of ERISA.


<PAGE> 17


         "ZR&G" shall have the meaning set forth in Section 9.5.

         SECTION 1.2.  Terms Generally. The  definitions  in  Section  1.1 shall
apply  equally  to both the  singular  and  plural  forms of the terms  defined.
Whenever the context may require,  any pronoun shall  include the  corresponding
masculine,  feminine  and  neuter  forms.  All  references  herein to  Sections,
Exhibits and Schedules  shall be deemed  references to Sections of, and Exhibits
and Schedules to, this  Agreement  unless the context shall  otherwise  require.
Except as otherwise expressly provided herein, all accounting or financial terms
used herein shall be construed in  accordance  with GAAP, as in effect from time
to time; provided, however, that for purposes of determining compliance with any
covenant  set forth in Section 6, such terms shall be  construed  in  accordance
with  GAAP  as in  effect  on the  date  of this  Agreement  applied  on a basis
consistent  with  the  application  used  in the  Borrower's  audited  financial
statements referred to in Section 3.4.

SECTION 2.  AMOUNT AND TERMS OF CREDIT.

         SECTION 2.1.  Commitments of the Lenders.

         (a) Each  Lender  severally  and not  jointly  with the  other  Lenders
agrees,  upon  the  terms  and  subject  to  the  conditions  herein  set  forth
(including,  without  limitation,  the  provisions  of  Section  2.27),  to make
revolving  credit  loans (each a "Loan" and,  collectively,  the "Loans") to the
Borrower  and to  participate  in  Documentary  Letters of Credit  issued by the
Documentary  Letter  of Credit  Fronting  Bank at any time and from time to time
during the period  commencing  on the date hereof and ending on the  Termination
Date  (or the  earlier  date  of  termination  of the  Total  Commitment)  in an
aggregate principal amount not to exceed the Revolving Credit Commitment of such
Lender.  At no time shall the sum of the then  outstanding  aggregate  principal
amount  of the  Loans  plus the then  aggregate  Documentary  Letter  of  Credit
Outstandings  exceed the Total Revolving Credit Commitments of $100,000,000,  as
the same may be reduced from time to time  pursuant to Sections 2.9 or 2.12,  as
the case  may be;  provided,  that  unless  and  until an  aggregate  amount  of
$20,000,000 of Net Cash Proceeds from dispositions of Designated Collateral have
been applied to the  repayment of the principal  amount of the Existing  Secured
Obligations   outstanding  on  the  Filing  Date,  the  Total  Revolving  Credit
Commitment  shall not exceed  $80,000,000  at any time prior to April 1, 1998 or
$55,000,000  at any time on or after  April 1, 1998  (when  the Total  Revolving
Credit  Commitment  reduces to  $75,000,000  pursuant  to Section  2.12(a)).  In
addition,  at no time shall the then outstanding  aggregate  principal amount of
Loans exceed an amount equal to the Total Revolving Credit Commitments minus the
Documentary Reserve.

         (b) Each  Lender  severally  and not  jointly  with the  other  Lenders
agrees,  upon  the  terms  and  subject  to  the  conditions  herein  set  forth
(including,  without limitation, the provisions of Section 2.27), to participate
in Standby  Letters of Credit  issued by the Standby  Letter of Credit  Fronting
Bank for the  account of the  Borrower  at any time and from time to time during
the period  commencing on the date hereof and ending on the Termination Date (or
the  earlier  date of


<PAGE> 19

termination  of the Total  Commitment) in an aggregate  principal  amount not to
exceed the Standby L/C Commitment of such Lender. At no time shall the aggregate
Standby Letters of Credit  Outstandings exceed the Total Standby L/C Commitments
of $25,000,000, as the same may be reduced from time to time.

         (c) Each Borrowing  shall be made by the Lenders pro rata in accordance
with their respective Revolving Credit Commitments;  provided,  that the failure
of any Lender to make any Loan shall not in itself  relieve the other Lenders of
their obligations to lend.

         SECTION 2.2.  Letters of Credit

                  (a) Upon the terms and  subject to the  conditions  herein set
forth, the Borrower may request the Documentary  Letter of Credit Fronting Bank,
at any  time and from  time to time  after  the  date  hereof  and  prior to the
Termination  Date, to issue,  and subject to the terms and conditions  contained
herein,  such Fronting Bank shall issue,  for the account of the Borrower one or
more  Documentary  Letters of Credit;  provided,  that no Documentary  Letter of
Credit shall be issued if, after giving effect to such  issuance,  the aggregate
Documentary   Letter  of  Credit   Outstandings   would  exceed  the  lesser  of
$15,000,000,   or,  the  Documentary  Reserve  and  provided,  further  that  no
Documentary Letter of Credit shall be issued if the Documentary Letter of Credit
Fronting  Bank shall have  received at least one  Business  Day's prior  written
notice  from the  Agent or the  Required  Lenders  that the  conditions  to such
issuance  have not been met. The Borrower  hereby  designates  $5,000,000 as the
reserve for the  issuance  of  Documentary  Letters of Credit (the  "Documentary
Reserve").  The Borrower may increase or decrease the amount of the  Documentary
Reserve in an amount equal to $1,000,000 or any integral  multiple  thereof upon
ten (10) Business  Days' prior written  notice to the Agent and the  Documentary
Letter of Credit Fronting Bank; provided, that in no event shall the Documentary
Reserve  exceed  $15,000,000 or be less than the  Documentary  Letters of Credit
Outstanding  and  provided,  further  that  if  any  requested  increase  in the
Documentary Reserve would cause the then outstanding  aggregate principal amount
of the  Loans to be in  excess  of the  amount  permitted  pursuant  to the last
sentence of Section 2.1(a),  such increase shall not be effective until the then
outstanding  aggregate  principal  amount of the  Loans has been  repaid to that
extent and the  Documentary  Letter of Credit Fronting Bank has been notified in
writing by the Agent that such increase is effective.

                  (b) Upon the terms and  subject to the  conditions  herein set
forth,  the Borrower may request the Standby Letter of Credit  Fronting Bank, at
any  time  and  from  time to time  after  the  date  hereof  and  prior  to the
Termination  Date, to issue,  and subject to the terms and conditions  contained
herein,  such Fronting Bank shall issue,  for the account of the Borrower one or
more Standby Letters of Credit; provided, that no Standby Letter of Credit shall
be issued if after  giving  effect to such  issuance (i) the  aggregate  Standby
Letter of Credit  Outstandings  shall exceed  $25,000,000  or (ii) the aggregate
Standby  Letter of Credit  Outstandings  would  exceed  the  Total  Standby  L/C
Commitments  and  provided,  further  that no Standby  Letter of Credit shall be
issued


<PAGE> 20


if the Standby  Letter of Credit  Fronting Bank shall have received  notice from
the Agent or the Required  Lenders that the conditions to such issuance have not
been met.
                  (c) No Letter of Credit  shall expire later than 60 days after
the Maturity Date;  provided,  that if any Letter of Credit shall be outstanding
on the  Termination  Date, the Borrower  shall,  at or prior to the  Termination
Date,  except as the Agent and the relevant Fronting Bank may otherwise agree in
writing, (i) cause all Letters of Credit which expire after the Termination Date
to be returned to the relevant  Fronting Bank undrawn and marked  "cancelled" or
(ii) if the Borrower is unable to do so in whole or in part,  either (x) provide
a  "back-to-back"  letter  of  credit to the  relevant  Fronting  Bank in a form
satisfactory  to such  Fronting  Bank and the Agent (in their sole  discretion),
issued by a bank satisfactory to such Fronting Bank and the Agent (in their sole
discretion), in an amount equal to 105% of the then undrawn stated amount of all
outstanding  Letters of Credit  issued by such  Fronting Bank and/or (y) deposit
cash in the Letter of Credit Account of such Fronting Bank in an amount equal to
105% of the then  undrawn  stated  amount of all  outstanding  Letters of Credit
issued  by  such  Fronting  Bank  as  collateral  security  for  the  Borrower's
reimbursement  obligations in connection therewith,  such cash to be remitted to
the  Borrower  upon  the  expiration,   cancellation  or  other  termination  or
satisfaction of such reimbursement obligations.  In addition, the Borrower shall
at all times  maintain a minimum  balance  of at least  $25,000 in the Letter of
Credit  Account  of the  Documentary  Letter  of  Credit  Fronting  Bank and the
Borrower  hereby  authorizes the  Documentary  Letter of Credit Fronting Bank to
debit such Letter of Credit  Account to reimburse  itself with respect to drafts
drawn under  Documentary  Letters of Credit and unpaid fees,  costs and expenses
incurred  by the  Documentary  Letter  of  Credit  Fronting  Bank in  connection
therewith  (whereupon the Borrower shall forthwith deposit such additional funds
in such Letter of Credit Account,  if any, as shall be necessary to achieve such
minimum balance).

                  (d) The Borrower  shall pay to each Fronting Bank, in addition
to such other fees and charges as are specifically  provided for in Section 2.20
hereof,  such fees and charges in connection with the issuance and processing of
the  Letters  of  Credit  issued by such  Fronting  Bank of the same type as are
customarily  imposed by such Fronting Bank from time to time in connection  with
letter of credit transactions in the amounts specified by such Fronting Bank.

                  (e)  Drafts  drawn  under  each  Letter  of  Credit  shall  be
reimbursed  by the  Borrower  in  Dollars  (i) on the same  day if the  relevant
Fronting  Bank shall have  notified the Borrower  prior to 11:00 a.m.  (New York
City time) and (ii) in all other  cases,  not later than the first  Business Day
following the date of draw.  Drafts drawn under each Letter of Credit shall bear
interest  from the date of draw until the first  Business Day following the date
of draw at a rate per annum  equal to the  Alternate  Base Rate plus  1-1/2% and
thereafter  until  reimbursed in full at a rate per annum equal to the Alternate
Base Rate  plus  3-1/2%  (computed  on the  basis of the  actual  number of days
elapsed over any year of 360 days). The Borrower shall effect such reimbursement
(x) if such draw occurs  prior to the  Termination  Date (or the earlier date of
termination of the Total Commitment), in cash or through a Borrowing without the
satisfaction of the conditions precedent set forth in Section 4.2 (provided that
if such draw relates to a Documentary  Letter of Credit,  such a Borrowing shall
only 


<PAGE> 21

be made if the Documentary  Letter of Credit Bank notifies the Agent that it has
not otherwise been reimbursed by the Borrower in respect of such draw) or (y) if
such draw  occurs  on or after  the  Termination  Date (or the  earlier  date of
termination of the Total  Commitment),  in cash.  Each Lender agrees to make the
Loans  described  in clause  (x) of the  preceding  sentence  notwithstanding  a
failure to satisfy the applicable  lending  conditions thereto or the provisions
of Sections 2.1 or 2.27 or the occurrence of the Termination Date.

                  (f)  Immediately  upon the issuance of any Letter of Credit by
any  Fronting  Bank,  such  Fronting  Bank  shall be deemed to have sold to each
Lender other than such  Fronting Bank and each such other Lender shall be deemed
unconditionally  and  irrevocably  to have  purchased  from such Fronting  Bank,
without recourse or warranty,  an undivided interest and  participation,  to the
extent of such Lender's  Commitment  Percentage,  in such Letter of Credit, each
drawing thereunder and the obligations of the Borrower under this Agreement with
respect thereto.  Upon any change in the Commitments pursuant to Section 9.3, it
is hereby agreed that with respect to all Letter of Credit  Outstandings,  there
shall be an automatic adjustment to the participations hereby created to reflect
the new Commitment Percentages of the assigning and assignee Lenders. Any action
taken or  omitted by a Fronting  Bank  under or in  connection  with a Letter of
Credit,  if taken or  omitted  in the  absence  of gross  negligence  or willful
misconduct,  shall not create for such Fronting Bank any resulting  liability to
any other Lender.

                  (g) In the event that a Fronting  Bank makes any payment under
any Letter of Credit and the Borrower shall not have  reimbursed  such amount in
full to such Fronting  Bank  pursuant to this Section,  such Fronting Bank shall
promptly  notify the Agent,  which  shall  promptly  notify  each Lender of such
failure. In such case each Lender is authorized (and the Borrower does hereby so
authorize each Lender) to and shall promptly make an ABR Loan to the Borrower by
making  the  proceeds  thereof  available  to the  Agent in the  amount  of such
Lender's  Commitment  Percentage  of  such  unreimbursed  amount  regardless  of
noncompliance with the applicable conditions precedent and other restrictions on
Borrowings  hereunder  unless  the making of such Loans are stayed by a court of
competent  jurisdiction  or otherwise not permitted by, or the obligation of the
Borrower to repay the same is not  enforceable,  under  applicable  law. If such
Fronting  Bank so notifies  the Agent,  and the Agent so notifies  the  Lenders,
prior to 11:00 a.m.  (New York City time) on any Business Day, each Lender shall
make  available to the Agent the amounts  required  hereby,  and the Agent shall
make available to the relevant Fronting Bank the total  unreimbursed  amount, in
each  case on such  Business  Day and in same  day  funds.  Notwithstanding  the
failure of any Lender to make  available to the Agent such  Lender's  Commitment
Percentage  of the  total  Loan to be  made to the  Borrower,  the  Agent  shall
promptly  remit to the Fronting  Bank the proceeds of such Loan in the amount of
the unreimbursed draw, in each case in Dollars and in the same day funds.

         In the  event  that  the  making  of any Loan is  stayed  by a court of
competent  jurisdiction,  or the  Required  Lenders  and  the  Agent  reasonably
determine  that the making of a Loan is not permitted  by, or the  obligation of
the Borrower to repay the same is not  enforceable  under  applicable  law, each


<PAGE> 22


Lender shall  promptly and  unconditionally  pay to the Agent for the account of
the  Fronting  Bank the amount of such  Lender's  Commitment  Percentage  of the
unreimbursed payment and the Agent shall promptly and unconditionally pay to the
Fronting  Bank the amount of such  unreimbursed  payment in each case in Dollars
and in the same day funds. If such Fronting Bank so notifies the Agent,  and the
Agent so notifies the Lenders,  prior to 11:00 a.m.  (New York City time) on any
Business Day, each Lender shall make available to the Agent, and the Agent shall
make available to the relevant  Fronting Bank the total  unreimbursed  amount in
each case on such Business Day and in same day funds.

         If and to the extent such Lender shall not have so made its  Commitment
Percentage of the amount of any Loan or payment  available to the Agent,  or the
Agent  shall not have made the amount of such Loan or payment  available  to the
relevant  Fronting Bank,  such Lender agrees to pay to the Agent,  and the Agent
agrees to pay to such Fronting Bank,  forthwith on demand such amount,  together
with interest thereon, for each day from such date until the date such amount is
paid to the party entitled thereto at the Federal Funds Rate. The failure of any
Lender to make  available  to the Agent its  Commitment  Percentage  of any Loan
required to be made  pursuant to this Section or any payment under any Letter of
Credit  shall not relieve any other Lender of its  obligation  hereunder to make
available to the Agent its  Commitment  Percentage of such Loan or payment under
any Letter of Credit, nor shall it relieve the Agent of its obligation hereunder
to make the amount of such payment  available to the relevant  Fronting Bank, in
each case on the date  required,  as  specified  above,  but no Lender  shall be
responsible  for the failure of any other Lender to make  available to the Agent
such other  Lender's  Commitment  Percentage  of any such Loan or such  payment.
Whenever a Fronting Bank receives a payment of a  reimbursement  obligation from
the Borrower as to which it has received any payments from the Lenders  pursuant
to this Section,  such Fronting Bank shall pay to each Lender which has paid its
Commitment Percentage thereof, in Dollars and in same day funds, an amount equal
to such Lender's Commitment Percentage thereof.

                  (h) First Bank in its  capacity as the  Documentary  Letter of
Credit Fronting Bank, may terminate its obligation to issue Documentary  Letters
of Credit upon forty-five days' written notice to the Agent of such termination.
Further, if (i) the Interim Order (or the Final Order, upon entry thereof) shall
cease to be in full force and effect, shall have been amended, modified, stayed,
reversed, vacated or rescinded in any respect that adversely modifies or affects
the rights of First Bank as the Documentary Letter of Credit Fronting Bank or as
entered  does not grant First Bank the rights  contemplated  by this  Agreement,
then, First Bank may immediately  terminate its obligation to issue  Documentary
Letters of Credit upon written  notice to the Agent of such  termination or (ii)
CIBC  resigns  as  Agent,  First  Bank  shall  be  deemed  to have  resigned  as
Documentary  Letter of Credit Fronting Bank,  effective as of the effective date
of CIBC's  resignation  as Agent,  unless it otherwise  notifies the Borrower in
writing of its decision to remain as Documentary Letter of Credit Fronting Bank.

           SECTION 2.3. Issuance.  Whenever the Borrower desires a Fronting Bank
to issue a Letter of Credit, it shall give to the relevant Fronting Bank and the
Agent at least two Business Days' prior


<PAGE> 23

written (including telegraphic,  telex, facsimile or cable communication) notice
(or such  shorter  period as may be agreed upon by the Agent,  the  Borrower and
such Fronting Bank)  specifying the date on which the proposed  Letter of Credit
is to be issued (which shall be a Business Day), the stated amount of the Letter
of Credit so  requested,  the  expiration  date of such Letter of Credit and the
name and address of the beneficiary thereof.

           SECTION 2.4.  Nature of Letter of Credit Obligations Absolute.
The  obligations  of   the  Borrower  to  reimburse   the  Fronting  Banks   and
the Lenders for drawings made under any Letter of Credit shall be  unconditional
and  irrevocable and shall be paid strictly in accordance with the terms of this
Agreement  under all  circumstances,  including,  without  limitation  (it being
understood that any such payment by the Borrower shall be without  prejudice to,
and shall not  constitute  a waiver of, any  rights the  Borrower  might have or
might  acquire as a result of the payment by the relevant  Fronting  Bank of any
draft or the reimbursement by the Borrower thereof): (i) any lack of validity or
enforceability of any Letter of Credit; (ii) the existence of any claim, setoff,
defense  or other  right  which  the  Borrower  may have at any time  against  a
beneficiary of any Letter of Credit or against the relevant Fronting Bank or any
of the Lenders,  whether in connection  with this  Agreement,  the  transactions
contemplated  herein or any  unrelated  transaction;  (iii) any  draft,  demand,
certificate or other document presented under any Letter of Credit proving to be
forged,  fraudulent,  invalid or  insufficient  in any respect or any  statement
therein being untrue or inaccurate in any respect;  (iv) payment by the relevant
Fronting Bank of any Letter of Credit against presentation of a demand, draft or
certificate  or other  document  which  does not  comply  with the terms of such
Letter of Credit  (including  without  limitation,  payment  by the  Documentary
Letter of Credit  Fronting  Bank in  accordance  with its  usual  practices  and
procedures,  subsequent to the expiry date of a Documentary  Letter of Credit as
long as the Documentary  Letter of Credit Fronting Bank has obtained the consent
of the Borrower  thereto and has not been  notified in writing by the Agent or a
Lender of the occurrence of the Termination Date); (v) any other circumstance or
happening whatsoever, which is similar to any of the foregoing; or (vi) the fact
that any Event of Default shall have occurred and be continuing.

         SECTION 2.5.  Making of Loans.

                  (a) Except as  contemplated  by Section  2.8,  Loans  shall be
either ABR Loans or Eurodollar  Loans as the Borrower may request subject to and
in accordance with this Section;  provided,  that all Loans made pursuant to the
same Borrowing shall, unless otherwise specifically provided herein, be Loans of
the same Type.  Each  Lender may  fulfill  its  Commitment  with  respect to any
Eurodollar Loan or ABR Loan by causing any lending office of such Lender to make
such Loan; provided,  that any such use of a lending office shall not affect the
obligation  of the Borrower to repay such Loan in  accordance  with the terms of
the  applicable  Note.  Each  Lender  shall,   subject  to  its  overall  policy
considerations,  use reasonable efforts (but shall not be obligated) to select a
lending  office which will not result in the payment of  increased  costs by the
Borrower  pursuant  to Section  2.14.  Subject to the other  provisions  of this
Section and the provisions of Section 2.11, 


<PAGE> 24

Borrowings of  Loans of  more than one Type may be  incurred  at the same  time;
provided,  that no more than five (5) Borrowings of Eurodollar Loans may be out-
standing at any time.

                  (b) The  Borrower  shall give the Agent  prior  notice of each
Borrowing hereunder of at least three Business Days for Eurodollar Loans and one
Business  Day for ABR Loans  (except as  provided  in the last  sentence of this
Section  2.5(b));  such notice shall be irrevocable and shall specify the amount
of the proposed  Borrowing  (which shall not be less than $5,000,000 in the case
of  Eurodollar  Loans  and  $1,000,000  in the case of ABR  Loans)  and the date
thereof  (which  shall  be  a  Business  Day)  and  shall  contain  disbursement
instructions.  Such notice,  to be effective,  must be received by the Agent not
later than 12:00 noon, New York City time, on the third Business Day in the case
of  Eurodollar  Loans  and the  first  Business  Day in the  case of ABR  Loans,
preceding  the date on which such  Borrowing is to be made except as provided in
the last sentence of this Section 2.5(b).  Such notice shall specify whether the
Borrowing  then being  requested is to be a Borrowing of ABR Loans or Eurodollar
Loans.  If no  election  is made as to the Type of Loan,  such  notice  shall be
deemed a request for  Borrowing of ABR Loans.  The Agent shall  promptly  notify
each  Lender  of its  proportionate  share of such  Borrowing,  the date of such
Borrowing,  the Type of  Borrowing  or Loans being  requested  and the  Interest
Period or Interest Periods applicable thereto, as appropriate.  On the borrowing
date specified in such notice, each Lender shall make its share of the Borrowing
available at the office of the Agent at 425 Lexington Avenue, New York, New York
10017,  no later than 12:00 noon, New York City time, in  immediately  available
funds.  Upon  receipt of the funds  made  available  by the  Lenders to fund any
borrowing hereunder, the Agent shall disburse such funds in the manner specified
in the notice of borrowing  delivered  by the Borrower and shall use  reasonable
efforts to make the funds so received from the Lenders available to the Borrower
no later  than 2:00  p.m.  New York City time  (other  than as  provided  in the
following  sentence).  With  respect to ABR Loans of  $10,000,000  or less,  the
Lenders shall make such  Borrowings  available to the Borrower by 4:00 p.m., New
York City time, on the same  Business Day that the Borrower  gives notice to the
Agent of such  Borrowing if the Agent  receives  such notice by 12:00 noon,  New
York City time.

         SECTION 2.6.  Notes; Repayment of Loans. The Loans made by each  Lender
shall be evidenced by a Note, duly executed on behalf of the Borrower, dated the
Closing Date or the date of the  effectiveness of the applicable  Assignment and
Acceptance,  as the case may be, in  substantially  the form attached  hereto as
Exhibit A, payable to the order of such Lender in an aggregate  principal amount
equal to such  Lender's  Commitment.  Loans  may be  repaid  and  reborrowed  in
accordance  with the provisions of this  Agreement.  The  outstanding  principal
balance of all of the Loans, as evidenced by such Notes, shall be payable on the
Termination  Date.  Each Note shall bear  interest  from the date thereof on the
outstanding  principal  balance thereof as set forth in Section 2.7. Each Lender
shall,  and is hereby  authorized  by the Borrower  to,  endorse on the schedule
attached to each Note  delivered  to such Lender (or on a  continuation  of such
schedule attached to such Note and made a part thereof),  or otherwise to record
in such Lender's internal records,  an appropriate  notation evidencing the date
and  amount of each Loan  from such  Lender,  each  payment  and  prepayment  of
principal  of any such Loan,  each  payment of interest on any such


<PAGE> 25


Loan and the other information provided for on such schedule; provided, that the
failure  of any Lender to make such a notation  or any error  therein  shall not
affect the  obligation of the Borrower to repay the Loans made by such Lender in
accordance with the terms of this Agreement and the applicable Notes.

         SECTION 2.7.   Interest on Loans.

                   (a) Subject to the  provisions  of Section 2.8, each ABR Loan
shall bear interest  (computed on the basis of the actual number of days elapsed
over a year of 360 days) at a rate per annum  equal to the  Alternate  Base Rate
plus 1-1/2%.
                   (b) Subject to the provisions of Section 2.8, each Eurodollar
Loan shall bear  interest  (computed  on the basis of the actual  number of days
elapsed over a year of 360 days) at a rate per annum equal, during each Interest
Period applicable  thereto,  to the Adjusted LIBOR Rate for such Interest Period
in effect for such Borrowing plus 2-1/2%.

                   (c) Accrued interest on all Loans shall be payable in arrears
on each  Interest  Payment  Date  applicable  thereto,  at maturity  (whether by
acceleration  or otherwise),  after such maturity on demand and (with respect to
Eurodollar  Loans)  upon any  repayment  or  prepayment  thereof  (on the amount
prepaid).

          SECTION 2.8.  Default Interest.  If the Borrower shall  default in the
payment of the  principal  of or  interest  on any Loan or in the payment of any
other  amount  becoming  due  hereunder  (including,   without  limitation,  the
reimbursement  pursuant  to Section  2.2(e) of any draft drawn under a Letter of
Credit),  whether at stated maturity, by acceleration or otherwise, the Borrower
shall on demand from time to time pay interest,  to the extent permitted by law,
on such  defaulted  amount up to (but not  including) the date of actual payment
(after as well as before judgment) at a rate per annum (computed on the basis of
the actual  number of days  elapsed over a year of 360 days) equal to (x) in the
case of Borrowings  consisting of Eurodollar  Loans,  the Adjusted LIBOR Rate in
effect for such  Borrowing plus 4-1/2% and (y) in the case of all other amounts,
the Alternate Base Rate plus 3-1/2%.

          SECTION 2.9.  Optional Termination or Reduction of Commitment.  
Upon at least two Business Days' prior written notice to the Agent, the Borrower
may at any time in whole  permanently  terminate,  or from  time to time in part
permanently  reduce,  the Unused Total  Commitment.  Each such  reduction of the
Revolving Credit Commitments or the Standby L/C Commitment,  as the case may be,
shall be in the principal amount of $5,000,000 or any integral multiple thereof.
Simultaneously  with each  reduction  or  termination  of the  Revolving  Credit
Commitment or the Standby L/C Commitment, as the case may be, the Borrower shall
pay to the Agent for the  account of each Lender the  Commitment  Fee accrued on
the amount of the respective  Commitment of such Lender so terminated or reduced
through the date thereof. Any reduction of


<PAGE> 26

the Total  Revolving  Credit  Commitment  or the Total  Standby  L/C  Commitment
pursuant to this Section  shall be applied pro rata to reduce the  Commitment of
each Lender.  

          SECTION 2.10.  Alternate Rate of Interest.  In the event,  and on each
occasion,  that on the day two Business  Days prior to the  commencement  of any
Interest Period for a Eurodollar  Loan, the Agent shall have  determined  (which
determination  shall be conclusive and binding upon the Borrower absent manifest
error)  that  reasonable  means do not exist  for  ascertaining  the  applicable
Adjusted LIBOR Rate, the Agent shall,  as soon as practicable  thereafter,  give
written or  telegraphic  notice of such  determination  to the  Borrower and the
Lenders,  and any request by the Borrower for a Borrowing  of  Eurodollar  Loans
(including  pursuant to a refinancing with Eurodollar Loans) pursuant to Section
2.5 or 2.11 shall be deemed a request for a Borrowing  of ABR Loans.  After such
notice  shall have been given and until the  circumstances  giving  rise to such
notice no longer exist,  each request for a Borrowing of Eurodollar  Loans shall
be deemed to be a request for a Borrowing of ABR Loans.

          SECTION 2.11.   Refinancing of Loans.   The Borrower  shall  have  the
right,  at any time, on three  Business  Days' prior  irrevocable  notice to the
Agent (which  notice,  to be effective,  must be received by the Agent not later
than 12:00 noon,  New York City time,  on the third  Business Day  preceding the
date of any  refinancing),  (x) to refinance  (without the  satisfaction  of the
conditions  set  forth in  Section 4 as a  condition  to such  refinancing)  any
outstanding  Borrowing or Borrowings of Loans of one Type (or a portion thereof)
with a Borrowing  of Loans of the other Type or (y) to  continue an  outstanding
Borrowing of Eurodollar Loans for an additional Interest Period,  subject to the
following:

                  (a) as a  condition  to the  refinancing  of  ABR  Loans  with
         Eurodollar  Loans and to the  continuation  of Eurodollar  Loans for an
         additional Interest Period, no Event of Default shall have occurred and
         be continuing at the time of such refinancing;

                  (b)  if  less  than  a  full   Borrowing  of  Loans  shall  be
         refinanced,  such refinancing  shall be made pro rata among the Lenders
         in  accordance  with the  respective  principal  amounts  of the  Loans
         comprising such Borrowing held by the Lenders immediately prior to such
         refinancing;

                  (c) the aggregate  principal  amount of Loans being refinanced
         shall be at least $1,000,000;  provided, that no partial refinancing of
         a Borrowing of Eurodollar  Loans shall result in the  Eurodollar  Loans
         remaining  outstanding  pursuant  to such  Borrowing  being  less  than
         $5,000,000 in aggregate principal amount;

                  (d) each Lender shall effect each  refinancing by applying the
         proceeds of its new Eurodollar Loan or ABR Loan, as the case may be, to
         its Loan being refinanced;


<PAGE> 27


                  (e)  the  Interest  Period  with  respect  to a  Borrowing  of
         Eurodollar  Loans  effected  by a  refinancing  or in  respect  to  the
         Borrowing of Eurodollar Loans being continued as Eurodollar Loans shall
         commence on the date of  refinancing  or the  expiration of the current
         Interest Period  applicable to such continuing  Borrowing,  as the case
         may be;

                  (f) a Borrowing of Eurodollar  Loans may be refinanced only on
         the last day of an Interest Period applicable thereto; and

                  (g)      each  request for a  refinancing  with a Borrowing of
         Eurodollar  Loans which fails to state an  applicable  Interest  Period
         shall be deemed to be a request  for an Interest  Period of one month.

In the event that the Borrower  shall not give notice to refinance any Borrowing
of Eurodollar Loans, or to continue such Borrowing as Eurodollar Loans, or shall
not be entitled to refinance or continue such Borrowing as Eurodollar  Loans, in
each case as provided above,  such Borrowing shall  automatically  be refinanced
with a Borrowing of ABR Loans at the  expiration  of the  then-current  Interest
Period.  The Agent shall,  after it receives notice from the Borrower,  promptly
give each Lender notice of any  refinancing,  in whole or part, of any Loan made
by such Lender.

           SECTION 2.12. Mandatory Commitment Reduction; Commitment Termination;
Cash Collateral
                  (a) On April 1,  1998, the Total Commitments shall be  reduced
to $100,000,000 and  the Revolving  Credit  Commitments   shall  be  reduced  to
$75,000,000 and the Borrower shall prepay the Loans in an aggregate amount equal
to the amount, if any, by which the then outstanding  aggregate principal amount
of the  Loans and the  Documentary  Letter of  Credit  Outstandings  exceed  the
Revolving Credit Commitment as so reduced.

                  (b) Upon the Termination  Date, the Total  Commitment shall be
terminated in full and the Borrower  shall pay the Loans in full and,  except as
the relevant  Fronting  Bank may  otherwise  agree in writing,  if any Letter of
Credit  remains  outstanding,  (i) deposit into the Letter of Credit  Account of
each Fronting Bank an amount equal to 105% of the amount by which the sum of the
aggregate  Letter of Credit  Outstandings in respect of Letters of Credit issued
by such  Fronting  Bank exceeds the amount of cash held in such Letter of Credit
Account,  such  cash  to be  remitted  to  the  Borrower  upon  the  expiration,
cancellation,   satisfaction   or  other   termination  of  such   reimbursement
obligations, or (ii) otherwise comply with Section 2.2(c).

         SECTION 2.13.  Optional Prepayment of Loans; Reimbursement of Lenders.

                  (a) The  Borrower  shall  have the  right at any time and from
time to time to prepay  any  Loans,  in whole or in part,  (x) with  respect  to
Eurodollar  Loans,  upon at least three Business  Days' prior written,  telex or
facsimile  notice  to the Agent  and (y) with  respect  to ABR Loans on the same
Business  Day if  written,  telex or  facsimile  notice is received by the Agent
prior to 12:00  noon,


<PAGE> 28

New York City  time,  and  thereafter  upon at least one  Business  Day's  prior
written, telex or facsimile notice to the Agent; provided, that (i) with respect
to Eurodollar Loans, each such partial prepayment shall be in integral multiples
of  $1,000,000,  (ii) with respect to ABR Loans,  each such  partial  prepayment
shall be in integral multiples of $1,000,000,  (iii) no prepayment of Eurodollar
Loans shall be permitted pursuant to this Section 2.13(a) other than on the last
day of an Interest Period  applicable  thereto unless the Borrower pays breakage
costs as provided in Section  2.13(b)(i),  and (iv) no partial  prepayment  of a
Borrowing of Eurodollar Loans shall result in the aggregate  principal amount of
the Eurodollar Loans remaining outstanding pursuant to such Borrowing being less
than  $5,000,000.  Each notice of prepayment  shall specify the prepayment date,
the  principal  amount of the Loans to be prepaid and in the case of  Eurodollar
Loans, the Borrowing or Borrowings  pursuant to which made, shall be irrevocable
and shall  commit the Borrower to prepay such Loan by the amount and on the date
stated  therein.  The Agent  shall,  promptly  after  receiving  notice from the
Borrower hereunder, notify each Lender of the principal amount of the Loans held
by such Lender which are to be prepaid,  the  prepayment  date and the manner of
application of the prepayment.

                  (b) The Borrower shall reimburse each Lender on demand for any
loss incurred or to be incurred by it in the  reemployment of the funds released
(i) resulting from any prepayment (for any reason whatsoever, including, without
limitation,  refinancing  with ABR Loans) of any  Eurodollar  Loan  required  or
permitted under this  Agreement,  if such Loan is prepaid other than on the last
day of the  Interest  Period  for such Loan or (ii) in the event  that after the
Borrower  delivers  a notice  of  borrowing  under  Section  2.5 in  respect  of
Eurodollar  Loans,  such  Loans are not made on the  first  day of the  Interest
Period  specified in such notice of borrowing for any reason other than a breach
by such Lender of its  obligations  hereunder.  Such loss shall be the amount as
reasonably determined by such Lender as the excess, if any, of (A) the amount of
interest  which  would have  accrued to such Lender on the amount so paid or not
borrowed at a rate of interest  equal to the Adjusted  LIBOR Rate for such Loan,
for the  period  from the date of such  payment or failure to borrow to the last
day (x) in the case of a payment or refinancing with ABR Loans other than on the
last day of the  Interest  Period for such Loan,  of the then  current  Interest
Period for such  Loan,  or (y) in the case of such  failure  to  borrow,  of the
Interest  Period for such Loan which  would have  commenced  on the date of such
failure to borrow,  over (B) the amount of interest  which would have accrued to
such  Lender on such amount by placing  such amount on deposit for a  comparable
period with  leading  banks in the London  interbank  market.  Each Lender shall
deliver to the Borrower from time to time one or more certificates setting forth
the amount of such loss as determined by such Lender.

                  (c) In the event the  Borrower  fails  to prepay  any  Loan on
the date  specified  in any  prepayment  notice  delivered  pursuant  to Section
2.13(a),  the  Borrower  on demand by any Lender  shall pay to the Agent for the
account of such Lender any amounts  required to  compensate  such Lender for any
loss  incurred by such Lender as a result of such failure to prepay,  including,
without  limitation,  any  loss,  cost or  expenses  incurred  by  reason of the
acquisition  of  deposits  or other  funds by such  Lender  to  fulfill  deposit
obligations incurred in anticipation of such prepayment, but without duplication
of any amounts paid under  Section  2.13(b).  Each Lender  shall  deliver to the
Borrower


<PAGE> 29


from time to time one or more certificates setting forth the amount of such loss
as determined by such Lender.

                  (d) Any  partial  prepayment  of  the  Loans  by  the Borrower
pursuant to this  Section  shall be applied as  specified by the Borrower or, in
the absence of such specification, as determined by the Agent.

         SECTION 2.14.  Reserve Requirements; Change in Circumstances

                  (a) Notwithstanding  any other provision  herein, if after the
date of this  Agreement  any change in  applicable  law or  regulation or in the
interpretation or administration  thereof by any Governmental  Authority charged
with the  interpretation  or  administration  thereof (whether or not having the
force of law) shall  change the basis of  taxation  of payments to any Lender of
the principal of or interest on any  Eurodollar  Loan made by such Lender or any
fees or other amounts payable hereunder (other than changes in respect of Taxes,
Other  Taxes and taxes  imposed  on, or  measured  by, the net income or overall
gross receipts or franchise  taxes of such Lender by the  jurisdiction  in which
such Lender has its principal  office or in which the applicable  lending office
for such  Eurodollar  Loan is located or by any political  subdivision or taxing
authority therein, or by any other jurisdiction or by any political  subdivision
or taxing authority therein other than a jurisdiction in which such Lender would
not be subject to tax but for the execution and performance of this  Agreement),
or shall  impose,  modify or deem  applicable  any reserve,  special  deposit or
similar  requirement  against assets of,  deposits with or for the account of or
credit  extended by such Lender  (except any such reserve  requirement  which is
reflected  in the  Adjusted  LIBOR  Rate) or shall  impose on such Lender or the
London  interbank  market any other  condition  affecting  this Agreement or the
Eurodollar  Loans made by such  Lender,  and the result of any of the  foregoing
shall be to  increase  the cost to such  Lender  of making  or  maintaining  any
Eurodollar  Loan or to reduce the amount of any sum  received or  receivable  by
such Lender  hereunder  or under the Notes  (whether of  principal,  interest or
otherwise) by an amount deemed by such Lender to be material,  then the Borrower
will pay to such Lender in accordance  with paragraph (c) below such  additional
amount or amounts as will  compensate  such  Lender  for such  additional  costs
incurred or reduction suffered.

                  (b) If any Lender shall have determined that the applicability
of any change in any law, rule,  regulation or guideline  adopted pursuant to or
arising  out of  the  July  1988  report  of  the  Basel  Committee  on  Banking
Regulations and Supervisory  Practices  entitled  "International  Convergence of
Capital  Measurement and Capital  Standards",  or the adoption or  effectiveness
after the date  hereof  of any law,  rule,  regulation  or  guideline  regarding
capital adequacy, or any change in any of the foregoing or in the interpretation
or administration of any of the foregoing by any Governmental Authority, central
bank or comparable  agency  charged with the  interpretation  or  administration
thereof,  or compliance by any Lender (or any Lending  Office of such Lender) or
any Lender's  holding  company with any request or directive  regarding  capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable  agency, has or would


<PAGE> 30

have the effect of reducing  the rate of return on such  Lender's  capital or on
the capital of such Lender's holding  company,  if any, as a consequence of this
Agreement,  the  Loans  made by  such  Lender  pursuant  hereto,  such  Lender's
Commitment  hereunder  or the issuance  of, or  participation  in, any Letter of
Credit by such Lender to a level  below that which such Lender or such  Lender's
holding company could have achieved but for such adoption,  change or compliance
(taking into account such  Lender's  policies and the policies of such  Lender's
holding  company with respect to capital  adequacy) by an amount  deemed by such
Lender to be  material,  then from time to time the  Borrower  shall pay to such
Lender such additional  amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.

                  (c) A certificate of each Lender  setting forth such amount or
amounts as shall be necessary to compensate  such Lender or its holding  company
as  specified  in  paragraph  (a) or (b)  above,  as the case  may be,  shall be
delivered to the Borrower and shall be conclusive  absent  manifest  error.  The
Borrower  shall pay each Lender the amount shown as due on any such  certificate
delivered  to it  within 10 days  after its  receipt  of the  same.  Any  Lender
receiving any such payment shall  promptly make a refund thereof to the Borrower
if the law, regulation, guideline or change in circumstances giving rise to such
payment is subsequently deemed or held to be invalid or inapplicable.

                  (d) Failure on the part of any  Lender to demand  compensation
for any  increased  costs or  reduction  in amounts  received or  receivable  or
reduction in return on capital with respect to any period shall not constitute a
waiver of such Lender's right to demand compensation with respect to such period
or any other period.  The  protection of this Section shall be available to each
Lender   regardless   of  any  possible   contention   of  the   invalidity   or
inapplicability  of the law,  rule,  regulation,  guideline  or other  change or
condition which shall have occurred or been imposed.

         SECTION 2.15.  Change in Legality.

                  (a)  Notwithstanding   anything  to  the  contrary   contained
elsewhere in this  Agreement,  if (x) any change in any law or  regulation or in
the  interpretation  thereof  by any  Governmental  Authority  charged  with the
administration thereof shall make it unlawful for a Lender to make or maintain a
Eurodollar Loan or to give effect to its obligations as contemplated hereby with
respect to a Eurodollar  Loan or (y) at any time any Lender  determines that the
making or continuance of any of its Eurodollar Loans has become impracticable as
a result of a  contingency  occurring  after  the date  hereof  which  adversely
affects  the London  interbank  market or the  position  of such  Lender in such
market,  then, by written  notice to the  Borrower,  such Lender may (i) declare
that  Eurodollar  Loans will not  thereafter  be made by such Lender  hereunder,
whereupon any request by the Borrower for a Eurodollar  Borrowing  shall,  as to
such Lender  only,  be deemed a request for an ABR Loan unless such  declaration
shall  be  subsequently  withdrawn;   and  (ii)  require  that  all  outstanding
Eurodollar  Loans made by it be converted to ABR Loans,  in which event all such
Eurodollar  Loans  shall  be  automatically  converted  to ABR  Loans  as of the
effective  date of such notice as provided in 


<PAGE> 31

paragraph  (b) below.  In the event any Lender  shall  exercise its rights under
clause (i) or (ii) of this  paragraph  (a),  all  payments  and  prepayments  of
principal which would otherwise have been applied to repay the Eurodollar  Loans
that would have been made by such Lender or the  converted  Eurodollar  Loans of
such Lender shall  instead be applied to repay the ABR Loans made by such Lender
in lieu of, or resulting from the conversion of, such Eurodollar Loans.

                  (b)For purposes of this Section 2.15, a notice to the Borrower
by any Lender pursuant to paragraph (a) above shall be effective, if lawful, and
if any  Eurodollar  Loans  shall  then be  outstanding,  on the  last day of the
then-current Interest Period,  otherwise,  such notice shall be effective on the
date of receipt by the Borrower.

         SECTION 2.16.  Pro Rata Treatment, etc.    All payments and  repayments
of  principal  and  interest  in respect of the Loans  (except  as  provided  in
Sections  2.14 and 2.15) shall be made pro rata among the Lenders in  accordance
with the then outstanding principal amount of the Loans and/or participations in
Letter of Credit Outstandings and all outstanding undrawn Letters of Credit (and
the unreimbursed  amount of drawn Letters of Credit)  hereunder and all payments
of  Commitment  Fees and Letter of Credit Fees  (other  than those  payable to a
Fronting Bank) shall be made pro rata among the Lenders in accordance with their
Commitments. All payments by the Borrower hereunder and under the Notes shall be
(i) net of any tax  applicable  to the  Borrower  and (ii)  made in  Dollars  in
immediately  available  funds at the office of the Agent by 12:00 noon, New York
City time, on the date on which such payment  shall be due.  Interest in respect
of any Loan  hereunder  shall accrue from and including the date of such Loan to
but excluding the date on which such Loan is paid in full or converted to a Loan
of a different Type

         SECTION 2.17.  Taxes.

                  (a) Any and all payments by the Borrower  hereunder  and under
the Notes shall be made free and clear of and without  deduction for any and all
current or future taxes, levies, imposts,  deductions,  charges or withholdings,
and all  liabilities  with respect  thereto,  excluding  (i) taxes imposed on or
measured by the net income or overall gross  receipts of the Agent or any Lender
(or any transferee or assignee  thereof,  including a participation  holder (any
such entity being called a  "Transferee"))  and  franchise  taxes imposed on the
Agent or any Lender (or  Transferee)  by the United  States or any  jurisdiction
under  the  laws of  which  the  Agent or any such  Lender  (or  Transferee)  is
organized  or in which the  applicable  lending  office of any such  Lender  (or
Transferee)  is located  or any  political  subdivision  thereof or by any other
jurisdiction or by any political  subdivision or taxing authority  therein other
than a  jurisdiction  in which the Agent or such Lender  would not be subject to
tax but for the  execution  and  performance  of this  Agreement and (ii) taxes,
levies, imposts, deductions, charges or withholdings ("Amounts") with respect to
payments  hereunder or under the Notes to a Lender (or Transferee) in accordance
with laws in effect on the later of the date of this Agreement and the date such
Lender (or Transferee) becomes a Lender (or Transferee, as the case may be), but
not excluding, with respect to such Lender (or Transferee), any


<PAGE> 32


increase in such Amounts solely as a result of any change in such laws occurring
after such later date or any  Amounts  that would not have been  imposed but for
actions (other than actions  contemplated  by this Agreement or the Notes) taken
by the  Borrower  after  such later date (all such  nonexcluded  taxes,  levies,
imposts,  deductions,  charges,  withholdings and liabilities  being hereinafter
referred to as "Taxes").  If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum  payable  hereunder  to the  Lenders (or any
Transferee)  or the Agent,  (i) the sum payable shall be increased by the amount
necessary  so that after making all required  deductions  (including  deductions
applicable  to  additional  sums  payable  under this  Section)  such Lender (or
Transferee)  or the Agent (as the case may be) shall  receive an amount equal to
the sum it would  have  received  had no such  deductions  been  made,  (ii) the
Borrower  shall make such  deductions  and (iii) the Borrower shall pay the full
amount deducted to the relevant taxing authority or other Governmental Authority
in accordance with applicable law.

                  (b) In  addition, the  Borrower  agrees to pay any  current or
future  stamp or  documentary  taxes or any  other  excise  or  property  taxes,
charges,  assessments  or  similar  levies  that  arise  from any  payment  made
hereunder or from the execution,  delivery or registration of, or otherwise with
respect to, this Agreement or any other Loan Document  (hereinafter  referred to
as "Other Taxes").

                  (c)The Borrower will indemnify each Lender (or Transferee) and
the Agent for the full  amount of Taxes and Other  Taxes paid by such Lender (or
Transferee)  or the  Agent,  as the case may be,  and any  liability  (including
penalties,  interest and expenses)  arising  therefrom or with respect  thereto,
whether or not such Taxes or Other Taxes were  correctly or legally  asserted by
the  relevant   taxing   authority  or  other   Governmental   Authority.   Such
indemnification  shall be made  within  30 days  after the date any  Lender  (or
Transferee) or the Agent, as the case may be, makes written demand therefor.  If
a Lender (or  Transferee) or the Agent shall become aware that it is entitled to
receive  a refund  in  respect  of Taxes or Other  Taxes as to which it has been
indemnified by the Borrower  pursuant to this Section,  it shall promptly notify
the Borrower of the availability of such refund and shall,  within 30 days after
receipt of a request by the  Borrower,  apply for such refund at the  Borrower's
expense. If any Lender (or Transferee) or the Agent receives a refund in respect
of any Taxes or Other Taxes as to which it has been  indemnified by the Borrower
pursuant to this Section,  it shall promptly  notify the Borrower of such refund
and  shall,  within 30 days  after  receipt  of a request  by the  Borrower  (or
promptly upon receipt, if the Borrower has requested application for such refund
pursuant  hereto),  repay such refund to the  Borrower (to the extent of amounts
that have been paid by the  Borrower  under this  Section  with  respect to such
refund plus interest that is received by the Lender (or Transferee) or the Agent
as part of the  refund),  net of all  out-of-pocket  expenses of such Lender (or
Transferee) or the Agent and without additional interest thereon; provided, that
the  Borrower,  upon the  request of such Lender (or  Transferee)  or the Agent,
agrees to return such refund (plus penalties, interest or other charges) to such
Lender (or  Transferee) or the Agent in the event such Lender (or Transferee) or
the Agent is required to repay such refund. Nothing contained in this subsection
(c) shall require any Lender (or  Transferee) or the Agent to


<PAGE> 33


make available any of its tax returns (or any other information  relating to its
taxes that it deems to be confidential).

                  (d) Within 30 days after the date of any  payment  of Taxes or
Other Taxes withheld by the Borrower in respect of any payment to any Lender (or
Transferee) or the Agent, the Borrower will furnish to the Agent, at its address
referred to on the signature pages hereof, the original or a certified copy of a
receipt evidencing payment thereof.

                  (e) Without  prejudice to the survival of any other  agreement
contained herein, the agreements and obligations contained in this Section shall
survive the payment in full of the  principal  of and interest on all Loans made
hereunder.

                  (f) Each Lender (or  Transferee)  that is organized  under the
laws of a  jurisdiction  outside the United States shall,  if legally able to do
so, prior to the  immediately  following due date of any payment by the Borrower
hereunder,  deliver  to the  Borrower  such  certificates,  documents  or  other
evidence,  as  required  by the Code or  Treasury  Regulations  issued  pursuant
thereto, including (A) Internal Revenue Service Form W-8 or W-9 and (B) Internal
Revenue Service Form 1001 or Form 4224 and any other certificate or statement of
exemption  required  by  Treasury  Regulation  Section  1.1441-1,   1.1441-4  or
1.1441-6(c) or any subsequent  version thereof or successors  thereto,  properly
completed and duly  executed by such Lender (or  Transferee)  establishing  that
such payment is (i) not subject to United States Federal  withholding  tax under
the Code because such payment is effectively  connected with the conduct by such
Lender (or  Transferee)  of a trade or  business  in the  United  States or (ii)
totally  exempt  from  United  States  Federal  withholding  tax or subject to a
reduced rate of such tax under a provision of an applicable  tax treaty.  Unless
the Borrower and the Agent have received forms or other  documents  satisfactory
to them  indicating  that  such  payments  hereunder  or under the Notes are not
subject to United States Federal withholding tax or are subject to such tax at a
rate  reduced by an  applicable  tax  treaty,  the  Borrower  or the Agent shall
withhold taxes from such payments at the applicable statutory rate.

                  (g) The  Borrower shall not be required to pay any  additional
amounts to any  Lender (or  Transferee)  in  respect  of United  States  Federal
withholding  tax pursuant to subsection  (a) above if the obligation to pay such
additional  amounts  would not have  arisen but for a failure by such Lender (or
Transferee) to comply with the provisions of subsection (f) above.

                  (h) Any Lender (or Transferee) claiming any additional amounts
payable pursuant to this Section shall use reasonable  efforts  (consistent with
legal and regulatory restrictions) to file any certificate or document requested
by the Borrower or to change the  jurisdiction of its applicable  lending office
if the making of such a filing or change  would avoid the need for or reduce the
amount of any such additional  amounts that may thereafter accrue and would not,
in the sole reasonable  determination  of such Lender,  be otherwise  materially
disadvantageous to such Lender (or Transferee).


<PAGE> 34


         SECTION 2.18.  Certain Fees.  The Borrower shall pay to the Agent,  for
the respective accounts of the Agent, the Underwriters and the Lenders, the fees
set forth in that  certain  letter,  dated July 17, 1997,  among the Agent,  the
Underwriters and the Borrower.

         SECTION 2.19.  Commitment Fee.  The Borrower shall pay to  the  Lenders
a commitment fee (the  "Commitment  Fee") for the period  commencing on the date
the Commitment Letter is executed to the Termination Date or the earlier date of
the termination in full of the Commitment,  computed (on the basis of the actual
number of days  elapsed  over a year of 360 days) at the rate of one-half of one
percent  (1/2%) per annum on the average  daily  Unused Total  Commitment.  Such
Commitment  Fee, to the extent then  accrued,  shall be payable (x) monthly,  in
arrears, on the last calendar day of each month, (y) on the Termination Date and
(z) as provided in Section 2.9, upon any reduction or termination in whole or in
part of the Total Commitment.

         SECTION 2.20.  Letter of Credit Fees.   The  Borrower  shall  pay  with
respect to each Letter of Credit (i) to the Agent on behalf of the Lenders a fee
calculated (on the basis of the actual number of days elapsed over a year of 360
days) at the  rate of (x) two and  one-half  (2-1/2%)  per  annum  on the  daily
average  Letter of Credit  Outstandings  and (ii) to each  Fronting  Bank,  such
Fronting  Bank's fees for issuance,  amendments  and  processing  referred to in
Section 2.2. In addition,  the Borrower agrees to pay each Fronting Bank for its
account a fronting  fee, if required  by such  Fronting  Bank in respect of each
Letter of Credit issued by such Fronting Bank, for the period from and including
the date of  issuance  of such  Letter of Credit  to and  including  the date of
termination of such Letter of Credit,  computed at a rate, and payable at times,
to be determined by such Fronting Bank, the Borrower and the Agent. Accrued fees
described  in clause (i) of the first  sentence of this  paragraph in respect of
each Letter of Credit  shall be due and  payable  monthly in arrears on the last
calendar day of each month and on the Termination  Date, or such earlier date as
the Total Commitment is terminated. Accrued fees described in clause (ii) of the
first  sentence of this  paragraph  in respect of each Letter of Credit shall be
payable at times to be determined by the relevant  Fronting  Bank,  the Borrower
and the Agent.

         SECTION 2.21.  Nature of Fees. All Fees shall be paid on the dates due,
in immediately  available funds, to the Agent for the respective accounts of the
Agent and the Lenders, as provided herein and in the letter described in Section
2.18. Once paid, none of the Fees shall be refundable under any circumstances.

         SECTION 2.22.  Priority and Liens.     The Borrower  hereby  covenants,
represents  and warrants  that,  upon entry of the Interim Order (i) pursuant to
Section  364(c)(1)  of the  Bankruptcy  Code,  the  Obligations  of the Borrower
hereunder  and under  the other  Loan  Documents  shall at all times  constitute
allowed  administrative  expense  claims in the Case  having  priority  over all
administrative  expenses of the kind  specified in Sections  503(b) or 507(b) of
the Bankruptcy Code, (ii) pursuant to Section  364(c)(2) of the Bankruptcy Code,
the  Obligations  of the Borrower  hereunder and under the other Loan  Documents
shall  at all  times  be  secured  by a  perfected  first  priority  Lien


<PAGE> 35


on all unencumbered property of the Borrower (including, without limitation, all
After-Acquired  Property  ) and all cash  maintained  in the  Letter  of  Credit
Account  and any  direct  investments  of the  funds  contained  therein,  (iii)
pursuant to Section  364(c)(3) of the Bankruptcy  Code,  the  Obligations of the
Borrower  hereunder and under the Loan Documents shall be secured by a perfected
Lien upon all property of the Borrower  (other than the property that is subject
to existing  Liens that presently  secure the  obligations of the Borrower under
the  Existing  Agreements,  as to which  the Lien in favor of the  Agent and the
Lenders will be as described in clause (iv) of this sentence) that is subject to
valid and perfected Liens in existence on the Filing Date,  junior to such valid
and perfected  Liens,  and (iv) pursuant to Section  364(d)(1) of the Bankruptcy
Code,  the  Obligations  of the Borrower  hereunder and under the Loan Documents
shall be secured by a  perfected  first  priority,  senior  priming  Lien on all
property of the Borrower  (including,  without limitation,  accounts receivable,
inventory,  equipment,  general intangibles,  intellectual property and vehicles
and the  proceeds  thereof)  that is subject to  existing  Liens that  presently
secure the Borrower's  pre-petition  Indebtedness under the Existing  Agreements
and any Liens  granted after the Filing Date to provide  adequate  protection in
respect of the Existing Agreements,  subject in each case, only to, in the event
of the occurrence and during the  continuance of an Event of Default or an event
that would  constitute an Event of Default with the giving of notice or lapse of
time or both,  (x) the  payment of  allowed  and  unpaid  professional  fees and
disbursements  thereafter  incurred by the Borrower and any statutory  committee
appointed in the Case in an aggregate amount not in excess of $3,500,000 and (y)
the payment of unpaid  fees  pursuant to 28 U.S.C.  ss.1930  (collectively,  the
"Carve-Out");  provided,  that  following  the  Termination  Date amounts in the
Letter of Credit Account shall not be subject to the Carve-Out and (z) the prior
rights (i) of the Credit Card Banks under the GE Credit  Program  Documents with
respect  to  certain  accounts  receivable,  returned  merchandise  and  general
intangibles  financed  thereunder  and (ii)  Commerce  under the  Commerce  Bank
Agreement with respect to certain documents,  inventory and related  collateral.
The  Lenders  agree that so long as no Event of Default or event  which with the
giving of notice or lapse of time or both would  constitute  an Event of Default
shall have  occurred,  the Borrower shall be permitted to pay  compensation  and
reimbursement  of expenses  allowed and payable  under 11 U.S.C.  ss. 330 and 11
U.S.C.  ss.  331,  as the same may be due and  payable,  and the same  shall not
reduce the Carve-Out.

         SECTION 2.23.  Right of Set-Off.  Subject to the  provisions of Section
7.1, upon the occurrence and during the continuance of any Event of Default, the
Agent,  each Fronting Bank and each Lender is hereby  authorized at any time and
from time to time, to the fullest  extent  permitted by law and without  further
order of or application to the  Bankruptcy  Court,  to set off and apply any and
all deposits (general or special,  time or demand,  provisional or final) at any
time held and any and all other  indebtedness  at any time  owing by the  Agent,
such  Fronting  Bank and such  Lender to or for the credit or the account of the
Borrower against any and all of the obligations of the Borrower now or hereafter
existing under the Loan  Documents,  irrespective  of whether or not such Lender
shall have made any demand under any Loan Document and although such obligations
may be unmatured.  Each Lender, each Fronting Bank and the Agent agrees promptly
to notify the  Borrower  after any such  set-off  and  application  made by such
Lender,  such Fronting Bank or by the Agent, as the case may be; provided,  that
the failure to give such notice  shall not affect the  validity of such 


<PAGE> 36


set-off and application.  The rights of each Lender,  each Fronting Bank and the
Agent under this Section are in addition to other rights and remedies which such
Lender, such Fronting Bank and the Agent may have upon the occurrence and during
the continuance of any Event of Default.

         SECTION 2.24.  Security Interest in Letter of Credit Accounts.
Pursuant to Section  364(c)(2)  of the  Bankruptcy  Code,  the  Borrower  hereby
assigns and pledges to the Agent, for its benefit and for the ratable benefit of
the Lenders,  and hereby grants to the Agent and the Fronting  Banks,  for their
respective benefits and for the ratable benefit of the Lenders, a first priority
security  interest,  senior to all other Liens, if any, in all of the Borrower's
right, title and interest in and to the Letter of Credit Accounts and any direct
investment of the funds contained  therein.  A Fronting Bank's security interest
in the Letter of Credit Account  maintained by it shall be prior to the security
interest in favor of the Agent and the Lenders,  and shall not be subject to the
rights of any person other than the Agent,  the Lenders and the Borrower so long
as there are any Letter of Credit Outstanding or such Fronting Bank is obligated
to issue Letters of Credit.

         SECTION 2.25.  Payment of Obligations.   Upon the  maturity (whether by
acceleration or otherwise) of any of the Obligations under this Agreement or any
of the other Loan Documents of the Borrower,  the Lenders and the Fronting Banks
shall be entitled  to  immediate  payment of such  obligations  without  further
application to or order of the Bankruptcy Court.

         SECTION 2.26.  No Discharge; Survival of Claims.    The Borrower agrees
that (i) its  obligations  hereunder  shall not be discharged by the entry of an
order confirming a Plan of  Reorganization  Plan (and the Borrower,  pursuant to
Section 1141(d)(4) of the Bankruptcy Code, hereby waives any such discharge) and
(ii) the  Superpriority  Claim granted to the Agent,  the Fronting Banks and the
Lenders  pursuant  to the  Order and  described  in  Section  2.22 and the Liens
granted to the Agent and the Documentary Letter of Credit Fronting Bank pursuant
to the Order and  described  in Sections  2.22 and 2.24 shall not be affected in
any manner by the entry of an order confirming a Reorganization Plan.

         SECTION 2.27.  Use of Cash Collateral.  Notwithstanding anything to the
contrary  contained herein (other than the provisions of Sections 2.2(e) and (g)
which make this Section  inapplicable),  the Borrower shall not be permitted (i)
to request a Borrowing  under Section 2.5 or request the issuance of a Letter of
Credit under Section 2.3 unless the Bankruptcy Court shall have entered the Cash
Collateral  Order or (ii) to request a  Borrowing  under  Section 2.5 unless the
Borrower  shall at that time have used all cash  collateral  subject to the Cash
Collateral Order for the purposes described in Section 3.10.

         SECTION 2.28.  Existing Secured Obligations.   For the express  benefit
of the Existing Lenders, (i) the Borrower hereby confirms that it is validly and
justly  indebted  to the  Existing  Lenders in the full  amount of the  Existing
Secured  Obligations,  without defenses,  offsets,  claims or counterclaims with
respect to the Existing Secured Obligations, or with respect to the transactions


<PAGE> 37


contemplated  thereby,  of any kind  whatsoever  and (ii)  the  Borrower  hereby
expressly releases and discharges the Existing Lenders and the Existing Lenders'
direct and indirect  Subsidiaries  and  Affiliates,  together with each of their
present and former shareholders,  present and former officers, directors, agents
and  employees  and  present  and each of their  former  attorneys,  advisors or
consultants whether presently or formerly retained by attorneys for the Existing
Lenders or by the Existing Lenders themselves, and the predecessors,  successors
and assigns of all or any of them  (collectively,  the "Releasees") from any and
all manners of action,  claims,  causes of action,  suits,  proceedings,  debts,
dues, sums of money, accounts,  accountings,  reckonings,  demands, liabilities,
losses, damages, acts, omissions, misfeasances, malfeasances, promises, breaches
of  contract,  breaches  of  duty,  breaches  of  relationship,  and  all  other
controversies of every type, kind, nature,  description or character (all of the
foregoing,  collectively,  the "Claims")  whatsoever,  whether known or unknown,
foreseen or unforeseen, liquidated or unliquidated, and whether based upon facts
now  known or  unknown,  direct  or  derivative,  in law,  admiralty,  equity or
bankruptcy,  against the  Releasees,  or any of them,  which the Borrower or the
Borrower's Affiliates and the predecessors,  successors or assigns of any or all
of them, ever jointly or  individually  had, now have or hereafter can, shall or
may have for, upon, or by reason of any matter,  cause or thing  whatsoever from
the  beginning  of the  world to (and with  effect  from) the dates on which the
respective Orders are entered,  directly or indirectly  arising from or relating
in any way to any and all transactions,  relationships,  or dealings relating in
any way,  directly or  indirectly,  to the Existing  Agreements,  as well as any
agreements  entered into, or notes, or other documents  executed,  in connection
with the Existing  Agreements,  or as an adjunct or supplement thereto,  and any
prior  agreements  under  which the  Existing  Lenders  (or any of them or their
respective  predecessors  or  successors)  made loans or extended  credit or any
services or accommodations of any type or kind whatsoever to or on behalf of the
Borrower;  provided,  that the  Borrower  reserves  all of its rights and claims
against any party other than the Releasees.

         SECTI0N 2.29.  Assumption of Hedging Agreement. The  Hedging  Agreement
is  hereby  assumed  by the  Borrower  in  accordance  with  Section  365 of the
Bankruptcy Code.

SECTION 3.  REPRESENTATIONS AND WARRANTIES

         In order to induce  the  Lenders to make  Loans and to  participate  in
Letters of Credit hereunder and to induce the Fronting Banks to issue Letters of
Credit hereunder, the Borrower represents and warrants as follows:

         SECTION 3.1.  Organization and Authority.         The Borrower (i) is a
corporation  duly organized and validly  existing under the laws of the State of
Iowa and is duly qualified as a foreign  corporation  and is in good standing in
each  jurisdiction  in which the  failure  to so  qualify  would have a material
adverse effect on the financial condition,  operations,  business, properties or
assets of the Borrower;  (ii) has the requisite corporate power and authority to
effect the transactions  contemplated  hereby and by the other Loan Documents to
which it is a party,  and (iii) has all requisite  corporate


<PAGE> 38

power and authority and the legal right to own, pledge, mortgage and operate its
properties,  and to conduct  its  business  as now or  currently  proposed to be
conducted.

         SECTION 3.2.  Due Execution.   The execution, delivery  and performance
by the  Borrower  of each of the Loan  Documents  to which it is a party (i) are
within  the  Borrower's  corporate  powers,  have  been duly  authorized  by all
necessary  corporate  action,   including  the  consent  of  shareholders  where
required,  and do not (A) contravene the charter or by-laws of the Borrower, (B)
violate any law (including,  without limitation,  the Securities Exchange Act of
1934) or regulation (including, without limitation,  Regulations G, T, U or X of
the Board of Governors of the Federal Reserve System), or any order or decree of
any court or governmental instrumentality, (C) violate or result in a breach of,
or constitute a default under, any material indenture, mortgage or deed of trust
entered  into after the Filing Date or any  material  lease,  agreement or other
instrument  entered into after the Filing Date binding on the Borrower or any of
its  properties,  or (D) result in or require the creation or  imposition of any
Lien upon any of the  property  of the  Borrower  other  than the Liens  granted
pursuant to this Agreement; and do not require the consent,  authorization by or
approval  of or  notice  to or  filing  or  registration  with any  Governmental
Authority other than the entry of the Orders and the Cash Collateral Order. This
Agreement has been duly executed and delivered by the Borrower.  This  Agreement
is, and each of the other Loan Documents to which the Borrower is a party,  when
delivered  hereunder  or  thereunder,  will  be,  a  legal,  valid  and  binding
obligation of the Borrower, enforceable against the Borrower, in accordance with
its terms.

         SECTION 3.3.  Statements Made.  The information that has been delivered
in writing by the Borrower to the Agent,  the  Underwriters or to the Bankruptcy
Court  in  connection  with  any  Loan  Document,  and any  financial  statement
delivered  pursuant  hereto or thereto  (other  than to the extent that any such
statements constitute  projections),  contains no untrue statement of a material
fact  and  does  not  omit to  state a  material  fact  necessary  to make  such
statements  not  misleading;  and,  to the  extent  that  any  such  information
constitutes  projections,  such  projections  were prepared in good faith on the
basis of  assumptions,  methods,  data,  tests and  information  believed by the
Borrower to be reasonable at the time such projections were furnished.

         SECTION 3.4.  Financial Statements.     The Borrower has furnished the 
Lenders with copies of (i) the audited consolidated  financial statements of the
Borrower and Lumberjack for the fiscal year ended November 30, 1996, accompanied
by an  unqualified  opinion  of KPMG  Peat  Marwick  LLP and (ii) the  unaudited
consolidated  financial  statements of the Borrower and  Lumberjack  for the six
month period ended May 31, 1997.  Such financial  statements  present fairly the
financial  condition,  the results of operations  and cash flows of the Borrower
and  Lumberjack on a  consolidated  basis as of such dates and for such periods;
such balance sheets and the notes thereto  disclose all  liabilities,  direct or
contingent,  of the Borrower and Lumberjack as of the dates thereof  required to
be disclosed by GAAP,  and such financial  statements  were prepared in a manner
consistent  with GAAP,  subject  (in the case of such six month  statements)  to
normal year end  adjustments.  No  material  adverse  change in the  operations,
business, properties, assets, prospects


<PAGE> 39


or condition  (financial or otherwise)  of the Borrower,  taken as a whole,  has
occurred  from that set forth in the  Business  Plan other than (x) those  which
customarily  occur and as a result of events  leading  up to and  following  the
commencement of a proceeding under Chapter 11 of the Bankruptcy Code and (y) the
commencement of the Case (it being  understood  that any non-cash  restructuring
and other non-cash  charges to be reflected on the Borrower's 1997  consolidated
financial  statements  will not in  themselves  be deemed to  constitute  such a
material adverse change).

         SECTION 3.5.  Ownership.   As of the  date  hereof,  Lumberjack,  which
is wholly-owned by the Borrower and is the only direct or indirect Subsidiary of
the Borrower, is inactive and has no significant assets.

         SECTION 3.6.  Liens.   Except for Liens  existing on the Filing Date as
reflected on Schedule  3.6,  there are no Liens of any nature  whatsoever on any
assets of the Borrower  other than:  (i) Liens granted  pursuant to the Existing
Agreements;  (ii) Permitted  Liens;  (iii) Liens  permitted  pursuant to Section
6.1(ii);  and (iv)  Liens in favor of the  Agent,  the  Fronting  Banks  and the
Lenders.  The  Borrower  is not a party  to any  contract,  agreement,  lease or
instrument  the  performance  of  which,  either  unconditionally  or  upon  the
happening  of an event,  will result in or require the creation of a Lien on any
assets of the  Borrower or  otherwise  result in a violation  of this  Agreement
other than the Liens granted to the Agent, the Fronting Banks and the Lenders as
provided for in this Agreement.

         SECTION 3.7.  Compliance with Law.

                  (a) (i) The  operations of the Borrower comply in all material
respects with all Environmental Laws; (ii) to the Borrower's knowledge,  none of
the  operations  of  the  Borrower  is  the  subject  of any  Federal  or  state
investigation  evaluating  whether  any  remedial  action  involving  a material
expenditure  by the Borrower is needed to respond to a release of any  Hazardous
Substance  into the  environment;  and (iii) to the  Borrower's  knowledge,  the
Borrower does not have any material contingent  liability in connection with any
release of any Hazardous Substance into the environment.

                  (b) The Borrower  is not,  to the  best of its  knowledge,  in
violation  of any law,  rule or  regulation,  or in default  with respect to any
judgment, writ, injunction or decree of any Governmental Authority the violation
of which,  or a default  with  respect to which,  would have a material  adverse
effect on the financial condition, operations, business, properties or assets of
the Borrower.

         SECTION 3.8.  Insurance.      All policies of insurance of any  kind or
nature  owned by or  issued  to the  Borrower,  including,  without  limitation,
policies of life, fire, theft,  product  liability,  public liability,  property
damage,  other casualty,  employee  fidelity,  workers'  compensation,  employee
health and welfare,  title, property and liability insurance,  are in full force
and effect and 


<PAGE> 40

are of a nature and provide such coverage as is sufficient and as is customarily
carried by companies of the size and character of the Borrower.

         SECTION 3.9.  The Orders.     On the date of the making of the initial 
Loans or the  issuance of the  initial  Letters of Credit  hereunder,  whichever
first  occurs,  the Interim  Order will have been entered and will not have been
amended,  modified,  stayed, reversed,  vacated or rescinded. On the date of the
making of any Loan or the issuance of any Letter of Credit, the Interim Order or
the Final Order,  as the case may be, shall have been entered and shall not have
been  amended,  modified,  stayed,  reversed,  vacated  or  rescinded.  Upon the
maturity (whether by the acceleration or otherwise) of any of the Obligations of
the Borrower  hereunder and under the other Loan  Documents,  the Lenders shall,
subject to the  provisions  of Section 7.1, be entitled to immediate  payment of
such Obligations,  and to enforce the remedies  provided for hereunder,  without
further application to or order by the Bankruptcy Court.

         SECTION 3.10.  Use of Proceeds.     The  proceeds  of the  Loans  shall
be used (i) for  general  working  capital  of the  Borrower  and (ii) for other
general  corporate  purposes  of the  Borrower  (including,  among such  general
corporate  purposes,  the  making  of  Capital  Expenditures,   subject  to  the
limitations provided for in Section 6.4).

         SECTION 3.11.  Litigation.  Except as set forth on Schedule 3.11, there
are no unstayed  actions,  suits or proceedings  pending or, to the knowledge of
the  Borrower,  threatened  against  or  affecting  the  Borrower  or any of its
properties,  before any court or  governmental  department,  commission,  board,
bureau,  agency or  instrumentality,  domestic or foreign,  which is  reasonably
likely  to be  determined  adversely  to  the  Borrower  and,  if so  determined
adversely to the Borrower, would have a material adverse effect on its financial
condition, business, properties, prospects, operations or assets.

SECTION 4. CONDITIONS OF LENDING

         SECTION 4.1.  Conditions Precedent to Initial Loans  and Initial Letter
of Credit.   The obligation of the Lenders to make the  initial  Loans or of the
relevant  Fronting  Bank to issue the initial  Letter of Credit,  whichever  may
occur first, is subject to the following conditions precedent:

                  (a)      Supporting Documents.  The Agent shall have received:

                           (i)      a  copy  of  the  Borrower's  certificate of
                                    incorporation,  as amended,  certified as of
                                    a recent date  by the  Secretary of State of
                                    Iowa;

                           (ii)     a  certificate  of the Secretary of State of
                                    Iowa,  dated as of a recent date,  as to the
                                    good  standing of the Borrower and as to the
                                    charter  documents  on file in the office of
                                    the Secretary of State; and


<PAGE> 41


                           (iii)     a   certificate  of   the  Secretary  or an
                                     Assistant  Secretary of  the Borrower dated
                                     the  date  of  the  initial  Loans  or  the
                                     initial   Letter   of   Credit   hereunder,
                                     whichever  first  occurs,   and  certifying
                                     (A) that attached  thereto  is  a  true and
                                     complete copy of the by-lawsof the Borrower
                                     as  in   effect  on   the   date  of   such
                                     certification, (B)  that  attached  thereto
                                     is a true and  complete copy of resolutions
                                     adopted by the  Board   of   Directors   of
                                     the Borrower authorizing the Borrowings and
                                     the   issuance   of   Letters   of   Credit
                                     hereunder,   the execution,   delivery  and
                                     performance  in   accordance   with   their
                                     respective   terms   of   this   Agreement,
                                     the  Notes,  the   other   Loan   Documents
                                     and   any   other    documents     required
                                     required  or   contemplated   hereunder  or
                                     thereunder and the granting of the security
                                     interest  in the Letter of Credit  Accounts
                                     contemplated    hereby,    (C)   that   the
                                     certificate   of   incorporation   of   the
                                     Borrower  has not been  amended  since  the
                                     date   of  the   last   amendment   thereto
                                     indicated   on  the   certificate   of  the
                                     Secretary  of State  furnished  pursuant to
                                     clause   (i)   above  and  (D)  as  to  the
                                     incumbency  and specimen  signature of each
                                     officer  of  the  Borrower  executing  this
                                     Agreement,  the Notes  and the  other  Loan
                                     Documents or any other  document  delivered
                                     by it in  connection  herewith or therewith
                                     (such     certificate    to    contain    a
                                     certification  by  another  officer  of the
                                     Borrower as to the incumbency and signature
                                     of  the  officer  signing  the  certificate
                                     referred to in this clause (iii).

                  (b)     Notes. On or before the date of the making of the 
         initial  Loans  or  the  issuance  of  the  initial  Letter  of  Credit
         hereunder, whichever first occurs, the Agent shall have received  Notes
         executed on  behalf of the Borrower, dated the Closing Date, payable to
         the order of each of the Lenders, in substantially  the form of Exhibit
         A and in an  amount equal to such Lender's Commitment.

                  (c)  Interim  Order.  At the time of the making of the initial
         Loans or at the time of the  issuance of the initial  Letter of Credit,
         whichever first occurs,  the Agent,  the Fronting Banks and the Lenders
         shall have  received  a  certified  copy of an order of the  Bankruptcy
         Court in  substantially  the form of  Exhibit B (the  "Interim  Order")
         approving  the Loan  Documents  and  granting the  Superpriority  Claim
         status and priming and other Liens  described in Section 2.22 which (i)
         shall have been entered upon an  application  or motion of the Borrower
         reasonably  satisfactory  in form and  substance to the Agent,  on such
         prior notice to such parties (including the Existing Lenders) as may be
         reasonably  satisfactory  to the Agent not later than fifteen (15) days
         following the  commencement of the Case,  (ii) authorize  extensions of
         credit in amounts satisfactory to the Agent, (iii) provide for adequate
         protection  in favor of the Existing  Lenders,  as set forth in Section
         4.1(d), (iv) approve the payment by the Borrower of all of the Fees set
         forth in Section 2.18, (v) shall be in full force and effect,  and (vi)
         shall not have been amended,  modified,  stayed,  reversed,  vacated or


<PAGE> 42

         rescinded in any respect without the prior written consent of the Agent
         and the Required  Lenders and, if the Interim Order is the subject of a
         pending appeal in any respect, neither the making of such Loans nor the
         issuance of such Letter of Credit nor the  performance  by the Borrower
         of any of its  Obligations  hereunder  or under the Loan  Documents  or
         under any other instrument or agreement referred to herein shall be the
         subject of a presently effective stay pending appeal.

                  (d) Cash  Collateral  Order.  At the time of the making of the
         initial  Loans or at the time of the issuance of the initial  Letter of
         Credit,  whichever  first occurs,  the Agent and the Lenders shall have
         received a certified copy of an order or orders of the Bankruptcy Court
         in form and substance  reasonably  satisfactory to the Agent (the "Cash
         Collateral  Order") pursuant to Section  363(c)(2)(B) of the Bankruptcy
         Code (which Cash Collateral  Order may be embodied in the Interim Order
         and the Final  Order)  authorizing  the use by the Borrower of any cash
         collateral in which any Existing  Lender under any Existing  Agreements
         may have an  interest  and  providing  for (w) the  payments of current
         pre-petition  and  post-petition  interest,  letter of credit and other
         fees and amounts owing to the Existing  Credit  Agreement Agent and the
         other  Existing  Secured  Parties,   whether  arising  pre-petition  or
         post-petition  (including,  without  limitation,  cash management fees,
         overdraft  repayments and reasonable fees and  disbursements of counsel
         and  other  advisors),  at the  applicable  non-default  rate or  rates
         provided for  pursuant to or in  connection  with the  Existing  Credit
         Agreement and any other Existing  Secured  Obligations,  (x) a priority
         claim as contemplated by Section 507(b) of the Bankruptcy Code, (y) the
         application  of the Net Cash  Proceeds of  dispositions  of  Designated
         Collateral to the permanent repayment of the loans and other extensions
         of credit outstanding  pursuant to the Existing Agreements in the order
         set forth therein, and (z) a Lien on substantially all of the assets of
         the  Borrower  having a priority  junior to the priming and other Liens
         granted in favor of the Agent and the Lenders  hereunder  and under the
         other  Loan   Documents   (including,   without   limitation,   on  all
         After-Acquired Property ), which Cash Collateral Order shall be in full
         force and effect  and shall not have been  amended,  modified,  stayed,
         reversed, vacated or rescinded in any respect without the prior written
         consent of the Agent and the Required Lenders.

                  (e) Security  and Pledge  Agreement.  The Borrower  shall have
         duly  executed  and  delivered  to the  Agent  a  Security  and  Pledge
         Agreement in  substantially  the form of Exhibit C (the  "Security  and
         Pledge Agreement").

                  (f) Plan of  Reorganization.  The Agent  and the  Underwriters
         shall have received evidence satisfactory to them that the Borrower has
         filed  with  the  Bankruptcy   Court  (i)  a  plan  of   reorganization
         satisfactory  in form and  substance to the Agent and the  Underwriters
         (the "Proposed Plan") and (ii) the Disclosure Statement satisfactory in
         form and substance to the Agent and the Underwriters.



<PAGE> 43


                  (g) First Day Orders. All of the "first day orders" entered by
         the Bankruptcy  Court at the time of the commencement of the Case shall
         be reasonably satisfactory in form and substance to the Agent.

                  (h)  Opinion  of Counsel  to the  Borrower.  The Agent and the
         Lenders shall have received the favorable written opinion of counsel to
         the Borrower reasonably  acceptable to the Agent, dated the date of the
         initial  Loans  or  the  issuance  of the  initial  Letter  of  Credit,
         whichever first occurs,  substantially  in the form of Exhibits D-1 and
         D-2.

                  (i)  Payment  of Fees.  The  Borrower  shall  have paid to the
         Agent,  the Lenders and the Underwriters the then unpaid balance of all
         accrued and unpaid Fees owed under and pursuant to this  Agreement  and
         the letter referred to in Section 2.18.

                  (j)  Corporate  and Judicial  Proceedings.  All  corporate and
        judicial  proceedings  and all  instruments and agreements in connection
        with the  transactions  among the  Borrower,  the Agent and the  Lenders
        contemplated by this Agreement shall be reasonably  satisfactory in form
        and  substance  to the  Agent,  and the Agent  shall have  received  all
        information and copies of all documents and papers, including records of
        corporate and judicial proceedings,  which the Agent may have reasonably
        requested  in  connection  therewith,  such  documents  and papers where
        appropriate  to  be  certified  by  proper  corporate,  governmental  or
        judicial authorities.

                  (k)   Information.   The  Agent  shall  have   received   such
         information  (financial or otherwise) as may be reasonably requested by
         the Agent or the Underwriters.

                  (l) Compliance  with Laws. The Borrower shall have granted the
         Agent access to and the right to inspect all reports,  audits and other
         internal information of the Borrower relating to environmental matters,
         and any  third  party  verification  of  certain  matters  relating  to
         compliance  with  Environmental  Laws  requested by the Agent,  and the
         Agent shall be reasonably  satisfied that the Borrower is in compliance
         in all material respects with all applicable  Environmental Laws and be
         satisfied with the costs of maintaining such compliance.

                  (m)  Closing  Documents.  The Agent  shall have  received  all
         documents  (including security documents granting the liens in favor of
         the Agent  contemplated  hereby) required by this Agreement  reasonably
         satisfactory in form and substance to the Agent and, in the case of the
         issuance of a Letter of Credit,  the relevant  Fronting Bank shall have
         received all documents it requires in connection  with its agreement to
         issue  Letters of Credit  hereunder  in form and  substance  reasonably
         satisfactory to such Fronting Bank.


<PAGE> 44


         SECTION 4.2.  Conditions   Precedent  to Each  Loan and  Each Letter of
Credit.  The  obligation  of the Lenders  to make  each Loan and of the relevant
Fronting Bank to issue each Letter of Credit, including the initial Loan and the
initial Letter of Credit, is subject to the following conditions precedent:

                  (a)  Notice.  The Agent  shall  have  received  a notice  with
         respect to such borrowing or issuance,  as the case may be, as required
         by Section 2.

                  (b)  Representations  and Warranties.  All representations and
         warranties  contained in this Agreement and the other Loan Documents or
         otherwise made in writing in connection  herewith or therewith shall be
         true and correct in all material respects on and as of the date of each
         Borrowing or the issuance of each Letter of Credit  hereunder  with the
         same effect as if made on and as of such date except to the extent such
         representations and warranties expressly relate to an earlier date.

                  (c) No Default. On the date of each Borrowing hereunder or the
         issuance of each Letter of Credit,  the Borrower shall be in compliance
         with all of the terms and provisions set forth herein to be observed or
         performed  and no Event of Default or event  which upon notice or lapse
         of time or both  would  constitute  an  Event  of  Default  shall  have
         occurred and be continuing.

                  (d)  Orders.  The  Interim  Order  shall be in full  force and
         effect and shall not have been  amended,  modified,  stayed,  reversed,
         vacated or rescinded in any respect  without the prior written  consent
         of the Agent and the Required  Lenders;  provided,  that at the time of
         the  making of any Loan or the  issuance  of any  Letter of Credit  the
         aggregate  amount  of either  of  which,  when  added to the sum of the
         principal amount of all Loans then outstanding and the Letter of Credit
         Outstandings,  would exceed the amount  thereof which was authorized by
         the  Bankruptcy   Court  in  the  Interim  Order   (collectively,   the
         "Additional  Credit"),  the Agent and each of the  Lenders  shall  have
         received a certified copy of a final order of the  Bankruptcy  Court in
         substantially the form of Exhibit B (the "Final Order"),  which, in any
         event, shall have been entered by the Bankruptcy Court no later than 30
         days  after  the  entry of the  Interim  Order,  and at the time of the
         extension  of any  Additional  Credit the Final  Order shall be in full
         force and effect,  and shall not have been amended,  modified,  stayed,
         reversed, vacated or rescinded in any respect without the prior written
         consent  of the  Agent and the  Required  Lenders;  and if  either  the
         Interim Order or the Final Order is the subject of a pending  appeal in
         any  respect,  neither the making of the Loans nor the  issuance of any
         Letter of Credit  nor the  performance  by the  Borrower  of any of its
         respective  obligations  under any of the Loan  Documents  shall be the
         subject of a presently effective stay pending appeal.


<PAGE> 45


                  (e) Cash Collateral  Order. The Cash Collateral Order shall be
         in full  force and effect  and shall not have been  amended,  modified,
         stayed, reversed, vacated or rescinded in any respect without the prior
         written consent of the Agent and the Required Lenders.

                  (f) Payment of Fees. The Borrower shall have paid to the Agent
         and the  Underwriters the then unpaid balance of all accrued and unpaid
         Fees then payable  under and pursuant to this  Agreement and the letter
         referred to in Section 2.18.

                  (g) Amendments  to Proposed  Plan and  Disclosure  Statement.
         Any proposed amendment to the Proposed Plan or the Disclosure Statement
         to be filed  with the Bankruptcy  Court shall be  satisfactory in form 
         and substance to the Agent and the Underwriters.

The request by the  Borrower  for, and the  acceptance  by the Borrower of, each
extension  of  credit  hereunder  shall be  deemed  to be a  representation  and
warranty by the Borrower that the conditions specified in this Section have been
satisfied or waived at that time.

SECTION 5.   AFFIRMATIVE COVENANTS

        From  the  date  hereof  and for so long as any  Commitment  shall be in
effect or any Letter of Credit  shall  remain  outstanding  (in a face amount in
excess of the amount of cash then held in the relevant Letter of Credit Account,
or the face amount of the relevant back-to-back letters of credit delivered,  in
each case pursuant to Section  2.2(c)),  or any amount shall remain  outstanding
under any Note or unpaid under this Agreement,  the Borrower agrees that, unless
the Required Lenders shall otherwise consent in writing, it will:

         SECTION 5.1.  Financial Statements, Reports, etc.    The Borrower shall
deliver to the Agent and each of the Fronting  Banks and the Lenders (or, in the
case of the weekly report delivered  pursuant to Section 5.1 (g), deliver to the
Agent for distribution to the Fronting Banks and the Lenders):

                  (a) as soon as available and in any event within 90 days after
         the end of each fiscal year, the Borrower's  consolidated balance sheet
         as of the end of such fiscal year and related  consolidated  statements
         of income and cash flows for such fiscal  year,  setting  forth in each
         case in  comparative  form  the  figures  for the  previous  year,  the
         consolidated  statement  of the Borrower to be audited for the Borrower
         by  independent  public  accountants  of recognized  national  standing
         acceptable  to the Required  Lenders and  accompanied  by an opinion of
         such accountants  (which shall not be qualified in any material respect
         other than with respect to the Case);

                  (b) as soon as available and in any event within 45 days after
         the end of each of the first three  fiscal  quarters and within 90 days
         after the end of the fourth  fiscal  quarter of each fiscal  year,  the
         Borrower's consolidated balance sheet as of the end of such quarter and


<PAGE> 46


         related  consolidated  statements  of  income  and cash  flows for such
         fiscal  quarter,  setting  forth in each case in  comparative  form the
         figures for the corresponding  quarter and the corresponding portion of
         the Borrower's previous fiscal year, together with a comparison of such
         results to the relevant portion of the Annual Budget, each certified by
         a Financial  Officer as fairly  presenting the financial  condition and
         results  of  operations  of the  Borrower  on a  consolidated  basis in
         accordance with GAAP consistently  applied,  subject to normal year-end
         audit adjustments;

                  (c)  concurrently  with any delivery of  financial  statements
         under (a) or (b)  above,  (i) a  certificate  of a  Financial  Officer,
         certifying  such  statements (A) certifying that no Event of Default or
         event  which upon notice or lapse of time or both would  constitute  an
         Event of Default has occurred, or, if such an Event of Default or event
         has occurred, specifying the nature, the period of existence and extent
         thereof and any  corrective  action  taken or proposed to be taken with
         respect thereto and (B) setting forth computations in reasonable detail
         satisfactory  to the Agent  demonstrating  whether the  Borrower was in
         compliance  with the  provisions  of Sections 6.4, 6.5, 6.9 and 6.10 on
         the date of such  financial  statements  and (ii) a certificate of such
         accountants  accompanying the audited consolidated financial statements
         delivered under (a) above certifying that, in the course of the regular
         audit of the business of the Borrower,  such  accountants have obtained
         no knowledge  that an Event of Default has occurred and is  continuing,
         or if, in the  opinion of such  accountants,  an Event of  Default  has
         occurred  and is  continuing,  specifying  the nature  thereof  and all
         relevant facts with respect thereto;

                  (d) within 15 Business  Days of the end of each  fiscal  month
         (or, in the case of the fiscal month  ending on November  29, 1997,  no
         later than December 26, 1997),  commencing with the fiscal month ending
         on  August 2,  1997,  a  consolidated  balance  sheet of the  Borrower,
         related  statement  of income  and cash  flows  showing  the  financial
         condition of the Borrower and the results of operations as of the close
         of such fiscal month and the then  elapsed  portion of the fiscal year,
         setting  forth in each case in  comparative  form the  figures  for the
         corresponding  month and the  corresponding  portion of the  Borrower's
         previous fiscal year, together with a comparison of such results to the
         relevant portion of the Annual Budget;

                  (e) as soon as practicable, and in any event within 45 days of
         the Closing  Date, a pro forma  statement of the  Borrower's  financial
         condition  as of the Filing Date in form,  scope and detail  reasonably
         satisfactory to the Agent and the Underwriters;

                  (f) within 45 days after the commencement of each fiscal year,
         a forecast of the financial  condition and results of operations of the
         Borrower,  by month, for the four fiscal quarters  commencing with such
         quarter  (the  "Annual  Budget"),  and not later than 45 days after the
         commencement of each of the first three quarters of each fiscal year of
         the Borrower,  a narrative  discussion by management of the Borrower of
         the  financial  condition


<PAGE>47


         and results of operations of the Borrower for the period covered by the
         Annual Budget (or the balance of such fiscalyear,  as the case may be),
         and, in the case of the second and third  fiscal quarters, a reforecast
         by month for the balance of such fiscal year in all  instances in form,
         scope and detail  satisfactory  to the Agent and the Underwriters;

                  (g) on the third  Business  Day of each week,  a flash  report
         reflecting  sales and gross  margins as of the last Business Day of the
         preceding week in form, scope and detail reasonably satisfactory to the
         Agent and the Underwriters;

                  (h) promptly after the same become publicly available,  copies
         of all periodic and other reports, proxy statements and other materials
         filed  by it  with  the  Securities  and  Exchange  Commission,  or any
         Governmental  Authority  succeeding  to any of or all the  functions of
         said commission,  or with any national securities exchange, as the case
         may be;

                  (i) as soon as  available  and in any event (A) within 30 days
         after the Borrower or any of its ERISA  Affiliates  knows or has reason
         to know that any  Termination  Event  described  in  clause  (i) of the
         definition  of  Termination  Event with respect to any Single  Employer
         Plan of the  Borrower  or such ERISA  Affiliate  has  occurred  and (B)
         within 10 days after the Borrower or any of its ERISA  Affiliates knows
         or has reason to know that any other  Termination Event with respect to
         any such Plan has occurred,  a statement of a Financial  Officer of the
         Borrower  describing  such  Termination  Event and the action,  if any,
         which  the  Borrower  or such  ERISA  Affiliate  proposes  to take with
         respect thereto;

                  (j)  promptly  and in any event  within 10 days after  receipt
         thereof by the  Borrower or any of its ERISA  Affiliates  from the PBGC
         copies  of each  notice  received  by the  Borrower  or any such  ERISA
         Affiliate of the PBGC's intention to terminate any Single Employer Plan
         of the Borrower or such ERISA Affiliate or to have a trustee  appointed
         to administer any such Plan;

                  (k)  promptly and in any event within 30 days after the filing
         thereof with the Internal  Revenue  Service,  copies of each Schedule B
         (Actuarial  Information)  to the annual  report (Form 5500 Series) with
         respect to each  Single  Employer  Plan of the  Borrower  or any of its
         ERISA Affiliates;

                  (l) within 10 days  after  notice is given or  required  to be
         given to the PBGC under Section 302(f)(4)(A) of ERISA of the failure of
         the Borrower or any of its ERISA  Affiliates to make timely payments to
         a Plan,  a copy of any such notice filed and a statement of a Financial
         Officer  of the  Borrower  setting  forth  (A)  sufficient  information
         necessary to determine the amount of the lien under Section  302(f)(3),
         (B) the reason for the failure to make the  required  payments  and (C)
         the action,  if any, which the Borrower or any of its ERISA  Affiliates
         proposed to take with respect thereto;


<PAGE> 48


                  (m)  promptly  and in any event  within 10 days after  receipt
          thereof by the Borrower or any ERISA  Affiliate  from a  Multiemployer
          Plan  sponsor,  a copy of each notice  received by the Borrower or any
          ERISA Affiliate  concerning (A) the imposition of Withdrawal Liability
          by a Multiemployer  Plan, (B) the  determination  that a Multiemployer
          Plan is, or is expected to be, in reorganization within the meaning of
          Title IV of ERISA, (C) the termination of a Multiemployer  Plan within
          the  meaning  of Title IV of ERISA,  or (D) the  amount  of  liability
          incurred,  or which  may be  incurred,  by the  Borrower  or any ERISA
          Affiliate in connection with any event described in clause (A), (B) or
          (C) above;

                  (n)  promptly,  from  time to  time,  such  other  information
         regarding the operations,  business affairs and financial  condition of
         the  Borrower,  or  compliance  with the terms of any material  loan or
         financing  agreements as the Agent, any Fronting Bank or any Lender may
         reasonably request; and

                  (o) furnish to the Agent and its counsel and the  Underwriters
         promptly after the same is available, copies of all pleadings, motions,
         applications,  judicial  information,  financial  information and other
         documents  filed by or on behalf of the  Borrower  with the  Bankruptcy
         Court in the Case,  or  distributed  by or on behalf of the Borrower to
         any official committee appointed in the Case.

         SECTION 5.2.  Corporate Existence.    Do or cause to be done all things
necessary  to  preserve,  renew and keep in full force and effect its  corporate
existence,  material rights, licenses,  permits and franchises and comply in all
material respects with all laws and regulations applicable to it.

         SECTION 5.3.  Insurance.  (a)  Keep  its  material  properties  insured
at all times with financially sound and reputable insurance  companies,  against
such risks as is  customary  with  companies  of the same or similar size in the
same or similar businesses;  provided,  that such insurance shall (i) insure the
property  of the  Borrower  (other  than  motor  vehicles)  against  all risk of
physical damage including,  without limitation,  loss by fire, explosion,  theft
and such other casualties as may be reasonably satisfactory to the Agent, but in
no event in an amount less than the  replacement  cost value  thereof,  and (ii)
insure the Borrower, the Agent and the Lenders against comprehensive general and
automobile  liability in an amount not less than $1,000,000 per occurrence under
primary  insurance  policies,  with not less  than  $45,000,000  per  occurrence
coverage under umbrella  insurance  policies for personal injury,  bodily injury
and property  damage relating to the Borrower's  property and  operations,  such
policies  to be in such form and  amounts  and having  such  coverage  as may be
reasonably  satisfactory to the Agent. All such insurance  shall,  within twenty
days after the Closing Date (i) contain a breach of warranty  clause in favor of
the Agent and the Lenders in all physical damage  insurance  policies and have a
severability  of  interest  clause in all  liability  insurance  policies,  (ii)
provide that no cancellation, material reduction in amount or material change in
coverage  thereof shall be effective until at least 30 days after written notice
to the 


<PAGE> 49

Agent thereof,  (iii) name the Agent as loss payee for physical damage insurance
with respect to property as to which a Lien has been granted,  with the right to
adjust  the same  (provided,  that  with  respect  to  property  to which a Lien
permitted  hereunder has been granted to another  creditor,  such other creditor
may also be named as loss payee,  with payment to be made as their interests may
appear) and name the Agent and the Lenders as additional  insureds for liability
insurance,  with the Agent having the right to adjust the same,  (iv) state that
neither  the  Agent  nor  the  Lenders  shall  be   responsible   for  premiums,
commissions,  club calls,  assessments or advances,  (v) contain a waiver of all
rights of set-off, counterclaim,  deduction or subrogation against the Agent and
the Lenders and (vi) be reasonably satisfactory in all other respects (including
deductibles) to the Agent with respect to physical damage exposures.

         (b) The  Borrower  will  furnish to the Agent,  on or prior to the date
which is twenty days after the  Closing  Date,  a  schedule,  a copy of which is
annexed as Schedule 5.3,  describing  all insurance  maintained by the Borrower,
which schedule shall set forth,  for each insurance  policy,  the policy number,
the scope of  coverage,  the policy  limits and  deductibles,  the insurer  (and
reinsurers, if applicable) and the expiration date.

         (c) The Borrower will furnish to the Agent,  original  certificates  of
insurance  complying with the  requirements  of this Section set forth above and
containing  signatures of duly authorized  representatives of the insurer, on or
prior to the date which is twenty days after the  Closing  Date and at all times
prior to policy termination, cessation or cancellation.

         (d) The Borrower shall maintain such other insurance  or self insurance
as may be required by law.

         SECTION 5.4.  Obligations and Taxes.  Pay all its material  obligations
arising after the Filing Date  promptly and in  accordance  with their terms and
pay and discharge  promptly all material  taxes,  assessments  and  governmental
charges or levies imposed upon it or upon its income or profits or in respect of
its  property  arising  after the Filing  Date,  before the same shall become in
default, as well as all material lawful claims for labor, materials and supplies
or otherwise arising after the Filing Date which, if unpaid, might become a Lien
or charge upon such properties or any part thereof;  provided, that the Borrower
shall not be required to pay and discharge or to cause to be paid and discharged
any such  tax,  assessment,  charge,  levy or claim so long as the  validity  or
amount thereof shall be contested in good faith by appropriate  proceedings  (if
the Borrower shall have set aside on its books adequate reserves therefor).

          SECTION 5.5.  Notice of Event of Default, etc.   Promptly  give to the
Agent notice in writing of any Event of Default or the  occurrence  of any event
or circumstance which with the passage of time or giving of notice or both would
constitute an Event of Default.

         SECTION 5.6.  Access to Books and Records.     Maintain  or cause to be
maintained  at all times true and  complete  books and records of the  financial
operations of the Borrower; and provide


<PAGE>50


the Agent and its  representatives  access to all such books and records  during
regular  business  hours, in order that the Agent may examine and make abstracts
from such books, accounts, records and other papers for the purpose of verifying
the accuracy of the various reports  delivered by the Borrower to the Agent, the
Fronting  Banks or the  Lenders  pursuant  to this  Agreement  or for  otherwise
ascertaining compliance with this Agreement; and at any reasonable time and from
time to time during regular business hours, upon reasonable  notice,  permit the
Agent  and  any  agents  or  representatives  (including,   without  limitation,
appraisers)  thereof  to visit the  properties  of the  Borrower  and to conduct
examinations of and to monitor the Collateral held by the Agent and the Fronting
Banks.

         SECTION 5.7.  Business Plan.    As soon as practicable, furnish  to the
Lenders and the Fronting Banks all material  modifications to the Business Plan,
and make its senior  officers  available  to discuss the same with the Agent and
its advisors upon the Agent's reasonable request.

         SECTION 5.8.  Maintenance of Concentration and Other Accounts. Continue
to maintain (a) all of its  significant  operating  accounts and demand  deposit
accounts  used for paying  and  receiving  purposes  in the  ordinary  course of
business and (b) its  concentration  accounts  with the  financial  institutions
where  such  accounts  are  presently   located  (or  at  such  other  financial
institutions acceptable to the Agent).

         SECTION 5.9.  Customer Charge Sales.         Continue  to  maintain   a
"Project  Card" and  commercial  credit  receivables  sales  and  administration
program with the Credit Card Banks pursuant to the GE Credit  Program  Documents
or a similar program (it being  understood that a program shall not be deemed to
be  dissimilar  solely by virtue of the fact that the Borrower  shall act as the
administrator or "servicer" of the receivables  thereunder) with another Person,
in each case on terms and conditions which are, in the aggregate, not materially
less  favorable to the  Borrower  nor  materially  more  restrictive  than those
provided for in the GE Credit Program Documents as in effect on the Closing Date
(except for changes in such terms and  conditions  which are  acceptable  to the
Agent and the Required Lenders in their judgment reasonably exercised).

         SECTION 5.10  Lender Meetings.    From time to time as requested by the
Agent or the  Required  Lenders,  participate,  and cause  the  chief  financial
officer to be available  for and to  participate  in, a meeting of the Agent and
the Lenders to be held,  at  reasonable  intervals,  at  locations  and at times
requested by the Agent and the Required  Lenders and reasonably  satisfactory to
the Borrower.

         SECTION 5.11.  After-Acquired Properties.  If the Borrower acquires any
interest in any real property  including without limitation a leasehold interest
(each such property or interest, an "After-Acquired Property"), promptly, but in
any event within 30 days,  provide written notice thereof to the Agent,  setting
forth with specificity a description of such property or interest acquired,  the
location  of  the  interest,  any  structures  or  improvements  thereon  and an
appraisal  or its good faith


<PAGE> 51


estimate of the current  fair market  value of such  property or  interest.  The
Agent shall  provide  notice to the Borrower of whether it intends to direct the
Borrower (and, if requested by the Majority Lenders,  the Agent shall direct the
Borrower) to grant and record a mortgage or deed of trust on such After-Acquired
Property.  In such event, the Borrower shall promptly execute and deliver to the
Agent a mortgage or deed of trust  substantially in the form of Exhibits G-1 and
G-2 to the Existing Credit Agreement,  respectively (with such changes as may be
deemed  appropriate  by the Agent's  local real estate  counsel for the state in
question),  together with such other documents or instruments as the Agent shall
reasonably require,  including (without  limitation) a Title Policy, a Survey, a
Phase I  environmental  report and an opinion of the  Agent's  local real estate
counsel.  The Borrower  shall pay all  reasonable  fees and expenses,  including
attorneys'  fees  and  expenses  or  the  allocated  charges  and  premiums,  in
connection with its obligation under this Section. If at any time after the date
hereof,  any existing  Lien or  sale-leaseback  arrangement  which  prevents the
further mortgaging of any real property of the Borrower, shall for any reason no
longer prevent such further mortgaging,  then such property shall also be deemed
an After-Acquired Property for purposes of this Section.

SECTION 6.  NEGATIVE COVENANTS

         From  the date  hereof  and for so long as any  Commitment  shall be in
effect or any Letter of Credit  shall  remain  outstanding  (in a face amount in
excess of the amount of cash then held in the relevant Letter of Credit Account,
or the face amount of the relevant back-to-back letters of credit delivered,  in
each case  pursuant to Section  2.2(c)) or any amount shall  remain  outstanding
under any Note or unpaid under this Agreement, unless the Required Lenders shall
otherwise  consent in writing,  the Borrower will not (and will not apply to the
Bankruptcy Court for authority to):

         SECTION 6.1.  Liens.    Incur,  create,  assume  or suffer to exist any
Lien on any asset now owned or hereafter  acquired by the  Borrower,  other than
(i) Liens which were  existing on the Filing Date as  reflected  on Schedule 3.6
hereto and other Liens incurred in accordance with the Existing Credit Agreement
which are to be set forth on Schedule 3.6 within 20 days, Liens of the same type
as (and no more extensive than) those granted  pursuant to the GE Credit Program
Documents  in favor  of  another  Person  replacing  the  Credit  Card  Banks in
providing the Borrower's  "Project Card" and commercial credit receivables sales
and  administration  program in  accordance  with Section 5.9 and Liens  granted
pursuant to the Existing Agreements; (ii) Liens in favor of the Existing Lenders
granted as adequate  protection  pursuant  to the Orders or the Cash  Collateral
Order, which Liens are junior to the Liens  contemplated  hereby in favor of the
Agent and the  Lenders;  provided,  that the  Interim  Order and the Final Order
provide  that the holder of such junior Liens shall not be permitted to take any
action to  foreclose  with respect to, or otherwise  realize  upon,  such junior
Liens so long as any amounts  shall  remain  outstanding  hereunder or under the
Notes or any Commitment  shall be in effect;  (iii)  Permitted  Liens;  and (iv)
Liens in favor of the Agent and the Lenders and the Fronting Banks.  

         SECTION 6.2.  Merger, etc.  Consolidate  or merge  with or into another
Person.


<PAGE> 52


         SECTION 6.3.  Capital Expenditures.   Contract,  create,  incur, assume
or suffer to exist any Debt, except for (i) Debt under this Agreement, (ii) Debt
incurred prior to the Filing Date (including Debt outstanding  under Capitalized
Leases as in effect on the Filing Date),  (iii) Debt incurred  subsequent to the
Filing Date-  secured by purchase  money Liens  (exclusive  of Debt  outstanding
under Capitalized Leases) in an aggregate amount not to exceed $5,000,000,  (iv)
Debt outstanding under Capitalized  Leases entered into after the Filing Date to
the extent  permitted by Section 6.4, (v) Debt arising from Investments that are
permitted  hereunder,  and  (vi)  Debt  incurred  under  the GE  Credit  Program
Documents and any other  agreements  permitted  under Section 5.9. 

         SECTION 6.4  Capital Expenditures.   Directly or indirectly,  make  an
expenditures or incur any  obligations  for fixed or capital assets  (including,
but not limited to (x) payments on account of any  mortgages,  Liens or security
interests  permitted  pursuant  to  Section  6.1  (iii),  but only to the extent
covered by clause (v) of the  definition  of  Permitted  Liens and (y)  goodwill
associated  with  any  permitted   capital   expenditure  that  would  otherwise
constitute an  Investment,  and the Borrower will not incur any  obligations  in
respect of capital  leases,  in excess in the aggregate for the Borrower and its
Subsidiary for all such  expenditures  and  obligations,  during the fiscal year
ending  November 1997 of $69,000,000 or of the following  amounts during each of
the fiscal quarters set forth below:

                          Fiscal Quarter Ending                     Total Amount
                          ---------------------                    -------------
                          February 1998                              $21,000,000

                          May 1998                                   $17,000,000

provided,  that if the aggregate amount of all Dual Path Capital Expenditures or
all other  capital  expenditures  during any fiscal  period of the  Borrower set
forth above  (after the  application  of all Dual Path Capital  Expenditures  or
other capital  expenditures,  respectively,  during such fiscal period, first to
amounts  available  for such  purposes  for such fiscal  period  pursuant to the
operation of this proviso) shall be less than the  respective  amounts set forth
in the table  below  for such  fiscal  period,  then the  amount of the  capital
expenditures for the immediately  succeeding fiscal period shall be increased by
an amount equal to the unutilized portion of Dual Path Capital  Expenditures for
such prior fiscal period and, in the case of all other capital expenditures,  by
an amount equal to the lesser of (x) an amount equal to such unutilized  portion
and (y) 50% of the amount of capital expenditures for such prior fiscal period.



<PAGE> 53


                                    Dual Path
                                     Capital
         Period                    Expenditures               Other
         ---------------------     ------------               -----------
         Fiscal Year ending
         November 1997             $36,800,000                $32,200,000

         Fiscal Quarter ending
         February 1998             $15,800,000                $ 5,200,000

         Fiscal Quarter ending
         May 1998                  $ 9,700,000                $ 7,300,000

             In the event that the Borrower  shall sell (or has sold),  or shall
receive (or has received)  insurance proceeds in connection with the destruction
of, a fixed or capital asset owned by it and shall,  within six months after the
sale or 24 months after the destruction of such fixed or capital asset, purchase
or enter into a capital lease with respect to a  substantially  similar fixed or
capital  asset as a  replacement  for such sold or  destroyed  fixed or  capital
asset, then for purposes of determining  compliance with this Section, only that
portion of the purchase price or Capitalized Lease obligation paid,  incurred or
accrued by the Borrower for such replacement fixed or capital asset in excess of
the  sale  price or  insurance  proceeds,  as the  case  may be,  of the sold or
destroyed  similar  fixed or capital  asset  shall be used in  determining  such
compliance with this Section.

             Notwithstanding anything to the contrary contained in this Section,
there  shall be  excluded  from  the  determination  of the  amount  of  capital
expenditures  made in any fiscal period,  capital  expenditures  made during any
such  fiscal  period to the extent of an amount  equal to the net cash  proceeds
received during such fiscal period from any Permitted Pad Sales of real property
acquired by the  Borrower.  For purposes of this  Section,  (i) all  obligations
incurred  under a Capitalized  Lease shall be deemed(a) to have been incurred on
the date of execution of such lease and (ii) the amount of obligations  incurred
with respect to a Capitalized Lease on such date of execution of the lease shall
be the capitalized amount thereof determined in accordance with GAAP.

         SECTION 6.5.  EBITDA.          Permit cumulative EBITDA for each period
commencing on June 1, 1997 and ending on the quarterly  dates listed below to be
less than the amount specified opposite such period:


<PAGE>54

           Fiscal Quarter Ending                       EBITDA
           ---------------------                     -----------
              August 1997                            $15,700,000
             November 1997                           $25,300,000
             February 1998                           $27,900,000
               May 1998                              $47,400,000

         SECTION 6.6.  Chapter 11 Claims.   Incur,  create,  assume,  suffer  to
exist or permit  any other  Super-Priority  Claim  which is pari  passu  with or
senior  to the  claims  of the  Agent and the  Lenders  and the  Fronting  Banks
hereunder, except for the Carve-Out.

         SECTION 6.7.  Dividends; Capital Stock.    Declare or pay,  directly or
indirectly,  any dividends or make any other distribution or payment, whether in
cash, property, securities or a combination thereof, with respect to (whether by
reduction of capital or otherwise)  any shares of capital stock (or any options,
warrants,  rights or other  equity  securities  or  agreements  relating  to any
capital stock), or set apart any sum for the aforesaid purposes.

         SECTION 6.8.  Transactions with Affiliates.        Sell or transfer any
property or assets to, or otherwise engage in any other  transactions  with, any
of its Affiliates other than in the ordinary course of business at prices and on
terms and  conditions  not less favorable to the Borrower than could be obtained
on an arm's-length basis from unrelated third parties.

         SECTION 6.9.  Investments, Loans and Advances.       Purchase,  hold or
acquire any capital  stock,  evidences of Debt or other  securities  of, make or
permit  to exist  any  loans or  advances  to,  or make or  permit  to exist any
investment  in,  any other  Person by the  Borrower  or  Lumberjack  (all of the
foregoing,  "Investments"),  except,  in the case of the  Borrower,  for (i) the
ownership by the Borrower of  Lumberjack  as in effect on the Filing Date,  (ii)
Temporary Cash Investments, and (iii) existing Investments set forth on Schedule
6.9.

         SECTION 6.10.  Disposition of Assets.  Sell  or  otherwise  dispose  of
any assets  (including,  without  limitation,  the capital stock of Lumberjack),
except for (i) sales of inventory, fixtures and equipment in the ordinary course
of business for fair value and sales of customer  receivables pursuant to the GE
Credit Program  Documents or any similar program entered into in accordance with
Section 5.9,  (ii) sales of closed  stores,  sales of inventory  located at such
closed  stores  and  sales or other  dispositions  of  assets  related  thereto,
including  (without  limitation) sales listed on Schedule 6.10 and Permitted Pad
Sales, in each case to the extent such sales or dispositions  are for fair value
for cash and the Net Cash  Proceeds  thereof are applied to the repayment of the
Debt secured thereby,  and (iii) sales or other  dispositions of assets having a
fair market value not exceeding $2,000,000 in the aggregate.


<PAGE> 55


         SECTION 6.11.  Nature of Business.     Modify or alter in any  material
manner the  nature  and type of its  business  as  conducted  at or prior to the
Filing  Date or the  manner in which  such  business  is  conducted  (except  as
required by the Bankruptcy Code).

         SECTION 6.12.  Accounting Changes.   Make any significant change in its
accounting treatment or financial reporting practices except as required by GAAP
or change its fiscal year or the method of determining its fiscal quarter ends.

         SECTION 6.13.  Sale/Lease-Backs. Enter into any arrangements,  directly
or indirectly,  with any Person, whereby the Borrower shall sell or transfer any
property,  whether  now  owned or  hereafter  acquired,  used or  useful  in its
business,  in  connection  with the rental or lease of the  property  so sold or
transferred.

         SECTION 6.14.  Environmental Matters.   (a) Use, generate, manufacture,
produce,  store,  release,  discharge  or dispose of on, under or about any real
property owned or leased (other than any such leased property which  constitutes
a minor  part of a larger  piece of  property  over which the  Borrower  has any
control (such as a lease of a small number of parking  places in a large parking
lot)) by the Borrower (all such owned or leased real property, being hereinafter
called the  "Property"),  or transport to or from the  Property,  any  Hazardous
Substance,  or (to the extent within the  Borrower's  control)  permit any other
Person to do so,  where such could  reasonably  be  expected  to have a material
adverse effect on the business, operations,  condition (financial or otherwise),
assets or prospects of the Borrower.

                  (b) The  Borrower  shall keep and  maintain  the  Property  in
compliance with any Environmental Law (as defined below) where the failure to do
so could  reasonably  be expected  to have a  materially  adverse  effect on the
business, operations, condition (financial or otherwise), assets or prospects of
the Borrower.

                  (c) In the  event  that any  investigation,  site  monitoring,
containment, cleanup, removal, restoration or other remedial work of any kind or
nature  (the  "Remedial  Work") with  respect to any portion of the  Property is
required to be performed by the Borrower  under any applicable  local,  state or
federal law or regulation,  any judicial order, or by any Governmental Authority
or any other Person  because of, or in  connection  with,  any current or future
presence,  suspected  presence,  release or  suspected  release  of a  Hazardous
Substance in or into the air,  soil,  groundwater or surface water at, on, under
or within the  Property  (or any  portion  thereof)  which could  reasonably  be
expected  to have a  materially  adverse  effect  on the  business,  operations,
condition  (financial or  otherwise),  assets or prospects of the Borrower,  the
Borrower (i) shall promptly notify the Agent in writing,  (ii) shall, as soon as
practicable,  commence and thereafter  diligently  prosecute to completion,  all
such  Remedial  Work and (iii) shall  provide the Agent with the results of such
investigations, studies and samplings as may be requested by the Agent.



<PAGE> 56


                  (d) The Borrower will defend,  indemnify and hold harmless the
Agent, and the Lenders,  and their respective  employees,  agents,  officers and
directors, from and against any claims, demands,  penalties, fines, liabilities,
settlements,  damages,  costs and  expenses of whatever  kind or nature known or
unknown, contingent or otherwise,  arising out of, or in any way relating to the
violation  of,  noncompliance  with or  liability  under any  Environmental  Law
applicable to the  operations  of the Borrower or the  Property,  or any orders,
requirements or demands of Governmental  Authorities or any other Person related
thereto,  including,  without  limitation,  attorneys'  and  consultants'  fees,
investigation  and laboratory fees,  response costs,  court costs and litigation
expenses, except to the extent that any of the foregoing arise solely out of the
gross  negligence or willful  misconduct  of the party  seeking  indemnification
therefor,  as  determined  by a final order or judgment of a court of  competent
jurisdiction.  This indemnity shall continue in full force and effect regardless
of the  termination  of this  Agreement and the payment and  performance  of the
Obligations.

                  (e) As used herein, (i) "Environmental Law" means any federal,
state or local law, statute, ordinance, or regulation now or hereafter in effect
pertaining to health, safety,  industrial hygiene, or environmental  conditions,
including,  without  limitation,  regulations  promulgated  under  the  Resource
Conservation and Recovery Act (42 U.S.C.  ss.ss. 6901 et seq.) and (ii) the term
"Hazardous  Substance" means those substances included within the definitions of
"hazardous  substances",  "hazardous  materials",  "toxic  substances" or "solid
waste"  under  the  Comprehensive   Environmental  Response,   Compensation  and
Liability  Act of 1980,  as amended,  42 U.S.C.  ss.9601 et seq.,  the  Resource
Conservation  and  Recovery  Act of 1976,  42  U.S.C.  ss.6901  et seq.  and the
Hazardous  Materials  Transportation  Act, 49 U.S.C.  ss.1801 et seq., the Toxic
Substance Control Act, 15 U.S.C. ss.2601 et seq., the Clean Water Act, 33 U.S.C.
ss.1251 et seq.,  and the Clean Air Act,  42 U.S.C.  ss.7401 et seq.  and in the
regulations  promulgated  pursuant  to said  laws,  and such  other  substances,
materials and wastes which are or become regulated under applicable local, state
or federal law, or which are  classified  as  hazardous or toxic under  federal,
state,  or local laws or regulations or any other  substance which may give rise
to liability under any Environmental Laws.

                  (f) In the event the Agent determines that any  representation
hereunder  may be  incorrect  or that the Borrower has failed to comply with any
covenant under this Section in any material  respect,  the Borrower upon request
shall undertake such investigations, studies, samplings and testings relative to
Hazardous Substance at the property in question as the Agent may request.

         SECTION 7.   EVENTS OF DEFAULT

         SECTION 7.1.  Events of Default.    In the case of the happening of any
of the following events and the continuance thereof beyond the applicable period
of grace if any (each, an "Event of Default"):

                  (a)  any  material  representation  or  warranty  made  by the
Borrower in this  Agreement or in any other Loan Document or in connection  with
this  Agreement  or with the  execution  and delivery of the Notes or any of the
other  Loan  Documents  or the  credit  extensions  hereunder  or


<PAGE> 57


any  material  statement  or  representation  made  in  any  report,   financial
statement, certificate or other document furnished by the Borrower to the Agent,
the Lenders or the Fronting Banks under or in connection  with this Agreement or
any of the other Loan Documents, shall prove to have been false or misleading in
any material respect when made or delivered; or

                  (b) default  shall be made in the payment of any  principal of
or interest on the Loans or any other amounts payable by the Borrower  hereunder
(including,   without   limitation,   any   Fees   or   reimbursement   or  cash
collateralization  obligations in respect of Letters of Credit), when and as the
same shall become due and payable,  whether at the due date thereof  (including,
without  limitation,  the  Prepayment  Date) or at a date  fixed for  prepayment
thereof or by acceleration thereof or otherwise; or

                  (c)  default  shall  be  made  by  the  Borrower  in  the  due
observance or performance of any covenant,  condition or agreement  contained in
Section 6 (and such default shall  continue  unremedied  (x) after notice to the
Borrower  in the case of Section  6.10 and (y) for more than five (5) days after
notice to the Borrower in the case of Sections 5.11, 6.13 and 6.14); or

                  (d)  default  shall  be  made  by  the  Borrower  in  the  due
observance or  performance of any other  covenant,  condition or agreement to be
observed  or  performed  pursuant to the terms of this  Agreement  or any of the
other Loan  Documents and such default shall  continue  unremedied for more than
ten (10) days (or such default shall  continue  unremedied  for more than thirty
(30) days in the case of Sections 5.2 and 5.4) or

                  (e) the Case shall be  dismissed  or converted to a case under
Chapter 7 of the Bankruptcy Code, a trustee under Chapter 7 or Chapter 11 of the
Bankruptcy  Code shall be  appointed in the Case and the order  appointing  such
trustee shall not be reversed or vacated within 30 days after the entry thereof;
or an  application  shall be filed by the Borrower for the approval of any other
Super-Priority  Claim (other than the Carve-Out) in the Case which is pari passu
with or senior to the claims of the Agent,  the  Fronting  Banks and the Lenders
against the Borrower hereunder, or there shall arise or be granted any such pari
passu or senior Super-Priority Claim; or

                  (f) the  Bankruptcy  Court  shall  enter an  order  or  orders
granting  relief from the  automatic  stay  applicable  under Section 362 of the
Bankruptcy  Code to the  holder or holders of any  security  interest  to permit
foreclosure  (or the granting of a deed in lieu of  foreclosure  or the like) on
any  assets of the  Borrower  which  have a value in excess of  $500,000  in the
aggregate; or

                  (g)      a Change of Control shall have occurred; or

                  (h) any material provision of any Loan Document shall, for any
reason, cease to be valid and binding on the Borrower,  or the Borrower shall so
assert in any pleading filed in any court; or


<PAGE> 58


                  (i) an order of the  Bankruptcy  Court shall be entered in the
Case  appointing an examiner with enlarged  powers  relating to the operation of
the business of the  Borrower  (i.e.,  powers  beyond those set forth in Section
1106(a)(3)  and  (4)  of the  Bankruptcy  Code)  under  Section  1106(b)  of the
Bankruptcy  Code and such order shall not be reversed or vacated  within 30 days
after the entry thereof; or

                  (j) an order of the  Bankruptcy  Court  shall be  entered  (i)
reversing, amending,  supplementing,  staying for a period in excess of 10 days,
vacating or otherwise  modifying either of the Orders (without the prior written
consent of the Agent and the Required  Lenders) or (ii)  terminating  the use of
cash collateral by the Borrower pursuant to the Cash Collateral Order; or

                  (k) any judgment or order as to a  post-petition  liability or
Debt for the payment of money in excess of $1,000,000  shall be rendered against
the Borrower and the  enforcement  thereof shall not be subject to the automatic
stay or any other applicable stay; or

                  (l) any  non-monetary  judgment  or order  with  respect  to a
post-petition  event shall be rendered  against the Borrower which does or would
reasonably be expected to (i) cause a material  adverse  change in the financial
condition, business, prospects,  operations or assets of the Borrower, (ii) have
a  material  adverse  effect on the  ability  of the  Borrower  to  perform  its
obligations under any Loan Document,  or (iii) have a material adverse effect on
the rights and remedies of the Agent, the Fronting Banks or any Lender under any
Loan Document, and there shall be any period of 10 consecutive days during which
a stay of enforcement  of such judgment or order,  by reason of a pending appeal
or otherwise, shall not be in effect; or

                  (m) the Borrower  shall make any  Pre-Petition  Payments other
than as permitted  under the Orders or the Cash  Collateral  Order to the extent
authorized by the Bankruptcy Court; or

                  (n) any  Termination  Event described in clauses (iii) or (iv)
of the definition of such term shall have occurred and shall continue unremedied
for more than 10 days and the sum  (determined  as of the date of  occurrence of
such  Termination  Event) of the  Insufficiency  of the Plan in respect of which
such   Termination   Event  shall  have  occurred  and  be  continuing  and  the
Insufficiency  of  any  and  all  other  Plans  with  respect  to  which  such a
Termination  Event (described in such clauses (iii) or (iv)) shall have occurred
and then exist is equal to or greater than $3,000,000; or

                  (o) (i) the Borrower or any ERISA Affiliate thereof shall have
been  notified  by the  sponsor  of a  Multiemployer  Plan that it has  incurred
Withdrawal Liability to such Multiemployer Plan, (ii) the Borrower or such ERISA
Affiliate does not have reasonable grounds to contest such Withdrawal  Liability
and is not  in  fact  contesting  such  Withdrawal  Liability  in a  timely  and
appropriate manner, and (iii) the amount of such Withdrawal  Liability specified
in such notice,  when 


<PAGE> 59


aggregated  with all other amounts  required to be paid to
Multiemployer Plans in connection with Withdrawal Liabilities  (determined as of
the  date  of  such  notification),  exceeds  $5,000,000  or  requires  payments
exceeding  $500,000 per annum in excess of the annual payments made with respect
to such MultiEmployer Plans by the Borrower or such ERISA Affiliate for the plan
year immediately preceding the plan year in which such notification is received;
or
                  (p) the  Borrower or any ERISA  Affiliate  thereof  shall have
been  notified by the sponsor of a  Multiemployer  Plan that such  Multiemployer
Plan is in reorganization or is being terminated, within the meaning of Title IV
of ERISA,  if as a result of such  reorganization  or termination  the aggregate
annual   contributions   of  the  Borrower  and  its  ERISA  Affiliates  to  all
Multiemployer  Plans that are then in  reorganization  or being  terminated have
been or will be increased  over the amounts  contributed  to such  Multiemployer
Plans for the plan years that  include  the date  hereof by an amount  exceeding
$2,000,000; or

                  (q) the Borrower or any ERISA Affiliate shall have committed a
failure  described in Section 302(f)(1) of ERISA (other than the failure to make
any  contribution  accrued  and  unpaid as of the  Filing  Date) and the  amount
determined  under  Section  302(f)(3)  of  ERISA is  equal  to or  greater  than
$2,000,000; or

                  (r) it shall be determined (whether by the Bankruptcy Court or
by any other judicial or  administrative  forum) that the Borrower is liable for
the payment of claims arising out of any failure to comply (or to have complied)
with applicable  environmental  laws or  regulations,  the payment of which will
have a material adverse effect on the financial condition, business, properties,
operations or assets of the Borrower;

then, and in every such event and at any time thereafter  during the continuance
of such event,  and without  further order of or  application  to the Bankruptcy
Court,  the Agent may,  and at the request of the  Required  Lenders  shall,  by
notice to the  Borrower  (with a copy to  counsel  for the  Official  Creditors'
Committee appointed in the Case and to the United States Trustee for the Western
District of Missouri), take one or more of the following actions, at the same or
different  times  (provided,  that with  respect  to clause  (iv)  below and the
enforcement  of Liens or other  remedies  with respect to the  Collateral  under
clause (v) below,  the Agent shall provide the Borrower  (with a copy to counsel
for the Official  Creditors'  Committee  appointed in the Case and to the United
States  Trustee for the Western  District of  Missouri)  with five (5)  Business
Days'  written  notice  prior to taking  the  action  contemplated  thereby  and
provided,  further,  that upon receipt of notice  referred to in the immediately
preceding clause with respect to the accounts  referred to in clause (iv) below,
the  Borrower  may  continue to make  ordinary  course  disbursements  from such
accounts  (other  than the Letter of Credit  Accounts)  but may not  withdraw or
disburse any other  amounts from such  accounts):  (i)  terminate  forthwith the
Total  Commitment;  (ii) declare the Loans then  outstanding to be forthwith due
and  payable,  whereupon  the  principal  of the Loans,  together  with  accrued
interest  thereon and any unpaid  accrued Fees and all other  liabilities of the
Borrower  accrued  hereunder  and under any other Loan


<PAGE> 60


Document, shall become forthwith due and payable,  without presentment,  demand,
protest  or any  other  notice of any kind,  all of which are  hereby  expressly
waived by the Borrower,  anything contained herein or in any other Loan Document
to the  contrary  notwithstanding;  (iii)  require the  Borrower  upon demand to
forthwith  deposit  in the  respective  Letter  of Credit  Accounts  cash in the
respective amounts equal to the sum of 105% of the then outstanding  Standby and
Documentary  Letters of Credit  and,  to the extent the  Borrower  shall fail to
furnish such funds as demanded by the Agent,  the Agent shall be  authorized  to
debit or cause to be debited the  account of the  Borrower  maintained  with the
Agent,  any Fronting Bank or any Lender in such amount;  (iv) set-off or request
to be set-off  amounts in the Letter of Credit  Accounts  or any other  accounts
maintained  with the Agent,  any Fronting  Bank or any Lender and apply or cause
such  amounts to be applied to the  obligations  of the Borrower  hereunder  and
under the other Loan Documents;  and (v) exercise any and all remedies under the
Loan  Documents and under  applicable  law available to the Agent,  the Fronting
Banks and the Lenders.  In the case of any exercise of the right of set-off with
respect to Letter of Credit  Accounts,  such right may be exercised  only to pay
unreimbursed  draws  under,  and unpaid  fees,  costs and  expenses  incurred in
connection  with,  any Letters of Credit issued by the Fronting Bank in the name
of which Fronting Bank such Letter of Credit  Account is  maintained,  except to
the extent that the balance of a Letter of Credit  Account  exceeds  105% of the
Letter of Credit Outstanding that pertain to such Letter of Credit Account.  Any
such excess amount may be applied to other Obligations.

         SECTION 8. THE AGENT

         SECTION 8.1.  Administration by Agent.     The  general  administration
of the Loan  Documents  shall be by the Agent.  Each Lender  hereby  irrevocably
authorizes  the Agent,  at its  discretion,  to take or refrain from taking such
actions as agent on its behalf and to exercise or refrain from  exercising  such
powers  under  this  Agreement,  the Notes and the other Loan  Documents  as are
delegated  by the terms hereof or thereof,  as  appropriate,  together  with all
powers  reasonably  incidental  thereto  (including the release of Collateral in
connection  with  any  transaction  that  is  expressly  permitted  by the  Loan
Documents).  The Agent  shall have no duties or  responsibilities  except as set
forth in this Agreement and the remaining Loan Documents.

         SECTION 8.2.  Advances and Payments.

                  (a) On the date of each Loan,  the Agent  shall be  authorized
(but not  obligated,  except  pursuant to Section  2.2(g)) to  advance,  for the
account  of each of the  Lenders,  the  amount  of the  Loan to be made by it in
accordance  with its Commitment  hereunder.  Should the Agent do so, each of the
Lenders agrees  forthwith to reimburse the Agent in immediately  available funds
for the amount so advanced on its behalf by the Agent, together with interest at
the Federal  Funds Rate if not so  reimbursed on the date due from and including
such date but not including the date of reimbursement.


<PAGE> 61


                  (b) Any amounts  received by the Agent in connection with this
Agreement  or the Notes  (other  than  amounts  to which  the Agent is  entitled
pursuant to Sections 2.18,  8.6, 9.5 and 9.6),  the  application of which is not
otherwise provided for in this Agreement shall be applied,  first, in accordance
with each Lender's  Commitment  Percentage to pay accrued but unpaid  Commitment
Fees or Letter of Credit Fees,  and second,  in  accordance  with each  Lender's
Commitment  Percentage to pay accrued but unpaid  interest on, and the principal
balance  outstanding  of,  each  Note  and all  unreimbursed  Letter  of  Credit
drawings.  All  amounts to be paid to a Lender by the Agent shall be credited to
that Lender,  after  collection by the Agent,  in  immediately  available  funds
either by wire transfer or deposit in that Lender's  correspondent  account with
the Agent, as such Lender and the Agent shall from time to time agree.

         SECTION 8.3.  Sharing of Setoffs.  Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower,  including,  but not limited to, a secured claim under Section 506
of the Bankruptcy  Code or other  security or interest  arising from, or in lieu
of,  such  secured  claim and  received  by such  Lender  under  any  applicable
bankruptcy,  insolvency or other similar law, or  otherwise,  obtain  payment in
respect  of its  Obligations  as a result of which  the  unpaid  portion  of the
principal  amount of its  Obligations  is  proportionately  less than the unpaid
portion of the principal  amount of the Obligations of any other Lender:  (a) it
shall  promptly  purchase,  at par  (and  shall  be  deemed  to  have  thereupon
purchased),  from such other Lender,  a participation in the Obligations of such
other Lender,  so that the aggregate  unpaid  principal  amount of each Lender's
Obligations and its  participation  in Obligations of the other Lenders shall be
in  the  same  proportion  to  the  aggregate  unpaid  principal  amount  of all
Obligations then outstanding as the principal amount of its Obligations prior to
the  obtaining of such payment was to the  principal  amount of all  Obligations
outstanding  prior  to  the  obtaining  of  such  payment  and  (b)  such  other
adjustments shall be made from time to time as shall be equitable to ensure that
the Lenders share such payment pro rata; provided, that if any such non-pro rata
payment  is  thereafter  recovered  or  otherwise  set aside  such  purchase  of
participations  shall be rescinded  (without interest) and provided further that
all references to "Obligations" in this Section shall mean all Obligations other
than  pursuant to Sections  2.14,  2.18,  8.6,  9.5 and 9.6 and any  incremental
Obligations arising pursuant to Section 2.15. The Borrower expressly consents to
the foregoing  arrangements  and agrees that any Lender holding (or deemed to be
holding) a  participation  in the unpaid  principal  amount of an Obligation may
exercise any and all rights of banker's lien, setoff (subject,  in each case, to
the  same  notice  requirements  as  pertain  to  clause  (iv)  of the  remedial
provisions  of Section 7.1) or  counterclaim  with respect to any and all moneys
owing by the Borrower to such Lender, as fully as if such Lender held a Note and
was the original obligee thereon, in the amount of such participation.

         SECTION 8.4.  Agreement of Required Lenders.          Upon any occasion
requiring or permitting an approval,  consent,  waiver, election or other action
on the part of the Required Lenders,  action shall be taken by the Agent for and
on behalf or for the benefit of all Lenders  upon the  direction of the Required
Lenders, and any such action shall be binding on all Lenders.


<PAGE> 62


         SECTION 8.5.  Liability of Agent.

                  (a) The  Agent,  when  acting on behalf  of the  Lenders,  may
execute any of its  respective  duties under this Agreement by or through any of
its respective  officers,  agents, and employees,  and neither the Agent nor its
directors,  officers,  agents,  employees or  Affiliates  shall be liable to the
Lenders  or any of them  for any  action  taken or  omitted  to be taken in good
faith,  or be responsible to the Lenders or to any of them for the  consequences
of any  oversight or error of judgment,  or for any loss,  unless the same shall
happen  through its gross  negligence or willful  misconduct.  The Agent and its
respective  directors,  officers,  agents,  employees and Affiliates shall in no
event be liable to the Lenders or to any of them for any action taken or omitted
to be taken by them pursuant to instructions  received by them from the Required
Lenders  or in  reliance  upon the  advice of counsel  selected  by it.  Without
limiting the foregoing,  neither the Agent, nor any of its respective directors,
officers, employees, agents or Affiliates shall be responsible to any Lender for
the  due  execution,  validity,  genuineness,  effectiveness,   sufficiency,  or
enforceability  of, or for any statement,  warranty,  or representation in, this
Agreement, any other Loan Document or any related agreement,  document or order,
or  shall  be  required  to  ascertain  or to make any  inquiry  concerning  the
performance  or  observance  by the  Borrower  of any of the terms,  conditions,
covenants, or agreements of this Agreement or any of the Loan Documents.

                  (b)  Neither  the Agent nor any of its  respective  directors,
officers,  employees,  agents or Affiliates shall have any responsibility to the
Borrower  on account of the  failure  or delay in  performance  or breach by any
Lender or by the Borrower of any of its Obligations  under this Agreement or the
Notes or any of the other Loan Documents or in connection herewith or therewith.

                  (c) The Agent,  in its capacity as Agent  hereunder,  shall be
entitled  to rely  on any  communication,  instrument,  or  document  reasonably
believed  by the Agent to be genuine or correct  and to have been signed or sent
by a person or persons believed by the Agent to be the proper person or persons,
and the Agent shall be entitled to rely on advice of legal counsel,  independent
public accountants,  and other professional advisers and experts selected by the
Agent.

         SECTION 8.6.  Reimbursement and Indemnification.    Each Lender  agrees
(i) to  reimburse  (x) the  Agent  and the  Fronting  Banks  for  such  Lender's
Commitment  Percentage  of any  expenses  and fees  incurred by the Agent or the
Fronting  Banks (as the case may be) for the benefit of the Lenders  under or in
connection  with  this  Agreement,  the  Notes  and  any of the  Loan  Documents
including,  without  limitation,  counsel  fees and  compensation  of agents and
employees  paid for services  rendered on behalf of the  Lenders,  and any other
expense  incurred in connection  with the  operations or  enforcement  hereof or
thereof not  reimbursed by the Borrower and (y) the Agent and the Fronting Banks
for such  Lender's  Commitment  Percentage  of any  expenses of the Agent or the
Fronting Banks (as the case may be) incurred for the benefit of the Lenders that
the Borrower  has agreed to reimburse  pursuant to Section 9.5 and has failed so
to reimburse  and (ii) to indemnify and hold harmless the Agent and the Fronting
Banks and any of their  respective  directors,  officers,


<PAGE> 63


employees,  agents or  Affiliates,  on demand,  in the amount of its  Commitment
Percentage,  from and  against  any and all  liabilities,  obligations,  losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind or  nature  whatsoever  which may be  imposed  on,  incurred  by, or
asserted  against  any of them in any way  relating  to or  arising  out of this
Agreement,  the Notes or any of the other Loan  Documents or any action taken or
omitted by it or any of them under this Agreement, the Notes or any of the other
Loan  Documents to the extent not  reimbursed  by the  Borrower  (except such as
shall result from their respective gross negligence or willful misconduct).

         SECTION 8.7.  Rights of Agent.  It is  understood  and agreed that CIBC
shall have the same  rights and powers  hereunder  (including  the right to give
such instructions) as the other Lenders and may exercise such rights and powers,
as well as its rights and powers under other agreements and instruments to which
it is or may be party, and engage in other  transactions  with the Borrower,  as
though it were not the Agent of the Lenders under this Agreement.

         SECTION 8.8.  Independent Lenders.  Each  Lender  acknowledges  that it
has decided to enter into this Agreement and to make the Loans  hereunder  based
on  its  own  analysis  of  the  transactions  contemplated  hereby  and  of the
creditworthiness  of the  Borrower  and  agrees  that the  Agent  shall  bear no
responsibility therefor.

         SECTION 8.9.  Notice of Transfer. The Agent may deem and treat a Lender
party to this  Agreement as the owner of such Lender's  portion of the Loans for
all purposes,  unless and until a written  notice of the  assignment or transfer
thereof  executed by such Lender in accordance  with Section 9.3 shall have been
received by the Agent.

         SECTION 8.10.  Successor Agent.     The Agent may resign at any time by
giving  written  notice  thereof to the Lenders and the Borrower.  Upon any such
resignation,  the Required  Lenders  shall have the right to appoint a successor
Agent, which shall be reasonably  satisfactory to the Borrower.  If no successor
Agent  shall  have been so  appointed  by the  Required  Lenders  and shall have
accepted such  appointment,  within 30 days after the retiring Agent's giving of
notice of resignation, the retiring Agent may, on behalf of the Lenders, appoint
a successor Agent,  which shall be a commercial bank organized under the laws of
the  United  States of  America  or of any State  thereof  and having a combined
capital  and  surplus  of  a  least  $100,000,000,  which  shall  be  reasonably
satisfactory  to the Borrower.  Upon the acceptance of any  appointment as Agent
hereunder by a successor Agent,  such successor Agent shall thereupon succeed to
and become  vested with all the  rights,  powers,  privileges  and duties of the
retiring  Agent,  and the retiring Agent shall be discharged from its duties and
obligations  under this  Agreement,  except that CIBC shall remain  obligated to
First Bank in its capacity as Documentary  Letter of Credit Bank with respect to
Documentary  Letters of Credit issued during the period that CIBC was the Agent.
After any retiring  Agent's  resignation  hereunder as Agent,  the provisions of
this Section 8 shall inure to its benefit as to any actions  taken or omitted to
be taken by it while it was Agent under this Agreement.


<PAGE> 64


         SECTION 9.   MISCELLANEOUS

         SECTION 9.1.  Notices.  Notices and other  communications provided  for
herein shall be in writing  (including  telegraphic,  telex,  facsimile or cable
communication) and shall be mailed, telegraphed, telexed, transmitted, cabled or
delivered  to the Borrower at 2300 Main Street,  2 Pershing  Square,  3rd Floor,
Kansas City, MO 64108,  Attention:  Chief Financial  Officer,  to First Bank, so
long as it shall be the  Documentary  Letter of Credit  Bank,  at 601 2nd Avenue
South,  Minneapolis,   Minnesota  55402,  Attention:  Jack  Quitmeyer  (Fax  No.
612-973-2148)   and  Barbara  Engen,   Letter  of  Credit  Department  (Fax  No.
612-973-0838),  and to any Lender,  any other Fronting Bank or the Agent, at its
address  set  forth on the  signature  pages of this  Agreement,  or such  other
address as such party may from time to time  designate by giving  written notice
to the other parties hereunder.  All notices and other  communications  given to
any party hereto in accordance  with the provisions of this  Agreement  shall be
deemed to have been given on the fifth  Business Day after the date when sent by
registered or certified mail, postage prepaid,  return receipt requested,  if by
mail;  or when  delivered  to the  telegraph  company,  charges  prepaid,  if by
telegram; or when receipt is acknowledged,  if by any telegraphic communications
or facsimile  equipment of the sender;  in each case  addressed to such party as
provided in this Section 9.1 or in accordance with the latest unrevoked  written
direction from such party;  provided,  that in the case of notices to the Agent,
notices  pursuant to the  preceding  sentence and pursuant to Section 2 shall be
effective only when received by the Agent.

         SECTION 9.2. Survival of Agreement, Representations and Warranties,etc.
All warranties,  representations and covenants made by the Borrower herein or in
any  certificate  or  other  instrument  delivered  by it or on  its  behalf  in
connection  with this Agreement  shall be considered to have been relied upon by
the Lenders  and the  Fronting  Banks and shall  survive the making of the Loans
herein  contemplated  and the issuance and delivery to the Lenders of the Notes,
regardless  of any  investigation  made by any Lender or Fronting Bank or on its
behalf and shall  continue in full force and effect so long as any amount due or
to become due hereunder is outstanding and unpaid and so long as the Commitments
have not been terminated.

         SECTION 9.3.  Successors and Assigns.

                  (a) This  Agreement  shall be  binding  upon and  inure to the
benefit of the  Borrower,  the Agent,  the Fronting  Banks,  the Lenders and the
Underwriters and their respective  successors and assigns.  The Borrower may not
assign or transfer any of its rights or obligations  hereunder without the prior
written  consent  of all of the  Lenders  and,  in the  case of its  rights  and
obligations with respect to Letters of Credit,  the relevant Fronting Bank. Each
Lender may sell  participations to any Person in all or part of any Loan, or all
or  part of its  Note or  Commitment,  in  which  event,  without  limiting  the
foregoing,  the  provisions of Sections 2.14 and 2.17 shall inure to the benefit
of each purchaser of a participation  (provided that such participant shall look
solely to the seller of such  participation for such benefits and the Borrower's
liability,  if any,  under  Sections  2.14 and 2.17 shall not be  increased as a
result  of the sale of any such  participation)  and the pro rata  


<PAGE> 65


treatment of payments,  as described in Section 2.16,  shall be determined as if
such Lender had not sold such participation.  In the event any Lender shall sell
any participation, such Lender shall retain the sole right and responsibility to
enforce the obligations of the Borrower relating to the Loans including, without
limitation,  the right to approve any amendment,  modification  or waiver of any
provision of this Agreement (provided that such Lender may grant its participant
the right to consent to such Lender's execution of amendments,  modifications or
waivers which (i) reduce any Fees payable hereunder to the Lenders,  (ii) reduce
the  amount  of any  scheduled  principal  payment  on any  Loan or  reduce  the
principal amount of any Loan or the rate of interest payable  hereunder or (iii)
extend the maturity of the Borrower's  obligations  hereunder).  The sale of any
such  participation  shall not alter the  rights and  obligations  of the Lender
selling such participation hereunder with respect to the Borrower.

                  (b) Each Lender may assign to one or more  Lenders or Eligible
Assignees all or a portion of its interests,  rights and obligations  under this
Agreement (including, without limitation, all or a portion of its Commitment and
the same  portion of the  related  Loans at the time owing to it and the related
Note held by it);  provided,  that (i) each such assignment shall be of the same
percentage of all of the assigning Lender's rights and obligations in respect of
(A) its Revolving  Credit  Commitment,  its Standby L/C Commitment and its Loans
and (B) its  commitment  with  respect to the Exit  Facility  (as defined in the
Commitment Letter),  (ii) other than in the case of an assignment to a Person at
least 50% owned by the assignor  Lender,  or by a common  parent of both,  or to
another Lender, the Agent must give its respective prior written consent,  which
consent will not be  unreasonably  withheld,  (iii) the aggregate  amount of the
Commitment  and/or Loans of the assigning Lender subject to each such assignment
(determined as of the date the  Assignment  and Acceptance  with respect to such
assignment  is  delivered to the Agent)  shall,  unless  otherwise  agreed to in
writing by the Borrower and the Agent,  in no event be less than  $5,000,000 (or
$1,000,000 in the case of an assignment between Lenders) and (iv) the parties to
each such assignment  shall execute and deliver to the Agent, for its acceptance
and recording in the Register (as defined  below),  an Assignment and Acceptance
with blanks  appropriately  completed,  together  with any Note  subject to such
assignment  and a  processing  and  recordation  fee of  $3,500  (for  which the
Borrower  shall have no  liability).  The Agent shall advise the Fronting  Banks
that it has received such  Assignment  and  Acceptance  and shall provide a copy
thereof to each of the Fronting Banks. Upon such execution, delivery, acceptance
and recording,  from and after the effective  date specified in each  Assignment
and Acceptance, which effective date shall be within ten Business Days after the
execution thereof (unless otherwise agreed to in writing by the Agent),  (A) the
assignee  thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
and (B) the Lender  thereunder  shall, to the extent provided in such Assignment
and Acceptance,  be released from its obligations  under this Agreement (and, in
the case of an Assignment and Acceptance  covering all or the remaining  portion
of an assigning  Lender's  rights and  obligations  under this  Agreement,  such
Lender shall cease to be a party hereto).


<PAGE> 66


                  (c) By executing and delivering an Assignment and  Acceptance,
the Lender assignor  thereunder and the assignee thereunder confirm to and agree
with each  other and the other  parties  hereto as  follows:  (i) other than the
representation  and warranty  that it is the legal and  beneficial  owner of the
interest being assigned thereby free and clear of any adverse claim, such Lender
assignor 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 any of the  other  Loan  Documents  or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any of the other Loan Documents;  (ii) such Lender assignor
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 of the other
Loan Documents or any other  instrument or document  furnished  pursuant hereto;
(iii) such assignee  confirms that it has received a copy of this  Agreement and
the other Loan  Documents,  together  with  copies of the  financial  statements
referred to in Section 3.4 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 Agent,  such Lender assignor or any other Lender,  and
based on such  documents and  information  as it shall deem  appropriate  at the
time,  continue to make its own credit  decisions in taking or not taking action
under this  Agreement;  (v) such assignee  appoints and  authorizes the Agent to
take such action as agent on its behalf and to exercise  such powers  under this
Agreement as are delegated to the Agent by the terms thereto, together with such
powers as are reasonably  incidental  hereof; and (vi) such assignee agrees that
it will perform in accordance with their terms all obligations that by the terms
of this Agreement are required to be performed by it as a Lender.

                  (d) The  Agent  shall  maintain  at its  office a copy of each
Assignment and Acceptance  delivered to it and a register for the recordation of
the names and  addresses of the Lenders and the  Commitments  of, and  principal
amount of the Loans owing to,  each  Lender from time to time (the  "Register").
The  entries in the  Register  shall be  conclusive,  in the absence of manifest
error,  and the Borrower,  the Agent and the Lenders shall treat each Person the
name of which is recorded in the Register as a Lender hereunder for all purposes
of this  Agreement.  The  Register  shall be  available  for  inspection  by the
Borrower  or any  Lender  at any  reasonable  time  and from  time to time  upon
reasonable prior notice.

                  (e) Upon its receipt of an Assignment and Acceptance  executed
by an  assigning  Lender and the  assignee  thereunder,  together  with any Note
subject to such  assignment  and the fee payable in respect  thereto,  the Agent
shall,  if such  Assignment  and  Acceptance  has  been  completed  with  blanks
appropriately filled: (i) accept such Assignment and Acceptance, (ii) record the
information  contained  therein in the  Register  and (iii) give prompt  written
notice  thereof to the  Borrower  (together  with a copy  thereof).  Within five
Business Days after receipt of notice, the Borrower,  at its own expense,  shall
execute and deliver to the Agent,  in exchange for the  surrendered  Note, a new
Note to the order of such assignee in an amount equal to the  Commitment  and/or
Loans


<PAGE> 67


assumed by it pursuant to such  Assignment and Acceptance  and, if the assigning
Lender has retained Commitments and/or Loans hereunder,  a new Note to the order
of the  assigning  Lender  in an amount  equal to the  Commitment  and/or  Loans
retained  by it  hereunder.  Such new Notes shall be in an  aggregate  principal
amount equal to the aggregate  principal amount of such surrendered  Note, shall
be  dated  the  effective  date of such  Assignment  and  Acceptance  and  shall
otherwise be in substantially the form of the surrendered Note. Thereafter, such
surrendered Note shall be marked canceled and returned to the Borrower.

                  (f) Any Lender  may,  in  connection  with any  assignment  or
participation or proposed  assignment or participation  pursuant to this Section
9.3,   disclose  to  the  assignee  or  participant  or  proposed   assignee  or
participant,  any information  relating to the Borrower furnished to such Lender
by or on behalf of the Borrower;  provided,  that prior to any such  disclosure,
each such assignee or  participant  or proposed  assignee or  participant  shall
agree in writing to be bound by the provisions of Section 9.4.

                  (g) The Borrower hereby agrees, to the extent set forth in the
Commitment  Letter,  to  actively  assist and  cooperate  with the Agent and the
Underwriters in connection with their efforts to sell participations  herein (as
described  in Section  9.3(a)) and to assign to one or more  Lenders or Eligible
Assignees  a  portion  of its  interests,  rights  and  obligations  under  this
Agreement (as set forth in Section 9.3(b)).

         SECTION 9.4.  Confidentiality.      Each  Lender  agrees  to  keep  any
information  delivered or made available by the Borrower to it confidential from
anyone  other than  persons  employed  or retained by such Lender who are or are
expected  to  become   engaged  in   evaluating,   approving,   structuring   or
administering the Loans; provided,  that nothing herein shall prevent any Lender
from  disclosing  such  information  (i) to any other Lender,  (ii) to any other
person if reasonably  incidental to the  administration of the Loans, (iii) upon
the order of any court or administrative agency, (iv) upon the request or demand
of any  regulatory  agency or authority,  (v) which has been publicly  disclosed
other than as a result of a  disclosure  by the Agent or any Lender which is not
permitted by this Agreement, (vi) in connection with any litigation to which the
Agent, any Lender,  or their respective  Affiliates may be a party to the extent
reasonably required,  (vii) to the extent reasonably required in connection with
the exercise of any remedy hereunder,  (viii) to such Lender's legal counsel and
independent auditors, and (ix) to any actual or proposed participant or assignee
of all or part of its rights hereunder subject to the proviso in Section 9.3(f).

         SECTION 9.5.  Expenses.     Whether  or  not  the  transactions  hereby
contemplated  shall be  consummated,  the Borrower  agrees to pay all reasonable
out-of-pocket expenses incurred by the Agent (including, but not limited to, the
reasonable  fees and  disbursements  of  Zalkin,  Rodin & Goodman  LLP,  special
counsel  for the  Agent  ("ZR&G"),  any  other  counsel  that  the  Agent or the
Underwriters  shall  retain and any  third-party  consultants,  accountants  and
auditors  advising  the Agent,  the  Underwriters  or ZR&G,  including  (without
limitation)  Ernst & Young LLP,  financial


<PAGE> 68


advisors to ZR&G) and the  Fronting  Banks  (including,  but not limited to, the
reasonable fees and  disbursements  of Dorsey & Whitney LLP, special counsel for
the  Documentary  Letter  of  Credit  Fronting  Bank)  in  connection  with  the
preparation, execution, delivery and administration of this Agreement, the Notes
and the other Loan  Documents,  the making of the Loans and the  issuance of the
Letters  of  Credit,  the  perfection  of the  Liens  contemplated  hereby,  the
syndication  of  the  transactions   contemplated  hereby,  the  reasonable  and
customary  costs,  fees and expenses of the Agent in connection with its monthly
and other  periodic  field audits,  monitoring of assets and publicity  expenses
and,   following  the  occurrence  of  an  Event  of  Default,   all  reasonable
out-of-pocket expenses incurred by the Lenders, the Fronting Banks and the Agent
in the  enforcement  or  protection  of the  rights  of any  one or  more of the
Lenders, the Fronting Banks or the Agent in connection with this Agreement,  the
Notes or the other Loan Documents including,  but not limited to, the reasonable
fees and disbursements of any counsel for the Lenders, the Fronting Banks or the
Agent.  Such  payments  shall  be made  on the  date of the  Interim  Order  and
thereafter on demand upon  delivery of a statement  setting forth such costs and
expenses.   Whether  or  not  the  transactions  hereby  contemplated  shall  be
consummated, the Borrower agrees to reimburse the Agent and the Underwriters for
the  expenses  set  forth  in  the  Commitment  Letter,  and  the  reimbursement
provisions thereof are hereby incorporated herein by reference.  The obligations
of the  Borrower  under this  Section  shall  survive  the  termination  of this
Agreement and/or the payment of the Loans.

         SECTION 9.6.  Indemnity.    The Borrower  agrees to indemnify  and hold
harmless the Agent,  the  Underwriters,  the Fronting  Banks and the Lenders and
their respective directors, officers, employees, agents and Affiliates (each, an
"Indemnified  Party")  from and against any and all  expenses,  losses,  claims,
damages and liabilities incurred by such Indemnified Party arising out of claims
made by any Person in any way relating to the transactions  contemplated hereby,
but excluding therefrom all expenses,  losses, claims,  damages, and liabilities
arising out of or resulting from the gross  negligence or willful  misconduct of
such Indemnified Party.
      
         SECTION 9.7.  CHOICE OF LAW.   THIS  AGREEMENT, THE NOTES AND THE OTHER
LOAN  DOCUMENTS  SHALL IN ALL  RESPECTS  BE  CONSTRUED  IN  ACCORDANCE  WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK  APPLICABLE TO CONTRACTS  MADE AND
TO BE PERFORMED WHOLLY WITHIN SUCH STATE AND BY THE BANKRUPTCY CODE.

         SECTION 9.8.  No Waiver.   No  failure  on the  part  of the  Agent  or
any of the Lenders to exercise, and no delay in exercising,  any right, power or
remedy  hereunder  or under the Notes or any of the other Loan  Documents  shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such right,  power or remedy preclude any other or further  exercise  thereof or
the exercise of any other right,  power or remedy.  All remedies  hereunder  are
cumulative and are not exclusive of any other remedies provided by law.


<PAGE> 69


         SECTION 9.9.  Extension of Maturity.  Should any  payment of  principal
of or interest  on the Notes or any other  amount due  hereunder  become due and
payable  on a day other than a  Business  Day,  the  maturity  thereof  shall be
extended to the next  succeeding  Business  Day and,  in the case of  principal,
interest  shall be payable  thereon at the rate  herein  specified  during  such
extension.

         SECTION 9.10.  Amendments, etc.

                  (a) No  modification,  amendment or waiver of any provision of
this Agreement,  the Notes or the Security and Pledge Agreement,  and no consent
to any  departure  by the  Borrower  therefrom,  shall in any event be effective
unless the same shall be in writing and signed by the Required Lenders, and then
such waiver or consent shall be effective only in the specific  instance and for
the purpose for which given;  provided,  that no such  modification or amendment
shall  without  the  written  consent of all of the  Lenders  (i)  increase  the
Commitment of a Lender (it being understood that a waiver of an Event of Default
shall not constitute an increase in the Commitment of a Lender), (ii) reduce the
principal amount of any Loan or the rate of interest payable thereon,  or extend
any date for the  payment  of  interest  hereunder  or reduce  any Fees  payable
hereunder or extend the final maturity of the Borrower's  obligations hereunder;
(iii) amend or modify any  provision of this  Agreement  which  provides for the
unanimous  consent or approval of the  Lenders,  (iv) amend this Section 9.10 or
the definition of Required Lenders, (v) amend or modify the Super-Priority Claim
status of the Lenders  contemplated  by Section  2.22 or (vi) release all or any
substantial  portion  of the Liens  granted  to the Agent  hereunder,  under the
Orders or under any of the Loan Documents. No such amendment or modification may
adversely  affect the rights and  obligations  of the Agent or any Fronting Bank
hereunder  without  its  prior  written  consent.  No notice to or demand on the
Borrower  shall entitle the Borrower to any other or further notice or demand in
the same, similar or other  circumstances.  Each holder of a Note shall be bound
by any amendment, modification, waiver or consent authorized as provided herein,
whether  or not a Note  shall  have been  marked  to  indicate  such  amendment,
modification,  waiver or consent and any consent by a Lender, or any holder of a
Note, shall bind any Person subsequently acquiring a Note, whether or not a Note
is so marked.  No amendment  to this  Agreement  shall be effective  against the
Borrower unless signed by the Borrower.

                  (b)  Notwithstanding  anything to the  contrary  contained  in
Section 9.10(a),  in the event that the Borrower requests that this Agreement or
any of the other Loan  Documents  be modified or amended in a manner which would
require the  unanimous  consent of all of the Lenders and such  modification  or
amendment is agreed to by the Super-Majority  Lenders (as hereinafter  defined),
then with the  consent  of the  Borrower  and the  Super-Majority  Lenders,  the
Borrower  and the  Super-Majority  Lenders  shall  be  permitted  to  amend  the
Agreement  without the  consent of the Lender or Lenders  which did not agree to
the modification or amendment requested by the Borrower (such Lender or Lenders,
collectively  the "Minority  Lenders") to provide for (w) the termination of the
Commitment of each of the Minority  Lenders,  (x) the addition to this Agreement
of one or more other financial  institutions (each of which shall be an Eligible
Assignee), or an increase in the


<PAGE> 70


Commitment  of one or more of the  Super-Majority  Lenders,  so that  the  Total
Commitment  after giving effect to such amendment shall be in the same amount as
the Total Commitment immediately before giving effect to such amendment,  (y) if
any Loans are  outstanding  at the time of such  amendment,  the  making of such
additional Loans by such new financial  institutions or Super-Majority Lender or
Lenders,  as the  case  may  be,  as may be  necessary  to  repay  in  full  the
outstanding  Loans of the Minority Lenders  immediately  before giving effect to
such  amendment  and (z) such other  modifications  to this  Agreement as may be
appropriate.  As used herein, the term  "Super-Majority  Lenders" shall mean, at
any time,  Lenders,  including CIBC,  holding Loans representing at least 80% of
the  aggregate  principal  amount of the Loans  outstanding,  or if no Loans are
outstanding,  Lenders,  including CIBC, having Commitments representing at least
80% of the Total Commitment. 

         SECTION 9.11.  Severability.   Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be ineffective to the extent of such  prohibition  or  unenforceability  without
invalidating  the  remaining  provisions  hereof,  and any such  prohibition  or
unenforceability   in  any   jurisdiction   shall  not   invalidate   or  render
unenforceable  such provision in any other  jurisdiction.

         SECTION 9.12.  Headings.       Section  headings  used  herein  are for
convenience  only and are not to affect  the  construction  of or be taken  into
consideration in interpreting this Agreement.
         
         SECTION 9.13.  Execution in Counterparts.         This Agreement may be
executed  in any  number of  counterparts,  each of which  shall  constitute  an
original,  but all of which taken  together  shall  constitute  one and the same
instrument.

         SECTION 9.14.  Prior Agreements.    This  Agreement  and the other Loan
Documents  represent  the entire  agreement  of the  parties  with regard to the
subject  matter  hereof  and the terms of any  letters  and other  documentation
entered  into  between  the  Borrower  and any Lender or the Agent  prior to the
execution of this Agreement  which relate to Loans to be made hereunder shall be
replaced by the terms of this Agreement (except as otherwise  expressly provided
herein  with  respect to the  Commitment  Letter  and the Fee Letter  including,
without  limitation,  the Borrower's  agreement actively to assist the Agent and
the  Underwriters in the  syndication of the  transactions  contemplated  hereby
referred  to in Section  9.3(g) and  including  also the  provisions  of Section
2.22);  provided,  that the obligations of the Agent and the Underwriters  under
the  Commitment  Letter  with  respect to the Exit  Facility  shall  survive the
execution and delivery of this Agreement.

         SECTION 9.15.  Further Assurances.            Whenever  and so often as
reasonably  requested  by the Agent,  the  Borrower  will  promptly  execute and
deliver  or cause to be  executed  and  delivered  all such  other  and  further
instruments,  documents or  assurances,  and promptly do or cause to be done all
such other and further  things as may be necessary  and  reasonably  required in
order to vest  further


<PAGE> 71



and more fully in the Agent, all rights, interests, powers, benefits, privileges
and  advantages  conferred or intended to be conferred by this Agreement and the
other Loan Documents.

         SECTION 9.16.  WAIVER OF JURY TRIAL.  EACH OF THE BORROWER,  THE AGENT,
THE FRONTING BANKS AND EACH LENDER HEREBY  IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION,  PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS  AGREEMENT  OR  ANY  OF  THE  OTHER  LOAN  DOCUMENTS  OR  THE  TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.

         SECTION 9.17.  Termination of Revolving and Swingline Commitments Under
Existing Credit Agreement.   The  Borrower  hereby  confirms,  for  the  express
benefit of the Revolving  Lenders and the  Swingline  Lenders under the Existing
Credit Agreement,  that any and all commitments of such Lenders to extend credit
under the Existing Credit Agreement have been terminated.


<PAGE> 72


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and the year first written.

                             PAYLESS CASHWAYS, INC.

                             By:  /s/ Steven A. Lightstone
                                -----------------------------------------------
                             Title: Sr. Vice President


                             CANADIAN IMPERIAL BANK OF COMMERCE,
                              as Coordinating and Collateral Agent and as the
                              Standby Letter of Credit Fronting Bank

                             By:  /s/ Robert N. Greer
                                -----------------------------------------------
                             Title:  Assistant General Manager

                             425 Lexington Avenue
                             New York, New York 10017


                             CIBC WOOD GUNDY SECURITIES CORP.,
                              as an Underwriter

                             By:  /s/ Robert N. Greer
                                -----------------------------------------------
                             Title:  Authorized Signatory

                             425 Lexington Avenue
                             New York, New York 10017


                             CIBC INC.,
                              as a Lender

                             By:  /s/ Robert N. Greer
                                -----------------------------------------------
                             Title:  Director

                             425 Lexington Avenue
                             New York, New York 10017



<PAGE> 73


                             NATIONSBANK, N.A.,
                              as a Lender and an Underwriter
                             By:  /s/ Jay T. Wampler
                                -----------------------------------------------
                             Title:  Senior Vice President

                             901 Main Street
                             Dallas, Texas 75202


                             LEHMAN COMMERCIAL PAPER INC. ,
                              as a Lender and an Underwriter
                             By:  /s/ Dennis J. Dee
                                -----------------------------------------------
                             Title:  Authorized Signatory

                             3 World Trade Center
                             New York, New York 10285


                             GOLDMAN SACHS CREDIT PARTNERS, L.P.,
                              as a Lender and an Underwriter
                             By:  /s/ John E. Urban
                                -----------------------------------------------
                             Title:  Authorized Signer

                             85 Broad Street
                             New York, New York 10004


                             CARGILL FINANCIAL SERVICES CORPORATION,
                              as a Lender
                             By:  /s/ Patrick J. Halloran
                                -----------------------------------------------
                             Title:  Vice President

                             6000 Clearwater Drive
                             Minnetonka, Minnesota 55343



<PAGE> 74


                             VAN KAMPEN AMERICAN CAPITAL
                              PRIME RATE INCOME TRUST, as a Lender
                             By:  /s/ Jeffrey W. Maillet
                                -----------------------------------------------
                             Title:  Senior Vice President & Director

                             One Parkview Plaza
                             Oak Brook Terrace, Illinois 60181


                             FIRST BANK NATIONAL ASSOCIATION,
                              as the Documentary Letter of Credit Fronting
                              Bank and not as a Lender
                             By:  /s/ Jack S. Quitmeyer
                                -----------------------------------------------
                             Title:  Vice President

                             601 2nd Avenue South
                             Minneapolis, Minnesota 55402


<PAGE> i


                                       
                           REVOLVING CREDIT AGREEMENT
                                TABLE OF CONTENTS

                                                                        Page No.

INTRODUCTORY STATEMENT.........................................................1

SECTION 1.        DEFINITIONS..................................................2
         SECTION 1.1.   Defined Terms..........................................2
         SECTION 1.2.   Terms Generally.......................................18

SECTION 2.        AMOUNT AND TERMS OF CREDIT..................................18
         SECTION 2.1.   Commitments of the Lenders............................18
         SECTION 2.2    Letters of Credit ....................................19
         SECTION 2.3    Issuance..............................................22
         SECTION 2.4    Nature of Letter of Credit Obligations Absolute.......23
         SECTION 2.5.   Making of Loans.......................................23
         SECTION 2.6.   Notes; Repayment of Loans.............................24
         SECTION 2.7.   Interest on Loans.....................................25
         SECTION 2.8.   Default Interest......................................25
         SECTION 2.9.   Optional Termination or Reduction of Commitment.......25
         SECTION 2.10.  Alternate Rate of Interest............................26
         SECTION 2.11.  Refinancing of Loans..................................26
         SECTION 2.12.  Mandatory Commitment Reduction; Commitment 
                               Termination; Cash Collateral...................27
         SECTION 2.13.  Optional Prepayment of Loans; Reimbursement of 
                               Lenders........................................27
         SECTION 2.14.  Reserve Requirements; Change in Circumstances.........29
         SECTION 2.15.  Change in Legality....................................30
         SECTION 2.16.  Pro Rata Treatment, etc...............................31
         SECTION 2.17.  Taxes.................................................31
         SECTION 2.18.  Certain Fees..........................................34
         SECTION 2.19.  Commitment Fee........................................34
         SECTION 2.20.  Letter of Credit Fees.................................34
         SECTION 2.21.  Nature of Fees........................................34
         SECTION 2.22.  Priority and Liens....................................34
         SECTION 2.23.  Right of Set-Off......................................35
         SECTION 2.24.  Security Interest in Letter of Credit Accounts........36
         SECTION 2.25.  Payment of Obligations................................36
         SECTION 2.26.  No Discharge; Survival of Claims......................36
         SECTION 2.27.  Use of Cash Collateral................................36
         SECTION 2.28.  Existing Secured Obligations..........................36
         SECTION 2.29.  Assumption of Hedging Agreement.......................37




<PAGE> ii


         SECTION 6.14.  Environmental Matters.................................55

SECTION 7.          EVENTS OF DEFAULT.........................................56
         SECTION 7.1.   Events of Default.....................................56

SECTION 8.          THE AGENT.................................................60
         SECTION 8.1.   Administration by Agent...............................60
         SECTION 8.2.   Advances and Payments.................................60
         SECTION 8.3.   Sharing of Setoffs....................................61
         SECTION 8.4.   Agreement of Required Lenders.........................61
         SECTION 8.5.   Liability of Agent....................................62
         SECTION 8.6.   Reimbursement and Indemnification.....................62
         SECTION 8.7.   Rights of Agent.......................................63
         SECTION 8.8.   Independent Lenders...................................63
         SECTION 8.9.   Notice of Transfer....................................63
         SECTION 8.10.  Successor Agent.......................................63

SECTION 9.          MISCELLANEOUS.............................................64
         SECTION 9.1.   Notices...............................................64
         SECTION 9.2.   Survival of Agreement, Representations
                               and Warranties, etc............................64
         SECTION 9.3.   Successors and Assigns................................64
         SECTION 9.4.   Confidentiality.......................................67
         SECTION 9.5.   Expenses..............................................67
         SECTION 9.6.   Indemnity.............................................68
         SECTION 9.7.   CHOICE OF LAW.........................................68
         SECTION 9.8.   No Waiver.............................................68
         SECTION 9.9.   Extension of Maturity.................................69
         SECTION 9.10.  Amendments, etc. .....................................69
         SECTION 9.11.  Severability..........................................70
         SECTION 9.12.  Headings..............................................70
         SECTION 9.13.  Execution in Counterparts.............................70
         SECTION 9.14.  Prior Agreements......................................70
         SECTION 9.15.  Further Assurances....................................70
         SECTION 9.16.  WAIVER OF JURY TRIAL..................................71
         SECTION 9.17.  Termination of Revolving and Swingline Commitments
                               Under Existing Credit Agreement................71


<PAGE> iii


Annex A           Commitment Amount and Percentage of each Lender

Schedule 1.1               Existing Agreements
Schedule 3.6               Pre-Petition Liens
Schedule 3.11              Litigation
Schedule 5.3               Insurance
Schedule 6.9               Existing Investments
Schedule 6.10              Assets for Sale

Exhibit A                  Form of Promissory Notes
Exhibit B                  Form of Interim Order
Exhibit C                  Form of Security and Pledge Agreement
Exhibit D-1                Form of Opinion of Blackwell Sanders Matheny Weary
                                & Lombardi LLP
Exhibit D-2                Form of Opinion of Wachtell, Lipton, Rosen & Katz
Exhibit E                  Form of Assignment and Acceptance


<PAGE>  COVER


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--------------------------------------------------------------------------------

                           REVOLVING CREDIT AGREEMENT

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                                      Among

                 PAYLESS CASHWAYS, INC., a Debtor-in-Possession,

                                  as Borrower,


                        THE LENDERS, THE UNDERWRITERS AND
                        THE FRONTING BANKS PARTY HERETO,

                                       and

                       CANADIAN IMPERIAL BANK OF COMMERCE,

                      as Coordinating and Collateral Agent




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                            Dated as of July 21, 1997

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