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                                                               EXECUTION COPY











                      AMENDED AND RESTATED CREDIT AGREEMENT



                                   Dated as of
                                 October 3, 1996
                                      among


                             PAYLESS CASHWAYS, INC.,



                           THE LENDERS LISTED HEREIN,

              CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY,
                  as ADMINISTRATIVE AGENT AND COLLATERAL AGENT,



                            THE BANK OF NOVA SCOTIA,
                         NATIONSBANK OF TEXAS, N.A., and
                       BANK OF AMERICA NATIONAL TRUST AND
                              SAVINGS ASSOCIATION,
                                  as CO-AGENTS










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                      AMENDED AND RESTATED CREDIT AGREEMENT

                  AMENDED AND RESTATED CREDIT AGREEMENT,  dated as of October 3,
1996, among PAYLESS CASHWAYS,  INC., an Iowa corporation (the  "Borrower"),  the
Lenders (as hereinafter defined),  CANADIAN IMPERIAL BANK OF COMMERCE,  NEW YORK
AGENCY  (acting  through one or more of its  agencies,  branches or  affiliates,
"CIBC"), as Administrative Agent (in such capacity,  together with any successor
administrative  agent, the  "Administrative  Agent") and as Collateral Agent (in
such capacity,  together with any successor  collateral  agent,  the "Collateral
Agent"), CIBC, as Letter of Credit Bank (as hereinafter defined) and THE BANK OF
NOVA SCOTIA,  NATIONSBANK OF TEXAS, N.A., and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Co-Agents (in such capacity, together with any successor
co-agents, the "Co-Agents").

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

                  WHEREAS,   the   Borrower,   certain  of  the   Lenders,   the
Administrative  Agent, the Collateral Agent and the Co-Agents are parties to the
Credit  Agreement,  dated as of  November  18,  1994,  as amended  and  restated
pursuant to the Amended and Restated Credit Agreement,  dated as of November 20,
1995 (as amended prior to the date hereof, the "Existing Credit Agreement");

                  WHEREAS,  the  Borrower is obligated to certain of the Lenders
in respect of (i) revolving credit loans (the "Existing  Revolving  Loans") made
pursuant to revolving  credit  commitments in the aggregate  principal amount of
$369,142,857.14 (the "Existing Revolving  Commitments") extended pursuant to the
Existing  Credit  Agreement  and  evidenced  by  certain  revolving  notes  (the
"Existing  Revolving  Notes"),  (ii)  certain  letters of credit (the  "Existing
Letters of Credit"),  (iii) term loans in the  aggregate  outstanding  principal
amount of $38,857,142.86 (the "Existing Tranche B Term Loans" and, together with
the Existing  Revolving  Loans, the "Existing  Loans") extended  pursuant to the
Existing  Credit  Agreement and evidenced by a certain term note (the  "Existing
Tranche B Term  Note" and,  together  with the  Existing  Revolving  Notes,  the
"Existing   Notes"),   and  (iv)  accrued  and  unpaid  interest,   accrued  and
unreimbursed  fees  and  expenses  and  certain  other  contingent   obligations
(collectively,  the "Existing Other  Obligations" and together with the Existing
Revolving  Loans,  the Existing Tranche B Term Loans and the Existing Letters of
Credit, the "Existing Obligations");

                  WHEREAS,   the  due  and  punctual  payment  of  the  Existing
Obligations is secured by, inter alia, certain assets of and capital stock owned
by the  Borrower  in which the  Borrower  has  granted to the  Collateral  Agent
security  interests  pursuant to (x) that certain Borrower  Security  Agreement,
dated as of November 18, 1994, between the Borrower and the Collateral Agent (as


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heretofore  amended,  modified and supplemented from time to time, the "Existing
Security  Agreement"),  (y) that  certain  Note  Pledge  Agreement,  dated as of
November 18, 1994,  between the Borrower and the Collateral Agent (as heretofore
amended,  modified and supplemented  (including all Pledge Agreement Supplements
heretofore  executed and delivered) from time to time, the "Existing Note Pledge
Agreement"),  and (z) that certain Stock Pledge Agreement,  dated as of November
18, 1994, between the Borrower and the Collateral Agent (as heretofore  amended,
modified and supplemented (including all Pledge Agreement Supplements heretofore
executed  and  delivered)   from  time  to  time,  the  "Existing  Stock  Pledge
Agreement");

                  WHEREAS,  the Borrower  has  requested,  and the Lenders,  the
Administrative  Agent,  the Collateral  Agent and the Co-Agents have agreed that
the Existing  Credit  Agreement  shall be amended,  restated and extended to (a)
permit the Borrower to pursue its Business Plan (as  hereinafter  defined),  (b)
make a $60,000,000 senior secured swingline revolving loan facility available to
the Borrower to provide  additional  liquidity to the Borrower,  (c) restructure
the Existing  Obligations as provided herein and (d) otherwise amend, extend and
restate the  Existing  Credit  Agreement in its entirety as more fully set forth
herein;

                  NOW,  THEREFORE,  in  consideration  of the mutual  agreements
herein set forth, the parties hereto hereby agree as follows:

                             SECTION 1. DEFINITIONS

                  SECTION 1.1 Definitions.  The following terms, as used herein,
have the following meanings:

                  "Additional  Collateral"  means all real and personal property
of the Borrower and its Subsidiaries, whether tangible or intangible and whether
now existing or hereafter acquired, in which a security interest,  assignment or
lien was not granted or  continued  pursuant to the Existing  Credit  Agreement,
Existing  Security  Agreement,  Existing Note Pledge Agreement or Existing Stock
Pledge  Agreement,  and which as of the Closing  Date has or  hereafter  will be
granted to the  Collateral  Agent  pursuant to the  Security  Documents  for the
benefit of the Secured Parties,  including  (without  limitation) all Inventory,
Available Property,  fixtures affixed to all Available Property,  assets of each
Subsidiary formed or acquired after the Closing Date and all proceeds of each of
the foregoing.

                  "Adjusted  London  Interbank  Offered Rate" applicable to each
day during any  Interest  Period  means a rate per annum  equal to the  quotient
obtained  (rounded  upwards,  if  necessary,  to the next higher 1/100 of 1%) by
dividing (i) the  applicable  LIBOR by (ii) 1.00 minus the  Euro-Dollar  Reserve
Percentage in effect for such day.

                  "Administrative  Agent" has the meaning set forth in the first
paragraph of this Agreement.


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                  "Affiliate",  as  applied to any  Person,  means (x) any other
Person  directly  or  indirectly  controlling,  controlled  by, or under  common
control  with,  that Person or (y) any other  Person that owns or controls  five
percent (5%) or more of any class of equity  securities of that Person or any of
its Affiliates.  For the purposes of this definition,  "control" (including with
correlative  meanings,  the terms  "controlling,"  "controlled  by," and  "under
common control with"), as applied to any Person, means the possession,  directly
or  indirectly,  of the power to direct or cause the direction of the management
and policies of that Person,  whether through the ownership of voting securities
or by contract or otherwise.

                  "After-Acquired Property" has the meaning set forth in Section
8.28.

                  "Aggregate  Outstanding Revolving Extensions of Credit" means,
as to any  Revolving  Lender at any time,  an amount equal to the sum of (a) the
aggregate  principal  amount of all  Revolving  Loans made by such  Lender  then
outstanding  and (b) the amount of such Lender's  Participating  Interest in the
L/C Obligations then outstanding.

                  "Agreement" means this Credit Agreement,  as amended,  amended
and restated, extended, modified or supplemented from time to time in accordance
with the terms hereof.

                  "Amendment Fee" has the meaning set forth in Section 2.6(d).

                  "Annual Budget" means the Borrower's  Annual Budget as defined
in, and delivered pursuant to, Section 8.1(l).

                  "Applicable Margin" means:

                  (a) with respect to the Swingline  Loans,  the Revolving Loans
and the  Tranche A Term Loans,  two and  one-half  percent  (2.5%) per annum for
Euro-Dollar  Loans and one and one-half  percent  (1.5%) for CIBC Alternate Base
Rate Loans.

                  (b) with  respect to the Tranche B Term Loans,  three  percent
(3%) per annum for  Euro-Dollar  Loans and two  percent  (2%) per annum for CIBC
Alternate Base Rate Loans.

                  "Application" means an application, in such form as the Letter
of Credit Bank may specify from time to time (a form of which is attached hereto
as Exhibit P),  requesting the Letter of Credit Bank to open a Letter of Credit,
as such application may be amended, modified or supplemented from time to time.

                  "Available  Property"  means  all  real  property,  buildings,
improvements and fixtures owned or leased by the Borrower or any


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Subsidiary which are not subject to any Lien  constituting a mortgage,  security
interest or pledge securing Debt,  including (without limitation) the properties
listed on Schedule III and  properties  held for resale by the Borrower.  To the
extent that any real  property,  buildings,  improvements  and fixtures owned or
leased by the  Borrower or any  Subsidiary,  which do not  constitute  Available
Property as of the date hereof,  become,  after the date hereof  unencumbered by
the Lien which  constituted a mortgage,  security  interest,  or pledge securing
Debt,  such real property,  buildings,  improvements  and fixtures shall, on the
date such Lien is  released,  become  Available  Property  unless such  property
becomes  encumbered by a Lien securing  Permitted  Refinancing Debt concurrently
with the release of such Lien or within 60 days of such release;  provided, that
on or prior to the date such Lien is  released,  the  Borrower  shall have given
written  notice to the  Administrative  Agent of its  intention to refinance the
Debt secured by such Lien with  Permitted  Refinancing  Debt. Any real property,
buildings,  fixtures or  improvements  which are leased by the Borrower shall be
considered  Available  Property  if the  subject  lease  does not  prohibit  the
granting  to the  Administrative  Agent  of a  Mortgage.  If the  subject  lease
contains  such a  prohibition,  such  property  shall  be  considered  Available
Property upon the Borrower's obtaining a landlord's consent to a Mortgage, which
the Borrower agrees to use its reasonable best efforts to obtain.

                  "Bank  Obligations"  means all  obligations and liabilities of
the  Borrower  and its  Subsidiaries  under or in  connection  with  the  Credit
Documents,  now existing or hereafter  created,  contingent  or not, due or not,
arising by operation of law or otherwise.

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

                  "Borrower" has the meaning set forth in the first paragraph of
this Agreement.

                  "Borrowing"  means  a  borrowing  by  the  Borrower  hereunder
consisting  of  Swingline  Loans,  Revolving  Loans  or Term  Loans  made by the
relevant  Lenders  pursuant to Section 2. A Borrowing is a "CIBC  Alternate Base
Rate  Borrowing"  if such  Loans  are  CIBC  Alternate  Base  Rate  Loans  and a
"Euro-Dollar Borrowing" if such Loans are Euro-Dollar Loans.

                  "Borrowing Date" means,  any Domestic  Business Day or, in the
case of Euro-Dollar  Loans, any Euro-Dollar  Business Day, specified in a notice
pursuant  to (a)  Section  2.2 as a date on  which  the  Borrower  requests  the
relevant  Lenders to make  Swingline  Loans or  Revolving  Loans,  respectively,
hereunder or (b) Section 3.2 as a date on which the Borrower requests the Letter
of Credit Bank to issue a Letter of Credit hereunder.



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                  "Business Plan" means the revised financial projections of the
Borrower  dated on or about June 13,  1996,  as amended and  supplemented  on or
about September 3, 1996,  September 5, 1996 and September 9, 1996 and as amended
from time to time in a manner not inconsistent  with the terms and provisions of
this Agreement.

                  "Capco   Subleases"   means  those  twelve  certain   Sublease
Agreements,  each dated as of September 1, 1982,  between the Borrower and Capco
Realty Corp., a Delaware corporation  ("Capco"),  pursuant to which the Borrower
subleases from Capco twelve stores located at the respective sites identified on
Schedule A to such Sublease  Agreements,  which Capco in turn leases from Paycap
Associates Limited  Partnership,  a Connecticut limited  partnership  ("Paycap")
pursuant to twelve Master Lease Agreements  between Paycap and Capco, each dated
as of September 1, 1982.

                  "Cash   Management   Obligations"   means  all  Existing  Cash
Management Obligations and all New Cash Management Obligations.

                  "Change  of  Control"  means 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.

                  "Charged Party" has the meaning set forth in Section 5.3(a).

                  "Charges" has the meaning set forth in Section 5.3(a).


                  "CIBC" has the  meaning  set forth in the first  paragraph  of
this Agreement.

                  "CIBC  Alternate  Base Rate" means on any  particular  date, a
rate of interest 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 for such date plus
                                    1/2 of 1.0%.




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The CIBC Alternate Base Rate is not  necessarily  intended to be the lowest rate
of interest charged by CIBC in connection with extensions of credit.

                  "CIBC Alternate Base Rate Borrowing" has the meaning set forth
in the definition of "Borrowing" in this Section 1.1.

                  "CIBC  Alternate  Base Rate Loan"  means a Swingline  Loan,  a
Revolving  Loan or a Term Loan  which  bears  interest  as  provided  in Section
2.5(a).

                  "Closing  Date" means the date on which each of the conditions
precedent to the effectiveness of this Agreement  contained in Section 6.2 shall
have  been  satisfied  or  waived in  accordance  with the terms and  conditions
hereof.

                  "Co-Agents"  has the meaning set forth in the first  paragraph
of this Agreement.

                  "Code" means the Internal Revenue Code of 1986, as amended, or
any successor statute.

                  "Collateral" means all Original  Collateral and all Additional
Collateral.

                  "Collateral  Agent"  has the  meaning  set  forth in the first
paragraph of this Agreement.

                  "Commitments" means, with respect to each relevant Lender, the
sum of (i) such Lender's  Swingline  Commitment (if any) plus (ii) such Lender's
Revolving Commitment.

                  "Commitment  Transfer  Supplement" means a Commitment Transfer
Supplement substantially in the form of Exhibit M.

                  "Consolidated  Current  Liabilities" means at any date (i) the
consolidated current liabilities (less any consolidated current Debt of the type
described in clauses  (i)-(iv) of the  definition of "Debt" in this Section 1.1)
of the  Borrower  and  its  Consolidated  Subsidiaries  plus  (ii)  the  current
liabilities  (other than any consolidated  current Debt of the type described in
clauses  (i)-(iv) of the definition of "Debt" in this Section 1.1) of any Person
(other than the Borrower or a Consolidated  Subsidiary)  which are Guaranteed by
the Borrower or a  Consolidated  Subsidiary,  all  determined as of such date in
accordance with GAAP.

                  "Consolidated  Subsidiary" means at any date any Subsidiary or
other  entity,  the  accounts of which would be  consolidated  with those of the
Borrower in its consolidated  financial statements in accordance with GAAP as of
such date.






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

                  "Covered  Obligations"  means  the  Existing  Cash  Management
Obligations, the Hedging Obligations and the Foreign Exchange Obligations to the
extent  that  together  such  Obligations  do  not  exceed  $10,000,000  in  the
aggregate;  provided,  that if the aggregate  amount of Existing Cash Management
Obligations,  Hedging  Obligations and Foreign  Exchange  Obligations,  together
exceed  $10,000,000,   such  Existing  Cash  Management   Obligations,   Hedging
Obligations  and  Foreign  Exchange   Obligations   shall  constitute   "Covered
Obligations"  only to the extent of the ratio,  expressed as a fraction,  of the
amount  of  such  Obligations  to the  aggregate  amount  of all  Existing  Cash
Management  Obligations,  Hedging  Obligations and Foreign Exchange  Obligations
multiplied by $10,000,000.

                  "Credit  Documents"  means  this  Agreement,  the  Notes,  the
Applications,  the  Security  Documents,  the  Fee  Letter  and  all  documents,
instruments and agreements  executed and/or delivered in connection  herewith or
therewith,  as each may be amended,  amended and restated,  extended,  modified,
supplemented, replaced or substituted for from time to time.

                  "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 capital
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,  (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.






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                  "Debt for Borrowed Money" of any Person means the Debt of such
Person  described  in clauses (i) and (ii) of the  definition  of "Debt" in this
Section 1.1.

                  "Debt  to  EBITDAR  Ratio"  means,  as at the  last day of any
fiscal  quarter of the Borrower,  the ratio of (i) the aggregate  amount of then
outstanding Debt of the Borrower and its  Subsidiaries  described in clauses (i)
through (vi) of the  definition of "Debt" in this Section 1.1  (exclusive of any
Swingline Loans and any Synthetic Lease  Obligations  then  outstanding) to (ii)
EBITDAR for the four consecutive fiscal quarters then ending.

                  "Default"  means any condition or event which  constitutes  an
Event of  Default  or which  with the  giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.

                  "Defaulting   Lender"   has  the  meaning  set  forth  in  the
definition of "Majority Lenders".

                  "Documentary  Letter of Credit Commitment" has the meaning set
forth in Section 3.1.

                  "Documentary  Letters of Credit"  has the meaning set forth in
Section 3.1.

                  "Dollars" or "$" to means lawful currency of the United States
of America.

                  "Domestic  Business  Day"  means  any day  except a  Saturday,
Sunday or other day on which commercial banks in New York City are authorized by
law to close.

                  "Domestic Lending Office" means initially,  as to each Lender,
its office designated as such on Schedule I, and thereafter,  upon notice to the
Borrower and the Administrative Agent, such other office of such Lender, if any,
which shall be making or maintaining CIBC Alternate Base Rate Loans.

                  "Dual Path Capital  Expenditures" means expenditures for fixed
or capital  assets  made or accrued in  connection  with the  Business  Plan and
identified as such in Section 8.12.

                  "EBITDAR" means,  for any period,  the consolidated net income
(or loss) of the  Borrower  and its  Consolidated  Subsidiaries  for such period
(excluding extraordinary,  unusual or non-recurring gains and losses or (without
duplications) special charges), plus without duplication in accordance with GAAP
the sum of (i) interest  and tax expense of the  Borrower  and its  Consolidated
Subsidiaries  for  such  period  to the  extent  deducted  in  determining  such
consolidated net income plus (ii)  depreciation and amortization  expense of the
Borrower  and its  Consolidated  Subsidiaries  for  such




<PAGE> 10

period to the extent deducted in determining such consolidated net income,  plus
(iii) Rent Expense of the Borrower and its  Consolidated  Subsidiaries  for such
period.

                  "Environmental Law" has the meaning set forth in
Section 8.20(e).

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

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

                  "ERISA Event" means (a) a  "reportable  event" as such term is
described in Section 4043 of ERISA (other than a "reportable  event" not subject
to the provision for 30-day notice to the PBGC under 29 C.F.R. 2615), or (b) the
withdrawal of the Borrower,  any Subsidiary or any ERISA  Affiliate of either of
them  from a  Multiple  Employer  Plan  during  a plan  year in  which  it was a
"substantial  employer", as such term is defined in Section 4001(a)(2) of ERISA,
which would result in any liability to the Borrower, any Subsidiary or any ERISA
Affiliate of either of them, or the incurrence of liability by the Borrower, any
Subsidiary or any ERISA  Affiliate of either of them under Section 4064 of ERISA
upon the  termination of a Multiple  Employer Plan, or (c) an event described in
Section  4068(f)  of  ERISA,  or (d) the  distribution  of a notice of intent to
terminate a Plan  pursuant to Section  4041(a)(2) of ERISA or the treatment of a
Plan amendment as a termination  under Section 4041 of ERISA,  where,  in either
case,  such  termination  would  result  in any  liability  to the  Borrower,  a
Subsidiary  or any ERISA  Affiliate of either of them, or (e) the failure by the
Borrower,  a  Subsidiary  or any  ERISA  Affiliate  of  either of them to make a
payment to a Plan pursuant to Section  302(f)(1) of ERISA or (f) the adoption of
any  amendment  to a Plan  requiring  the  provision  of  security  to such Plan
pursuant to Section  307 of ERISA,  or (g) the  institution  of  proceedings  to
terminate a Plan by the PBGC under Section 4042 of ERISA, or (h) any other event
or condition which might constitute  grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.

                  "Euro-Dollar  Borrowing"  has the  meaning  set  forth  in the
definition of "Borrowing" in this Section 1.1.

                  "Euro-Dollar  Business Day" means any Domestic Business Day on
which commercial banks are open for international  business  (including dealings
in dollar deposits) in London, England.






<PAGE> 11

                  "Euro-Dollar  Lending  Office"  means,  initially  as to  each
Lender, its office, branch or Affiliate designated as such on Schedule I or such
other office,  branch or Affiliate of such Lender as it may hereafter  designate
as  its   Euro-Dollar   Lending  Office  by  notice  to  the  Borrower  and  the
Administrative Agent.

                  "Euro-Dollar Loan" means a Swingline Loan, a Revolving Loan or
a Term Loan which bears interest as provided in Section 2.5(b).

                  "Euro-Dollar   Reference  Bank"  means  the  principal  London
offices of CIBC or such other  Lender as may be  appointed  pursuant  to Section
11.6(i).

                  "Euro-Dollar  Reserve  Percentage"  means  for  any  day  that
percentage  (expressed  as a  decimal)  which  is in  effect  on  such  day,  as
prescribed  by the Board of  Governors  of the  Federal  Reserve  System (or any
successor) for determining the maximum reserve  requirement for a member bank of
the Federal Reserve System in New York City with deposits exceeding five billion
dollars  in respect of  "Eurocurrency  liabilities"  (or in respect of any other
category  of  liabilities  which  includes  deposits by  reference  to which the
interest rate on  Euro-Dollar  Loans is determined or any category of extensions
of credit or other assets which includes loans by a non- United States office of
any Lender to United States  residents).  The Adjusted London Interbank  Offered
Rate shall be  adjusted  automatically  on and as of the  effective  date of any
change in the Euro-Dollar Reserve Percentage.

                  "Event of Default" has the meaning set forth in Section 9.1.

                  "Excess  Cash Flow" means,  for any fiscal  year,  the sum for
such fiscal year (without duplication) of (i) consolidated net income or loss of
the Borrower and its  Consolidated  Subsidiaries  for such period,  plus (ii) an
amount  equal to  depreciation  expense,  amortization  expense  (including  the
amortization  of  goodwill),  accrued  non-cash  interest  expense and all other
non-cash charges  deducted in arriving at such  consolidated net income or loss,
plus  (iii) an amount  equal to the  aggregate  Net Cash  Proceeds  of the sale,
lease,  transfer  or  other  disposition  of  assets  by the  Borrower  and  its
Consolidated  Subsidiaries  during such period (other than sales of Inventory in
the  ordinary  course of  business)  to the extent not required to be applied to
mandatory  prepayments  or payments on the Loans and to the extent not resulting
in any mandatory permanent  Commitment  reduction,  plus (iv) an amount equal to
the increase (or less an amount equal to the decrease) in  Consolidated  Current
Liabilities of the Borrower and its Consolidated Subsidiaries during such period
plus  (v) an  amount  equal to the  increase  (or  less an  amount  equal to the
decrease) in deferred  tax  liabilities  of the  Borrower  and its  Consolidated
Subsidiaries  during  such  period,  plus (vi) the amount of any tax  refunds or
credits received by the




<PAGE> 12

Borrower and its Consolidated Subsidiaries during such period, to the extent not
required to be applied to mandatory  prepayments or payments of the Loans and to
the extent not resulting in any mandatory permanent Commitment  reduction,  plus
(vii) an amount  equal to the net loss on the  sale,  lease,  transfer  or other
disposition of assets by the Borrower and its Consolidated  Subsidiaries  (other
than  sales of  Inventory  in the  ordinary  course of  business)  to the extent
included  in arriving at such  consolidated  net income or loss,  less (viii) an
amount  equal to the  increase  (or plus an  amount  equal to the  decrease)  in
consolidated  non-cash  current  assets  of the  Borrower  and its  Consolidated
Subsidiaries for such period,  less (ix) an amount equal to the aggregate amount
of capital  expenditures of the Borrower and its  Subsidiaries  made during such
period or permitted to be carried  forward into the next fiscal year pursuant to
Section  8.12 (less any amounts  carried  forward from prior years to the extent
not  expended in the current  year),  less (x) an amount equal to the sum of all
regularly  scheduled  payments and any optional  prepayments of principal on all
Debt of the type  described  in clauses (i) through  (iv) of the  definition  of
"Debt"   contained  in  Section  1.1  of  the  Borrower  and  its   Consolidated
Subsidiaries  (other than  prepayments on the Swingline  Loans and the Revolving
Loans  to the  extent  not  accompanied  by  commensurate  permanent  Commitment
reductions  hereunder)  actually made during such period to the extent permitted
hereunder,  less  (xi) an  amount  equal  to the net  gain on the  sale,  lease,
transfer or other  disposition  of assets by the Borrower  and its  Consolidated
Subsidiaries  during such period  (other than sales of inventory in the ordinary
course of business) to the extent included in arriving at such  consolidated net
income or loss. Excess Cash Flow shall be calculated by reference to the audited
financial statements referred to in Section 8.1(a) and such calculation shall be
set forth in the Excess Cash Flow Certificate.

                  "Excess  Cash Flow  Certificate"  has the meaning set forth in
Section 2.8(d).

                  "Exchange Act" means the  Securities  Exchange Act of 1934, as
amended.

                  "Existing  Cash  Management   Banks"  means  Bank  of  America
National Trust and Savings  Association,  NationsBank  of Texas,  N.A. and First
Bank National Association,  and their respective Affiliates, if applicable, each
in its capacity as the holder of Existing  Cash  Management  Obligations  for so
long as it shall continue to hold such  Obligations  and any other Lender (other
than the New Cash Management  Bank) which provides  replacement  cash management
services to the Borrower.

                  "Existing Cash Management  Obligations"  means the obligations
of the  Borrower to  reimburse  each of the Existing  Cash  Management  Banks in
respect of overdrafts,  uncollected funds, returned items and reasonable related
expenses arising pursuant to




<PAGE> 13

existing cash  management  arrangements  as in effect  immediately  prior to the
Closing Date.

                  "Existing  Credit  Agreement" has the meaning set forth in the
recitals to this Agreement.

                  "Existing  Letters of Credit" has the meaning set forth in the
recitals to this Agreement.

                  "Existing  Loans" has the meaning set forth in the recitals to
this Agreement.

                  "Existing Note Pledge  Agreement" has the meaning set forth in
the recitals to this Agreement.

                  "Existing  Notes" has the meaning set forth in the recitals to
this Agreement.

                  "Existing  Obligations"  has  the  meaning  set  forth  in the
recitals to this Agreement.

                  "Existing Other  Obligations" has the meaning set forth in the
recitals to this Agreement.

                  "Existing Revolving  Commitments" has the meaning set forth in
the recitals to this Agreement.

                  "Existing  Revolving  Loans" has the  meaning set forth in the
recitals to this Agreement.

                  "Existing  Revolving  Notes" has the  meaning set forth in the
recitals to this Agreement.

                  "Existing Security Agreement" has the meaning set forth in the
recitals to this Agreement.

                  "Existing Stock Pledge Agreement" has the meaning set forth in
the recitals to this Agreement.

                  "Existing  Tranche B Term  Loans" has the meaning set forth in
the recitals to this Agreement.

                  "Existing  Tranche B Term  Notes" has the meaning set forth in
the recitals to this Agreement.

                  "Federal  Funds Rate"  means,  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 Domestic  Business  Day,  for the next  preceding
Domestic Business Day) by the Federal Reserve Bank of New York, or, if such




<PAGE> 14

rate is not so  published  for any day which is a  Domestic  Business  Day,  the
average of the  quotations  for such day on such  transactions  received  by the
Administrative  Agent from three Federal  funds  brokers of recognized  standing
selected by it.

                  "Fee  Letter"  means  the fee  letter,  dated  as of the  date
hereof,  between  the  Borrower  and the  Administrative  Agent with  respect to
certain fees, as the same may be further amended,  modified or supplemented from
time to time by a written instrument executed by the parties thereto.

                  "FIFO" means,  as to any Inventory,  the value  (determined as
the lower of cost or fair market value) of such Inventory  calculated on a first
in, first out basis.

                  "Foreign Exchange Bank" means Boatmen's First National Bank of
Kansas City  (together  with any  successor by merger or  consolidation)  or any
other Lender which provides a replacement foreign exchange line in an amount not
greater than $500,000.

                  "Foreign   Exchange    Obligations"   means   the   Borrower's
obligations in respect of its existing  $500,000 foreign currency  exchange line
with the Foreign  Exchange  Bank and any renewals  thereof which do not increase
the amount of such line.

                  "GAAP" means generally accepted accounting principles.

                  "GE Credit Program  Documents"  means (a) the Monogram  Credit
Card Bank of Georgia Program  Agreement,  dated as of November 27, 1989, between
the  Borrower,  Somerville  and  Monogram  Credit Card Bank of Georgia,  as such
agreement has or may hereafter be amended,  restated,  supplemented  or modified
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 Commercial Credit Account Purchase and
Service Program  Agreement,  dated as of April 8, 1991, between the Borrower and
General Electric Capital Corporation, as amended and restated by the Amended and
Restated Commercial Credit Account Purchase and Service Program Agreement, dated
as of November 28, 1993, as such  agreement  may  hereafter be further  amended,
restated,  supplemented or modified 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"  means any  federal,  state,  local,
foreign  or  other   governmental  or  administrative   body,   instrumentality,
department  or agency  or any  court,  tribunal,  administrative  hearing  body,
arbitration panel,  commission or other similar dispute resolving panel or body.





<PAGE> 15

                  "Group"  means 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,  direct or indirect, contingent or otherwise, of such
Person (i) to 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 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  Substance"  has the  meaning  set forth in Section
8.20(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,   modified  and
supplemented from time to time.

                  "Hedging Bank" means CIBC in its capacity as Party A under the
Hedging  Agreement  and  any  other  Lender  which  enters  into  interest  rate
protection or hedging arrangements with the Borrower which are permitted by this
Agreement.

                  "Hedging Obligations" means the obligations of the Borrower to
the Hedging Bank under the Hedging Agreement.

                  "Indemnified Party" has the meaning set forth in Section 11.10

                  "Insufficiency"  means,  with respect to any Plan, the amount,
if any, of its unfunded benefit  liabilities,  as defined in Section 4001(a)(18)
of ERISA.

                  "Interest  Period"  means,  with  respect to each  Euro-Dollar
Borrowing,  (i) initially,  the period  commencing on the date of such Borrowing
and ending one, two, three or six months  thereafter,  as the Borrower may elect
in the applicable  Notice of Borrowing or notice of conversion,  as the case may
be, with respect thereto and (ii) thereafter, each period commencing on the last
day of the  next  preceding  Interest  Period  applicable  to  such  Euro-Dollar
Borrowing and ending one, two, three or six months  thereafter,  as the Borrower
may elect by irrevocable  notice received by the  Administrative  Agent




<PAGE> 16

prior to 11:00 A.M., New York City time, on the day which is not less than three
Euro-Dollar  Business Days prior to the end of the then current  Interest Period
with respect thereto; provided, that:

                  (a) any  Interest  Period which would  otherwise  end on a day
         which is not a  Euro-Dollar  Business Day shall be extended to the next
         succeeding  Euro-Dollar  Business Day unless such Euro-Dollar  Business
         Day falls in another calendar month, in which case such Interest Period
         shall end on the next preceding Euro-Dollar Business Day;

                  (b) any Interest  Period which begins on the last  Euro-Dollar
         Business  Day of a  calendar  month (or on a day for which  there is no
         numerically  corresponding day in the calendar month at the end of such
         Interest  Period) shall,  subject to clause (c) below,  end on the last
         Euro-Dollar Business Day of a calendar month;

                  (c) if any Interest Period would  otherwise  include a date on
         which a scheduled  payment of principal of any of the Loans is required
         to be made under this  Agreement  but does not end on such date,  then,
         subject to  Section  5.5,  (i) the  Interest  Period for the  principal
         amount (if any) of each Loan  required  to be repaid on such date shall
         end on such  date and (ii) the  remainder  (if any) of each  such  Loan
         shall have an Interest  Period  determined in accordance with the other
         provisions of this definition; and

                  (d) any Interest Period that would otherwise extend beyond the
         Maturity Date shall end on such date.

                  "Inter-Facility Agreement" means the Inter-Facility Agreement,
dated  as of  November  18,  1994,  by  and  among  the  Collateral  Agent,  the
Administrative Agent, the Co-Agents,  the Merchandise Letter of Credit Bank, the
Borrower and Somerville,  as amended,  supplemented  or otherwise  modified from
time to time with the  consent  of the  Administrative  Agent  and the  Majority
Lenders.

                  "Inventory" means all inventory (as defined in the UCC) of any
kind  whatsoever  now owned or hereafter  acquired by the Borrower or any of its
Subsidiaries, but expressly excluding inventory consigned to the Borrower or its
Subsidiaries by third parties.

                  "Investment"  means any  investment in any Person,  whether by
means of asset or share purchase,  capital  contribution,  loan,  advance,  time
deposit or  otherwise,  other than any such purchase of assets from such Person,
either (i)  constituting a capital  expenditure  that is covered by Section 8.12
(including  associated  goodwill) or (ii) of goods in the ordinary course of the
purchaser's business.





<PAGE> 17

                  "L/C Fee Payment Date" means the last day of each month.

                  "L/C  Obligation"  means,  at any time, an amount equal to the
sum of (a) the aggregate  undrawn and unexpired  amount of the then  outstanding
Letters of Credit and (b) the  aggregate  amount of  drawings  under  Letters of
Credit which have not then been reimbursed in accordance with Section 3.5.

                  "L/C Participants"  means,  collectively,  with respect to any
Letter of Credit,  all the Revolving  Lenders which have  Revolving  Commitments
other than the Letter of Credit Bank which is the issuer thereof.

                  "L/C Rate"  means a rate per annum that is at all times  equal
to the Applicable  Margin for Euro-Dollar Loans that are Revolving Loans then in
effect.

                  "Lenders"   means,   collectively,   the  Revolving   Lenders,
Swingline  Lenders  and Term  Lenders.  The initial  Lenders and the  respective
amounts of their Commitments and Term Loans are listed on Schedule I.

                  "Lending  Office"  means,  as to  each  Lender,  its  Domestic
Lending Office or its Euro-Dollar Lending Office, as the context may require.

                  "Letter of Credit  Bank" means CIBC and/or any Lender which is
a  commercial  bank and is  subsequently  designated  by the  Borrower  with the
consent of such  Lender and the  Administrative  Agent to replace  the  previous
Letter  of Credit  Bank in  issuing  Standby  Letters  of Credit or  Documentary
Letters of Credit hereunder.

                  "Letter of Credit  Commitment"  has the  meaning  set forth in
Section 3.1.

                  "Letters of Credit" has the meaning set forth in Section 3.1.

                  "LIBOR" with respect to each Interest  Period  pertaining to a
Euro-Dollar  Loan means the rate (rounded  upwards,  if  necessary,  to the next
higher  1/16 of 1%) per annum at which  deposits  in Dollars  are offered to the
Euro-Dollar Reference Bank in the London interbank market at approximately 11:00
A.M.  (London time) two  Euro-Dollar  Business Days before the first day of such
Interest Period in an amount  approximately equal to the principal amount of the
Euro-Dollar Loan of the Euro-Dollar Reference Bank to which such Interest Period
is to apply and for a period of time comparable to such Interest Period.

                  "Lien" means,  with respect to any asset, any mortgage,  lien,
pledge,  charge,  security  interest or  encumbrance  of any kind  whatsoever in
respect of such asset.  For the purposes of this




<PAGE> 18

Agreement,  the Borrower or any  Subsidiary  shall be deemed to own subject to a
Lien any asset  which it has  acquired  or holds  subject to the  interest  of a
vendor or lessor under any conditional  sale  agreement,  capital lease or other
title retention agreement relating to such asset.

                  "Loans"  means,   collectively,   the  Swingline   Loans,  the
Revolving Loans and the Term Loans.

                  "Lumberjack"  means  Lumberjack  Stores,  Inc.,  a  California
corporation.

                  "Majority  Lenders"  means,  at any  time,  Lenders  having an
aggregate  amount of the  Commitments  and the Term Loans (or, if no Commitments
remain in effect,  the Loans and any Participating  Interests) which constitute,
when taken  together,  at least 51% of the aggregate  amount of all  Commitments
then in effect plus the aggregate amount of all Term Loans then outstanding (or,
if no Commitments  remain in effect,  the aggregate  amount of all Loans and any
Participating  Interests then outstanding);  provided,  that for the purposes of
this definition, the relevant Commitments, Loans or Participating Interests of a
Lender  shall  be  disregarded  if and  for so  long as  such  Lender  (each,  a
"Defaulting  Lender")  shall  have not  theretofore  made  available  (i) to the
Administrative  Agent its pro rata share of a given Borrowing in accordance with
Section 2.3(c), (ii) to the Administrative Agent or the Collateral Agent, as the
case may be, its Ratable  Proportion  share of any amounts  payable  pursuant to
Section  10.6 for which  payment  has been  requested  more  than five  Domestic
Business Days prior thereto,  or (iii) to the Letter of Credit Bank its pro rata
share  of a given  unreimbursed  Reimbursement  Obligation  in  accordance  with
Section 3.4(a).

                  "Margin Stock" has the meaning set forth in Regulation U.

                  "Materially  Adverse  Effect"  means (i) with  respect  to the
Borrower and its  Subsidiaries,  any materially  adverse change in the business,
operations,  condition  (financial  or  otherwise),  assets or  prospects of the
Borrower and its Subsidiaries taken as a whole, or (ii) any fact or circumstance
which, singly or in the aggregate, could reasonably be expected to result in (a)
a materially  adverse change described in clause (i) or (b) the inability of the
Borrower  or any of its  Subsidiaries  to perform in any  material  respect  its
obligations hereunder or under the other Credit Documents.

                  "Maturity  Date" means November 20, 2000, or such earlier date
on which the Commitments terminate and the Notes become due and payable pursuant
to Section 9.1.

                  "Maximum Rate" has the meaning set forth in Section 2.5(g).






<PAGE> 19

                  "Merchandise Letter of Credit Bank" means Commerce Bank, N.A.,
together  with its  successors  and  assigns or any other bank which shall issue
documentary letters of credit under the Merchandise Letter of Credit Facility.

                  "Merchandise  Letter of Credit  Facility"  means the Letter of
Credit  Issuance  and  Reimbursement  Agreement  dated as of  November  18, 1994
between Commerce Bank, N.A. and the Borrower,  as such agreement may be amended,
supplemented,  otherwise modified or replaced from time to time with the consent
of the Majority Lenders.

                  "Minority  Investment" means any Investment  consisting of the
acquisition of non-majority ownership interests in any Person.

                  "Moody's"  means 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  Administrative
Agent and the Borrower.

                  "Mortgages" means the fee and leasehold mortgages and deeds of
trust on the Available  Properties,  substantially  in the forms of Exhibits G-1
and G-2,  respectively  (with such changes as may be deemed  appropriate  by the
Administrative  Agent's  local real estate  counsel for the state in  question),
between the  Borrower  and the  Collateral  Agent for the benefit of the Secured
Parties, as amended, amended and restated, modified or supplemented from time to
time.

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

                  "Multiple Employer Plan" means an employee benefit plan, other
than a Multiemployer  Plan,  subject to Title IV of ERISA to which the Borrower,
any  Subsidiary or any ERISA  Affiliate of the Borrower or any  Subsidiary,  and
more than one  employer  other than the  Borrower,  any  Subsidiary  or an ERISA
Affiliate of the Borrower or any Subsidiary, is making or accruing an obligation
to make  contributions  or, in the event that any such plan has  terminated,  to
which the Borrower, any Subsidiary or any ERISA Affiliate of the Borrower or any
Subsidiary made or accrued an obligation to make contributions during any of the
five plan years preceding the date of termination of such plan.

                  "Net Cash  Proceeds"  means,  with  respect to any issuance or
creation of any  Permitted  Refinancing  Debt, or any sale,  lease,  transfer or
other  disposition  of  property or other  assets or the  issuance of any equity
securities  (other than equity  securities  issuable pursuant to the exercise of
employee or  director  stock




<PAGE> 20

options),  (a) the cash  proceeds  received by the  Borrower  or any  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)
brokerage   commissions  and  other  reasonable  fees  and  expenses  (including
reasonable fees and expenses of counsel and investment  bankers) related to such
financing,  sale, lease or other  disposition or issuance,  and minus (c) in the
case of any such issuance or creation of any Debt or financing,  sale,  lease or
other  disposition  of assets,  (i)  provisions  for all taxes  payable  for the
account of the Borrower or any  Subsidiary as a result thereof and in connection
therewith and (ii)  payments made to retire Debt (other than the Loans)  secured
by such assets being sold or otherwise disposed of where payment of such Debt is
required in connection with such sale or disposition.

                  "New Cash Management Bank" means Boatmen's First National Bank
of Kansas City (together with any successor by merger or  consolidation)  or any
other  Lender  which  assumes  responsibility  for the  Borrower's  primary cash
management operations.

                  "New Cash Management Obligations" means the obligations of the
Borrower to reimburse  the New Cash  Management  Bank in respect of  overdrafts,
uncollected  funds  and  returned  items  arising  pursuant  to cash  management
arrangements   for  the   Borrower's   primary   cash   management   operations,
responsibility for which is being assumed by the New Cash Management Bank.

                  "Note Pledge  Agreement"  means the amended and restated  note
pledge agreement,  substantially in the form of Exhibit C, between the Borrower,
the  Administrative  Agent,  and the  Collateral  Agent for the  benefit  of the
Original  Secured  Parties,  as  amended,  amended  and  restated,  modified  or
supplemented from time to time.

                  "Notes"  means,   collectively,   the  Swingline   Notes,  the
Revolving  Notes,  the  Tranche  A Term Loan  Notes and the  Tranche B Term Loan
Notes.

                  "Notice of Borrowing" has the meaning set forth in
Section 2.3(a).

                  "Original  Collateral" means all property (whether tangible or
intangible  and whether now existing or hereafter  acquired) in which a security
interest, assignment or lien has heretofore been granted to the Collateral Agent
for the benefit of the Original Secured Parties.

                  "Original   Secured   Parties"   means,   collectively,    the
Administrative Agent, the Collateral Agent, the Co-Agents,  the




<PAGE> 21

Letter of Credit Bank, the Restructuring  Lenders and the Merchandise  Letter of
Credit Bank.

                  "Other Amounts" has the meaning set forth in Section 2.5(g).

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

                  "Participants" has the meaning set forth in Section 11.6(b).

                  "Participating  Interest" means with respect to each Letter of
Credit (i) in the case of the Letter of Credit Bank, its interest in such Letter
of Credit and any Application or draft or payment request relating thereto after
giving effect to the granting of any  participating  interests  therein pursuant
hereto and (ii) in the case of each L/C Participant, its undivided participating
interest  in such  Letter  of Credit  and any  Application  or draft or  payment
request relating thereto.

                  "PBGC" means the Pension Benefit  Guaranty  Corporation or any
entity succeeding to any or all of its functions under ERISA.

                  "Permitted  Pad Sale" means 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.

                  "Permitted  Refinancing  Debt" means Debt for  Borrowed  Money
incurred by the Borrower to refinance the  Prudential  Real Estate  Financing or
Synthetic  Lease  Obligations (or a portion  thereof) in a principal  amount not
less than the principal amount of the obligations (or the portion thereof) being
refinanced  (or 40% percent of the  obligations  (or the portion  thereof) being
refinanced in the case of Synthetic Lease Obligations);  provided, that (i) such
Debt for Borrowed  Money is not secured by any assets of the Borrower other than
the assets securing the Debt being  refinanced and, in the case of a refinancing
of less than the entire principal amount of the Prudential Real Estate Financing
or the Synthetic  Lease  Obligations,  such Debt is not secured by any assets of
the Borrower not  specifically  allocated to the portion of the Prudential  Real
Estate  Financing or the Synthetic Lease  Obligations  being refinanced and (ii)
such Debt for  Borrowed  Money is  incurred on terms and  conditions  (including
financial  and other  covenants  and  events of  defaults)  and with a  weighted
average  tenor  which,  taken as a  whole,




<PAGE> 22

would be no less favorable to the Borrower than the terms,  conditions and tenor
of the Debt being refinanced as in effect on the date hereof.

                  "Person"  means  an  individual,  a  corporation,   a  limited
liability  company,  a limited  liability  partnership,  a partnership,  a joint
venture, an association, a trust or any other entity or organization,  including
a government or political subdivision or an agency or instrumentality thereof.

                  "Plan"   means  an  employee   benefit   plan  (other  than  a
Multiemployer  Plan),  including any Multiple Employer Plan, which is or, in the
event  that any such  plan has been  terminated  within  five  years  after  the
occurrence of a transaction  described in Section 4069 of ERISA,  was maintained
for employees of the  Borrower,  any  Subsidiary  or any ERISA  Affiliate of the
Borrower or any Subsidiary and is subject to Title IV of ERISA.

                  "Pledge  Agreements"  means,  collectively,  the  Note  Pledge
Agreement and the Stock Pledge Agreement.

                  "Property" has the meaning set forth in Section 8.20(a).

                  "Prudential" means The Prudential Insurance Company of America

                  "Prudential  Loan Agreement"  means the Loan Agreement,  dated
June 20, 1989, by and among the Borrower,  Knox Home Centers,  Inc.,  Somerville
and Prudential,  as the same has been and may hereafter be amended,  amended and
restated, modified or supplemented to the extent permitted by this Agreement.

                  "Prudential  Real Estate  Financing"  means the  financing  by
Prudential provided for by the Prudential Loan Agreement and other documentation
executed and delivered in connection therewith.

                  "Purchasing  Lender"  has the  meaning  set  forth in  Section
11.6(c).

                  "Ratable  Proportion" means, as to each Lender, the percentage
share set opposite its name under the column  entitled  "Ratable  Proportion" on
Schedule  I,  which  such  percentage  share  shall not be  subject to change or
adjustment  upon principal  repayments in respect of the Term Loans or permanent
reductions in the Commitments.

                  "Recipient" has the meaning set forth in Section 11.16.

                  "Register" has the meaning set forth in Section 11.6(d).






<PAGE> 23

                  "Regulation G" means Regulation G of the Board of Governors of
the Federal Reserve System (or any successor), as in effect from time to time.

                  "Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System (or any successor), as in effect from time to time.

                  "Reimbursement   Obligation"   means  the  obligation  of  the
Borrower  to  reimburse  the Letter of Credit  Bank  pursuant to Section 3.5 for
amounts drawn under Letters of Credit issued by the Letter of Credit Bank.

                  "Remedial Work" has the meaning set forth in Section 8.20(c).

                  "Rent Expense" means all expenses  related to operating leases
of the Borrower and its Subsidiaries with respect to real or personal property.

                  "Required   Inventory"   means  Inventory  in  the  Borrower's
possession and not subject to any Liens (except Liens in favor of the Collateral
Agent and other  Liens  permitted  by Section  8.10)  which shall have a minimum
aggregate  value,  determined  on a FIFO basis,  at least equal to $350  million
after  deduction of all amounts secured by such other Liens;  provided,  that no
Inventory  subject to Liens in favor of the  Merchandise  Letter of Credit Bank,
Liens created  pursuant to the GE Credit Program  Documents or Liens of the type
described in Section 8.10(viii) shall have any value ascribed to it for purposes
of calculating Required Inventory.

                  "Required Lenders" means (i) as long as any Commitments remain
in effect or any Revolving  Loans,  Swingline  Loans or Letters of Credit remain
outstanding,  (x) Lenders having an aggregate  amount of the  Commitments  which
constitute  at least  51% of the  aggregate  amount of all  Commitments  then in
effect (or, if no  commitments  remain in effect,  but  Revolving  Loans  and/or
Swingline  Loans  and/or  Letters  of  Credit  remain  outstanding,  51%  of the
aggregate  amount of such Loans and any  Participating  Interests)  plus Lenders
having an aggregate  amount of the Term Loans which  constitute  at least 51% of
the aggregate  amount of all Term Loans then  outstanding  or, failing that, (y)
Lenders  having an aggregate  amount of the  Commitments  (or, if no Commitments
remain in effect,  but Revolving Loans and/or  Swingline Loans and/or Letters of
Credit remain outstanding,  any such Loans and any Participating  Interests) and
Term Loans which constitute,  when taken together,  at least 66- 2/3% of the sum
of the aggregate amount of all Commitments then in effect (or, if no Commitments
remain in effect,  but Revolving Loans and/or  Swingline Loans and/or Letters of
Credit remain outstanding,  any such Loans and any Participating Interests) plus
the aggregate amount of all Term Loans then outstanding;  provided, that for the
purposes of this definition,  the relevant  Commitments,  Loans or Participating





<PAGE> 24

Interests  of a Lender  shall be  disregarded  if and for so long as such Lender
shall be a Defaulting Lender; and (ii) if no Commitments remain in effect and no
Revolving  Loans,  Swingline  Loans or  Letters  of Credit  remain  outstanding,
Required Lenders shall mean Lenders having an aggregate amount of the Term Loans
which  constitute  at least 51% of the  aggregate  amount of all Term Loans then
outstanding.

                  "Requirement  of Law" means as to any Person,  the articles or
certificate of incorporation  and by-laws or other  organizational  or governing
documents  of  such  Person,  and  any  law,  treaty,   rule  or  regulation  or
determination of an arbitrator or a court or other  Governmental  Authority,  in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.

                  "Restricted   Payment"   means  (i)  any   dividend  or  other
distribution  in cash or in kind on any shares of the  Borrower's  capital stock
(common or preferred),  (ii) any payment in cash or in kind (including,  without
limitation,  the setting  aside of assets or the deposit of funds  therefor)  on
account of the purchase, redemption, retirement or acquisition of (a) any shares
of the Borrower's capital stock (common or preferred) or (b) any option, warrant
or other right to acquire  shares of the  Borrower's  capital  stock  (common or
preferred),  (iii) any payment or prepayment of principal or interest on account
of Debt for  Borrowed  Money  (other  than the  Loans)  or the  Synthetic  Lease
Obligations or any purchase, defeasance,  redemption,  retirement or acquisition
of any  principal or interest on such Debt or  obligations  (including,  without
limitation,  the setting  aside of assets or the deposit of funds  therefor)  or
(iv) any  payment  of  management  or  consulting  fees to an  Affiliate  of the
Borrower;  provided,  however,  that the  conversion  into  common  stock of the
Borrower of all or any portion of the Borrower's Series A Cumulative Convertible
Preferred  Stock  shall not be deemed to result in a  Restricted  Payment;  and,
provided,  further,  that the  conversion  of shares of any class of the  common
stock of the Borrower into another  class of common stock of the Borrower  shall
not be deemed to result in a Restricted Payment.

                  "Restructured  Loans" means the obligations of the Borrower in
respect of the Existing Notes as restructured pursuant to this Agreement.

                  "Restructured  Obligations" means the Existing  Obligations as
restructured pursuant to this Agreement.

                  "Restructuring  Lender" means any Lender which has outstanding
Term Loans or Revolving  Commitments (or, to the extent no Revolving Commitments
remain in effect,  but  Revolving  Loans or  Letters of Credit or  Reimbursement
Obligations remain outstanding, Revolving Loans or Participating Interests).






<PAGE> 25

                  "Revolving   Borrowing"   means  a  Borrowing   consisting  of
Revolving Loans of the same Type made on the same day.

                  "Revolving  Commitment" means as to any Revolving Lender,  the
obligation  of such  Lender  to  make  Revolving  Loans  to the  Borrower  in an
aggregate  principal amount at any one time outstanding not to exceed the amount
set forth under the heading "Revolving  Commitments" opposite such Lender's name
on  Schedule  I, as such  amount may be reduced  or  adjusted  from time to time
pursuant to this Agreement.

                  "Revolving  Commitment  Percentage" means, as to any Revolving
Lender at any time, the percentage of the aggregate  Revolving  Commitments then
constituted  by such Lender's  Revolving  Commitment  (or, at any time after the
Revolving  Commitments  shall have expired or terminated,  the percentage of the
aggregate  principal  amount  of  the  Revolving  Loans  and  the  Participating
Interests then outstanding then represented by the aggregate principal amount of
such Lender's Revolving Loans and Participating Interests).

                  "Revolving  Lender"  means each  Lender  which has a Revolving
Commitment,  which has made  Revolving  Loans or which has  participated  in the
Letters of Credit.

                  "Revolving Loans" has the meaning set forth in Section 2.2(a).

                  "Revolving  Note" means a  promissory  note of the Borrower to
the order of any  Revolving  Lender,  substantially  in the form of Exhibit A-1,
evidencing the  obligation of the Borrower to repay the Revolving  Loans made by
such Lender, as such Note may be amended,  modified,  supplemented,  replaced or
substituted for from time to time.

                  "SEC" means the Securities and Exchange Commission.

                  "Secured   Obligations"  means  all  Bank  Obligations,   Cash
Management Obligations,  Hedging Obligations,  Foreign Exchange Obligations, and
obligations owed in respect of the Merchandise Letter of Credit Facility.

                  "Secured    Parties"   means   the   Collateral   Agent,   the
Administrative Agent, the Co-Agents, the Lenders, the Letter of Credit Bank, the
Hedging Bank, the Foreign Exchange Bank, the Existing Cash Management Banks, the
New Cash Management Bank and the Merchandise Letter of Credit Bank.

                  "Security  Agreement" means the amended and restated  security
agreement  substantially  in the form of  Exhibit B between  the  Borrower,  the
Administrative   Agent  and  the  Collateral   Agent  and  such  other  security
agreements,  assignments,  pledges and similar




<PAGE> 26

documents,  in form and substance  satisfactory to the Administrative  Agent, as
the  Administrative  Agent may request,  each as amended,  amended and restated,
modified or supplemented from time to time.

                  "Security   Documents"  means  the  Security  Agreement,   all
Subsidiary  Security   Agreements,   all  Subsidiary   Guarantees,   the  Pledge
Agreements, the Mortgages and all other security agreements,  mortgages, pledges
and assignments at any time delivered by the Borrower or its Subsidiaries to the
Collateral  Agent  pursuant  to the terms of this  Agreement,  each as  amended,
amended and restated, modified or supplemented from time to time.

                  "Senior  Subordinated  Note  Indenture"  means  the  Indenture
between the Borrower and United  States Trust  Company of New York,  dated as of
April 20, 1993 (pursuant to which the Senior Subordinated Notes were issued), as
the same  may be  amended,  amended  and  restated,  supplemented  or  otherwise
modified to the extent permitted by this Agreement.

                  "Senior Subordinated Notes" means the Borrower's 9-1/8% Senior
Subordinated   Notes  due  April  15,  2003,   issued  pursuant  to  the  Senior
Subordinated Note Indenture.

                  "Somerville" means Somerville Lumber and Supply,  Co., Inc., a
Massachusetts corporation and a former Subsidiary which has been merged into the
Borrower.

                  "S&P" means  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 Administrative Agent and the Borrower.

                  "Standby  Letter of Credit  Commitment"  has the  meaning  set
forth in Section 3.1.

                  "Standby  Letters  of  Credit"  has the  meaning  set forth in
Section 3.1.

                  "Stock Pledge  Agreement" means the amended and restated stock
pledge agreement,  substantially in the form of Exhibit D, between the Borrower,
the  Administrative  Agent and the  Collateral  Agent,  for the  benefit  of the
Original  Secured  Parties,  as  amended,  amended  and  restated,  modified  or
supplemented from time to time.

                  "Subsidiary"  means any  corporation  or other entity of which
securities or other ownership  interests having ordinary voting power to elect a
majority of the board of directors or other Persons performing similar functions
are at the time directly or indirectly owned by the Borrower.






<PAGE> 27

                  "Subsidiary  Guarantee" means the guarantee,  substantially in
the form of Exhibit E, to be entered into between each  Subsidiary  (whether now
existing  or  hereafter  formed,   purchased  or  otherwise  acquired)  and  the
Collateral  Agent for the  benefit of the  Secured  Parties,  as the same may be
amended,  amended and restated,  supplemented or otherwise modified from time to
time.

                  "Subsidiary  Security Agreement" means the security agreement,
substantially  in the form of Exhibit F, to be made by each Subsidiary  (whether
now existing or hereafter formed,  purchased or otherwise acquired), in favor of
the Collateral Agent, for the benefit of the Secured Parties, as the same may be
amended, amended and restated, modified or supplemented from time to time.

                  "Survey" means a current  survey of the real property  covered
by any Mortgage  certified to the  Administrative  Agent and the title insurance
company insuring the Mortgage, or in lieu thereof, a copy of the existing survey
and/or an affidavit in form and substance  satisfactory  to the title  insurance
company insuring such Mortgage to remove any exceptions in the Title Policy with
respect to the absence of a current certified survey.

                  "Swingline   Borrowing"   means  a  Borrowing   consisting  of
Swingline Loans of the same Type made on the same day.

                  "Swingline  Commitment" means, as to any Swingline Lender, the
obligation  of such  Lender  to  make  Swingline  Loans  to the  Borrower  in an
aggregate  principal amount at any one time outstanding not to exceed the amount
set forth under the heading "Swingline  Commitments" opposite such Lender's name
on  Schedule  I, as such  amount may be reduced  or  adjusted  from time to time
pursuant to this Agreement.

                  "Swingline Compliance  Certificate" means a certificate in the
form of Exhibit Q,  certified  by the  Borrower's  chief  financial  officer and
delivered pursuant to Section 2.8(g), 2.9(d), 6.3(c) or 8.26.

                  "Swingline  Facility Fee" has the meaning set forth in Section
2.6(e).

                  "Swingline  Lender"  means each  Lender  which has a Swingline
Commitment or which has made Swingline Loans.

                  "Swingline Loans" has the meaning set forth in Section 2.2(d).

                  "Swingline  Note" means a  promissory  note of the Borrower to
the order of any  Swingline  Lender,  substantially  in the form of Exhibit A-4,
evidencing the  obligation of the Borrower to repay the Swingline  Loans made by
such Lender, as such Note may be amended,




<PAGE> 28

modified, supplemented, replaced or substituted for from time to time.

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

                  "Synthetic Lease Documents" means 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"  means the  obligations of the
Borrower under the Synthetic  Lease Documents  (whether or not such  obligations
constitute capital lease obligations).

                  "Synthetic   Lease   Participation    Agreement"   means   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.

                  "Temporary Cash Investment" means 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 a
Subsidiary,  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 or a Subsidiary.

                  "Term Lender" means each Lender which has made Term Loans.

                  "Term  Loans" means the Tranche A Term Loans and the Tranche B
Term Loans.

                  "Title  Policy"  means a  mortgage  policy of title  insurance
(ALTA or the equivalent) insuring the first priority Lien of a Mortgage in favor
of the Administrative  Agent, in form and substance and issued by title insurers
satisfactory  to the  Administrative  Agent  and  containing  no  exceptions  to
coverage  other than matters





<PAGE> 29

satisfactory to the Administrative Agent in its judgment reasonably exercised.

                  "Trademarks" means (a) all trademarks,  trade names, corporate
names, company names, business names,  fictitious business names, service names,
trade  styles,  service  marks,  logos and other source or business  identifiers
owned by the Borrower or any Subsidiary,  and the goodwill associated therewith,
now existing or hereafter adopted or acquired,  all registrations and recordings
thereof,  and all  applications in connection  therewith,  whether in the United
States  Patent and  Trademark  Office or in any similar  office or agency of the
United  States,  any  State  thereof  or any  other  country  or  any  political
subdivision thereof, or otherwise and (b) all renewals thereof.

                  "Tranche  A Term Loan  Note"  means a  promissory  note of the
Borrower to the order of any Term Lender,  substantially  in the form of Exhibit
A-2, evidencing the obligation of the Borrower to repay the Tranche A Term Loans
made by such  Lender,  as such  Note  may be  amended,  modified,  supplemented,
replaced or substituted for from time to time.

                  "Tranche A Term  Loans" has the  meaning  set forth in Section
2.2(b).

                  "Tranche  B Term Loan  Note"  means a  promissory  note of the
Borrower to the order of any Term Lender,  substantially  in the form of Exhibit
A-3, evidencing the obligation of the Borrower to repay the Tranche B Term Loans
made by such  Lender,  as such  Note  may be  amended,  modified,  supplemented,
replaced or substituted for from time to time.

                  "Tranche B Term  Loans" has the  meaning  set forth in Section
2.2(c).

                  "Transferee" has the meaning set forth in Section 11.6(f).

                  "Type" means,  as to any Loan,  its status as a CIBC Alternate
Base Rate Loan or a Euro-Dollar ---- Loan.

                  "UCC"  means the Uniform  Commercial  Code as in effect in the
State of New York on the date --- hereof.

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

                  "United  States  Person"  has the meaning set forth in Section
5.3(b).




<PAGE> 30

                  "Vehicles" means all cars, trucks, trailers,  construction and
earth moving  equipment and other vehicles covered by a certificate of title law
of any state and, in any event, shall include, without limitation,  the vehicles
listed on  Schedule V to the  Security  Agreement  and any  Subsidiary  Security
Agreements and all tires and other appurtenances to any of the foregoing.

                  "Voting Shares" means,  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" has the meaning specified under Part I
of Subtitle E of Title IV of --------------------- ERISA.

                  "ZR&G" has the meaning set forth in Section 6.2(k).

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

                  (b) Unless  otherwise  specified  herein,  all  accounting and
financial terms used herein and in any other Credit Document and any certificate
or other document made or delivered  pursuant  hereto,  shall be construed,  all
accounting  determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with GAAP as
in  effect  from  time to time;  provided,  that  for  purposes  of  determining
compliance  with any  covenants  set forth in  Section  8,  such  term  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 7.9(b).

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

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

                   SECTION 2. AMOUNT AND TERMS OF COMMITMENTS






<PAGE> 31

                  SECTION 2.1  Acknowledgment of Existing  Obligations.  (a) The
Borrower  hereby  confirms  and  acknowledges  to  the  Collateral   Agent,  the
Administrative  Agent, the Co-Agents,  the Letter of Credit Bank and the Lenders
that, immediately prior to the effectiveness of this Agreement (i) the aggregate
amount of the Existing  Obligations is as set forth in the second whereas clause
of this Agreement.

                  (b)  It is  hereby  expressly  understood  and  agreed  by the
parties hereto that the Notes (other than the Swingline  Notes) amend,  restate,
supplement,  supersede and replace the Existing Notes and that the  indebtedness
outstanding  under and evidenced by the Existing Notes as of the date hereof has
not  been  repaid,  satisfied  or  discharged,  but for all  purposes  has  been
replaced,  substituted  and  restructured as provided herein and constitutes the
indebtedness  outstanding  under the  Revolving  Notes,  the Tranche A Term Loan
Notes and the Tranche B Term Loan Notes.

                  SECTION 2.2  Commitments to Lend.  (a) Each  Revolving  Lender
severally  agrees,  on the terms and conditions set forth in this Agreement,  to
lend to the Borrower from time to time revolving credit loans (each a "Revolving
Loan" and,  collectively,  the "Revolving Loans") not to exceed in the aggregate
at any time  outstanding,  when added to the amount of such  Revolving  Lender's
Participating  Interest in the then outstanding L/C  Obligations,  the amount of
its Revolving  Commitment,  which Revolving  Commitments of all of the Revolving
Lenders shall not exceed the aggregate principal amount of $135,000,000,  as the
same may be reduced  from time to time  pursuant to Sections  2.7 and 2.8.  Each
Borrowing  under  this  subsection  (a) shall (i) be in an  aggregate  principal
amount of  $5,000,000 or any larger  multiple of $1,000,000  (except that a CIBC
Alternate Base Rate Borrowing may be in the aggregate  amount of the then unused
Revolving Commitments) and (ii) consist of Revolving Loans of the same Type made
on the  same  Borrowing  Date  by  the  several  Revolving  Lenders  ratably  in
proportion to their respective  Revolving  Commitments.  The Borrower may borrow
Revolving  Loans  under this  subsection  (a) and,  to the extent  permitted  by
Section 2.9,  prepay  Revolving  Loans and reborrow  Revolving Loans at any time
prior to the Maturity Date and shall repay all  outstanding  Revolving  Loans on
the Maturity Date;  provided,  that except as permitted in Section  2.2(e),  the
Borrower  may not repay or  prepay  Revolving  Loans at any time when  Swingline
Loans are outstanding unless it has first repaid or prepaid, as the case may be,
any outstanding  Swingline Loans. Without limiting its obligations under Section
2.8, the Borrower hereby  unconditionally  promises to pay the unpaid  principal
amount of the Revolving Loans on the Maturity Date.

                  (b) Each  Term  Lender  severally  agrees,  on the  terms  and
conditions set forth in this Agreement, to restructure a portion of its Existing
Loans  into  a  Tranche  A  term  loan  (each  a  "Tranche  A  Term  Loan"  and,
collectively, the "Tranche A Term Loans") to the Borrower on the Closing Date in
an amount not to exceed the  Tranche A Term Loan  amount of such Term Lender set
forth on Schedule I,




<PAGE> 32

which  Tranche A Term  Loans of all of the Term  Lenders  shall not  exceed  the
aggregate  principal  amount of  $173,000,000.  Without limiting its obligations
under  Sections  2.4 or 2.8, the  Borrower  unconditionally  promises to pay the
unpaid principal amount of the Tranche A Term Loans on the Maturity Date.

                  (c) Each  Term  Lender  severally  agrees,  on the  terms  and
conditions set forth in this Agreement, to restructure a portion of its Existing
Loans  into  a  Tranche  B  term  loan  (each  a  "Tranche  B  Term  Loan"  and,
collectively, the "Tranche B Term Loans") to the Borrower on the Closing Date in
an amount not to exceed the  Tranche B Term Loan  amount of such Term Lender set
forth on Schedule I, which Tranche B Term Loans of all of the Term Lenders shall
not exceed the aggregate principal amount of $100,000,000.  Without limiting its
obligations under Sections 2.4 or 2.8, the Borrower  unconditionally promises to
pay the unpaid  principal  amount of the  Tranche B Term  Loans on the  Maturity
Date.

                  (d) Each Swingline Lender severally  agrees,  on the terms and
conditions set forth in this Agreement (including, without limitation, those set
forth in Section  6.3),  to lend to the  Borrower  from time to time,  swingline
revolving  loans (each a  "Swingline  Loan" and,  collectively,  the  "Swingline
Loans") not to exceed in the aggregate at any time outstanding the amount of the
Swingline  Commitment of such Swingline Lender,  which Swingline  Commitments of
all of the Swingline Lenders shall not exceed the aggregate  principal amount of
$60,000,000  as the same may be reduced  from time to time  pursuant to Sections
2.7 and 2.8; provided, that except as set forth in Section 2.2(e), the Swingline
Lenders  shall not be  obligated to make any  Swingline  Loans unless all of the
aggregate Revolving Commitments are fully utilized at the time (exclusive of any
portion of the Revolving Commitments which is unutilized solely as a consequence
of a Defaulting  Lender's  failure to make available its pro rata portion of one
or more Revolving  Borrowings).  Each Borrowing  under this subsection (d) shall
(i) be in an aggregate  principal amount of $5,000,000 or any larger multiple of
$1,000,000  (except  that a CIBC  Alternate  Base Rate  Borrowing  may be in the
aggregate amount of the then unused  Swingline  Commitments) and (ii) consist of
Swingline  Loans of the same Type made on the same Borrowing Date by the several
Swingline   Lenders  ratably  in  proportion  to  their   respective   Swingline
Commitments.  The Borrower may borrow Swingline Loans under this subsection (d),
prepay  Swingline Loans and,  provided that the Revolving  Commitments are fully
utilized and subject to the  satisfaction  of the terms and conditions set forth
in this Agreement  (including,  without  limitation,  those set forth in Section
6.3),  reborrow  Swingline Loans at any time prior to the Maturity Date. Without
limiting its obligations under Section 2.8, the Borrower hereby  unconditionally
promises  to pay the  unpaid  principal  amount  of the  Swingline  Loans on the
Maturity Date.






<PAGE> 33

                  (e)  Notwithstanding  the provisions of Section 2.2(d), if the
Revolving Commitments are fully utilized (or the unused portion of the Revolving
Commitments  is less than the  amount of a  requested  Letter  of  Credit),  the
Borrower  may apply for  Letters  of Credit  to the  extent  that the  Swingline
Commitments  and the Letter of Credit  Commitment  have not been fully utilized,
but only if the  Borrower  is also able to  satisfy  all of the  conditions  for
borrowing  Swingline  Loans and for the  issuance  of  Letters of Credit at such
time. In such instance,  the Borrower shall,  concurrently  with the issuance of
the requested  Letter of Credit,  borrow  Swingline Loans in an aggregate amount
equal to the face  amount of the  Letter of Credit  requested  (or the amount by
which the face amount exceeds the unutilized Revolving Commitments,  as the case
may be) and the proceeds of such Swingline Loans shall be  concurrently  applied
to the  prepayment  of the  principal of an equal  amount of Revolving  Loans in
order  to  create  the  requisite   availability  under  the  Letter  of  Credit
Commitment.

                  SECTION 2.3 Method of Borrowing.  (a) The Borrower  shall give
the Administrative  Agent written notice, in substantially the form of Exhibit N
(a  "Notice of  Borrowing"),  on the  Domestic  Business  Day of each  Revolving
Borrowing or Swingline  Borrowing  which is a CIBC Alternate Base Rate Borrowing
and at least three Euro-Dollar  Business Days before each Revolving Borrowing or
Swingline Borrowing which is a Euro-Dollar Borrowing (provided, that in the case
of each Type of  Revolving  Borrowing  or  Swingline  Borrowing,  such Notice of
Borrowing is received by the Administrative  Agent prior to 12:00 noon, New York
City time,  on the required  date of  delivery),  which notice shall include the
certification required by Sections 6.1(d), 6.2 or 6.3, as applicable,  and shall
specify:

                  (i) the date of such  Revolving  Borrowing  or such  Swingline
         Borrowing, which shall be a Domestic Business Day in the case of a CIBC
         Alternate Base Rate Borrowing or a Euro-Dollar Business Day in the case
         of a Euro-Dollar Borrowing,

                  (ii) the aggregate amount of such Revolving  Borrowing or such
         Swingline Borrowing,

             (iii) whether the Loans comprising such Revolving Borrowing or such
         Swingline  Borrowing,  are to be CIBC  Alternate  Base  Rate  Loans  or
         Euro-Dollar Loans, and

                  (iv) in the case of a Euro-Dollar  Borrowing,  the duration of
         the Interest Period  applicable  thereto,  subject to the provisions of
         the definition of Interest Period.

                  (b) Upon receipt of a Notice of Borrowing,  the Administrative
Agent  shall  promptly  notify  each  Revolving  Lender  (or,  in the  case of a
Swingline Borrowing,  each Swingline Lender) of the contents thereof and of such
Lender's pro rata share of such Revolving Borrowing or such Swingline Borrowing,
as the case may be,




<PAGE> 34

and such  Notice  of  Borrowing  shall  not  thereafter  be
revocable by the Borrower.

                  (c) Not later than 2:00 P.M.,  New York City time, on the date
of each  Revolving  Borrowing and each Swingline  Borrowing,  each Lender with a
Revolving Commitment or a Swingline Commitment shall make available its pro rata
share of such Revolving Borrowing or such Swingline  Borrowing,  as the case may
be, in Federal,  or other funds  immediately  available in New York City, to the
Administrative   Agent  at  its  address  referred  to  in  Section  11.1.  Upon
satisfaction  of the  applicable  conditions  specified in Section 6.1,  and, if
applicable,  Sections 6.2 and 6.3, the Administrative  Agent will make the funds
so  received  from  the  Revolving  Lenders  (or,  in the  case  of a  Swingline
Borrowing,   the   Swingline   Lenders)   available   to  the  Borrower  at  the
Administrative  Agent's  aforesaid  address.  To the extent  that any  Revolving
Lender fails to make available its pro rata portion of any Revolving  Borrowing,
the other  Revolving  Lenders  shall not be  required to make  available  to the
Borrower such Defaulting Lender's pro rata share of such Revolving Borrowing. To
the  extent  that any  Swingline  Lender  fails to make  available  its pro rata
portion of any Swingline  Borrowing,  the other  Swingline  Lenders shall not be
required to make  available to the Borrower  such  Defaulting  Lender's pro rata
share of such Swingline Borrowing.

                  SECTION 2.4 Notes;  Certain Payments.  (a) The Revolving Loans
of  each  Revolving  Lender  shall  be  evidenced  by a  promissory  note of the
Borrower,  substantially in the form of Exhibit A-1, with appropriate insertions
as to payee,  date and  principal  amount (as  amended,  endorsed,  extended  or
otherwise modified from time to time, a "Revolving Note"),  payable to the order
of such Revolving  Lender and in a principal  amount equal to the amount of such
Revolving Lender's Revolving Commitment.

                  (b) The  Tranche  A Term  Loans of each Term  Lender  shall be
evidenced by a promissory  note of the  Borrower,  substantially  in the form of
Exhibit A-2, with appropriate  insertions as to payee, date and principal amount
(as  amended,  endorsed,  extended or  otherwise  modified  from time to time, a
"Tranche A Term Loan  Note"),  payable to the order of such Term Lender and in a
principal amount equal to the amount of such Term Lender's Tranche A Term Loan.

                  (c) The  Tranche  B Term  Loans of each Term  Lender  shall be
evidenced by a promissory  note of the  Borrower,  substantially  in the form of
Exhibit A-3, with appropriate  insertions as to payee, date and principal amount
(as  amended,  endorsed,  extended or  otherwise  modified  from time to time, a
"Tranche B Term Loan  Note"),  payable to the order of such Term Lender and in a
principal amount equal to the amount of such Term Lender's Tranche B Term Loan.

                  (d) The  Swingline  Loans of each  Swingline  Lender  shall be
evidenced by a promissory  note of the  Borrower,  substantially  in the form of
Exhibit A-4, with appropriate  insertions as to payee,




<PAGE> 35

date and principal amount (as amended, endorsed,  extended or otherwise modified
from time to time, a "Swingline  Note"),  payable to the order of such Swingline
Lender and in a principal amount equal to the amount of such Swingline  Lender's
Swingline Commitment.

                  (e) In addition to its obligations to pay the unpaid principal
amount of the Term Loans on the  Maturity  Date,  the  Borrower  shall make four
consecutive  annual repayments of principal on the Term Loans in installments in
the amount of $3,000,000 each on the 15th day of each September to occur in 1997
through  2000,  which  installments  shall be  applied to the  repayment  of the
principal  amount of the  Tranche A Term Loans and the Tranche B Term Loans on a
pro rata basis (based upon the outstanding  principal  amounts of the respective
Term Loans at the time of each such repayment).

                  (f)  Promptly  upon  receipt of the Notes  pursuant to Section
6.2(a), the Administrative  Agent shall deliver the Notes payable to each Lender
to such  Lender.  Each Lender  shall  record,  and prior to any  transfer of its
Notes,  shall  endorse  on the  schedules  forming  a part  thereof  appropriate
notations to evidence the date,  amount and maturity of each Loan made by it and
the date and  amount of each  payment of  principal  made by the  Borrower  with
respect to such Note; provided,  that the failure of any such Lender to make any
such  recordation  or  endorsement  or any  error  in any  such  recordation  or
endorsement shall not affect the obligations of the Borrower  hereunder or under
the Notes.  Each Lender is hereby  irrevocably  authorized by the Borrower so to
endorse its Notes and to attach to and make a part of any Note,  a  continuation
of any such schedule as and when required.

                  SECTION 2.5 Interest Rates.  (a) Each CIBC Alternate Base Rate
Loan shall bear interest on the outstanding  principal amount thereof,  for each
day from the date such Loan is made  until it becomes  due,  at a rate per annum
equal to the sum of the Applicable  Margin plus the CIBC Alternate Base Rate for
such day. Such interest  shall be payable  monthly in arrears on the last day of
each month  commencing  on the last day of the month in which the  Closing  Date
occurs and on the Maturity  Date.  Any overdue  principal of and interest on any
CIBC  Alternate  Base Rate Loan not paid when due or  outstanding at the time of
the  occurrence  of any Event of Default  specified in Section  9.1(f) or 9.1(g)
shall bear  interest,  payable on demand,  for each day until paid at a rate per
annum equal to 2% plus the rate otherwise applicable thereto for such day (after
as well as before judgment).

                  (b)  Each   Euro-Dollar   Loan  shall  bear  interest  on  the
outstanding  principal  amount  thereof,  for  the  Interest  Period  applicable
thereto,  at a rate per annum equal to the sum of the Applicable Margin plus the
applicable  Adjusted  London  Interbank  Offered Rate.  Such  interest  shall be
payable for each Interest Period in arrears on the last day of each month ending
during such




<PAGE> 36

Interest  Period and on the last day of such Interest  Period.  Any
principal  of  and  interest  on any  Euro-Dollar  Loan  not  paid  when  due or
outstanding at the time of the  occurrence of any Event of Default  specified in
Section  9.1(f) or 9.1(g) shall bear interest,  payable on demand,  for each day
until  paid at a rate per  annum  equal to the  greater  of (i) 2% plus the CIBC
Alternate Base Rate for such day and (ii) 2% plus the rate otherwise  applicable
thereto for such day (after as well as before judgment).

                  (c) The  Administrative  Agent shall  determine  each interest
rate  applicable to the Loans  hereunder.  The  Administrative  Agent shall give
prompt notice to the Borrower and the affected Lenders by facsimile transmission
of each rate of interest so determined,  and its determination  thereof shall be
conclusive in the absence of manifest error.

                  (d) The  Euro-Dollar  Reference  Bank  agrees  to use its best
efforts  to  furnish  quotations  to the  Administrative  Agent as  contemplated
hereby.  If the Euro-Dollar  Reference Bank does not furnish a timely quotation,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the affected  Lenders,  whereupon  until the  Administrative  Agent notifies the
Borrower that such quotations are available on a timely basis, the obligation of
the Lenders to make Euro-Dollar Loans shall be suspended.

                  (e) Any amount other than  principal or interest not paid when
due  hereunder  or  outstanding  at the time of the  occurrence  of any Event of
Default  specified in Section 9.1(f) or 9.1(g) shall bear  interest,  payable on
demand,  for each day until  paid at a rate per annum  equal to 2% plus the CIBC
Alternate Base Rate for such date (after as well as before judgment).

                  (f) Without  limiting the foregoing,  the Borrower agrees that
the unpaid  principal  amount of all Loans and any amounts other than  principal
not paid when due hereunder shall bear interest until paid  (including,  without
limitation,  interest  accruing  after the  maturity  of the Loans and  interest
accruing after the filing of any petition in bankruptcy,  or the commencement of
any insolvency, reorganization or like proceeding, relating to the Borrower).

                  (g)  Notwithstanding  anything  herein  or in the Notes to the
contrary,  if at any time the applicable  interest rate,  together with all fees
and charges which are treated as interest under  applicable  law  (collectively,
the "Other  Amounts"),  as provided for herein or in any other document executed
in connection herewith, or otherwise contracted for, charged, received, taken or
reserved  by any Lender,  shall  exceed the  maximum  lawful rate (the  "Maximum
Rate") which may be contracted for, charged, taken, received or reserved by such
Lender in accordance with applicable law, the rate of interest payable under the
Note held by such  Lender,  together  with all  Other  Amounts  payable  to such
Lender, shall be limited to the Maximum Rate.





<PAGE> 37

                  In the event any Lender ever receives,  collects or applies as
interest  any sum in excess of the  Maximum  Rate for such  Lender,  such excess
amount shall be applied to the reduction of the  principal  balance of its Loans
or to other amounts  (other than  interest)  payable  hereunder,  and if no such
principal is then  outstanding,  such excess or part thereof  remaining shall be
paid to the Borrower.

                  SECTION 2.6  Commitment and Other Fees. (a) The Borrower shall
pay to the Administrative Agent, for the account of each Revolving Lender (other
than a Defaulting  Lender of the type  described in clause (i) of the definition
thereof, but only for so long as such Lender shall be such a Defaulting Lender),
a commitment  fee during the period from and  including  the Closing Date to but
not  including  the  Maturity  Date  calculated  at 1/2 of 1% per  annum of such
Lender's  average daily excess,  if any, of such  Revolving  Lender's  Revolving
Commitment  over  such  Revolving  Lender's  Aggregate   Outstanding   Revolving
Extensions of Credit during the period for which such payment is to be made.

                  (b) The Borrower shall pay to the Administrative Agent for the
account of each  Swingline  Lender  (other than a Defaulting  Lender of the type
described in clause (i) of the definition thereof,  but only for so long as such
Lender shall be such a Defaulting  Lender),  a commitment  fee during the period
from and  including  the Closing Date to but not  including  the  Maturity  Date
calculated  at 1/2 of 1% per  annum of such  Swingline  Lender's  average  daily
excess,  if any,  of such  Swingline  Lender's  Swingline  Commitment  over such
Swingline  Lender's  Swingline Loans during the period for which such payment is
to be made.

                  (c) The  commitment  fees payable under this Section 2.6 shall
be payable  monthly  in  arrears on the last day of each month of each  calendar
year  (commencing on the last day of the month in which the Closing Date occurs)
and on the Maturity Date or such earlier date on which the Revolving Commitments
or the  Swingline  Commitments,  as the case  may be,  shall  be  terminated  as
provided herein.

                  (d) The Borrower shall pay to the Administrative Agent for the
account of the  Restructuring  Lenders an amendment fee (the "Amendment Fee") in
the aggregate amount of $200,000, payable on the Closing Date.

                  (e) The Borrower shall pay to the Administrative Agent for the
account  of the  Swingline  Lenders a  swingline  facility  fee (the  "Swingline
Facility  Fee") of three  percent (3%) of the  aggregate  Swingline  Commitments
(i.e., $1,800,000), payable on the Closing Date.

                  SECTION 2.7  Optional  Termination  or  Reduction of Swingline
Commitments and Revolving Commitments.  The Borrower may, at any




<PAGE> 38

time subsequent to the Closing Date, upon at least three Domestic Business Days'
notice to the Administrative Agent, terminate at any time, or permanently reduce
from time to time by an aggregate amount of $5,000,000 or any integral  multiple
of  $1,000,000  in  excess  thereof,   the  unused  portions  of  the  Swingline
Commitments and, following the termination of the Swingline Commitments in their
entirety,  the unused  portions of the Revolving  Commitments.  If the Swingline
Commitments  and/or the Revolving  Commitments are terminated in their entirety,
all  applicable  accrued  commitment  fees and  Letter of Credit  fees  shall be
payable on the effective date of such termination.

                  SECTION  2.8  Mandatory   Termination   or  Reduction  of  the
Swingline Commitments and the Revolving Commitments; Mandatory Prepayments.

                  (a) The Swingline  Commitments  and the Revolving  Commitments
shall  terminate on the Maturity Date, and any Swingline Loans and any Revolving
Loans then outstanding (together with accrued interest thereon) shall be due and
payable on such date.

                  (b) Unless otherwise provided herein,  upon the receipt by the
Borrower of (i) any Net Cash Proceeds from the sale, lease or other  disposition
of any of its assets  permitted  under  Section 8.11 (other than (w) the sale of
Inventory  in the ordinary  course of business,  (x) the sale or lease of assets
subject  to  Liens  securing  Debt  for  Borrowed  Money,   including   (without
limitation)  the  Lien  granted  to  Prudential  pursuant  to the  documentation
relating to the  Prudential  Real Estate  Financing  or the Lien  granted to the
Synthetic Lease Banks under the Synthetic  Lease Documents  solely to the extent
that the Net Cash  Proceeds  thereof are applied to repay such Debt for Borrowed
Money,  including  (without  limitation) the Prudential Real Estate Financing or
the Synthetic Lease  Obligations,  as the case may be, (y) transfers or sales of
accounts  pursuant to any customer sales charge program of the type described in
Section 8.16 and (z)  Permitted  Pad sales) or (ii) any payments of principal on
any Pledged  Instruments (as defined in the Note Pledge  Agreement) which do not
constitute Net Cash Proceeds,  100% of any such Net Cash Proceeds or payments of
principal shall be immediately paid to the Administrative  Agent for the account
of the Lenders, and applied as provided in Section 2.8(g); provided, that in the
case of any  fiscal  year,  the  provisions  of this  subsection  (b)  shall  be
applicable  only if and to the  extent  that the  aggregate  amount  of Net Cash
Proceeds  and  payments  of  principal  received  in such  fiscal  year  exceeds
$5,000,000.

                  (c) The  Borrower  shall,  from time to time until  payment in
full  of the  Loans  and  the  termination  of this  Agreement,  within  10 days
following  the receipt by the Borrower (or by the  Administrative  Agent as loss
payee)  of any  payment  of  proceeds  of any  insurance  (other  than  business
interruption  insurance) required to be maintained pursuant to this Agreement on
account of each separate




<PAGE> 39

loss,  damage or injury in excess of $1,000,000 to any tangible  property of the
Borrower  or any  Subsidiary  (unless no Default or Event of Default  shall have
occurred and be continuing and such proceeds (or any portion thereof) shall have
been  expended  or  irrevocably  committed  by the  Borrower  for the  repair or
replacement  of such  property  and the  Borrower  shall have  furnished  to the
Administrative  Agent evidence  satisfactory to the Administrative Agent of such
expenditure or  commitment,  pending which the  Administrative  Agent shall hold
such proceeds),  apply or, to the extent the Administrative  Agent is loss payee
under any  insurance  policy,  irrevocably  direct the  Administrative  Agent to
apply, an amount equal to 100% (or such lesser  percentage which represents that
portion of such proceeds not expended or committed  pursuant to the  immediately
preceding  parenthetical  phrase) of such  insurance  proceeds  as  provided  in
Section 2.8(g); provided, that if an Event of Default shall have occurred and be
continuing, all proceeds of insurance required to be maintained pursuant to this
Agreement  which would otherwise be payable to the Borrower shall be paid to the
Administrative  Agent and held or applied  pursuant  to Section  9.2;  provided,
however,  that with respect to tangible  property  subject to any Lien permitted
herein,  no such  prepayment  or reduction  shall be required to the extent that
this Section  2.8(c) would  require an  application  of insurance  proceeds that
would violate or breach any of the  provisions of the  instruments  or documents
under which such permitted Lien arises.

                  (d) (i) If there shall be Excess Cash Flow for any fiscal year
of the Borrower, then, on the earlier of the date of delivery by the Borrower to
the Lenders of the  financial  statements  required to be delivered  pursuant to
Section  8.1(a)  covering  such  fiscal  year and 90 days  after the end of such
fiscal year of the  Borrower,  75% of such Excess Cash Flow shall be paid to the
Administrative  Agent for the  account of the Lenders and applied as provided in
Section  2.8(g).  Concurrently  with the  making  of each such  prepayment,  the
Borrower shall deliver to the Administrative  Agent a certificate  substantially
in the form of  Exhibit  0 (an  "Excess  Cash  Flow  Certificate")  of the chief
financial  officer  of the  Borrower  setting  forth in  reasonable  detail  the
calculation of Excess Cash Flow for the fiscal year as to which such  prepayment
was computed.

                      (ii) If the  Borrower  receives  or is entitled to receive
any cash  benefit  in an  amount  in  excess  of  $15,600,000  with  respect  to
deductions  permitted under the Small Business Job Protection Act of 1996, then,
not later than the second  Domestic  Business  Day after  receipt  thereof,  the
Borrower shall pay to the  Administrative  Agent an amount equal to such excess,
which payment shall be applied as provided in Section 2.8(g).

                  (e) If the Borrower incurs any Permitted Refinancing Debt, the
Borrower  shall,  not later  than the  second  Domestic  Business  Day after the
incurrence  thereof,  pay to the  Administrative  Agent an  amount  equal to the
excess, if any, of the Net Cash




<PAGE> 40

Proceeds of such  Permitted  Refinancing  Debt over the aggregate  amount of the
Debt for Borrowed Money so  refinanced,  which excess Net Cash Proceeds shall be
applied as provided in Section 2.8(g).

                  (f) If  the  Borrower  shall  undertake  any  sale  of  equity
securities  of the Borrower  (other than pursuant to the exercise of employee or
director stock options or warrants), not later than the second Domestic Business
Day after  receipt of the  proceeds of such sale,  40% of the Net Cash  Proceeds
thereof shall be paid to the Administrative Agent for the account of the Lenders
and applied as provided in Section 2.8(g).  Concurrently with the making of such
prepayment,  the Borrower shall deliver to the Administrative  Agent a statement
detailing the calculation of the prepayment due hereunder.  The remaining 60% of
such Net Cash Proceeds may be retained by the Borrower.

                  (g) If,  contemporaneously  with the  payment  of any  amounts
required under Sections 2.8(b),  2.8(c),  2.8(d), 2.8(e) or 2.8(f), the Borrower
shall have  Required  Inventory  and no  Default or Event of Default  shall have
occurred and be continuing and the Borrower delivers to the Administrative Agent
a Swingline Compliance Certificate,  certifying to such effect, then the amounts
paid under such  Sections  shall be applied,  first,  to the  prepayment  of the
principal of the Tranche A Term Loans in the inverse order of maturity,  second,
to the  prepayment  of the  principal of the Tranche B Term Loans in the inverse
order of maturity,  third,  to the permanent  prepayment of the principal of the
Swingline  Loans  (together with an automatic and  irrevocable  reduction of the
Swingline  Commitments  in an  equal  amount),  and  fourth,  to  the  permanent
prepayment of the Revolving  Loans  (together with an automatic and  irrevocable
reduction of the Revolving Commitments in an equal amount).

                  If the  Borrower  shall  not  have  Required  Inventory  or is
otherwise unable to deliver a Swingline Compliance Certificate, then the amounts
paid under Section  2.8(b),  2.8(c),  2.8(d),  2.8(e) or 2.8(f) shall be applied
first,  to the permanent  prepayment of the Swingline  Loans  (together  with an
automatic and  irrevocable  reduction of the Swingline  Commitments  in an equal
amount),  second, to the prepayment of the principal of the Tranche A Term Loans
in the inverse order of maturity,  third,  to the prepayment of the principal of
the Tranche B Term Loans in the inverse  order of maturity,  and fourth,  to the
permanent  prepayment of the principal of the Revolving  Loans (together with an
automatic and  irrevocable  reduction of the Revolving  Commitments  in an equal
amount).

                  If the  Swingline  Commitments  are not fully  utilized at the
time that the  Borrower  would  otherwise be required to repay  Swingline  Loans
pursuant to this Section 2.8(g), the Swingline  Commitments shall be permanently
reduced by the full amount which would otherwise have been applied to prepay the
Swingline  Loans,  and





<PAGE> 41

the Swingline Loans shall be permanently  repaid to the extent, if any, required
by Section 2.8(h).

                  (h) If at any time the aggregate  outstanding  Swingline Loans
exceed the Swingline  Commitments then in effect, the Borrower shall immediately
prepay the Swingline  Loans in an aggregate  amount equal to such excess and, if
at any time while any Swingline Loans are outstanding,  the Swingline Compliance
Certificate  delivered  pursuant to Section 8.26 does not show that the Borrower
has Required  Inventory,  the Borrower  shall prepay all  outstanding  Swingline
Loans the next Domestic Business Day.

                  (i)  If  at  any  time  the  Aggregate  Outstanding  Revolving
Extensions  of Credit  exceed the  Revolving  Commitments  then in  effect,  the
Borrower  shall  immediately  first prepay the  Revolving  Loans in an aggregate
amount  equal to such excess and second,  if any portion of such amount  remains
unapplied,  apply such amount to cash  collateralize  the L/C  Obligations in an
amount  equal to 103% of the  amount by which  the L/C  Obligations  exceed  the
Revolving Commitments.

                  (j) Each  prepayment of the Loans pursuant to this Section 2.8
shall be  accompanied  by payment of accrued  and unpaid  interest on the amount
prepaid to the date of prepayment  and any amounts  payable  pursuant to Section
5.5.

                  SECTION 2.9 Optional  Prepayments.  (a) The Borrower may, upon
at least one Domestic Business Days' written notice to the Administrative Agent,
prepay any CIBC Alternate Base Rate Borrowing in whole at any time, or from time
to time in part in amounts  aggregating  $5,000,000  or any larger  multiple  of
$1,000,000; provided, that if there are Swingline Loans outstanding at the time,
the Borrower  may not prepay  Revolving  Loans  except as permitted  pursuant to
Section 2.2(e). Accrued and unpaid interest on the amount of any such prepayment
shall be payable to the date of such prepayment on the date of such prepayment.

                  (b) The Borrower may, upon at least three Euro-Dollar Business
Days'  written  notice  to the  Administrative  Agent,  prepay  any  Euro-Dollar
Borrowing  in  whole  at any  time,  or from  time  to  time in part in  amounts
aggregating  $5,000,000  or any larger  multiple  of  $1,000,000,  by paying the
principal  amount to be prepaid,  together with accrued  interest thereon to the
date of prepayment and any amounts  payable  pursuant to Section 5.5;  provided,
that if there are Swingline Loans  outstanding at the time, the Borrower may not
prepay Revolving Loans except as permitted pursuant to Section 2.2(e). Each such
optional  prepayment shall be applied to prepay ratably the Euro-Dollar Loans of
the  several  Lenders  included  in  such  Euro-Dollar  Borrowing.   Within  two
Euro-Dollar  Business Days after receipt by the Administrative Agent of a notice
of prepayment  pursuant to this subsection (b), the  Administrative  Agent shall
notify the  Borrower of the  estimated  loss or expense  that may be




<PAGE> 42

incurred  by such  Lenders  and be  required  to be paid by the  Borrower  under
Section 5.5 as a result of the prepayment of such Euro-Dollar Borrowing prior to
the last day of the Interest  Period  therefor.  The Borrower may,  after having
been  notified  by the  Administrative  Agent  of the  estimated  loss  or  cost
resulting from such prepayment and not later than two Euro-Dollar  Business Days
prior to the intended date of such prepayment stated in the notice of prepayment
relating thereto,  notify the Administrative  Agent in writing that the Borrower
desires to revoke such notice of  prepayment.  If the Borrower shall have failed
to notify the Administrative Agent, not later than two Euro-Dollar Business Days
prior to the intended  date of such  prepayment,  that the  Borrower  desires to
revoke its notice of  prepayment of all or part of such  Euro-Dollar  Borrowing,
then such notice of prepayment  shall become  irrevocable.  The Borrower  agrees
that the  calculation  of such loss or expense is only an estimate and shall not
be binding on or otherwise subject to any liability the Administrative  Agent or
any of the affected Lenders.

                  (c) Upon  receipt of a notice of  prepayment  pursuant to this
Section 2.9, the Administrative Agent shall promptly notify each affected Lender
of the contents  thereof and of such Lender's  ratable share of such  prepayment
(if any), and, except as provided in subsection (b) above, such notice shall not
thereafter be revocable by the Borrower.  Each  affected  Lender shall  promptly
after  receiving  any such notice of  prepayment  with respect to a  Euro-Dollar
Borrowing,  cooperate with the Administrative Agent to estimate the loss or cost
that may be incurred by such  Lender as a result of the  prepayment  of its Loan
comprising such Borrowing.

                  (d) Notwithstanding  the foregoing  provisions of this Section
2.9,  so long as any  Swingline  Commitments  remain in effect or any  Swingline
Loans remain outstanding,  the Borrower may not prepay the Term Loans unless (i)
the  Borrower  shall  have  Required  Inventory  on the  date of  such  proposed
prepayment,  (ii) no  Default or Event of Default  shall  have  occurred  and be
continuing  and  (iii)  the  Borrower  delivers  to  the  Administrative   Agent
contemporaneously  with such prepayment,  a Swingline Compliance  Certificate to
such effect.

                  SECTION 2.10  Conversion  and  Continuation  Options.  (a) The
Borrower  may  elect  from  time to time to  convert  Euro-Dollar  Loans to CIBC
Alternate Base Rate Loans by giving the Administrative Agent irrevocable written
notice,  substantially in the form of Exhibit H, of such election prior to 11:00
A.M., New York City time, on the day which is one Domestic Business Day prior to
the date of such conversion;  provided,  that any such conversion of Euro-Dollar
Loans  may only be made on the  last  day of an  Interest  Period  with  respect
thereto. The Borrower may elect from time to time to convert CIBC Alternate Base
Rate Loans to Euro-Dollar Loans by giving the  Administrative  Agent irrevocable
notice,  substantially in the form of Exhibit H, of such election prior to 11:00
A.M.,  New York City time, on the day which is three  Euro-Dollar  Business Days
prior  to




<PAGE> 43

the date of such conversion.  Any such notice of conversion to Euro-Dollar Loans
shall  specify the length of the  initial  Interest  Period or Interest  Periods
therefor.  Upon  receipt  of any such  notice  the  Administrative  Agent  shall
promptly  notify each affected  Lender  thereof.  All or any part of outstanding
Euro-Dollar  Loans and CIBC  Alternate  Base  Rate  Loans  may be  converted  as
provided herein;  provided, that (i) no Loan may be converted into a Euro-Dollar
Loan when any Default or Event of Default has occurred and is  continuing,  (ii)
any such  conversion may only be made if, after giving effect  thereto,  Section
2.11 shall not have been  contravened  and (iii) no Loan may be converted into a
Euro-Dollar  Loan  after  the date  that is one  month  prior  to the  scheduled
Maturity Date.

                  (b) Any  Euro-Dollar  Loans may be  continued as such upon the
expiration  of the then  current  Interest  Period with  respect  thereto by the
Borrower giving irrevocable  notice,  substantially in the form of Exhibit H, to
the  Administrative  Agent, in accordance with the applicable  provisions of the
term  "Interest  Period"  set forth in  Section  1.1,  of the length of the next
Interest  Period to be applicable to such Loans;  provided,  that no Euro-Dollar
Loan may be continued as such beyond the end of the then current Interest Period
(i) when any Default or Event of Default has  occurred and is  continuing,  (ii)
if, after giving  effect  thereto,  Section 2.11 would be  contravened  or (iii)
after the date that is one month prior to the scheduled Maturity Date; provided,
further,  that if the  Borrower  shall  fail  to give  any  required  notice  as
described above in this subsection (b) or if such  continuation is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
CIBC  Alternate  Base Rate Loans on the last day of such then expiring  Interest
Period.

                  SECTION 2.11 Minimum  Amount and Maximum Number of Euro-Dollar
Borrowings. All Borrowings, conversions and continuations of Loans hereunder and
all  selections of Interest  Periods  hereunder  shall be in such amounts and be
made pursuant to such elections so that,  after giving effect  thereto,  (i) the
aggregate  principal amount of the Loans  comprising each Euro-Dollar  Borrowing
shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof
and (ii) the total number of such  Euro-Dollar  Borrowings at any one time would
not exceed ten.

                          SECTION 3. LETTERS OF CREDIT

                  SECTION  3.1 Letter of Credit  Commitment.  (a) Subject to the
terms and  conditions  hereof,  the Letter of Credit  Bank,  in  reliance on the
agreements of the other Revolving Lenders set forth in Section 3.4(a), agrees to
issue (x)  standby  letters  of  credit  issued to  support  obligations  of the
Borrower  or any of its  Subsidiaries  ("Standby  Letters  of  Credit")  and (y)
documentary  letters of credit to  facilitate  the  purchase of Inventory by the
Borrower in the ordinary course of business ("Documentary Letters of Credit" and
together  with any  Standby  Letters of Credit,  "Letters  of




<PAGE> 44

Credit") for the account of the  Borrower on any Domestic  Business Day which is
at least 60 days prior to the Maturity Date in such form as may be approved from
time to time by the Letter of Credit Bank;  provided,  that the Letter of Credit
Bank shall not, and shall have no obligation  to, issue any Letter of Credit if,
after  giving  effect to such  issuance  (i) the L/C  Obligations  in respect of
Standby  Letters of Credit would exceed $25,  000, 000 (the  "Standby  Letter of
Credit Commitment"),  (ii) the L/C Obligations in respect of Documentary Letters
of  Credit  would  exceed   $15,000,000  (the  "Documentary   Letter  of  Credit
Commitment"),  (iii) the aggregate L/C Obligations,  when added to the aggregate
outstanding  principal  amount of the Revolving Loans would exceed the Revolving
Commitments,  after  taking  into  account any  prepayment  of  Revolving  Loans
pursuant to Section 2.2(e),  or (iv) a Default or an Event of Default shall have
occurred  and  be  continuing.  Each  Standby  Letter  of  Credit  shall  (i) be
denominated  in Dollars  and (ii)  expire no later than the  earlier of the date
which is one year  after the date of  issuance  thereof  and the  Maturity  Date
(provided,  that such Letter of Credit may provide that it may be extended  with
the  consent of the Letter of Credit  Bank for a period of no more than one year
(but in no event beyond the scheduled  Maturity Date)).  Each Documentary Letter
of  Credit  shall  (i)  be  denominated  in  Dollars  or in a  foreign  currency
acceptable  to the  Letter of  Credit  Bank and (ii)  expire  no later  than the
earlier of the date which is 180 days after the date of issuance thereof and the
Maturity Date.

                  (b) Each  Letter of Credit  shall be  subject  to the  Uniform
Customs  and,  to  the  extent  not  inconsistent  therewith,  the  laws  of the
jurisdiction  in which is located  the office of the Letter of Credit  Bank from
which such Letter of Credit is issued.

                  (c)  The  Letter  of  Credit  Bank  shall  not at any  time be
obligated  to issue any  Letter  of  Credit  hereunder  if such  issuance  would
conflict  with,  or cause such Letter of Credit Bank or any L/C  Participant  to
exceed any limits imposed by, any applicable Requirement of Law.

                  (d) The Borrower and each Lender  severally agree that, on the
Closing  Date,  the  letters  of  credit  outstanding  on such date set forth on
Schedule II shall be deemed to be Letters of Credit under this Agreement for all
purposes  hereof;  provided,  that all fees and other  amounts due in respect of
such  outstanding  letters of credit  accruing to but not  including the Closing
Date shall be paid on such date.

                  SECTION 3.2 Procedure  for Issuance of Letters of Credit.  The
Borrower  may from time to time  request  that the Letter of Credit Bank issue a
Letter of Credit by  delivering to the Letter of Credit Bank, at its address for
notices referred to in Section 11.1, an Application  therefor,  completed to the
satisfaction  of the Letter of Credit Bank (which  completion may occur by means
of any electronic  system operated by the Letter of Credit Bank), and such other





<PAGE> 45

certificates, documents and other papers and information as the Letter of Credit
Bank may request.  Each  Application  for a  Documentary  Letter of Credit shall
specify the documents, certificates and any other items required to be presented
as a condition for acceptance of a draft drawn on, or other payment request made
with respect to, the Letter of Credit Bank pursuant to such  Documentary  Letter
of Credit.  Upon  receipt  of any  Application,  the Letter of Credit  Bank will
process such  Application and the  certificates,  documents and other papers and
information  delivered  to it in  connection  therewith in  accordance  with its
customary  procedures,  subject to the terms and conditions  hereof,  and shall,
subject to the terms and conditions hereof,  promptly issue the Letter of Credit
requested  thereby  (but in no event shall the Letter of Credit Bank  (unless it
otherwise  agrees) be  required to issue any Letter of Credit  earlier  than two
Domestic  Business  Days after its receipt of the  Application  therefor and all
such other  certificates,  documents and other papers and  information  relating
thereto)  by issuing the  original  of such Letter of Credit to the  beneficiary
thereof  or as  otherwise  may be  agreed by the  Letter of Credit  Bank and the
Borrower.  The  Letter of Credit  Bank  shall  furnish a copy of such  Letter of
Credit to the Borrower promptly  following the issuance  thereof.  The Letter of
Credit  Bank will  periodically  (but in any event no less often  than  monthly)
report to the Administrative Agent regarding Letter of Credit issuance activity,
and the  Administrative  Agent will periodically (but in any event no less often
than  monthly)  report  to the  Lenders  regarding  Letter  of  Credit  issuance
activity.

                  SECTION 3.3 Fees and Other Charges. (a) The Borrower shall pay
to the  Administrative  Agent, for the account of the Revolving  Lenders,  a fee
with respect to (x) the Standby Letters of Credit in an amount calculated on the
L/C  Obligations  in respect of the Standby  Letters of Credit from time to time
outstanding  during  each  period for which  payment is made at a rate per annum
equal to the L/C Rate then in effect, payable in arrears on each L/C Fee Payment
Date  commencing on the first of such days to occur after the Closing Date,  and
(y) the  Documentary  Letters  of Credit at a rate per annum  equal to 1/2 of 1%
(.50%) on the face amount of each Documentary Letter of Credit, payable (i) when
issued with respect to the period from the date of issuance of such  Documentary
Letter of Credit to the then stated expiration date thereof, (ii) on the date of
any  increase in such face  amount,  from the date of such  increase to the then
stated  expiration date thereof,  and (iii) on the date of any extension of such
Documentary Letter of Credit with respect to the period of such extension.  Such
fees shall be shared  ratably  among the Revolving  Lenders in  accordance  with
their respective Revolving Commitment Percentages and shall be nonrefundable.

                  (b) In addition to the foregoing  fee, the Borrower shall also
pay to the Letter of Credit Bank for its sole benefit (i) such  customary  fees,
costs and expenses in connection with the Letters of Credit as may be separately
agreed to between such Letter of Credit




<PAGE> 46

Bank and the Borrower,  (ii) a fronting fee  calculated at the rate of 1/8 of 1%
per annum on the L/C  Obligations  in respect of the  Standby  Letters of Credit
from time to time  outstanding  during each month in which any Standby Letter of
Credit is outstanding  and (iii) a fronting fee calculated at the rate of 1/4 of
1% (.25%) per annum on the L/C Obligations in respect of Documentary  Letters of
Credit from time to time outstanding  during each month in which any Documentary
Letter of Credit is outstanding.  Such fronting fees shall be payable in arrears
on each L/C Fee  Payment  Date,  commencing  on the  first of such days to occur
after the Closing Date, and shall be nonrefundable.

                  (c) The  Administrative  Agent shall,  promptly  following its
receipt  thereof,   distribute  to  the  Letter  of  Credit  Bank  and  the  L/C
Participants all fees received by the Administrative  Agent for their respective
accounts pursuant to this Section 3.3.

                  SECTION 3.4 L/C  Participation.  (a) The Letter of Credit Bank
irrevocably  agrees to grant and hereby grants to each L/C Participant,  and, to
induce the Letter of Credit Bank to issue Letters of Credit hereunder,  each L/C
Participant  irrevocably  severally  agrees to accept  and  purchase  and hereby
severally accepts and purchases from the Letter of Credit Bank, on the terms and
conditions  hereinafter  stated, for such L/C Participant's own account and risk
an  undivided  interest  equal to such L/C  Participant's  Revolving  Commitment
Percentage  in the Letter of Credit  Bank's  obligations  and rights  under each
Letter of Credit  issued  hereunder by the Letter of Credit Bank and each amount
paid  by  the  Letter  of  Credit   Bank   thereunder.   Each  L/C   Participant
unconditionally and irrevocably  severally agrees with the Letter of Credit Bank
that,  if any  amount is paid under any Letter of Credit for which the Letter of
Credit Bank is not  reimbursed  in full by the Borrower in  accordance  with the
terms of this Agreement,  such L/C Participant  shall pay to the  Administrative
Agent,  for the  account  of the  Letter  of  Credit  Bank,  upon  demand at the
Administrative  Agent's  address for notices  referred  to in Section  11.1,  an
amount equal to such L/C Participant's  Revolving  Commitment  Percentage of the
amount of such payment,  or any part thereof,  which is not so reimbursed;  such
amount shall be due on the Domestic Business Day upon which such demand shall be
given,  if such demand is given at or before 2:00 P.M.,  New York City time,  on
such day and,  if such demand  shall be given later than such time,  such amount
shall be due on the next succeeding  Domestic  Business Day. The  Administrative
Agent  shall  promptly  pay over to the  Letter of Credit  Bank all  amounts  so
received by it.

                  (b) If any amount  required to be paid by any L/C  Participant
to the  Letter of Credit  Bank  pursuant  to  Section  3.4(a) in  respect of any
unreimbursed  portion of any payment made by the Letter of Credit Bank under any
Letter of  Credit is paid to the  Administrative  Agent for the  account  of the
Letter of Credit Bank within three  Domestic  Business  Days after the date such
payment is




<PAGE> 47

due,  such L/C  Participant  shall pay to the Letter of Credit Bank on demand an
amount  equal to the  product of (1) such  amount,  times (2) the daily  average
Federal Funds Rate during the period from and including the date such payment is
required  to the date on which such  payment  is  immediately  available  to the
Letter of Credit Bank, times (3) a fraction the numerator of which is the number
of days that elapsed during such period and the  denominator of which is 360. If
any such amount required to be paid by any L/C  Participant  pursuant to Section
3.4(a) is not in fact made available to the Administrative Agent for the account
of the  Letter of Credit  Bank by such L/C  Participant  within  three  Domestic
Business  Days  after the date such  payment is due,  the Letter of Credit  Bank
shall be entitled to recover from such L/C Participant,  on demand,  such amount
with interest  thereon  calculated from such due date at the rate per annum then
applicable to CIBC  Alternate  Base Rate Loans  hereunder.  A certificate of the
Letter of Credit  Bank  submitted  to any L/C  Participant  with  respect to any
amounts  owing  under this  Section  3.4 shall be  conclusive  in the absence of
manifest  error.  (c) Whenever,  at any time after the Letter of Credit Bank has
made  payment  under  any  Letter  of  Credit  and  has  received  from  any L/C
Participant  its pro rata  share of such  payment  in  accordance  with  Section
3.4(a),  the Letter of Credit Bank receives any payment related to the Letter of
Credit (whether directly from the Borrower or otherwise,  including  proceeds of
Collateral applied thereto by the  Administrative  Agent or the Letter of Credit
Bank), or any payment of interest on account thereof,  the Letter of Credit Bank
will pay to the  Administrative  Agent for  distribution to such L/C Participant
its pro rata share thereof;  provided,  however, that in the event that any such
payment  received  by the Letter of Credit Bank shall be required to be returned
by the Letter of Credit Bank, such L/C Participant shall return to the Letter of
Credit Bank the portion thereof  previously  distributed by the Letter of Credit
Bank to it.

                  SECTION 3.5 Reimbursement  Obligation of the Borrower. (a) The
Borrower agrees to reimburse the Letter of Credit Bank, in Dollars, on each date
on which the Letter of Credit Bank  notifies the Borrower of the date and amount
of a payment by the Letter of Credit Bank of any amount  under a Standby  Letter
of Credit, for the amount of such amount so paid.

                  (b) With respect to each Documentary  Letter of Credit that is
payable in Dollars,  the Borrower  shall  reimburse the Letter of Credit Bank on
demand in  Dollars  for each draft  under or  purporting  to be under,  or other
payment request made with respect to, such Documentary  Letter of Credit, in the
amount  payable  against  such  draft or other  payment  request in time for the
Letter  of  Credit  Bank to pay the  same on such  date.  With  respect  to each
Documentary  Letter of Credit  payable  in  currency  other  than  Dollars,  the
Borrower shall reimburse the Letter of Credit Bank on demand,  in the equivalent
amount paid in Dollars at the Letter of Credit  Bank's




<PAGE> 48

rate of  exchange  then in effect of or the place of payment in the  currency in
which such draft or other payment request is drawn.

                  (c)  Each  payment  pursuant  to this  Section  3.5  shall  be
accompanied  by  payment of an amount  equal to the  amount of any taxes,  fees,
charges or other  costs or  expenses  incurred  by the Letter of Credit  Bank in
connection  with the related Letter of Credit  payments and shall be made to the
Letter of Credit Bank at its address for notices  referred to in Section 11.1 in
Dollars and in immediately available funds.

                  (d) Interest shall be payable on any and all amounts remaining
unpaid by the Borrower  under this Section 3.5 from the date such amounts become
payable (whether at stated maturity, by acceleration or otherwise) until payment
in full at the rate which  would be payable on any  outstanding  CIBC  Alternate
Base Rate Loans which were then overdue.

                  SECTION 3.6 Obligations Absolute.  The Borrower's  obligations
under  this  Section 3 shall be  absolute  and  unconditional  under any and all
circumstances  and  irrespective  of any  set-off,  counterclaim  or  defense to
payment  which the  Borrower  may have or have had  against the Letter of Credit
Bank, the  Administrative  Agent,  any Lender or any  beneficiary of a Letter of
Credit.   The  Borrower  also  agrees  with  the  Letter  of  Credit  Bank,  the
Administrative Agent and the Lenders that none of the Letter of Credit Bank, the
Administrative Agent nor any Lender shall be responsible for, and the Borrower's
Reimbursement  Obligations  under  Section 3.5 shall not be affected  by,  among
other things,  the validity or genuineness  of documents or of any  endorsements
thereon, even though the documents shall in fact prove to be invalid, fraudulent
or forged,  or any dispute  between or among the Borrower and any beneficiary of
any  Letter of Credit or any other  party to which the  Letter of Credit  may be
transferred or any claims  whatsoever of the Borrower against any beneficiary of
the Letter of Credit or any such transferee. The Letter of Credit Bank shall not
be  liable  for any  error,  omission,  interruption  or delay in  transmission,
dispatch  or  delivery  of  any  message  or  advice,  however  transmitted,  in
connection  with any Letter of Credit,  except  for errors or  omissions  caused
solely by the Letter of Credit Bank's gross negligence or willful misconduct, as
determined  by a final order or judgment of a court of  competent  jurisdiction.
The  Borrower  agrees  that any action  taken or omitted by the Letter of Credit
Bank under or in connection  with any Letter of Credit to any related  documents
(if done in the  absence  of gross  negligence  or  willful  misconduct,  and in
accordance  with the standards of care set forth in this  Agreement or specified
in the  Uniform  Commercial  Code of the  jurisdiction  in which is located  the
office of the issuer thereof from which such Letter of Credit is issued, in each
case as  determined  by a final  order  or  judgment  of a  court  of  competent
jurisdiction)  shall be  binding  on the  Borrower  and shall not  result in any
liability of the Letter of Credit Bank to the Borrower.





<PAGE> 49

                  SECTION 3.7 Letter of Credit  Payments.  If any draft or other
request for payment shall be presented under any Letter of Credit, the Letter of
Credit Bank shall promptly  notify the Borrower of the date and amount  thereof.
The  responsibility  of the Letter of Credit Bank to the Borrower in  connection
with any draft or other request for payment  presented to it under any Letter of
Credit shall, in addition to any payment  obligation  expressly  provided for in
such Letter of Credit,  be limited to determining that the documents  (including
each draft or request)  delivered under such Letter of Credit in connection with
such presentment are in substantial conformity with such Letter of Credit.

                  SECTION 3.8  Application.  To the extent that any provision of
any  Application  related  to any  Letter  of Credit  is  inconsistent  with the
provisions of this Agreement, the provisions of this Agreement shall apply.

                  SECTION 3.9  Indemnification.  Each  Revolving  Lender  shall,
ratably in accordance with its Revolving  Commitment  Percentage,  indemnify the
Letter of Credit Bank (to the extent not  reimbursed by the Borrower and without
limiting  the  obligation  of the  Borrower to do so) against any cost,  expense
(including  counsel  fees of outside and  in-house  counsel and  disbursements),
claim,  demand,  action,  loss,  damage,  penalty,  judgment,   disbursement  or
liability  (except such as result  solely from the Letter of Credit Bank's gross
negligence or willful misconduct,  as determined by a final order or judgment of
a court of competent  jurisdiction) that the Letter of Credit Bank may suffer or
incur in  connection  with the  issuance  of any  Letter  of Credit  under  this
Agreement or any action taken or omitted by the Letter of Credit Bank hereunder.
The agreements in this Section 3.9 shall survive the payment and  performance of
the Bank Obligations and the termination of this Agreement. Without limiting the
foregoing,  with  respect to the  Existing  Letters of  Credit,  the  agreements
contained in Section 3.9 of the Existing Credit Agreement shall continue in full
force and effect as to the matters covered thereby.

                     SECTION 4. ADMINISTRATIVE AGENT'S FEES

                  SECTION 4.1 Fees. The Borrower shall pay to the Administrative
Agent the fees in the amounts and on the dates specified in the Fee Letter.

                           SECTION 5. GENERAL CREDIT PROVISIONS

                  SECTION 5.1 General  Provisions  as to Payments.  The Borrower
shall  make each  payment  of  principal  of,  and  interest  on,  the Loans and
Reimbursement  Obligations,  and shall pay all commitment fees, letter of credit
fees and all other  amounts  payable  hereunder,  not later than 11:00 A.M. (New
York City time) on the date when due,  in  Dollars  in  Federal  or other  funds
immediately  available  in New York  City,  to the  Administrative  Agent at its





<PAGE> 50

address referred to in Section 11.1. Any such payments which are made later than
11:00 A.M.  (New York City  time)  shall be deemed to have been made on the next
Domestic  Business  Day or  Euro-Dollar  Business  Day,  as the case may be. The
Administrative  Agent will promptly  distribute to each Swingline Lender or each
Lender (as the case may be) its pro rata share of each such payment  received by
the  Administrative  Agent for the account of the  relevant  Lenders  (except as
otherwise agreed among the relevant Lenders).  Whenever any payment of principal
of,  or  interest  on,  the CIBC  Alternate  Base  Rate  Loans or  Reimbursement
Obligations  or of commitment  fees,  letter of credit fees or any other amounts
payable  hereunder  shall be due on a day which is not a Domestic  Business Day,
the date for payment thereof shall be extended to the next  succeeding  Domestic
Business Day.  Whenever any payment of principal of the Euro-Dollar  Loans shall
be due on a day which is not a  Euro-Dollar  Business  Day, the date for payment
thereof shall be extended to the next succeeding Euro-Dollar Business Day unless
such Euro-Dollar Business Day falls in another calendar month, in which case the
date for payment thereof shall be the next preceding  Euro-Dollar  Business Day.
If the date for any payment of  principal  is extended  by  operation  of law or
otherwise, interest thereon shall be payable for such extended time.

                  SECTION 5.2 Computation of Interest and Fees. Interest payable
by the Borrower on CIBC Alternate Base Rate Loans accruing  interest at the rate
specified in clause (a) of the definition of "CIBC Alternate Base Rate" shall be
computed  on the  basis of a year of 365 days (or 366 days in a leap  year)  and
paid  for the  actual  number  of days  elapsed  (including  the  first  day but
excluding the last day). Interest payable by the Borrower on CIBC Alternate Base
Loans accruing interest at the rate specified in clause (b) of the definition of
"CIBC  Alternate Base Rate" and on Euro-Dollar  Loans,  as well as the amount of
the Letter of Credit and  commitment  fees,  shall be computed on the basis of a
year of 360 days  and  paid  for the  actual  number  of days  elapsed  from and
including the first day thereof to but excluding the last day thereof.

                  SECTION  5.3  Indemnification  for  Charges.   (a)  Except  as
provided  in the  proviso to the second  sentence  of this  paragraph  (a),  all
payments  made by the  Borrower  hereunder  and under  any of the  other  Credit
Documents shall be made by the Borrower free and clear of, and without reduction
for or on  account  of,  any  present or future  income,  stamp or other  taxes,
levies,  imposts,  duties,  charges,  fees,  deductions or withholdings,  now or
hereafter imposed, levied,  collected,  withheld or assessed by any Governmental
Authority  excluding,  in the case of the Collateral  Agent, the  Administrative
Agent,  the  Co-Agents,  the Letter of Credit Bank and each Lender  (each of the
foregoing, for purposes of this Section 5.3, being hereinafter called a "Charged
Party"),  net income taxes and franchise  taxes based upon net income imposed on
such  Charged  Party by the  jurisdiction  under the laws of which such  Charged
Party is organized or any political  subdivision or taxing authority




<PAGE> 51

thereof or therein or by any  jurisdiction in which any Lender's  Lending Office
is located or any political  subdivision or taxing authority  thereof or therein
(all  such  non-excluded  taxes,  levies,   imposts,   deductions,   charges  or
withholdings being hereinafter called "Charges"). If any Charges are required to
be withheld from any amounts payable to any Charged Party hereunder or under the
other Credit  Documents,  the amounts so payable to such Charged  Party shall be
increased to the extent  necessary to yield to such Charged Party (after payment
of all Charges)  interest or any other  amounts  payable  hereunder or under the
other  Credit  Documents  at the  rates  or in the  amounts  specified  in  this
Agreement and the other Credit Documents;  provided,  however,  that in any case
where a Charged  Party  fails to  provide  the forms or other  documents  to the
Borrower as required by subsection (b) of this Section 5.3 or if the information
contained therein is no longer accurate in any material respect and the Borrower
is, as a result of such failure or inaccuracy, required to withhold Charges from
a payment  hereunder  or under the other Credit  Documents in an amount  greater
than it would have been  required to withhold if such Charged Party had provided
such required forms or other documents or if such information was accurate,  any
additional  sum payable under this sentence shall be computed as if the Borrower
had withheld  such lesser  amount  unless the reason for such failure to deliver
such forms or other  documents or the reason for such  inaccuracy is a change in
United States  federal  income tax law  (including  any  regulation or amendment
thereto, or official  interpretation  thereof, any modification or revocation of
an applicable  tax treaty or any change in the official  position  regarding the
interpretation  thereof)  occurring after the date hereof.  Whenever any Charges
are payable by the Borrower,  the Borrower shall, as promptly as possible,  send
to the  Administrative  Agent for the account of such Charged Party, a certified
copy of an original  official  receipt  received by the Borrower showing payment
thereof.  If the Borrower  fails to pay any Charges when due to the  appropriate
taxing  authority  or fails to remit to the  Administrative  Agent the  required
receipts or other required  documentary  evidence,  the Borrower shall indemnify
the  Administrative  Agent and the other  Charged  Parties  for any  incremental
taxes, interest or penalties that may become payable by the Administrative Agent
or any Charged Party as a result of any such failure.

                  (b) Each Charged  Party that is not a United  States Person as
such term is defined in  ss.7701(a)(30)  of the Code (a "United States  Person")
shall complete and deliver to the Borrower, prior to the date on which the first
payment  to such  Charged  Party is due  hereunder,  a duly  certified  Internal
Revenue Service Form 1001 in duplicate  claiming that it is entitled to complete
exemption from United States withholding tax under an income tax treaty to which
the United States is a party or a duly certified  Internal  Revenue Service Form
4224 in duplicate claiming that the payments to be received under this Agreement
are  effectively  connected  with the  conduct  of a trade or  business  of such
Charged Party in the United States,  as appropriate.  Each Charged Party further
agrees to




<PAGE> 52

complete  and  deliver  to the  Borrower  from  time  to  time  (to  the  extent
permissible  under  then  current  law)  any  successor  or  additional  form or
certificate required by the Internal Revenue Service in order to secure complete
exemption from United States  withholding tax. If for any reason during the term
of this  Agreement,  a Charged  Party  becomes  unable  to  submit  the forms or
certificate  referred to above or the information or  representations  contained
therein is no longer accurate in any material respect,  such Charged Party shall
notify the Administrative Agent and the Borrower in writing to that effect.

                  (c)  Each  Charged  Party  agrees  to use  reasonable  efforts
(including,  in the case of a Lender,  reasonable  efforts to change its Lending
Office) to avoid the  imposition  of any  Charges  in  respect  of any  payments
hereunder or under other Credit Documents or to minimize any amounts which might
otherwise be payable pursuant to this Section 5.3; provided,  however, that such
efforts shall not cause the  imposition on such Charged Party of any  additional
costs or legal or regulatory burden deemed by such Charged Party to be material.

                  (d)  If the  Borrower  makes  any  additional  payment  to any
Charged Party  pursuant to this Section 5.3 in respect of any Charges,  and such
Charged  Party  determines  that it has received (i) a refund of such Charges or
(ii) a credit  against or relief or remission  for, or a reduction in the amount
of, any tax or other governmental  charge solely as a result of any deduction or
credit for any Charges with respect to which it has received payments under this
Section 5.3, such Charged  Party shall,  to the extent that it can do so without
prejudice  to the  retention  of  such  refund,  credit,  relief,  remission  or
reduction,  pay to the  Borrower  such amount as such  Charged  Party shall have
determined to be  attributable  to the deduction or withholding of such Charges.
If such Charged Party later  determines that it was not entitled to such refund,
credit,  relief,  remission  or reduction to the full extent of any payment made
pursuant to the first sentence of this  subsection  (d), the Borrower shall upon
demand of such Charged Party promptly repay the amount of such overpayment.  Any
determination  made by such Charged Party pursuant to this  subsection (d) shall
in the absence of manifest error be conclusive,  and nothing in this  subsection
(d) shall be construed as requiring the Charged Party to conduct its business or
to arrange or alter in any  respect its tax or  financial  affairs so that it is
entitled to receive such a refund, credit or reduction or as allowing any Person
to inspect any records, including tax returns, of any Charged Party.

                  (e)  Without  limiting  the  foregoing,  with  respect  to the
Existing  Obligations,  the agreements  contained in Section 5.3 of the Existing
Credit  Agreement  shall  continue  in full force and  effect as to the  matters
covered thereby.






<PAGE> 53

                  SECTION 5.4 Capital Adequacy. (a) If the Letter of Credit Bank
or any Lender shall have  determined  that the adoption after the date hereof of
any applicable law, rule or regulation regarding capital adequacy, or any change
after the date  hereof  therein,  or any  change  after  the date  hereof in the
interpretation or administration thereof by any Governmental Authority,  central
bank or comparable  agency  charged with the  interpretation  or  administration
thereof,  or  compliance  by the  Letter of Credit  Bank or any  Lender  (or its
Lending  Office)  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 made  subsequent  to the date  hereof,  has or would have the
effect of  reducing  the rate of return on the  Letter of Credit  Bank's or such
Lender's capital as a consequence of its obligations  hereunder to a level below
that which the Letter of Credit Bank or such Lender could have  achieved but for
such adoption,  change or compliance  (taking into  consideration  the Letter of
Credit Bank's or such Lender's  policies with respect to capital adequacy) by an
amount  deemed by the Letter of Credit Bank or such Lender to be material,  then
from time to time,  within 45 days after  demand by the Letter of Credit Bank or
such Lender (with a copy to the Administrative Agent), the Borrower shall pay to
the Letter of Credit Bank or such Lender  such  additional  amount or amounts as
will  compensate the Letter of Credit Bank or such Lender on an after-tax  basis
for such reduction.

                  (b) The Letter of Credit Bank and each  Lender  will  promptly
notify the  Borrower and the  Administrative  Agent of any event of which it has
knowledge,  occurring  after the date hereof,  which would entitle the Letter of
Credit  Bank or such Lender to  compensation  pursuant  to this  Section  5.4. A
certificate  of the Letter of Credit  Bank or any Lender  claiming  compensation
under this Section 5.4 and setting forth the additional  amount or amounts to be
paid to it hereunder  shall be conclusive in the absence of manifest  error.  In
determining  such  amount,  the Letter of Credit Bank or such Lender may use any
reasonable averaging and attribution methods.

                  (c)  Without  limiting  the  foregoing,  with  respect  to the
Existing  obligations,  the agreements  contained in Section 5.4 of the Existing
Credit  Agreement  shall  continue  in full force and  effect as to the  matters
covered thereby.

                  SECTION 5.5 Funding Losses.  If the Borrower makes any payment
of principal with respect to any Euro-Dollar Loan (pursuant to Section 2.8, 2.9,
5.8,  9.1 or  otherwise)  on (i) any day other than the last day of the Interest
Period  applicable  thereto or (ii) on the last day of any Interest Period which
has been  shortened  by  operation  of clause  (c) or (d) of the  definition  of
"Interest  Period",  or if the Borrower fails to borrow,  convert to or continue
any  Euro-Dollar  Loan after  notice has been given to any Lender in  accordance
with Section  2.3(a) or Section  2.10(a) or (b) as the case




<PAGE> 54

may be, the Borrower  shall  reimburse  each  affected  Lender on demand for any
resulting loss or expense (including, without limitation,  administrative costs)
incurred  by  it  (or  by  any  existing  or  prospective  participant  in  such
Euro-Dollar  Loan),   including  (without   limitation)  any  loss  incurred  in
obtaining,  liquidating or employing deposits from third parties,  but excluding
loss of margin  for the  period  after any such  payment  or  failure to borrow,
convert or  continue;  provided,  that such Lender  shall have  delivered to the
Borrower  a  certificate  as to the  amount  of  such  loss  or  expense,  which
certificate  shall be  conclusive  in the  absence of  manifest  error.  Without
limiting the effect of the preceding sentence,  such reimbursement shall include
an amount  equal to the  excess,  if any,  of (i) the amount of  interest  which
otherwise  would have accrued on the  principal  amount so paid,  prepaid or not
borrowed,  converted or continued  for the period from the date of such payment,
prepayment,  or failure to borrow,  convert or  continue  to the last day of the
then current Interest Period (or, in the case of an Interest Period shortened by
operation of clause (c) or (d) of the definition of "Interest Period",  the last
day of the Interest  Period  which would have  applied but for the  operation of
such clause (c) or (d)) for such  Euro-Dollar Loan (or, in the case of a failure
to borrow,  convert or continue,  the Interest Period for such  Euro-Dollar Loan
which would have commenced on the date specified for such borrowing,  conversion
or  continuation)  at the applicable rate of interest for such  Euro-Dollar Loan
provided for herein  (excluding  the  Applicable  Margin) over (ii) the interest
component of the amount such Lender (or any corporation controlling such Lender)
would have bid in the London  interbank  market for Dollar  deposits  of leading
banks in  amounts  comparable  to such  principal  amount  and  with  maturities
comparable to such period (as reasonably determined by such Lender).

             Without  limiting  the  foregoing,  with  respect  to the  Existing
obligations,  the  agreements  contained in Section 5.5 of the  Existing  Credit
Agreement  shall  continue  in full force and effect as to the  matters  covered
thereby.

                  SECTION 5.6 Right of Set-off. Whenever any amount owing to any
Secured Party (other than the Merchandise Letter of Credit Bank) by the Borrower
shall  not be  paid  when  due  (whether  at the  stated  maturity  thereof,  by
acceleration or otherwise),  such Secured Party is hereby authorized at any time
and from time to time,  to the fullest  extent  permitted by law, to (i) set off
against  or sell  any and all  monies,  securities  and  other  property  of the
Borrower and the proceeds  thereof,  now or hereafter held or received by, or in
transit  to,  such  Secured  Party  from  or  for  the  Borrower,   whether  for
safekeeping,  custody,  pledge,  transmission,  collection  or otherwise and all
deposits (general or special, time or demand,  provisional or final) at any time
held and other  indebtedness  at any time owing by such Secured  Party to or for
the credit or the  account of the  Borrower  and the  proceeds  thereof and (ii)
apply any of the foregoing property or the proceeds thereof against such overdue
amount. Without limiting any other security interest granted




<PAGE> 55

pursuant to the  Security  Documents,  the Borrower  hereby  grants to each such
Secured  Party a security  interest  in all of the  property  described  in this
Section 5.6,  which the Borrower has  authorized  such Secured  Party to set off
against or sell,  to secure the payment in full and  performance  of the Secured
Obligations.  Each such Secured Party agrees promptly to notify the Borrower and
the  Administrative  Agent after any such set-off and  application  made by such
Lender;  provided,  that the  failure to give such  notice  shall not affect the
validity of such set-off and  application.  Subject to the provisions of Section
11.4,  the  rights of each such  Secured  Party  under this  Section  5.6 are in
addition to all other rights and remedies (including,  without limitation, other
rights of set-off) which such Secured Party may have.

                  SECTION 5.7 Basis for Determining  Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period with respect to a
Euro-Dollar Borrowing:

                  (a) the  Administrative  Agent is advised  by the  Euro-Dollar
Reference  Bank that  deposits in Dollars (in the  applicable  amounts)  are not
being offered to the Euro-Dollar  Reference Bank in the relevant market for such
Interest Period, or

                  (b) Lenders having 50% or more of the aggregate  amount of (i)
the  Commitments  or (ii)  the  Term  Loans,  as the  case  may be,  advise  the
Administrative Agent, for purposes of this Section 5.7, that the Adjusted London
Interbank  Offered  Rate as  determined  by the  Administrative  Agent  will not
adequately  and  fairly  reflect  the  cost to such  Lenders  of  funding  their
Euro-Dollar  Loans for such  Interest  Period  (other  than,  in the case of any
Lender, as a result of a deterioration in the  creditworthiness of such Lender),
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Lenders, whereupon until the Administrative Agent notifies the Borrower that
the  circumstances   giving  rise  to  such  suspension  no  longer  exist,  the
obligations of the Lenders maintaining any of the Commitments or the Term Loans,
as the case may be, to make  Euro-Dollar  Loans,  or to continue or convert into
Euro-Dollar  Loans of the  applicable  type pursuant to Section  2.10,  shall be
suspended;   provided,   however,   that  unless  the   Borrower   notifies  the
Administrative  Agent at least two Euro-Dollar  Business Days before the date of
any  Euro-Dollar  Borrowing for which a Notice of Borrowing has previously  been
given that it elects not to borrow on such date, such Borrowing shall be made as
a CIBC Alternate Base Rate Borrowing.

                  SECTION 5.8 Illegality. If the adoption after the date of this
Agreement of any  applicable  law, rule or  regulation,  or any change after the
date of this Agreement  therein,  or any change after the date of this Agreement
in the interpretation or administration  thereof by any Governmental  Authority,
central  bank  or  comparable   agency  charged  with  the   interpretation   or
administration  thereof, or compliance by any Lender (or its Euro-Dollar Lending
Office) with




<PAGE> 56

any  request or  directive  (whether or not having the force of law) of any such
authority,  central  bank or  comparable  agency  made  after  the  date of this
Agreement  shall  make  it  unlawful  or  impossible  for  any  Lender  (or  its
Euro-Dollar  Lending Office) to make, maintain or fund its Euro-Dollar Loans and
such Lender shall so notify the Administrative  Agent, the Administrative  Agent
shall  forthwith  give notice  thereof to the other  Lenders  and the  Borrower,
whereupon until such Lender notifies the Borrower and the  Administrative  Agent
that the  circumstances  giving rise to such  suspension  no longer  exist,  the
obligation of such Lender to make Euro-Dollar  Loans shall be suspended.  Before
giving any notice to the Administrative Agent pursuant to this Section 5.8, such
Lender  shall  designate  a  different   Euro-Dollar   Lending  Office  if  such
designation  will avoid the need for  giving  such  notice and will not,  in the
judgment of such Lender,  be otherwise  disadvantageous  to such Lender. If such
Lender shall  determine  that it may not lawfully  continue to maintain and fund
any of its outstanding  Euro-Dollar Loans to the maturity of the Interest Period
with  respect to such Loans and shall so specify in such  notice,  the  Borrower
shall immediately  prepay in full the then outstanding  principal amount of each
such  Euro-Dollar  Loan,  together with accrued interest thereon and any amounts
payable  pursuant  to  Section  5.5.   Concurrently  with  prepaying  each  such
Euro-Dollar  Loan, the Borrower shall borrow a CIBC Alternate Base Rate Loan, in
an equal  principal  amount from such Lender (on which  interest  and  principal
shall be payable  contemporaneously  with the related  Euro-Dollar  Loans of the
other Lenders), and such Lender shall make such a CIBC Alternate Base Rate Loan.

                  SECTION  5.9  Increased  Cost and Reduced  Return.  (a) If the
adoption after the date hereof of any applicable law, rule or regulation, or any
change after the date hereof therein, or any change after the date hereof in the
interpretation or administration thereof by any Governmental Authority,  central
bank or comparable  agency  charged with the  interpretation  or  administration
thereof,  or  compliance  by the  Letter of Credit  Bank or any  Lender  (or its
Lending  Office) with any request or directive  (whether or not having the force
of law) of any such authority,  central bank or comparable agency made after the
date hereof:

                  (i) shall  subject the Letter of Credit Bank or any Lender (or
         its Lending  Office) to any tax,  duty or other  charge with respect to
         its  Euro-Dollar  Loans,  its  Notes,  any  Letter  of  Credit  or  its
         obligation to participate in the Letters of Credit,  any Application or
         its obligation to make Euro-Dollar  Loans, or shall change the basis of
         taxation of payments to the Letter of Credit Bank or any Lender (or its
         Lending  Office) of the  principal  of or interest  on its  Euro-Dollar
         Loans or any other  amounts due under this  Agreement in respect of its
         Euro-Dollar  Loans or its obligation to make Euro-Dollar Loans or issue
         or participate in the Letters of Credit (except for changes in the rate
         of tax on the  overall  net income of the Letter of Credit Bank or such
         Lender or its Lending Office




<PAGE> 57

         imposed by the jurisdiction in which such Lender's principal  executive
         office or Lending Office is located); or

                  (ii) shall  impose,  modify or deem  applicable  any  reserve,
         special deposit or similar requirement (including,  without limitation,
         any such  requirement  imposed by the Board of Governors of the Federal
         Reserve  System,  but  excluding  any such  requirement  included in an
         applicable  Euro-Dollar Reserve Percentage) against assets of, deposits
         with or for the account of, or credit extended by, the Letter of Credit
         Bank or any  Lender  (or its  Lending  Office)  or shall  impose on the
         Letter of Credit Bank or any Lender (or its  Lending  Office) or on the
         London interbank  market any other condition  affecting its Euro-Dollar
         Loans,  its  Notes,  any  Letter  of  Credit,  any  Application  or its
         obligation to make  Euro-Dollar  Loans or to participate in the Letters
         of Credit;

and the result of any of the  foregoing is to increase the cost to the Letter of
Credit Bank or such Lender (or its Lending  Office) of making or maintaining any
Euro-Dollar Loan or issuing or participating in Letters of Credit,  or to reduce
the amount of any sum  received  or  receivable  by such  Lender (or its Lending
Office)  under  this  Agreement,  under its Notes with  respect  thereto or with
respect to such Letters of Credit,  by an amount  deemed by the Letter of Credit
Bank or such Lender to be material,  then,  within  fifteen days after demand by
the  Letter of Credit  Bank or such  Lender  (with a copy to the  Administrative
Agent),  the Borrower shall pay to the Letter of Credit Bank or such Lender such
additional  amount or amounts as will  compensate  the Letter of Credit  Bank or
such Lender on an after-tax basis for such increased cost or reduction.

                  (b) The Letter of Credit Bank and each  Lender  will  promptly
notify the  Borrower and the  Administrative  Agent of any event of which it has
knowledge,  occurring  after the date hereof,  which will entitle such Lender to
compensation pursuant to this Section 5.9 and will designate a different Lending
Office if such  designation  will  avoid the need for,  or reduce the amount of,
such  compensation  and will not, in the judgment of such  Lender,  be otherwise
disadvantageous  to such Lender.  A certificate  of the Letter of Credit Bank or
any Lender  claiming  compensation  under this Section 5.9 and setting forth the
additional  amount or amounts to be paid to it hereunder  shall be conclusive in
the absence of manifest error. In determining such amount,  the Letter of Credit
Bank and such Lender may use any reasonable averaging and attribution methods.

                  (c)  Without  limiting  the  foregoing,  with  respect  to the
Existing  Obligations,  the agreements  contained in Section 5.9 of the Existing
Credit  Agreement  shall  continue  in full force and  effect as to the  matters
covered thereby.






<PAGE> 58

                  SECTION 5.10 CIBC  Alternate Base Rate Loans  Substituted  for
Affected  Euro-Dollar  Loans.  If (i)  the  obligation  of any  Lender  to  make
Euro-Dollar Loans has been suspended  pursuant to Section 5.8 or (ii) any Lender
has demanded  compensation  under Section 5.9(a),  and the Borrower shall, by at
least five  Euro-Dollar  Business  Days' prior notice to such Lender through the
Administrative  Agent,  have  elected that the  provisions  of this Section 5.10
shall apply to such  Lender,  then,  unless and until such Lender  notifies  the
Borrower  that the  circumstances  giving rise to such  suspension or demand for
compensation no longer apply:

                  (a) all Loans which would  otherwise be made by such Lender as
Euro-Dollar  Loans shall be made instead as CIBC  Alternate  Base Rate Loans (on
which interest and principal shall be payable contemporaneously with the related
Euro-Dollar Loans of the other Lenders), and

                  (b) after each of its Euro-Dollar  Loans has been repaid,  all
payments of principal which would otherwise be applied to repay such Euro-Dollar
Loans shall be applied to repay its CIBC Alternate Base Rate Loans instead.

                         SECTION 6. CONDITIONS PRECEDENT

                  SECTION  6.1  Revolving  Loans  and  Letters  of  Credit.  The
obligation of each Revolving  Lender to make a Revolving Loan and the obligation
of the Letter of Credit Bank to issue,  and the L/C  Participants to participate
in,  any  Letter  of  Credit,  is  subject  to the  satisfaction  of each of the
following conditions precedent on the relevant Borrowing Date:

                  (a)  receipt  by  the  Administrative  Agent  of a  Notice  of
Borrowing  as required by Section 2.3 or, with  respect to the  issuance of such
Letter of Credit, receipt by the Letter of Credit Bank of an Application and the
other materials required by Section 3.2;

                  (b) at the time of and  immediately  after such  Borrowing  or
issuance, as the case may be, no Default or Event of Default shall have occurred
and be continuing;

                  (c) the  representations and warranties of the Borrower or any
of its  Subsidiaries,  as the case may be,  contained in this  Agreement and the
other Credit Documents shall be true and correct in all material respects on and
as of the date such  extension of credit was requested and on and as of the date
of such Borrowing or issuance; and

                  (d) receipt by the  Administrative  Agent of a certificate  of
the chief executive officer,  the president,  the chief financial  officer,  the
vice  president-controller,  the assistant  treasurer or the cash manager of the
Borrower,  in the relevant Notice of




<PAGE> 59

Borrowing or  Application,  certifying as to the  satisfaction of the conditions
set  forth in  subsections  (b) and (c) on and as of the date of such  Notice of
Borrowing or Application and on and as of the relevant Borrowing Date.

                  SECTION 6.2  Conditions to  Effectiveness  of this  Agreement,
Initial Loans and Letters of Credit.  The  effectiveness of this Agreement,  the
obligation of each Restructuring  Lender to make or restructure its Loans on the
Closing  Date and to  participate  in the Letters of Credit  outstanding  on the
Closing  Date and of the Letter of Credit  Bank to issue any Letter of Credit on
the  Closing  Date are subject to the  satisfaction  or waiver by the Lenders of
each of the conditions contained in Sections 6.1(b), (c) and (d) and each of the
following conditions precedent:

                  (a)  receipt by the  Administrative  Agent for the  account of
each Lender of duly executed Notes, each dated the Closing Date,  complying with
the provisions of Section 2.4;

                  (b)  receipt  by the  Administrative  Agent of fully  executed
copies of each of the Security  Documents (other than any Mortgages not required
to be delivered pursuant to Section 6.2(q));

                  (c) receipt by the Administrative Agent of (i) UCC-1 Financing
Statements executed on behalf of the Borrower for filing in all jurisdictions in
which it would be  necessary  or  desirable to make a filing in order to provide
the  Collateral  Agent (for its benefit and the benefit of the Secured  Parties)
with a perfected  security interest in the Collateral and evidence of the filing
of such UCC-1  Financing  Statements in all  jurisdictions  in which it would be
necessary  to provide the  Collateral  Agent (for its benefit and the benefit of
the Secured Parties) with a perfected security interest in substantially all the
Inventory; and (ii) UCC-11 searches reflecting that no filings relating to Liens
on the Collateral  are of record in such  jurisdictions  except those  permitted
under the Credit Documents;

                  (d) the New Cash  Management  Bank and the Borrower shall have
entered into  arrangements  providing for the New Cash Management Bank to assume
responsibility for the Borrower's primary cash management operations;

                  (e)  receipt by the  Administrative  Agent of (i) a  favorable
signed opinion, dated the Closing Date, of Blackwell,  Sanders, Matheny, Weary &
Lombardi,  L.C., counsel for the Borrower,  substantially in the form of Exhibit
J-1,  and  covering  such  additional   matters  relating  to  the  transactions
contemplated  hereby as the Lenders  may  reasonably  request,  (ii) a favorable
signed  opinion,  dated the Closing  Date,  of Wachtell,  Lipton,  Rosen & Katz,
special New York counsel for the Borrower,  substantially in the form of Exhibit
J-2,  and  covering  such  additional   matters  relating  to  the  transactions
contemplated  hereby as the Lenders may reasonably




<PAGE> 60

request  and (iii)  such  other  favorable  signed  opinions  of  counsel as the
Administrative Agent or its counsel may request;

                  (f)  receipt  by  the   Administrative   Agent  of  a  Closing
Certificate signed by an executive officer of the Borrower, substantially in the
form of Exhibit K, with appropriate  insertions and attachments  satisfactory in
form and substance to the Administrative Agent;

                  (g) receipt by the  Administrative  Agent of all  documents it
may  reasonably  request  relating  to the  existence  of the  Borrower  and its
Subsidiaries,  the corporate  authority for and the validity of this  Agreement,
the Notes and the other Credit Documents,  and any other matters relevant hereto
(including,   without   limitation,   certified   resolutions   and   incumbency
certificates),  all in form and  substance  satisfactory  to the  Administrative
Agent;

                  (h)  there  shall not have  occurred  since  May 25,  1996,  a
material adverse change, or development or event involving a prospective change,
which, in the reasonable judgment of the Lenders,  could have a material adverse
effect on (i) the  assets,  liabilities,  properties,  business,  operations  or
condition,  financial  or  otherwise,  or  prospects  of the  Borrower  and  its
Subsidiaries,  taken  as a whole,  (ii)  the  ability  of the  Borrower  and its
Subsidiaries to perform their obligations  under the Credit Documents,  or (iii)
the rights and remedies of the Collateral Agent, the  Administrative  Agent, the
Letter of Credit Bank or the Lenders under the Credit Documents, and none of the
Administrative  Agent,  the Collateral  Agent,  the Letter of Credit Bank or any
Lender  shall  have  become  aware  of any  theretofore  previously  undisclosed
materially  adverse  information  with  respect  to  the  matters  described  in
subclause (i), (ii) or (iii) of this clause (h);

                  (i)  all   transactions   contemplated   hereby  shall  be  in
compliance  with and permitted by all  applicable  laws and  regulations  of the
United States and all laws and  regulations  of each state  (including,  without
limitation,  environmental  laws) except where such noncompliance or prohibition
could not reasonably be expected to have a Materially Adverse Effect;

                  (j) there shall be no  actions,  suits or  proceedings  by any
Governmental  Authority or other  Person or  investigation  by any  Governmental
Authority or other Person pending or known by the Borrower to be threatened with
respect  to  the  Borrower  or  any  of its  Subsidiaries  or  (relating  to the
transactions  contemplated  hereunder) the Administrative  Agent, the Collateral
Agent,  the  Co-Agents,  the Letter of Credit  Bank or any  Lender,  which could
reasonably be expected to have a Materially  Adverse  Effect;  there shall be no
judgment,   order,   injunction  or  other  restraint  prohibiting  any  of  the
transactions contemplated by any of the Credit Documents;






<PAGE> 61

                  (k)   receipt  by  the   Administrative   Agent  of   evidence
satisfactory  to  the  Administrative   Agent  that  all  fees  payable  to  the
Administrative  Agent,  the Collateral  Agent, the Letter of Credit Bank and the
Lenders shall have been paid in full on or prior to the Closing Date,  including
without  limitation  the  Amendment  Fee, the  Swingline  Facility Fee, the fees
required  to be paid  pursuant  to  Section  3.1(d)  and the Fee  Letter and the
accrued and unpaid reasonable fees and expenses of the Administrative  Agent and
the  Lenders  (including,  without  limitation,  the fees and  disbursements  of
Zalkin,  Rodin & Goodman LLP  ("ZR&G"),  special  counsel to the  Administrative
Agent and the Collateral  Agent,  and Ernst & Young LLP,  financial  advisors to
ZR&G,  Emmet,   Marvin  &  Martin  LLP,  special  real  estate  counsel  to  the
Administrative  Agent and the Collateral Agent and any special local real estate
or patent and trademark counsel to the  Administrative  Agent and the Collateral
Agent);

                  (l)  receipt by the  Administrative  Agent and the  Collateral
Agent of this Agreement duly executed and delivered by the Co-Agents, the Letter
of Credit Bank, all of the Lenders and the Borrower;

                  (m)  receipt  by the  Administrative  Agent  of all  necessary
consents  and  waivers  of third  parties,  if any,  each in form and  substance
satisfactory to the Administrative Agent;

                  (n) to the extent  available,  receipt  by the  Administrative
Agent and the Collateral  Agent of original  certificates  of insurance and loss
payee and  additional  insured  insurance  endorsements,  in form and  substance
satisfactory to the Administrative  Agent and the Collateral Agent, with respect
to the  insurance  coverage  required  pursuant to Section 8.3 and  described on
Schedule  IV  (it  being  understood  that  any  documentation  remaining  to be
delivered hereunder shall be delivered in accordance with Section 8.32);

                  (o) to the  extent  available  and  not  previously  provided,
receipt by the  Administrative  Agent of the original  certificates of title for
vehicles  pledged  to  the  Collateral  Agent  (it  being  understood  that  any
documentation  remaining  to  be  delivered  hereunder  shall  be  delivered  in
accordance with Section 8.32);

                  (p)  receipt  by  the  Administrative   Agent  of  such  other
documents and  agreements as may be reasonably  requested by the  Administrative
Agent,  the  Collateral  Agent,  the  Lenders  or ZR&G in  connection  with  the
financing contemplated hereunder; and

                  (q) to the extent  available,  receipt  by the  Administrative
Agent of executed  Mortgages with respect to each Available  Property  listed on
Schedule  III,  together  with the  Title  Policies  and  Surveys  for each such
Mortgage and the payment of all fees relating thereto and evidence of the filing
of Mortgages with respect to each Available  Property  listed on Schedule III in
the




<PAGE> 62

appropriate  filing  or  recording  offices  and the  payment  of all  taxes and
recording fees relating thereto.

                  SECTION 6.3 Swingline  Loans. The obligation of each Swingline
Lender to make a Swingline  Loan is subject to the  satisfaction  of each of the
conditions  precedent  contained  in  Section  6.1  and  each  of the  following
additional conditions precedent on the relevant Borrowing Date:

                  (a)      the Borrower shall have Required Inventory;

                  (b) the proceeds of the  Swingline  Loans shall be used solely
to purchase  Inventory or to pay  specified  invoices  attached to the Swingline
Compliance Certificate which evidence accounts payable arising from the purchase
of Inventory; and

                  (c)  receipt  by  the  Administrative  Agent  of  a  Swingline
Compliance Certificate.

                    SECTION 7. REPRESENTATIONS AND WARRANTIES

                  To induce the Lenders to enter into this Agreement and to make
and restructure the Loans, and to induce the Letter of Credit Bank to issue, and
the L/C  Participants  to  participate  in, the Letters of Credit,  the Borrower
makes the following  representations and warranties,  all of which shall survive
the execution and delivery of this Agreement and the making and restructuring of
the Loans and the issuance of the Letters of Credit:

                  SECTION 7.1 Corporate Existence and Power. The Borrower is (a)
a corporation duly incorporated, validly existing and in good standing under the
laws of  Iowa,  and has all  corporate  powers  and all  governmental  licenses,
authorizations,  consents and approvals required to carry on its business as now
conducted  and  as  proposed  to  be  conducted,   except  for  such   licenses,
authorizations, consents and approvals which could not reasonably be expected to
have a Materially Adverse Effect if not obtained, and (b) has duly qualified and
is authorized to do business and is in good standing in all jurisdictions  where
the failure to do so could  reasonably be expected to have a Materially  Adverse
Effect.

                  SECTION 7.2 Corporate  Power and  Authority.  The Borrower has
the  power  and  authority  to  execute,  deliver  and  carry  out the terms and
provisions of each of the Credit Documents (including,  without limitation,  the
granting  of any  Liens  contemplated  thereby)  to which it is,  or is to be, a
party.  The Borrower has taken all necessary  action to authorize the execution,
delivery and  performance of each of the Credit  Documents to which it is, or is
to be, a party. Each Credit Document when executed and delivered by the Borrower
will  constitute  the  legal,  valid  and  binding  obligation  of the  Borrower
enforceable in accordance with its terms.






<PAGE> 63

                  SECTION 7.3 No Violation. Neither the execution or delivery by
the Borrower of any of the Credit  Documents to which it either is, or is to be,
a  party,  nor the  performance  of or  compliance  with  any of the  terms  and
provisions thereof, nor the consummation of any of the transactions contemplated
therein  (a) has  contravened  or will  contravene  any  provision  of any  law,
statute, rule or regulation, including, without limitation, Rule 13e-3 under the
Exchange Act, or any other law, statute,  rule or regulation or any order, writ,
injunction or decree of any other Governmental Authority,  (b) has conflicted or
been inconsistent with or will conflict or be inconsistent with, or has resulted
in or will result in any breach of, any of the terms,  covenants,  conditions or
provisions of, or has constituted or will constitute  (with or without notice or
lapse of time or both) a default under, any indenture,  mortgage, deed of trust,
agreement or other  instrument to which the Borrower or any of its  Subsidiaries
is a party, or any of their property or assets are bound or to which any of them
may be subject,  the  contravention of which, when taken together with any other
such  contraventions,  could reasonably be expected to have a Materially Adverse
Effect or (c) result in the  creation or  imposition  of (or the  obligation  to
create or impose),  any Lien upon any of the  property or assets of the Borrower
or any of its  Subsidiaries  pursuant to the terms of any  indenture,  mortgage,
deed of trust, agreement or other instrument to which the Borrower or any of its
Subsidiaries  is a party or by which they or any of their property of assets are
bound or to which any of them may be subject (other than as  contemplated by the
Security  Documents)  or (d) has violated or will  violate any  provision of the
Restated  Articles  of  Incorporation  or by-laws of the  Borrower or any of its
Subsidiaries.

                  SECTION 7.4 Margin Regulations. No part of the proceeds of the
Loans  will be used to  purchase  or carry  any  Margin  Stock in  violation  of
Regulation U or  Regulation G or to extend  credit for the purpose of purchasing
or carrying  any Margin Stock in violation  of  Regulation  U or  Regulation  G.
Neither the making of any Loan hereunder,  nor the use of the proceeds  thereof,
will violate or be  inconsistent  with the provisions of Regulation G, T, U or X
of the Board of Governors of the Federal Reserve System.

                  SECTION  7.5  Approvals.   Except  for  those   registrations,
consents,  waivers,  approvals,   notices  and  actions  with  any  Governmental
Authority or other Person which have been obtained,  given, filed or taken prior
to the Closing Date (complete and correct copies of which have been delivered to
the  Administrative  Agent),  the  execution,  delivery and  performance  by the
Borrower  of the  Credit  Documents  to  which  it  is,  or is to  be,  a  party
(including,  without  limitation,  the application of the proceeds of the Loans)
did not, do not and will not require any registration with, consent or waiver or
approval  of, or notice to, or other  action to,  with or by, any (i) federal or
Iowa Governmental  Authority or (ii) other  Governmental  Authority or any other
Person,




<PAGE> 64

where the failure so to obtain,  give, file or take could reasonably be expected
to have a Materially Adverse Effect.

                  SECTION 7.6 Investment  Company Act; etc. Neither the Borrower
nor any of its  Subsidiaries  will be after  giving  effect to the  transactions
contemplated  hereby or any borrowing or the issuance of any Letter of Credit to
be made hereunder (x) an "investment  company" or a company  "controlled"  by an
"investment company",  within the meaning of the Investment Company Act of 1940,
as amended or (y) subject to regulation under the Public Utility Holding Company
Act of 1935,  the Federal Power Act or any foreign,  federal or local statute or
regulation  limiting  its ability to incur  indebtedness  for money  borrowed or
guarantee  such  indebtedness  as  contemplated  hereby or by any  other  Credit
Document.

                  SECTION  7.7  True  and  Complete  Disclosure.  All  financial
information  heretofore  or  contemporaneously  furnished by or on behalf of the
Borrower or any Subsidiary,  and all other such information  hereafter furnished
by or on behalf of the Borrower or any Subsidiary, including, without limitation
in  each  case,  all  information  contained  in  any of  the  Credit  Documents
(including  the  exhibits  or  schedules  thereto),  to  or  on  behalf  of  the
Administrative Agent, the Collateral Agent, the Co-Agents,  the Letter of Credit
Bank or any Lender,  is and will be, true and accurate in all material  respects
on the date as of which such  information is dated or certified  (except for any
projections  included therein,  which projections shall have provided reasonable
estimations of future performance for the periods covered thereby subject to the
uncertainty and approximation inherent in any projections) and not incomplete by
omitting to state anything  necessary to make such information not misleading at
such time except to the extent  later  information  could  reasonably  have been
expected  to  supersede  earlier  information.  There is  nothing  of which  the
Borrower  is aware  which could  reasonably  be  expected  to have a  Materially
Adverse  Effect which has not been  disclosed  pursuant to this  Agreement.  All
statements of fact and  representations  concerning the present and  anticipated
business, operations and assets of the Borrower and its Subsidiaries, the Credit
Documents  and  the  transactions  referred  to  therein  and in  the  opinions,
memoranda and rulings  contained  therein,  are true and correct in all material
respects,  and all  assumptions  with  respect  thereto  contained  therein  are
reasonable in all material  respects,  each as of the date such  information  is
dated or certified.

SECTION 7.8  Subsidiaries.  Schedule V, as amended by the Borrower  from time to
time, contains a true, correct and complete description of each Subsidiary,  its
capitalization, its jurisdiction of incorporation, each jurisdiction in which it
is doing business,  and its ownership (by holder and percentage interest).  Each
Subsidiary is a corporation duly  incorporated,  validly  existing,  and in good
standing  under  the  laws  of its  jurisdiction  of  incorporation  and has all
corporate powers and all material governmental licenses,




<PAGE> 65

authorizations,  consents  and  approvals  required  to  carry on its
business as now conducted and as proposed to be conducted,  and each  Subsidiary
has duly  qualified  and is authorized to do business and is in good standing in
all  jurisdictions  where the failure to do so could  reasonably  be expected to
have a Materially Adverse Effect. On the date of this Agreement, Lumberjack, the
only Subsidiary, is inactive and has no significant assets.

                  SECTION  7.9  Financial   Condition;   Financial   Statements;
Projections. (a) The Borrower is not entering into the arrangements contemplated
hereby with actual intent to hinder,  delay or defraud  either present or future
creditors.  On and as of the  Closing  Date on a pro forma  basis  after  giving
effect to all Debt (including,  without limitation, the Loans and the Letters of
Credit) incurred, or to be created in connection therewith:

                  (i) no final  judgments  in  actions  for money  damages  with
         respect to pending or threatened  litigation will be rendered at a time
         when,  or  in an  amount  such  that,  the  Borrower  or  the  affected
         Subsidiary  will be unable to satisfy  any such  judgments  promptly in
         accordance with their terms (taking into account the maximum reasonable
         amount  of  such  judgments  in  any  such  actions  and  the  earliest
         reasonable  time at which such judgments  might be rendered);  the cash
         available after taking into account all other  anticipated  uses of the
         cash of such Person is  anticipated  to be  sufficient  to pay all such
         judgments promptly in accordance with their terms;

                  (ii) the present fair saleable  value of the assets of each of
         the Borrower and its Subsidiaries will exceed the probable liability of
         each of the Borrower and its  Subsidiaries on its debts  (including its
         contingent obligations);

                  (iii)  neither the Borrower nor any of its  Subsidiaries  will
         have  incurred  or intends to, or  believes  that it will,  incur debts
         (including its contingent  obligations)  beyond its ability to pay such
         debts as such debts mature  (taking into account the timing and amounts
         of cash to be received  by such Person from any source,  and of amounts
         to be payable on or in respect of debts of such  Person and the amounts
         referred  to in clause  (i));  the cash  available  to each such Person
         after  taking into  account all other  anticipated  uses of the cash of
         such Person, is anticipated to be sufficient to pay all such amounts on
         or in respect of debts of such  Person,  when such amounts are required
         to be paid; and

                  (iv) the  Borrower  and  each of its  Subsidiaries  will  have
         sufficient  capital  with which to conduct  its  present  and  proposed
         business, and the property of the Borrower and each of its Subsidiaries
         does not  constitute  unreasonably  small capital with which to conduct
         its present or proposed business.






<PAGE> 66

             For purposes of this  subsection (a), "debt" means any liability on
a claim,  and "claim" means (A) right to payment  whether or not such a right is
reduced to  judgment,  liquidated,  unliquidated,  fixed,  contingent,  matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (B)
right to an equitable remedy for breach of performance if such breach gives rise
to a payment,  whether or not such  right to an  equitable  remedy is reduced to
judgment, fixed, contingent,  matured, unmatured, disputed, undisputed, secured,
or unsecured.

                  (b) There has  heretofore  been  delivered  to the Lenders the
audited  balance  sheet of the Borrower  and its  Consolidated  Subsidiary  on a
consolidated  basis,  as of  November  25,  1995  and the  related  consolidated
statements  of income and cash flows for the year then ended  accompanied  by an
unqualified  opinion of KPMG Peat Marwick LLP and the unaudited balance sheet of
the Borrower and its  Consolidated  Subsidiaries on a consolidated  basis, as of
May 25, 1996 and the related consolidated statements of income and cash flow for
the six-month period then ended. Such financial  statements  fairly present,  in
conformity with GAAP, the  consolidated  financial  position of the Borrower and
its Consolidated  Subsidiary as of such dates and their consolidated  results of
operations  and cash flows for such  fiscal year and fiscal  period  (subject to
normal year-end adjustments in the case of such six-month  statements).  Neither
the Borrower nor its  Consolidated  Subsidiary had as of the respective dates of
the  foregoing  financial   statements  any  material   contingent   obligation,
contingent liability or liability for taxes,  long-term lease or unusual forward
or  long-term  commitment  which is not  disclosed  in the  foregoing  financial
statements or the notes thereto.

                  (c) The Business  Plan has  heretofore  been  delivered to the
Lenders. The Business Plan has been prepared consistent with the Borrower's past
practices in its  internal  planning,  the  assumptions  made in  preparing  the
Business Plan are reasonable,  and all material  assumptions with respect to the
Business Plan are set forth  therein;  provided,  that the Business Plan has not
been prepared in  accordance  with GAAP.  The Business Plan provides  reasonable
estimations of future performance,  subject to the uncertainty and approximation
inherent in any projections.

                  (d) Since May 25,  1996,  there has been no  material  adverse
change in the business,  financial position,  results of operations or prospects
of the Borrower and its  Subsidiaries,  considered  as a whole.  The most recent
financial  statements of the Borrower and its Consolidated  Subsidiary delivered
to the Lenders  pursuant to Section  8.1(a) or pursuant to Section 8.1(a) of the
Existing  Credit  Agreement  and of the Borrower  delivered  pursuant to Section
8.1(b) or pursuant to Section  8.1(b) of the Existing  Credit  Agreement  fairly
present,  in accordance  with GAAP, the relevant  financial  positions as of the
dates thereof and the relevant  results of operations for the periods covered by
such financial statements.





<PAGE> 67

                  SECTION 7.10 Tax Returns and  Payments.  The Borrower and each
of its  Subsidiaries  have filed all  federal  income tax  returns and all other
material tax returns and reports,  domestic and foreign, required to be filed by
it and have paid all material taxes,  assessments,  fees and other  governmental
charges  payable  by it  which  have  become  due,  other  than  those  not  yet
delinquent.  The Borrower and each of its Subsidiaries has paid, or has provided
adequate  reserves for the payment of, all material  federal,  state and foreign
income taxes  applicable  for all prior fiscal years and for the current  fiscal
year to the date  hereof.  There  is no  proposed  tax  assessment  against  the
Borrower or any of its  Subsidiaries  which could,  if the assessment were made,
reasonably be expected to have a Materially  Adverse Effect. The last closed tax
year of the Borrower and its Consolidated  Subsidiaries is the fiscal year ended
November 1990.

                  SECTION 7.11  Litigation;  Adverse Facts.  There is no action,
suit, proceeding or investigation by any Governmental  Authority or other Person
pending or known by the Borrower to be threatened  with respect to the Borrower,
any of its Subsidiaries or any of their Affiliates or any of their assets or any
of the  Credit  Documents  or any of the  transactions  contemplated  hereby  or
thereby which could  reasonably be expected to have a Materially  Adverse Effect
and  there  has  occurred  no  development  in  any  action,  suit,  proceeding,
governmental  investigation or arbitration  previously disclosed to the Lenders,
which could reasonably be expected to have such an effect.

                  SECTION  7.12  Compliance  with  Laws and  Charter  Documents.
Neither the  Borrower  nor any of its  Subsidiaries  is (i) in  violation of its
Restated  Articles of  Incorporation or by-laws or (ii) in violation of any law,
statute, rule, regulation, order, writ, injunction or decree of any Governmental
Authority  applicable  to any of them or any of their  respective  properties or
assets,  which  violation  under  this  clause  (ii),  individually  or  in  the
aggregate, could reasonably be expected to have a Materially Adverse Effect.

                  SECTION 7.13 Certain Fees.  Except for fees  specified  herein
and payable hereunder, no broker's or finder's fee or commission will be payable
with respect to the  transactions  contemplated  by this  Agreement or the other
Credit Documents,  and the Borrower hereby indemnifies the Administrative Agent,
the Collateral  Agent,  the Letter of Credit Bank, the Co-Agents and the Lenders
against and agrees that it will hold the  Administrative  Agent,  the Collateral
Agent,  the Letter of Credit Bank,  the Co-Agents and the Lenders  harmless from
any claim,  demand or liability for any broker's or finder's fees or commissions
alleged to have been incurred in connection with any such offer, issue and sale,
or any of the other  transactions  contemplated  hereby  or by the other  Credit
Documents  and  any  expenses,  including  reasonable  legal  fees,  arising  in
connection with any such claim, demand or liability. The agreements contained in
this  Section  7.13  shall  survive  the  payment




<PAGE> 68

and performance of the Bank Obligations and the termination of this Agreement.

                  SECTION  7.14  ERISA.  (a) No ERISA  Event has  occurred or is
expected to occur with  respect to any Plan in any fiscal  year of the  Borrower
that would result in any liability of the Borrower or any  Subsidiary in excess,
together  with the  amount  of all other  liabilities  of the  Borrower  and its
Subsidiaries  which would result from all other ERISA Events that have  occurred
or are  expected to occur with  respect to Plans  during such  fiscal  year,  of
$3,000,000.

                  (b) Schedule B  (Actuarial  Information  to the annual  report
(Form 5500 series)) most recently completed with respect to each Plan, copies of
which have been filed with the  Internal  Revenue  Service and  delivered to the
Administrative  Agent, is complete and accurate in all material  respects and to
the best  knowledge  of the Borrower  represents  a  reasonable  estimate of the
funding  status  and  financial  condition  of such  Plan as of the date of such
report, and, since the date of such Schedule B, there has been no change in such
funding status or financial  condition that could reasonably be expected to have
a Materially Adverse Effect.

                  (c) Neither the  Borrower,  nor any  Subsidiary  nor any ERISA
Affiliate  of  either  of them  has  incurred,  or is  expected  to  incur,  any
Withdrawal  Liability to Multiemployer Plans in excess in any fiscal year of the
Borrower, of $3,000,000 in the aggregate for the Borrower,  its Subsidiaries and
the ERISA Affiliates of any of them.

                  (d) Neither the  Borrower,  nor any  Subsidiary  nor any ERISA
Affiliate of either of them has received any notification that any Multiemployer
Plan is in reorganization or has been terminated, within the meaning of Title IV
of ERISA, and to the best knowledge of the Borrower,  no  Multiemployer  Plan is
expected to be in reorganization or to be terminated within the meaning of Title
IV of ERISA, in either case where all such  reorganization or terminations would
result in any liability of the Borrower or any  Subsidiary in any fiscal year of
the Borrower in excess of  $3,000,000  in the aggregate for the Borrower and its
Subsidiaries.

                  (e) With  respect to each Plan which is an  "employee  pension
plan"  within  the  meaning of Section  3(2) of ERISA and which is  intended  to
qualify under Section 401 of the Code, a favorable determination letter has been
received from the Internal  Revenue Service stating that such Plan so qualifies,
and nothing has occurred  since the date of the  issuance of such  determination
letter which would cause such Plan to cease to qualify  under Section 401 of the
Code.

                  (f)  None  of the  transactions  contemplated  by  the  Credit
Documents or by any Plan  constitute a  prohibited  transaction  as such term is
defined in Section 406 of ERISA or Section 4975 of the Code.





<PAGE> 69

                  SECTION  7.15 Good Title to  Properties.  Each of the Borrower
and its  Subsidiaries  has good and marketable  title to  substantially  all its
properties and assets, including, without limitation, the Collateral, subject to
no Liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except such as would be permitted under Section 8.10.

                  SECTION 7.16  Trademarks,  Patents,  etc. Each of the Borrower
and  its  Subsidiaries  possesses  all  the  Trademarks,   copyrights,  patents,
licenses,  or rights in any thereof,  adequate in all material  respects for the
conduct of its business as now conducted and presently proposed to be conducted,
without conflict with the rights or, to the best knowledge of the Borrower,  any
presently claimed rights of others.

                  SECTION  7.17 Labor  Matters.  Neither  the  Borrower  nor any
Subsidiary has experienced any strike, labor dispute,  slowdown or work stoppage
due to  labor  disagreements  which  could  reasonably  be  expected  to  have a
Materially Adverse Effect and to the best knowledge of the Borrower, there is no
such strike, dispute,  slowdown or work stoppage threatened against the Borrower
or any Subsidiary.

                  SECTION  7.18  Environmental  Matters.  To  the  best  of  the
Borrower's knowledge after due inquiry, except as set forth on Schedule VI:

                  (a) the Property does not contain any  Hazardous  Substance in
amounts or  concentrations  which (i)  constitute a violation  of, or (ii) could
reasonably give rise to liability under, Environmental Law except in either case
insofar as such violation or liability,  or any aggregation  thereof,  could not
reasonably be expected to result in a Materially Adverse Effect;

                  (b) the  Property  and all  operations  at the Property are in
compliance, and have in the last three years been in compliance, in all material
respects with all applicable  Environmental  Laws, and there is no contamination
at or under the Property,  or violation of any Environmental Law with respect to
the  Property or the  operations  at the  Property,  which could  reasonably  be
expected to result in a Materially Adverse Effect;

                  (c)  neither  the  Borrower  nor any of its  Subsidiaries  has
received any notice of violation, alleged violation, noncompliance, liability or
potential   liability  regarding   environmental   matters  or  compliance  with
Environmental  Law with regard to any of the Property or the  operations  at the
Property,  nor does the Borrower or such  Subsidiary have knowledge or reason to
believe  that any such notice will be  received  or is being  threatened  except
insofar as such notice or threatened  notice, or any aggregation  thereof,  does
not involve a matter or matters that could reasonably be expected to result in a
Materially Adverse Effect;





<PAGE> 70

                  (d) Hazardous Substances have not been transported or disposed
of from any of the  Property  in  violation  of, or in a manner or to a location
which could reasonably give rise to liability under, Environmental Law, nor have
any Hazardous Substances been generated,  treated,  stored (other than materials
stored in the  normal  course of its  retail  business  in  accordance  with all
applicable laws) or disposed of at, on or under any of the Property in violation
of, or in a manner  that could  reasonably  give rise to  liability  under,  any
applicable  Environmental  Law except insofar as any such violation or liability
referred to above, or any aggregation thereof,  could not reasonably be expected
to result in a Materially Adverse Effect;

                  (e) no judicial  proceedings or governmental or administrative
action is  pending  or, to the  knowledge  of the  Borrower  after due  inquiry,
threatened,  under any  Environmental  Law to which the  Borrower  is or will be
named as a party with respect to the Property or the operations at the Property,
nor  are  there  any  consent   decrees  or  other  decrees,   consent   orders,
administrative  orders or other  orders,  or other  administrative  or  judicial
requirements  outstanding  under  any  Environmental  Law  with  respect  to the
Property or such operations except insofar as such proceeding,  action,  decree,
order or other requirement,  or any aggregation thereof, could not reasonably be
expected to result in a Materially Adverse Effect; and

                  (f) there has been no  release  or  threat of  release  of any
Hazardous  Substance at or from the Property,  or arising from or related to the
operations  of the  Property in  connection  with the  Property or  otherwise in
connection  with such  operations  in  violation of or in amounts or in a manner
that could  reasonably  give rise to liability under  Environmental  Law, except
insofar as any such violation or liability referred to above, or any aggregation
thereof,  could not  reasonably  be expected to result in a  Materially  Adverse
Effect.

                  SECTION  7.19 No Default.  Neither the Borrower nor any of its
Subsidiaries  is in default in the payment or performance of any of its or their
Contractual  Obligations  in any respect  which could  reasonably be expected to
have  a  Materially  Adverse  Effect.  Neither  the  Borrower  nor  any  of  its
Subsidiaries is in default under any order,  award or decree of any Governmental
Authority or arbitrator  binding upon or affecting it or them or by which any of
its or their  properties or assets may be bound or affected in any respect which
could  reasonably be expected to have a Materially  Adverse Effect,  and no such
order, award or decree could reasonably be expected to have a Materially Adverse
Effect on the ability of the Borrower and its  Subsidiaries  taken as a whole to
carry on their businesses as presently  conducted or the ability of the Borrower
or any Subsidiary to perform its obligations  under any Credit Document to which
it is a party.






<PAGE> 71

                  SECTION 7.20 Location and Divisions of the Borrower. As of the
Closing Date, all of the Borrower's stores,  warehouses,  distribution  centers,
offices,  headquarters and any other operating and organizational facilities and
premises  are listed on Schedule  VII.  The  Borrower  uses each of the division
names set forth on Schedule  VII only in the states  listed below each such name
and the Borrower does not do business under any names other than its own and the
names of such divisions.

                  SECTION 7.21  Acknowledgment  of Obligations;  No Claims.  The
Borrower is truly and justly indebted to the other parties to this Agreement for
the  payment  of the  Secured  Obligations  owing to each  such  party,  without
defense, offset, counterclaim or cause of action of any kind whatsoever.

                              SECTION 8. COVENANTS

                  The  Borrower  agrees  that,  so  long as any  Lender  has any
Commitments  hereunder,  any Letter of Credit remains  outstanding or any amount
payable  hereunder or under any Note or under any other Credit Document  remains
unpaid:

                  SECTION 8.1  Information.  The  Borrower  will  deliver to the
Administrative Agent and each of the Lenders:

                  (a) as soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the  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  fiscal  year,  all  audited  in  accordance  with GAAP and in a manner
acceptable  to the SEC by KPMG  Peat  Marwick  LLP or other  independent  public
accountants of nationally recognized standing;

                  (b) as soon as available and in any event within 45 days after
the end of each of the first  three  fiscal  quarters of each fiscal year of the
Borrower,  a  consolidated  balance  sheet of the Borrower and its  Consolidated
Subsidiaries  as of  the  end of  such  quarter  and  the  related  consolidated
statements  of income and cash flows for such quarter and for the portion of the
Borrower's  fiscal year ended at the end of such 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,  all
certified   (subject  to  normal   year-end   adjustments)  as  to  fairness  of
presentation and GAAP by the chief financial officer of the Borrower;

                  (c) simultaneously  with the delivery of each set of financial
statements  referred  to in clauses  (a) and (b)  above,  a  financial  covenant
compliance   certificate  of  the  chief  financial




<PAGE> 72

officer of the Borrower substantially in the form of Exhibit L (i) setting forth
in reasonable detail the calculations required to establish whether the Borrower
was in compliance with the requirements of Sections 8.12, 8.24, 8.25 and 8.30 on
the date of such financial  statements  and the  calculation of Excess Cash Flow
for the fiscal  year  ended on the date of such  financial  statements  and (ii)
stating  whether  any  Default  or Event of  Default  exists on the date of such
certificate and, if any Default or Event of Default then exists,  specifying the
nature and period of existence of any such condition or event  constituting such
Default or Event of Default and  specifying  any notice given or action taken by
any holder of Debt,  if any,  with  respect to the Borrower and the action which
the Borrower has taken, is taking or proposes to take with respect thereto;

                  (d) simultaneously  with the delivery of each set of financial
statements  referred  to in  clause  (a)  above,  a  statement  of the  firm  of
independent  public  accountants  which  reported on such  statements  (i) as to
whether  anything has come to their  attention to cause them to believe that any
Default or Event of  Default  existed  on the date of such  statements  and (ii)
confirming the  calculations  set forth in the officer's  certificate  delivered
simultaneously therewith pursuant to clause (c) above;

                  (e) as soon as available and in any event within  fifteen (15)
Domestic  Business  Days after the end of each fiscal  month (or, in the case of
the  Borrower's  last  fiscal  month  of each  fiscal  year,  within  45  days),
commencing   with  the  first  fiscal  month   following  the  Closing  Date,  a
consolidated balance sheet of the Borrower and its Consolidated  Subsidiaries as
of the end of such month, and the related consolidated  statements of income and
cash flows for such  month and for the  portion of the  Borrower's  fiscal  year
ended at the end of such fiscal month, 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;

                  (f) On the earlier of the date of delivery by the  Borrower to
the Lenders of the  financial  statements  required to be delivered  pursuant to
Section 8.1(a)  covering such fiscal year and 90 days after such fiscal year, an
Excess Cash Flow  Certificate  setting forth the calculation of Excess Cash Flow
based upon such fiscal year's audited financial statements then delivered;

                  (g) forthwith  upon the  occurrence of any Default or Event of
Default,  a certificate of the chief financial  officer of the Borrower  setting
forth  the  details  thereof  and the  action  which the  Borrower  is taking or
proposes to take with respect thereto;

                  (h)  promptly  upon request  therefore  by the  Administrative
Agent,  copies of all reports submitted by independent public




<PAGE> 73

accountants to the Borrower in connection  with each annual,  interim or special
audit  of  the  financial  statements  of  the  Borrower,   including,   without
limitation,  any comment letters  submitted by such accountants to management in
connection with their annual audit;

                  (i) promptly upon the mailing  thereof to the  shareholders of
the Borrower generally, copies of all financial statements,  significant reports
and proxy statements so mailed and, promptly upon the filing thereof,  copies of
all   registration   statements   (other  than  the  exhibits  thereto  and  any
registration  statements  on Form S-8 or its  equivalent)  and  reports on Forms
10-K,  10-Q and 8-K (or their  equivalents)  which the Borrower shall have filed
with the SEC;

                  (j) simultaneously  with the delivery of each set of financial
statements  referred to in clauses (a) and (b) above, a certificate of the chief
financial officer of the Borrower, in form and substance reasonably satisfactory
to the Administrative Agent, describing all gains and losses by the Borrower and
its  Consolidated  Subsidiaries for such fiscal quarter just ended from the sale
or other disposition of their assets which do not constitute extraordinary gains
or losses under GAAP and for which the sale price or book value for such capital
asset at time of sale is greater than $3,000,000;

                  (k)  forthwith  upon becoming  aware of (i) any  litigation or
other proceeding which could reasonably be expected to have a Materially Adverse
Effect or (ii) any default with  respect to any  Contractual  Obligation  or any
event or  condition  which could  reasonably  be  expected to have a  Materially
Adverse Effect, notice thereof;

                  (1) not  later  than 45 days  after the  commencement  of each
fiscal year of the Borrower,  a forecast of the financial  condition and results
of  operations  of the Borrower  and its  Subsidiaries,  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  and results of operations of the Borrower
and its  Subsidiaries  for the balance of such fiscal year in all  instances  in
form, scope and detail satisfactory to the Administrative Agent;

                  (m)  promptly  upon  becoming  aware of any  material  adverse
change in the business,  financial position,  results of operations or prospects
of the Borrower and its  Subsidiaries  considered as a whole since May 25, 1996,
notice thereof;

                  (n) (i)  promptly  and in any event  within 30 days  after the
filing  thereof with the Internal  Revenue  Service,  copies of each




<PAGE> 74

Schedule B (Actuarial  Information) to the annual report (Form 5500 Series) with
respect to each Plan;

                  (ii) promptly and in any event within  fifteen (15) days after
         the  Borrower  knows or has  reason to know  that any  ERISA  Event has
         occurred,  a statement of the chief  financial  officer of the Borrower
         describing such ERISA Event and the action, if any, which the Borrower,
         any  Subsidiary  or any ERISA  Affiliate of either of them  proposes to
         take with respect thereto;

                  (iii)  promptly  and in any  event  within  five (5)  Domestic
         Business Days after receipt  thereof by the Borrower or any  Subsidiary
         or any ERISA  Affiliates of either of them,  copies of each notice from
         the PBGC  stating  its  intention  to  terminate  any Plan or to have a
         trustee appointed to administer any Plan; and

                  (iv)  promptly  and in any  event  within  ten  (10)  Domestic
         Business Days after receipt  thereof by the Borrower or any  Subsidiary
         or any  ERISA  Affiliate  of  either  of them  from  the  sponsor  of a
         Multiemployer  Plan, a copy of each notice  received by the Borrower or
         any Subsidiary or any ERISA  Affiliate of either of them concerning (1)
         the imposition of Withdrawal Liability by a Multiemployer Plan, (2) the
         reorganization or termination, within the meaning of Title IV of ERISA,
         of any Multiemployer Plan or (3) the amount of liability  incurred,  or
         which may be incurred,  by the Borrower or any  Subsidiary or any ERISA
         Affiliate of either of them in connection  with any event  described in
         clause (1) or (2) above;

                  (o)  promptly  upon the  formation of any  Subsidiary,  notice
thereof;

                  (p)  promptly  upon the payment  (i) of each  tranche of loans
outstanding  under the Prudential Loan Agreement and (ii) of the obligations due
under the  Synthetic  Lease  Documents  allocated to individual  stores,  notice
thereof;

                  (q) promptly upon the release of any Liens or the satisfaction
or discharge of mortgages held by Prudential,  the certificate trustee under the
Synthetic Lease Documents or any other lenders, notice thereof;

                  (r)  promptly  upon  the  merger  of any  Subsidiary  into the
Borrower, notice thereof;

                  (s)  promptly  upon the  opening of any store or other  retail
location,  notice thereof and to the extent such store or other retail  location
is in a jurisdiction in which UCC-1 Financing Statements have not been delivered
to the Collateral Agent, promptly deliver executed UCC-1 Financing Statements on
forms then provided by the Collateral Agent to the Borrower;





<PAGE> 75

                  (t)  within  three  (3)  Domestic   Business  Days  after  any
amendment,  modification,  supplement  to or  waiver  of any  provisions  of the
Prudential Loan Agreement, the Senior Subordinated Note Indenture, the Synthetic
Lease Documents,  the GE Credit Program  Documents or the Merchandise  Letter of
Credit  Facility,  or any other  material  credit  arrangements,  notice thereof
(subject to any  restrictions  on disclosing the same in existence  prior to the
Closing  Date),  together  with a copy of each such  fully  executed  amendment,
modification, supplement or waiver;

                  (u) without limiting any of the Borrower's  other  obligations
to give notice under the Credit  Documents,  within fifteen (15) days of the end
of each fiscal quarter,  furnish to the Administrative  Agent and the Collateral
Agent a list of (i) all  After-Acquired  Property and  Vehicles  acquired by the
Borrower or any  Subsidiary  during such quarter,  (ii) all Trademarks for which
the Borrower or any Subsidiary has filed a registration  application during such
quarter and (iii) all  property  which  became  Available  Property  during such
quarter,  setting forth in each case the date of  acquisition  or filing thereof
and otherwise substantially in the form of Exhibit R, all certified by the chief
financial officer of the Borrower; and

                  (v)  from  time  to  time  with  reasonable  promptness,  such
additional information regarding the financial position,  credit arrangements or
business of the Borrower and its  Subsidiaries as the  Administrative  Agent, on
its own behalf or at the request of any Lender, may reasonably request.

                  SECTION 8.2 Payment of Obligations.  The Borrower will pay and
discharge,  and will cause each  Subsidiary to pay and  discharge,  at or before
maturity, all their respective material obligations and liabilities,  including,
without  limitation,  material  tax  liabilities,  except  where the same may be
contested in good faith by appropriate  proceedings  (and with respect to taxes,
only if the  failure  to make such  payment  shall  not  result in a Lien on any
Collateral  or such Lien will not  attach to any of the  Collateral  in a manner
which would have priority over the Lien of the Collateral  Agent thereon or risk
the sale of or foreclosure  on such  Collateral),  and will  maintain,  and will
cause the Borrower and each  Subsidiary to maintain,  in  accordance  with GAAP,
appropriate reserves for the accrual of any of the same.

                  SECTION  8.3  Maintenance  of  Property;  Insurance.  (a)  The
Borrower  will keep,  and will  cause  each  Subsidiary  to keep,  all  material
property  useful  and  necessary  in its  business  in good  working  order  and
condition, ordinary wear and tear excepted.

                  (b) The  Borrower  will  maintain,  and will cause each of its
Subsidiaries  to  maintain,  with  financially  sound  and  reputable  insurance
companies,  insurance on all its  property in at least such  amounts  (including
deductibles)  and against at least such risks as




<PAGE> 76

are usually insured against in the same general area by companies engaged in the
same or a similar business;  provided,  that such insurance shall (i) insure the
property  of the  Borrower  and its  Subsidiaries  (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 Administrative Agent, but in no event in an amount less than the replacement
cost  value  thereof,  and (ii)  insure  the  Borrower,  its  Subsidiaries,  the
Collateral Agent, the Administrative Agent and the other Secured Parties 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
and its Subsidiaries' property and operations,  such policies to be in such form
and amounts and having such  coverage as may be reasonably  satisfactory  to the
Administrative  Agent and the Collateral  Agent.  All such  insurance  shall (i)
contain  a breach  of  warranty  clause in favor of the  Collateral  Agent,  the
Administrative  Agent,  and the other  Secured  Parties 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 Administrative Agent thereof, (iii) name the
Administrative 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 (a) 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 (b) the
proceeds of any such physical  damage  insurance  shall be applied in the manner
set forth in Section 2.8(c)) and name the Collateral  Agent, the  Administrative
Agent and the  other  Secured  Parties  as  additional  insureds  for  liability
insurance,  with the  Administrative  Agent having the right to adjust the same,
(iv) state that neither the  Administrative  Agent nor the Collateral  Agent nor
any of the other Secured Parties shall be responsible for premiums, commissions,
club calls, assessments or advances, (v) shall contain a waiver of all rights of
set-off,  counterclaim,  deduction or subrogation  against the Collateral Agent,
the  Administrative  Agent  and the other  Secured  Parties  (vi) be  reasonably
satisfactory in all other respects (including deductibles) to the Administrative
Agent with respect to physical damage exposures.

                  (c) The  Borrower  will  furnish to the  Administrative  Agent
prior to the Closing  Date,  a schedule,  a copy of which is annexed as Schedule
IV,  describing all insurance  maintained by the Borrower and its  Subsidiaries,
which schedule shall set forth,  for each insurance  policy,  the policy number,
the scope of  coverage,  the policy  limits




<PAGE> 77

and deductibles,  the insurer (and reinsurers, if applicable) and the expiration
date.

                  (d) The  Borrower  will furnish to the  Administrative  Agent,
with a copy  for  the  Collateral  Agent,  original  certificates  of  insurance
complying  with  the  requirements  of this  Section  8.3 set  forth  above  and
containing  signatures of duly authorized  representatives of the insurer on the
Closing  Date  and at all  times  prior  to  policy  termination,  cessation  or
cancellation.

                  SECTION 8.4 Conduct of Business and  Maintenance of Existence.
The Borrower  will  continue,  and will cause each  Subsidiary  to continue,  to
engage in business of the same general type as now conducted by the Borrower and
its  Subsidiaries,  and will preserve,  renew and keep in full force and effect,
and,  except as  permitted by Section  8.11(g),  will cause each  Subsidiary  to
preserve,  renew and keep in full force and  effect,  its  respective  corporate
existence and its respective  rights,  privileges and franchises except for such
rights,  privileges and franchises when the failure of which to preserve,  renew
and keep in full force and effect  could not  reasonably  be  expected to have a
Materially Adverse Effect.

                  SECTION 8.5  Compliance  with Laws.  The Borrower will comply,
and  cause  each  Subsidiary  to  comply,  in all  material  respects  with  all
applicable   laws,   ordinances,   rules,   regulations,   and  requirements  of
Governmental Authorities (including, without limitation, ERISA) except where the
necessity of  compliance  therewith  is  contested in good faith by  appropriate
proceedings  and the  Borrower  or such  Subsidiary  have set aside on its books
adequate  reserves  (determined in accordance with GAAP) with respect thereto or
where the failure to comply therewith could not reasonably be expected to have a
Materially Adverse Effect.

                  SECTION 8.6  Inspection  of Property,  Books and Records.  The
Borrower  will keep,  and will cause each  Subsidiary  to keep,  proper books of
record and account in which full,  true and correct entries shall be made of all
dealings and  transactions in relation to its business and activities,  and will
permit,  and will cause each Subsidiary to permit,  upon notice to the Borrower,
representatives or designees of the Administrative  Agent or any Lender (at such
Lender's  expense  and upon  notice  to the  Administrative  Agent) to visit and
inspect any of the Borrower's or such  Subsidiary's  respective  properties,  to
examine and make abstracts from any of their respective books and records and to
discuss their  respective  affairs,  finances and accounts with their respective
officers,  employees and independent public accountants,  all at such reasonable
times and as often as may reasonably be desired.

                  SECTION 8.7 Restricted Payments. The Borrower will not declare
or make, or permit any Subsidiary,  to declare or make, any Restricted  Payment,
except:





<PAGE> 78

                  (i) (x) regular,  scheduled or mandatory payments or mandatory
         prepayments  of principal  and  interest on Debt for Borrowed  Money or
         equivalent  payments in respect of the Synthetic Lease Obligations (but
         as to  payments,  if  any,  of  principal  of and  interest  on  Senior
         Subordinated  Notes, only regularly  scheduled  payments thereof to the
         extent such payments are permitted,  if at all, under the subordination
         provisions of the Senior  Subordinated  Note  Indenture as in effect on
         the date of  execution  thereof  or as amended  with the prior  written
         consent  of the  Majority  Lenders)  and (y)  optional  prepayments  of
         principal  and interest on the  Prudential  Real Estate  Financing  and
         equivalent  payments in respect of the Synthetic Lease Obligations (but
         only to the extent of the net  proceeds  of any  Permitted  Refinancing
         Debt  incurred  for such purpose or the net proceeds of the sale of any
         property subject to the Synthetic Lease);

                  (ii) so long as there  shall not  exist a Default  or Event of
         Default,  the  payment  by the  Borrower  of cash in lieu of  shares of
         capital  stock of the  Borrower  upon  the  exercise  of stock  options
         pursuant to and in  accordance  with the 1988  Payless  Cashways,  Inc.
         Employee Stock Plan, the 1992 Payless Cashways  Incentive Stock Program
         and the Payless Cashways Director Option Plan in each case as in effect
         on the date hereof or as amended, modified or supplemented from time to
         time; provided, that the aggregate cash paid by the Borrower in lieu of
         shares of capital  stock of the  Borrower as  permitted  by this clause
         (ii) shall not exceed  $2,000,000  at all times  subsequent to November
         18, 1994;

                  (iii)  transactions  with  Affiliates  as expressly  permitted
under Section 8.15; and

                  (iv) payments to the Borrower by a Subsidiary.

                  SECTION  8.8 Debt.  The  Borrower  will not  incur,  assume or
suffer to exist,  or permit any Subsidiary to incur,  assume or suffer to exist,
any Debt, except:

                  (i) the Loans,  the  Letters of  Credit,  the Cash  Management
Obligations, the Hedging Obligations and the Foreign Exchange Obligations;

                  (ii) the Senior Subordinated Notes;

                  (iii) Debt secured by Liens permitted by Section 8.10;

                  (iv)  Debt  existing  on the  Closing  Date  as set  forth  on
         Schedule VIII and any Permitted  Refinancing Debt, but not the increase
         or refunding of such Debt in whole or in part, except to the extent the
         same constitutes Permitted Refinancing Debt;






<PAGE> 79

                  (v) Debt of the Borrower and its Subsidiaries as lessees under
          capital  leases,  to the extent  such  capital  leases  are  expressly
          permitted under Section 8.12;

                  (vi) up to $30,000,000 in merchandise letters of credit issued
         under the Merchandise Letter of Credit Facility; provided, that so long
         as the Documentary  Letter of Credit Commitment shall be in effect, the
         aggregate  amount of letters of credit  permitted to be  outstanding at
         any one time under the Merchandise  Letter of Credit Facility  pursuant
         to this  clause  (vi)  shall  be  reduced  by an  amount  equal  to the
         Documentary Letter of Credit Commitment as then in effect;

                  (vii) Debt incurred under the GE Credit Program  Documents and
         other agreements permitted under Section 8.16;

                  (viii)  Debt of the type  described  in  clause  (viii) of the
         definition  of "Debt" in Section 1.1 to the extent  that the  aggregate
         notional or face amount of all such Debt,  when taken together with all
         outstanding Hedging Obligations and Foreign Exchange Obligations,  does
         not exceed $36,500,000; and

                  (ix) Debt of the Borrower and its Subsidiaries  (not permitted
         by any of  clauses  (i)  through  (viii)  of  this  Section  8.8) in an
         aggregate  principal  amount not to exceed  $1,000,000  at any one time
         outstanding.

                  SECTION  8.9  Investments.  The  Borrower  will  not  make  or
acquire,  and will not permit any Subsidiary to make or acquire,  any Investment
in any Person, except:

                  (i)  Investments  existing on the Closing  Date in the capital
         stock of Subsidiaries;

                  (ii) Temporary Cash Investments; provided, however, that while
         any Loans or Letters of Credit are  outstanding or any  Commitments are
         in  effect  such  Investments  shall  not  exceed  $20,000,000  in  the
         aggregate  outstanding  at any one time and shall be  maintained at all
         times in an investment  account with a Lender  pursuant to arrangements
         which are consistent with the provisions of this Agreement;

                  (iii)   Investments  in  promissory  notes   representing  the
         non-cash purchase price for the sales of assets permitted under Section
         8.11; provided,  that such promissory notes are pledged by the Borrower
         to the Collateral Agent for the benefit of the Original Secured Parties
         pursuant to a Pledge Agreement Supplement, substantially in the form of
         Annex A to the Note Pledge Agreement;






<PAGE> 80

                  (iv)  Investments  existing on the date hereof as set forth on
         Schedule IX, but not any increase in the amount thereof;

                  (v) Civic or charitable type guarantees and Investments not to
         exceed at all times  subsequent  to  November  18,  1994,  $500,000  in
         aggregate amount;

                  (vi) Investments in the National Equity Fund;  provided,  that
         (A)  the tax  characteristics  of  investments  in  such  fund  are not
         materially less advantageous to the Borrower than such  characteristics
         are on the date hereof and (B) new Investments therein shall not exceed
         $1,100,000 in the aggregate during each calendar year;

             (vii) Minority  Investments,  in addition to those  permitted under
         any other  clause of this  Section 8.9;  provided,  that such  Minority
         Investments  are  acquired  pursuant  to  the  Business  Plan  and  the
         aggregate  amount of all such  Minority  Investments  shall not  exceed
         $5,000,000;

                  (viii)  Investments in Subsidiaries  created or acquired after
         the date hereof  pursuant to the Business  Plan in an aggregate  amount
         not to exceed $25  million  for all such  Subsidiaries  at any one time
         outstanding;  provided,  that the  related  shares of capital  stock or
         other equity  securities are pledged by the Borrower for the benefit of
         the Original Secured Parties pursuant to a Pledge Agreement Supplement,
         substantially  in the form of Annex II to the Stock  Pledge  Agreement,
         and the  Borrower  causes  each  such  Subsidiary  to  comply  with the
         requirements  of Section 8.22 (it being agreed that an  Investment in a
         Subsidiary  will  no  longer  be  deemed  to  be  outstanding  if  such
         Subsidiary is merged into the Borrower); and

                  (ix)  Investments (not permitted by any of clauses (i) through
         (viii) of this Section 8.9) in an amount not  exceeding  $1,000,000  in
         the aggregate outstanding at any one time; provided, that any shares of
         capital stock or other equity  securities or promissory  notes or other
         instruments  comprising such Investments are pledged by the Borrower to
         the Collateral  Agent for the benefit of the Original  Secured  Parties
         pursuant to a Pledge Agreement Supplement to the Stock Pledge Agreement
         or the Note Pledge Agreement, as the case may be.

                  SECTION 8.10  Negative  Pledge.  The Borrower will not create,
assume or suffer to exist, or permit any Subsidiary to create,  assume or suffer
to exist, any Lien on any asset now owned or hereafter acquired by it, except:

                  (i) Liens granted pursuant to the Security Documents, existing
         Liens set forth on  Schedule  X and Liens  granted in




<PAGE> 81

         connection with Permitted  Refinancing Debt but not any increase in the
         amount of the Debt  secured  thereby  (except for  increases  in amount
         constituting  Permitted  Refinancing  Debt and increases in the amounts
         secured by the Liens  relating to accounts  under the GE Credit Program
         Documents in accordance with the terms of such documents);

                  (ii) Liens for taxes,  assessments or governmental  charges or
         claims the payment of which is not at the time required by Section 8.2;

                  (iii)  Statutory  Liens of  landlords  and Liens of  carriers,
         warehousemen,  mechanics,  materialmen  and other Liens  imposed by law
         incurred in the ordinary course of business for sums not yet delinquent
         or being contested in good faith, if such reserve (or other appropriate
         provision,  if any) as shall be  required  by GAAP shall have been made
         therefor;

                  (iv) Liens (other than any Lien imposed by ERISA)  incurred or
         deposits  made in the ordinary  course of business in  connection  with
         workers' compensation, unemployment insurance and other types of social
         security,   or  to  secure  the   performance  of  tenders,   statutory
         obligations,  bids, leases, government contracts,  performance,  surety
         and return-of-money  bonds and other similar obligations  (exclusive of
         obligations for the payment of borrowed money);

                  (v) easements,  rights-of-way,  restrictions, minor defects or
         irregularities  in title and other similar  charges or  encumbrances on
         real  property  and  improvements  owned  by the  Borrower  or any such
         Subsidiary not  interfering  in any material  respect with the ordinary
         conduct of the  business  of the  Borrower or such  Subsidiary  at such
         property (it being understood  that, if requested by the Borrower,  the
         Collateral  Agent  may,  on terms and  conditions  satisfactory  to it,
         evidence its consent to Liens  permitted by this clause (v) on Property
         subject to Mortgages);

                  (vi) purchase money mortgages or other purchase money Liens or
         security  interests  granted by the Borrower or any of its Subsidiaries
         (including,  without  limitation,  capital  leases)  upon any  fixed or
         capital assets  hereafter  acquired,  so long as (i) any such mortgage,
         Lien or security  interest  does not extend to or cover any other asset
         of the  Borrower  or such  Subsidiary,  (ii)  such  security  interest,
         mortgage or Lien secures the  obligation  to pay the purchase  price of
         such asset (or the obligation under such capital lease) only, and (iii)
         the  aggregate  Debt secured by all such  purchase  money  mortgages or
         other  purchase money Liens or security  interests  (other than capital
         leases)  shall not exceed in the  aggregate  for the  Borrower  and its
         Subsidiaries $2,000,000 outstanding at any time;






<PAGE> 82

             (vii) in addition to other Liens permitted under this Section 8.10,
         Liens by the  Borrower  on its  partnership  interest  in the  National
         Equity Fund to secure the  Borrower's  investments  in such fund to the
         extent permitted under Section 8.9(vi);

            (viii) purchase money Liens by the Borrower or its Subsidiaries upon
         Inventory of the Borrower  and its  Subsidiaries  securing the purchase
         price therefor not to exceed $1,000,000 in unpaid purchase price in the
         aggregate for the Borrower and its Subsidiaries at any one time;

                  (ix) judgment  Liens,  but only to the extent that the related
         judgment does not constitute an Event of Default under Section  9.1(k);
         and

                  (x) Liens granted in accordance with the Merchandise Letter of
         Credit Facility to secure Debt outstanding thereunder.

                  SECTION 8.11 Consolidations,  Mergers and Sales of Assets. The
Borrower  will not, and will not permit any  Subsidiary  to (i)  consolidate  or
merge with or into any other Person or enter into a partnership or joint venture
with another Person;  provided, that the Borrower or any of its Subsidiaries may
acquire  interests in Minority  Investments  to the extent  permitted by Section
8.9, or (ii) sell, lease,  assign or otherwise transfer (whether  voluntarily or
involuntarily) all or any part of its assets except:

                  (a) sales of Inventory in the ordinary  course of business and
         customer  receivable sales pursuant to the GE Credit Program  Documents
         or any similar program entered into in accordance with Section 8.16;

                  (b) sales or transfers (not  permitted by any other  provision
         of this  Section  8.11) of any assets of the  Borrower  to any  Person;
         provided,  that (1) the sale price of each such asset shall not be less
         than the fair  market  value of such asset at the time of sale  thereof
         and, if the sale price thereof is equal to or greater than  $5,000,000,
         then the fair market  value of such asset shall be  determined  in good
         faith and approved by the Board of Directors of the Borrower, (2) prior
         to or  concurrently  with each  such  sale for which the sale  price is
         equal  to or  greater  than  $5,000,000,  the  Borrower  shall  deliver
         evidence to the  Administrative  Agent  satisfactory  to it of the fair
         market value at the time of sale of the asset being sold as  determined
         by the Board of Directors of the Borrower, (3) not less than 50% of the
         sale  price for each asset sold  pursuant  to this  clause (b) shall be
         payable in cash on the date of such sale,  (4) the non-cash  portion of
         the sale price  therefor,  if any,  shall be  evidenced  by one or more
         promissory  notes  maturing  no later than five years after the




<PAGE> 83

         date of such sale which  shall be pledged  to the  Collateral  Agent as
         provided  in  Section  8.9(iii)  or  (ix),  (5) no such  sale  shall be
         permitted  unless (x) the asset so sold shall be listed on  Schedule XI
         or shall be sold pursuant to a Permitted Pad Sale or (y) the sale price
         of the  asset so sold,  together  with  the  sale  price of all  assets
         (excluding  assets  described  in  subclause  (x)  immediately   above)
         previously  sold under this  clause (b) in the same  fiscal year of the
         Borrower in which such asset is being sold, shall not exceed $5,000,000
         and (6) if such sale is to an Affiliate it is made in  compliance  with
         Section 8.15;

                  (c) the  replacement  in the  ordinary  course of  business of
         rolling stock and equipment of the Borrower and its Subsidiaries;

                  (d) the sale or other disposition,  subject to the Lien of the
         Collateral  Agent,  by the Borrower to any of its  Subsidiaries  in the
         ordinary  course of business of machinery and equipment of the Borrower
         no longer  necessary for the proper conduct of the Borrower's  business
         having a value  together  with the value of all other  property  of the
         Borrower so sold or disposed of in the same fiscal year of the Borrower
         of not  greater  than  $5,000,000  and the sale or  other  disposition,
         subject to the Lien of the Collateral Agent, by the Subsidiaries to the
         Borrower in the ordinary  course of business of machinery and equipment
         of such Subsidiaries no longer necessary for the proper conduct of such
         Subsidiaries'  respective  businesses  having a value together with the
         value of all other property of such Subsidiaries so sold or disposed of
         in the same fiscal year of the Borrower of not greater than $5,000,000;

                  (e) the lease by the Borrower,  as lessor, of those stores and
         real estate  described  on  Schedule XI and other real  property of the
         Borrower not necessary for the operations of the Borrower or any of its
         Subsidiaries,  in each  instance  under  this  clause (e) having a fair
         market  value  of  not  greater  than   $7,000,000   individually,   or
         $40,000,000  in the  aggregate  at any one time  for all real  property
         leased  under this clause  (e);  provided,  that such  leases  shall be
         entered  into with a Person who is not an  Affiliate of the Borrower on
         an arms' length basis for fair  consideration and such leases shall not
         be capital leases;

                  (f)  the  merger  of any  wholly  owned  Subsidiary  into  the
         Borrower or the  consolidation  of any wholly owned Subsidiary with the
         Borrower in which the Borrower shall be the surviving corporation; and

                  (g) the  transfer  of a Property  acceptable  to the  Majority
         Lenders  in  their   judgment   reasonably   exercised   to  Paycap  in



<PAGE> 84

         substitution  for a  property  subject to the terms of any of the Capco
         Subleases;  provided, that, (i) at least fifteen (15) days prior to the
         proposed  transfer,  the Borrower  shall  furnish  current  independent
         appraisals  satisfactory to the Administrative  Agent which demonstrate
         that the value of the  Property  subject to a Mortgage  proposed  to be
         transferred  is  reasonably  equivalent  to the  value of the  property
         subject  to such  Capco  Sublease  and  (ii)  simultaneously  with  the
         transfer of such Property subject to a Mortgage, such Mortgage shall be
         released  and such  substituted  property  shall  become  an  Available
         Property  and  shall  be  subjected  to a  mortgage  or deed of  trust,
         substantially in the form of Exhibits G-1 and G-2,  respectively  (with
         such changes as may be deemed appropriate by the Administrative Agent's
         local real estate counsel for the state in question),  and the Borrower
         shall  otherwise  comply with its  obligations  under Section 8.28 with
         respect to such substituted Available Property.

                  The Borrower  shall deliver to the  Administrative  Agent,  no
less than three (3)  Domestic  Business  Days prior to the date of any  expected
sale or other disposition  permitted under clause (b) (but only if any such sale
or disposition  under such clause (b) has a sale price of $1,000,000 or more) or
clause (e) of this Section  8.11,  written  notice of the  expected  date of the
closing of such sale or other  disposition  and the expected  date of receipt by
the Borrower of the Net Cash Proceeds with respect thereto.

                  SECTION 8.12  Capital  Expenditures  and Leases.  The Borrower
will  not,  and  will  not  permit  any  of its  Subsidiaries  to,  directly  or
indirectly,  make any 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  8.10(vi)  and (y)
goodwill  associated  with any  capital  expenditure  that would  constitute  an
Investment  but for the  application  of clause  (i) of the  definition  of such
term),  and the Borrower will not incur any obligations in respect of, or permit
any of its  Subsidiaries to incur any obligations in respect of, capital leases,
in excess in the  aggregate for the Borrower and its  Subsidiaries  for all such
expenditures and obligations, of the following amounts during each of the fiscal
years set forth below:

                                             Total
                  Period                     Amount
                  ------                     ------

                  Fiscal year 1996
                  of the Borrower        $ 50,000,000

                  Fiscal year 1997
                  of the Borrower        $ 64,000,000



<PAGE> 85


                  Fiscal year 1998
                  of the Borrower        $ 81,000,000

                  Fiscal year 1999
                  of the Borrower        $100,000,000

                  Fiscal year 2000
                  of the Borrower        $ 59,000,000

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

                                    Dual Path
                                    Capital
         Period                     Expenditures               Other
         ------                     ------------               -----

         Fiscal year 1996
         of the Borrower            $13,000,000               $37,000,000

         Fiscal year 1997
         of the Borrower            $34,000,000               $30,000,000

         Fiscal year 1998
         of the Borrower            $51,000,000               $30,000,000

         Fiscal year 1999
         of the Borrower            $26,000,000               $74,000,000

         Fiscal year 2000
         of the Borrower            $9,000,000                $50,000,000.

             In the event that the  Borrower  or any of its  Subsidiaries  shall
sell, or shall receive 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 8.12,




<PAGE> 86

only that portion of the purchase price or capitalized  lease  obligation  paid,
incurred or accrued by the Borrower or such Subsidiary,  as the case may be, 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 8.12.


             Notwithstanding  anything to the contrary contained in this Section
8.12,  there shall be excluded from the  determination  of the amount of capital
expenditures made by the Borrower in any fiscal year, capital  expenditures made
during any such  fiscal  year to the  extent of an amount  equal to the Net Cash
Proceeds  received  during such fiscal year from any Permitted Pad Sales of real
property  acquired by the Borrower  after December 1, 1994. For purposes of this
Section 8.12, (i) all obligations incurred under a capital lease shall be deemed
to have been incurred on the date of execution of such lease and (ii) the amount
of  obligations  incurred  with  respect  to a  capital  lease  on such  date of
execution of the lease shall be the  capitalized  amount  thereof  determined in
accordance with GAAP.

                  SECTION 8.13 No Negative  Pledges.  The Borrower will not, and
will not permit any Subsidiary to, enter into any agreements (a) prohibiting (or
resulting  in a default as a result of) the creation or  assumption  of any Lien
upon the  properties  or assets of the  Borrower or any of its  Subsidiaries  in
favor of the Collateral  Agent for the benefit of the Secured Parties (or any of
them), except for restrictions contained in any lease prohibiting the mortgaging
of such lease or of the property leased  thereunder if either (i) such lease has
a fair market  value on the date of execution  thereof of less than  $100,000 or
(ii) the Borrower or such  Subsidiary  shall have in good faith used  reasonable
efforts to obtain the agreement of the lessor that is a party thereto to exclude
such  restrictions  from such lease and such  lessor  shall  have  refused so to
agree,  (b) requiring  that the Borrower or any  Subsidiary  also secure another
obligation  (other  than any of the Secured  Obligations)  if any of the Secured
Obligations are further secured or (c) restricting the ability of any Subsidiary
to (i) pay  dividends or make capital  distributions  to the Borrower or another
Subsidiary,  (ii) make  Investments  in the Borrower or any  Subsidiary or (iii)
repay Investments by the Borrower or another Subsidiary in such Subsidiary.

                  SECTION 8.14  Termination of Plans. The Borrower will not, and
will not permit any  Subsidiary to take any action to terminate any of its Plans
which could result in a material  liability of the Borrower or any Subsidiary to
any Person.

                  SECTION 8.15 Transactions  with Affiliates.  The Borrower will
not, and will not permit any Subsidiary to,  directly or indirectly,  enter into
any  transaction,  whether or not in the




<PAGE> 87

ordinary  course  of  business,  with any  Affiliate  other  than on  terms  and
conditions at least as favorable to the Borrower, or the affected Subsidiary, as
those  that  would be  obtained  through  an arms'  length  negotiation  with an
unaffiliated third party.

                  SECTION 8.16 Customer Charge Sales. The Borrower will continue
to  maintain  a  "Project  Card" and  commercial  credit  receivables  sales and
administration  program  with  Monogram  Credit Card Bank of Georgia and General
Electric Capital  Corporation  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,  no less
favorable to the Borrower and no more restrictive than those provided for in the
GE Credit Program Documents as in effect on the Closing Date.

                  SECTION 8.17  Accounting  Changes.  The Borrower will not, and
will not permit any of its Subsidiaries  to, make any significant  change in its
accounting  treatment or  financial  reporting  practices  except as required by
GAAP.  The Borrower will not change its fiscal year or the method of determining
its fiscal quarter ends.

                  SECTION 8.18 Amendment and Modification of Certain  Documents.
(a) The Borrower shall not, directly or indirectly,  amend, modify,  supplement,
waive compliance with, or assent to noncompliance with, (i) any term,  provision
or  condition of the Restated  Articles of  Incorporation  of the Borrower as in
effect on the Closing  Date or (ii) any term,  provision  or condition of any of
the documents governing or evidencing the Senior Subordinated Notes as in effect
on the Closing Date which,  (A) in the case of either clause (i) or clause (ii),
the Administrative Agent deems material (including,  without limitation,  terms,
provisions or conditions  relating to events of default,  acceleration rights or
other remedies,  interest rates, tenor, subordination,  covenants,  prohibitions
against  amending the Credit  Documents and the definitions with respect thereto
(including,  without  limitation,   definitions  of  "Senior  Indebtedness"  and
"Permitted  Indebtedness") or (B) in the case of clause (ii), places any further
restrictions on the Borrower or its Subsidiaries or increases the obligations of
the Borrower thereunder or confers on the holders thereof any additional rights.
The  Administrative  Agent and the  Lenders  agree that if any of the  documents
governing or evidencing the Senior Subordinated Notes must comply with the Trust
Indenture Act of 1939 and the SEC requires that certain  changes be made to such
documents to comply with such  statute,  then such changes shall be permitted so
long as (A) such changes do not relate to covenants,  events of default,  tenor,
acceleration   rights  or  other  remedies,   interest   rates,   subordination,
prohibitions  against  amending  the Credit  Documents or the  definitions  with
respect  thereto  (including,   without   limitation,   definitions  of  "Senior
Indebtedness"  and




<PAGE> 88

"Permitted  Indebtedness")  and  (B)  such  changes  do not  place  any  further
restrictions on the Borrower or its  Subsidiaries or increase the obligations of
the Borrower thereunder or confer on the holders thereof any additional rights;

                  (b) The Borrower shall not, and shall not permit or suffer any
Subsidiary  to,  directly  or  indirectly,   amend,  modify,  supplement,  waive
compliance  with,  or assent to  noncompliance  with,  any  term,  provision  or
condition  of the  Prudential  Loan  Agreement  or any  of the  other  documents
governing or evidencing the Prudential Real Estate Financing as in effect on the
Closing  Date  hereof  (A)  which  the   Administrative   Agent  deems  material
(including,  without  limitation,  terms,  provisions or conditions  relating to
events of default, acceleration rights or other remedies, tenor, interest rates,
substitution of collateral, the non-recourse nature of such financing, covenants
and  prohibitions  against  amending  the  Credit  Documents)  or (B)  which the
Administrative  Agent  reasonably  determines  would place any further  material
restrictions  on the Borrower or its  Subsidiaries  or  materially  increase the
obligations of the Borrower or any of its  Subsidiaries  thereunder or confer on
the holders thereof any material additional rights; and

                  (c) The Borrower shall not, and shall not permit or suffer any
Subsidiary  to,  directly  or  indirectly,   amend,  modify,  supplement,  waive
compliance with or assent to noncompliance with any term, provision or condition
of the Synthetic  Lease Documents as in effect on the Closing Date (A) which the
Administrative  Agent deems  material  (including,  without  limitation,  terms,
provisions or conditions relating to covenants, events of default,  acceleration
rights or other  remedies,  substitution of collateral,  interest rates,  tenor,
prohibitions against amending the Credit Documents or requiring prepayments with
respect to store  closings)  or (B) which the  Administrative  Agent  reasonably
determines would place any further material  restrictions on the Borrower or its
Subsidiaries  or increase the  obligations  of the Borrower or its  Subsidiaries
thereunder or confers on the holders thereof any material additional rights.

                  SECTION 8.19 Sale/Lease-Backs. The Borrower will not, and will
not  permit  any  Subsidiary  to,  enter  into  any  arrangements,  directly  or
indirectly,  with any Person,  whereby the Borrower or any such Subsidiary 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 8.20 Environmental Matters. (a) The Borrower will not,
and will not permit any of its  Subsidiaries  to,  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  neither the Borrower nor
any of its




<PAGE> 89

Subsidiaries  has any  control  (such as a lease of a small  number  of  parking
places in a large parking lot)) by the Borrower or any of its Subsidiaries  (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 or such  Subsidiary's  control) permit any other Person to
do so,  where such could  reasonably  be expected to have a  Materially  Adverse
Effect.

                  (b) The Borrower  shall keep and maintain and shall cause each
Subsidiary  to  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.

                  (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 or any of its  Subsidiaries  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,  the
Borrower or such Subsidiary (i) shall promptly notify the  Administrative  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  Administrative  Agent  with the  results  of such  investigations,
studies and samplings as may be requested by the Administrative Agent.

                  (d) The Borrower will defend,  indemnify and hold harmless the
Administrative Agent, the Collateral Agent, the Co-Agents,  the Letter of Credit
Bank 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 any Subsidiary 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




<PAGE> 90

effect  regardless  of the  termination  of this  Agreement  and the payment and
performance  of the  Bank  Obligations.  Without  limiting  the  foregoing,  the
agreements  contained in Section 8.22(d) of the Existing Credit  Agreement shall
continue in full force and effect as to the matters covered thereby.

                  (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,  industrial hygiene,  or the environmental  conditions on,
under or about the Property, 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 Administrative  Agent determines that any
representation  hereunder  may be  incorrect  or that the Borrower has failed to
comply with any covenant  under this Section 8.20 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
Administrative Agent may request.

             SECTION 8.21 Business Segments. The Borrower will not, and will not
permit any Subsidiary to, (i) suspend the operation of a segment material to the
operation  of its  business  as  presently  conducted,  which  suspension  could
materially impair the operations of the Borrower and its Subsidiaries taken as a
whole;  or (ii) engage at any time in any  business or business  activity  other
than the business currently conducted by it and business  activities  reasonably
incidental thereto.

             SECTION  8.22  Subsidiaries;  Subsidiary  Guarantees  and  Security
Agreements.  The  Borrower  will  use its best  efforts  to  conduct  all of its
business,  to the extent feasible,  through a single corporate entity (i.e., the
Borrower)  and  to  avoid  the  formation  or   acquisition   of   Subsidiaries.
Notwithstanding the foregoing, in the event that the Borrower determines that it
is in its best interest to form or acquire a Subsidiary,  the Borrower  will, in
addition to complying with the  requirements  of Section  8.9(viii),  cause such
Subsidiary  to be  wholly-owned,  to have




<PAGE> 91

aggregate  net payables  owing to the Borrower of less than  $10,000,000  at all
times and to execute and deliver to the Collateral  Agent for the benefit of the
Secured Parties a guarantee,  substantially in the form of Exhibit E, a security
agreement  granting   collateral   security  for  the  guaranteed   obligations,
substantially in the form of Exhibit F, and such other documents and opinions in
connection  therewith as the Administrative  Agent shall reasonably request, all
in form and substance  satisfactory to the Administrative Agent. Such guarantee,
security agreement and such other documents shall be delivered to the Collateral
Agent no later  than 30 days after the date on which  such  Subsidiary  has been
formed or otherwise acquired by the Borrower.

             SECTION 8.23 Further  Assurances.  The Borrower  shall, at its cost
and expense, upon request of the Administrative Agent, duly execute and deliver,
or cause to be duly executed and delivered,  such further instruments and do and
cause to be done such  further  acts as may be  necessary  or  desirable  in the
opinion  of the  Administrative  Agent  or its  counsel  to give  effect  to the
provisions and purposes of this Agreement and the other Credit Documents.

                  SECTION 8.24 EBITDAR. The Borrower shall not permit EBITDAR on
the last day of any fiscal  quarter of the Borrower  ending during any month set
forth below,  to be less than the amounts set forth  opposite such dates for the
four consecutive fiscal quarters then ending:

                                          EBITDAR
                Month                     Amount
                -----                     ------

                November 1996             $150,000,000
                February 1997              148,000,000
                May 1997                   138,300,000
                August 1997                133,000,000
                November 1997              135,500,000
                February 1998              137,650,000
                May 1998                   142,350,000
                August 1998                147,500,000
                November 1998              152,500,000
                February 1999              154,650,000
                May 1999                   159,350,000
                August 1999                164,500,000
                November 1999              169,500,000
                February 2000              171,950,000
                May 2000                   177,500,000
                August 2000                183,600,000.

                  SECTION 8.25 Debt to EBITDAR  Ratio.  The  Borrower  shall not
permit  the Debt to  EBITDAR  Ratio to be  more,  on the last day of any  fiscal
quarter of the Borrower ending during any month set forth below,  than the ratio
set forth opposite the applicable month below:





<PAGE> 92

                Month                     Ratio
                -----                     -----

                November 1996             4.61 to 1.00
                February 1997             4.65 to 1.00
                May 1997                  4.95 to 1.00
                August 1997               5.11 to 1.00
                November 1997             4.97 to 1.00
                February 1998             4.85 to 1.00
                May 1998                  4.64 to 1.00
                August 1998               4.44 to 1.00
                November 1998             4.23 to 1.00
                February 1999             4.15 to 1.00
                May 1999                  4.00 to 1.00
                August 1999               3.86 to 1.00
                November 1999             3.70 to 1.00
                February 2000             3.63 to 1.00
                May 2000                  3.49 to 1.00
                August 2000               3.36 to 1.00.

                  SECTION  8.26  Swingline  Compliance  Certificate.  During any
period in which any  Swingline  Loans are  outstanding,  on the second  Domestic
Business  Day of the first  and third  full  weeks of each  fiscal  month of the
Borrower, the Borrower shall deliver to the Administrative Agent and each Lender
a Swingline  Compliance  Certificate,  certifying that the Borrower continues to
maintain Required Inventory.

                  SECTION  8.27   Independence   of  Covenants.   All  covenants
hereunder shall be given  independent  effect so that if a particular  action or
condition is not permitted by any of such  covenants,  the fact that it would be
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not avoid the occurrence of a Default or Event of Default if such
action is taken or condition exists.

                  SECTION 8.28 Available and After-Acquired  Properties.  If any
real  property,  buildings,  fixtures  or  improvements  owned or  leased by the
Borrower or any Subsidiary  become  Available  Property,  or the Borrower or any
Subsidiary  acquires  any  interest  in  any  real  property  including  without
limitation  a  leasehold   interest   (each  such   property  or  interest,   an
"After-Acquired  Property"),  the Borrower  shall, as soon as practicable but in
any event within 30 days,  provide written notice thereof to the  Administrative
Agent,  setting forth with specificity a description of the property or interest
acquired, the location of the Available Property or After-Acquired  Property, as
the case may be, any structures or improvements  thereon and an appraisal or its
good faith  estimate  of the  current  fair  market  value of such  property  or
interest.  The  Administrative  Agent shall  provide  notice to the  Borrower of
whether it intends to direct the Borrower or the relevant  Subsidiary  (and,  if
requested by the Majority  Lenders,  the  Administrative  Agent shall direct the
Borrower or the relevant  Subsidiary)  to grant and record




<PAGE> 93

a  mortgage  or deed of  trust  on such  Available  Property  or  After-Acquired
Property, as applicable.  In such event, the Borrower or the relevant Subsidiary
shall  promptly  execute and deliver to the  Administrative  Agent a mortgage or
deed of trust  substantially  in the form of Exhibits G-1 and G-2,  respectively
(with such changes as may be deemed  appropriate by the  Administrative  Agent's
local real estate  counsel for the state in question),  together with such other
documents or instruments as the Administrative  Agent shall reasonably  require,
including (without limitation) a Title Policy, a Survey, a Phase I environmental
report and an opinion of the  Administrative  Agent's local real estate counsel.
The Borrower shall pay all reasonable  fees and expenses,  including  attorneys'
fees and expenses or the allocated cost of the Agent's internal counsel, and all
title insurance  charges and premiums,  in connection with its obligation  under
this Section  8.28.  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  or any  Subsidiary,  shall for any  reason no longer
prevent  such further  mortgaging,  then such  property  shall also be deemed an
Available  Property or an  After-Acquired  Property for purposes of this Section
8.28.

                  SECTION  8.29  Maintenance  of  Cash  Management  System.  The
Borrower will maintain  and, to the extent  practicable,  will cause each of its
Subsidiaries to maintain,  all of its significant  operating accounts and demand
deposit  accounts used for paying and receiving  purposes in the ordinary course
of its business  with the New Cash  Management  Bank,  any of the Existing  Cash
Management Banks, any of the Lenders which is a commercial bank or any Affiliate
of any Lender which is a commercial bank or any other commercial bank acceptable
to the Administrative Agent and the Majority Lenders, in each case, which agrees
to be bound by the terms of this  Agreement in writing.  In connection  with the
foregoing, the Borrower will, to the extent practicable, cause substantially all
of its available  operating  funds to be  concentrated,  on a daily basis,  in a
concentration  account which shall at all times be maintained  with the New Cash
Management Bank.

                  SECTION 8.30 Rent Obligations. The Borrower will not create or
permit,  and will not permit any Subsidiary to create or permit, any obligations
for the payment of rent or  occupancy  of  premises  with  respect to  operating
leases in the  aggregate  for the Borrower and its  Subsidiaries,  in any fiscal
year of the  Borrower  set forth  below in an amount in excess of the amount set
forth opposite such fiscal year:

                           Fiscal Year               Rent
                           -----------               ----

                           1996                      $33,000,000
                           1997                      $37,500,000
                           1998                      $39,500,000
                           1999                      $41,500,000





<PAGE> 94

                           2000                      $43,500,000;

provided,  that in the event the Synthetic Lease  Obligations  shall at any time
constitute  capital lease  obligations,  or any stores  subject to the Synthetic
Lease Documents (other than the stores located in St. Cloud,  Minnesota and Lake
Jackson,  Texas) are sold,  the  amounts set forth above shall be reduced by the
amount of rent (or the relevant  portion  thereof)  payable  under the Synthetic
Lease Documents subsequent to such event.

                  SECTION 8.31 Lender  Meetings.  From time to time as requested
by the  Administrative  Agent  or  the  Majority  Lenders,  the  Borrower  shall
participate,  and cause the chief  financial  officer to be available for and to
participate  in, a meeting  of the  Administrative  Agent and the  Lenders to be
held,  at  reasonable  intervals,  at  locations  and at times  requested by the
Administrative Agent and the Majority Lenders and reasonably satisfactory to the
Borrower.

                  SECTION  8.32 Post  Closing  Matters.  (a) To the  extent  any
Mortgages,  Surveys or Title  Policies were not delivered to the  Administrative
Agent on the Closing  Date with  respect to each  Available  Property  listed on
Schedule  III,  the  Borrower  shall cause such  Mortgages  to be  executed  and
delivered in recordable form for filing in the  appropriate  filing or recording
offices within fifteen days of the Closing Date and shall cause any  outstanding
Surveys and Title Policies to be delivered to the Administrative Agent within 60
days of the Closing Date or such longer  period not to exceed an  additional  30
days to which the  Administrative  Agent may  consent.  All Title  Policies  and
Surveys  must  be  reasonably  acceptable  to the  Administrative  Agent  in all
respects.

                  (b) To the extent that any title  certificates  for any of the
Borrower's  Vehicles  were  not  delivered  to the  Administrative  Agent on the
Closing  Date,  the  Borrower  shall  submit  to  the  appropriate  Governmental
Authority,  within 30 days of the Closing Date,  all required  documentation  to
enable such Governmental  Authority to issue to the Administrative Agent a title
certificate including reference to the lien of the Collateral Agent.

                  (c) The Borrower shall cause its cash management  arrangements
with the New Cash Management Bank to be fully  implemented and operational on or
before January 1, 1997.

                  (d) To the extent that the Borrower shall not have delivered a
current  Phase I  environmental  report with respect to any  Available  Property
listed on Schedule III, upon the Administrative  Agent's reasonable request, the
Borrower,  at its  expense,  will  cause such a report to be  prepared  and will
deliver the same to the Administrative Agent within 30 days of such request.






<PAGE> 95

                  (e) To the extent that the Borrower  shall not have  delivered
all of the documentation  required by Section 6.2(n) to the Administrative Agent
on the Closing Date,  the  Administrative  Agent may allow the Borrower up to an
additional twenty days to deliver the same.

                               SECTION 9. DEFAULTS

                  SECTION 9.1 Events of Default. If one or more of the following
events (each an "Event of Default") shall have occurred and be continuing:

                  (a) the Borrower  shall fail to pay when due any  principal of
         or interest on any Loan or any  Reimbursement  Obligation,  any fees or
         any other amount payable hereunder (including,  without limitation, any
         prepayments required to be made by Section 2.8) or under the Notes, the
         Applications, the Security Documents or the Fee Letter;

                  (b) (i) the Borrower or any  Subsidiary  shall fail to observe
         or perform any  covenants  contained  in Sections  8.7 through  8.14 or
         Sections 8.19,  8.24,  8.25,  8.28 or 8.30 or (ii) after written notice
         thereof has been given to the Borrower by the Administrative Agent, the
         Borrower  or  any   Subsidiary   shall   remain  in  violation  of  the
         requirements  of any other covenant  contained in Section 8 (other than
         Sections 8.1(a) and (b), 8.2, 8.3(a), 8.4, 8.6, 8.16, 8.18, 8.26, 8.29,
         8.31 or 8.32), or shall remain in violation of the  requirements of any
         covenant  contained in Sections  8.1(a) or (b), 8.21,  8.26 or 8.29 for
         five days,  or shall  remain in violation  of the  requirements  of any
         covenant  contained in Sections  8.3(a),  8.6, or 8.32 for ten days, or
         shall remain in violation of the requirements of any covenant contained
         in Sections 8.16 or 8.18 for fifteen days, or shall remain in violation
         of the  requirements of any covenant  contained in Sections 8.2, 8.4 or
         8.31 for 30 days;

                  (c)  after  written  notice  thereof  has  been  given  to the
         Borrower by the  Administrative  Agent, the Borrower or any Subsidiary,
         as the case may be, shall remain in  violation of the  requirements  of
         any covenant or agreement contained in this Agreement (other than those
         covered by clause (a) or (b) above) or in any other Credit Document for
         30 days;

                  (d) any representation,  warranty,  certification or statement
         made by the Borrower or any of its Subsidiaries in this Agreement,  any
         other Credit  Document or in any  certificate,  financial  statement or
         other document delivered pursuant to this Agreement shall prove to have
         been incorrect in any material respect when made (or deemed made);






<PAGE> 96

                  (e) the  Borrower  or any  Subsidiary  shall  fail to make any
         payment in respect of any Debt  aggregating  $3,000,000  or more (other
         than the Notes) when due or within any  applicable  grace period or any
         event or condition shall occur which results in the acceleration of the
         maturity of any Debt aggregating  $3,000,000 or more of the Borrower or
         any Subsidiary or the termination of any commitment to lend any Debt or
         enables (or, with the giving of notice or lapse of time or both,  would
         enable) the holder of such Debt or any Person  acting on such  holder's
         behalf to accelerate  the maturity  thereof or terminate any commitment
         to lend such Debt;

                  (f) the Borrower or any Subsidiary  shall commence a voluntary
         case or other proceeding seeking  liquidation,  reorganization or other
         relief  with  respect  to  itself or its  debts  under any  bankruptcy,
         insolvency  or other  similar law now or hereafter in effect or seeking
         the appointment of a trustee, receiver, liquidator,  custodian or other
         similar  official of it or any  substantial  part of its  property,  or
         shall  consent to any such  relief or to the  appointment  of or taking
         possession  by any  such  official  in an  involuntary  case  or  other
         proceeding commenced against it, or shall make a general assignment for
         the benefit of creditors,  or shall become unable, admit in writing its
         inability  or fail  generally  to pay its debts as they  become due, or
         shall take any corporate action to authorize any of the foregoing;

                  (g) an involuntary case or other proceeding shall be commenced
         against  the   Borrower   or  any   Subsidiary   seeking   liquidation,
         reorganization  or other  relief with  respect to it or its debts under
         any  bankruptcy,  insolvency  or other  similar law now or hereafter in
         effect or seeking the appointment of a trustee,  receiver,  liquidator,
         custodian or other similar  official of it or any  substantial  part of
         its  property,  and such  involuntary  case or other  proceeding  shall
         remain  undismissed  and unstayed for a period of 60 days;  or an order
         for relief  shall be entered  against the  Borrower  or any  Subsidiary
         under the federal bankruptcy laws as now or hereafter in effect;

                  (h) any ERISA Event shall have occurred with respect to a Plan
         and, 30 days after notice of such  occurrence  shall have been given to
         the  Borrower  by the  Administrative  Agent (i) such ERISA Event shall
         still exist and (ii) the sum  (determined  as of the date of occurrence
         of  such  ERISA  Event)  of the  Insufficiency  of  such  Plan  and the
         Insufficiency of any and all other Plans with respect to which an ERISA
         Event  shall have  occurred  and then exist (or,  in the case of a Plan
         with respect to which an ERISA Event described in clauses (b), (c), (e)
         and (f) of the  definition  of ERISA Event shall have occurred and then
         exist,  the  liability  related  thereto)  is equal to or greater  than
         $3,000,000;





<PAGE> 97

                  (i) the Borrower, any Subsidiary or any ERISA Affiliate of any
         of them shall have been notified by the sponsor of a Multiemployer Plan
         that it has incurred Withdrawal Liability to such Multiemployer Plan in
         an amount which,  when aggregated with all other amounts required to be
         paid to  Multiemployer  Plans by the  Borrower,  any  Subsidiary or any
         ERISA Affiliate of any of them as Withdrawal  Liability  (determined as
         of the  date of such  notification),  exceeds  $5,000,000  or  requires
         payments exceeding $2,000,000 per annum;

                  (j) the Borrower, any Subsidiary or any ERISA Affiliate of any
         of them 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,  the  Subsidiaries  and the ERISA Affiliates of any of
         them to all  Multiemployer  Plans which are then in  reorganization  or
         being  terminated  have been or will be  increased  over the  aggregate
         amounts contributed to such Multiemployer Plans for the respective plan
         year of each such  Multiemployer  Plan  immediately  preceding the plan
         year in which the  reorganization  or  termination  occurs by an amount
         exceeding $2,000,000;

                  (k) one or more  judgments  or orders for the payment of money
         in an  aggregate  amount  in  excess of  $5,000,000  shall be  rendered
         against the Borrower or any Subsidiary and such judgment(s) or order(s)
         shall continue  unsatisfied and unstayed for a period of 20 days or one
         or more  attachments  or executions  against any of the property of the
         Borrower  or any  Subsidiary  for an  aggregate  amount  in  excess  of
         $5,000,000  shall  remain  unstayed or  undismissed  for a period of 20
         days;

                  (1) this Agreement or any of the Credit  Documents shall cease
         for any reason to be in full  force and effect  other than by reason of
         any action or  inaction of the  Collateral  Agent,  the  Administrative
         Agent or the Lenders, or the security interests created by the Security
         Documents  shall cease to be enforceable or shall not have the priority
         purported  to be  created  thereby in each case  subject  only to Liens
         permitted to exist under Section 8.10 and as otherwise  contemplated by
         the Credit Documents or the Borrower or any of its  Subsidiaries  shall
         assert any of the foregoing;

                  (m) there shall occur the loss, theft,  substantial  damage to
         or destruction of any property of the Borrower or its  Subsidiaries not
         fully covered by insurance,  which by itself or with other such losses,
         thefts,  damages or destructions could reasonably be expected to render
         the  Borrower  unable  to  perform  any  of  its  material  obligations
         hereunder or under the other Credit Documents, or there shall occur the
         exercise  of the




<PAGE> 98

         right  of  condemnation  or  eminent  domain  for any  property  of the
         Borrower  or its  Subsidiaries  which  by  itself  or with  other  such
         exercises  of  the  right  of  condemnation  or  eminent  domain  could
         reasonably  be  expected to render the  Borrower  unable to perform its
         obligations hereunder or under the other Credit Documents; or

                  (n)      a Change of Control shall have occurred;

then,  and in every such  event,  the  Administrative  Agent (i)  shall,  at the
request  of the  Required  Lenders,  by notice to the  Borrower,  terminate  the
Commitments  and they shall thereupon  terminate,  (ii) shall, at the request of
the Required  Lenders,  by notice to the Borrower,  declare the Notes  (together
with accrued interest thereon) and all other Bank Obligations and liabilities of
the Borrower hereunder and under the other Credit Documents (including,  without
limitation, all amounts of L/C Obligations,  whether or not the beneficiaries of
the then  outstanding  Letters of Credit  shall  have  presented  the  documents
required  thereunder)  to be, and the Notes and all other Bank  Obligations  and
liabilities  of the  Borrower  hereunder  and under the other  Credit  Documents
(including,  without limitation, all amounts of L/C Obligations,  whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required  thereunder) shall thereupon become,  immediately due and
payable as if the Letters of Credit had been drawn in full, without presentment,
demand,  protest or other notice of any kind,  all of which are hereby waived by
the  Borrower,  (iii) as to any and all amounts then due  hereunder or under the
other Credit Documents  (whether by acceleration or otherwise),  may, and at the
request of the Required Lenders shall, set off or cause to be set off amounts in
any account  maintained with any Lender or otherwise  enforce rights against any
of the  Collateral  in the  possession  of any  Secured  Party  (other  than the
Merchandise Letter of Credit Bank), (iv) may, and at the request of the Required
Lenders shall,  enforce  against any of the other  Collateral any and all rights
and remedies  under the Credit  Documents or applicable  law and (v) may, and at
the request of the Required Lenders shall, exercise any and all other rights and
remedies under the Credit  Documents or applicable law;  provided,  that without
any notice to the Borrower or any other act by the  Administrative  Agent or the
Lenders,  in the case of the  occurrence  of (x) any of the  Events  of  Default
specified  in clause (f) or (g) above with respect to the  Borrower,  (y) any of
the  Events of  Default  specified  in  clause  (e) above  with  respect  to the
Prudential Real Estate Financing as to which Prudential  either  accelerates the
maturity of any of the Debt owing by the Borrower or any of its  Subsidiaries to
Prudential  with  respect  thereto or otherwise  exercises  any of its rights or
remedies to liquidate,  realize or foreclose upon any  collateral  securing such
Debt,  or (z) any of the  Events of Default  specified  in clause (e) above with
respect to the Synthetic  Lease  Documents as to which the Synthetic Lease Banks
or the  certificate  trustee  thereunder  accelerate the maturity of any amounts
owing by the Borrower to such




<PAGE> 99

certificate  trustee or by such certificate trustee to the Synthetic Lease Banks
with  respect  thereto  or  otherwise  exercise  any of their or its  rights  or
remedies to liquidate,  realize or foreclose upon any  collateral  securing such
Debt, the  Commitments  shall  thereupon  terminate and the Notes (together with
accrued interest  thereon) and all other Bank Obligations and liabilities of the
Borrower  hereunder  and under the other Credit  Documents  (including,  without
limitation, all amounts of L/C Obligations,  whether or not the beneficiaries of
the then  outstanding  Letters of Credit  shall  have  presented  the  documents
required  thereunder) shall become immediately due and payable as if the Letters
of Credit had been drawn in full without presentment,  demand,  protest or other
notice of any kind, all of which are hereby waived by the Borrower.

                  With  respect to all Letters of Credit  with  respect to which
presentment  for honor shall not have  occurred  at the time of an  acceleration
pursuant to the preceding paragraph,  the Borrower shall at such time deposit in
a cash collateral  account  maintained with the Collateral Agent an amount equal
to 103% of the aggregate  then undrawn and unexpired  amount of all such Letters
of Credit.  Amounts held in such cash collateral account shall be applied by the
Administrative  Agent to the  reimbursement  of all  amounts  drawn  under  such
Letters of Credit and the  payment of all other  amounts  due in respect of such
Letters of Credit,  and the unused  portion  thereof  after all such  Letters of
Credit shall have expired or been fully drawn upon, if any,  shall be applied to
repay other Bank  Obligations of the Borrower  hereunder and under the Notes and
the other Credit Documents.  After all such Letters of Credit shall have expired
or been  fully  drawn  upon,  all  Reimbursement  Obligations  shall  have  been
satisfied  and all other  obligations  of the Borrower  hereunder  and under the
Notes and the other Credit Documents shall have been performed and paid in full,
the balance,  if any, in such cash  collateral  account shall be returned to the
Borrower.

                  SECTION  9.2  Application  of  Proceeds.  (a) If an  Event  of
Default shall have occurred and be  continuing,  the proceeds of the  Additional
Collateral  and all other  payments  received  under this Agreement or the other
Credit  Documents  (including as a result of or in connection  with a proceeding
under  the  United  States  Bankruptcy  Code  or any  other  similar  state  law
proceeding involving the Borrower) which do not constitute identifiable proceeds
of Original  Collateral shall be applied by the Administrative  Agent to payment
of the Secured Obligations in the following order:

                  (i) FIRST, to payment of all  unreimbursed  costs and expenses
         of the  Administrative  Agent or the Collateral Agent which are payable
         by  the  Borrower  pursuant  to any of the  Credit  Documents  and  all
         unreimbursed  costs and  expenses  of the  Lenders  which  are  payable
         pursuant to Section 11.3;

                  (ii)  SECOND,  to  payment  first of the  accrued  and  unpaid
         interest  on,  next the  principal  of and then all other  amounts




<PAGE> 100

         due under,  the Credit  Documents in respect of the Swingline Loans and
         any New Cash Management Obligations remaining unpaid after the exercise
         of any  set-off  rights  available  to the  New  Cash  Management  Bank
         pursuant to Section 11.4,  such payment to be made ratably  amongst the
         Swingline  Lenders and the New Cash  Management Bank in accordance with
         the proportion which the aggregate  principal amount of the outstanding
         Swingline Loans owing to the Swingline Lenders at the time bears to the
         principal  amount of such New Cash Management  Obligations,  until such
         interest, principal and other amounts shall be paid in full;

             (iii)  THIRD,  subject  to the  provisions  of  the  Inter-Facility
         Agreement to the extent applicable, to payment first of the accrued and
         unpaid interest on, next the principal of the Restructured  Obligations
         (including the outstanding  amount of any Reimbursement  Obligations in
         respect of the Letters of Credit and the cash  collateralization of any
         undrawn  Letters  of  Credit  in an  amount  equal  to 103% of the then
         undrawn amount thereof) and any Covered Obligations ratably amongst the
         Lenders and the holders of the Covered  Obligations in accordance  with
         the proportion which the aggregate  principal amount of the outstanding
         Restructured  Obligations owing to the Lenders at the time bears to the
         aggregate  principal  amount  of such  Covered  Obligations  until  the
         interest on and  principal  of the  Restructured  Obligations  and such
         Covered Obligations shall be paid or provided for in full;

                  (iv)  FOURTH,  to the  payment of all other  Bank  Obligations
         ratably amongst the Lenders and the Letter of Credit Bank in accordance
         with the  proportion  which the amount of such  other Bank  Obligations
         owing to each such  Lender and the  Letter of Credit  Bank bears to the
         aggregate  principal amount of such other Bank Obligations owing to all
         of the  Lenders  and the  Letter of Credit  Bank  until such other Bank
         Obligations shall be paid in full; and

                  (v)  FIFTH,  the  balance,  if  any,  after  all of  the  Bank
         Obligations  have been satisfied,  shall be returned to the Borrower or
         paid over to such other Person as may be required by law.

                  The  Borrower  acknowledges  and agrees  that it shall  remain
liable to the extent of any deficiency between (x) the amount of the proceeds of
the Additional  Collateral and all other payments  received under this Agreement
and applied  pursuant to this  Section 9.2 to the sums  referred to in the first
through fourth  clauses above and (y) the aggregate  amount of the sums referred
to in the first through fourth clauses above.

                  (b)  If an  Event  of  Default  shall  have  occurred  and  be
continuing,  the  proceeds of the  Original  Collateral  and all other




<PAGE> 101

payments received under this Agreement or the other Credit Documents  (including
as a result  of or in  connection  with a  proceeding  under the  United  States
Bankruptcy  Code or any other similar  state law  proceeding)  which  constitute
identifiable   proceeds  of  Original   Collateral   shall  be  applied  by  the
Administrative Agent to payment of the Secured Obligations owing to the Original
Secured Parties in the following order:

                  (i) FIRST,  subject  to the  Inter-Facility  Agreement  to the
         extent applicable, to payment of all unreimbursed costs and expenses of
         the  Administrative  Agent or the Collateral Agent which are payable by
         the  Borrower   pursuant  to  any  of  the  Credit  Documents  and  all
         unreimbursed  costs and  expenses  of the  Lenders  which  are  payable
         pursuant to Section 11.3;

                  (ii) SECOND,  subject to the provisions of the  Inter-Facility
         Agreement to the extent  applicable,  to payment of that portion of the
         Restructured  Obligations  constituting accrued and unpaid interest and
         fees  ratably  amongst  the  Administrative  Agent and the  Lenders  in
         accordance  with the  proportion  which the accrued  interest  and fees
         constituting the Restructured  Obligations owing to the  Administrative
         Agent and each such Lender at such time bears to the  aggregate  amount
         of accrued interest and fees constituting the Restructured  Obligations
         owing to the  Administrative  Agent and all of the Lenders at such time
         until such interest and fees shall be paid in full;

             (iii)  THIRD,  subject  to the  provisions  of  the  Inter-Facility
         Agreement to the extent applicable,  to payment of the principal of the
         Restructured  Obligations  (including  the  outstanding  amount  of any
         Reimbursement  Obligations  in respect of the Letters of Credit and the
         cash  collateralization  of any undrawn  Letters of Credit in an amount
         equal to 103% of the then undrawn amount  thereof)  ratably amongst the
         Lenders in accordance with the proportion which the principal amount of
         the  Restructured  Obligations  owing to each such Lender  bears to the
         aggregate principal amount of the Restructured Obligations owing to all
         of the Lenders  until such  principal of the  Restructured  Obligations
         shall be paid in full;

                  (iv)  FOURTH,  to  the  payment  of  all  other   Restructured
         Obligations  ratably  amongst the Lenders and the Letter of Credit Bank
         in  accordance  with the  proportion  which the  amount  of such  other
         Restructured  Obligations  owing to each such  Lender and the Letter of
         Credit  Bank  bears to the  aggregate  principal  amount of such  other
         Restructured  Obligations owing to all of the Lenders and the Letter of
         Credit Bank until such other Restructured  Obligations shall be paid in
         full; and

                  (v) FIFTH, the balance,  if any, after all of the Restructured
         Obligations  have been satisfied,  shall be returned




<PAGE> 102

         to the Borrower or paid over to such other Person as may be required by
         law.

             The Borrower acknowledges and agrees that it shall remain liable to
the  extent of any  deficiency  between  (x) the amount of the  proceeds  of the
Original  Collateral  and all other  payments  received under this Agreement and
applied  pursuant  to this  Section  9.2 to the sums  referred  to in the  first
through fourth  clauses above and (y) the aggregate  amount of the sums referred
to in the first through fourth clauses above.

         SECTION 10. THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT

                  SECTION 10.1  Appointment and  Authorization.  Each Lender and
the Letter of Credit Bank irrevocably appoints and authorizes the Administrative
Agent and the Collateral Agent to take such action as agent on its behalf and to
exercise  such powers,  under this  Agreement and the Notes and the other Credit
Documents as are delegated to the Administrative Agent and the Collateral Agent,
as the case may be,  by the  terms  hereof or  thereof,  together  with all such
powers as are reasonably incidental thereto.

                  SECTION  10.2  Administrative  Agent,   Collateral  Agent  and
Affiliates.  The  Administrative  Agent and the Collateral  Agent shall have the
same rights and powers under this Agreement as any other Lender and may exercise
or refrain  from  exercising  the same as though it were not the  Administrative
Agent or the Collateral Agent, and the  Administrative  Agent and the Collateral
Agent and their  respective  Affiliates may accept deposits from, lend money to,
and generally engage in any kind of business with the Borrower or any Subsidiary
or Affiliate of the Borrower as if it were not the  Administrative  Agent or the
Collateral Agent.

                  SECTION  10.3  Action  by  Agents.   The  obligations  of  the
Administrative  Agent and the  Collateral  Agent  hereunder  and under the other
Credit Documents are only those expressly set forth herein and therein.  Without
limiting the generality of the foregoing,  neither the Administrative  Agent nor
the  Collateral  Agent shall be required to take any action with  respect to any
Default,  except as expressly provided with respect to the Administrative  Agent
in Section 9 and with respect to the Collateral Agent in the Security  Documents
and except that the  Administrative  Agent and the Collateral Agent, as the case
may be,  shall  take  such  action  with  respect  to such  Default  as shall be
reasonably directed by the Required Lenders; provided, that unless and until the
Administrative  Agent or the  Collateral  Agent,  as the case may be, shall have
received such directions,  the Administrative Agent and the Collateral Agent, as
the case may be,  may (but  shall  not be  obligated  to) take such  action,  or
refrain from taking such  action,  with respect to such Default as it shall deem
advisable.






<PAGE> 103

                  SECTION  10.4   Consultation   with   Experts.   Each  of  the
Administrative  Agent and the  Collateral  Agent may consult with legal  counsel
(who may be counsel for the Borrower),  independent public accountants and other
experts  selected by it and shall not be liable for any action  taken or omitted
to be taken by it in good faith in  accordance  with the advice of such counsel,
accountants or experts.

                  SECTION 10.5  Liability of Agents.  Notwithstanding  any other
provision,  express or implied,  to the contrary in this  Agreement or any other
Credit Document,  neither the Administrative Agent, the Collateral Agent nor any
of their  directors,  officers,  agents,  or  employees  shall be liable for any
action taken or not taken by them in connection  herewith or in connection  with
any  other  Credit  Document  (i)  with the  consent  or at the  request  of the
applicable  Lenders,  or (ii) in the  absence of their own gross  negligence  or
willful  misconduct,  as  determined  by a final order or judgment of a court of
competent  jurisdiction.  Neither the Administrative Agent, the Collateral Agent
nor any of their directors,  officers,  agents or employees shall be responsible
for or have any duty to  ascertain,  inquire  into or verify (i) any  statement,
warranty or  representation  made in connection with this  Agreement,  any other
Credit Document or any borrowing  hereunder;  (ii) the performance or observance
of any of the covenants or agreements of the Borrower; (iii) the satisfaction of
any  condition  specified  in Section 6 (except  where the  satisfaction  of the
Administrative   Agent  is  specifically   required);   or  (iv)  the  validity,
effectiveness or genuineness of this Agreement, the Notes, any Letter of Credit,
any other  Credit  Document  or any other  instrument  or writing  furnished  in
connection  herewith  or  therewith.  Neither the  Administrative  Agent nor the
Collateral  Agent  shall  incur any  liability  by acting in  reliance  upon any
notice, consent,  certificate,  statement, or other writing (which may be a bank
wire or  similar  writing)  believed  by it in good faith to be genuine or to be
signed by the proper party or parties.

                  SECTION 10.6 Indemnification.  Each Lender shall indemnify the
Administrative  Agent and the Collateral  Agent (to the extent not reimbursed by
the Borrower and without  limiting the  obligation of the Borrower to do so), in
Ratable Proportion, against any cost, expense (including counsel fees of outside
and in-house counsel and disbursements),  claim,  demand,  action, loss, damage,
penalty,  judgment,  disbursement or liability (except those which result solely
from the  Administrative  Agent's or the Collateral  Agent's gross negligence or
willful  misconduct,  as  determined  by a final order or judgment of a court of
competent  jurisdiction) that the  Administrative  Agent or the Collateral Agent
may  suffer or incur in  connection  with  this  Agreement  or any other  Credit
Document  or any  action  taken or omitted  by the  Administrative  Agent or the
Collateral  Agent  hereunder or thereunder.  The agreements in this Section 10.6
shall  survive the  payment  and  performance  of the Bank  Obligations  and the
termination of this Agreement.  Without  limiting the foregoing,  the agreements
contained in Section 10.6 of the




<PAGE> 104

Existing  Credit  Agreement  shall  continue  in full force and effect as to the
matters covered thereby.

                  SECTION   10.7  Credit   Decision.   Each   Lender   expressly
acknowledges that neither the Administrative Agent, the Collateral Agent nor any
of the  Co-Agents  nor any of  their  officers,  directors,  employees,  agents,
attorneys-in-fact or Affiliates has made any representations or warranties to it
and  that  no act by the  Administrative  Agent,  the  Collateral  Agent  or the
Co-Agents  hereinafter  taken,  including  any  review  of  the  affairs  of the
Borrower,  shall be deemed to constitute any  representation  or warranty by the
Administrative  Agent, the Collateral Agent or the Co-Agents to any Lender. Each
Lender  acknowledges  that it has,  independently  and without reliance upon the
Administrative  Agent, the Collateral  Agent, the Co-Agents or any other Lender,
and based on such documents and information as it has deemed  appropriate,  made
its own credit analysis and decision to enter into this  Agreement.  Each Lender
also  acknowledges  that it will,  independently  and without  reliance upon the
Administrative  Agent, the Collateral  Agent, the Co-Agents 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 any
action under this  Agreement.  Except for notices,  reports and other  documents
expressly  required to be furnished to the Lenders by the  Administrative  Agent
hereunder, neither the Administrative Agent, the Collateral Agent nor any of the
Co-Agents shall have any duty or  responsibility  to provide any Lender with any
credit or other  information  concerning  the  business,  operations,  property,
condition  (financial  or  otherwise),  prospects  or  creditworthiness  of  the
Borrower  or  any  Subsidiary   which  may  come  into  the  possession  of  the
Administrative  Agent,  the  Collateral  Agent or any of the Co-Agents or any of
their officers, directors, employees, agents, attorneys-in-fact or Affiliates.

                  SECTION  10.8  Successor  Agents.  Each of the  Administrative
Agent and the  Collateral  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  Administrative  Agent or
Collateral  Agent, as the case may be. If no successor  Administrative  Agent or
Collateral  Agent,  as the case may be,  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,  then the retiring agent
may,  on behalf of the  Lenders,  appoint a  successor  Administrative  Agent or
Collateral  Agent,  as the case may be,  which shall be a Lender or 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 at least $250,000,000. Upon
the acceptance of its appointment as  Administrative  Agent or Collateral Agent,
as the case may be, hereunder by a successor  Administrative Agent or Collateral
Agent, as the case may be, such successor  agent shall thereupon  succeed to and
become  vested  with




<PAGE> 105

all the rights and duties of the  retiring  Administrative  Agent or  Collateral
Agent,  as the case may be,  and,  upon such  acceptance  of  appointment,  such
retiring agent shall be discharged  from its duties and  obligations  hereunder.
After any retiring  agent's  resignation  hereunder as  Administrative  Agent or
Collateral  Agent,  the provisions of this Section 10 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Administrative
Agent or Collateral Agent, as the case may be.

                            SECTION 11. MISCELLANEOUS

                  SECTION  11.1  Notices.   All  notices,   requests  and  other
communications to any party hereunder shall be in writing  (including bank wire,
telecopy or similar  writing) and shall be given to such party at its address or
telecopy number set forth on Schedule I or such other address or telecopy number
as  such  party  may  hereafter  specify  for  the  purpose  by  notice  to  the
Administrative  Agent and the  Borrower.  Each  such  notice,  request  or other
communication shall be given (i) by hand delivery, (ii) by nationally recognized
courier  service for next  Domestic  Business Day delivery or (iii) by telecopy,
receipt confirmed; provided, that information furnished by the Borrower pursuant
to Sections 8.1(a) through (f) or pursuant to Sections 8.1(i),  (j), (l), (n)(i)
and  (r)  may be  sent by  first  class  mail.  Each  such  notice,  request  or
communication  shall be effective  (i) if delivered  by hand,  or by  nationally
recognized  courier  service,  when  delivered at the address  specified in this
Section 11.1 and (ii) if given by telecopy, when such telecopy is transmitted to
the telecopy number,  as the case may be, specified in this Section 11.1 and the
appropriate  answerback or  confirmation is received and (iii) if by first class
mail, when mailed to the address specified in this Section 11.1.

                  SECTION  11.2 No  Waivers.  No course of dealing  between  the
Collateral Agent, the  Administrative  Agent, any Lender and the Borrower or any
failure or delay by the Collateral Agent, the Administrative Agent or any Lender
in exercising any right, power or privilege hereunder or under any Note or other
Credit  Document  shall  operate  as a waiver of any right,  power or  privilege
hereunder  or under any Note or other Credit  Document,  nor shall any single or
partial  exercise  thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  The rights and remedies herein
provided  shall be  cumulative  and not  exclusive  of any  rights  or  remedies
provided  by law. No waiver of any  provision  of this  Agreement  or any Credit
Document or consent to any  departure  by the  Borrower  therefrom  shall in any
event be effective  unless the same shall be permitted by Section 11.5, and then
such waiver or consent shall be effective only in the specific  instance and for
the purpose  for which  given.  No notice or demand on the  Borrower in any case
shall  entitle the Borrower to any other or further  notice or demand in similar
or other circumstances.






<PAGE> 106

                  SECTION 11.3 Expenses;  Documentary Taxes.  Whether or not any
Loans are made or  Letters  of  Credit  are  issued  or any  other  transactions
contemplated by the Credit  Documents  shall be consummated,  the Borrower shall
pay on demand all  "out-of-pocket"  expenses of the  Administrative  Agent,  the
Collateral Agent and the Lenders in connection with the preparation, and, in the
case of the Administrative  Agent and the Collateral Agent, the  administration,
of this  Agreement  and the other Credit  Documents  (including  the  reasonable
collateral  monitoring and field examination fees of the Collateral  Agent), any
waiver or consent hereunder or thereunder,  any amendment or modification hereof
or thereof or incurred by the  Administrative  Agent, the Collateral  Agent, the
Letter of Credit  Bank or any Lender in  connection  with any Default or alleged
Default  hereunder  and the  protection,  maintenance  and  preservation  of the
Collateral including,  without limitation,  reasonable fees and disbursements of
counsel  (including,   without  limitation,  the  allocated  costs  of  in-house
counsel),  accountants and financial  advisors and including  specifically ZR&G,
Emmet,  Marvin & Martin  LLP,  special  real  estate  counsel and any local real
estate counsel for the Administrative Agent and the Collateral Agent and Ernst &
Young  LLP,  financial  advisors  to ZR&G  and,  in  connection  with  any  such
amendment,  modification  or waiver or any such  enforcement or protection,  the
reasonable fees and  disbursements  of the Letter of Credit Bank and any Lender.
The Borrower shall  indemnify and hold harmless the  Administrative  Agent,  the
Collateral Agent, the Letter of Credit Bank and each Lender against any transfer
taxes,  excise  taxes,  documentary  taxes,  assessments  or charges made by any
Governmental  Authority  by  reason  of  the  execution  and  delivery  of  this
Agreement,  the Notes or any other Credit Document, any modifications thereof or
in  connection  with  the  Collateral.   Without  limiting  the  foregoing,  the
provisions of this Section 11.3 shall survive the payment and performance of the
Bank  Obligations  and the  termination  of this  Agreement,  and the agreements
contained in Section 11.3 of the Existing  Credit  Agreement  shall  continue in
full force and effect as to the matters covered thereby.

             SECTION 11.4 Sharing of  Set-offs.  Each Secured  Party (other than
the  Merchandise  Letter of Credit Bank) agrees that if it shall,  by exercising
any right of  set-off or  counterclaim  or  otherwise,  receive  any  payment in
respect of Secured Obligations, such payment shall be applied as follows: (x) if
such  Secured  Party  is a  Swingline  Lender  and  there  are  Swingline  Loans
outstanding, and the payment received is of a proportion of the aggregate amount
of principal and interest due on the Swingline Loans held by it which is greater
than that  received by any other  Swingline  Lender in respect of the  aggregate
amount of principal and interest due with respect to the Swingline Loans held by
such other Swingline Lender, the Swingline Lender receiving such proportionately
greater payment shall purchase such  participations  in the Swingline Loans held
by the other Swingline  Lenders and such other adjustments shall be made, as may
be required so that all such  payments of principal and interest with respect to
the Swingline Loans held by the Swingline




<PAGE> 107

Lenders owing to them shall be shared by the Swingline  Lenders pro rata; (y) if
such  Secured  Party is not a  Swingline  Lender and there are  Swingline  Loans
outstanding,  such  Secured  Party  shall pay over the  payment  received to the
Administrative  Agent for distribution to the Swingline Lenders,  pro rata until
all  amounts  owing in respect of the  Swingline  Loans  shall have been paid in
full; and (z) if no Swingline Loans are outstanding, and the payment received is
of a  proportion  of the  aggregate  amount of  principal  and interest due with
respect to the Restructured Loans held by it or the Reimbursement Obligations or
Covered Obligations owing to it which is greater than the proportion received by
any other such Secured Party in respect of the aggregate amount of principal and
interest due with respect to the  Restructured  Loans held by such other Secured
Party and the Reimbursement  Obligations or Covered Obligations owing to it, the
Secured Party receiving such proportionately greater payment shall purchase such
participation in the Restructured Loans held by the other Secured Parties and/or
the  Reimbursement  Obligations or Covered  Obligations  owing to them, and such
other adjustments shall be made, as may be required so that all such payments of
principal  and  interest  with  respect  to the  Restructured  Loans held by the
Secured Parties or the Reimbursement Obligations or Covered Obligations owing to
them shall be shared by the Secured Parties pro rata;  provided,  that except as
provided in clauses (x) and (y) of this  Section  11.4,  nothing in this Section
11.4  shall  impair  the right of any  Secured  Party to  exercise  any right of
set-off  or  counterclaim  it may have and to apply the  amount  subject to such
exercise  to  the  payment  of  indebtedness  of the  Borrower  other  than  its
indebtedness  under  the  Notes  or the  Reimbursement  Obligations  or  Covered
Obligations owing to it; and provided, further, that notwithstanding anything to
the contrary  contained in this Section 11.4, the New Cash Management Bank shall
be  entitled  to retain  any  payments  it  receives  in respect of the New Cash
Management  Obligations  as a result of  exercising  any right of set-off.  Each
Lender  further  agrees that if it shall hold a  Revolving  Note and a Swingline
Note,  any payment in respect of such Notes  resulting  from its exercise of any
right  described in this Section  11.4 shall be applied  first to the  aggregate
amount owing under its Swingline Note and second,  to the aggregate amount owing
under its Revolving  Note.  The Borrower  agrees,  to the fullest  extent it may
effectively do so under  applicable law, that any holder of a participation in a
Note or  Reimbursement  Obligations,  whether or not  acquired  pursuant  to the
foregoing arrangements, may exercise rights of set-off or counterclaim and other
rights  with  respect  to such  participation  as fully as if such  holder  of a
participation  were a direct  creditor  of the  Borrower  in the  amount of such
participation.

                  SECTION 11.5 Amendments and Waivers. (a) Any provision of this
Agreement,  the Notes or the other Credit Documents may be amended or waived if,
but only if,  such  amendment  or  waiver  is in  writing  and is  signed by the
Borrower  and the  Majority  Lenders  (and,  (i) if the  rights or duties of the
Administrative  Agent,  the  Collateral  Agent  or the  Co-Agents  are  affected
thereby, by the




<PAGE> 108

Administrative Agent, the Collateral Agent or the Co-Agents, as the case may be,
and (ii) if the  rights  or duties of the  Letter  of Credit  Bank are  affected
thereby,  by the  Administrative  Agent,  the Collateral Agent and the Letter of
Credit Bank);  provided,  that no such amendment or waiver shall,  unless signed
(w) by the Majority Lenders and all the Swingline Lenders (other than Defaulting
Lenders),  change the definition of "Required Inventory" for purposes of Section
6.3(a) or modify the  substance  of  Section  8.26 or the  Swingline  Compliance
Certificate,  (x)  by all  the  Restructuring  Lenders  (other  than  Defaulting
Lenders) affected thereby (i) reduce the principal of or rate of interest on any
Restructured  Loan or any fees hereunder in respect of the  Restructured  Loans,
(ii) postpone any of the mandatory commitment  reductions referred to in Section
2.8 or the date fixed for any payment or mandatory prepayment of principal of or
interest on any Restructured Loan or any fees payable hereunder,  (iii) amend or
waive any provision of this proviso (x), (iv) substitute,  discharge, release or
surrender  all or  substantially  all  of the  Original  Collateral,  except  as
permitted in the Credit Documents,  (v) amend Section 9.2(b) or (vi) release any
Guarantee of the Bank  Obligations,  and (y) by all the Swingline Lenders (other
than Defaulting Lenders) affected thereby (i) reduce the principal of or rate of
interest on any  Swingline  Loan or any fees  hereunder in respect the Swingline
Loans, (ii) postpone any of the mandatory  commitment  reductions referred to in
Section  2.8 or the date  fixed  for any  payment  or  mandatory  prepayment  of
principal of or interest on any  Swingline  Loan or any fees payable  hereunder,
(iii) amend or waive any  provision of proviso  (w), or this  proviso (y),  (iv)
amend Section  9.2(a),  (v) change the  definition of "Required  Inventory"  for
purposes of Sections  2.8(g) or 2.9(d),  (vi) release any  Guarantee of the Bank
Obligations or (vii) amend or waive the  requirements of Section 6.3, and (z) by
all the Lenders  (other than  Defaulting  Lenders)  (i) increase or decrease any
Commitment of any Lender or subject any Lender to any  additional  obligation to
extend credit  hereunder,  (ii) change the definitions of "Majority  Lenders" or
"Required  Lenders",  (iii) amend or waive any provision of this proviso (z), or
this Section  11.5  (except as provided in proviso (w),  proviso (x) and proviso
(y));  (iv) change the  percentage of the  Commitments  or the aggregate  unpaid
principal  amount of the Notes or the number of Lenders  which shall be required
for the Lenders or any of them to take any action  under this Section 11.5 or to
require the Administrative Agent to take any action pursuant to Section 9.1, (v)
substitute,  discharge,  release or surrender  all or  substantially  all of the
Additional Collateral except as permitted in the Credit Documents, (vi) amend or
waive the provisions of Section 2.8 in any way which would reduce the amounts of
payments the Borrower is otherwise  required to make  pursuant  thereto or which
would change the manner in which such  payments are to be applied or (vii) amend
or waive the provisions of the second sentence of Section 11.6(a).

                  (b) Each  Lender  and each  holder of a Note shall be bound by
any waiver, amendment or modification authorized by this Section




<PAGE> 109

11.5  regardless  of whether its Note shall have been  marked to make  reference
thereto,  and any  consent  by any Lender or holder of a Note  pursuant  to this
Section  11.5  shall  bind any  person  subsequently  acquiring  a Note from it,
whether or not such Note shall have been so marked.

                  SECTION   11.6   Successors   and   Assigns;   Participations;
Purchasing Lenders.

                  (a) This  Agreement  shall be  binding  upon and  inure to the
benefit of the Borrower,  the Secured Parties (other than the Merchandise Letter
of Credit Bank),  the  Administrative  Agent,  the Collateral  Agent, all future
holders  of the  Notes and the  Participating  Interests  and  their  respective
successors  and assigns.  Notwithstanding  the  foregoing,  the Borrower may not
assign or transfer any of its rights or obligations under this Agreement without
the prior written consent of each Lender.

                  (b) Any Lender may, in the ordinary  course of its  commercial
banking  business and in accordance with applicable law, at any time sell to one
or more banks,  mutual funds or other  financial  institutions  ("Participants")
participating  interests in any Loan owing to such Lender, any Note held by such
Lender,  any  Commitment  of such  Lender or any other  interest  of such Lender
hereunder and under the other Credit Documents,  including,  without limitation,
its interest in the L/C  Obligations.  In the event of any such sale by a Lender
of participating  interests to a Participant,  such Lender's  obligations  under
this  Agreement to the other parties to this Agreement  shall remain  unchanged,
such Lender shall remain solely  responsible for the performance  thereof,  such
Lender  shall  remain  the holder of any such Note for all  purposes  under this
Agreement   and  the  other   Credit   Documents,   and  the  Borrower  and  the
Administrative Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Agreement and
the other Credit Documents.

                  The  Borrower  agrees that if amounts  outstanding  under this
Agreement,  the Notes or any other Credit  Document are due or unpaid,  or shall
have been  declared or shall have become due and payable upon the  occurrence of
an Event of  Default,  each  Participant  shall be  deemed  to have the right of
setoff in respect of its  participating  interest  in amounts  owing  under this
Agreement and the other Credit  Documents to the same extent as if the amount of
its  participating  interest  were owing  directly to it as a Lender  under this
Agreement or the other Credit Documents;  provided,  that such Participant shall
only be  entitled  to such  right of  setoff  if it  shall  have  agreed  in the
agreement pursuant to which it shall have acquired its participating interest to
share with the Lenders the  proceeds  thereof as provided in Section  11.4.  The
Borrower also agrees that each Participant  shall be entitled to the benefits of
Sections 5.3, 5.4, 5.5, 5.9 and 11.10 with respect to its  participation  in the
Commitments  and the  Loans  outstanding  from time




<PAGE> 110

to time; provided,  that no Participant shall be entitled to receive any greater
amount  pursuant to such  Sections  than the  transferor  Lender would have been
entitled to receive in respect of the amount of the participation transferred by
such transferor Lender to such Participant had no such transfer  occurred.  Each
Lender  agrees that any  agreement  between such Lender and any  Participant  in
respect of such participating interest shall not restrict such Lender's right to
agree to any  amendment,  supplement or  modification  to this  Agreement or the
other Credit Documents except (to the extent such Participant  would be affected
thereby) in  connection  with the matters  specified in Section 11.5 which would
require the consent of such Lender.

                  (c) Any Lender may, in the ordinary  course of its  commercial
banking  business and in accordance with applicable law, at any time sell to any
Lender or any Affiliate  thereof  (subject to compliance  with clause (j) below)
and, with the consent of the Borrower (which shall not be unreasonably  withheld
or delayed but shall not be required to be  obtained  after the  occurrence  and
during the continuance of an Event of Default), to one or more additional banks,
each having total assets in excess of  $1,500,000,000  or one or more additional
mutual funds or other financial  institutions each having total assets in excess
of $250,000,000 (each a "Purchasing  Lender") all or a portion of its interests,
rights and  obligations  under this  Agreement  and the other  Credit  Documents
(including,  without  limitation,  all or a portion of its  Commitments  and the
Loans at the time owing to it and the Notes held by it); provided, however, that
each Assignment shall be of a constant, not a varying,  percentage of all of the
assigning Lender's rights and obligations under this Agreement in respect of (i)
its Revolving  Commitment and its Swingline Commitment (if any) (ii) its Tranche
A Term Loan and its  Tranche B Term Loan or (iii) its  Commitments  and its Term
Loans; provided,  that it shall not be necessary for any Lender to sell the same
percentage of its  Commitments and its Term Loans (as the case may be) (although
each such  percentage of its  Commitments and its Term Loans must be a constant,
not a varying percentage); provided, further, that the Commitments purchased and
the Term Loans purchased by any such Purchasing Lender shall each be equal to at
least  $5,000,000  in the case of a Purchasing  Lender that is not then a Lender
(unless  the  Commitments  or Term Loans so  purchased  constitute  100% of such
Commitments or Term Loans of the transferor Lender).  Each sale pursuant to this
subsection (c) shall be effected pursuant to a Commitment  Transfer  Supplement,
substantially in the form of Exhibit M, executed by such Purchasing Lender, such
transferor  Lender (and,  in the case of a Purchasing  Lender that is not then a
Lender  or  an  Affiliate  thereof,  by  the  Borrower,  if  required,  and  the
Administrative  Agent)  and  delivered  to  the  Administrative  Agent  for  its
acceptance for recording in the Register.

             Upon such execution,  delivery,  acceptance and recording, from and
after the  Transfer  Effective  Date (as  defined  in such  Commitment  Transfer
Supplement),  (x) the Purchasing  Lender




<PAGE> 111

thereunder  shall  be a  party  hereto  and,  to the  extent  provided  in  such
Commitment Transfer Supplement, have the rights and obligations of a Lender with
a Commitment  or Term Loans (as the case may be)  hereunder  and under the other
Credit Documents as set forth therein,  and (y) the transferor Lender thereunder
shall,  to the  extent  provided  in such  Commitment  Transfer  Supplement,  be
released  from its  obligations  under this  Agreement  other than  pursuant  to
Sections  3.9 and 10.6 with respect to periods  prior to the Transfer  Effective
Date (except to the extent such  obligations  are assumed and  performed by such
Purchasing Lender) and other than pursuant to Section 11.16 (and, in the case of
a Commitment  Transfer  Supplement  covering all or the  remaining  portion of a
transferor Lender's rights and obligations under this Agreement, such transferor
Lender shall cease to be a party hereto).  Such Commitment  Transfer  Supplement
shall be deemed to amend this  Agreement to the extent,  and only to the extent,
necessary to reflect the addition of such  Purchasing  Lender and the  resulting
adjustment of Commitment or Term Loans percentages  arising from the purchase by
such Purchasing Lender of all or a portion of the rights and obligations of such
transferor  Lender  under  this  Agreement,  the  Notes  and  the  other  Credit
Documents.  On or prior to the Transfer Effective Date, the Borrower, at its own
expense,  shall execute and deliver to the Administrative  Agent in exchange for
the  surrendered  Note or  Notes,  a new Note or new  Notes to the order of such
Purchasing  Lender in an amount equal to the Commitment or Term Loans assumed by
it pursuant to such Commitment Transfer Supplement and, if the transferor Lender
has retained a Commitment  or Term Loans  hereunder,  a new Note or new Notes to
the order of the transferor  Lender in an amount equal to the Commitment or Term
Loans  retained  by it  hereunder.  Such new Note or  Notes  shall be dated  the
Closing Date and shall  otherwise be in the form of the Notes replaced  thereby.
The Note or Notes  surrendered by the transferor Lender shall be returned by the
Administrative Agent to the Borrower marked "cancelled."

                  (d) The  Administrative  Agent  shall  maintain at its address
referred  to in  Section  11.1 a copy of  each  Commitment  Transfer  Supplement
delivered to it and a register (the "Register") for the recordation of the names
and addresses of the Lenders and the Commitment of, and principal  amount of the
Loans owing to and, as to Letters of Credit, the Participating Interest of, each
Lender from time to time. The entries in the Register  shall be  conclusive,  in
the absence of manifest error, and the Borrower,  the  Administrative  Agent and
the Lenders may treat each Person  whose name is recorded in the Register as the
owner of the Loan or Participating  Interests  recorded therein for all purposes
of this  Agreement  and the  other  Credit  Documents.  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 a  Commitment  Transfer  Supplement
executed by a transferor  Lender and  Purchasing  Lender (and,  in the case of a
Purchasing  Lender  that is not then a Lender or an




<PAGE> 112

Affiliate  thereof,  by the Borrower,  if required) together with payment to the
Administrative Agent of a recordation and processing fee of $3,500 for each such
transfer,  the  Administrative  Agent shall (i) promptly  accept such Commitment
Transfer  Supplement and (ii) on the Transfer Effective Date determined pursuant
thereto record the information contained therein in the Register and give notice
of such acceptance and recordation to the Lenders and the Borrower.

                  (f) The  Borrower  authorizes  each  Lender to disclose to any
Participant or Purchasing  Lender (each,  a  "Transferee")  and any  prospective
Transferee  any  and all  financial  and  other  information  in  such  Lender's
possession  concerning the Borrower and its Affiliates  which has been delivered
to such Lender by or on behalf of the  Borrower  pursuant to this  Agreement  or
which had been  delivered  to such  Lender by or on  behalf of the  Borrower  in
connection  with  such  Lender's  credit  evaluation  of the  Borrower  and  its
Affiliates prior to becoming a party to this Agreement;  provided, however, that
prior to any such  disclosure,  each such  Transferee or prospective  Transferee
shall execute an agreement  whereby such  Transferee or  prospective  Transferee
shall agree to preserve  the  confidentiality  of any  confidential  information
relating  to the  Borrower  received  from  such  Lender  on the  same  terms as
contained in Section 11.16.

                  (g) If,  pursuant to this Section  11.6,  any interest in this
Agreement  or any Note or the  other  Credit  Documents  is  transferred  to any
Transferee  which is not a United States  Person,  the  transferor  Lender shall
cause such Transferee, concurrently with the effectiveness of such transfer, (i)
to represent to the transferor Lender (for the benefit of the transferor Lender,
the  Administrative  Agent  and the  Borrower)  that  under  applicable  law and
treaties no taxes will be required to be withheld by the  Administrative  Agent,
the Borrower or the transferor Lender with respect to any payments to be made to
such  Transferee  in  respect of the  Loans,  (ii) to furnish to the  transferor
Lender (and, in the case of any  Purchasing  Lender  registered in the Register,
the Administrative  Agent and the Borrower) either U.S. Internal Revenue Service
Form 4224 or U.S.  Internal  Revenue  Service Form 1001 (wherein such Transferee
claims  entitlement to complete  exemption from U.S. federal  withholding tax on
all  interest  payments  hereunder)  and (iii) to agree (for the  benefit of the
transferor  Lender,  the  Administrative  Agent and the Borrower) to provide the
transferor  Lender (and, in the case of any Purchasing  Lender registered in the
Register,  the  Administrative  Agent and the  Borrower) a new Form 4224 or Form
1001 upon the expiration or  obsolescence  of any previously  delivered form and
comparable  statements in accordance  with  applicable U.S. laws and regulations
and  amendments  duly executed and completed by such  Transferee,  and to comply
from time to time with all applicable U.S. laws and  regulations  with regard to
such withholding tax exemption.






<PAGE> 113

                  (h) Nothing  herein shall prohibit any Lender from pledging or
assigning any Note to any Federal  Reserve Lender in accordance  with applicable
law.

                  (i) If the Euro-Dollar  Reference Bank assigns its Notes to an
unaffiliated  institution,  the Administrative Agent shall, in consultation with
the  Borrower  and with the consent of the  Majority  Lenders,  appoint  another
Lender to act as the Euro-Dollar Reference Bank hereunder.

                  (j) Notwithstanding the other provisions of this Section 11.6,
no Lender may at any time make an assignment or sell a participation  to (i) any
other Lender hereunder, (ii) any Purchasing Lender (iii) any Participant or (iv)
any Affiliate of any other Lender, any Purchasing Lender, or any Participant, if
after giving effect to such assignment or  participation  and all  substantially
contemporaneous   assignments  and   participations,   the  assignee   Lender's,
Purchasing Lender's or Participant's  percentage or percentage  interests,  when
taken together with the percentages  and percentage  interests of all Affiliates
of such Lender,  such Purchasing Lender, or such Participant,  of the sum of (x)
the Term Loans then outstanding at such time plus (y) the aggregate  Commitments
then in effect  at such  time (or,  if no  Commitments  remain  in  effect,  but
Revolving Loans and/or Swingline Loans or Letters of Credit remain  outstanding,
such Loans and any Participating Interest) would exceed 30%.

                  SECTION 11.7 Collateral. Each of the Lenders represents to the
Administrative  Agent and each of the other Lenders that it in good faith is not
relying upon any Margin Stock as collateral in the extension or  maintenance  of
the credit provided for in this Agreement.

                  SECTION 11.8  Applicable  Law.  THIS  AGREEMENT  AND THE OTHER
CREDIT  DOCUMENTS  SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK,  WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES AND BY
FEDERAL LAW TO THE EXTENT APPLICABLE;  PROVIDED,  HOWEVER,  THAT WITH RESPECT TO
ANY  MORTGAGE  FILED IN  JURISDICTIONS  OUTSIDE  OF NEW  YORK,  THE LAWS OF SUCH
JURISDICTION WHERE SUCH MORTGAGE WAS FILED SHALL APPLY.

                  SECTION 11.9 Counterparts;  Integration;  Effectiveness.  This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same  instrument.  This  Agreement,  the other Credit  Documents and the Fee
Letter  constitute  the entire  agreement  and  understanding  among the parties
hereto and supersedes any and all prior agreements and  understandings,  oral or
written,  relating to the subject  matter hereof.  This  Agreement  shall become
effective when the Administrative Agent shall have received  counterparts hereof
signed  by all of the  parties  hereto  and




<PAGE> 114

when the  conditions  contained  or  referred  to in Section 6.2 shall have been
satisfied or waived.

                  SECTION 11.10 Indemnity.  The Borrower agrees to indemnify and
hold harmless the Administrative Agent, the Collateral Agent, the Co-Agents, the
Letter of Credit Bank,  the Lenders,  and the other  parties to this  Agreement,
together  with their  respective  directors,  officers,  Affiliates,  attorneys,
experts and agents (each,  an  "Indemnified  Party") from and against all costs,
expenses  (including  fees  and  disbursements  of  counsel,  including  without
limitation, the allocated costs of in-house counsel) and liabilities arising out
of or relating to any investigation, litigation or other proceedings (regardless
of whether an  Indemnified  Party is a party thereto) which relate to the Loans,
any Letter of Credit, the use of the proceeds of the Loans by the Borrower,  the
use of the Letters of Credit, or the Collateral  including,  without limitation,
the financing and other  transactions  contemplated  hereby, or any transactions
connected with any of the foregoing, but excluding any such losses, liabilities,
claims,  damages  or  expenses  incurred  solely  by  reason  of (i)  the  gross
negligence  or willful  misconduct of the  Indemnified  Party as determined by a
final order or judgment of a court of competent jurisdiction,  or (ii) claims of
one Lender against another not involving acts or omissions of the Borrower. This
indemnity  shall  survive  the  termination  of this  Agreement  and payment and
performance  of the  Bank  Obligations.  Without  limiting  the  foregoing,  the
agreements  contained in Section 11.10 of the Existing  Credit  Agreement  shall
continue in full force and effect as to the matters covered thereby.

                  SECTION 11.11 WAIVER OF JURY TRIAL;  CONSENT TO  JURISDICTION.
THE BORROWER, THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE CO-AGENTS, THE
LETTER OF CREDIT BANK AND EACH LENDER HEREBY WAIVES,  TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN
CONNECTION  WITH, OR ARISING OUT OF THE CREDIT  DOCUMENTS OR THE COLLATERAL,  OR
THE VALIDITY,  PROTECTION,  INTERPRETATION,  COLLECTION OR ENFORCEMENT HEREOF OR
THEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING,  BETWEEN THE BORROWER,
ON THE ONE  HAND,  AND THE  ADMINISTRATIVE  AGENT,  THE  COLLATERAL  AGENT,  THE
CO-AGENTS,  THE LETTER OF CREDIT BANK AND/OR ANY ONE OR MORE OF THE LENDERS,  ON
THE OTHER HAND. THE BORROWER  HEREBY  IRREVOCABLY  CONSENTS TO THE  NONEXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, OF ANY FEDERAL COURT, IN EACH CASE LOCATED IN NEW YORK COUNTY
AND ANY APPELLATE COURT  THEREFROM,  IN CONNECTION WITH ANY ACTION OR PROCEEDING
ARISING  OUT OF OR RELATING  TO ANY ONE OR MORE OF THE CREDIT  DOCUMENTS  OR ANY
DOCUMENT OR INSTRUMENT  DELIVERED PURSUANT TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT OR THE COLLATERAL AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY  AGREES  THAT  ALL  CLAIMS  IN  RESPECT  OF ANY SUCH  ACTION  OR
PROCEEDING MAY BE HEARD AND  DETERMINED IN SUCH NEW YORK STATE COURT,  OR TO THE
EXTENT  PERMITTED  BY LAW, IN SUCH  FEDERAL  COURT.  EACH OF THE PARTIES  HERETO
AGREES




<PAGE> 115

THAT A FINAL  JUDGMENT IN ANY SUCH ACTION OR PROCEEDING  SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER  JURISDICTIONS  BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER  PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT  SHALL AFFECT ANY RIGHT THAT
THE COLLATERAL  AGENT, THE CO-AGENTS,  THE  ADMINISTRATIVE  AGENT, THE LETTER OF
CREDIT BANK OR ANY LENDER MAY  OTHERWISE  HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR THE CREDIT DOCUMENTS OR THE COLLATERAL AGAINST THE
BORROWER,  ANY SUBSIDIARY OR THEIR PROPERTIES IN THE COURTS OF ANY JURISDICTION.
THE BORROWER  HEREBY  WAIVES THE DEFENSES OF FORUM NON  CONVENIENS  AND IMPROPER
VENUE.

                  SECTION  11.12  Survival  of  Obligations  Under  Fee  Letter.
Notwithstanding  anything herein or in any other agreement to the contrary,  the
execution  and  delivery  of this  Agreement  shall  not be  deemed to impair or
otherwise  affect  any  obligations  of any party  thereto  under the Fee Letter
except to the extent that such  obligations  are satisfied by this Agreement and
the other Credit Documents.

                  SECTION 11.13 Invalidity. Whenever possible, each provision of
this Agreement  shall be interpreted in such manner as to be effective and valid
under all applicable laws and  regulations.  If, however,  any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation, it
shall be deemed  modified to conform to the minimum  requirements of such law or
regulation  or, if for any  reason it is not  deemed  so  modified,  it shall be
ineffective  and invalid only to the extent of such  prohibition  or  invalidity
without  the  remainder  thereof  or any of the  remaining  provisions  of  this
Agreement being prohibited or invalid.

             SECTION 11.14  Substitution  of Lenders.  In the event that (i) the
Borrower shall at any time be required under Section 5.3 to withhold any Charges
in respect of any amount payable to any Lender under this Agreement or under any
other Credit Document, (ii) the Borrower shall be required to pay any amounts to
any Lender (but not the other  Lenders)  pursuant to Section 5.4 or 5.9 or (iii)
the  obligation  of any Lender (but not the other  Lenders) to make  Euro-Dollar
Loans  shall be  suspended  pursuant  to  Section  5.8,  then the  Borrower  may
substitute  another bank or trust company  acceptable to the Majority Lenders to
assume the Commitments and/or the Loans of such Lender and to purchase the Notes
and other  obligations  owing by the  Borrower to such  Lender  under the Credit
Documents,  all in accordance with Section 11.6, without recourse to or warranty
by, or expense  to, such  Lender for a purchase  price equal to the  outstanding
principal/face  amount of the Bank  Obligations  payable to such Lender plus any
accrued but unpaid interest on the Bank  Obligations and accrued but unpaid fees
and other  amounts  in respect of that  Lender's  Commitment  and Loans plus any
amount that would be payable to such Lender  pursuant to Section 5.5 if its Bank
Obligations  were prepaid on such date.  Upon such purchase such Lender shall no
longer be a party  hereto or have any rights or




<PAGE> 116

benefits  hereunder (except for rights or benefits that such Lender would retain
hereunder and under the other Credit  Documents upon the performance and payment
in full of all of the Bank  Obligations)  and,  subject  to  Section  11.6,  the
replacement  bank  shall  succeed  to the rights  and  benefits  of such  Lender
hereunder.  The  Administrative  Agent and the Lenders shall  cooperate with the
Borrower to amend the Credit Documents to reflect such substitution.

                  SECTION  11.15  Effect of  Amendment  and  Restatement  of the
Existing Credit Agreement;  Confirmation of Security  Documents.  On the Closing
Date, the Existing Credit Agreement shall be amended and restated to read as set
forth  herein.  The  Borrower  acknowledges  and  agrees  that (i) the Liens and
security  interests  securing  payment of the  Existing  Obligations  are in all
respects  continuing  and in full force and effect and secure the payment of the
Existing  Obligations and that the Notes  outstanding  under the Existing Credit
Agreement  are  replaced by the Notes  issued  hereunder,  (ii) the term "Credit
Agreement" as used in the Security Documents shall hereafter mean this Agreement
and (iii) upon the effectiveness of this Agreement,  all outstanding  letters of
credit under the Existing  Credit  Agreement  will be converted  into Letters of
Credit  hereunder,  in each case upon the terms and conditions set forth in this
Agreement.

                  SECTION  11.16  Confidentiality.  Each  of the  Administrative
Agent, the Collateral  Agent, each Co-Agent,  each Lender,  the Letter of Credit
Bank,  the Hedging  Bank,  the Existing Cash  Management  Banks and the New Cash
Management Bank (each a "Recipient")  agrees (which  agreement shall survive the
termination of this Agreement) that financial information,  information from the
Borrower's  books and  records,  information  concerning  the  Borrower's  trade
secrets  and  patents  and any  other  information  received  from the  Borrower
hereunder which at the time of receipt is clearly labeled as confidential  shall
be treated as  confidential  by such Recipient and each Recipient  agrees to use
its  reasonable  best efforts to ensure that such  information is not published,
disclosed or otherwise  divulged to anyone other than  employees or officers and
its counsel and agents;  provided,  however, it is understood that the foregoing
shall not apply to:

                  (i) disclosure  made with the prior written  authorization  of
         the Borrower;

                  (ii)  disclosure of (x)  information  (other than  information
         received from the Borrower  prior to or under this  Agreement)  already
         known by, or in the possession of such Recipient  without  restrictions
         on the disclosure  thereof at the time such  information is supplied to
         such  Recipient  by the  Borrower  hereunder  or (y)  information  also
         furnished to such Recipient by a third party not known by the Recipient
         to have any similar duty of confidentiality to the Borrower;




<PAGE> 117

                  (iii)   disclosure  of   information   which  is  required  by
         applicable  law  or  to a  Governmental  Authority  having  supervisory
         authority over any party hereto;

                  (iv)  disclosure of information  in connection  with any suit,
         action or  proceeding  in  connection  with the  enforcement  of rights
         hereunder or under any Credit Document;

                  (v) disclosure of information as provided in Section 11.6(f);

                  (vi) disclosure by any party hereto to any other party hereto,
         including  disclosure  by the  Administrative  Agent or the  Collateral
         Agent  to  any  of  the   other   Recipients   or  to  their   counsel,
         representatives or agents;

                  (vii) disclosure by any party hereto to any entity,  or to any
         subsidiary of such an entity, which owns, directly or indirectly,  more
         than 40% of the voting  stock of such party,  or to any  subsidiary  of
         such an entity  (provided  that such  entities and  subsidiaries  shall
         maintain  information  disclosed to them subject to the  provisions  of
         this Section 11.16); or

                  (viii) disclosure of information that prior to such disclosure
         has become public knowledge through no violation of this Agreement.




<PAGE> 118



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

                    PAYLESS CASHWAYS, INC.


                    By:  /S/ Stephen A. Lightstone
                         -------------------------------------
                         Title:  Senior Vice President



                         CANADIAN  IMPERIAL  BANK OF  COMMERCE,  AGENCY,
                         as  Administrative  Agent  and Collateral Agent


                    By:  /s/ Elizabeth K. Schreiber
                         -------------------------------------
                         Title:  As Agent



                         CIBC INC., as a Lender


                    By:  /s/ Elizabeth K. Schreiber
                         -------------------------------------
                         Title:  Authorized Signatory



                         CANADIAN IMPERIAL BANK OF COMMERCE, as Letter
                         of Credit and Hedging Bank


                    By:  /s/ Elizabeth K. Schreiber
                         -------------------------------------
                         Title:  Authorized Signatory



                         BANK OF AMERICA  NATIONAL  TRUST AND SAVINGS
                         ASSOCIATION, as Co-Agent, as a Lender and as
                         an Existing Cash Management Bank


                    By:  /s/ Lynn Simmons
                         -------------------------------------
                         Title:  Vice President



                         THE BANK OF NOVA SCOTIA, as Co-Agent and as a Lender


                    By:  /s/ T.C.H. Ashby
                         -------------------------------------
                         Title:  Senior Manager Loan Operations



                         NATIONSBANK  OF TEXAS,  N.A., as Co-Agent,  as a
                         Lender and as an Existing Cash Management Bank


                    By:  /s/ Jay T. Wampler
                         -------------------------------------
                         Title:  Vice President



<PAGE> 119

                         NATIONSBANK, N.A.


                    By:  /s/ Caryn Chittenden
                         -------------------------------------
                         Title:  Vice President



                         OAKTREE CAPITAL MANAGEMENT, LLC, as agent for
                         certain funds and accounts


                    By:  /s/ George Leiva
                         -------------------------------------
                         Title:  Managing Director

                    By:  /s/ Kenneth Liang
                         -------------------------------------
                         Title:  Managing Director and General Counsel



                         BOATMEN'S  FIRST  NATIONAL  BANK  OF  KANSAS
                         CITY,   as  a   Lender,   as  the  New  Cash
                         Management Bank, and as the Foreign Exchange
                         Bank


                    By:  /s/ Phil A. Conrady
                         -------------------------------------
                         Title:  Vice President



                         THE DAI-ICHI KANGYO BANK LTD., CHICAGO BRANCH


                    By:  /s/ S. Ino
                         -------------------------------------
                         Title:  Vice President



                         FIRST  BANK  NATIONAL  ASSOCIATION,  as  a  Lender
                         and  as  an  Existing  Cash Management Bank


                    By:  /s/ Jack L. Quitmeyer
                         -------------------------------------
                         Title:  Vice President



                         LEHMAN COMMERCIAL PAPER INC.


                    By:  /s/ Dennis J. Dee
                         -------------------------------------
                         Title:  Authorized Signatory



                         NATIONAL CITY BANK, INDIANA


                    By:  /s/ Michael J. Stewart
                         -------------------------------------
                         Title:  Vice President



                         THE SUMITOMO BANK, LIMITED


                    By:  /s/ Ken-Ichiro Kobayashi
                         -------------------------------------
                         Title:  Joint General Manager



<PAGE> 120

                         UNION BANK OF CALIFORNIA, N.A.


                    By:  /s/ Christiana Creekpaum
                         -------------------------------------
                         Title:  Vice President



                         ABN AMRO BANK  N.V.


                    By:  /s/ Steven C. Wimpenny
                         -------------------------------------
                         Title:  Authorized Signer


                    By:  /s/ Steven Gutman
                         -------------------------------------
                         Title:  Authorized Signer



                         VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST


                    By:  /s/ Brian W. Good
                         -------------------------------------
                         Title:  Vice President



                         INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
                         CORPORATION


                    By:  /s/ Joan M. Chiappe
                         -------------------------------------
                         Title:  Vice President

                       MORGENS,  WATERFALL  VINTIADIS  & CO.,  INC.,  as
                       agent for  certain  funds and accounts


                    By:  /s/ Stuart Brown
                         -------------------------------------
                         Title:  Authorized Agent