Document:

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                                                                   EXHIBIT 10.43

May 10, 2000

Mr. Gordon M. Binder
130 Delfern Drive
Los Angeles, CA  90077

Re:  Agreement Regarding Part-Time Special Assignment Position
     ---------------------------------------------------------

Dear Gordon:

On behalf of Amgen Inc. ("Amgen" or the "Company"), I am pleased to confirm in
this letter agreement (the "Agreement") the terms and conditions under which you
will continue to be employed by Amgen from and after the date upon which you
cease to serve as Amgen's Chief Executive Officer which will occur on May 11,
2000 (the "Effective Date").  You will remain in your current position and
receive all compensation and benefits of that position between now and the
Effective Date.  This Agreement also provides for the termination of your
employment with Amgen on or before December 31, 2002, as set forth below.

1.   POSITION AND DUTIES
     -------------------

     On the Effective Date, you will retire and resign from all offices you hold
     in Amgen and its subsidiaries, except that, if elected by the stockholders
     of the Company at the Annual Meeting of Stockholders to be held on May 11,
     2000, then you will remain as a member of the Board of Directors until
     December 31, 2000, and if appointed by the Board of Directors to be
     Chairman of the Board of Directors, then you will remain as Chairman of the
     Board of Directors until December 31, 2000.  In connection with resigning
     your offices, you agree to execute and return to Amgen with this Agreement
     a signed original resignation letter (the "Resignation Letter") on your
     Amgen letterhead in the form provided in Appendix A to this Agreement.
     Appendix A is hereby incorporated into and made part of the Agreement by
     reference.

     On the Effective Date you will cease to be a regular full-time employee of
     Amgen and you will also continue to be employed by Amgen as an employee in
     a part-time special assignment position, as Special Advisor to the Chief
     Executive Officer.  As Special Advisor to the Chief Executive Officer, you
     will assist Kevin Sharer or his successor or designee (collectively "Your
     Supervisor").  You will assist Your Supervisor in monitoring and evaluating
     various federal government developments as they relate to Amgen's current
     products, products which Amgen is in the process of developing and
     potential future products, including those which Amgen may acquire by
     corporate or other acquisitions.  You will also advise Your Supervisor on
     certain arbitration and litigation matters, such as those involving Johnson
     & Johnson and Transkaryotic Therapies, Inc. and such other matters as you
     and Your Supervisor mutually agree upon.
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Mr. Gordon M. Binder
May 10, 2000
Page 2

     Upon Your Supervisor's reasonable request, you will be required to provide
     Your Supervisor with written or oral reports and/or copies of other written
     materials with regard to the foregoing.  Your Supervisor will evaluate your
     performance.

     You will be a member of the Executive Department and as such, Your
     Supervisor will control and direct the manner in which you perform the
     services under this Agreement, including the details and means by which you
     provide your services.

     You will be an employee of Amgen for all purposes during the term of this
     Agreement and will not be an independent contractor.

     As we have discussed, the position of Special Advisor to the Chief
     Executive Officer is a part-time special assignment position in which you
     will be expected to work a minimum of ten (10) hours per month; however,
     you also agree that, to the extent that Your Supervisor requests, you will
     work up to twenty (20) hours per month.  In the event that Amgen requests,
     and you agree, to work more than twenty (20) hours per month, then you will
     receive no additional compensation or benefits for such additional work.
     Your time spent traveling pursuant to this Agreement shall count toward
     your hours worked under this Agreement.  For any month in which Amgen does
     not specially assign you a sufficient amount of work to meet your minimum
     hour requirement, you should satisfy your minimum by independently
     identifying, researching, and evaluating issues and developments in your
     areas of responsibility, as set forth above, and reporting on your findings
     to Your Supervisor.

     If requested by Your Supervisor, you agree to attend certain meetings or
     programs related to your area of expertise so long as such meeting or
     program does not unreasonably interfere with your other activities.

     You will maintain a log showing the time you have spent performing the
     foregoing services and this log shall be deemed conclusive evidence of the
     time spent.  Amgen, at any time, may request a copy of your log and you
     agree to provide such a copy within a reasonable period of time after the
     request is made.  Furthermore, from time to time, your duties may require
     you to travel and attend meetings at various locations, including Amgen's
     Thousand Oaks facility, and you agree that no reasonable request by Your
     Supervisor for travel or attendance at meetings will be refused.  Your
     Supervisor will work with you in scheduling any such business trips or
     meetings so that they do not unreasonably interfere with your other
     activities and Amgen will reimburse you for your reasonable travel expenses
     pursuant to the reimbursement policy(ies) in place at Amgen for corporate
     officers at the time you incur such expenses.  In the event that you fly on
     Amgen business on a private aircraft that you own (in whole or in part),
     then Amgen will reimburse you for the cost of such a trip in the amount of
     the applicable first-class commercial airfare rate for such a trip.
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Mr. Gordon M. Binder
May 10, 2000
Page 3

     We have agreed that your part-time special assignment will continue until
     December 31, 2002, subject to extension as you and Amgen may agree in
     writing or to earlier termination by you or Amgen as set forth in Paragraph
     8 of this Agreement. As long as you are employed by Amgen, you will
     continue to be subject to Amgen's policies and procedures, including but
     not limited to those relating to the non-disclosure of proprietary and
     confidential information and you will continue to be subject to the Amgen
     Inc. Proprietary Information and Inventions Agreement, executed by you on
     or about June 1, 1982 (the "Proprietary Agreement") (which also contains
     obligations that survive the termination of your employment with Amgen).
     However, notwithstanding the foregoing, you will not be required to comply
     with Procedures 3, 10 and 11 of the Company's Corporate Policy Number 230
     ("Conflict of Interest/Insider Information"), a copy of which is attached
     hereto as Appendix B, commencing on the opening of business on the third
     full business day following the Company's public release detailing the
     Company's full financial results for the fiscal year ended December 31,
     2000.

     During the term of your part-time special assignment, except as set forth
     herein, you may not be employed by any person or company other than Amgen,
     without Amgen's prior approval. You may be self-employed, an independent
     contractor, a partner, a consultant, or a member of a venture capital or
     private equity firm. You may only join the board of directors of any
     company within the fields of biotechnology, human therapeutics, or
     pharmaceutics with Amgen's advance written permission, but you may join the
     board of directors of any other company without Amgen's permission. You may
     also engage in teaching, charitable, civic, or political activities. You
     may engage in the activities described in the preceding three sentences
     provided that such activity: (1) does not interfere with your duties under
     this Agreement and (2) does not violate the terms of the Proprietary
     Agreement. You also agree that during the term of this Agreement, you will
     not solicit for employment or affiliation, including as independent
     contractor, any officer, director, or employee of Amgen or its
     subsidiaries.

2.   COMPENSATION AND BENEFITS
     -------------------------

     Following is a brief description of the compensation and benefits you will
     receive under this Agreement during your part-time special assignment.  The
     terms and conditions of all of your benefits are subject to the terms and
     conditions of each of the applicable plans, policies or arrangements, as
     they may be amended or terminated by Amgen from time to time.

     2.1  Compensation:  Your compensation will be $80,000 per month from the
          ------------
          Effective Date through December 31, 2000, and $40,000 per month from
          December 31, 2000 through December 31, 2002, subject to applicable
          income tax and employment tax withholding requirements.  In addition,
          Amgen will reimburse you for any reasonable business expenses you
          incur in performing your duties, subject to Amgen's standard employee
          expense reimbursement policies.
<PAGE>

Mr. Gordon M. Binder
May 10, 2000
Page 4

     2.2  Administrative Support and Office Space: Amgen will provide you with
          ---------------------------------------
          an office and secretarial assistance for any work that you perform
          while at Amgen's Thousand Oaks headquarters. You will also be provided
          any office equipment and supplies you may need to perform your duties
          under this Agreement at Amgen's Thousand Oaks headquarters and you
          will have access to the services of Amgen's travel department.

          If you maintain an office where you will perform some of the services
          required by this Agreement and this office is located more than 15
          miles from Amgen's Thousand Oaks headquarters, then Amgen will
          reimburse you for the actual amount of rental expenses for such an
          office and the charge for up to two (2) parking spaces at the office
          building complex where your office is located up to a maximum amount
          of $6,000 per month. Amgen will supply you with office furniture for
          this office and at the end of your special assignment period, you must
          either return this furniture to Amgen or purchase the furniture from
          Amgen at its then depreciated value as determined by Amgen. Amgen will
          supply you with a secretary through a temporary employment agency
          utilized by Amgen. All other reasonable business expenses incurred by
          you in connection with such an office will be paid by you and
          reimbursed by Amgen.

     2.3  Management Incentive Plan:  You will not be eligible to participate in
          -------------------------
          Amgen's Management Incentive Plan (the "MIP") for any year after the
          1999 calendar year.

     2.4  Special Bonus for 2000 Calendar Year: As part of the transition to
          ------------------------------------
          your part-time special assignment position, you will be entitled to a
          special bonus in the amount of 37% of the MIP payment that you would
          have received for the calendar year 2000 based on what would have been
          your MIP rating for the calendar year 2000, if you had been eligible
          for that MIP payment and if you had been deemed to have been a regular
          full-time employee for the entire year for the purposes of MIP. This
          special bonus will be paid to you at the same time that MIP
          distributions are made to the participants in the MIP in 2001.

     2.5  Supplemental Retirement Plan: As an employee in a part-time special
          ----------------------------
          assignment position, you will no longer be eligible to receive
          additional credits in your supplemental retirement plan account,
          although you will continue to maintain an account and receive earnings
          on the balance in your account until the termination of your
          employment.

     2.6  Retirement and Savings Plan: Pursuant to Section 3.3 of the 401(k)
          ---------------------------
          Plan, employees that are eligible to participate in the 401(k) Plan
          are those that are classified as "regular full-time" or "regular part-
          time" employees. By signing below, you expressly acknowledge and agree
          that Amgen is not classifying you as a
<PAGE>

Mr. Gordon M. Binder
May 10, 2000
Page 5

          regular full-time or regular part-time employee and therefore, as of
          the Effective Date, you will not be eligible to make contributions or
          to have contributions made on your behalf to the 401(k) Plan. This
          letter qualifies as an agreement pursuant to Section 3.3(c)(2) of the
          401(k) Plan. You will, however, be able to maintain your 401(k)
          account in the Amgen plan to the extent allowed by law.

     2.7  Change of Control Severance Plan:  You will continue to be eligible to
          --------------------------------
          participate in the Amgen Inc. Change of Control Severance Plan (the
          "CIC Plan"). However, on the Effective Date you will cease to be a
          Group I Participant and will become a Group II Participant in the CIC
          Plan by virtue of your ceasing to be a member of Amgen's Operating
          Committee. Notwithstanding the foregoing, in the event that the
          aggregate benefits provided for in this Agreement are greater than
          those provided in the CIC Plan upon a termination of employment for
          which you would be eligible to receive benefits under the terms and
          conditions of the CIC Plan, this Agreement, rather than the CIC Plan
          shall govern and control your rights upon a termination of employment;
          provided, that, in such event, and if applicable, you shall also
          receive the 280G tax gross-up benefit provided in Section 4.1(G) of
          the CIC Plan.

     2.8  Stock Options:
          -------------

          2.8.1  No New Grants: As an employee in a part-time special assignment
                 -------------
                 position, you will not be eligible to receive additional stock
                 option grants after the Effective Date.

          2.8.2  Vesting During Special Assignment: To the extent that you
                 ---------------------------------
                 continue in your part-time special assignment, you will be
                 eligible to continue to vest in all unvested options that have
                 previously been granted to you by Amgen on the dates and in the
                 manner provided in your stock option grant agreements and
                 applicable stock option plans. No stock options will vest
                 following the Termination Date as defined in Paragraph 8 of
                 this Agreement.

          2.8.3  Voluntary Retirement: Nothing in this Agreement shall be
                 --------------------
                 construed as limiting (i) your right to voluntarily retire from
                 Amgen during or at the end of the special assignment or (ii)
                 the applicability of Paragraph I of the Grants of Stock Options
                 listed on Appendix C to this Agreement to any termination of
                 your employment.

          2.8.4  Cooperation To Restructure: As we have discussed, it is our
                 --------------------------
                 intention that your ability to continue to vest in and exercise
                 options while in your part-time special assignment position
                 will not result in any additional compensation charges to Amgen
                 in accordance with U.S. generally accepted
<PAGE>

Mr. Gordon M. Binder
May 10, 2000
Page 6

                 accounting principles. Accordingly, if at any time Amgen
                 determines that it is reasonably likely that Amgen will incur a
                 compensation charge as a result of your vesting or exercising
                 options in your part-time special assignment position then you
                 agree that you will use your reasonable best efforts to
                 cooperate with Amgen to restructure this Agreement and your
                 position as Amgen reasonably determines is necessary for you to
                 continue to be able to vest and exercise your options without
                 creating a compensation charge to Amgen in accordance with U.S.
                 generally accepted accounting principles and without causing
                 you to lose any of the benefits of this Agreement. It is
                 expressly understood that your "reasonable best efforts to
                 cooperate with Amgen" shall not require that you take or
                 forbear from taking any action that would result in any loss of
                 value of the options.

          2.8.5  No Amendment to Stock Option Grant Agreements or Stock Option
                 -------------------------------------------------------------
                 Plans: Nothing in this Agreement shall be deemed to alter,
                 -----
                 amend, or otherwise modify the terms of your stock option grant
                 agreements or the terms of the applicable stock option plans.

     2.9  Medical, Dental, and Vision Insurance and COBRA: Your medical, dental,
          -----------------------------------------------
          and vision insurance coverage will terminate on the Effective Date. If
          after the Effective Date, you or your eligible dependents should elect
          to continue coverage under Amgen's group health plan(s) under the
          Consolidated Omnibus Budget Reconciliation Act ("COBRA") continuation
          rights, and you or your eligible dependents timely take the required
          steps to initiate such coverage, then Amgen will pay the cost of COBRA
          coverage for you and your eligible dependents until the earlier of
          December 31, 2002, or until you and/or your eligible dependents no
          longer qualify for COBRA continuation rights or in the case of your
          dependents, the date on which such dependents cease to be eligible
          dependents on your Amgen group health plan(s), which ever comes first.
          If you and/or your eligible dependents qualify for COBRA benefits on
          or after December 31, 2002, then you and/or your eligible dependents
          will have the option of continuing coverage under Amgen's group health
          plan(s), under COBRA and at your own expense. If you and/or your
          eligible dependents lose COBRA eligibility prior to December 31, 2002,
          and you obtain health insurance coverage for you and/or your eligible
          dependents for the period between the time you and your eligible
          dependents lose such coverage and December 31, 2002, then Amgen will
          reimburse you for the full cost of such insurance premiums. To receive
          reimbursement, submit copies of the health insurance premium invoices
          and other applicable information on a monthly basis to Amgen. For a
          complete description of the rights and responsibilities you and your
          eligible dependents have under COBRA, you must refer to the COBRA
          documents that will be sent to you by Amgen or its designee under
          separate cover.

     2.10 Basic Life Insurance:  Your Basic Life Insurance coverage will
          --------------------
          terminate on the Effective Date. If you are interested in converting
          this insurance to an individual policy, please contact Jean Ellis at
          Aetna (860) 273-7252 within thirty (30) days
<PAGE>

Mr. Gordon M. Binder
May 10, 2000
Page 7

          after the Effective Date.

     2.11 Long-Term Disability Insurance:  Your Long-Term Disability Plan
          ------------------------------
          coverage will terminate on the Effective Date and there is no
          conversion policy or plan available for this coverage.

     2.12 Amgen Foundation Matching Funds:  During the term of your special
          -------------------------------
          assignment, contributions you make to qualified organizations will
          continue to be eligible for matching funds from the Amgen Foundation,
          subject to the same terms, conditions, and limitations that apply to
          contributions made by regular, full-time employees of Amgen.

     2.13 Other Benefits:  As an employee in a part-time special assignment
          --------------
          position, you will not be eligible to participate in the following
          Amgen benefit plans and programs as well as any other benefits not
          specifically listed in this letter: Dependent Care Assistance Program;
          Medical Flexible Spending Account; Employee Stock Purchase Plan;
          Voluntary and Dependent Life Insurance coverage; Accidental Death and
          Dismemberment benefit; use of Amgen Fitness Center facilities; use of
          Amgen Child Care Center facilities; personal illness;
          vacation/optional holiday pay; family illness/personal time;
          bereavement leave or holidays. Your accrued and unused vacation hours
          and optional holiday pay will be paid to you on the next regularly
          scheduled payroll date following the Effective Date.

3.   TRANSFER OF COMPANY PROPERTY
     ----------------------------

     Except as provided in the remainder of this Subparagraph, you promise that
     on or before the Termination Date, as defined in Paragraph 8 of this
     Agreement, you will return to Amgen all files, memoranda, documents,
     records, copies of the foregoing, credit cards, keys, and any other Amgen
     property in your possession or under your control.  As an employee in a
     part-time special assignment position, you will continue to have access to
     and use of the cellular telephone and telefax machines that Amgen
     previously provided to you.  As of the termination of your employment with
     Amgen, you will be entitled to retain the equipment referenced in the
     preceding sentence.

4.   OFFICERS AND DIRECTORS INSURANCE
     --------------------------------

     During your part-time special assignment and for six (6) years following
     the Termination Date, you will be covered by such officers and directors
     insurance coverage that Amgen provides to its senior executive officers at
     your salary grade level during that time period.  In addition, Amgen shall
     indemnify and hold you and your estate harmless both during and after the
     entire term of your employment (including your service hereunder) to the
     fullest extent permitted by law with regards to actions or inactions in
     relation to your duties performed at Amgen, both before and after the date
     of this Agreement.  In the
<PAGE>

Mr. Gordon M. Binder
May 10, 2000
Page 8

     event that you are being indemnified pursuant to this Paragraph 4, then you
     will be entitled to the advancement of expenses to the same extent as Amgen
     corporate officers would then be entitled to such advancement of expenses.
     Furthermore, you will be entitled to reimbursement of expenses incurred in
     accordance with your rights under California Labor Code Section 2802.

5.   LEGAL FEE AND FINANCIAL/TAX CONSULTING REIMBURSEMENT
     ----------------------------------------------------

     Amgen will reimburse you for the legal expenses reasonably incurred by you
     in connection with the review of this Agreement up to a maximum amount of
     $10,000.  Amgen will also reimburse you for financial and/or tax counseling
     expenses that you reasonably incur, up to a maximum amount of $3,000 per
     year, for each year of this Agreement.

6.   REFERENCE
     ---------

     Amgen will provide you with a positive written factual reference.  I should
     be listed as your work reference.  You agree to confer with me on the form
     and nature of the reference to be provided to third parties concerning the
     work that you have performed at Amgen.  If, by sixty (60) days after the
     Effective Date, you are unable to reach agreement with me on the written
     reference to be provided, then Amgen's only obligation will be to respond
     to inquiries by confirming to third parties the dates of your employment at
     Amgen and the last position you held as an Amgen employee.

7.   RELOCATION
     ----------

     If you decide to relocate outside of the fifty (50) mile radius of your
     Residence (as defined below) during the period of your part-time special
     assignment or immediately at the termination thereof for any reason other
     than for a Stated Reason, as defined below, and sell your current, local,
     primary residence located in Los Angeles, California (the "Residence") so
     that the sale escrow closes no later than December 31, 2002, then Amgen
     will provide you with the following:

     7.1  If your new employer, if any, provides for part of the following
          expenses, then Amgen would pay normal and customary amounts beyond
          those which such new employer paid, up to the amounts that Amgen would
          normally pay, as of the date your employment with Amgen terminated, to
          newly hired Amgen employees in your job: normal and customary costs
          for the packing, shipping, delivery, storage (for up to ninety (90)
          days) and unpacking of your common household goods and furnishings.

     7.2  If you shall sell your Residence so that the close of escrow on the
          sale occurs prior to December 31, 2002, then in such event, Amgen will
          reimburse you for those
<PAGE>

Mr. Gordon M. Binder
May 10, 2000
Page 9

          normal and non-recurring customary sales costs associated with the
          sale of such residence, subject to the following terms and conditions:

          7.2.1  Amgen's obligation will be limited to that amount which, as of
                 the day immediately prior to the date of this Agreement, Amgen
                 would pay to reimburse other employees of your then salary
                 grade level;

          7.2.2  to the extent that your new employer, if any, reimburses you
                 for, or pays any of, such non-recurring customary sales costs,
                 then Amgen will only reimburse you for that portion of the non-
                 recurring customary sales costs that exceed the amount paid for
                 by such new employer; and

          7.2.3  you provide all documentation requested by Amgen in connection
                 with this Subparagraph 7.2, upon the request of Amgen.

     7.3  If you meet the above conditions and so elect, Amgen will grant you
          the opportunity to place your Residence in the "Amgen Marketing
          Assistance and Homesale Program" (the "Program"). For a description of
          the Program, please contact Christine Swinburne of the Amgen Human
          Resources Department. In order to participate in the Program, you must
          notify Ms. Swinburne in writing, of your election to participate in
          the Program no later than June 30, 2002, in order to complete the home
          sale process by December 31, 2002. In order for Amgen to provide you
          with the assistance provided for in this Subparagraph 7.3 in
          connection with the sale of your Residence, you must give Amgen
          control over the disposition of the property, must provide such
          documentation as Amgen may request and must cooperate with Amgen in
          the sale of the Residence.

8.   EARLY TERMINATION OF SPECIAL ASSIGNMENT
     ---------------------------------------

     We have agreed that you will continue in your part-time special assignment
     position until December 31, 2002, at which time your employment with Amgen
     will terminate, provided however, that Amgen may terminate your employment
     prior to December 31, 2002 and you may terminate your employment prior to
     December 31, 2002 upon thirty (30) days prior written notice to Amgen.

     For purposes of this Paragraph 8, a "Stated Reason" means (i) your
     conviction of a felony related to the business of Amgen; (ii) the engaging
     by you in conduct that constitutes willful gross neglect or willful gross
     misconduct in carrying out your duties set forth in Paragraph 1 of this
     Agreement, resulting, in either case, in material economic harm to Amgen,
     unless you believed in good faith that such conduct was in, or not contrary
     to, the best interests of Amgen; or (iii) your material breach of any of
     the terms of this Agreement. In order for an event described in clauses
     (ii) and (iii) of the preceding sentence to qualify as a Stated Reason,
     Amgen must give written notice of the event to you and you must fail to
     cure the event within 60 days of receipt of that written notice.
<PAGE>

Mr. Gordon M. Binder
May 10, 2000
Page 10

     For purposes hereof, no act, or failure to act, on your part shall be
     deemed "willful" unless done, or omitted to be done, by you not in good
     faith.

     For purposes of this Paragraph 8, a "Covered Breach" means a breach by
     Amgen of its obligations under this Agreement in the following manner only
     (i) any reduction in your salary or benefits provided for in this Agreement
     or (ii) the assignment of duties to you that are inconsistent with, or
     greater in scope than, those set forth in Paragraph 1 of this Agreement or
     (iii) a reduction in your title or position or (iv) a material breach of
     Paragraphs 4, 6, or 12 of this Agreement by Amgen or (v) a failure by Amgen
     to have any successor expressly assume this Agreement in accordance with
     Paragraph 16 of this Agreement.  In order for an event described in the
     preceding sentence to qualify as a Covered Breach, you must give written
     notice of the event to Amgen and Amgen must fail to cure the event within
     60 days of receipt of that written notice.

     In the event your employment is terminated by Amgen for a Stated Reason or
     if you terminate your employment for any reason other than a Covered Breach
     then your payments and benefits from Amgen under this Agreement, including
     but not limited to the vesting of your stock options, will cease as of the
     effective date of the termination of your employment.

     In the event your employment is terminated by Amgen not for a Stated Reason
     or if you terminate your employment for a Covered Breach, then (i) you
     shall be paid in a cash lump-sum all of the remaining cash payments due to
     you under this Agreement from the date of your termination through December
     31, 2002, (ii) you shall continue to be provided the benefits set forth in
     Paragraph 2.9 of this Agreement through December 31, 2002 and (iii) Amgen
     shall take the necessary corporate action to accelerate the vesting of all
     of your outstanding and then unvested stock options so that they shall vest
     and become immediately exercisable in full as of the Termination Date; such
     stock options, as so accelerated shall be exercisable as provided in your
     stock option grant agreements and applicable stock option plans.  Amgen
     shall provide you with a copy of the resolutions taking the action
     described in clause (iii) of the preceding sentence.

     The date of the termination of your employment for any of the foregoing
     reasons, or upon your death, is hereinafter referred to as the "Termination
     Date".

9.   DEATH AND DISABILITY
     --------------------

     In the event of the termination of your employment hereunder by reason of
     your death or disability (within the meaning of Title II or XVI of the
     Social Security Act and as determined by the Social Security
     Administration) prior to December 31, 2002, all of the remaining payments
     pursuant to Paragraphs 2.1 and 2.4 of this Agreement will be payable to
     you, or in the event of your death, to the beneficiary or beneficiaries
     that you designate in writing to Amgen (if you make no such written
     designation, then such amounts would be payable to the beneficiary or
     beneficiaries you have designated for purposes of Amgen's 401(k) Plan).
     If, on your death, your spouse qualifies for coverage
<PAGE>

Mr. Gordon M. Binder
May 10, 2000
Page 11

     under Amgen's group health plan(s) pursuant to COBRA continuation rights,
     or if your spouse does not qualify for COBRA continuation rights but
     obtains health insurance coverage, then Amgen will continue to either pay
     the cost of COBRA coverage for your spouse, or reimburse your spouse for
     the full cost of such insurance premiums, whichever applies, through
     December 31, 2002, pursuant to the procedures set forth in Paragraph 2.9 of
     this Agreement. Your other remaining benefits will be treated according to
     their specific terms concerning such death or disability. For purposes of
     Paragraph 8(a) of the Amgen Inc. Amended and Restated 1988 Stock Option
     Plan and Paragraph 10(a) of the Amgen Inc. Amended and Restated 1991 Equity
     Incentive Plan, your employment with Amgen shall be deemed to have
     commenced in 1982, when you first became an employee at Amgen.

10.  INTERPRETATION
     --------------

     This Agreement and Appendix A and Appendix B attached hereto shall be
     construed as a whole according to their fair meaning, and not strictly for
     or against any of the parties.

     Unless the context indicates otherwise, the term "or" shall be deemed to
     include the term "and" and the singular or plural number shall be deemed to
     include the other.  Paragraph headings used in this Agreement are intended
     solely for convenience of reference and shall not be used in the
     interpretation of any of this Agreement.

11.  NOTICES
     -------

     For the purposes of this Agreement, notices, demands and all other
     communications provided for in this Agreement shall be in writing and shall
     be deemed to have been duly given when delivered either personally or by
     United States certified or registered mail, return receipt requested,
     postage prepaid, addressed, if to you, to the last address on file with
     Amgen and if to Amgen, to its executive offices or to such other address as
     any party may have furnished to the others in writing in accordance
     herewith, except that notices of change of address shall be effective only
     upon receipt.

12.  LEGAL FEES; ARBITRATION
     -----------------------

     12.1 Agreement to Arbitrate:  Any dispute (an "Arbitrable Dispute")
          ----------------------
          arising between the parties, including but not limited to those
          concerning the formation, validity, interpretation, effect, or alleged
          violations of this Agreement, must be submitted to binding arbitration
          for resolution in Los Angeles, California in accordance with the rules
          and procedures of the Employment Dispute Resolution Rules of the
          American Arbitration Association then in effect. The decision of the
          arbitrator shall be final and binding on both parties, and any court
          of competent jurisdiction may enter judgment upon the award. Except
          for an action taken outside of arbitration pursuant to Subparagraph
          12.4 of this Agreement, should either party pursue any other legal or
          administrative action against the other, the responding party shall be
          entitled to the return of any payments that party made under the
<PAGE>

Mr. Gordon M. Binder
May 10, 2000
Page 12

          Agreement and shall be entitled to recover all costs, expenses and
          attorneys' fees the responding party incurs as a result of such
          action. The arbitrator may not modify or change this Agreement in any
          way.

     12.2 Costs of Arbitration:  Each party shall pay the fees of their
          --------------------
          respective attorneys, the expenses of their witnesses and any other
          expenses connected with the arbitration, but all other costs of the
          arbitration, including the fees of the arbitrator, cost of any record
          or transcript of the arbitration, administrative fees and other fees
          and costs shall be paid in equal shares by you and Amgen. The party
          losing the arbitration shall reimburse the party who prevailed for all
          fees and expenses the prevailing party paid pursuant to the preceding
          sentence, and (where a prevailing-party attorney's fees provision
          exists) shall also reimburse the prevailing party for attorney's fees
          paid.

     12.3 Exclusive Remedy:  Arbitration in this manner shall be the
          ----------------
          exclusive remedy for any Arbitrable Dispute. The arbitrator's decision
          or award shall be fully enforceable and subject to an entry of
          judgment by a court of competent jurisdiction. Except for an action
          taken outside of arbitration pursuant to Subparagraph 12.4 of this
          Agreement, should you or Amgen, without the consent of the other
          party, attempt to resolve an Arbitrable Dispute by any method other
          than arbitration pursuant to this Paragraph 12, the responding party
          shall be entitled to recover from the initiating party all damages,
          expenses and attorneys' fees incurred as a result.

     12.4 Sole Exception:  Notwithstanding the foregoing, a dispute relating
          --------------
          to the alleged use or disclosure of information which is prohibited by
          the Proprietary Agreement, and/or the criticism, denigration or
          disparagement of Amgen or any of Amgen's products, processes,
          experiments, policies, practices, standards of business conduct, or
          areas or techniques of research may be resolved through a means other
          than arbitration, at Amgen's sole option.

13.  GOVERNING LAW
     -------------

     This Agreement is governed by, and is to be construed and enforced in
     accordance with, the laws of the State of California, without regard to
     principles of conflicts of laws.

14.  TAXES
     -----

     You acknowledge and agree that all payments made pursuant to this Agreement
     shall be made less applicable tax withholdings and/or other withholdings as
     required by law.  You acknowledge and agree that you, and not Amgen, shall
     be solely responsible for any taxes imposed upon you as a result of the
     payments and benefits you receive under the Agreement with the sole
     exception of the potential 280G tax gross-up as provided in Subparagraph
     2.7 of this Agreement.  This paragraph shall not be construed to require
<PAGE>

Mr. Gordon M. Binder
May 10, 2000
Page 13

     you to pay Amgen's portion of any employment tax withholding, such as
     Amgen's portion of FICA or FUTA.

15.  NO ASSIGNMENT OR DELEGATION
     ---------------------------

     Amgen has selected you for this part-time special assignment because it has
     judged that your unique experience and skills are those Amgen required for
     the job.  Accordingly, you may not assign or delegate any of your duties or
     responsibilities under this Agreement.

16.  SUCCESSORS; BINDING AGREEMENT
     -----------------------------

     16.1  Amgen's Successors:  No rights or obligations of Amgen under this
           ------------------
           Agreement may be assigned or transferred except that Amgen will
           require any successor (whether direct or indirect, by purchase,
           merger, consolidation or otherwise) to all or substantially all of
           the business and/or assets of Amgen to expressly assume and agree to
           perform this Agreement in the same manner and to the same extent that
           Amgen would be required to perform it if no such succession had taken
           place. As used in this Agreement, "Amgen" shall mean Amgen as herein
           before defined and any successor to its business and/or assets (by
           merger, purchase or otherwise) which executes and delivers the
           agreement provided for in this Paragraph 16 or which otherwise
           becomes bound by all the terms and provisions of this Agreement by
           operation of law.

     16.2  Your Successors:  No rights or obligations of you under this
           ---------------
           Agreement may be assigned or transferred by you other than your
           rights to payments or benefits hereunder, which may be transferred
           only by will or the laws of descent and distribution. Upon your
           death, this Agreement and all rights of you hereunder shall inure to
           the benefit of and be enforceable by your beneficiary or
           beneficiaries, personal or legal representatives, or estate, to the
           extent any such person succeeds to your interests under this
           Agreement. You shall be entitled to select and change a beneficiary
           or beneficiaries to receive any benefit or compensation payable
           hereunder following your death by giving Amgen written notice
           thereof. In the event of your death or a judicial determination of
           your incompetence, reference in this Agreement to you shall be
           deemed, where appropriate, to refer to your beneficiary (ies), estate
           or other legal representative(s). If your should die following your
           Termination Date while any amounts would still be payable to you
           hereunder if you had continued to live, all such amounts unless
           otherwise provided herein shall be paid in accordance with the terms
           of this Agreement to such person or persons so appointed in writing
           by you, or otherwise to your legal representatives or estate.
<PAGE>

Mr. Gordon M. Binder
May 10, 2000
Page 14

17.  ENTIRE AGREEMENT
     ----------------

     The Proprietary Agreement, your stock option agreements, this Agreement and
     Appendices A, B and C attached hereto, constitute the entire agreement,
     arrangement and understanding between you and Amgen; they may not be
     modified or canceled in any manner except by a writing signed by both you
     and Amgen.  This Agreement supersedes any prior or contemporaneous
     agreement, arrangement or understanding on this subject matter.  By
     executing this Agreement, you expressly acknowledge the termination of any
     such prior agreement, arrangement or understanding.  Also, by executing
     this Agreement, you affirm that no one has made any written or verbal
     statement that contradicts the provisions of this Agreement.

                                    Sincerely yours,

                                    /s/ Edward F. Garnett
                                    ---------------------
                                    Amgen Inc.
                                    By: Edward F. Garnett
                                    Vice President, Human Resources

     Acknowledged and Agreed:

     /s/ Gordon M. Binder
     --------------------
     Gordon M. Binder

     Dated: 5/10/00
            -------
<PAGE>

                                  APPENDIX A
<PAGE>

                                  RESIGNATION
                                  -----------

The undersigned hereby retires and resigns as Chief Executive Officer of Amgen
Inc. and as a Director of the Amgen Foundation effective May 11, 2000.  The
undersigned also agrees to resign from the Board of Directors and as Chairman of
the Board of Directors of Amgen Inc. effective December 31, 2000.

                                    /s/ Gordon M. Binder
                                    --------------------
                                    Gordon M. Binder

<PAGE>

                                  APPENDIX B

                    AMGEN -- Corporate Policy and Procedure

SUBJECT: Conflict of Interest/Inside Information

POLICY:

  Amgen staff members may receive important information that is not yet publicly
     available ("inside information") about Amgen or about other publicly-traded
     companies with which Amgen does business.  Because of access to this
     information, staff members may be in a position to profit financially by
     buying or selling or in some other way dealing in Amgen stock or stock of
     another publicly-traded company.  Staff members may also be in a position
     to benefit financially or otherwise by passing this information on to some
     other person.

  "Inside information" is non-public information that would be important to
     anyone who may trade in Amgen stock, or other publicly-traded companies
     with which Amgen does business.  As a general rule, if the non-public
     information would lead a staff member to consider buying or selling a
     company's stock, it would likely have the same effect on others.

  For anyone to use such information, or to disclose it to someone else, in
     order to gain personal benefit is illegal.  Any sale or purchase of stock
     based on such information is illegal, regardless of the amount of stock
     involved.  Furthermore, both for the protection of staff members and Amgen,
     it is important to avoid the appearance as well as the fact of insider
     trading or disclosure of inside information.

  It is the policy of Amgen to prohibit its staff members from engaging in any
     activity or practice in conflict with the interests of the Company, or
     which could be viewed as insider trading or disclosure of inside
     information.

APPLICABILITY: All Amgen staff members

PROCEDURE:

     1.   Amgen staff members should not allow themselves to be placed in a
          position where a conflict of personal interest and company interest
          may exist, or appear to exist. Amgen staff members must use care to
          avoid even the appearance of impropriety. When in doubt

                                                                             B-1
<PAGE>

          as to whether a certain activity represents a conflict of interest the
          staff member should contact the Law Department.

     2.   Amgen staff members are prohibited from buying or selling shares of
          Amgen stock while in possession of material confidential information
          that has not become generally known to the public.

     3.   In order to avoid any implication that any Amgen staff member might be
          inadvertently engaging in insider trading, Amgen staff members are
          prohibited from engaging in trades of puts, calls, options (whether
          "covered" or not), short sales and similar transactions in the
          Company's stock.

     4.   Staff members who possess "inside information" are prohibited from
          trading in a company's stock, advising anyone else to do so, or
          disclosing or otherwise communicating the information to anyone else,
          including, but not limited to: family members, friends, brokers, etc.,
          until the information has been widely circulated to the public.

     5.   Amgen staff members should deal with all suppliers, customers and all
          other persons doing business with Amgen in a completely fair and
          objective manner without favor or preference based upon personal
          financial or familial considerations.

     6.   Amgen staff members should neither seek nor accept, directly or
          indirectly, any payment, fees, loans, or services from any person or
          firm as a condition or result of their doing business with Amgen or
          any of its subsidiaries.

     7.   Amgen staff members should not accept gifts from any person or firm
          doing or seeking to do business with the Company under circumstances
          from which it might reasonably be inferred that the purpose of the
          gift is to influence the staff member in the conduct of Company
          business with the donor. Such gifts should be returned with a note of
          explanation. Staff members are not prohibited from accepting gifts of
          nominal value when circumstances clearly show that the gifts are
          offered for reasons of personal esteem and affection, or in accordance
          with normal business practices.

     8.   Amgen staff members should not do business with a relative on behalf
          of Amgen or any of its subsidiaries. If a situation should arise where
          a related family member is negotiating to do business with Amgen, then
          the staff member must disclose their relationship with the family
          member to his or her supervisor or others involved in the
          negotiations.

     9.   Amgen staff members should not hold any financial interest in any firm
          or corporation which is a competitor of or which does or seeks to do
          business with Amgen or its subsidiaries if such interest may influence
          any decision that person might make in the performance of their Amgen
          responsibilities.

     10.  Amgen staff members should not make investments in any securities of
          any corporation with which Amgen has entered into any type of research
          collaboration or joint venture ("Partner"). This prohibition applies
          to investments in the Common or Preferred Stock of

                                                                             B-2
<PAGE>

          such Partner, investments in limited partnerships sponsored by the
          Partner or investments in any puts, calls or convertible securities of
          the Partner. This policy does not require divestiture of investments
          made before this policy took effect, or made before the staff member
          joined Amgen or before Amgen entered into the research collaboration
          or joint venture. This policy does not prohibit investments in
          publicly traded mutual funds that invest in any Partner.

     11.  Amgen staff members have the affirmative duty to disclose to their
          responsible corporate officer the existence of any personal or
          material financial interest in any firm or corporation which is a
          competitor of or which seeks to do or does business with Amgen or any
          of its subsidiaries. Corporate officers should review each case with
          the General Counsel or Corporate Counsel, to determine whether there
          is a violation of this policy.

   Individuals who fail to comply with the requirements of this policy may be
     subject to disciplinary action, up to, and including, termination of
     employment.

Policy Number: 230
Effective Date: June, 1992

                                                                             B-3
<PAGE>

                                  APPENDIX C

                -----------------------------------------------
                    Grant Number               Date of Grant
                    ------------               -------------
                -----------------------------------------------

                -----------------------------------------------
                      927796                     07/01/97
                -----------------------------------------------
                      931893                     07/01/97
                -----------------------------------------------
                      933504                     07/01/98
                -----------------------------------------------
                      938857                     07/01/98
                -----------------------------------------------EXECUTION COPY
                                                                  --------------

                           SECOND AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

                            dated as of June 15, 2000

                                      among

                     THE FINANCIAL INSTITUTIONS NAMED HEREIN

                                 as the Lenders

                                       and

                              BANK OF AMERICA, N.A.

                                  as the Agent

                                       and

                           SWEETHEART CUP COMPANY INC.

                                 as the Borrower

                                       and

                            SWEETHEART HOLDINGS INC.

<PAGE>
<TABLE>
<CAPTION>

                                TABLE OF CONTENTS
                                                                                                PAGE
                                                                                                ----
<S>                 <C>      <C>
ARTICLE 1           INTERPRETATION OF THIS AGREEMENT.............................................2
                    1.1      Definitions.........................................................2
                    1.2      Accounting Terms....................................................36
                    1.3      Interpretive Provisions.............................................36

ARTICLE 2           LOANS AND LETTERS OF CREDIT..................................................37
                    2.1      Total Facility......................................................37
                    2.2      Revolving Loans.....................................................37
                    2.3      Term Loan...........................................................43
                    2.4      Letters of Credit...................................................45
                    2.5      Assignment and Assumption by PNC....................................51

ARTICLE 3           INTEREST AND FEES............................................................54
                    3.1      Interest............................................................54
                    3.2      Conversion and Continuation Elections...............................55
                    3.3      Maximum Interest Rate...............................................56
                    3.4      Certain Fees........................................................56
                    3.5      Unused Line Fee.....................................................56
                    3.6      Letter of Credit Fee................................................57
                    3.7      Collateral Management Fee...........................................57

ARTICLE 4           PAYMENTS AND PREPAYMENTS.....................................................57
                    4.1      Revolving Loans.....................................................57
                    4.2      Termination of Facility.............................................58
                    4.3      Repayment of the Term Loans.........................................58
                    4.4      Voluntary Prepayments of the Term Loans.............................58
                    4.5      Mandatory Prepayments of the Term Loans.............................59
                    4.6      Payments by the Borrower............................................60
                    4.7      Payments as Revolving Loans.........................................61
                    4.8      Apportionment, Application and Reversal of Payments.................61
                    4.9      Indemnity for Returned Payments.....................................62
                    4.10     Agent's and Lenders' Books and Records; Monthly Statements..........62

ARTICLE 5           TAXES, YIELD PROTECTION AND ILLEGALITY.......................................63
                    5.1      Taxes...............................................................63
                    5.2      Illegality..........................................................64
                    5.3      Increased Costs and Reduction of Return.............................64
                    5.4      Funding Losses......................................................65
                    5.5      Inability to Determine Rates........................................66
                    5.6      Certificates of Lenders.............................................66

                                       ii
<PAGE>

                    5.7      Survival............................................................66

ARTICLE 6           COLLATERAL...................................................................66
                    6.1      Grant of Security Interest..........................................66
                    6.2      Perfection and Protection of Security Interest......................70
                    6.3      Location of Collateral..............................................71
                    6.4      Title to, Liens on, and Sale and Use of Collateral..................72
                    6.5      Appraisals..........................................................72
                    6.6      Access and Examination; Confidentiality.............................72
                    6.7      Collateral Reporting................................................74
                    6.8      Accounts............................................................74
                    6.9      Collection of Accounts; Payments....................................76
                    6.10     Inventory; Perpetual Inventory......................................77
                    6.11     Equipment...........................................................77
                    6.12     Assigned Contracts..................................................79
                    6.13     Documents, Instruments, and Chattel Paper...........................79
                    6.14     Right to Cure.......................................................80
                    6.15     Power of Attorney...................................................80
                    6.16     The Agent's and Lenders' Rights, Duties and Liabilities.............81
                    6.17     Intercreditor Agreement.............................................81

ARTICLE 7           BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES............................81
                    7.1      Books and Records...................................................81
                    7.2      Financial Information...............................................81
                    7.3      Notices to the Lenders..............................................84

ARTICLE 8           GENERAL WARRANTIES AND REPRESENTATIONS.......................................87
                    8.1      Authorization, Validity, and Enforceability of this Agreement
                               and the other Transaction Documents...............................87
                    8.2      Validity and Priority of Security Interest..........................88
                    8.3      Organization and Qualification......................................88
                    8.4      Corporate Name; Prior Transactions..................................88
                    8.5      Subsidiaries and Affiliates.........................................88
                    8.6      Financial Statements and Projections................................88
                    8.7      Capitalization......................................................89
                    8.8      Solvency............................................................89
                    8.9      Debt................................................................89
                    8.10     Distributions.......................................................89
                    8.11     Title to Property...................................................89
                    8.12     Real Estate; Leases.................................................90
                    8.13     Proprietary Rights..................................................90
                    8.14     Trade Names.........................................................90
                    8.15     Litigation..........................................................90

                                       iii
<PAGE>

                    8.16     Restrictive Agreements..............................................90
                    8.17     Labor Disputes......................................................91
                    8.18     Environmental Laws..................................................91
                    8.19     No Violation of Law.................................................92
                    8.20     No Default..........................................................92
                    8.21     ERISA Compliance....................................................92
                    8.22     Taxes...............................................................93
                    8.23     Regulated Entities..................................................93
                    8.24     Use of Proceeds; Margin Regulations.................................93
                    8.25     Copyrights, Patents, Trademarks and Licenses, etc...................93
                    8.26     No Material Adverse Change..........................................94
                    8.27     Full Disclosure.....................................................94
                    8.28     Material Agreements.................................................94
                    8.29     Bank Accounts.......................................................94

ARTICLE 9           AFFIRMATIVE AND NEGATIVE COVENANTS...........................................95
                    9.1      Taxes and Other Obligations.........................................95
                    9.2      Corporate Existence and Good Standing...............................95
                    9.3      Compliance with Law and Agreements; Maintenance of Licenses.........95
                    9.4      Maintenance of Property.............................................96
                    9.5      Insurance...........................................................96
                    9.6      Condemnation........................................................97
                    9.7      Environmental Laws..................................................98
                    9.8      Compliance with ERISA...............................................98
                    9.9      Mergers, Consolidations or Sales....................................99
                    9.10     Distributions; Capital Change; Restricted Investments...............101
                    9.11     Transactions Affecting Collateral or Obligations....................104
                    9.12     Guaranties..........................................................104
                    9.13     Debt................................................................104
                    9.14     Prepayment..........................................................105
                    9.15     Transactions with Affiliates........................................105
                    9.16     Investment Banking and Finder's Fees................................106
                    9.17     Amendments of Senior Subordinated Notes and Other
                               Documents.........................................................106
                    9.18     Business Conducted..................................................107
                    9.19     Liens...............................................................107
                    9.20     Sale and Leaseback Transactions.....................................107
                    9.21     New Subsidiaries....................................................107
                    9.22     Fiscal Year.........................................................107
                    9.23     Capital Expenditures................................................107
                    9.24     [Reserved.].........................................................108
                    9.25     Minimum Availability................................................108
                    9.26     Fixed Charge Coverage Ratio.........................................108

                                       iv
<PAGE>

                    9.27     Use of Proceeds.....................................................108
                    9.28     Senior Indebtedness and Secured Sale/Leaseback Collateral...........109
                    9.29     Further Assurances..................................................109

ARTICLE 10          CONDITIONS OF LENDING........................................................109
                    10.1     Conditions Precedent to Making of Loans on the Original
                               Closing Date......................................................109
                    10.2     Conditions Precedent to Each Loan...................................112
                    10.3     Conditions Precedent to Effectiveness of Amendment and
                               Restatement and Making of Loans on Closing Date...................112

ARTICLE 11          DEFAULT; REMEDIES............................................................115
                    11.1     Events of Default...................................................115
                    11.2     Remedies............................................................118

ARTICLE 12          TERM AND TERMINATION.........................................................120
                    12.1     Term and Termination................................................120

ARTICLE 13          AMENDMENTS; WAIVER; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS..................120
                    13.1     No Waivers; Cumulative Remedies.....................................120
                    13.2     Amendments and Waivers..............................................121
                    13.3     Assignments; Participations.........................................122

ARTICLE 14          THE AGENT....................................................................124
                    14.1     Appointment and Authorization.......................................124
                    14.2     Delegation of Duties................................................124
                    14.3     Liability of Agent..................................................124
                    14.4     Reliance by Agent...................................................125
                    14.5     Notice of Default...................................................125
                    14.6     Credit Decision.....................................................125
                    14.7     Indemnification.....................................................126
                    14.8     Agent in Individual Capacity........................................126
                    14.9     Successor Agent.....................................................127
                    14.10    Withholding Tax.....................................................127
                    14.11    [Reserved.].........................................................128
                    14.12    Collateral Matters..................................................128
                    14.13    Restrictions on Actions by Lenders; Sharing of Payments.............129
                    14.14    Agency for Perfection...............................................130
                    14.15    Payments by Agent to Lenders........................................130
                    14.16    Concerning the Collateral and the Related Loan Documents............131
                    14.17    Field Audit and Examination Reports; Disclaimer by Lenders..........131
                    14.18    Relation Among Lenders..............................................131

                                       v
<PAGE>

ARTICLE 15          MISCELLANEOUS................................................................132
                    15.1     Cumulative Remedies; No Prior Recourse to Collateral................132
                    15.2     Severability........................................................132
                    15.3     Governing Law; Choice of Forum; Service of Process; Jury Trial
                               Waiver............................................................132
                    15.4     WAIVER OF JURY TRIAL................................................133
                    15.5     Survival of Representations and Warranties..........................134
                    15.6     Other Security and Guaranties.......................................134
                    15.7     Fees and Expenses...................................................134
                    15.8     Notices.............................................................135
                    15.9     Waiver of Notices...................................................136
                    15.10    Binding Effect......................................................136
                    15.11    Indemnity of the Agent and the Lenders by the Borrower..............136
                    15.12    Limitation of Liability.............................................137
                    15.13    Final Agreement.....................................................137
                    15.14    Counterparts........................................................137
                    15.15    Captions............................................................138
                    15.16    Right of Setoff.....................................................138
                    15.17    Credit Agreement and Conflicts......................................138
                    15.18    Intercreditor Agreement.............................................138
                    15.20    Ratification and Confirmation.......................................139

</TABLE>
                                       vi
<PAGE>

<TABLE>
<CAPTION>

                             EXHIBITS AND SCHEDULES
                             ----------------------

EXHIBITS
--------
<S>                        <C>

EXHIBIT A -                FORM OF THE TERM LOAN NOTE

EXHIBIT B -                FORM OF BORROWING BASE CERTIFICATE

EXHIBIT C -                FINANCIAL STATEMENTS

EXHIBIT D -                [RESERVED]

EXHIBIT E -                FORM OF NOTICE OF BORROWING

EXHIBIT F -                FORM OF NOTICE OF CONVERSION/CONTINUATION

EXHIBIT G -                FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT

EXHIBIT H -                FORM OF STOCKHOLDER SUBORDINATED NOTE

EXHIBIT I -                FORM OF LILY INTERCOMPANY NOTE

SCHEDULES
---------

SCHEDULE 1.1A              ASSIGNED CONTRACTS

SCHEDULE 1.1B              CREDIT AGREEMENT TERM LOAN EQUIPMENT COLLATERAL

SCHEDULE 6.3               LOCATION OF COLLATERAL

SCHEDULE 8.3               ORGANIZATION AND QUALIFICATION

SCHEDULE 8.5               SUBSIDIARIES AND AFFILIATES

SCHEDULE 8.12              REAL ESTATE; LEASES

SCHEDULE 8.13              PROPRIETARY RIGHTS

SCHEDULE 8.14              TRADE NAMES

SCHEDULE 8.15              LITIGATION

                                       vii
<PAGE>

SCHEDULE 8.17              LABOR DISPUTES

SCHEDULE 8.18              ENVIRONMENTAL LAW

SCHEDULE 8.21              ERISA

SCHEDULE 8.28              MATERIAL AGREEMENTS

SCHEDULE 8.29              BANK ACCOUNTS

SCHEDULE 9.13              EXISTING DEBT

SCHEDULE 9.19              EXISTING LIENS

                                       viii
</TABLE>

<PAGE>

             SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

     Second Amended and Restated Loan and Security  Agreement,  dated as of June
15, 2000, among the financial  institutions listed on the signature pages hereof
(such  financial  institutions,  together with their  respective  successors and
assigns,  are  referred  to  hereinafter  each  individually  as a "Lender"  and
collectively  as the  "Lenders"),  Bank of  America,  N.A.,  a national  banking
association (together with any successor,  "BofA") and  successor-in-interest to
BankAmerica  Business  Credit,  Inc.  ("BABC") with an office at Forty East 52nd
Street,  New York, New York 10022,  as agent for the Lenders (in its capacity as
agent,  together with any successor agent, the "Agent"),  Sweetheart Cup Company
Inc., a Delaware  corporation,  with offices at 10100  Reisterstown Road, Owings
Mills, Maryland 21117 (the "Borrower"), and Sweetheart Holdings Inc., a Delaware
corporation,  with offices at 10100  Reisterstown  Road, Owings Mills,  Maryland
21117 ("Parent").
                               W I T N E S S E T H
                               -------------------

     WHEREAS,  the  Borrower  and  Parent  were  parties  to  a  certain  Credit
Agreement,  dated as of August 30, 1993, by and among the Borrower,  Parent, the
banks and other financial  institutions party thereto and Bankers Trust Company,
as agent, as amended by a First  Amendment,  dated as of July 22, 1994, a Second
Amendment To Credit Agreement,  dated as of September 6, 1996, a Third Amendment
To Credit  Agreement,  dated as of June 17,  1997,  and a Fourth  Amendment  and
Consent To Credit Agreement,  dated as of September 29, 1997 (as so amended, the
"Original Credit Agreement");

     WHEREAS,  the Borrower had requested BABC to make available to the Borrower
a  revolving  line of credit for loans and letters of credit in an amount not to
exceed  $135,000,000  and which extensions of credit the Borrower was to use for
its working capital needs and general business purposes;

     WHEREAS,  BABC agreed to make available to the Borrower a revolving  credit
facility upon certain terms and conditions;

     WHEREAS,  in  connection  with  the  aforesaid  revolving  credit  facility
requested by the  Borrower  from BABC,  effective  as of October 24, 1997,  BABC
purchased from the banks and other financial  institutions party to the Original
Credit  Agreement all of such banks' and other  financial  institutions'  right,
title and interest in and to the Original Credit Agreement and the documents and
instruments  executed  and  delivered  in  connection  therewith  (with  certain
exceptions),  all pursuant to a certain Assignment and Assumption Agreement (the
"Bank  Assignment  Agreement"),  dated as of October 24, 1997,  among BABC,  the
banks and other

                                       1
<PAGE>

financial  institutions  party to the Original Credit  Agreement,  the agent and
collateral agent under the Original Credit Agreement, the Borrower and Parent;

     WHEREAS,  the  Borrower,  Parent and BABC amended and restated the Original
Credit  Agreement in its entirety to provide for the aforesaid  revolving credit
facility  requested by the Borrower from BABC, all pursuant to a certain Amended
and Restated Loan and Security  Agreement,  dated as of October 24, 1997,  among
BABC, as the sole lender thereunder, BABC, as Agent, the Borrower and Parent (as
heretofore amended, the "Existing Loan and Security Agreement");

     WHEREAS, the Borrower desires (i) to redeem all of its Senior Secured Notes
(as hereinafter defined) with the proceeds of a sale/leaseback arrangement to be
entered  into by the  Borrower  with  respect to certain  of its  Equipment  (as
hereinafter  defined)  and (ii)  that the  Lenders  provide  to the  Borrower  a
$25,000,000 term loan facility and extend the scheduled  termination date of the
revolving  credit  facility  provided  under  the  Existing  Loan  and  Security
Agreement; and

     WHEREAS,  the Borrower,  Parent,  the Lenders and the Agent desire to amend
and restate the  Existing  Loan and  Security  Agreement  in its entirety in the
manner  hereinafter set forth to, among other things,  reflect such  redemption,
sale/leaseback  arrangement,  term loan  facility and extension of the aforesaid
revolving credit facility.

     NOW,  THEREFORE,  in consideration of the mutual  conditions and agreements
set  forth  in this  Agreement,  and for good and  valuable  consideration,  the
receipt of which is hereby acknowledged,  the Borrower,  Parent, the Lenders and
the Agent hereby agree that the Existing Loan and Security  Agreement  shall be,
and hereby is, amended and restated in its entirety as follows.

                                    ARTICLE 1

                        INTERPRETATION OF THIS AGREEMENT
                        --------------------------------

     1.1  Definitions . As used herein:

          "Account  Debtor"  means  each  Person  obligated  in any way on or in
connection with an Account.

          "Accounts" means all of the Borrower's now owned or hereafter acquired
or arising  accounts,  and any other  rights to payment for the sale or lease of
goods or  rendition  of  services,  whether  or not they  have  been  earned  by
performance.

                                       2
<PAGE>

          "Adjusted Net Earnings  from  Operations"  means,  with respect to any
period of time, the  Borrower's net income after  provision for income taxes for
such period of time, as  determined in accordance  with GAAP and reported on the
Financial  Statements  for such period,  excluding  any and all of the following
included  in such  net  income:  (a) gain or loss  arising  from the sale of any
capital assets;  provided that  notwithstanding  the foregoing,  for purposes of
testing the Fixed Charge  Coverage  Ratio for any Test Period ending on or after
June 30, 1998,  any gain arising from the sale of any capital assets (other than
Credit Agreement Collateral and Secured Sale/Leaseback  Collateral) of Parent or
any of its Subsidiaries  permitted under Section 9.9 may be included in such net
income if all of the net cash proceeds of such sale have been  reinvested in any
business of Parent or the Borrower  permitted  under Section  9.18;  (b) gain or
loss  arising  from  any  write-up  or  non-cash  charge  from  the  write-down,
respectively,  in the book value of any asset;  (c) earnings of any corporation,
substantially  all the assets of which have been acquired by the Borrower in any
manner,  to the extent realized by such other  corporation  prior to the date of
acquisition;  (d) earnings of any  business  entity in which the Borrower has an
ownership  interest unless (and only to the extent) such earnings shall actually
have  been  received  by the  Borrower  in the form of cash  distributions;  (e)
earnings  of any Person to which  assets of the  Borrower  shall have been sold,
transferred  or disposed of, or into which the Borrower  shall have been merged,
or which has been a party with the Borrower to any  consolidation  or other form
of reorganization,  prior to the date of such transaction;  (f) non-cash gain or
non-cash loss arising from the  acquisition of debt or equity  securities of the
Borrower or from  cancellation  or forgiveness of Debt of the Borrower;  and (g)
non-cash  gain or  non-cash  loss  arising  from  (i)  extraordinary  items,  as
determined in accordance  with GAAP, and any  non-recurring  transaction or (ii)
from any increase or decrease in calculating the  termination  liability for the
Lily-Tulip,  Inc. Salary Retirement Plan resulting from a change in the interest
rate  reset  annually  by the  PBGC in  determining  the  amounts  necessary  to
annuitize such  liability.  For purposes of the Fixed Charge Coverage Ratio test
set forth in Section 9.26, (i) Adjusted Net Earnings From  Operations  shall not
include  the  one-time  costs and  expenses  arising  from (x) the  transactions
contemplated by the Existing Loan and Security Agreement on the Original Closing
Date or in connection  with the  Divestiture or the sales  permitted by Sections
9.9(iv) and (v)(C) or (y) with respect to Test Periods ending on or before March
31, 1998,  the transfer and  management  of the Double Sided Poly (DSP) Cold Cup
conversion program,  (ii) with respect to Test Periods ending on or before March
31,  1998,  any  charge  of  the  Borrower  with  respect  to  plant   closings,
consolidations  and the transfer and  management  of the Double Sided Poly (DSP)
Cold Cup conversion program after the Original Closing Date and related employee
severance  shall  constitute  an expense  of the  Borrower  when such  charge is
actually paid in cash by the Borrower and not when such charge is accrued on the
books and records of the Borrower and (iii) with respect to Test Periods  ending
on or after June 30, 1998,  any charge of the Borrower  with respect to employee
severance  resulting  from early  termination of employees of the Borrower shall
constitute  an expense of the Borrower when such charge is actually paid in cash
by the  Borrower and not when such charge is accrued on the books and records of
the Borrower.

          "Affiliate"  means, as to any Person, any other Person which, directly
or  indirectly,  is in control of, is controlled  by, or is under common control
with,  such Person or which owns,

                                       3
<PAGE>

directly or  indirectly,  five  percent (5%) or more of the  outstanding  equity
interest of such Person.  A Person shall be deemed to control  another Person if
the controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person,  whether
through the  ownership of voting  securities,  by contract,  or  otherwise.  For
purposes  of this  Agreement  and the other  Loan  Documents,  BofA shall not be
considered an Affiliate of Parent or any of its Subsidiaries by virtue of BofA's
passive investment in one or more funds managed by American Industrial Partners,
L.P. or any of its Affiliates.

          "Agent"  means BofA,  solely in its capacity as agent for the Lenders,
and any successor agent.

          "Agent Advances" has the meaning specified in Section 2.2(i).

          "Agent-Related  Persons"  means  the  Agent  and  any successor  agent
appointed pursuant to Section 14.9,  together with their respective  Affiliates,
and the officers,  directors,  employees,  agents and  attorneys-in-fact of such
Persons and Affiliates.

          "Agent's  Liens" means the Liens granted to the Agent, for the ratable
benefit of the Lenders,  BofA and the Agent,  pursuant to this Agreement and the
other Loan Documents.

          "Agreement" means the Existing Loan and Security Agreement, as amended
and restated  hereby.  "Anniversary  Date" means each anniversary of the Closing
Date.

          "Anticipated   Replacement   Amount"   means,   with  respect  to  any
Replacement  Election,  the amount specified in the Replacement Notice delivered
by the  Borrower  in  connection  therewith  as the  amount of the net after tax
proceeds  from the related sale or other  disposition  of assets  referred to in
clause (iii) of the first sentence of Section  4.5(b) that the Borrower  intends
to use to purchase replacement Equipment in accordance with such clause (iii).

          "Applicable Margin" means:

     (i) with  respect to Base Rate  Revolving  Loans and all other  Obligations
     (other  than  LIBOR  Revolving  Loans,  Base Rate Term Loans and LIBOR Term
     Loans), 0.25%;

     (ii) with respect to LIBOR Revolving Loans, 2.00%;

     (iii) with respect to Base Rate Term Loans, 0.50%; and

     (iv) with respect to LIBOR Term Loans, 2.50%.

          "Asset Transfer  Documents"  means,  collectively,  (i) the Asset Sale
Agreement and  Asset Distribution  Agreement each  dated as  of October  6, 1993
(collectively, the "Asset

                                       4
<PAGE>

Transfer  Agreements")  between  Parent  and  the  Borrower;  (ii)  any  deed or
conveyance for Real Estate required  pursuant to the Asset Transfer  Agreements;
(iii)  any bill of sale for  equipment  and  machines  or other  assignment  and
assumption agreements delivered pursuant to the Asset Transfer Agreements;  (iv)
the  wrap-around  note  dated  as at  October  6,  1993  given  as  part  of the
consideration  by Parent to the Borrower in connection  with the foregoing;  (v)
the  Manufacturing  Agreement dated as of October 6, 1993 between Parent and the
Borrower; (vi) the Patent/Know-How License Agreement dated as of October 6, 1993
between Parent and the Borrower granting to Parent certain intellectual property
rights  for  manufacturing  process  required  pursuant  to the  Asset  Transfer
Agreements;   and  (vii)  the  Acknowledgment  of  Distribution  Assignment  and
Assumption  Agreement  dated  as of  October  6,  1993  between  Parent  and the
Borrower.

          "Assigned Contracts" means, collectively, all of the Borrower's rights
and remedies under,  and all moneys and claims for money due or to become due to
the Borrower  under those  contracts set forth on Schedule  1.1A,  and any other
material contracts,  and any and all amendments,  supplements,  extensions,  and
renewals thereof  including,  without  limitation,  all rights and claims of the
Borrower  now or  hereafter  existing:  (i)  under any  insurance,  indemnities,
warranties,  and guarantees provided for or arising out of or in connection with
any of the  foregoing  agreements;  (ii) for any  damages  arising out of or for
breach or default  under or in connection  with any of the foregoing  contracts;
(iii)  to all  other  amounts  from  time to time  paid or  payable  under or in
connection with any of the foregoing agreements;  or (iv) to exercise or enforce
any and all covenants, remedies, powers and privileges thereunder.

          "Assignee" has the meaning specified in Section 13.3(a).

          "Assignment  and  Acceptance"  has the  meaning  specified  in Section
13.3(a).

          "Assignment of Contract As Collateral  Security"  means the Assignment
of Contract As  Collateral  Security by the  Borrower in favor of the Agent with
respect to the Sherwood Stock Purchase Agreement.

          "Attorney Costs" means and includes all reasonable fees,  expenses and
disbursements  of any law firm or other external  counsel  engaged by the Agent,
the  reasonable  allocated  cost of internal legal services of the Agent and all
reasonable  expenses  and  disbursements  of  internal  counsel  of  the  Agent.

          "Availability"  means,  at any time:  (a) the least of (i) the Maximum
Revolver Amount, (ii) the sum of (A) eighty-five percent (85%) of the Net Amount
of Eligible Accounts plus (B) the sum of (1) sixty percent (60%) of the value of
that  portion of Eligible  Inventory  (other  than  Inventory  consisting  of or
related to cup making machines)  constituting raw materials and work in process,
(2) sixty-five  percent (65%) of the value of that portion of Eligible Inventory
(other  than  Inventory  consisting  of  or  related  to  cup  making  machines)
constituting  finished goods and (3)  twenty-five  percent (25%) of the value of
that  portion  of  Eligible  Inventory  consisting  of or  related to cup making
machines  constituting  raw materials and

                                       5
<PAGE>

finished goods; provided, that at no time shall the sum of outstanding Revolving
Loans based upon the value of Eligible Inventory exceed  $100,000,000,  or (iii)
the maximum  amount which the Borrower is entitled to borrow  pursuant to clause
(a) of the second  paragraph  of Section  4.09 of the  indenture  governing  the
Borrower's Senior Subordinated Notes (which as of the Closing Date is 80% of the
Borrower's  accounts  not more than 60 days past due plus 50% of the  Borrower's
inventory,  each calculated in accordance  with GAAP);  minus (b) the sum of (i)
the unpaid balance of Revolving Loans at such time, (ii) the aggregate amount of
Pending  Revolving Loans at such time, (iii) the aggregate undrawn amount of all
outstanding  Letters  of  Credit,  (iv)  the  aggregate  amount  of  any  unpaid
reimbursement   obligations   (unless   included  in  clause  (b)(iii)  of  this
definition)  in respect  of the  Letters of Credit,  (v)  reserves  for  accrued
interest on the Obligations,  (vi) the Environmental  Compliance Reserve,  (vii)
the Term Loan  Reserve,  (viii) any  reserves  established  pursuant  to Section
4.5(b),  and (ix) all  other  reserves  which  the  Agent  in good  faith  deems
necessary in the exercise of its  reasonable  credit  judgment to maintain  with
respect  to the  Borrower's  account  and  which  are  customary  in  scope  and
application,  in the  assessment of the Agent,  in the lending  practices of the
Agent in effect from time to time, including,  without limitation,  reserves for
"special  programs",  inventory  valuation reserves and reserves for any amounts
which the Agent or any  Lender  may be  obligated  to pay in the  future for the
account of the Borrower.

          "BABC" has the meaning specified in the introductory paragraph hereof.

          "Bank Assignment  Agreement" has the meaning specified in the recitals
to this Agreement.

          "Bankruptcy  Code"  means  Title  11 of the  United  States  Code  (11
U.S.C.ss. 101 et seq.).

          "Base  Rate"  means,  for any day,  the rate of interest in effect for
such day as publicly  announced  from time to time by BofA in  Charlotte,  North
Carolina,  as its "prime  rate" (the "prime rate" being a rate set by BofA based
upon various factors including BofA's costs and desired return, general economic
conditions and other factors,  and is used as a reference point for pricing some
loans,  which may be priced at, above, or below such announced rate). Any change
in the prime rate announced by BofA shall take effect at the opening of business
on the day specified in the public  announcement  of such change.  Each Interest
Rate based upon the Base Rate shall be adjusted  simultaneously  with any change
in the Base Rate.

          "Base Rate Loans" means,  collectively,  the Base Rate Revolving Loans
and the Base Rate Term Loans.

          "Base Rate Revolving Loan" means a Revolving Loan during any period in
which it bears interest based on the Base Rate.

                                       6
<PAGE>

          "Base Rate Term  Loan"  means any  portion  of a Term Loan  during any
period in which such portion bears interest based on the Base Rate.

          "BofA" has the meaning specified in the introductory paragraph hereof.

          "BofA Fees" has the meaning specified in Section 3.4.

          "BofA Loan" and "BofA  Loans" have the  meanings  specified in Section
2.2(h).

          "Borrower"  has the meaning  specified in the  introductory  paragraph
hereof.

          "Borrower Security  Agreement" means the Amended and Restated Security
Agreement  dated as of the  Original  Closing  Date between the Borrower and the
Agent.

          "Borrowing" means a borrowing hereunder  consisting of Revolving Loans
or Term Loans made on the same day by the Lenders to the Borrower (or by BofA in
the case of a  Borrowing  funded by BofA Loans) or by the Agent in the case of a
Borrowing consisting of an Agent Advance.

          "Borrowing  Base  Certificate"  means a  certificate  by a Responsible
Officer of the Borrower, substantially in the form of Exhibit B (or another form
reasonably  acceptable to  the Agent)  setting  forth  the  calculation  of  the
Availability, including a calculation of each component thereof, as of the close
of  business  no more  than  five (5)  Business  Days  prior to the date of such
certificate  (or with respect to the calculation of the Inventory  component,  a
calculation  thereof as of the close of business on the date which is no earlier
than  the  earliest  of (x)  five (5)  Business  Days  prior to the date of such
certificate and (y) the last day of the calendar month just ended),  all in such
detail as shall be satisfactory to the Agent. All calculation of Availability in
connection  with  the  preparation  of  any  Borrowing  Base  Certificate  shall
originally  be made by the Borrower and certified to the Agent;  provided,  that
the Agent  shall have the right to review and  adjust,  in the  exercise  of its
reasonable  credit judgment,  any such calculation (1) to reflect its reasonable
estimate of declines in value of any of the Collateral  described  therein,  and
(2) to  the  extent  that  such  calculation  is not  in  accordance  with  this
Agreement.

          "Business Day" means (a) any day that is not a Saturday,  Sunday, or a
day on which banks in  Charlotte,  North  Carolina or  Baltimore,  Maryland  are
required  or  permitted  to be  closed,  and (b) with  respect  to all  notices,
determinations, fundings and payments in connection with the LIBOR Rate or LIBOR
Rate Loans, any day that is a Business Day pursuant to clause (a) above and that
is also a day on which  trading in Dollars is carried on by and between banks in
the London interbank market.

          "Buyer"  has the meaning  specified  in the  defined  term  "Change of
Control".

          "Capital  Adequacy   Regulation"  means  any  guideline,   request  or
directive of any central bank or other Governmental Authority, or any other law,
rule or  regulation,  whether  or

                                       7
<PAGE>

not having the force of law,  in each case,  regarding  capital  adequacy of any
bank or of any corporation controlling a bank.

          "Capital  Expenditures"  means all  payments  (whether or not paid) in
respect  of  the  cost  of  any  fixed  asset  or  improvement,  or replacement,
substitution,  or  addition  thereto,  which has a useful  life of more than one
year, including,  without limitation, those costs arising in connection with the
direct or  indirect  acquisition  of such asset by way of  increased  product or
service  charges or offset items or in connection  with a Capital Lease, in each
case, to the extent classified by GAAP as a capital expenditure.

          "Capital  Lease"  means any lease of  property by Parent or any of its
Subsidiaries  which,  in  accordance with  GAAP, is or should  be reflected as a
capital lease on the balance sheet of such Person.

          "Capital  Stock" of any Person  means any and all  shares,  interests,
rights   to   purchase,   warrants,   options,   contingent   share   issuances,
participations  or other  equivalents  of or interests  in (however  designated)
equity of such Person,  including  any Preferred  Stock,  but excluding any debt
securities  convertible into or exchangeable for such equity.

          "Cash Equivalents"  means those investments  described in clauses (d),
(e),  (f),  (g)  and (h) of  the defined  term  "Restricted  Investment" in this
Section 1.1.

          "Change  of  Control"  means the  occurrence  of any of the  following
     events:

          (i)   Neither American  Industrial Partners  Capital  Fund,  L.P.,   a
     Delaware limited  partnership  ("AIP"),  and/or SF Holdings Group,  Inc., a
     Delaware corporation (the "Buyer"),  shall, separately or collectively,  be
     the record and  Beneficial  Owner (as  defined  below) of a majority in the
     aggregate of the total voting power of the Voting Stock (as defined  below)
     of Parent,  whether as a result of an issuance of securities of Parent, any
     merger, consolidation,  liquidation or dissolution of Parent, any direct or
     indirect transfer of securities or otherwise; or

          (ii)  Neither AIP and/or the Buyer shall,  separately or collectively,
     have the right or ability, by voting power, contract or otherwise, to elect
     or designate  for election a majority of the Board of Directors (as defined
     below) of Parent; or

          (iii) Parent shall  fail at any time  to be the record and  Beneficial
     Owner of 100% of the outstanding equity interests of the Borrower; or

          (iv)  American   Industrial   Partners,   L.P.,   a  Delaware  limited
     partnership,  ceases to be the sole general partner of AIP, but only if AIP
     is the Beneficial Owner of any Voting Stock of Parent or Buyer; or

                                      8
<PAGE>

          (v)   There shall occur a "Change of Control" (as such term is defined
     in the indenture governing the Senior Subordinated Notes); or

          (vi)  None of  AIP,  Dennis  Mehiel and/or  any  one  or  more trusts,
     corporations,  partnerships,  limited liability companies or other entities
     in which Dennis Mehiel has a Beneficial Ownership interest of a majority in
     the aggregate of the total voting power of such entity (each, a "Controlled
     Entity") shall,  separately or  collectively,  be the record and Beneficial
     Owner of a  majority  in the  aggregate  of the total  voting  power of the
     Voting Stock of the Buyer, whether as a result of an issuance of securities
     of the Buyer, any merger, consolidation,  liquidation or dissolution of the
     Buyer, any direct or indirect transfer of securities or otherwise; or

          (vii) None  of  AIP,  Dennis  Mehiel  and/or  one  or  more Controlled
     Entities shall,  separately or collectively,  have the right or ability, by
     voting power,  contract or otherwise,  to elect or designate for election a
     majority of the Board of Directors of the Buyer.

          For  purposes  of  this  definition  of  "Change of Control",  and the
     definitions  used within this definition (and only for such purposes),  the
     following terms have the following meanings:

          "Beneficial Owner", and terms having similar import,  means any direct
or indirect "beneficial owner", as such term is defined in Rules 13d-3 and 13d-5
under the Exchange Act.

          "Board of Directors" means, with respect to any Person,  such Person's
Board of Directors or any committee thereof  duly authorized to act on behalf of
such Board of Directors.

          "Exchange Act" means the Securities  Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

          "Voting Stock" of a corporation  means all classes of Capital Stock of
such  corporation then outstanding and normally entitled to vote in the election
of directors.

          "Closing Date" means the date of this Agreement.

          "Code" means the Internal  Revenue Code of 1986,  as amended from time
to time, and any successor statute, and regulations promulgated thereunder.

          "Collateral" has the meaning specified in Section 6.1.

          "Collateral  Agent"  has the  meaning  set forth in the  Intercreditor
Agreement.

                                      9
<PAGE>

          "Commitment"  means,  at  any  time  with  respect  to a  Lender,  the
principal  amount  set  forth  beside  such  Lender's  name  under  the  heading
"Commitment"  on the signature  pages of this Agreement or on the signature page
of the Assignment  and Acceptance  pursuant to which such Lender became a Lender
hereunder in accordance  with the provisions of Section 13.3, as such Commitment
may be adjusted from time to time in  accordance  with the next sentence and the
provisions of Section 13.3, and "Commitments" means, collectively, the aggregate
amount of the commitments of all of the Lenders. Effective immediately after the
making of the Term Loans,  the  Commitment  of each Lender shall be  permanently
reduced by the  principal  amount of the Term Loans funded by such Lender on the
Closing Date.

          "Commodities Agreement" means any forward contract,  futures contract,
option contract or similar  agreement or  arrangement,  in each case intended to
protect the Persons  entering  into same from  fluctuations  in the price of, or
shortage of supply of, pulp, paper or paper products or any other materials used
in  connection  with  any  of  the  businesses  of  the  Borrower  or any of its
Subsidiaries permitted to be conducted under Section 9.18.

          "Contaminant" means any waste, pollutant,  hazardous substance,  toxic
substance,  hazardous  waste,  special  waste,  petroleum  or  petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"),  or any hazardous  constituent of any such substance or waste.

          "Credit  Agreement  Collateral"  has  the  meaning  set  forth  in the
Intercreditor Agreement.

          "Credit  Agreement  Term Loan Equipment  Collateral"  means all of the
Equipment  described on Schedule 1.1B, and any and all additions,  substitutions
and replacements of any of the foregoing,  wherever  located,  together with all
attachments,  components,  parts, equipment and accessories installed thereon or
affixed thereto or used or to be used in connection therewith,  and all manuals,
drawings, instructions, warranties and rights with respect thereto; wherever any
of the foregoing is located.

          "Credit Support" has the meaning specified in Section 2.4(a).

          "Debt" means, without  duplication,  all indebtedness of Parent or any
of its  Subsidiaries  to any Person for borrowed money or as evidenced by notes,
bonds,  debentures or similar  instruments  or documents or for the deferred and
unpaid  purchase  price of any property or business or any services  (other than
trade  payables  and  accrued  expenses  incurred  in  the  ordinary  course  of
business),  all obligations of Parent or any of its  Subsidiaries  under or with
respect to any letters of credit or guarantees or credit support  therefor,  all
obligations  under any Interest Rate  Protection  or Other Hedging  Agreement or
under any similar type of agreement and all  obligations of Parent or any of its
Subsidiaries  under Capital Leases,  in each instance,  now or hereafter  owing,
arising, due or payable,  howsoever evidenced,  created,  incurred,  acquired or
owing, whether primary, secondary,  direct, contingent,  fixed or otherwise, and
including  in any event and without in any way limiting  the  generality  of the
foregoing:  (i) all  Obligations;  (ii) all

                                      10
<PAGE>

obligations and liabilities of any Person secured by any Lien on the property of
Parent or any of its  Subsidiaries,  even though  Parent or any such  Subsidiary
shall not have  assumed or become  liable  for the  payment  thereof;  provided,
however, that all such obligations and liabilities which are limited in recourse
to such property  shall be included in Debt only to the extent of the book value
of such  property as would be shown on the face of a balance  sheet of Parent or
such Subsidiary, as the case may be, prepared in accordance with GAAP; (iii) all
obligations  or  liabilities  created  or  arising  under any  Capital  Lease or
conditional  sale or other title  retention  agreement  with respect to property
used or  acquired by Parent or any of its  Subsidiaries,  even if the rights and
remedies of the lessor,  seller or lender thereunder are limited to repossession
of such property;  provided,  however, that all such obligations and liabilities
which are limited in recourse to such property shall be included in Debt only to
the extent of the book value of such property as would be shown on the face of a
balance  sheet of Parent or such  Subsidiary,  as the case may be,  prepared  in
accordance with GAAP; (iv) all obligations and liabilities under Guaranties; and
(v) all Disqualified Stock of Parent or any of its Subsidiaries.

          "Default"  means any event or circumstance  which,  with the giving of
notice,  the lapse of time, or both,  would (if not cured or otherwise  remedied
during such time) constitute an Event of Default.

          "Default  Rate" means a  fluctuating  per annum  interest  rate at all
times equal to the sum of (a) the  otherwise  applicable  Interest Rate plus (b)
two percent (2%).  Each Default Rate shall be adjusted  simultaneously  with any
change in the applicable Interest Rate. In addition,  with respect to Letters of
Credit,  the Default  Rate shall mean an increase in the Letter of Credit Fee by
two percentage points.

          "Defaulting Lender" has the meaning specified in Section 2.2(g)(ii).

          "Demand  Loans"  means the demand loans made by certain of the Lenders
to the Borrower on May 15, 2000 in the aggregate principal amount of $12,411,088
pursuant  to the  letter  agreement,  dated May 12,  2000,  among the  Borrower,
Parent, such lenders and the Agent.

          "Distribution"  means, in respect of any corporation:  (a) the payment
or making of any  dividend  or other  distribution  of  property  in  respect of
capital  stock (or any options or warrants for such stock) of such  corporation,
other than  distributions  in capital stock (or any options or warrants for such
stock)  which  is  not  Disqualified  Stock;  or (b)  the  redemption  or  other
acquisition  of any capital stock (or any options or warrants for such stock) of
such  corporation,  except in exchange for capital stock (or warrants or options
for such capital stock) which is not Disqualified Stock.

          "Disqualified  Stock" means,  with respect to any Person,  any Capital
Stock  which by its  terms  (or by the terms of any  security  into  which it is
convertible or for which it is  exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable (other than redeemable only for Capital
Stock of such  Person  which is not itself  Disqualified

                                      11
<PAGE>

Stock) pursuant to a sinking fund  obligation or otherwise,  (ii) is convertible
or exchangeable for Debt (including, without limitation,  Disqualified Stock) or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the first anniversary of the Stated Termination Date.

          "Divestiture" means the proposed sale (in one or more transactions) by
the Borrower of its packaging  division  (which  manufactures  paper and plastic
containers for the refrigerated and frozen dessert  industry) that satisfies the
following requirements:

          (a)     at the time of the consummation of each such sale transaction,
the Borrower  shall receive gross cash proceeds with respect to the Accounts and
Inventory  included as part of such  transaction  in an amount not less than the
then book value of all such  Accounts  and  Inventory  as shown on the face of a
balance sheet of the Borrower prepared in accordance with GAAP;

          (b)     neither Parent nor any of its Subsidiaries shall, with respect
to all such sale transactions,  retain  or assume aggregate liabilities  for all
such sale transactions  (including,  without limitation,  payables and indemnity
obligations)   relating  to  the  assets  or  business  sold  pursuant  to  such
transactions in excess of $15,000,000 (it being agreed that any such liabilities
shown on the face of a balance  sheet of the Parent or any of its  Subsidiaries,
as  appropriate,  or for which the amount  thereof  can be  determined  shall be
valued at the amount thereof as shown on the face of such balance sheet or as so
determined and the amount of any other liabilities shall be determined by a good
faith estimate of senior management of the Borrower); provided, however, any and
all such  liabilities  which are only to be paid by the  Borrower  out of a cash
escrow set up by the Borrower  shall not be  considered a liability for purposes
of this  clause  (b),  but only to the extent of the  amount of the cash  escrow
therefor  and only so long as the amount of such  escrow is not counted as gross
cash proceeds of a sale transaction  constituting part of the Divestiture unless
and until  such cash  which is the  subject of such  escrow is  released  to the
Borrower and the liability for which such cash has been escrowed is discharged;

          (c)     with respect to each such sale transaction  and  prior to  the
consummation  thereof,  the  Agent  shall  receive a pro  forma  Borrowing  Base
Certificate  immediately  after giving  effect to such  transaction  (including,
without  limitation,  as to the  calculation of the Inventory  component of such
certificate immediately after giving effect to such transaction) which indicates
an Availability  level sufficient to comply with Section 9.25 as of such date of
determination; and

          (d)     with respect to each such  sale transaction and  prior to  the
consummation  thereof,  the Agent  shall  receive a  certificate  from the chief
financial officer or treasurer of the Borrower (i) as to the gross cash proceeds
that the  Borrower  expects  it can  receive  (as  determined  in the good faith
estimate of senior  management of the Borrower)  from the sale of the assets and
business  of the  Borrower's  packaging  division  which  the  Borrower  retains
immediately  after  giving  effect  to such  sale  transaction,  (ii)  that  the
aggregate   gross  cash  proceeds  of  such

                                       12
<PAGE>

transaction  and all prior such  transactions,  together  with the amount of the
gross cash proceeds  estimated to be receivable by the Borrower from the sale of
the  remaining  assets and  business  of the  Borrower's  packaging  division as
described in clause (i) above, shall be no less than $100,000,000, (iii) stating
that, to the best knowledge of the Borrower,  the representations and warranties
made by the  Borrower  in the  sale  documentation  with  respect  to such  sale
transaction are and will be true and correct when made under such documentation,
provided,  however,  that  notwithstanding that this representation and warranty
shall be made to the best  knowledge of the Borrower,  this  representation  and
warranty  shall be deemed  breached for purposes of this  Agreement in the event
that the Borrower pays the buyer or buyers with respect to such sales in respect
of  indemnity  obligations  for  the  breach  of any  such  representations  and
warranties  an aggregate  amount which,  when  aggregated  with all  liabilities
retained  or assumed by Parent or its  Subsidiaries  which are  included  in the
$15,000,000  basket included in clause (b) above,  exceeds  $15,000,000 and (iv)
calculating the aggregate  liabilities described in clause (b) above retained or
assumed by Parent and its  Subsidiaries  for such sale transaction and all other
such sale transactions (including,  without limitation,  any assumptions made in
estimating liabilities).

          "DOL" means the United States Department  of  Labor  or any  successor
department or agency.

          "Dollar" and  "$" mean dollars in  the lawful currency  of  the United
States.

          "Domestic  Subsidiary" means any  Subsidiary which is organized  under
the laws of any state of the United States or the District of Columbia.

          "EBITDA"  means,  with respect to any period of time, the total of the
following  for  the  Borrower  as  determined  in  accordance  with  GAAP,  each
calculated for such period of time:  Adjusted Net Earnings from Operations plus,
to the  extent  included  in the  calculation  of  Adjusted  Net  Earnings  from
Operations,  the sum of (a) income tax  expense;  (b)  interest  expense paid or
payable in cash, net of cash interest income;  (c) amortization and depreciation
expense;  (d) other non-cash charges;  and (e) operating lease expense in excess
of  $20,000,000  (for any period of time  which is less than a four  consecutive
fiscal quarter period, such amount shall be prorated for such shorter period).

          "Eligible  Accounts"  means all  Accounts  of the  Borrower  which the
Agent, in good faith in the exercise of its reasonable commercial discretion and
based upon criteria which, in the assessment of the Agent,  are customary in the
lending  practices  of the Agent in effect from time to time,  determines  to be
Eligible  Accounts.  Without  limiting the  discretion of the Agent to establish
other criteria of  ineligibility,  Eligible Accounts shall not, unless the Agent
in its sole discretion elects, include any Account:

                                       13
<PAGE>

          (a)     with respect to which more than ninety days have elapsed since
the date of the original invoice therefor or it is more than sixty days past due
(for any Accounts  owing by Fonda,  with  respect to which more than  forty-five
days have elapsed since the date of the original  invoice therefor or it is more
than fifteen days past due);

          (b)     with respect to which any of the representations,  warranties,
covenants,  and agreements contained in Section 6.8 are not or have ceased to be
complete and correct or have been breached;

          (c)     with  respect  to  which,  in  whole  or  in  part,  a  check,
promissory note, draft,  trade acceptance or other instrument for the payment of
money has been received,  presented for payment and returned uncollected for any
reason;

          (d)     which represents a  progress billing (as  hereinafter defined)
or as to which the  Borrower  has  extended  the time for  payment  without  the
consent of the Agent;  for the purposes  hereof,  "progress  billing"  means any
invoice  for goods  sold or leased or  services  rendered  under a  contract  or
agreement pursuant to which the Account Debtor's  obligation to pay such invoice
is conditioned upon the Borrower's  completion of any further  performance under
the contract or agreement;

          (e)     as  to which  any one or  more of  the  following  events  has
occurred with respect to the Account  Debtor on such Account:  death or judicial
declaration  of  incompetency  of an Account  Debtor who is an  individual;  the
filing  by  or  against  the  Account  Debtor  of  a  request  or  petition  for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as a
bankrupt,  winding-up,  or other relief  under the  bankruptcy,  insolvency,  or
similar  laws of the  United  States,  any state or  territory  thereof,  or any
foreign  jurisdiction,  now or  hereafter  in effect;  the making of any general
assignment by the Account Debtor for the benefit of creditors;  the  appointment
of a receiver or trustee for the Account  Debtor or for any of the assets of the
Account  Debtor,  including,  without  limitation,  the appointment of or taking
possession by a  "custodian,"  as defined in the Federal  Bankruptcy  Code;  the
institution  by or against  the Account  Debtor of any other type of  insolvency
proceeding  (under the bankruptcy  laws of the United States or otherwise) or of
any  formal or  informal  proceeding  for the  dissolution  or  liquidation  of,
settlement of claims  against,  or winding up of affairs of, the Account Debtor;
the sale,  assignment,  or transfer of all or any material part of the assets of
the Account Debtor; the nonpayment  generally by the Account Debtor of its debts
as they become due; or the cessation of the business of the Account  Debtor as a
going concern;

          (f)     if fifty  percent (50%) (ten  percent  (10%) with  respect  to
Fonda) or more of the aggregate  Dollar amount of  outstanding  Accounts owed at
such time by the Account  Debtor  thereon is classified as ineligible  under the
criteria set forth in clauses (a) and/or (u);

          (g)     owed  by  an  Account Debtor  which: (i) does not maintain its
chief executive office in the United States;  or (ii) is not organized under the
laws of the United States

                                       14
<PAGE>

or any state  thereof;  or (iii) is the  government  of any  foreign  country or
sovereign  state, or of any state,  province,  municipality,  or other political
subdivision thereof, or of any department,  agency, public corporation, or other
instrumentality  thereof;  except to the extent that such  Account is secured or
payable by a letter of credit reasonably satisfactory to the Agent;

          (h)     owed by an Account Debtor which is an Affiliate or employee of
the  Borrower;  provided  that the Agent may, in its sole  discretion,  consider
Accounts owing by Fonda not to be ineligible  pursuant to this clause (h) , and,
without  limiting  such  discretion  or the Agent's  right to impose  additional
and/or  different  conditions  therefor,  the  following  shall in any  event be
satisfied  as  conditions  thereto:  (1)  not  greater  than  $3,000,000  in the
aggregate  at any one time of all  Accounts  owing by Fonda shall be  considered
Eligible  Accounts,  (2) the  pricing,  other terms of sale for the goods giving
rise to such Accounts and the terms for such Accounts shall be no less favorable
to the  Borrower  than  would  be  obtained  by  the  Borrower  in a  comparable
arm's-length  transaction  with a third party which is not an  Affiliate  with a
financial  condition  similar  to that of Fonda and with  sales  volume of goods
purchased  from the  Borrower  similar to that of Fonda,  (3) any audit by or on
behalf  of the  Agent  of the  Borrower  or its  property  may,  in the  Agent's
discretion,  include  a  review  of the  Borrower's  invoicing  to  Fonda on all
purchases by Fonda from the Borrower, (4) not later than ten (10) days after the
end of each  month,  the Agent  shall  have  received a  certificate  from Fonda
certifying,  in such detail as the Agent shall reasonably  request,  the undrawn
availability  under Fonda's revolving credit facility as of the last day of such
month (such undrawn  availability to be acceptable to the Agent),  (5) not later
than  ninety  (90) days after the end of each  fiscal  year of Fonda,  the Agent
shall have received the consolidated audited balance sheet,  statement of income
and  expense,   cash  flow  and  of  stockholder's  equity  for  Fonda  and  its
Subsidiaries for such fiscal year, and the accompanying  notes thereto,  setting
forth in each case in comparative form figures for the previous fiscal year, all
in reasonable  detail,  fairly presenting in all material respects the financial
position  and  the  results  of  operations   of  Fonda  and  its   consolidated
Subsidiaries  as at the date  thereof and for its fiscal  year then  ended,  and
prepared in  accordance  with GAAP (such  statements to be  satisfactory  to the
Agent  and  to be  examined  in  accordance  with  generally  accepted  auditing
standards  by,  accompanied  by a report  thereon  unqualified  as to scope  of,
independent certified public accountants  reasonably  satisfactory to the Agent)
and (6) not  later  than  forty-five  (45) days  after the close of each  fiscal
quarter  of Fonda  other than the fourth  quarter of a fiscal  year of Fonda,  a
consolidated unaudited balance sheet of Fonda and its consolidated  Subsidiaries
as at the end of such quarter, and a consolidated  unaudited statement of income
and expense and statement of cash flows for Fonda and its  Subsidiaries for such
quarter,  all in reasonable  detail,  fairly presenting in all material respects
the financial  position and results of operations of Fonda and its  Subsidiaries
as at the date thereof and for such periods,  prepared in  accordance  with GAAP
consistent  with the  audited  financial  statements  required  to be  delivered
pursuant to clause (5) above (except for the absence of footnotes and subject to
normal year-end  adjustments) and otherwise  satisfactory to the Agent, together
with a certificate  signed by Fonda's chief financial  officer or treasurer that
all such  statements  have been  prepared  in  accordance  with GAAP and present
fairly in all material respects (except for the absence of

                                       15
<PAGE>

footnotes and subject to normal year-end adjustments) Fonda's financial position
as at the dates  thereof and its  results of  operations  for the  periods  then
ended;

          (i)     except as provided in  (k)  below,  as  to  which  either  the
perfection,  enforceability, or validity of the Agent's Lien in such Account, or
the  Agent's  right or  ability  to obtain  direct  payment  to the Agent of the
proceeds of such Account, is governed by any federal,  state, or local statutory
requirements other than those of the UCC;

          (j)     which is owed by an Account Debtor to which  the  Borrower  is
indebted in any way, or which is subject to any right of setoff or recoupment by
the Account  Debtor,  unless the Account  Debtor has entered  into an  agreement
reasonably  acceptable  to the Agent to waive setoff  rights;  or if the Account
Debtor  thereon has  disputed  liability  or made any claim with  respect to any
other  Account due from such Account  Debtor;  but in each such case only to the
extent of such indebtedness, setoff, recoupment, dispute, or claim;

          (k)     which  is  owed  by  the  government  of  the United States of
America, or any department, agency, public corporation, or other instrumentality
thereof,  unless the Federal  Assignment  of Claims Act of 1940,  as amended (31
U.S.C.  ss. 3727 et seq.),  and any other steps necessary to perfect the Agent's
Lien therein,  have been complied with to the Agent's  satisfaction with respect
to such Account;

          (l)     which is owed by any state, municipality,  or other  political
subdivision of the United States of America, or any department,  agency,  public
corporation,  or  other  instrumentality  thereof  and  as to  which  the  Agent
determines that its Lien therein is not or cannot be perfected;

          (m)     which represents a sale on a  bill-and-hold,  guaranteed sale,
sale and return,  sale on approval,  consignment,  or other repurchase or return
basis (other than for damage);

          (n)     which is evidenced by a promissory note or other instrument or
by chattel paper;

          (o)     if the Agent believes, in good faith  in the  exercise  of its
reasonable  judgment  (based upon such factors  that,  in the  assessment of the
Agent,  are customary in the lending  practices of the Agent in effect from time
to time),  that the prospect of  collection  of such Account is impaired or that
the  Account  may  not be paid  by  reason  of the  Account  Debtor's  financial
inability to pay;

          (p)     with  respect to which  the  Account  Debtor is located in any
state requiring the filing of a Notice of Business  Activities Report or similar
report in order to permit the  Borrower  to seek  judicial  enforcement  in such
State of payment  of such  Account,  unless the  Borrower  has  qualified  to do
business in such state or has filed a Notice of Business Activities

                                       16
<PAGE>

Report or  equivalent  report for the then  current year or such failure to file
and inability to seek judicial  enforcement is capable of being remedied without
any material delay or material cost;

          (q)     which arises out of a sale not made in the ordinary  course of
the Borrower's business;

          (r)     as to  which the goods  giving rise to such  Account  have not
been shipped and delivered to and accepted by the Account Debtor or the services
giving rise to such Account have not been  performed  by the  Borrower,  and, if
applicable,  accepted by the Account  Debtor,  or the Account Debtor revokes its
acceptance of such goods or services;

          (s)     which is owed by an Account Debtor (other than  Perseco  or an
Account  Debtor  that  is  rated  5a1 or  better  by Dun &  Bradstreet)  that is
obligated to the Borrower  respecting  Accounts the aggregate  unpaid balance of
which  exceeds the lesser of (i)  $10,000,000  and (ii) ten percent (10%) of the
aggregate  unpaid  balance of all Accounts  owed to the Borrower at such time by
all of the Borrower's Account Debtors, but only to the extent of such excess;

          (t)     which arises out of a contract or order  which,  by its terms,
forbids,  restricts or makes void or unenforceable the granting of a Lien by the
Borrower to the Agent with respect to such Account;

          (u)     which  is a "short  pay"  account  (but only with  respect  to
that portion of the Account which is "short pay"); or

          (v)     which  is  not  subject  to  a  first  priority  and perfected
security interest in favor of the Agent for the benefit of the Lenders.

          If any Account at any time ceases to be an Eligible  Account by reason
of any of the foregoing  exclusions or any failure to meet any other eligibility
criteria  established  by  the  Agent  in  good  faith  in the  exercise  of its
reasonable   commercial  discretion  (based  upon  such  factors  that,  in  the
assessment of the Agent, are customary in the lending  practices of the Agent in
effect from time to time) then such Account shall  promptly be excluded from the
calculation of Eligible Accounts.

          "Eligible Inventory" means Inventory,  valued at the lower of cost (on
a FIFO basis) or market, that constitutes raw materials  consisting of (x) jumbo
paper rolls, virgin resin, regrinds or resin material reconverted to pellet form
or (y)  aluminum or steel rods (with  respect to the  manufacture  of cup making
machines only), work in process (other than with respect to cup making machines)
and finished goods and that, unless the Agent in its sole discretion elects, (a)
is not, in the Agent's  reasonable  good faith opinion  (based upon such factors
that, in the assessment of the Agent, are customary in the lending  practices of
the Agent in effect from time to time),  obsolete,  slow  moving,  defective  or
unmerchantable;  (b) is located at premises owned by the Borrower or on premises
otherwise reasonably acceptable to the Agent, provided,

                                       17
<PAGE>

however,  that, with respect to Inventory  located on any premises leased to the
Borrower,  unless  the  Borrower  shall  have  delivered  to the Agent a written
waiver,  duly  executed on behalf of the  appropriate  landlord  and in form and
substance  reasonably  acceptable to the Agent,  of all Liens which the landlord
for such  premises may be entitled to assert  against such  Inventory  the Agent
may, in its sole discretion,  establish a reserve against Availability  therefor
in an amount up to the  aggregate  of three  months rent payable with respect to
such leased  premises plus any rent payable with respect to such leased premises
which is then due and  payable;  (c) upon which the Agent for the benefit of the
Lenders  has a first  priority  perfected  security  interest;  (d) is not spare
parts, packaging and shipping materials,  supplies,  bill-and-hold  Inventory or
defective  Inventory,  or Inventory  delivered to the Borrower on consignment or
Inventory  in transit;  and (e) the Agent,  in good faith in the exercise of its
reasonable  commercial  discretion,  deems  eligible as the basis for  Revolving
Loans based on such collateral and credit criteria as the Agent may from time to
time  establish  and  which  are  customary  in scope  and  application,  in the
assessment  of the Agent,  in the lending  practices of the Agent in effect from
time to time. If any Inventory at any time ceases to be Eligible Inventory, such
Inventory shall promptly be excluded from the calculation of Eligible Inventory.

          "Environmental Compliance Reserve" means any reserves which the Agent,
after the Original Closing Date,  establishes from time to time for amounts that
are  reasonably  likely to be expended by the Borrower in order for the Borrower
and  its  operations  and  property  (a)  to  comply  with  any  notice  from  a
Governmental  Authority  asserting  material  non-compliance  with Environmental
Laws, or (b) to correct any such material non-compliance  identified in a report
delivered to the Agent and the Lenders pursuant to Section 9.7, in each instance
under clause (a) or (b), for which  non-compliance (or the remediation  thereof)
may impose or result in an  Environmental  Lien in any  Accounts,  Inventory  or
other Credit  Agreement  Collateral  which will have  priority  over the Agent's
Liens therein;  provided that no such reserves shall be established by the Agent
to the  extent  that (i) the Agent  shall  have  determined,  in its  reasonable
commercial judgment,  that the Borrower has the financial ability to pay for any
such compliance or remediation and has sufficient  Availability therefor as well
as for its other  working  capital  needs and to satisfy  Section  9.25, in each
instance,  on a prospective  basis  through the estimated  time of completion of
such  compliance or  remediation  and (ii) the Borrower  shall have  delivered a
certificate  to the Agent  certifying as to the Borrower  having such  financial
ability and  Availability  with  appropriate  projections  in detail  reasonably
satisfactory to the Agent  supporting such  certification  by the Borrower (such
certificate  and  projections to be updated and delivered to the Agent quarterly
until the completion of such compliance or remediation).

          "Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules,  regulations,  ordinances and codes, together with all
administrative orders, directed duties, requests,  licenses,  authorizations and
permits  of, and  agreements  with,  any  Governmental  Authority,  in each case
relating to environmental, health or safety matters.

          "Environmental  Lien"  means  a Lien  in  favor  of  any  Governmental
Authority for (1) any  liability  under any  Environmental  Laws, or (2) damages
arising from, or costs incurred

                                       18
<PAGE>

by such Governmental  Authority in response to, a Release or threatened  Release
of a Contaminant into the environment.

          "Equipment"  means  all of the  Borrower's  now  owned  and  hereafter
acquired  machinery,  equipment,  furniture,  furnishings,  fixtures,  and other
tangible  personal  property (except  Inventory),  including motor vehicles with
respect to which a certificate of title has been issued,  aircraft, dies, tools,
jigs, and office  equipment,  as well as all of such types of property leased by
the  Borrower   (including,   without   limitation,   pursuant  to  the  Secured
Sale/Leaseback Arrangements) and all of the Borrower's rights and interests with
respect thereto under such leases  (including,  without  limitation,  options to
purchase);  together  with all  present  and  future  additions  and  accessions
thereto,  replacements therefor, component and auxiliary parts and supplies used
or to be used  in  connection  therewith,  and  all  substitutes  for any of the
foregoing, and all manuals, drawings,  instructions,  warranties and rights with
respect thereto; wherever any of the foregoing is located.

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

          "ERISA  Affiliate"  means  any  trade  or  business  (whether  or  not
incorporated)  under  common  control  with the  Borrower  or Parent  within the
meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the
Code for purposes of provisions relating to Section 412 of the Code).

          "ERISA  Event" means (a) a Reportable  Event with respect to a Pension
Plan;  (b) a withdrawal by the Borrower,  Parent or any ERISA  Affiliate  from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it was
a  substantial  employer  (as  defined  in  Section  4001(a)(2)  of  ERISA) or a
cessation  of  operations  which is treated as such a withdrawal  under  Section
4062(e) of ERISA; (c) a complete or partial  withdrawal by the Borrower,  Parent
or any  ERISA  Affiliate  from a  Multi-employer  Plan  or  notification  that a
Multi-employer  Plan is in reorganization;  (d) the filing of a notice of intent
to terminate,  the treatment of a Plan amendment as a termination  under Section
4041 or  4041A of  ERISA,  or the  commencement  of  proceedings  by the PBGC to
terminate a Pension Plan or Multi-employer Plan; (e) an event or condition which
might  reasonably be expected to constitute  grounds under Section 4042 of ERISA
for the  termination  of, or the  appointment  of a trustee to  administer,  any
Pension Plan or  Multi-employer  Plan;  or (f) the  imposition  of any liability
under Title IV of ERISA,  other than PBGC premiums due but not delinquent  under
Section 4007 of ERISA, upon the Borrower, Parent or any ERISA Affiliate.

          "Event of Default" has the meaning specified in Section 11.1.

          "Exchange  Act" means the  Securities  and Exchange  Act of 1934,  and
regulations promulgated thereunder.

          "Excluded  Sale/Leaseback  Assets"has  the  meaning  specified  in the
Intercreditor Agreement.

                                       19
<PAGE>

          "Existing Debt" has the meaning specified in Section 9.13.

          "Existing  Liens"  has the  meaning  specified  in  clause  (i) of the
defined term "Permitted Liens" in this Section 1.1.

          "Existing Loan and Security  Agreement"  has the meaning  specified in
the recitals to this Agreement.

          "FDIC"  means  the  Federal  Deposit  Insurance  Corporation,  and any
Governmental Authority succeeding to any of its principal functions.

          "Federal  Funds Rate"  means,  for any day,  the rate set forth in the
weekly   statistical   release   designated  as  H.15(519),   or  any  successor
publication,  published by the Federal  Reserve Bank of New York  (including any
such successor,  "H.15(519)") on the preceding Business Day opposite the caption
"Federal  Funds  (Effective)";  or, if for any  relevant day such rate is not so
published on any such preceding  Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last transaction
in overnight  Federal funds  arranged prior to 9:00 a.m. (New York City time) on
that day by each of three leading  brokers of Federal funds  transactions in New
York City selected by the Agent.

          "Federal  Reserve  Board"  means the Board of Governors of the Federal
Reserve System or any successor thereto.

          "Fee Letter" means the Fee Letter, dated the Closing Date, between the
Borrower and BofA with respect to the fees referred to therein.

          "Financial  Statements" means, according to the context in which it is
used, the financial statements referred to in Section 8.6 or any other financial
statements required to be given to the Lenders pursuant to this Agreement.

          "Fiscal  Year"  means  the   Borrower's   fiscal  year  for  financial
accounting  purposes.  The  current  Fiscal  Year of the  Borrower  will  end on
September 24, 2000.

          "Fixed  Assets"  means  Equipment  and Real Estate of the  Borrower or
Parent.

          "Fixed Charge  Component"  means,  with respect to any period of time,
the  following for the Borrower as  determined  in  accordance  with GAAP,  each
calculated for such period of time: the sum of (i) cash interest expense, net of
cash interest income,  (ii) cash income tax expense,  (iii) the aggregate amount
of Capital  Expenditures  made by the  Borrower  during such period  (other than
Capital Expenditures financed by the Borrower), (iv) the aggregate amount of all
cash  payments  of  principal  on Debt made by the  Borrower  during such period
(other than (x) under any of the Loan Documents,  the Original Credit  Agreement
and other Credit Documents (as defined in the Original Credit  Agreement) or (y)
with respect to the Senior Secured Notes),  (v) the aggregate amount of all cash
payments of principal on the Term Loans

                                       20
<PAGE>

made by the  Borrower  during such period and (vi)  operating  lease  expense in
excess  of  $20,000,000  (for  any  period  of time  which  is less  than a four
consecutive  fiscal  quarter  period,  such amount  shall be  prorated  for such
shorter period).

          "Fixed Charge Coverage Ratio" means, at any date of determination, the
ratio of (i)  EBITDA  for the Test  Period  most  recently  ended  (taken as one
accounting  period) and ending on such date to (ii) the Fixed  Charge  Component
for such Test Period (taken as one accounting period).

          "Fonda" means The Fonda Group, Inc.

          "Funding Date" means the date on which a Borrowing occurs.

          "GAAP" means generally accepted  accounting  principles set forth from
time to time in the opinions and  pronouncements  of the  Accounting  Principles
Board and the American  Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession),  which  are  applicable  to the  circumstances  as of the  Original
Closing Date and subject to Section 1.2.

          "General  Intangibles"  means  all  of  the  Borrower's  now  owned or
hereafter  acquired general  intangibles,  choses in action and causes of action
and all other  intangible  personal  property of the  Borrower of every kind and
nature  (other than  Accounts),  including,  without  limitation,  all  contract
rights,  Proprietary  Rights,  corporate or other business records,  inventions,
designs,  blueprints,  plans,  specifications,   patents,  patent  applications,
trademarks,  service marks,  trade names, trade secrets,  goodwill,  copyrights,
computer software,  customer lists,  registrations,  licenses,  franchises,  tax
refund claims, any funds which may become due to the Borrower in connection with
the termination of any Plan or other employee benefit plan or any rights thereto
and any other amounts  payable to the Borrower  from any Plan or other  employee
benefit  plan,  rights and  claims  against  carriers  and  shippers,  rights to
indemnification, business interruption insurance and proceeds thereof, property,
casualty or any similar type of insurance and any proceeds thereof,  proceeds of
insurance  covering  the  lives  of key  employees  on  which  the  Borrower  is
beneficiary,  and any letter of credit,  guarantee,  claim, security interest or
other  security  held by or granted to the  Borrower.

          "Governmental Authority" means any nation or government, any  state or
other political  subdivision  thereof,  any central bank (or similar monetary or
regulatory  authority) thereof,  any entity exercising  executive,  legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any  corporation  or other  entity  owned or  controlled,  through  stock or
capital ownership or otherwise, by any of the foregoing.

          "Guaranty"  means,  with  respect to any Person,  all  obligations  of
such Person which in any manner directly or indirectly  guarantee or assure,  or
in effect guarantee or assure,  the payment or performance of any  indebtedness,
dividend or other obligations of any other

                                       21
<PAGE>

Person (the "guaranteed obligations"),  or assure or in effect assure the holder
of the  guaranteed  obligations  against  loss in  respect  thereof,  including,
without  limitation,   any  such  obligations  incurred  through  an  agreement,
contingent  or  otherwise:  (a) to purchase the  guaranteed  obligations  or any
property constituting security therefor;  (b) to advance or supply funds for the
purchase  or  payment of the  guaranteed  obligations  or to  maintain a working
capital  or  other  balance  sheet  condition;  or (c) to lease  property  or to
purchase any debt or equity securities or other property or services.

          "Intercompany  Accounts"  means  all assets and  liabilities,  however
arising, which are due to the Borrower from, which are due from the Borrower to,
or which  otherwise  arise  from  any  transaction  by the  Borrower  with,  any
Affiliate.

          "Intercreditor Agreement"  means the Intercreditor Agreement  dated as
of the  Closing  Date by and  among  State  Street  Bank and  Trust  Company  of
Connecticut, National Association, as owner trustee/lessor, the Credit Agent (as
defined  in  the   Intercreditor   Agreement)  and  the  Collateral  Agent,  and
acknowledged by the Borrower and the Parent.

          "Interest  Period"  means,  as to any  LIBOR  Rate  Loan,  the  period
commencing  on the Funding  Date of such Loan or on the  Conversion/Continuation
Date on which the Loan is converted  into or continued as a LIBOR Rate Loan, and
ending on the date one, two,  three or six months  thereafter as selected by the
Borrower  in its  Notice of  Borrowing  or  Notice  of  Conversion/Continuation;
provided that:

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

               (ii)  any  Interest Period  pertaining  to a LIBOR Rate Loan that
begins on the last Business Day of a calendar month (or on a day for which there
is no  numerically  corresponding  day in the calendar  month at the end of such
Interest Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and

               (iii) no  Interest   Period  shall  extend   beyond   the  Stated
Termination Date.

          "Interest Rate" means each or any of the interest rates, including the
Default Rate, set forth in Section 3.1.

          "Interest Rate Protection  or Other  Hedging Agreement"  means  one or
more (i) interest rate protection  agreements  (including,  without  limitation,
swaps,  caps,  floors,  collars and similar  agreements),  (ii) foreign exchange
contracts,  currency swap agreements or other similar agreements or arrangements
designed to protect against the fluctuations in currency

                                       22
<PAGE>

values and/or (iii) other types of hedging  agreements from time to time entered
into by Parent or any of its  Subsidiaries  with BofA, any Lender or a syndicate
of financial  institutions  organized by BofA or any such Lender or an affiliate
of BofA or such Lender.

          "Inventory"  means  all of the  Borrower's  now  owned  and  hereafter
acquired  inventory,  goods and merchandise,  wherever located,  to be furnished
under any contract of service or held for sale or lease, all returned goods, raw
materials, other materials and supplies of any kind, nature or description which
are or might be consumed in the Borrower's  business or used in connection  with
the  packing,  shipping,  advertising,  selling  or  finishing  of  such  goods,
merchandise  and such other  personal  property,  and all  documents of title or
other documents  representing them.

          "IRS"  means  the  Internal   Revenue  Service  and  any  Governmental
Authority succeeding to any of its principal functions under the Code.

          "Latest  Projections"  means:  (a) on the Closing  Date and thereafter
until the Agent  receives  new  projections  pursuant  to  Section  7.2(f),  the
projections of the Borrower's  financial condition,  results of operations,  and
cash  flow,  for each of  Fiscal  Years  2000  through  and  including  2004 and
delivered  to the Agent  prior to the  Closing  Date;  and (b)  thereafter,  the
projections most recently received by the Agent pursuant to Section 7.2(f).

          "Lender"  and   "Lenders"   have   the   meanings  specified  in   the
introductory  paragraph  hereof and shall include the Agent to the extent of any
Agent Advance  outstanding and BofA to the extent of any BofA Loan  outstanding;
provided  that no such Agent Advance or BofA Loan shall be taken into account in
determining any Lender's Pro Rata Share.

          "Letter of Credit"  means a letter of credit  issued  or caused  to be
issued for the account of the Borrower pursuant to Section 2.4.

          "Letter of  Credit  Fee"  has the meaning  specified  in  Section 3.6.

          "LIBOR Interest Payment Date" means, with respect to a LIBOR Rate Loan
having an  Interest  Period  of one,  two or three  months,  the last day of the
Interest  Period  applicable to such loan and, with respect to a LIBOR Rate Loan
having an Interest  Period of six months,  the date which  occurs  three  months
after the initial date of such  Interest  Period,  each of the dates which occur
one and two months  after the end of such  third  month and the last day of such
Interest Period.

          "LIBOR Rate" means,  for any  Interest  Period,  with respect to LIBOR
Rate Loans comprising part of the same Borrowing, the rate of interest per annum
(rounded  upward  to the next  1/1000th  of  1.0%)  determined  by the  Agent as
follows:

                                       23
<PAGE>

     LIBOR Rate  =                  LIBOR
                         --------------------------------------
                          1.00 - Eurodollar Reserve Percentage

where:

          "Eurodollar  Reserve  Percentage"  means for any  day for any Interest
Period the maximum reserve percentage (expressed as a decimal, rounded upward to
the next 1/100th of 1%) in effect on such day (whether or not  applicable to any
Lender) under regulations  issued from time to time by the Federal Reserve Board
for  determining  the maximum  reserve  requirement  (including  any  emergency,
supplemental or other marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as "Eurocurrency liabilities"); and

          "LIBOR"  means the rate of interest per annum  (rounded  upward to the
next  1/16th of 1%)  notified  to the Agent by BofA as the rate of  interest  at
which  dollar  deposits  in the  approximate  amount  of the  Loan to be made or
continued  as,  or  converted  into,  a LIBOR  Rate Loan and  having a  maturity
comparable to such Interest Period would be offered by BofA's applicable lending
office to major banks in the London  eurodollar  market at  approximately  11:00
a.m.  (London time) two Business Days prior to the commencement of such Interest
Period.

          "LIBOR Rate Loans" means, collectively,  the LIBOR Revolving Loans and
the LIBOR Term Loans.

          "LIBOR  Revolving  Loan" means a  Revolving  Loan during any period in
which it bears interest based on the LIBOR Rate.

          "LIBOR  Term Loan"  means any portion of a Term Loan during any period
in which such portion bears interest based on the LIBOR Rate.

          "Lien" means: (a) any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the  property,  whether such
interest is based on the common law, statute, or contract, and including without
limitation, a security interest, charge, claim, or lien arising from a mortgage,
deed  of  trust,  encumbrance,   pledge,  hypothecation,   assignment,   deposit
arrangement, agreement, security agreement, conditional sale or trust receipt or
a lease,  consignment or bailment for security  purposes;  and (b) to the extent
not  included  under  clause  (a),  any  reservation,  exception,  encroachment,
easement, right-of-way,  covenant, condition,  restriction, lease or other title
exception or encumbrance affecting real property.

                                       24
<PAGE>

          "Lily Credit Facility" means the Term and Revolving Credit  Facilities
Agreement, dated as of June 15, 1998, among Lily Cup, the financial institutions
party thereto and General Electric  Capital Canada Inc., as lender,  as amended,
modified or  supplemented  from time to time pursuant to the terms thereof,  and
any  other  document  or  instrument  entered  into  by Lily  Cup in  connection
therewith.

          "Lily  Cup"  means  Lily Cups,  Inc.,  a  Canadian  corporation  and a
Subsidiary of the Borrower.

          "Loan Account"  means the loan account of the Borrower,  which account
shall be maintained by the Agent.

          "Loan Documents" means this Agreement,  the Term  Loan Notes,  the Fee
Letter,  the Borrower Security  Agreement,  the Trademark,  Patent and Copyright
Agreements,  the Assignment of Contract As Collateral  Security,  the Mortgages,
the Parent Guaranty,  the Parent Security Agreement,  the Pledge Agreement,  the
Parent  Pledge  Agreement,  the  Intercreditor  Agreement,  the Bank  Assignment
Agreement,  all other  Credit  Documents  (as  defined  in the  Original  Credit
Agreement)  to the  extent  assigned  to BABC  or the  Agent  pursuant  to or as
contemplated  by  the  Bank  Assignment  Agreement  and  any  other  agreements,
instruments and documents  heretofore,  now or hereafter  evidencing,  securing,
guaranteeing  or otherwise  executed  and/or  delivered in  connection  with the
Obligations, the Collateral or any other aspect of the financing transactions by
or with the Lenders and/or the Agent  contemplated  by this  Agreement.

          "Loans" means,  collectively,  all loans and advances  provided for in
Article 2.

          "Majority  Lenders"  means at any time  Lenders  whose Pro Rata Shares
aggregate more than 50% of the Commitments  or, if no Commitments  shall then be
in effect,  Lenders who hold more than 50% of the aggregate  principal amount of
the Loans then outstanding.

          "Management  Services  Agreement" means the Second Restated Management
Services Agreement, dated as of March 12, 1998, by and among American Industrial
Partners Management Company, Inc., the Borrower, Parent and Buyer.

          "Margin  Stock"  means  "margin  stock"  as such  term is  defined  in
Regulation T, U or X of the Federal Reserve Board.

          "Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations,  business, properties or financial
condition of Parent and the Borrower  taken as a whole or a material  portion of
the  Collateral;  (b) an  impairment of the ability of the Borrower or Parent to
perform  any  material  obligation  under any Loan  Document;  or (c) a material
adverse effect upon the legality,  validity,  binding  effect or  enforceability
against the Borrower or Parent of any Loan  Document;  provided,  however,  that
solely for purposes of Section  11.1(m),  "Material  Adverse  Effect"  means the
occurrence of any of the following: (i) in

                                       25
<PAGE>

any  calendar  year the  Borrower  loses a  customer  the  sales to whom for the
immediately  preceding calendar year accounted for 10% or more of the Borrower's
total sales volume for such immediately  preceding year; (ii) the Borrower is at
any time  required to  purchase  10% or more of its raw  materials  on a cash on
delivery  or  cash in  advance  basis  as the  result  of one or  more  vendor's
unwillingness  to extend  credit to the  Borrower;  (iii) the Borrower or Parent
shall suffer a labor  strike,  walkout,  work  stoppage or similar labor dispute
which affects,  without  duplication,  10% or more of the combined  workforce of
Borrower  and Parent,  (iv) within a 60 day time period,  $5,000,000  or more of
Inventory  (valued at the lower of cost or market) shall be subject to a product
recall or similar  product defect  occurrence,  (v) any of the President,  Chief
Executive  Officer,  Chief Financial  Officer or Chief Operating  Officer of the
Borrower is convicted of a criminal offense;  (vi) the loss of production of 10%
or more of  Inventory  for a period of greater  than 5  consecutive  days due to
either or both of equipment failure or labor strike, stoppage,  walkout or other
labor related  reason;  (vii) a "force  majeure  event" occurs which  negatively
impacts 10% or more of the  Borrower's  revenues,  which loss of revenues is not
fully  covered  by  insurance;  or (viii)  the  Borrower  or Parent is unable to
acquire DSP  equipment  consistent  with  projections  previously  given to (and
accepted  by ) the Agent as a result  of  suppliers'  inability  or  refusal  to
provide such equipment to the Borrower or Parent.

          "Maximum Revolver Amount" means $135,000,000.

          "Mortgages"  means:  (a)  each  Mortgage,   Security  Agreement,   and
Assignment  of Leases and Rents (or  similar  agreement)  entered  into or to be
entered  into by the  Borrower or Parent in favor of the Agent and  delivered to
the  Agent;  and (b) all other real  property  mortgages,  leasehold  mortgages,
assignments of leases,  mortgage  deeds,  deeds of trust,  deeds to secure debt,
security agreements, and other similar instruments entered into or to be entered
into  which  provide  the  Agent a lien,  for the  benefit  of the Agent and the
Lenders, on or other interest in any portion of any Premises, any Real Estate or
any  other  real  property  in which  Parent or any of its  Subsidiaries  has an
interest  or which  relate  to any such  Lien or  interest  (including,  without
limitation, any of the foregoing executed in connection with the Original Credit
Agreement and assigned by Bankers Trust  Company,  as collateral  agent,  to the
Agent as contemplated by the Bank Assignment Agreement).

          "Multi-employer  Plan"  means a  "multi-employer  plan" as  defined in
Section  4001(a)(3) of ERISA which is or was at any time during the current year
or the  immediately  preceding  six (6) years  contributed  to by the  Borrower,
Parent or any ERISA Affiliate.

          "Net Amount of Eligible Accounts" means, at any time, the gross amount
of Eligible  Accounts  less sales,  excise or similar  taxes,  and less returns,
discounts,  claims,  credits and  allowances  of any nature at any time  issued,
owing, granted, outstanding, available or claimed.

                                       26
<PAGE>

          "Notice of Borrowing" has the meaning specified in Section 2.2(b), the
form of which is attached as Exhibit E.

          "Notice  of  Conversion/Continuation"  has the  meaning  specified  in
Section 3.2(b), the form of which is attached as Exhibit F.

          "Obligations"   means  all   present  and  future   loans,   advances,
liabilities,  obligations, covenants, duties, and debts owing by the Borrower to
the Agent  and/or  any  Lender,  arising  under or  pursuant  to this  Agreement
(including,  without  limitation,  pursuant to the  Existing  Loan and  Security
Agreement) or any of the other Loan  Documents,  whether or not evidenced by any
note,  or other  instrument  or document,  whether  arising from an extension of
credit,   opening  of  a  letter  of   credit,   acceptance,   loan,   guaranty,
indemnification   or  otherwise,   whether  direct  or  indirect,   absolute  or
contingent,  due or to  become  due,  primary  or  secondary,  as  principal  or
guarantor, and including, without limitation, all principal,  interest, charges,
expenses,  fees,  attorneys' fees,  filing fees and any other sums chargeable to
the Borrower  hereunder or under any of the other Loan Documents.  "Obligations"
includes,  without limitation,  all debts,  liabilities,  and obligations now or
hereafter  owing from the  Borrower to the Agent  and/or any Lender  under or in
connection  with the  Letters of Credit  and all loans  made under the  Original
Credit Agreement and assigned to BABC under the Bank Assignment Agreement.

          "Original Closing Date" means October 24, 1997.

          "Original Credit  Agreement" has the meaning specified in the recitals
to this Agreement.

          "Other Taxes" means any present or future stamp or  documentary  taxes
or any other  excise or property  taxes,  charges or similar  levies which arise
from any payment made hereunder or from the execution,  delivery or registration
of, or otherwise with respect to, this Agreement or any other Loan Documents.

          "Parent" means  Sweetheart  Holdings Inc., a Delaware  corporation and
the owner of 100% of the outstanding capital stock of the Borrower.

          "Parent  Guaranty" means the Guaranty dated as of the Original Closing
Date made by Parent in favor of the Agent.

          "Parent Pledge  Agreement"  means the Pledge Agreement dated as of the
Closing Date made by Parent in favor of the Collateral Agent.

          "Parent Security  Agreement"  means the Amended and Restated  Security
Agreement dated as of the Original Closing Date between Parent and the Agent.

                                       27
<PAGE>

          "Participating  Lender"  means any Person who shall have been  granted
the right by any Lender to participate in the financing  provided by such Lender
under the terms and  conditions  of this  Agreement,  and who shall have entered
into a  participation  agreement  in form  and  substance  satisfactory  to such
Lender.

          "Payment Account" means each blocked bank account established pursuant
to  Section  6.9,  to  which  the  funds  of the  Borrower  (including,  without
limitation,  proceeds  of  Accounts  and  other  Collateral)  are  deposited  or
credited,  and which is maintained in the name of the Agent or the Borrower,  as
the Agent may determine, on terms reasonably acceptable to the Agent.

          "Payment  and  Termination  Date" means the first date on which all of
the  following  are  satisfied:   the  Commitments  of  all  Lenders  have  been
terminated,  all outstanding monetary Obligations have been paid in full and all
Letters  of  Credit  have  been  terminated  or  canceled  or have  expired  (or
Supporting  Letters  of Credit  have been  delivered  to the Agent  therefor  in
accordance with Section 2.4(j)).

          "PBGC"  means  the  Pension  Benefit   Guaranty   Corporation  or  any
Governmental Authority succeeding to the functions thereof.

          "Pending Revolving Loans" means, at any time, the aggregate  principal
amount of all Revolving Loans  requested in any Notice(s) of Borrowing  received
by the Agent which have not yet been  advanced  and for which the  Lenders  will
advance unless the Agent has notified the Borrower that such  Revolving  Loan(s)
will not be funded.

          "Pension  Plan"  means a pension  plan (as  defined  in  Section  3(2)
of ERISA) subject to  Title IV  of ERISA which the Borrower or Parent  sponsors,
maintains,   or  to  which  it  makes,  is  making,  or  is  obligated  to  make
contributions, or in the case of a Multi-employer Plan has made contributions at
any time during the immediately preceding five (5) plan years.

          "Permitted  Commodities  Agreement"  means any  Commodities  Agreement
which is entered into in the ordinary course of business by Parent and/or any of
its Subsidiaries consistent with past practices.

          "Permitted Liens" means:

          (a)  Liens for taxes, assessments or governmental  charges  or  levies
not delinquent or statutory Liens for taxes, assessments or governmental charges
or levies in an aggregate amount not to exceed $1,000,000 (with the Agent having
the right in its reasonable  commercial discretion to establish reserves against
Availability  for any amount in excess of  $100,000 in the  aggregate)  provided
that the payment of such taxes,  assessments or  governmental  charges or levies
which are due and payable is being  contested  in good faith and by  appropriate
proceedings diligently  pursued and as to which adequate financial reserves have

                                       28
<PAGE>

been established on the books and records of the Borrower,  Parent
or its other  Subsidiaries,  as the case may be, and no  enforcement  action has
been taken;

          (b)  the Agent's Liens;

          (c)  deposits under  worker's  compensation,  unemployment  insurance,
social  security and other similar laws, or to secure the  performance  of bids,
tenders or  contracts  (other than for the  repayment  of borrowed  money) or to
secure  indemnity,  performance  or other similar bonds for the  performance  of
bids,  tenders or contracts  (other than for the repayment of borrowed money) or
to secure  statutory  obligations  (other  than  liens  arising  under  ERISA or
Environmental  Liens)  or  surety  or  appeal  bonds,  or to  secure  indemnity,
performance or other similar bonds in the ordinary course of business;

          (d)  Liens securing the claims or demands of  materialmen,  mechanics,
carriers, warehousemen,  landlords and other like Persons,  provided that if any
such Lien arises from the  nonpayment  of such claims or demands when due,  such
claims or demands  do not exceed  $1,000,000  in the  aggregate  (with the Agent
having the right in its reasonable  commercial  discretion to establish reserves
against Availability for any amount in excess of $100,000 in the aggregate);

          (e)  Reservations,  exceptions,  encroachments,  easements,  rights of
way,  covenants  running with the land,  and other similar  title  exceptions or
encumbrances  affecting  any  Real  Estate;  provided  that  they  do not in the
aggregate  materially  detract  from the value of the Real Estate or  materially
interfere  with its use in the ordinary  conduct of the  Borrower's  or Parent's
business;

          (f)  Judgment and other similar Liens arising in connection with court
proceedings  to the extent the attachment or enforcement of such Liens would not
result in an Event of Default hereunder;

          (g)  Liens securing the  obligations  of the Borrower and Parent under
the Secured Sale/Leaseback Arrangements, subject to the terms and conditions set
forth in the Intercreditor Agreement;  provided that such Liens shall not in any
event (i)  encumber any Excluded  Sale/Leaseback  Assets or (ii) secure  greater
than  $165,000,000  in  obligations  owing by the  Borrower  under  the  Secured
Sale/Leaseback Documents;

          (h)  Purchase Money Liens;

          (i)  Liens in existence on the Closing Date which are listed,  and the
property subject thereto described,  in Schedule 9.19 (Liens referred to in this
clause  (i)  are  herein  referred  to as  "Existing  Liens")  but  only  to the
respective  date, if any, set forth in such Schedule 9.19 for the termination of
any such  Liens  and  Liens on  property  securing  Debt  which  constitutes  an
extension,  renewal or refinancing of Existing Debt, which extension, renewal or
refinancing is

                                       29
<PAGE>

permitted  pursuant to Section 9.13;  provided that (i) the principal  amount of
such Debt does not  exceed  the  principal  amount of the  Existing  Debt  being
extended,  renewed  or  refinanced  at the time of such  extension,  renewal  or
refinancing,  and (ii) such Lien  secures only such Debt and applies only to the
property subject to the Existing Lien securing the Existing Debt being extended,
renewed or refinanced;

          (j)  Liens  arising  as  a  result  of  non-recourse,   sale-leaseback
transactions  with  respect  to any  Real  Estate,  so  long  as the  respective
transaction,  and all  documentation  with respect  thereto,  is approved by the
Agent and  additionally is either approved by the Majority  Lenders or permitted
under Section 9.24;

          (k)  Liens  upon  assets  subject  to  Capital  Leases  to the  extent
permitted by Section 9.23, provided that (i) such Liens only serve to secure the
payment arising under such Capital Lease and (ii) the Lien encumbering the asset
giving rise to the Capital  Lease does not encumber any other asset of Parent or
any of its Subsidiaries;

          (l)  deposits  securing   liabilities  to  insurance   carriers  under
insurance or self-insurance arrangements,  provided that the aggregate amount of
cash and non-cash collateral so deposited shall at no time exceed $15,000,000;

          (m)  with respect to any Real Estate subject to a Mortgage assigned by
Bankers Trust Company,  as collateral agent, to the Agent as contemplated by the
Bank  Assignment  Agreement,  such  exceptions  to title as are set forth in the
title insurance  policy or title  commitment  delivered to such collateral agent
when such Mortgage was executed; and

          (n)  Liens on the assets of Lily Cup securing only the  Debt  of  Lily
Cup permitted to be incurred pursuant to Section 9.13(d)(y).

          "Permitted Rentals" has the meaning specified in Section 9.24.

          "Person"  means  any  individual,  sole  proprietorship,  partnership,
limited liability company, joint venture,  trust,  unincorporated  organization,
association, corporation, Governmental Authority, or any other entity.

          "Plan"  means an employee  benefit plan (as defined in Section 3(3) of
ERISA)  which the  Borrower  or Parent  sponsors  or  maintains  or to which the
Borrower or Parent makes, is making,  or is obligated to make  contributions and
includes any Pension Plan.

          "Pledge  Agreement" means the Pledge Agreement dated as of the Closing
Date made by the Borrower in favor of the Collateral Agent.

          "PNC" means PNC Bank, National Association.

                                       30
<PAGE>

          "Preferred Stock", as applied to the Capital Stock of any corporation,
means  Capital  Stock of any  class or  classes  (however  designated)  which is
preferred as to the payment of dividends,  or as to the  distribution  of assets
upon  any  voluntary  or   involuntary   liquidation   or  dissolution  of  such
corporation,   over  shares  of  Capital  Stock  of  any  other  class  of  such
corporation.

          "Premises"  means the land  identified by addresses on Schedule  8.12,
together  with  all  buildings,  improvements,  and  fixtures  thereon  and  all
tenements, hereditaments, and appurtenances belonging or in any way appertaining
thereto, and which constitutes all of the real property in which the Borrower or
Parent has any interests on the Closing Date.

          "Pro  Rata  Share"  means,  with  respect  to  a  Lender,  a  fraction
(expressed  as a  percentage),  the  numerator  of which is the  amount  of such
Lender's  Commitment  and the  denominator of which is the sum of the amounts of
all of  the  Lenders'  Commitments,  or if no  Commitments  are  outstanding,  a
fraction  (expressed as a  percentage),  the numerator of which is the amount of
Obligations  owed to such Lender and the  denominator  of which is the aggregate
amount of the Obligations owed to the Lenders.

          "Proprietary  Rights"  means  all  of the  Borrower's  now  owned  and
hereafter arising or acquired:  licenses,  franchises,  permits, patents, patent
rights,   copyrights,   works  which  are  the  subject  matter  of  copyrights,
trademarks,  service marks,  trade names,  trade styles,  patent,  trademark and
service mark  applications,  and all  licenses and rights  related to any of the
foregoing,  including, without limitation, those patents, registered trademarks,
registered  service marks and  registered  copyrights set forth on Schedule 8.13
hereto,  and all  other  rights  under  any of the  foregoing,  all  extensions,
renewals, reissues, divisions,  continuations,  and continuations-in-part of any
of  the  foregoing,  and  all  rights  to  sue  for  past,  present  and  future
infringement of any of the foregoing.

          "Purchase  Money  Lien"  means a lien  granted  on a fixed  asset (not
including  Inventory)  to secure a Purchase  Money  Obligation  permitted  to be
incurred  hereunder,  and  incurred  solely to finance the  acquisition  of such
asset;  provided,  however,  that such  lien  encumbers  only such  asset and is
granted within 180 days of such acquisition.

          "Purchase  Money  Obligations"  of any Person means any obligations of
such Person to any seller or any other Person incurred or assumed to finance the
acquisition of real or personal  property  (other than  Inventory) to be used in
the business of such Person or any of its  Subsidiaries in an amount that is not
more than 100% of the cost of such property,  and incurred within 180 days after
the date of such  acquisition  (excluding  accounts  payable to trade  creditors
incurred in the ordinary course of business).

          "Real  Estate"  means all of the present and future  interests  of the
Borrower or Parent (as  appropriate),  as owner,  lessee,  or otherwise,  in the
Premises, including, without

                                       31
<PAGE>

limitation,  any  interest  arising  from an  option  to  purchase  or lease the
Premises or any portion thereof.

          "Receivables  Corp."  means  Sweetheart  Receivables  Corporation,   a
Delaware corporation.

          "Release"  means  a  release,  spill,  emission,   leaking,   pumping,
injection, deposit, disposal,  discharge,  dispersal, leaching or migration of a
Contaminant  into the indoor or outdoor  environment  or into or out of any Real
Estate or other property,  including the migration of Contaminants through or in
the air, soil, surface water, groundwater or Real Estate or other property.

          "Rentals" has the meaning specified in Section 9.24.

          "Replacement  Election"  has the meaning  specified in Section 4.5(b).

          "Replacement   Notice"  means,   with  respect  to  a  sale  or  other
disposition  of assets  referred  to in clause  (iii) of the first  sentence  of
Section  4.5(b),  a written  notice  signed  by the  Borrower  stating  that the
Borrower,  in good faith,  intends and expects to use all or a specified portion
of the net after tax proceeds  from such sale or other  disposition  to purchase
replacement Equipment in accordance with such clause (iii).

          "Replacement Prepayment Amount" means, with respect to any Replacement
Election,  the  amount,  if any, on the  Replacement  Prepayment  Date  relating
thereto  by which (i) the  Anticipated  Replacement  Amount in  respect  of such
Replacement  Election  exceeds (ii) the aggregate amount thereof expended by the
Borrower to purchase  replacement  Equipment in accordance  with clause (iii) of
the first sentence of Section 4.5(b).

          "Replacement  Prepayment Date" means,  with respect to any Replacement
Election,  the earliest of (i) the date, if any, upon which the Agent shall have
delivered  a written  termination  notice to the  Borrower  with  respect to the
Replacement Election, provided that such notice may only be given while an Event
of  Default  exists,  (ii) the date  occurring  270 days  after  the date of the
consummation  of the sale or other  disposition  of the assets  relating to such
Replacement  Election  and  (iii)  the date on which  the  Borrower  shall  have
determined not to, or shall have otherwise  ceased to, proceed with the purchase
of replacement  Equipment in accordance  with clause (iii) of the first sentence
of Section 4.5(b) with the related Anticipated Replacement Amount.

          "Reportable  Event"  means,  any of the  events  set forth in  Section
4043(b) of ERISA or the regulations  thereunder,  other than any such  event for
which   the  30-day   notice  requirement  under   ERISA  has  been  waived   in
regulations issued by the PBGC.

                                       32
<PAGE>

          "Required  Lenders"  means at any time  Lenders  whose Pro Rata Shares
aggregate more than 66% of the Commitments  or, if no Commitments  shall then be
in effect,  Lenders who hold more than 66% of the aggregate  principal amount of
the Loans then outstanding.

          "Requirement  of Law" means,  as to any Person,  any law (statutory or
common),  treaty,  rule or regulation or  determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.

          "Responsible  Officer"  means  the  chief  executive  officer  or  the
president of the Borrower,  or any other officer having  substantially  the same
authority  and  responsibility;  or, with respect to compliance  with  financial
covenants and the  preparation  of the  Borrowing  Base  Certificate,  the chief
financial officer or the treasurer of the Borrower,  or any other officer having
substantially the same authority and responsibility.

          "Restricted Investment" means any acquisition of property by Parent or
any of its  Subsidiaries  (other  than Lily Cup) in  exchange  for cash or other
property,  whether  in the  form of an  acquisition  of  stock,  debt,  or other
indebtedness  or  obligation,  or the  purchase  or  acquisition  of  any  other
property,  or a loan, advance,  capital  contribution,  or subscription,  except
acquisitions  of the following:  (a)  Proprietary  Rights and Fixed Assets to be
used in the business (to the extent such  business is  permitted  under  Section
9.18) of Parent, the Borrower or its Subsidiaries  (other than Receivables Corp.
and  Lily  Cup) so long as the  acquisition  costs  thereof  constitute  Capital
Expenditures   permitted   hereunder  or  costs  for  the  purchase  of  General
Intangibles  in the  ordinary  course of  business  or  ordinary  and  customary
supplies,  in each instance for such General  Intangibles and supplies,  for the
operation of the business (as limited as provided above) of Parent, the Borrower
or its Subsidiaries  (other than Receivables  Corp. and Lily Cup); (b) Inventory
in the ordinary course of business;  (c) current assets arising from the sale or
lease of goods or the  rendition of services in the ordinary  course of business
of the Borrower or its Subsidiaries (other than Receivables Corp. and Lily Cup);
(d) direct  obligations of the United States of America,  or any agency thereof,
or  obligations  guaranteed by the United States of America,  provided that such
obligations  mature within one year from the date of  acquisition  thereof;  (e)
certificates  of deposit  maturing within one year from the date of acquisition,
bankers'  acceptances,  Eurodollar bank deposits, or overnight bank deposits, in
each case issued by, created by, or with a bank or trust company organized under
the laws of the United  States or any state thereof  having  capital and surplus
aggregating at least  $100,000,000;  (f) commercial paper given a rating of "A2"
or  better  by  Standard  & Poor's  Corporation  or "P2" or  better  by  Moody's
Investors  Service,  Inc.  and  maturing not more than 180 days from the date of
creation thereof; (g) repurchase  obligations with a term of not more than seven
days for  underlying  securities of the types  described in clause (d) above and
entered  into with any bank meeting the  qualifications  specified in clause (e)
above;  (h) money  market  funds  substantially  all of the  assets of which are
comprised of securities of the types  described in clauses (d) - (g) above;  and
(i) stock,  debt,  indebtedness,  obligations or any other property  received in
consideration of any asset sale permitted under Section 9.9.

                                       33
<PAGE>

          "Revolving  Loans"  has  the  meaning  specified  in  Section  2.2 and
includes each Agent Advance and BofA Loan.

          "Secured   Sale/Leaseback   Arrangements"   means  the  sale/leaseback
arrangements entered into by the Borrower pursuant to the Secured Sale/Leaseback
Documents.

          "Secured  Sale/Leaseback  Collateral" has the meaning set forth in the
Intercreditor  Agreement;  provided that in any event such collateral shall  not
include any Excluded Sale/Leaseback Assets.

          "Secured  Sale/Leaseback  Documents"  has the meaning set forth in the
Intercreditor Agreement.

          "Security  Documents"  means this  Agreement,  the  Borrower  Security
Agreement, the Trademark,  Patent and Copyright Agreements,  the Parent Security
Agreement,  the Pledge Agreement, the Parent Pledge Agreement, the Assignment of
Contract  as  Collateral   Security,   the  Mortgages  and  all  other  security
agreements,  mortgages,  pledges and assignments at any time delivered by Parent
or any of its  Subsidiaries  or any other  Person to the Agent  pursuant  to the
terms of this Agreement or any other Loan Document.

          "Senior  Secured Notes" means the  $190,000,000  face amount of 9 5/8%
Senior  Secured  Notes due 2000  issued by the  Borrower  (as  successor  to Cup
Acquisition Corporation) pursuant to an Indenture dated as of August 30, 1993.

          "Senior  Subordinated  Notes"  means the  $110,000,000  face amount of
Senior  Subordinated  Notes due 2003 issued by the Borrower (as successor to Cup
Acquisition Corporation) pursuant to an Indenture dated as of August 30, 1993.

          "Settlement"  and  "Settlement  Date" have the  meanings  specified in
Section 2.2(j)(i).

          "Shared  Collateral"  has the meaning  set forth in the  Intercreditor
Agreement.

          "Sherwood" means Sherwood Industries, Inc.

          "Sherwood-Related  Merger  Documents" means the documents  pursuant to
which  the  Sherwood-Related   Mergers  are  consummated,   including,   without
limitation,  the documents  filed with the  Secretaries  of State of Delaware or
Connecticut in order to effectuate such mergers.

          "Sherwood-Related  Mergers"  means  (i)  the  mergers  of  each of the
Subsidiaries  of Sherwood  with and into Sherwood with Sherwood as the surviving
entity of such mergers and

                                       34
<PAGE>

(ii) the merger  immediately  thereafter  of Sherwood with and into the Borrower
with the Borrower as the surviving entity of such merger.

          "Sherwood-Related   Subordinated  Notes"  means,   collectively,   the
Subordinated Convertible Notes by the Borrower to the order of the sellers under
the Sherwood  Stock  Purchase  Agreement in the  aggregate  principal  amount of
$5,000,000  representing a portion of the purchase price payable by the Borrower
under the Sherwood Stock Purchase Agreement.

          "Sherwood   Stock  Purchase   Agreement"   means  the  Stock  Purchase
Agreement,  dated as of December 20, 1999, among the Borrower, as purchaser, and
Paul R. Corazzo,  William  Corazzo,  Donna Corazzo Reed and Patrick W. Caccavale
Trust, as sellers, as amended as of April 3, 2000.

          "Sherwood Stock Purchase Documents" means, collectively,  the Sherwood
Stock Purchase Agreement, the related amended and restated escrow agreement, the
Sherwood-Related  Subordinated  Notes and all other  documents,  agreements  and
instruments executed and/or delivered in connection therewith.

          "Solvent"  means,  when used with  respect to any Person,  that at the
time of determination:

          (i)   the assets of such Person, at a fair valuation, are in excess of
     the total amount of its debts (including,  without  limitation,  contingent
     liabilities); and

          (ii)  the present fair  saleable value  of its  assets is greater than
     its probable  liability on its existing debts as such debts become absolute
     and matured; and

          (iii) it  is then  able  and  expects  to be  able  to pay  its  debts
     (including, without limitation,  contingent debts and other commitments) as
     they mature; and

          (iv)  it has capital sufficient  to carry on its business as conducted
     and as proposed to be conducted.

For  purposes  of  determining  whether a Person is  Solvent,  the amount of any
contingent  liability  shall be computed as the amount that, in light of all the
facts and  circumstances  existing at such time,  represents the amount that can
reasonably be expected to become an actual or matured liability.

          "Stated  Termination  Date" means the fifth anniversary of the Closing
Date;  provided  that in the event the  Borrower has not  refinanced,  repaid or
extended the Senior  Subordinated  Notes on terms  reasonably  acceptable to the
Agent and the Majority  Lenders  (which  terms  shall,  to the extent the Senior
Subordinated  Notes are  refinanced  or repaid with other  indebtedness,  in any
event require subordination provisions in the documents governing the

                                       35
<PAGE>

indebtedness  refinancing or repaying any of the Senior  Subordinated Notes that
are no less  favorable to the Lenders than the  subordination  provisions in the
indenture  governing the Senior  Subordinated  Notes) prior to June 1, 2003, the
Stated Termination Date means July 1, 2003.

          "Subsidiary"   of  a  Person  means  any   corporation,   association,
partnership,  joint  venture or other  business  entity of which more than fifty
percent  (50%) of the voting  stock or other  equity  interests  (in the case of
Persons other than corporations),  is owned or controlled directly or indirectly
by  the  Person,  or one  or  more  of the  Subsidiaries  of  the  Person,  or a
combination thereof.  Unless the context otherwise clearly requires,  references
herein to a "Subsidiary" refer to a Subsidiary of Parent.

          "Suppressed  Availability"  means, at any time, the amount, if any, by
which (x) the amount in clause (a)(ii) of the defined term Availability  exceeds
(y) the amount in clause (a) of such defined term.

          "Taxes"  means any and all present or future taxes,  levies,  imposts,
deductions,  charges or withholdings,  and all liabilities with respect thereto,
excluding,  in the case of each  Lender  and the Agent,  such  taxes  (including
income taxes or franchise  taxes) as are imposed on or measured by each Lender's
net income by the jurisdiction (or any political  subdivision thereof) under the
laws of which such  Lender or the  Agent,  as the case may be, is  organized  or
maintains a lending office.

          "Term Loan" and "Term  Loans" have the  meanings  specified in Section
2.3(a).

          "Term Loan Note" and "Term Loan Notes" have the meanings  specified in
Section 2.3(c).

          "Term Loan Reserve"  means,  at any time, the amount by which the Term
Loan Support (as defined below) is less than the outstanding  principal  balance
of the Term Loans. For purposes of this  definition,  "Term Loan Support" means,
at any time, the sum of (1) 80% of the orderly  liquidation  value of the Credit
Agreement  Term Loan  Equipment  Collateral in existence on the Closing Date, as
such orderly liquidation value shall be determined by an appraisal,  in form and
substance  reasonably  satisfactory the Agent, of such Equipment by Daley Hodkin
or another appraiser  reasonably  satisfactory to the Agent (it being understood
that until such  appraisal  is received  by the Agent,  this clause (1) shall be
deemed to be zero (0)), plus (2) the Suppressed Availability.

          "Termination  Date"  means  the  earliest  to occur of (i) the  Stated
Termination  Date, (ii) the date the Total Facility is terminated  either by the
Borrower  pursuant to Section 4.2 or by the Majority Lenders pursuant to Section
11.2, and (iii) the date this  Agreement is otherwise  terminated for any reason
whatsoever in accordance with the terms hereof.

                                       36
<PAGE>

          "Test  Period"  means,  for any  determination,  the four  consecutive
fiscal  quarters of the Borrower  then last ended (taken as one  accounting
period).

          "Total Facility" has the meaning specified in Section 2.1.

          "Trademark,  Patent  and  Copyright  Agreements"  means, collectively,
(i) the  Collateral  Assignment For  Security in  U.S. Patents,  the  Collateral
Assignment  For  Security  in  U.S. Trademarks,  the  Collateral  Assignment For
Security in U.S. Copyrights,  the Collateral Assignment For Security in Canadian
Patents and the Collateral Assignment For Security in Canadian Trademarks,  each
dated as of August 30, 1993 by the Borrower in favor of Bankers  Trust  Company,
as  collateral  agent,  the Borrower  Intellectual  Property  Agreement  and the
Holdings Intellectual  Property Agreement,  each dated as of August 30, 1993 and
between the Borrower or Parent,  respectively,  and Bankers  Trust  Company,  as
collateral  agent,  all of the foregoing  agreements which have been assigned to
the  Agent  pursuant  to the  Bank  Assignment  Agreement  and  (ii)  all  other
intellectual  property security  agreements  executed and delivered by Parent or
any of its  Subsidiaries  to the  Agent to  evidence  and  perfect  the  Agent's
security  interest  in such  Person's  present and future  patents,  trademarks,
copyrights and related licenses and rights, for the benefit of the Agent and the
Lenders.

          "Transaction Documents" means,  collectively,  the Loan Documents, the
Senior  Subordinated  Notes  and  the  indenture  governing  same,  the  Secured
Sale/Leaseback   Documents,  the  Sherwood  Stock  Purchase  Documents  and  the
Sherwood-Related Merger Documents.

          "UCC" means the Uniform  Commercial Code (or any successor statute) of
the State of New York or of any other  state the laws of which are  required  by
Section 9-103  thereof to be applied in connection  with the issue of perfection
of security interests.

          "Unused  Letter  of  Credit  Subfacility"  means  an  amount  equal to
$15,000,000 minus the sum of (a) the aggregate undrawn amount of all outstanding
Letters  of  Credit  plus  (b)  without   duplication,   the  aggregate   unpaid
reimbursement obligations with respect to all Letters of Credit.

          "Unused Line Fee" has the meaning specified in Section 3.5.

          "Unfunded  Pension  Liability"  means the  excess of a Plan's  benefit
liabilities under Section  4001(a)(16) of ERISA, over the current value  of that
Plan's assets, determined in accordance with the assumptions  used  for  funding
the  Pension  Plan  pursuant to Section  412 of the Code for the applicable plan
year.

          "Wholly-Owned Subsidiary" means, as to any Person, (i) any corporation
100% of whose capital stock (other than director's  qualifying shares) is at the
time owned by such Person and/or one or more  Wholly-Owned  Subsidiaries of such
Person and (ii) any partnership,

                                       37
<PAGE>

association,  joint  venture or other entity in which such Person  and/or one or
more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such
time.

     1.2  Accounting  Terms . Any accounting  term used in this Agreement  shall
have, unless otherwise  specifically  provided herein,  the meaning  customarily
given in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
as  consistently  applied and using the same method for  inventory  valuation as
used in the preparation of the Financial Statements. All calculations to be made
for  the  purposes  of  determining  compliance  with  the  financial  covenants
contained in this  Agreement  (except as otherwise  expressly  provided  herein)
shall be made by application of GAAP applied on a basis consistent with the most
recent annual or quarterly  financial  statements  delivered pursuant to Section
7.2 (or,  prior to the delivery of the first  financial  statements  pursuant to
Section 7.2,  consistent  with GAAP  effective on the  Original  Closing  Date);
provided,  however,  that if (a) the Borrower shall object to  determining  such
compliance  on such basis at the time of delivery of such  financial  statements
due to any change in GAAP or other rules promulgated with respect thereto or (b)
the Agent or the  Majority  Lenders  shall so object in  writing  within 30 days
after delivery of such financial  statements,  then such  calculations  shall be
made on a basis  consistent  with the most recent annual or quarterly  financial
statements delivered by the Borrower to the Agent as to which no objection shall
have been made.

     1.3  Interpretive Provisions .

          (a)  The meanings  of  defined  terms are  equally  applicable  to the
singular and plural forms of the defined terms.

          (b)  The words "hereof," "herein," "hereunder" and similar words refer
to  this  Agreement  as a  whole  and not to any  particular  provision  of this
Agreement; and Subsection,  Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.

          (c)  (i)   The term "documents"  includes  any  and  all  instruments,
documents,  agreements,  certificates, indentures, notices  and  other writings,
however evidenced.

               (ii)  The term  "including" is not limiting and means  "including
without limitation."

               (iii) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including," the words
"to" and "until" each mean "to but excluding"  and the word "through"  means "to
and including."

          (d)  Unless  otherwise  expressly  provided  herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments

                                       38
<PAGE>

and other  modifications  are not  prohibited by the terms of any Loan Document,
and  (ii)  references  to any  statute  or  regulation  are to be  construed  as
including all  statutory  and  regulatory  provisions  consolidating,  amending,
replacing, supplementing or interpreting the statute or regulation.

          (e)  The captions and headings of this  Agreement are  for convenience
of reference only and shall not affect the interpretation of this Agreement.

          (f)  This Agreement and other Loan Documents may use several different
limitations,  tests or measurements to regulate the same or similar matters. All
such  limitations,  tests and  measurements  are  cumulative  and shall  each be
performed in accordance with their terms.

          (g)  This  Agreement and the other  Loan  Documents  are the result of
negotiations  among and have been reviewed by counsel to the Agent, the Borrower
and the other parties,  and are the products of all parties.  Accordingly,  they
shall not be construed  against the Lenders or the Agent  merely  because of the
Agent's or Lenders' involvement in their preparation.

                                    ARTICLE 2

                           LOANS AND LETTERS OF CREDIT
                           ---------------------------

     2.1  Total  Facility . Subject to all of the terms and  conditions  of this
Agreement, the Lenders severally agree to make available a total credit facility
of up to $160,000,000 (the "Total Facility") for the Borrower's use from time to
time during the term of this Agreement. The Total Facility shall be comprised of
(a) a revolving  line of credit  consisting  of  revolving  loans and letters of
credit up to the Maximum Revolver Amount,  as described in Sections 2.2 and 2.4,
and (b) term loans in the aggregate original principal amount of $25,000,000, as
described in Section 2.3.

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<PAGE>

     2.2  Revolving Loans .

          (a)  Amounts. Subject to the  satisfaction of the conditions precedent
set forth  in  Article 10, each  Lender severally agrees,  upon  the  Borrower's
request  from  time to time on any  Business  Day  during  the  period  from the
Original  Closing Date to the  Termination  Date, to make  revolving  loans (the
"Revolving  Loans") to the Borrower,  in amounts not to exceed  (except for BofA
with respect to BofA Loans or Agent  Advances)  such  Lender's Pro Rata Share of
the Borrower's  Availability.  The Lenders,  however,  in their discretion,  may
elect to make Revolving Loans or participate (as provided for in Section 2.4(f))
in the credit support or enhancement  provided  through the Agent to the issuers
of Letters of Credit in excess of the Availability on one or more occasions, but
if they do so, neither the Agent nor the Lenders shall be deemed thereby to have
changed the limits of the Maximum  Revolver Amount or the  Availability or to be
obligated to exceed such limits on any other occasion. If the sum of outstanding
Revolving Loans,  the aggregate  amount of Pending  Revolving Loans, the undrawn
amount of outstanding Letters of Credit and any unpaid reimbursement obligations
in respect of Letters of Credit exceeds the Availability, the Lenders may refuse
to make or  otherwise  restrict  the making of  Revolving  Loans as the  Lenders
determine  until  such  excess  has  been  eliminated,  subject  to the  Agent's
authority, in its sole discretion,  to make Agent Advances pursuant to the terms
of Section 2.2(i).  The Borrower  acknowledges  and agrees that the payment (the
"Assignment  Payment")  made on the Original  Closing  Date  pursuant to Section
3(a)(i)  of the Bank  Assignment  Agreement  by BABC to those  banks  and  other
financial  institutions  party to the Original Credit  Agreement with respect to
the purchase of the  outstanding  loans made to the Borrower  under the Original
Credit  Agreement shall constitute a Revolving Loan requested by the Borrower in
the amount of such payment.

          (b)  Procedure for Borrowing.

               (i)  Each Borrowing shall be made upon the Borrower's irrevocable
written  notice  delivered  to the  Agent in the form of a Notice  of  Borrowing
together with a Borrowing Base Certificate  reflecting sufficient  Availability,
which  must be  received  by the Agent (x) prior to 11:00  a.m.  (New York time)
three  Business Days prior to the  requested  Funding Date, in the case of LIBOR
Revolving  Loans  and (y) no  later  than  12:00  noon  (New  York  time) on the
requested Funding Date, in the case of Base Rate Revolving Loans, specifying:

                     (A) the amount of the Borrowing;

                     (B) the requested  Funding  Date, which shall be a Business
Day;
                     (C) whether the Revolving  Loans  requested  are to be Base
Rate Revolving Loans or LIBOR Revolving Loans; and

                                       40
<PAGE>

                     (D) the duration of the  Interest  Period if the  requested
Revolving  Loans are to be LIBOR  Revolving  Loans.  If the Notice of  Borrowing
fails to specify the duration of the Interest Period for any Borrowing comprised
of LIBOR Revolving Loans, such Interest Period shall be three months.

               (ii)  After giving effect to any Borrowing, there may not be more
than seven different Interest Periods in effect under the Total Facility.

               (iii) With respect to any request for Base Rate Revolving  Loans,
in lieu of delivering the  above-described  Notice of Borrowing the Borrower may
give the Agent telephonic notice of such request by the required time, with such
telephonic  notice to be confirmed  in writing  within 24 hours of the giving of
such  notice but Agent shall be  entitled  to rely on the  telephonic  notice in
making such Revolving Loans.

          (c)  Reliance upon Authority. On or prior to the Original Closing Date
and  thereafter  prior to any  change  with  respect  to any of the  information
contained in the following  clauses (i) and (ii),  the Borrower shall deliver to
the Agent a writing  setting  forth (i) the account of the Borrower to which the
Agent is authorized to transfer the proceeds of the  Revolving  Loans  requested
pursuant to this Section 2.2, and (ii) the names of the officers  authorized  to
request  Revolving Loans on behalf of the Borrower,  and shall provide the Agent
with a specimen  signature of each such officer.  The Agent shall be entitled to
rely  conclusively  on such officer's  authority to request  Revolving  Loans on
behalf of the Borrower,  the proceeds of which are to be  transferred  to any of
the accounts  specified by the Borrower  pursuant to the  immediately  preceding
sentence,  until the Agent receives  written  notice to the contrary.  The Agent
shall have no duty to verify the identity of any individual  representing him or
herself as one of the officers  authorized by the Borrower to make such requests
on its behalf.

          (d)  No Liability.  The Agent  shall not  incur any  liability  to the
Borrower  as a result of acting upon any notice  referred to in Sections  2.2(b)
and (c),  which notice the Agent believes in good faith to have been given by an
officer duly authorized by the Borrower to request Revolving Loans on its behalf
or for otherwise  acting in good faith under this Section 2.2, and the crediting
of Revolving  Loans to the Borrower's  deposit  account,  or transmittal to such
Person as the Borrower shall direct, shall conclusively establish the obligation
of the Borrower to repay such Revolving Loans as provided herein.

          (e)  Notice Irrevocable. Any Notice of Borrowing (or telephonic notice
in lieu thereof) made pursuant to Section  2.2(b) shall be  irrevocable  and the
Borrower  shall be bound to borrow the funds  requested  therein  in  accordance
therewith.

          (f)  Agent's Election. Promptly after receipt of a Notice of Borrowing
(or telephonic  notice in lieu thereof)  pursuant to Section  2.2(b),  the Agent
shall elect, in its discretion, (i) to have the terms of Section 2.2(g) apply to
such requested  Borrowing,  or (ii) to request BofA to make a BofA Loan pursuant
to the terms of Section 2.2(h) in the amount of the

                                       41
<PAGE>

requested  Borrowing;  provided,  however,  that if BofA  declines  in its  sole
discretion to make a BofA Loan pursuant to Section 2.2(h), the Agent shall elect
to have the terms of Section 2.2(g) apply to such requested Borrowing.

          (g)  Making of Revolving Loans.

               (i)   In the event that the Agent  shall elect to have the  terms
of  this  Section  2.2(g)  apply  to  a  requested  Borrowing  as  described  in
Section  2.2(f),  then  promptly  after  receipt  of a Notice  of  Borrowing  or
telephonic notice pursuant to Section 2.2(b), the Agent shall notify the Lenders
by telecopy,  telephone or other similar form of transmission,  of the requested
Borrowing.  Each Lender shall make the amount of such Lender's Pro Rata Share of
the  requested  Borrowing  available  to the  Agent in same day  funds,  to such
account of the Agent as the Agent may  designate,  not later than 2:00 p.m. (New
York time) on the Funding Date applicable thereto.  After the Agent's receipt of
the  proceeds of such  Revolving  Loans,  upon  satisfaction  of the  applicable
conditions  precedent set forth in Article 10, the Agent shall make the proceeds
of such Revolving Loans available to the Borrower on the applicable Funding Date
by  transferring  same day funds equal to the proceeds of such  Revolving  Loans
received by the Agent to the account of the  Borrower,  designated in writing by
the Borrower and acceptable to the Agent; provided,  however, that the amount of
Revolving Loans so made on any date shall in no event exceed the Availability of
the Borrower on such date.

               (ii)  Unless the Agent receives  notice from a Lender on or prior
to the  Original  Closing  Date or,  with  respect  to any  Borrowing  after the
Original  Closing  Date,  at least  one  Business  Day prior to the date of such
Borrowing,  that  such  Lender  will not  make  available  as and when  required
hereunder  to the Agent  for the  account  of the  Borrower  the  amount of that
Lender's Pro Rata Share of the Borrowing,  the Agent may assume that each Lender
has made such amount  available to the Agent in immediately  available  funds on
the Funding Date and the Agent may (but shall not be so  required),  in reliance
upon  such   assumption,   make  available  to  the  Borrower  on  such  date  a
corresponding  amount.  If and to the extent any Lender  shall not have made its
full amount available to the Agent in immediately  available funds and the Agent
in such  circumstances  has made  available  to the Borrower  such amount,  that
Lender shall on the Business  Day  following  such Funding Date make such amount
available to the Agent,  together  with  interest at the Federal  Funds Rate for
each day during such period.  A notice of the Agent submitted to any Lender with
respect to amounts  owing  under this  subsection  shall be  conclusive,  absent
manifest error.  If such amount is so made available,  such payment to the Agent
shall  constitute such Lender's  Revolving Loan on the date of Borrowing for all
purposes of this Agreement. If such amount is not made available to the Agent on
the Business Day following the Funding Date,  the Agent will notify the Borrower
of such failure to fund and,  upon demand by the Agent,  the Borrower  shall pay
such amount to the Agent for the Agent's account, together with interest thereon
for each day elapsed since the date of such Borrowing, at a rate per annum equal
to the interest rate  applicable at the time to the Revolving  Loans  comprising
such  Borrowing.  The  failure of any Lender to make any  Revolving  Loan on any
Funding  Date  (any  such  Lender,  prior  to the  cure of such  failure,  being
hereinafter  referred to as a "Defaulting  Lender")  shall not relieve any other
Lender of any obligation hereunder to make a Revolving

                                       43
<PAGE>

Loan on such Funding Date, but no Lender shall be responsible for the failure of
any other Lender to make the  Revolving  Loan to be made by such other Lender on
any Funding Date.

               (iii) The   Agent  shall  not  be  obligated  to  transfer  to  a
Defaulting  Lender  any  payments  made by the  Borrower  to the  Agent  for the
Defaulting  Lender's  benefit;  nor shall a Defaulting Lender be entitled to the
sharing of any payments hereunder.  Amounts payable to a Defaulting Lender shall
instead  be paid to or  retained  by the Agent.  The Agent may hold and,  in its
discretion,  re-lend to the Borrower the amount of all such payments received or
retained by it for the account of such Defaulting Lender. Any amounts so re-lent
to the  Borrower  shall  bear  interest  at the  rate  applicable  to Base  Rate
Revolving Loans and for all other purposes of this Agreement shall be treated as
if they were Revolving Loans, provided,  however, that for purposes of voting or
consenting  to matters with respect to the Loan  Documents and  determining  Pro
Rata  Shares,  such  Defaulting  Lender shall be deemed not to be a "Lender" and
such Lender's  Commitment  shall be deemed to be zero (-0-).  Until a Defaulting
Lender  cures its failure to fund its Pro Rata Share of any  Borrowing  (1) such
Defaulting  Lender  shall not be  entitled to any portion of the Unused Line Fee
and (2) the  Unused  Line Fee shall  accrue in favor of the  Lenders  which have
funded their  respective Pro Rata Shares of such requested  Borrowing,  shall be
allocated  among such  performing  Lenders  ratably  based  upon their  relative
Commitments,  and shall be calculated based upon the average amount by which the
aggregate  Commitments of such performing  Lenders (but only the portion thereof
with respect to the revolving line of credit  facility under the Total Facility)
exceeds the sum of  outstanding  Revolving  Loans and the undrawn face amount of
all  outstanding  Letters of Credit.  This section shall remain  effective  with
respect to such Lender until such time as the Defaulting  Lender shall no longer
be in default of any of its obligations under this Agreement.  The terms of this
Section shall not be construed to increase or otherwise affect the Commitment of
any Lender,  or relieve or excuse the  performance by the Borrower of its duties
and obligations hereunder.

          (h)  Making of BofA Loans.

               (i)   In the  event the  Agent shall elect,  with  the consent of
BofA, to have the terms of this Section 2.2(h) apply to a requested Borrowing as
described in Section  2.2(f),  BofA shall make a Revolving Loan in the amount of
such  Borrowing  (any such  Revolving  Loan made solely by BofA pursuant to this
Section 2.2(h) being referred to as a "BofA Loan" and such Revolving Loans being
referred to  collectively  as "BofA  Loans")  available  to the  Borrower on the
Funding Date applicable  thereto by transferring same day funds to an account of
the Borrower, designated in writing by the Borrower and acceptable to the Agent.
Each BofA Loan is a  Revolving  Loan  hereunder  and shall be subject to all the
terms  and  conditions  applicable  to other  Revolving  Loans  except  that all
payments  thereon  shall be payable to BofA solely for its own account  (and for
the account of the holder of any  participation  interest  with  respect to such
Revolving  Loan).  The Agent shall not request BofA to make any BofA Loan if (i)
the Agent shall have received  written notice from any Lender,  or otherwise has
actual knowledge,  that one or more of the applicable  conditions  precedent set
forth in Article 10 will not be satisfied on the requested  Funding Date for the
applicable  Borrowing,   or  (ii)  the  requested  Borrowing  would  exceed  the
Availability of the Borrower  on  such Funding Date. BofA shall not otherwise be

                                       43
<PAGE>

required to determine whether the applicable  conditions  precedent set forth in
Article 10 have been  satisfied  or the  requested  Borrowing  would  exceed the
Availability  of the Borrower on the Funding Date  applicable  thereto  prior to
making,  in its sole discretion,  any BofA Loan.  Notwithstanding  Section 9.25,
BofA may, in its sole  discretion,  make BofA Loans which,  after giving  effect
thereto, would result in Availability of less than $5,000,000 (but not less than
zero),  provided that the Borrower shall not permit the portion of any such BofA
Loan which so results in  Availability of less than $5,000,000 to be outstanding
for more than five  consecutive  days in any  calendar  quarter or more than ten
days in total in any calendar quarter.

               (ii)  The BofA Loans shall be repayable  on demand and secured by
the Collateral,  shall constitute Revolving Loans and Obligations hereunder, and
shall bear interest at the rate  applicable to the Revolving  Loans from time to
time.

          (i)  Agent Advances.

               (i)   Subject  to  the limitations  set  forth  in  the  provisos
contained in this Section 2.2(i), the Agent is hereby authorized by the Lenders,
from time to time in the Agent's sole discretion,  (1) after the occurrence of a
Default  or an  Event of  Default,  or (2) at any  time  that  any of the  other
applicable conditions precedent set forth in Article 10 have not been satisfied,
to make  Revolving  Loans to the  Borrower  on behalf of the  Lenders  which the
Agent, in its reasonable business judgment,  deems necessary or desirable (A) to
preserve or protect the Collateral,  or any portion thereof,  (B) to enhance the
likelihood  of, or  maximize  the  amount of,  repayment  of the Loans and other
Obligations,  or (C) to pay any other amount chargeable to the Borrower pursuant
to the terms of this Agreement,  including, without limitation,  costs, fees and
expenses as described  in Section  15.7 (any of the  advances  described in this
Section 2.2(i) being  hereinafter  referred to as "Agent  Advances");  provided,
that the  Required  Lenders  may at any time  revoke the  Agent's  authorization
contained in this Section 2.2(i) to make Agent Advances,  any such revocation to
be in writing and to become  effective  prospectively  upon the Agent's  receipt
thereof; and provided further,  that the Agent shall not make Agent Advances for
purposes  described in clauses (B) and (C) above which would cause the Revolving
Loans and Letters of Credit  otherwise  permitted to be  outstanding  under this
Agreement to exceed $135,000,000.

               (ii)  The Agent Advances shall be repayable on demand and secured
by the Collateral,  shall constitute Revolving Loans and Obligations  hereunder,
and shall bear interest at the rate  applicable to the Revolving Loans from time
to time.  The Agent  shall  notify  each  Lender in  writing  of each such Agent
Advance.

          (j)  Settlement. It is agreed that each Lender's funded portion of the
Revolving  Loan is  intended  by the  Lenders  to be equal at all  times to such
Lender's Pro Rata Share of the outstanding Revolving Loans. Notwithstanding such
agreement,  the Agent,  BofA, and the other Lenders agree (which agreement shall
not be for the  benefit  of or  enforceable  by the  Borrower)  that in order to
facilitate the  administration  of this Agreement and the other Loan  Documents,
settlement  among them as to the Revolving  Loans,  the BofA Loans and the Agent
Advances shall take place on a periodic  basis in accordance  with the following
provisions:

                                       44
<PAGE>

               (i)   The Agent shall request settlement ("Settlement")  with the
Lenders on a weekly basis,  or on a more frequent  basis if so determined by the
Agent,  (1) on behalf of BofA, with respect to each  outstanding  BofA Loan, (2)
for  itself,  with  respect  to each  Agent  Advance,  and (3) with  respect  to
collections  received,  in each case, by notifying the Lenders of such requested
Settlement by telecopy, telephone or other similar form of transmission, of such
requested  Settlement,  no later  than 1:00 p.m.  (New York time) on the date of
such requested Settlement (the "Settlement Date"). Each Lender (other than BofA,
in the case of BofA Loans,  and the Agent,  in the case of Agent Advances) shall
make the amount of such  Lender's  Pro Rata Share of the  outstanding  principal
amount of the BofA Loans and Agent Advances with respect to which  Settlement is
requested available to the Agent, for itself or for the account of BofA, in same
day funds,  to such account of the Agent as the Agent may  designate,  not later
than 3:00 p.m.  (New York time),  on the  Settlement  Date  applicable  thereto,
regardless of whether the applicable  conditions  precedent set forth in Article
10 have then been  satisfied.  Such amounts made available to the Agent shall be
applied  against the amounts of the  applicable  BofA Loan or Agent Advance and,
together with the portion of such BofA Loan or Agent Advance representing BofA's
Pro Rata Share thereof, shall constitute Revolving Loans of such Lenders. If any
such amount is not made  available to the Agent by any Lender on the  Settlement
Date applicable  thereto,  the Agent shall be entitled to recover such amount on
demand from such Lender together with interest thereon at the Federal Funds Rate
for the first three (3) days from and after the  Settlement  Date and thereafter
at  the  Interest   Rate  then   applicable  to  the   Revolving   Loans.

               (ii)  Notwithstanding  the  foregoing,  not  more  than  one  (1)
Business  Day after  demand is made by the  Agent  (whether  before or after the
occurrence  of a Default or an Event of Default  and  regardless  of whether the
Agent has requested a Settlement  with respect to a BofA Loan or Agent Advance),
each other Lender shall  irrevocably  and  unconditionally  purchase and receive
from  BofA or the  Agent,  as  applicable,  without  recourse  or  warranty,  an
undivided  interest and  participation in such BofA Loan or Agent Advance to the
extent of such Lender's Pro Rata Share  thereof by paying to the Agent,  in same
day funds,  an amount equal to such Lender's Pro Rata Share of such BofA Loan or
Agent Advance.  If such amount is not in fact made available to the Agent by any
Lender,  the Agent shall be entitled to recover  such amount on demand from such
Lender  together with  interest  thereon at the Federal Funds Rate for the first
three (3) days from and after such demand and  thereafter  at the Interest  Rate
then applicable to the Revolving Loans.

               (iii) From and  after  the date,  if  any,  on which  any  Lender
purchases an  undivided  interest  and  participation  in any BofA Loan or Agent
Advance pursuant to subsection (ii) above,  the Agent shall promptly  distribute
to such  Lender at such  address as such  Lender may  request in  writing,  such
Lender's  Pro Rata Share of all  payments  of  principal  and  interest  and all
proceeds  of  Collateral  received  by the Agent in respect of such BofA Loan or
Agent Advance.

                                       45
<PAGE>

               (iv)  Between Settlement Dates, the Agent, to the extent no Agent
Advances  or BofA  Loans  are  outstanding,  may pay over to BofA  any  payments
received  by the Agent,  which in  accordance  with the terms of this  Agreement
would be applied to the reduction of the Revolving  Loans,  for  application  to
BofA's  other  outstanding  Revolving  Loans.  If,  as of any  Settlement  Date,
collections  received since the then immediately  preceding Settlement Date have
been  applied to BofA's  other  outstanding  Revolving  Loans other than to BofA
Loans or Agent Advances,  as provided for in the previous  sentence,  BofA shall
pay  to the  Agent  for  the  accounts  of the  Lenders,  to be  applied  to the
outstanding  Revolving  Loans of such  Lenders,  an amount such that each Lender
shall,  upon receipt of such amount,  have, as of such Settlement  Date, its Pro
Rata Share of the Revolving Loans.  During the period between  Settlement Dates,
BofA with respect to BofA Loans,  the Agent with respect to Agent Advances,  and
each Lender with respect to the Revolving  Loans other than BofA Loans and Agent
Advances,  shall be entitled to interest at the applicable rate or rates payable
under this  Agreement on the actual  average  daily amount of funds  employed by
BofA, the Agent and the other Lenders.

          (k)  Notation. The  Agent  shall  record  on  its  books the principal
amount of the  Revolving  Loans owing to each Lender,  including  the BofA Loans
owing to BofA, and the Agent Advances owing to the Agent,  from time to time. In
addition,  each Lender is authorized,  at such Lender's option, to note the date
and amount of each payment or prepayment of principal of such Lender's Revolving
Loans in its books and  records,  including  computer  records,  such  books and
records constituting rebuttably presumptive evidence,  absent manifest error, of
the accuracy of the information contained therein.

          (l)  Lenders' Failure to Perform. All Revolving Loans (other than BofA
     Loans and Agent Advances) shall be made by the Lenders  simultaneously  and
     in  accordance  with their Pro Rata Shares.  It is  understood  that (a) no
     Lender shall be responsible  for any failure by any other Lender to perform
     its  obligation  to make any  Revolving  Loans  hereunder,  nor  shall  any
     Commitment  of any  Lender be  increased  or  decreased  as a result of any
     failure by any other Lender to perform its obligation to make any Revolving
     Loans hereunder,  (b) no failure by any Lender to perform its obligation to
     make any Revolving  Loans  hereunder shall excuse any other Lender from its
     obligation to make any Revolving Loans  hereunder,  and (c) the obligations
     of each Lender hereunder shall be several, not joint and several.

     2.3  Term Loan .

          (a)  Amounts  of  Term  Loans.  Each Lender severally agrees to make a
term loan (any such term loan being  referred  to as a "Term Loan" and such term
loans being referred to collectively as the "Term Loans") to the Borrower on the
Closing Date, upon the satisfaction of the applicable  conditions  precedent set
forth in  Article  10, in an amount  equal to such  Lender's  Pro Rata  Share of
$25,000,000. The Term Loans shall initially be Base Rate Term Loans.

                                       46
<PAGE>

          (b)  Making of Term Loans.  Each Lender  shall make the amount of such
Lender's Term Loan available to the Agent in same day funds,  to such account of
the Agent as the Agent may  designate,  not later than 2:00 p.m. (New York time)
on the  Closing  Date.  After the Agent's  receipt of the  proceeds of such Term
Loans,  upon  satisfaction of the applicable  conditions  precedent set forth in
Article 10, the Agent shall make the  proceeds of such Term Loans  available  to
the Borrower on such Funding  Date by  transferring  same day funds equal to the
proceeds of such Term Loans  received by the Agent to an account of the Borrower
designated  in  writing  by the  Borrower  or as the  Borrower  shall  otherwise
instruct in writing.

          (c)  Term Loan Notes.  The Borrower  shall  execute and deliver to the
Agent on  behalf  of each  Lender,  on the  Closing  Date,  a  promissory  note,
substantially  in the form of Exhibit A attached  hereto and made a part  hereof
(such promissory  notes,  together with any new notes issued pursuant to Section
13.3 upon the  assignment  of any  portion  of any  Lender's  Term  Loan,  being
hereinafter  referred to  collectively as the "Term Loan Notes" and each of such
promissory  notes being  hereinafter  referred to  individually  as a "Term Loan
Note"),  to evidence such Lender's  Term Loan, in an original  principal  amount
equal to the  amount of such  Lender's  Pro Rata Share of  $25,000,000  and with
other  appropriate  insertions.  The  principal  amount  of the Term  Loan  Note
delivered  to the Agent on behalf of each Lender shall be dated the Closing Date
and  stated  to  mature  in  sixty  (60)  monthly  installments  (if the  Stated
Termination  Date  shall  be the  fifth  anniversary  of the  Closing  Date)  or
thirty-seven (37) monthly  installments (if the Stated Termination Date shall be
July  1,  2003).  Each  of  the  monthly  installments  (other  than  the  final
installment)  of  principal  to be payable to each Lender  shall be in an amount
equal to such Lender's Pro Rata Share of $416,666.67 and shall be payable on the
first day of each month,  commencing on July 1, 2000, and the final  installment
of  principal,  if the Term Loans  have not been paid in full  before the Stated
Termination Date, shall be in an amount equal to such Lender's Pro Rata Share of
the then remaining principal balance of the Term Loan Notes and shall be payable
on the Stated  Termination  Date. Each such installment  shall be payable to the
Agent for the account of the applicable Lender.

          (d)  Notation and Endorsement. The Agent shall record on its books the
principal  amount of the Term Loans owing to each  Lender from time to time.  In
addition,  each Lender is authorized,  at such Lender's option, to note the date
and amount of each payment or  prepayment  of principal  of such  Lender's  Term
Loans in its books and records,  such books and records constituting  rebuttably
presumptive evidence,  absent manifest error, of the accuracy of the information
contained  therein.  Prior to the transfer of a Term Loan Note,  the  applicable
Lender  shall  endorse on the reverse  side  thereof the  outstanding  principal
balance of the Term Loan evidenced thereby.  Failure by such Lender to make such
notation or endorsement  shall not affect the  obligations of the Borrower under
such Term Loan Note or any of the other Loan Documents.

                                       47
<PAGE>

     2.4  Letters of Credit .

          (a) Agreement to Cause  Issuance.  Subject to the terms and conditions
of this Agreement,  and in reliance upon the  representations  and warranties of
the  Borrower  herein set forth,  the Agent agrees to take  reasonable  steps to
cause to be issued for the account of the Borrower and to provide credit support
or other  enhancement to banks reasonably  acceptable to the Agent,  which issue
Letters of Credit for the account of the  Borrower  (any such credit  support or
enhancement being herein referred to a "Credit Support") in accordance with this
Section 2.4 from time to time during the term of this Agreement.

          (b) Amounts;  Outside  Expiration  Date.  The Agent shall not have any
obligation  to take  steps to cause to be  issued  any  Letter  of  Credit or to
provide  Credit Support for any Letter of Credit at any time if: (1) the maximum
undrawn  amount of the  requested  Letter of Credit is  greater  than the Unused
Letter of Credit Subfacility at such time; (2) the maximum undrawn amount of the
requested Letter of Credit and all  commissions,  fees, and charges due from the
Borrower in connection with the opening  thereof exceed the  Availability of the
Borrower at such time; or (3) such Letter of Credit has an expiration date later
than thirty (30) days prior to the Stated  Termination  Date or more than twelve
(12) months  from the date of issuance in the case of standby  letters of credit
or six (6)  months  from the date of  issuance  in the case of letters of credit
issued to support purchases of Inventory.

          (c) Other Conditions. In addition to being subject to the satisfaction
of the applicable  conditions  precedent contained in Article 10, the obligation
of the Agent to take reasonable steps to cause to be issued any Letter of Credit
or to  provide  Credit  Support  for any  Letter  of Credit  is  subject  to the
following conditions precedent having been satisfied in a manner satisfactory to
the Agent:

               (1) The Borrower shall have  delivered to the proposed  issuer of
such Letter of Credit,  at such times and in such manner as such proposed issuer
may  prescribe,  an  application  in form  and  substance  satisfactory  to such
proposed  issuer and the Agent for the issuance of the Letter of Credit and such
other documents as may be required  pursuant to the terms thereof,  and the form
and terms of the proposed  Letter of Credit shall be  satisfactory  to the Agent
and such proposed issuer; and

               (2) As of the date of issuance, no order of any court, arbitrator
or Governmental Authority shall purport by its terms to enjoin or restrain money
center banks  generally  from  issuing  letters of credit of the type and in the
amount  of the  proposed  Letter  of  Credit,  and no law,  rule  or  regulation
applicable to money center banks generally and no request or directive  (whether
or  not  having  the  force  of  law)  from  any  Governmental   Authority  with
jurisdiction  over money center banks generally shall prohibit,  or request that
the  proposed  issuer of such Letter of Credit  refrain  from,  the  issuance of
letters of credit generally or the issuance of such Letters of Credit.

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<PAGE>

          (d) Issuance of Letters of Credit.

               (1) Request for Issuance.  The Borrower  shall give the Agent two
(2)  Business  Days'  prior  written  notice of the  Borrower's  request for the
issuance  of a Letter of Credit.  Such  notice  shall be  irrevocable  and shall
specify  the  original  face  amount  of the  Letter of  Credit  requested,  the
effective  date  (which  date  shall  be a  Business  Day) of  issuance  of such
requested  Letter of  Credit,  whether  such  Letter of Credit may be drawn in a
single or in partial draws, the date on which such requested Letter of Credit is
to expire  (which  date shall be a Business  Day),  the  purpose  for which such
Letter of Credit is to be issued, and the beneficiary of the requested Letter of
Credit. The Borrower shall attach to such notice the proposed form of the Letter
of Credit.

               (2)  Responsibilities  of the Agent;  Issuance.  The Agent  shall
determine,  as of the Business Day immediately preceding the requested effective
date of  issuance  of the  Letter of Credit  set  forth in the  notice  from the
Borrower pursuant to Section 2.4(d)(1),  (i) the amount of the applicable Unused
Letter of Credit  Subfacility  and (ii) the  Availability  of the Borrower as of
such date. If (i) the undrawn  amount of the  requested  Letter of Credit is not
greater than the  applicable  Unused Letter of Credit  Subfacility  and (ii) the
issuance  of such  requested  Letter of Credit and all  commissions,  fees,  and
charges due from the Borrower in connection  with the opening  thereof would not
exceed the  Availability of the Borrower,  the Agent shall take reasonable steps
to cause such issuer to issue the requested  Letter of Credit on such  requested
effective date of issuance.

               (3) Notice of Issuance.  On each  Settlement Date the Agent shall
give notice to each Lender of the issuance of all Letters of Credit issued since
the last Settlement Date.

               (4) No Extensions or Amendment.  The Agent shall not be obligated
to cause any Letter of Credit to be extended or amended unless the  requirements
of this  Section  2.4(d)  are met as though a new  Letter of Credit  were  being
requested  and issued.  With respect to any Letter of Credit which  contains any
"evergreen" or automatic renewal provision,  each Lender shall be deemed to have
consented  to any such  extension  or renewal  unless any such Lender shall have
provided to the Agent, not less than 30 days prior to the last date on which the
applicable  issuer can in accordance with the terms of the applicable  Letter of
Credit decline to extend or renew such Letter of Credit,  written notice that it
declines to consent to any such extension or renewal,  provided,  that if all of
the  requirements of this Section 3.4 are met and no Default or Event of Default
exists, no Lender shall decline to consent to any such extension or renewal.

                                       49
<PAGE>

          (e) Payments Pursuant to Letters of Credit.

               (1) Payment of Letter of Credit Obligations.  The Borrower agrees
to  reimburse  the  issuer for any draw under any Letter of Credit and the Agent
for the account of the Lenders upon any payment  pursuant to any Credit  Support
immediately  upon  demand,  and to pay the  issuer of the  Letter of Credit  the
amount of all other  obligations  and other amounts payable to such issuer under
or in connection with any Letter of Credit immediately when due, irrespective of
any claim,  setoff,  defense or other right which the  Borrower  may have at any
time against such issuer or any other Person.

               (2) Revolving Loans to Satisfy Reimbursement Obligations.  In the
event that the issuer of any Letter of Credit honors a draw under such Letter of
Credit or the Agent shall have made any payment  pursuant to any Credit  Support
and the Borrower  shall not have repaid such amount to the issuer of such Letter
of Credit or the Agent, as applicable,  pursuant to Section 2.4(e)(1), the Agent
shall,  upon  receiving  notice  of such  failure,  notify  each  Lender of such
failure, and each Lender shall unconditionally pay to the Agent, for the account
of such issuer or the Agent, as applicable, as and when provided hereinbelow, an
amount  equal to such  Lender's  Pro Rata Share of the amount of such payment in
Dollars  and in same day funds.  If the Agent so notifies  the Lenders  prior to
1:00 p.m. (New York time) on any Business Day, each Lender shall make  available
to the  Agent  the  amount  of such  payment,  as  provided  in the  immediately
preceding  sentence,  on such  Business Day. Such amounts paid by the Lenders to
the Agent shall  constitute  Revolving  Loans which shall be deemed to have been
requested by the Borrower pursuant to Section 2.2 as set forth in Section 4.7.

          (f) Participations.

               (1) Purchase of Participations.  Immediately upon issuance of any
Letter of Credit in accordance with Section 2.4(d),  each Lender shall be deemed
to have irrevocably and unconditionally  purchased and received without recourse
or warranty,  an undivided interest and participation in the Letter of Credit or
the Credit Support  provided through the Agent to such issuer in connection with
the issuance of such Letter of Credit,  equal to such Lender's Pro Rata Share of
the face amount of such  Letter of Credit or the amount of such  Credit  Support
(including,  without  limitation,  all  obligations of the Borrower with respect
thereto, and any security therefor or guaranty pertaining thereto).

               (2) Sharing of Reimbursement  Obligation  Payments.  Whenever the
Agent  receives  a  payment  from  the  Borrower  on  account  of  reimbursement
obligations  in respect of a Letter of Credit or Credit  Support as to which the
Agent has previously received for the account of the issuer thereof payment from
a Lender  pursuant to Section  2.4(e)(2),  the Agent shall  promptly pay to such
Lender  such  Lender's  Pro Rata  Share of such  payment  from the  Borrower  in
Dollars.  Each such  payment  shall be made by the Agent on the  Business Day on
which  the  Agent  receives  immediately  available  funds  paid to such  Person
pursuant to the

                                       50
<PAGE>

immediately  preceding sentence,  if received prior to 1:00 p.m. (New York time)
on such Business Day and otherwise on the next succeeding Business Day.

               (3)  Documentation.  Upon the  request of any  Lender,  the Agent
shall  furnish to such  Lender  copies of any  Letter of  Credit,  reimbursement
agreements  executed  in  connection  therewith,  application  for any Letter of
Credit  and  credit  support  or  enhancement  provided  through  the  Agent  in
connection  with  the  issuance  of  any  Letter  of  Credit,   and  such  other
documentation as may reasonably be requested by such Lender.

               (4)  Obligations  Irrevocable.  The obligations of each Lender to
make  payments to the Agent with respect to any Letter of Credit or with respect
to any Credit  Support  provided  through the Agent with  respect to a Letter of
Credit or with respect to their  participation  in either of the foregoing,  and
the  obligations of the Borrower to make payments to the Agent,  for the account
of the  Lenders,  shall be  irrevocable,  not  subject to any  qualification  or
exception  whatsoever,  including,  without  limitation,  any of  the  following
circumstances:

                    (i) any lack of validity or enforceability of this Agreement
or any of the other Loan Documents;

                    (ii) the  existence of any claim,  setoff,  defense or other
right which the Borrower may have at any time against a  beneficiary  named in a
Letter of Credit or any  transferee  of any  Letter of Credit (or any Person for
whom any such transferee may be acting),  any Lender,  the Agent,  the issuer of
such Letter of Credit,  or any other  Person,  whether in  connection  with this
Agreement,  any Letter of Credit,  the transactions  contemplated  herein or any
unrelated  transactions  (including  any  underlying  transactions  between  the
Borrower or any other Person and the beneficiary named in any Letter of Credit);

                    (iii) any draft, certificate or any other document presented
under  the  Letter  of Credit  proving  to be  forged,  fraudulent,  invalid  or
insufficient in any respect or any statement  therein being untrue or inaccurate
in any respect;

                    (iv) the  surrender  or  impairment  of any security for the
performance or observance of any of the terms of any of the Loan Documents; or

                    (v) the occurrence of any Default or Event of Default.

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<PAGE>

          (g) Recovery or Avoidance of Payments.  In the event any payment by or
on behalf of the  Borrower  received by the Agent with  respect to any Letter of
Credit or Credit  Support  provided for any Letter of Credit (or any guaranty by
the Borrower or reimbursement  obligation of the Borrower  relating thereto) and
distributed  by  the  Agent  to the  Lenders  on  account  of  their  respective
participations  therein is thereafter  set aside,  avoided or recovered from the
Agent in connection with any receivership, liquidation or bankruptcy proceeding,
the Lenders shall,  upon demand by the Agent,  pay to the Agent their respective
Pro Rata Shares of such amount set aside,  avoided or  recovered,  together with
interest at the rate  required to be paid by the Agent upon the amount  required
to   be   repaid   by   it.

          (h) Compensation for Letters of Credit.

               (1) Letter of Credit Fee. The Borrower agrees to pay to the Agent
with  respect to each  Letter of Credit,  for the  account of the  Lenders,  the
Letter of Credit Fee specified in, and in accordance  with the terms of, Section
3.6.

               (2) Issuer Fees and Charges. The Borrower shall pay to the issuer
of any Letter of Credit,  or to the Agent,  for the account of the issuer of any
such Letter of Credit,  solely for such  issuer's  account,  such fees and other
charges as are  charged  by such  issuer  for  letters  of credit  issued by it,
including,  without  limitation,  its standard fees for issuing,  administering,
amending,  renewing,  paying  and  canceling  letters  of  credit  and all other
customary fees  associated with issuing or servicing  letters of credit,  as and
when assessed.

          (i) Indemnification; Exoneration; Power of Attorney.

               (1) Indemnification.  In addition to amounts payable as elsewhere
provided in this Section 2.4, the Borrower hereby agrees to protect,  indemnify,
pay and save the  Lenders  and the Agent  harmless  from and against any and all
claims,  demands,  liabilities,  damages,  losses,  costs,  charges and expenses
(including  reasonable  attorneys' fees) which any Lender or the Agent may incur
or be subject to as a  consequence,  direct or indirect,  of the issuance of any
Letter of Credit or the  provision  of any  credit  support  or  enhancement  in
connection  therewith.  The  agreement in this Section  2.4(i)(1)  shall survive
payments of all Obligations.

               (2)  Assumption of Risk by the  Borrower.  As among the Borrower,
the  Lenders  and the  Agent,  the  Borrower  assumes  all risks of the acts and
omissions  of, or misuse of any of the  Letters  of Credit  by,  the  respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing,  the Lenders and the Agent shall not be responsible  for: (A) the
form,  validity,  sufficiency,  accuracy,  genuineness  or legal  effect  of any
document  submitted by any Person in  connection  with the  application  for and
issuance of and  presentation  of drafts  with  respect to any of the Letters of
Credit,  even  if it  should  prove  to be  in  any  or  all  respects  invalid,
insufficient, inaccurate, fraudulent or forged; (B) the validity or

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<PAGE>

sufficiency  of any  instrument  transferring  or  assigning  or  purporting  to
transfer or assign any Letter of Credit or the rights or benefits  thereunder or
proceeds  thereof,  in whole or in  part,  which  may  prove  to be  invalid  or
ineffective for any reason;  (C) the failure of the beneficiary of any Letter of
Credit to comply duly with conditions required in order to draw upon such Letter
of Credit; (D) errors,  omissions,  interruptions,  or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they be in cipher;  (E) errors in  interpretation of technical terms; (F)
any loss or delay in the  transmission or otherwise of any document  required in
order make a drawing under any Letter of Credit or of the proceeds thereof;  (G)
the misapplication by the beneficiary of any Letter of Credit of the proceeds of
any drawing under such Letter of Credit;  or (H) any  consequences  arising from
causes  beyond the  control of the  Lenders  or the  Agent,  including,  without
limitation, any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto Governmental  Authority.  None of the foregoing shall
affect,  impair or prevent  the  vesting of any rights or powers of the Agent or
any Lender under this  Section  2.4(i).  Further,  none of the  foregoing  shall
prejudice any rights of the Borrower against any issuer of a Letter of Credit.

               (3)  Exoneration.  In  furtherance  and  extension,  and  not  in
limitation,  of the specific  provisions  set forth  above,  any action taken or
omitted  by the  Agent  or any  Lender  under or in  connection  with any of the
Letters  of Credit  or any  related  certificates,  if taken or  omitted  in the
absence of gross  negligence or willful  misconduct,  shall not put the Agent or
any Lender under any resulting liability to the Borrower or relieve the Borrower
of any of its obligations hereunder to any such Person.

               (4) Power of Attorney.  In connection with all Inventory financed
by Letters of Credit,  the Borrower  hereby  appoints the Agent,  or the Agent's
designee,  as its attorney,  with full power and  authority:  (a) to sign and/or
endorse the Borrower's  name upon any warehouse or other  receipts;  (b) to sign
the Borrower's name on bills of lading and other  negotiable and  non-negotiable
documents;  (c)  to  clear  Inventory  through  customs  in the  Agent's  or the
Borrower's name, and to sign and deliver to customs officials powers of attorney
in the  Borrower's  name for such purpose;  (d) to complete in the Borrower's or
the  Agent's  name,  any order,  sale,  or  transaction,  obtain  the  necessary
documents in connection therewith,  and collect the proceeds thereof; and (e) to
do such other acts and things as are  necessary  in order to enable the Agent to
obtain  possession  or control  of the  Inventory  and to obtain  payment of the
Obligations.  Neither the Agent nor its designee,  as the  Borrower's  attorney,
will be liable  for any acts or  omissions,  nor for any error of  judgement  or
mistakes  of fact  or law.  This  power,  being  coupled  with an  interest,  is
irrevocable until all Obligations have been paid and satisfied.

               (5) Account Party. The Borrower hereby authorizes and directs any
issuer of a Letter of Credit to name the Borrower as the "Account Party" therein
and to deliver to the Agent all  instruments,  documents and other  writings and
property received by the issuer pursuant to the Letter of Credit,  and to accept
and rely upon the  Agent's  instructions  and  agreements  with  respect  to all
matters  arising  in  connection  with the  Letter of Credit or the  application
therefor.

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<PAGE>

               (6) Control  of  Inventory.  In  connection  with  all  Inventory
financed  by Letters of Credit,  the  Borrower  will,  at the  Agent's  request,
instruct all suppliers, carriers, forwarders,  warehouses or others receiving or
holding cash,  checks,  Inventory,  documents or  instruments in which the Agent
holds a security  interest to deliver  them to the Agent  and/or  subject to the
Agent's order, and if they shall come into the Borrower's possession, to deliver
them,  upon request,  to the Agent in their  original  form.  The Borrower shall
also, at the Agent's request,  designate the Agent as the consignee on all bills
of lading and other negotiable and non-negotiable documents.

               (7)  Indemnification  by Lenders.  The Lenders agree to indemnify
each issuer of a Letter of Credit (to the extent not  reimbursed by the Borrower
and without  limiting  the  obligations  of the Borrower  hereunder)  ratably in
accordance with their  respective Pro Rata Shares,  for any and all liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses  (including  attorneys'  fees) or  disbursements of any kind and nature
whatsoever that may be imposed on,  incurred by or asserted  against such issuer
in any way  relating  to or arising  out of any Letter of Credit  issued by such
issuer or the transactions  contemplated  thereby or any action taken or omitted
by such  issuer  under any  Letter of Credit  issued by such  issuer or any Loan
Document in  connection  therewith;  provided that no Lender shall be liable for
any of the  foregoing  to the  extent it arises  from the  gross  negligence  or
willful  misconduct of the Person to be indemnified.  Without  limitation of the
foregoing,  each Lender  agrees to  reimburse  each issuer of a Letter of Credit
promptly upon demand for its Pro Rata Share of any costs or expenses  payable by
the  Borrower to such  issuer,  to the extent  that such issuer is not  promptly
reimbursed for such costs and expenses by the Borrower.  The agreement contained
in this section shall survive payment in full of all Obligations.

          (j) Supporting Letter of Credit. If, notwithstanding the provisions of
Section 2.4(b) and Section 12.1,  any Letter of Credit is  outstanding  upon the
termination of this  Agreement,  then upon such  termination  the Borrower shall
deposit  with the Agent,  for the ratable  benefit of the Agent and the Lenders,
with  respect to each Letter of Credit  then  outstanding,  a standby  letter of
credit  (a  "Supporting  Letter of  Credit")  in form and  substance  reasonably
satisfactory to the Agent,  issued by an issuer  reasonably  satisfactory to the
Agent in an amount equal to the greatest  amount for which such Letter of Credit
may be drawn plus any fees and expenses  associated  with such Letter of Credit,
under which  Supporting  Letter of Credit the Agent is entitled to draw  amounts
necessary to reimburse  the Agent and the Lenders for payments made by the Agent
and the  Lenders  under  such  Letter of Credit or under any  credit  support or
enhancement  provided  through the Agent with  respect  thereto and any fees and
expenses associated with such Letter of Credit. Such Supporting Letter of Credit
shall  be held by the  Agent,  for the  ratable  benefit  of the  Agent  and the
Lenders,  as security  for,  and to provide  for the  payment of, the  aggregate
undrawn amount of such Letters of Credit remaining outstanding.

2.5      Assignment and Assumption by PNC .

                                       54
<PAGE>

          (a) Effective upon the  effectiveness of the amendment and restatement
of the Existing Loan and Security Agreement as contemplated hereby (but prior to
the making of any  financial  accommodations  on the Closing  Date) (the time of
such effectiveness under this Section 2.5(a), the "Assignment  Effective Time"),
each Lender (other than PNC) (each an  "Assignor")  hereby sells,  transfers and
assigns to PNC,  and PNC hereby  purchases,  assumes  and  undertakes  from each
Assignor,  without  recourse and without  representation  or warranty (except as
provided in this Section 2.5),  15.625%  ("PNC's  Percentage  Share") of (A) the
Commitment of such Assignor,  each of the Revolving Loans of such Assignor,  the
obligations  of such  Assignor  with  respect  to  Letters  of Credit and Credit
Support (including, without limitation, any obligation to participate in Letters
of Credit and Credit  Support) and all other  obligations of such  Assignor,  in
each  instance,  under the  Existing  Loan and  Security  Agreement as in effect
immediately  prior to the  effectiveness of the amendment and restatement of the
Existing Loan and Security Agreement as contemplated  hereby and (B) all related
rights,  benefits,  obligations,  liabilities  and  indemnities of such Assignor
under and in  connection  with the Existing  Loan and  Security  Agreement as in
effect  immediately  prior to the effectiveness of the amendment and restatement
of the Existing  Loan and Security  Agreement as  contemplated  hereby (for each
Assignor,  the foregoing,  its "Assigned  Interest" and collectively for all the
Assignors,  the  "Assigned  Interests");  it being the  intention of the parties
hereto that after giving effect to the amendment and restatement of the Existing
Loan and Security Agreement as contemplated  hereby each Lender shall have a Pro
Rata Share of all rights, interests and obligations of the Lenders hereunder).

          (b) With effect on and after such  assignments  and  assumptions,  PNC
shall be a party to this Agreement and shall succeed to all of the rights and be
obligated to perform all of the  obligations  of a Lender under this  Agreement,
including  the  requirements  concerning  confidentiality  and  the  payment  of
indemnification, with a Commitment in an amount equal to $25,000,000. PNC agrees
that it will perform in accordance with their terms all of the obligations which
by the terms of this  Agreement  are required to be performed by it as a Lender.
It is the intent of the parties  hereto that the  Commitment of each Assignor in
effect  immediately  prior to the amendment and restatement of the Existing Loan
and Security  Agreement  as  contemplated  hereby  shall,  as of the  Assignment
Effective  Time,  be reduced such that the portion of its  Commitment  hereunder
relating to the revolving  line of credit portion of the Total Facility shall be
its Pro Rata  Share of the  Maximum  Revolver  Amount  and each  Assignor  shall
relinquish  its rights and be released from its  obligations  under the Existing
Loan and Security  Agreement in effect  immediately  prior to the  amendment and
restatement of the Existing Loan and Security  Agreement as contemplated  hereby
to the extent such  obligations have been assumed by PNC under this Section 2.5;
provided,  however,  no Assignor shall relinquish its rights under Sections 4.1,
4.2 and 4.6 of this Agreement to the extent such rights relate to the time prior
to the Assignment Effective Time.

          (c) After giving effect to the  assignments  and assumptions set forth
in this Section 2.5, at the Assignment Effective  Time the  Commitment  of  each
Lender will be as set

                                       55
<PAGE>

forth beside such Lender's name under the heading  "Commitment" on the signature
pages of this Agreement.

          (d) As  consideration  for  the  sales,   assignments  and  transfers
contemplated  in this Section 2.5, PNC shall pay to each Assignor on the Closing
Date in immediately available funds an amount equal to PNC's Percentage Share of
the principal  amount of all Revolving  Loans  outstanding  as of the Assignment
Effective Time owing to such Assignor.

          (e) Any interest,  fees and other payments accrued to the Closing Date
with  respect  to  each  Assigned  Interest  shall  be for  the  account  of the
respective Assignor. Any interest,  fees and other payments accrued on and after
the Closing Date with respect to each Assigned Interest shall be for the account
of PNC.  Each  Assignor  and PNC agrees that it will hold in trust for the other
party any  interest,  fees and other  amounts  which it may receive to which the
other party is entitled  pursuant to the  preceding two sentences and pay to the
other party any such amounts which it may receive promptly upon receipt.

          (f) PNC (i)  acknowledges  that it has received a copy of the Existing
Loan and Security  Agreement,  this  Agreement  and the  Schedules  and Exhibits
thereto,  together with copies of the most recent financial statements of Parent
and its Subsidiaries,  and such other documents and information as it has deemed
appropriate to make its own credit and legal analysis and decision to enter into
this Agreement and the assignments and assumptions  contemplated by this Section
2.5; and (ii) agrees that it will,  independently  and without reliance upon any
Assignor,  the  Agent  or any  other  Lender  and  based on such  documents  and
information as it shall deem  appropriate at the time,  continue to make its own
credit and legal decisions in taking or not taking action under this Agreement.

          (g) Each  Assignor  represents  and warrants to PNC that (i) it is the
legal and beneficial owner of the Assigned  Interest being assigned by it to PNC
hereunder and that such Assigned Interest is free and clear of any Lien or other
adverse claim;  (ii) it is duly organized and existing and it has the full power
and  authority  to take,  and has taken,  all action  necessary  to execute  and
deliver this  Agreement  and to fulfill its  obligations  hereunder  (including,
without  limitation,  those in this  Section  2.5);  (iii)  no  notices  to,  or
consents,  authorizations  or approvals of, any Person are required  (other than
any already given or obtained) for its due execution,  delivery and  performance
of this  Agreement or the Existing Loan and Security  Agreement,  and no further
action by, or notice to, or filing  with,  any Person is required of it for such
execution,  delivery  or  performance;  and (iv)  this  Agreement  has been duly
executed  and  delivered  by it and  constitutes  its legal,  valid and  binding
obligation enforceable against it in accordance with the terms hereof,  subject,
as to enforcement,  to bankruptcy,  insolvency,  moratorium,  reorganization and
other laws of general application relating to or affecting creditors' rights and
to general equitable principles.

          (h) No Assignor  makes any  representation  or warranty or assumes any
responsibility  with respect to any  statements,  warranties or  representations
made in or in

                                       56
<PAGE>

connection with the Existing Loan and Security Agreement,  this Agreement or any
other  Loan  Document  or the  execution,  legality,  validity,  enforceability,
genuineness,  sufficiency or value of the Existing Loan and Security  Agreement,
this Agreement or any other instrument or document  furnished  pursuant thereto.
No Assignor makes any  representation or warranty in connection with, or assumes
any  responsibility  with  respect  to, the  solvency,  financial  condition  or
statements  of the  Borrower or any of its  Affiliates,  or the  performance  or
observance  by  the  Borrower  or any  other  Person,  of any of its  respective
obligations  under the Existing Loan and Security  Agreement,  this Agreement or
any other instrument or document furnished in connection therewith.

          (i) PNC  represents  and warrants to each Assignor that (i) it is duly
organized  and  existing and it has full power and  authority  to take,  and has
taken, all action necessary to execute and deliver this Agreement and to fulfill
its obligations hereunder (including,  without limitation, those in this Section
2.5);  (ii) no notices to, or  consents,  authorizations  or  approvals  of, any
Person are  required  (other than any  already  given or  obtained)  for its due
execution, delivery and performance of this Agreement; and no further action by,
or notice to, or filing with,  any Person is required of it for such  execution,
delivery or  performance;  and (iii) this  Agreement  has been duly executed and
delivered  by it  and  constitutes  its  legal,  valid  and  binding  obligation
enforceable  against it in  accordance  with the terms  hereof,  subject,  as to
enforcement,  to bankruptcy,  insolvency,  moratorium,  reorganization and other
laws of general  application  relating to or affecting  creditors' rights and to
general equitable principles.

          (j) Each of the parties hereto hereby  consents to the assignments and
assumptions  contemplated  by this Section 2.5,  notwithstanding  any failure to
comply with (and each of the parties hereto hereby waives) the  requirements  of
Section 13.3 in order to make such assignments and assumptions effective.

                                    ARTICLE 3

                                INTEREST AND FEES
                                -----------------

     3.1 Interest .

          (a) Interest Rates. All outstanding Obligations shall bear interest on
the unpaid principal amount thereof (including,  to the extent permitted by law,
on interest  thereon not paid when due) from the date made until paid in full in
cash at a rate  determined  by  reference to the Base Rate or the LIBOR Rate and
Section  3.1(a)(i),  (ii),  (iii) or (iv), as applicable,  but not to exceed the
Maximum Rate described in Section 3.3. Subject to the provisions of Section 3.2,
any of the Loans may be  converted  into,  or  continued  as, Base Rate Loans or
LIBOR Rate Loans in the manner provided in Section 3.2. If at any time Loans are
outstanding  with respect to which notice has not been delivered to the Agent in
accordance with the terms of this Agreement

                                       57
<PAGE>

specifying the basis for determining the interest rate applicable thereto,  then
those  Loans  shall  be Base  Rate  Loans  and  shall  bear  interest  at a rate
determined  by  reference to the Base Rate until notice to the contrary has been
given to the Agent in accordance  with this Agreement and such notice has become
effective.  Except as otherwise  provided  herein,  the outstanding  Obligations
shall bear interest as follows:

               (i)   For all Base Rate Revolving  Loans  and  other  Obligations
(other than LIBOR Revolving Loans, Base Rate Term Loans and LIBOR Term Loans) at
a fluctuating per annum rate equal to the Base Rate plus the Applicable Margin;

               (ii)  For all LIBOR Revolving  Loans at a per annum rate equal to
the LIBOR Rate plus the Applicable Margin;

               (iii) For all Base Rate Term  Loans at a  fluctuating  per annum
rate equal to the Base Rate plus the Applicable Margin; and

               (iv)  For all LIBOR  Term Loans at a per annum  rate equal to the
LIBOR Rate plus the Applicable Margin.

Each change in the Base Rate shall be reflected in the interest  rate  described
in  clause  (i) or (iii)  above as of the  effective  date of such  change.  All
interest charges shall be computed on the basis of a year of 360 days and actual
days elapsed  (which results in more interest being paid than if computed on the
basis of a 365-day  year).  Interest  accrued  on all Loans  will be  payable in
arrears on the first day of each month after the  Original  Closing  Date and on
the  Termination  Date;  provided that interest  accrued on all LIBOR Rate Loans
having an Interest Period of one, two or three months will be payable in arrears
on the last day of each Interest  Period and interest  accrued on all LIBOR Rate
Loans having an Interest  Period of six months will be payable in arrears on the
date which occurs  three  months  after the initial  date of each such  Interest
Period,  each of the dates which occur one and two months  after the end of such
third month and the last day of each such Interest Period and, in each instance,
on the Termination Date.

          (b) Default Rate. If any Event of Default occurs and is continuing and
the Majority Lenders in their discretion so elect, then, while any such Event of
Default  is  outstanding,  all of the  Obligations  shall bear  interest  at the
Default Rate applicable thereto.

     3.2  Conversion and Continuation Elections .

          (a) The Borrower may, upon irrevocable  written notice to the Agent in
accordance with Subsection 3.2(b):

               (i)   elect, as  of any Business Day, in  the  case of  Base Rate
Loans to convert any such Loans (or any part  thereof in an amount not less than
$10,000,000  ($1,500,000

                                       58
<PAGE>

in the case of the Term Loans), or that is in an integral multiple of $1,000,000
($500,000  in the case of the Term  Loans) in excess  thereof)  into  LIBOR Rate
Loans; or

               (ii)  elect,  as  of  th  last  day  of  the  applicable Interest
Period,  to continue any LIBOR Rate Loans having  Interest  Periods  expiring on
such day (or any part thereof in an amount not less than $10,000,000 ($1,500,000
in the case of the Term Loans), or that is in an integral multiple of $1,000,000
($500,000 in the case of the Term Loans) in excess thereof);

provided,  that if at any time the  aggregate  amount  of  LIBOR  Rate  Loans in
respect of any Borrowing is reduced,  by payment,  prepayment,  or conversion of
part  thereof to be less than  $10,000,000  ($1,500,000  in the case of the Term
Loans), such LIBOR Rate Loans shall automatically  convert into Base Rate Loans,
and on and after such date the right of the Borrower to continue  such Loans as,
and  convert  such Loans  into,  LIBOR  Rate  Loans,  as the case may be,  shall
terminate.

          (b) The Borrower shall deliver a Notice of  Conversion/Continuation to
be  received  by the Agent not later than  11:00  a.m.  (New York time) at least
three Business Days in advance of the Conversion/Continuation Date, if the Loans
are to be converted into or continued as LIBOR Rate Loans and specifying:

               (i)   the proposed Conversion/Continuation Date;

               (ii)  the aggregate amount of Loans to be converted or renewed;

               (iii) the type of Loans resulting from the proposed conversion or
continuation; and

               (iv)  the duration of the requested Interest Period.

          (c) If upon the expiration of any Interest Period  applicable to LIBOR
Rate Loans, the Borrower has failed to select timely a new Interest Period to be
applicable  to LIBOR  Rate  Loans or if any  Default  or Event of  Default  then
exists,  the Borrower shall be deemed to have elected to convert such LIBOR Rate
Loans into Base Rate Loans  effective as of the expiration date of such Interest
Period.

          (d) The Agent will  promptly  notify  each  Lender of its receipt of a
Notice of  Conversion/Continuation.  All conversions and continuations  shall be
made ratably  according to the respective  outstanding  principal amounts of the
Loans with respect to which the notice was given held by each Lender.

          (e) During  the  existence  of a  Default  or Event of  Default,  the
Borrower  may not elect to have a Loan converted  into or continued  as a  LIBOR
Rate Loan.

                                       59
<PAGE>

          (f) After giving effect to any  conversion or  continuation  of Loans,
there may not be more than seven different Interest Periods in effect hereunder.

     3.3  Maximum  Interest Rate . In no event shall any interest  rate provided
for  hereunder  exceed the maximum rate legally  chargeable by the Lenders under
applicable  law for  loans of the type  provided  for  hereunder  (the  "Maximum
Rate"). If, in any month, any interest rate, absent such limitation,  would have
exceeded the Maximum  Rate,  then the interest  rate for that month shall be the
Maximum Rate,  and, if in future months,  that interest rate would  otherwise be
less than the Maximum Rate,  then that interest rate shall remain at the Maximum
Rate until such time as the amount of interest paid hereunder  equals the amount
of interest  which would have been paid if the same had not been  limited by the
Maximum Rate. In the event that,  upon payment in full of the  Obligations,  the
total amount of interest  paid or accrued  under the terms of this  Agreement is
less than the total amount of interest  which  would,  but for this Section 3.3,
have been paid or  accrued if the  interest  rates  otherwise  set forth in this
Agreement  had at all times  been in effect,  then the  Borrower  shall,  to the
extent  permitted  by  applicable  law,  pay the Agent,  for the  account of the
Lenders,  an amount  equal to the  difference  between (a) the lesser of (i) the
amount of interest which would have been charged if the Maximum Rate had, at all
times,  been in effect or (ii) the amount of interest  which would have  accrued
had the interest rates otherwise set forth in this Agreement, at all times, been
in effect and (b) the amount of  interest  actually  paid or accrued  under this
Agreement. In the event that a court determines that the Agent and/or any Lender
has received interest and other charges hereunder in excess of the Maximum Rate,
such excess shall be deemed received on account of, and shall  automatically  be
applied to reduce, the Obligations other than interest,  in the inverse order of
maturity,  and if there are no  Obligations  outstanding,  the Agent and/or such
Lender shall refund to the Borrower such excess.

     3.4  Certain Fees . The Borrower agrees to pay BofA for its own account the
fees (the "BofA  Fees")  referred  to in the Fee  Letter as and when  payable as
provided in such letter.  The Agent, the Lenders and the Borrower agree that the
BofA Fees may be financed by the Lenders as Revolving Loans.

     3.5  Unused  Line Fee . Until  the  Obligations  have been paid in full and
this Agreement is  terminated,  the Borrower  agrees to pay, on the first day of
each month and on the Termination Date, to the Agent, for the ratable account of
the Lenders, an  unused line fee equal to  three-eighths  of one percent (.375%)
per annum  on the average daily  amount  by  which  the Maximum  Revolver Amount
exceeded the sum of the average daily outstanding amount of Revolving  Loans and
the  undrawn  face  amount  of  all  outstanding  Letters  of Credit, during the
immediately preceding month or shorter  period if calculated on the  Termination
Date. The unused line fee shall be computed on the basis of a  360-day  year for
the actual number of days elapsed. All payments received by the Agent on account
of Accounts or as proceeds of other Collateral shall be deemed to be credited to
the Borrower's Loan Account immediately upon receipt for purposes of calculating
the unused line fee pursuant to this Section 3.5.

                                       60
<PAGE>

     3.6  Letter of Credit Fee .The Borrower agrees to pay to the Agent, for the
ratable account of the Lenders,  for each Letter of Credit, a fee (the"Letter of
Credit  Fee") equal to two percent  (2%) per annum of the undrawn face amount of
each  Letter of Credit  issued  for the  Borrower's  account  at the  Borrower's
request,  plus all out-of-pocket costs, fees and expenses reasonably incurred by
the Agent in connection with the application for, processing of, issuance of, or
amendment to any Letter of Credit,  which costs, fees and expenses could include
a  "fronting  fee"  required  to be paid by the  Agent  to such  issuer  for the
assumption of the settlement risk in connection with the issuance of such Letter
of Credit.  The Letter of Credit Fee shall be payable  monthly in arrears on the
first day of each  month  following  any  month in which a Letter of Credit  was
issued  and/or  in which a  Letter  of  Credit  remains  outstanding  and on the
Termination  Date.  The Letter of Credit Fee shall be computed on the basis of a
360-day year for the actual  number of days elapsed,  and shall  increase to the
Default Rate if any Event of Default  occurs and is continuing  and the Majority
Lenders in their discretion so elect.

     3.7  Collateral  Management Fee . The Borrower  agrees to pay to the Agent,
for the account of the Agent, a non-refundable  collateral management fee in the
amount of $125,000  per annum,  payable in advance on the Closing  Date and each
Anniversary  Date  (other than an  Anniversary  Date  occurring  on or after the
Payment and Termination Date).

                                    ARTICLE 4

                            PAYMENTS AND PREPAYMENTS
                            ------------------------

     4.1  Revolving Loans . The Borrower shall repay the  outstanding  principal
balance of the Revolving Loans, plus all accrued but unpaid interest thereon, on
the Termination  Date. The Borrower may prepay  Revolving Loans at any time, and
reborrow subject to the terms of this Agreement;  provided,  however,  that with
respect  to any LIBOR  Revolving  Loans  prepaid  by the  Borrower  prior to the
expiration date of the Interest Period applicable thereto, the Borrower promises
to pay to the Agent for account of the Lenders the amounts  described in Section
5.4. In addition,  and without  limiting the generality of the  foregoing,  upon
demand the  Borrower  promises to pay to the Agent,  for account of the Lenders,
the  amount,  without  duplication,  by which the sum of  outstanding  Revolving
Loans, the aggregate  amount of Pending  Revolving Loans, the Term Loan Reserve,
the  aggregate  undrawn  amounts  of all  outstanding  Letters of Credit and the
amount of all unpaid  reimbursement  obligations  with respect to the Letters of
Credit exceeds the Availability (with Availability being determined for purposes
of this sentence as if clause (b) thereof were zero).

     4.2  Termination  of Facility . The Borrower may terminate  this  Agreement
upon at least ten (10) Business Days' notice to the Agent and the Lenders,  upon
(a) the  payment  in full of all  outstanding  Revolving  Loans,  together  with
accrued  interest  thereon,  and the  cancellation and return of all outstanding
Letters of Credit, (b) the prepayment in full of the Term Loans, together

                                       61
<PAGE>

with accrued interest thereon,  (c) the payment of the early termination fee set
forth  in the  next  sentence,  (d) the  payment  in  full in cash of all  other
outstanding monetary Obligations together with accrued interest thereon, if any,
and (e) with  respect to any LIBOR Rate Loans  prepaid in  connection  with such
termination  prior to the  expiration  date of the  Interest  Period  applicable
thereto,  the payment of the amounts described in Section 5.4. If this Agreement
is terminated at any time prior to the Stated Termination Date, whether pursuant
to this  Section or  pursuant to Section  11.2,  the  Borrower  shall pay to the
Agent,  for the account of the Lenders,  an early  termination fee determined in
accordance with the following table:
<TABLE>
<CAPTION>

   Period during which early
      termination occurs                                Early Termination Fee
      ------------------                                ---------------------
<S>                                                     <C>
On or prior to the first Anniversary Date                     $800,000

After the first Anniversary Date but on or prior to           $400,000

the third Anniversary Date                                          $0

After the third Anniversary Date                                    $0

</TABLE>

; provided  that in the event that (i) the Borrower  terminates  this  Agreement
because  the  Lenders  were  unwilling  to modify  this  Agreement  to reflect a
borrower  hereunder  which would be the  survivor of the merger of the  Borrower
with Fonda (and which modified  Agreement would otherwise have substantially the
same terms as in this Agreement), (ii) such merger is consummated on the date of
such termination and (iii) the Agent is provided evidence reasonably  acceptable
to it of such merger, then no early termination fee shall be payable hereunder.

     4.3  Repayment  of  the Term  Loans . The Borrower shall,  until payment in
full of the Term  Loans  and  subject  to  earlier  prepayment  and  payment  as
hereinafter  provided,  make installment payments in respect of the principal of
the Term Loans to the Agent,  for the account of the Lenders,  in equal  monthly
installments of $416,666.67 each (other than the final installment),  payable on
the  first  day of  each  month,  commencing  on  July  1,  2000,  with a  final
installment  of  principal,  if the Term Loans have not been paid in full before
the Stated  Termination  Date, to be paid on the Stated  Termination  Date in an
amount equal to the then remaining principal balance of the Term Loans.

     4.4  Voluntary  Prepayments  of  the  Term Loans . The  Borrower may prepay
the principal of the Term Loans in whole or in part (subject to a minimum amount
of $250,000 or an integral multiple of $100,000 in excess thereof),  at any time
and from time to time upon (a) at least five (5)  Business  Days' prior  written
notice to the Agent and the  Lenders,  and (b) payment  of, with  respect to any
LIBOR Term  Loans to be prepaid  prior to the  expiration  date of the  Interest
Period applicable  thereto,  the amounts described in Section 5.4. All voluntary
prepayments  of the  principal  of the Term Loans  shall be  accompanied  by the
payment  of all  accrued  but unpaid  interest  on the Term Loans to the date of
prepayment.  Any voluntary prepayment under this Section 4.4 of less than all of
the outstanding principal of the Term Loans shall be applied to the installments
of principal of the Term Loans in the inverse order of

                                       62
<PAGE>

maturity. Amounts prepaid in  respect of the Term Loans pursuant to this Section
4.4 may not be reborrowed.

     4.5  Mandatory Prepayments of the Term Loans .

          (a) The Borrower shall prepay the entire unpaid  principal  balance of
the Term Loans, and all accrued  but unpaid interest thereon, on the Termination
Date.

          (b)  On the tenth day following  the date of receipt thereof by Parent
or any of its  Subsidiaries  of  the  cash  proceeds  from  any  sale  or  other
disposition  of assets  consummated on or after the Closing Date (other than (i)
sales of  inventory in the  ordinary  course of  business,  (ii) the sale by the
Borrower on the Closing Date of Equipment pursuant to the Secured Sale/Leaseback
Documents,  (iii)  sales or other  dispositions  of Credit  Agreement  Term Loan
Equipment Collateral or Equipment  constituting Excluded  Sale/Leaseback Assets,
in each instance,  permitted by Section  6.11(c) to the extent the net after tax
proceeds  thereof are,  within 270 days after the  consummation  of the relevant
sale  or  other  disposition,  used  by the  Borrower  to  purchase  replacement
Equipment  constituting  Credit  Agreement  Term Loan  Equipment  Collateral  or
Excluded  Sale/Leaseback Assets, as the case may be, which shall be subject to a
first  priority  perfected  Lien in favor of the  Agent  and for which the other
requirements  set forth in Section 6.11(c) and the requirements of the remaining
sentences of this  Section  4.5(b) have been  satisfied  and (iv) sales or other
dispositions of Secured  Sale/Leaseback  Collateral  permitted  hereunder to the
extent the proceeds  thereof are, within 180 days after the  consummation of the
relevant sale or other disposition, applied to the payment of the obligations of
the  Borrower  under the Secured  Sale/Leaseback  Documents  or the  purchase of
replacement Secured Sale/Leaseback  Collateral),  an amount equal to 100% of the
net cash  proceeds  from such asset sale or other  disposition  shall be applied
first as a mandatory  repayment of principal of the then  outstanding Term Loans
(to be applied to the installments of principal  thereof in the inverse order of
maturity)  and  second,  after  the Term  Loans  have  been  paid in full,  as a
mandatory  repayment of principal of the then outstanding  Revolving Loans. With
respect to a sale or other disposition  referred to in clause (iii) of the first
sentence  of this  Section  4.5(b) for which the  Borrower  elects that all or a
portion of the net after tax  proceeds  thereof be used to purchase  replacement
Equipment  as provided in and in  accordance  with such clause  (iii) and not be
applied to the  repayment of  Obligations  as and when  hereinabove  required (a
"Replacement  Election") (which election may be made only if no Default or Event
of Default exists), the Borrower shall deliver a Replacement Notice to the Agent
on or below the date of the consummation of such sale or other disposition, with
such Replacement Election being effective with respect to the portion of the net
after tax proceeds of such sale or other  disposition  equal to the  Anticipated
Replacement  Amount  specified  in  such  Replacement  Notice.  If the  Borrower
exercises  its  Replacement  Election  with  respect  to  such a sale  or  other
disposition,  then until such time as such portion of the net after tax proceeds
thereof are used to purchase replacement  Equipment in accordance with the terms
of clause (iii) of the first sentence of this Section 4.5(b) such proceeds shall
be  applied  to  the  repayment  of  the  Revolving  Loans  (and  a  reserve  in
Availability  shall be  established in the amount of such repayment to fund such
purchase and/or

                                       63
<PAGE>
the  repayment of  Obligations  as provided in the last sentence of this Section
4.5 (b)) or  delivered  to the Agent as cash  collateral  for the payment of the
Obligations on terms satisfactory to the Agent. With respect to the portion,  if
any, of the net after tax proceeds of such sale or other  disposition  for which
the Replacement Election is not timely exercised,  such portion thereof shall be
applied to the repayment of the  Obligations as and when provided  above. On the
Replacement  Prepayment Date with respect to a Replacement  Election,  an amount
equal  to the  Replacement  Prepayment  Amount,  if any,  for  such  Replacement
Election  shall be borrowed as a Revolving Loan and applied first as a mandatory
repayment of principal of the then  outstanding Term Loans (to be applied to the
installments  of principal  thereof in inverse  order of  maturity)  and second,
after the Term  Loans  have  been  paid in full,  as a  mandatory  repayment  of
principal of the then outstanding Revolving Loans.

          (c)  Notwithstanding anything contained herein to the contrary, unless
the Borrower  shall have prepaid all its  Obligations  hereunder  and all of the
Commitments are terminated,  all sales or other dispositions of assets of Parent
or any of its  Subsidiaries  (other than sales or other  dispositions  of assets
permitted  by  Section  9.9)  shall  require  the prior  written  consent of the
Majority Lenders.

          (d)  In connection with any prepayment  under this Section 4.5, if any
LIBOR Term Loans are prepaid prior to the expiration date of the Interest Period
applicable thereto,  the Borrower shall pay to the Lenders the amounts described
in Section 5.4.  Amounts  prepaid in respect of the Term Loans  pursuant to this
Section 4.5 may not be reborrowed.

     4.6  Payments by the Borrower .

          (a)  All payments  to be made by the  Borrower  shall be made  without
set-off,  recoupment or  counterclaim.  Except as otherwise  expressly  provided
herein,  all payments by the Borrower shall be made to the Agent for the account
of the Lenders at the Agent's  address set forth in Section  15.8,  and shall be
made in Dollars and in immediately available funds, no later than 1:00 p.m. (New
York time) on the date specified  herein;  provided,  however,  that,  except as
otherwise  provided  herein  (including,  in any  event,  Section  6.9(d)),  any
payments by the  Borrower  which the  Borrower  has  notified the Agent prior to
12:00 noon (New York time) on a Business Day that such payments will be received
by the  Agent via wire  transfer  prior to 4:00  p.m.  (New  York  time) on such
Business Day shall be deemed to have been received by the Agent for this purpose
prior to 1:00  p.m.  (New  York  time) on such  Business  Day,  but only if such
payment is actually  received by the Agent via wire  transfer no later than 4:00
p.m.  (New York time) on such  Business  Day and the Borrower  hereby  agrees to
indemnify  and hold  harmless the Agent and each Lender from and against any and
all actual out-of-pocket liabilities,  obligations,  losses, damages, penalties,
costs or expenses incurred by the Agent or such Lender in the event such payment
is not  actually  received  by the Agent via wire  transfer  by such  time.  Any
payment  received  by the Agent  later than 1:00 p.m.  (New York time)  shall be
deemed to have been  received on the following  Business Day and any  applicable
interest or fee shall  continue to accrue.

                                       64
<PAGE>

          (b)  Subjec  to   the  provisions  set  forth  in  the  definition  of
"Interest  Period"  herein,  whenever  any  payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the  computation of interest
or fees, as the case may be.

          (c)  Unless the Agent receives  notice from the Borrower  prior to the
date on which any payment is due to the Lenders that the Borrower  will not make
such  payment  in full as and when  required,  the  Agent  may  assume  that the
Borrower has made such payment in full to the Agent on such date in  immediately
available  funds and the Agent may (but shall not be so  required),  in reliance
upon such assumption, distribute to each Lender on such due date an amount equal
to the amount then due such  Lender.  If and to the extent the  Borrower has not
made such payment in full to the Agent,  each Lender shall repay to the Agent on
demand such amount distributed to such Lender, together with interest thereon at
the Federal Funds Rate for each day from the date such amount is  distributed to
such Lender until the date repaid.

     4.7  Payments as Revolving  Loans . All  payments of  principal,  interest,
reimbursement  obligations in connection with Letters of Credit,  fees, premiums
and other sums  payable  hereunder,  including  all  reimbursement  for expenses
pursuant  to  Section  15.7,  may,  at the  option  of the  Agent,  in its  sole
discretion,  subject  only to the terms of this  Section  4.7,  be paid from the
proceeds of Revolving Loans made hereunder,  whether made following a request by
the  Borrower  pursuant to Section  2.2 or a deemed  request as provided in this
Section 4.7. The Borrower hereby irrevocably  authorizes the Agent to charge the
Loan  Account  for the  purpose  of paying  principal,  interest,  reimbursement
obligations in connection with Letters of Credit,  fees, premiums and other sums
payable hereunder,  including reimbursing expenses pursuant to Section 15.7, and
agrees that all such amounts charged shall constitute Revolving Loans (including
BofA Loans and Agent  Advances) and that all such Revolving  Loans so made shall
be deemed to have been requested by Borrower  pursuant to Section 2.2. The Agent
agrees,  so long as no Event of Default is  continuing,  to provide the Borrower
with three  days' prior  notice of any such  charge to the Loan  Account for the
purpose of paying expenses owing by the Borrower under Section 15.7. All amounts
charged to the Loan Account pursuant to this Section 4.7 shall be deemed correct
and  binding  on the  Borrower,  subject  to Section  4.10.

     4.8  Apportionment,  Application  and  Reversal  of  Payments  .  Aggregate
principal and interest  payments shall be apportioned  ratably among the Lenders
(according to the unpaid  principal  balance of the Loans to which such payments
relate held by each Lender) and payments of the fees shall,  as  applicable,  be
apportioned  ratably  among the Lenders.  All payments  shall be remitted to the
Agent and all such  payments  not  relating to principal or interest of specific
Loans,  or not  constituting  payment of  specific  fees,  and all  proceeds  of
Accounts or other Collateral  received by the Agent, shall be applied,  ratably,
subject to the provisions of this Agreement, first, to pay any fees, indemnities
or expense  reimbursements  then due to the Agent from the Borrower;  second, to
pay any  fees  or  expense  reimbursements  then  due to the  Lenders  from  the
Borrower;  third,  to pay  interest  due in  respect  of  all  Revolving  Loans,
including BofA Loans and

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Agent Advances;  fourth,  to pay or prepay principal of the BofA Loans and Agent
Advances;  fifth, to pay or prepay  principal of the Revolving Loans (other than
BofA Loans and Agent Advances) and unpaid  reimbursement  obligations in respect
of Letters of Credit;  sixth,  to pay or prepay  principal of the Term Loans (to
installments  thereof in the inverse  order of  maturity);  and seventh,  to the
payment of any other  Obligation due to the Agent or any Lender by the Borrower.
Notwithstanding anything to the contrary contained in this Agreement,  unless so
directed by the Borrower, or unless an Event of Default is outstanding,  neither
the Agent nor any Lender shall apply any payments which it receives to any LIBOR
Revolving  Loan or LIBOR Term Loan,  except  (a) on the  expiration  date of the
Interest Period applicable to any such LIBOR Rate Loan, or (b) in the event, and
only to the extent,  that there are no outstanding  Base Rate Revolving Loans or
Base Rate Term  Loans.  The Agent  shall  promptly  distribute  to each  Lender,
pursuant to the applicable wire transfer  instructions received from each Lender
in writing, such funds as it may be entitled to receive, subject to a Settlement
delay as provided for in Section  2.2(j).  The Agent and the Lenders  shall have
the continuing and exclusive  right to apply and reverse and reapply any and all
such proceeds and payments to any portion of the Obligations.

     4.9  Indemnity for Returned Payments . If, after receipt of any payment of,
or proceeds applied to the payment of, all or any part of the  Obligations,  the
Agent or any Lender is for any reason  compelled  to  surrender  such payment or
proceeds to any  Person,  because  such  payment or  application  of proceeds is
invalidated,  declared fraudulent,  set aside, determined to be void or voidable
as a preference, impermissible setoff, or a diversion of trust funds, or for any
other  reason,  then the  Obligations  or part thereof  intended to be satisfied
shall be revived and continue and this Agreement shall continue in full force as
if such payment or proceeds  had not been  received by the Agent or such Lender,
and the Borrower shall be liable to pay to the Agent and the Lenders, and hereby
does  indemnify  the Agent and the  Lenders  and hold the Agent and the  Lenders
harmless for, the amount of such payment or proceeds surrendered. The provisions
of this Section 4.9 shall be and remain effective  notwithstanding  any contrary
action  which may have been  taken by the Agent or any Lender in  reliance  upon
such payment or application of proceeds,  and any such contrary  action so taken
shall be without  prejudice  to the Agent's and the  Lenders'  rights under this
Agreement  and shall be deemed to have been  conditioned  upon such  payment  or
application of proceeds having become final and  irrevocable.  The provisions of
this Section 4.9 shall survive the termination of this Agreement.

     4.10 Agent's  and  Lenders'  Books and  Records;  Monthly  Statements . The
Borrower agrees that the Agent's and each Lender's books and records showing the
Obligations and the  transactions  pursuant to this Agreement and the other Loan
Documents shall be admissible in any action or proceeding arising therefrom, and
shall constitute rebuttably  presumptive proof thereof,  irrespective of whether
any Obligation is also evidenced by a promissory note or other  instrument.  The
Agent will provide to the Borrower a monthly statement of Loans,  payments,  and
other  transactions  pursuant to this Agreement.  Such statement shall be deemed
correct, accurate, and binding on the Borrower and an account stated (except for
reversals  and  reapplications  of payments  made as provided in Section 4.8 and
corrections of errors discovered by the Agent),  absent manifest error or unless
the Borrower notifies the Agent in writing to the

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contrary within thirty (30) days after such statement is rendered.  In the event
a timely written  notice of objections is given by the Borrower,  only the items
to which  exception is expressly  made will be  considered to be disputed by the
Borrower.

                                    ARTICLE 5

                     TAXES, YIELD PROTECTION AND ILLEGALITY
                     --------------------------------------

     5.1  Taxes .

          (a) Any and all  payments by the  Borrower to each Lender or the Agent
under this  Agreement and any other Loan  Document  shall be made free and clear
of, and  without  deduction  or  withholding  for any Taxes.  In  addition,  the
Borrower shall pay all Other Taxes.

          (b) The Borrower agrees to indemnify and hold harmless each Lender and
the Agent for the full  amount of Taxes or Other Taxes  (including  any Taxes or
Other Taxes imposed by any  jurisdiction  on amounts payable under this Section)
paid  by the  Lender  or the  Agent  and  any  liability  (including  penalties,
interest,  additions  to tax and  expenses)  arising  therefrom  or with respect
thereto,  whether or not such Taxes or Other  Taxes  were  correctly  or legally
asserted.  Payment under this indemnification shall be made within 30 days after
the date the  Lender or the Agent  makes  written  demand  therefor.

          (c) If the Borrower shall be required by law to deduct or withhold any
Taxes  or Other  Taxes from  or in  respect of any sum  payable hereunder to any
Lender or the Agent, then:

               (i)   the sum  payable shall  be increased  as necessary  so that
after making all required deductions and withholdings (including  deductions and
withholdings  applicable  to  additional  sums payable under this Section)  such
Lender or the Agent,  as the case may be, receives an amount equal to the sum it
would have received had no such  deductions or withholdings been made;

               (ii)  the Borrower shall make such deductions and withholdings;

               (iii) the Borrower shall pay the full amount deducted or withheld
to  the  relevant  taxing  authority  or  other  authority  in  accordance  with
applicable law; and

               (iv)  the Borrower shall also pay to each Lender or the Agent for
the account of such Lender, at the time interest is paid, all additional amounts
which the  respective  Lender  specifies as necessary to preserve the  after-tax
yield the Lender  would have  received if such Taxes or Other Taxes had not been
imposed.

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<PAGE>

          (d) Within 30 days after the date of any  payment by the  Borrower  of
Taxes or Other  Taxes,  the Borrower  shall  furnish the Agent the original or a
certified copy of a receipt  evidencing  payment  thereof,  or other evidence of
payment satisfactory to the Agent.

          (e) If the  Borrower  is  required  to pay  additional  amounts to any
Lender or the Agent pursuant to subsection (c) of this Section, then such Lender
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the  jurisdiction  of its lending  office so as to eliminate  any such
additional  payment by the Borrower which may thereafter  accrue, if such change
in the judgment of such Lender is not otherwise disadvantageous to such Lender.

     5.2  Illegality .

          (a) If any Lender  determines that the introduction of any Requirement
of Law, or any change in any  Requirement  of Law, or in the  interpretation  or
administration  of any  Requirement  of Law, has made it  unlawful,  or that any
central bank or other  Governmental  Authority has asserted that it is unlawful,
for any Lender or its applicable  lending office to make LIBOR Rate Loans, then,
on  notice  thereof  by the  Lender  to the  Borrower  through  the  Agent,  any
obligation of that Lender to make LIBOR Rate Loans shall be suspended  until the
Lender notifies the Agent and the Borrower that the circumstances giving rise to
such determination no longer exist.

          (b) If a Lender  determines  that it is unlawful to maintain any LIBOR
Rate  Loan,  the  Borrower  shall,  upon its  receipt of notice of such fact and
demand  from such Lender  (with a copy to the Agent),  prepay in full such LIBOR
Rate Loans of that Lender  then  outstanding,  together  with  interest  accrued
thereon and amounts  required  under Section 5.4,  either on the last day of the
Interest  Period thereof,  if the Lender may lawfully  continue to maintain such
LIBOR Rate Loans to such day,  or  immediately,  if the Lender may not  lawfully
continue to  maintain  such LIBOR Rate Loan.  If the  Borrower is required to so
prepay any LIBOR Rate Loan, then concurrently with such prepayment, the Borrower
shall borrow from the affected Lender,  in the amount of such repayment,  a Base
Rate Loan.

5.3           Increased Costs and Reduction of Return .

          (a) If any Lender  determines that, due to either (i) the introduction
of or any  change in the  interpretation  of any law or  regulation  or (ii) the
compliance by that Lender with any guideline or request from any central bank or
other  Governmental  Authority  (whether or not having the force of law),  there
shall be any  increase in the cost to such Lender of agreeing to make or making,
funding or maintaining  any LIBOR Rate Loans,  then the Borrower shall be liable
for, and shall from time to time,  upon demand (with a copy of such demand to be
sent to the Agent), pay to the Agent for the account of such Lender,  additional
amounts as are sufficient to compensate such Lender for such increased costs. If
the  Borrower is required to pay  additional  amounts to any Lender  pursuant to
this Section 5.3(a) that increase the effective lending rate of such Lender with
respect to its share of the Loans to greater than 25 basis points

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<PAGE>

in excess of the effective  lending rate of the other Lenders,  then such Lender
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the  jurisdiction  of its lending  office with respect to making LIBOR
Rate Loans so as to eliminate any such additional  payment by the Borrower which
may  thereafter  accrue,  if such  change in the  judgment of such Lender is not
otherwise  disadvantageous  to such  Lender.  In the event  that any one or more
Lenders, pursuant to this Section 5.3(a) , incur any increased costs (other than
increased costs to the extent such increased costs are not a recurring cost) for
which any such Lender demands compensation pursuant to this Section 5.3(a) which
increases the effective lending rate of such Lender with respect to its share of
the Loans to greater  than 25 basis  points in excess of the  effective  lending
rate of the other Lenders and such Lender has not mitigated such costs within 60
days after  receipt by such  Lender from the  Borrower of a written  notice that
such Lender's  effective lending rate has so exceeded the effective lending rate
of the other  Lenders,  then and in any such event,  the Borrower may substitute
another financial  institution for such Lender which is reasonably acceptable to
the Agent to assume the  Commitment  of such Lender and to purchase the Loans of
such Lender  hereunder,  without recourse to or warranty by, or expense to, such
Lender for a purchase  price equal to the  outstanding  principal  amount of the
Loans owing to such  Lender  plus any accrued but unpaid  interest on such Loans
and  accrued  but unpaid  fees and other  amounts  in  respect of that  Lender's
Commitment  and share of the Loans (other than any  prepayment  penalty or other
premium;  it  being  agreed  that  amounts  payable  under  Section  5.4 are not
prepayment penalties or other premiums). Upon such purchase such Lender shall no
longer be a party  hereto or have any rights or benefits  hereunder  (except for
rights or benefits  that such Lender would retain  hereunder and under the other
Loan  Documents  upon  payment  in  full  of  all of the  Obligations)  and  the
replacement  Lender shall succeed to the rights and  benefits,  and shall assume
the  obligations,  of such Lender  hereunder and  thereunder.  The Agent and the
Lenders shall cooperate with the Borrower to amend the Loan Documents to reflect
such  substitution.  In no event may the Borrower replace a Lender which is also
an issuer of a Letter of Credit or Credit Support or whose  Affiliate has issued
a Letter of Credit or Credit Support unless (x) all Letters of Credit and Credit
Support  issued by such  Lender  and its  Affiliates  have  expired or have been
terminated  or canceled and such Lender  and/or  Affiliate,  as the case may be,
shall have been  reimbursed  for all  payments  made by it under the  Letters of
Credit and Credit Support issued by it or (y) such Lender and/or  Affiliate,  as
the case may be, shall have been indemnified in a manner  satisfactory to it for
any  outstanding  Letters of Credit and  Credit  Support  issued by it and other
obligations,  absolute  or  contingent,  with  respect  to Letters of Credit and
Credit Support issued by it.

          (b) If any Lender shall have determined  that (i) the  introduction of
any  Capital  Adequacy  Regulation,  (ii) any  change  in any  Capital  Adequacy
Regulation,  (iii) any change in the  interpretation  or  administration  of any
Capital Adequacy Regulation by any central bank or other Governmental  Authority
charged with the interpretation or administration thereof, or (iv) compliance by
the Lender or any  corporation or other entity  controlling  the Lender with any
Capital  Adequacy  Regulation,  affects  or would  affect  the amount of capital
required or expected to be maintained by the Lender or any  corporation or other
entity  controlling the Lender and (taking into  consideration  such Lender's or
such corporation's or other entity's policies with

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<PAGE>

respect  to  capital  adequacy  and such  Lender's  desired  return on  capital)
determines  that the amount of such capital is increased as a consequence of its
Commitment,  loans,  credits or obligations  under this  Agreement,  then,  upon
demand of such Lender to the Borrower  through the Agent, the Borrower shall pay
to the Lender, from time to time as specified by the Lender,  additional amounts
sufficient to compensate the Lender for such increase.

     5.4  Funding Losses . The  Borrower shall  reimburse  each Lender  and hold
each Lender  harmless from  any loss or reasonable  expense which the Lender may
sustain or incur as a consequence of:

          (a) the failure of the  Borrower to make on a timely basis any payment
of principal of any LIBOR Rate Loan;

          (b) the failure of the Borrower to borrow,  continue or convert a Loan
after the  Borrower has given (or is deemed to have given) a Notice of Borrowing
or a Notice of Conversion/ Continuation; or

          (c) the  prepayment or other  payment  (including  after  acceleration
thereof) of a LIBOR Rate  Loan on a day that is not the last day of the relevant
Interest Period;

including any such loss or expense  arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable to
terminate the deposits from which such funds were obtained.

     5.5  Inability to Determine  Rates . If the Agent  determines  that for any
reason adequate and reasonable means do not exist for determining the LIBOR Rate
for any requested Interest Period with respect to a proposed LIBOR Rate Loan, or
that the LIBOR Rate for any requested Interest Period with respect to a proposed
LIBOR Rate Loan does not  adequately  and fairly reflect the cost to the Lenders
of funding  such Loan,  the Agent will  promptly so notify the Borrower and each
Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR Rate
Loans  hereunder  shall be  suspended  until the Agent  revokes  such  notice in
writing.  Upon receipt of such notice,  the Borrower  may,  notwithstanding  any
other provision herein to the contrary, revoke any Notice of Borrowing or Notice
of Conversion/Continuation then submitted by it. If the Borrower does not revoke
such Notice,  the Lenders shall make, convert or continue the Loans, as proposed
by the Borrower,  in the amount specified in the applicable  notice submitted by
the Borrower,  but such Loans shall be made, converted or continued as Base Rate
Loans instead of LIBOR Rate Loans.

     5.6  Certificates  of  Lenders  .  Any  Lender  claiming  reimbursement  or
compensation  under this Article 5 shall deliver to the Borrower (with a copy to
the Agent) a certificate  setting forth in reasonable  detail the amount payable
to the Lender hereunder and such certificate  shall be conclusive and binding on
the Borrower in the absence of manifest error.

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<PAGE>
     5.7  Survival . The  agreements  and  obligations  of the  Borrower in this
Article 5 shall survive the payment of all other Obligations.

                                    ARTICLE 6

                                   COLLATERAL
                                   ----------

     6.1  Grant of Security Interest .

          (a) As security for all present and future  Obligations,  the Borrower
hereby  grants  to  the  Agent,  for the  ratable  benefit  of the Agent and the
Lenders,  a continuing  security  interest  in,  lien  on,  and right of set-off
against, all  of  the  following property of the Borrower,  whether now owned or
existing or hereafter acquired or arising, regardless of where located:

               (i)    all Accounts;

               (ii)   all Inventory;

               (iii)  all   contract   rights,   letters  of  credit,   Assigned
Contracts, chattel paper, instruments, notes, documents, and documents of title;

               (iv)   all General Intangibles;

               (v)    all Equipment; provided that,  with respect to any item of
Equipment  which  is   subject  to  a  Purchase  Money  Lien  or  Capital  Lease
permitted  hereunder,   such item shall not, so long as the Debt with respect to
such Purchase Money Lien or Capital Lease is outstanding, constitute  Collateral
hereunder  but  only  if (i)  the documentation with respect thereto prohibits a
Lien on such Equipment in favor of the Agent and (ii) such item  of Equipment is
not  collateral  security for  the payment of the obligations of the Borrower or
Parent under the Secured Sale/Leaseback Documents;

               (vi)   all money,  investment  property,   securities  and  other
property of any kind of the Borrower in the  possession  or under the control of
the Agent or any Lender, any assignee of or participant in the Obligations, or a
bailee of any such party or such party's affiliates;

               (vii)  all deposit accounts,  credits and balances with and other
claims  against  the Agent or any Lender or any of its  affiliates  or any other
financial institution in which the Borrower maintains deposits;

               (viii) all  books,  records  and other  property  related  to or
referring  to  any of  the  foregoing,  including,  without  limitation,  books,
records,  account ledgers, data processing

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<PAGE>

records,  computer  software and other  property and General  Intangibles at any
time evidencing or relating to any of the foregoing; and

               (ix)   all  accessions to,  substitutions  for and  replacements,
products and proceeds of any of the  foregoing,  including,  but not limited to,
proceeds  of  any  insurance  policies,   claims  against  third  parties,   and
condemnation  or  requisition  payments  with  respect  to  all  or  any  of the
foregoing.

All of the foregoing,  together with the Real Estate covered by the Mortgage(s),
and all other property of Parent or any of its  Subsidiaries  in which the Agent
or any Lender may at any time be granted a Lien, is herein collectively referred
to as the  "Collateral."  The  foregoing  grant by the  Borrower in favor of the
Agent of Liens on the Borrower's  property shall be in addition to any grants by
the Borrower in favor of the Agent of Liens on the Borrower's  property provided
under the Borrower Security Agreement,  any other Security Document or under the
Existing Loan and Security Agreement.

          (b) Not later than 60 days after the Original  Closing Date, the Agent
shall have received:

               (i) fully  executed counterparts of Mortgages (or with respect to
Mortgages  assigned by Bankers Trust Company,  as collateral agent, to the Agent
as contemplated by the Bank Assignment Agreement, amendments to such Mortgages),
in  each  case in form  and  substance  reasonably  satisfactory  to the  Agent,
covering  the Real Estate and  Premises  owned by the  Borrower  or Parent,  and
arrangements  reasonably  satisfactory to the Agent shall be in place to provide
that counterparts of such Mortgages (or amendments thereto, if applicable) shall
be recorded in all places to the extent necessary, in the reasonable judgment of
the Agent, to create a valid and enforceable  first priority Lien,  subject only
to Permitted  Liens,  on such Real Estate and Premises in favor of the Agent (or
such other agent or trustee as may be  required or desired  under local law) for
the  benefit  of the  Agent  and  the  Lenders  or,  with  respect  to any  such
amendments, to conform the related Mortgage to the terms hereof and to make such
other  modifications  to such Mortgages as the Agent may  reasonably  request in
order to give effect to the transactions contemplated hereby ;

               (ii) mortgagee title insurance policies (the "Mortgage Policies")
issued by title insurers  reasonably  satisfactory to the Agent (it being agreed
that Chicago  Title  Insurance  Company is  acceptable  to the Agent) in amounts
reasonably  satisfactory  to the  Agent,  not to  exceed  the value of such Real
Estate and  Premises as  reasonably  determined  by the Agent,  and assuring the
Agent that the  Mortgages  in respect of such owned Real Estate and Premises are
valid and enforceable  first priority  mortgage Liens (subject only to Permitted
Liens) on such Real  Estate  and  Premises,  free and clear of all  defects  and
encumbrances except Permitted Liens. Such Mortgage Policies shall be in form and
substance reasonably  satisfactory to the Agent and shall include an endorsement
for future advances under this Agreement and the Mortgages,  for mechanics liens
and for any other matter that the Agent in its reasonable commercial discretion

                                       72
<PAGE>

may request so long as such requested  endorsements are legally available in the
applicable jurisdiction; and

               (iii) a survey, in form and substance reasonably  satisfactory to
the Agent,  of each such owned Real Estate and  Premises,  each  certified  by a
licensed  professional  surveyor  reasonably   satisfactory  to  the  Agent  and
revealing no facts (other than Permitted Liens) which would materially interfere
with the use of such  properties by the Borrower and Parent,  or an update of an
existing  survey  provided  the title  company  will  delete the  exception  for
existing facts which a current survey would disclose.

          (c) Not later than 60 days after the Original Closing  Date, the Agent
shall have received:

               (i)  to  the  extent  requested  by  the  Agent,  fully  executed
counterparts  of leasehold  Mortgages  (or with  respect to leasehold  Mortgages
assigned  by  Bankers  Trust  Company,  as  collateral  agent,  to the  Agent as
contemplated by the Bank Assignment Agreement, amendments to such mortgages), in
each case in form and substance reasonably  satisfactory to the Agent,  covering
the Real Estate and Premises leased by the Borrower or Parent,  and arrangements
reasonably  satisfactory  to  the  Agent  shall  be in  place  to  provide  that
counterparts of such leasehold  Mortgages (or amendments thereto, if applicable)
shall be  recorded  in all places to the  extent  necessary,  in the  reasonable
judgment of the Agent,  to create a valid and  enforceable  first priority Lien,
subject  only to  Permitted  Liens,  with respect to such leased Real Estate and
Premises  in favor  of the  Agent  (or such  other  agent or  trustee  as may be
required  or  desired  under  local  law) for the  benefit  of the Agent and the
Lenders  or,  with  respect  to any such  amendments,  to  conform  the  related
leasehold  Mortgage to the terms hereof and to make such other  modifications to
such leasehold Mortgages as the Agent may reasonably request in order to reflect
the transactions contemplated by this Agreement; and

               (ii)  to the  extent  requested  by  the  Agent,  fully  executed
counterparts  of  collateral   assignments  of  leases  in  form  and  substance
reasonably  satisfactory  to the Agent  covering  the Real  Estate and  Premises
leased out by the Borrower or Parent.

          (d) Each  of  Parent  and  the  Borrower  will,  and  will  cause  its
respective  Subsidiaries  (other  than  Lily  Cup)  to,  at the  expense  of the
Borrower,  grant  to  the  Agent  security  interests  and  mortgages  (each  an
"Additional  Mortgage") in such real property of Parent,  the Borrower and their
respective  Subsidiaries  (other  than Lily  Cup)  acquired  after the  Original
Closing Date as may be requested in writing from time to time by the Agent. Such
Additional  Mortgages  shall be granted  pursuant  to  documentation  reasonably
satisfactory in form and substance to the Agent and shall  constitute  valid and
enforceable  Liens  superior  to and prior to the  rights  of all third  Persons
(except holders of Permitted Liens with respect to Permitted  Liens) and subject
to no other Liens  except for  Permitted  Liens.  The  Additional  Mortgages  or
instruments  related  thereto  shall  have been duly  recorded  or filed in such
manner and in such places as are required by law to establish, perfect, preserve
and protect the Liens in favor of the

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<PAGE>

Agent required to be granted pursuant to the Additional Mortgages and all taxes,
fees and other charges  payable in connection  therewith shall have been paid in
full.

          (e) If at any time after the Original  Closing Date,  any Person shall
become a Subsidiary of the Borrower or Parent (the foregoing not  constituting a
consent  thereto),  the  Borrower  or Parent will  promptly  notify the Agent in
writing  thereof  and will,  at the expense of the  Borrower  and at the written
request  of the  Agent,  promptly  cause (i) such  Subsidiary  to  guaranty  the
Obligations  and grant to the Agent for the benefit of the Agent and the Lenders
a security interest in and lien on the property and assets of such Subsidiary to
secure its obligations under such guaranty,  and (ii) the capital stock or other
equity  interests of such  Subsidiary to be pledged to the Agent for the benefit
of the  Agent  and  the  Lenders.  All  such  security  interests,  pledges  and
guaranties  shall  be  granted  or made  pursuant  to  documentation  reasonably
satisfactory in form and substance to the Agent and shall  constitute  valid and
enforceable  Liens  superior  to and prior to the  rights  of all third  Persons
(except holders of Permitted Liens with respect to Permitted  Liens) and subject
to no other Liens except for  Permitted  Liens.  All  documents  or  instruments
related  thereto  shall have been duly  recorded  or filed in such manner and in
such places as are required by law to establish,  perfect,  preserve and protect
the Liens in favor of the Agent  required to be granted  pursuant to this clause
(e) and all taxes, fees and other charges payable in connection  therewith shall
have been paid in full.

          (f)  Each  of the  Borrower  and  Parent  will,  and  will  cause  its
respective  Subsidiaries  to, at the  expense of the  Borrower,  make,  execute,
endorse,  acknowledge,  file and/or  deliver to the Agent from time to time such
vouchers, invoices, schedules, confirmatory assignments,  conveyances, financing
statements,  transfers,  endorsements,   certificates,  real  property  surveys,
reports and other assurances or instruments and take such further steps relating
to the  collateral  covered  by any of the  Loans  Documents  as the  Agent  may
reasonably require. Furthermore, the Borrower shall cause to be delivered to the
Agent such opinions of counsel,  title insurance and other related  documents as
may be reasonably  requested by the Agent to assure themselves that this Section
6.1 has been complied with (such  opinions to be consistent  generally  with the
opinions given on the Original  Closing Date to the extent the relevant  opinion
matter was covered in such  opinions and any opinions  with respect to Mortgages
to be consistent  with the opinions  given on such type of collateral  under the
Original Credit Agreement).

          (g) In the event that the Agent at any time after the Original Closing
Date  determines  in its good  faith  discretion  that  real  estate  appraisals
satisfying  the  requirements  set forth in 12 CFR.,  Part  34-Subpart C, or any
successor or similar  statute,  rule,  regulation,  guideline or order (any such
appraisal,  a "Required  Appraisal")  are or were  required to be  obtained,  or
should be obtained, in connection with any or all of the properties subject to a
Mortgage,  then, such Required  Appraisal shall be delivered,  at the expense of
the  Borrower,  to the  Agent,  which  Required  Appraisal,  and the  respective
appraiser, shall be reasonably satisfactory to the Agent.

          (h) All  of the Obligations shall be secured by all of the Collateral.

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<PAGE>

          (i) The Agent and the Lenders  hereby agree that the Agent's  Liens in
Credit  Agreement  Term Loan Equipment  Collateral  shall not at any time secure
greater than $25,000,000 in aggregate principal amount of Obligations.

     6.2  Perfection and Protection of Security Interest .

          (a) The Borrower shall, at its expense, perform all steps requested by
the Agent at any time to  perfect,  maintain,  protect,  and enforce the Agent's
Liens, including,  without limitation:  (i) executing,  delivering and/or filing
and recording of the Mortgage(s),  the Trademark Patent and Copyright Agreements
and/or  amendments  thereto and executing and filing  financing or  continuation
statements,   and  amendments   thereof,   in  form  and  substance   reasonably
satisfactory  to the Agent;  (ii)  delivering  to the Agent the originals of all
instruments,  documents,  and chattel paper, and all other  Collateral  having a
value in excess of $250,000 in the  aggregate of which the Agent  determines  it
should  have  physical  possession  in order to perfect  and protect the Agent's
security interest therein (other than Secured Sale/Leaseback  Collateral),  duly
pledged,  endorsed or assigned to the Agent without  restriction;  provided that
with  respect  to  any  Collateral  that  constitutes  Shared  Collateral,   the
Collateral  Agent may continue to remain in possession  thereof,  subject to the
terms of the Pledge Agreement, the Parent Pledge Agreement and the Intercreditor
Agreement,  and with respect to any other Collateral  constituting capital stock
of the Borrower or any of its  Subsidiaries,  the Borrower shall cause the stock
certificates  evidencing  same to be delivered to the Agent,  together with duly
executed undated stock powers therefor; (iii) delivering to the Agent negotiable
warehouse  receipts  covering any portion of the Collateral  (other than Secured
Sale/Leaseback  Collateral)  located  in  warehouses  and for  which  negotiable
warehouse   receipts  are  issued;   (iv)  when  an  Event  of  Default  exists,
transferring  Inventory  to  warehouses  designated  by the Agent;  (v)  placing
notations on the  Borrower's  books of account to disclose the Agent's  security
interest; (vi) delivering to the Agent all letters of credit (other than Secured
Sale/Leaseback Collateral) on which the Borrower is named beneficiary; and (vii)
taking such other steps as are deemed  necessary or reasonably  desirable by the
Agent to maintain  and protect the Agent's  Liens.  To the extent  permitted  by
applicable  law, the Agent may file,  without the Borrower's  signature,  one or
more financing statements disclosing the Agent's Liens. The Borrower agrees that
a carbon, photographic,  photostatic, or other reproduction of this Agreement or
of a financing statement is sufficient as a financing statement.

          (b) If any Collateral with an aggregate value in excess of $100,000 is
at any time in the possession or control of any  warehouseman,  bailee or any of
the Borrower's  agents or  processors,  then the Borrower shall notify the Agent
thereof and shall  notify such Person of the Agent's  security  interest in such
Collateral and, upon the Agent's request,  instruct such Person to hold all such
Collateral  (other than  Secured  Sale/Leaseback  Collateral  and subject to the
terms of the  Intercreditor  Agreement) for the Agent's  account  subject to the
Agent's  instructions.  If at  any  time  any  Collateral  (other  than  Secured
Sale/Leaseback  Collateral  and  subject  to  the  terms  of  the  Intercreditor
Agreement) is located on any operating facility of the Borrower which is not

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<PAGE>

owned by the  Borrower,  then the Borrower  shall,  at the request of the Agent,
obtain written  waivers,  in form and substance  reasonably  satisfactory to the
Agent,  of all  present  and  future  Liens to which the owner or lessor of such
premises may be entitled to assert against the Collateral.

          (c) From time to time, the Borrower shall,  upon the Agent's  request,
execute and deliver  confirmatory written instruments pledging to the Agent, for
the ratable benefit of the Agent and the Lenders, the Collateral with respect to
the Borrower,  but the Borrower's failure to do so shall not affect or limit the
Agent's  security  interest or the Agent's other rights in and to the Collateral
with respect to the Borrower.  So long as this  Agreement is in effect and until
the Payment and Termination Date, the Agent's Liens shall continue in full force
and effect in all Collateral  (whether or not deemed eligible for the purpose of
calculating the Availability or as the basis for any advance, loan, extension of
credit, or other financial accommodation).

     6.3  Location of  Collateral . The Borrower represents  and warrants to the
Agent and the  Lenders  that except as  modified  by notices  from the  Borrower
pursuant to and in accordance  with the  immediately  succeeding  sentence:  (a)
Schedule 6.3 is a correct and complete list of the  Borrower's  chief  executive
office, the location of its books and records,  the locations where the Borrower
maintains its Collateral (other than Secured Sale/Leaseback Collateral), and the
locations of all of its other places of business; and (b) Schedule 6.3 correctly
identifies  any of such  facilities  and  locations  that  are not  owned by the
Borrower  and sets forth the names of the owners and  lessors or  sublessors  of
and, to the best of the Borrower's  knowledge,  the holders of any mortgages on,
such  facilities and locations.  The Borrower  covenants and agrees that it will
not (i)  maintain any  Collateral  at any  location  other than those  locations
listed for the Borrower on Schedule 6.3, (ii) otherwise  change or add to any of
such locations,  or (iii) change the location of its chief executive office from
the  location  identified  in Schedule  6.3,  unless it gives the Agent at least
thirty  (30)  days'  prior  written  notice  thereof  and  executes  any and all
financing  statements and other documents that the Agent reasonably  requests in
connection  therewith.  Without limiting the foregoing,  the Borrower represents
that all of its  Inventory  (other than  Inventory  in  transit)  and all Credit
Agreement  Term Loan  Equipment  Collateral  is, and  covenants  that all of its
Inventory  and all Credit  Agreement  Term Loan  Equipment  Collateral  will be,
maintained either (a) on premises owned by the Borrower,  (b) on premises leased
by the  Borrower,  provided  that the Agent has  received an  executed  landlord
waiver from the  landlord  of such  premises  in form and  substance  reasonably
satisfactory  to the Agent  (except that with respect to premises  leased by the
Borrower on the Original  Closing Date, such landlord  waivers shall be received
by the Agent no later than 90 days after the Original  Closing Date),  or (c) in
the case of Inventory only, in a public  warehouse,  provided that the Agent has
received an executed  bailee letter from the applicable  public  warehouseman in
form and  substance  reasonably  satisfactory  to the  Agent  (except  that with
respect to public  warehouses  utilized by the Borrower on the Original  Closing
Date,  such bailee  letters shall be received by the Agent no later than 90 days
after  the  Original   Closing  Date).  In  addition  to  the   representations,
warranties,  covenants and agreements set forth above, the Borrower  represents,
warrants, covenants and agrees that (i) on the Closing Date all Credit Agreement
Term Loan Equipment Collateral is located at the

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<PAGE>

premises owned by the Borrower in Conyers, Georgia, (ii) the Borrower shall, not
later than 10 days after any Credit Agreement Term Loan Equipment  Collateral is
moved to another  location,  provide  the Agent with  written  notice of its new
location, (iii) the Borrower shall, not later than 30 days after the end of each
Fiscal Year,  provide the Agent with a list in detail  satisfactory to the Agent
of all then existing  Credit  Agreement Term Loan  Equipment  Collateral and the
location of each item thereof and (iv) on the Closing Date all of the  Equipment
to be  sold  by the  Borrower  on  the  Closing  Date  pursuant  to the  Secured
Sale/Leaseback  Documents  is located at the  premises  owned by the Borrower in
Owings Mills, Maryland, Dallas, Texas and Chicago, Illinois.

     6.4  Title to,  Liens on,  and Sale and Use of  Collateral  . The  Borrower
represents  and  warrants to the Agent and the Lenders and agrees with the Agent
and the Lenders  that:  (a) all of the  Collateral  of the  Borrower is and will
continue  to be owned by the  Borrower  free and clear of all Liens  whatsoever,
except for Permitted Liens; (b) the Agent's Liens in the Collateral,  other than
Shared Collateral and Secured Sale/Leaseback Collateral,  will not be subject to
any  prior  Lien  (other  than  Purchase  Money  Liens  on  fixed  assets,   not
constituting  Credit  Agreement  Term Loan Equipment  Collateral,  in respect of
Purchase Money  Obligations  permitted  hereunder and Existing  Liens);  (c) the
Borrower will use,  store,  and maintain the Collateral with all reasonable care
and will use such Collateral for lawful purposes only; and (d) the Borrower will
not, without the Majority Lenders' prior written approval, sell or dispose of or
permit the sale or disposition  of any of the Collateral  except as permitted by
Section 9.9. The inclusion of proceeds in the Collateral  shall not be deemed to
constitute the Agent's or any Lender's consent to any sale or other  disposition
of the Collateral except as expressly permitted herein.

     6.5  Appraisals . Whenever  a Default  or Event  of Default exists,  and at
such other times not more frequently than once a year as the Agent requests, the
Borrower shall, at its expense and upon the Agent's  request,  provide the Agent
with  appraisals  or  updates  thereof of any or all of the  Collateral  from an
appraiser,  and prepared on a basis,  reasonably satisfactory to the Agent, such
appraisals and updates to include,  without limitation,  information required by
applicable law and regulation and by the internal policies of the Lenders.

     6.6  Access and Examination; Confidentiality .

          (a) The Agent,  accompanied  by any Lender which so elects,  may, upon
reasonable  prior notice to the Borrower  (and without  notice when a Default or
Event of Default exists),  at all reasonable times during regular business hours
(and at any time when a Default  or Event of  Default  exists)  have  access to,
examine,  audit,  make  extracts from or copies of and inspect any or all of the
Borrower's records, files, and books of account and the Collateral,  and discuss
the Borrower's affairs with the Borrower's officers and management. The Borrower
will  deliver  to the Agent  any  instrument  necessary  for the Agent to obtain
records from any service bureau maintaining records for the Borrower.  The Agent
may,  and at the  direction of the Majority  Lenders  shall,  at any time when a
Default or Event of Default exists, and at the Borrower's  expense,  make copies
of all of the Borrower's books and records, or require the

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<PAGE>

Borrower to deliver such copies to the Agent. During the continuance of an Event
of  Default,  the Agent  may,  without  expense  to the  Agent,  use such of the
Borrower's  respective  personnel,  supplies,  and premises as may be reasonably
necessary for  maintaining or enforcing the Agent's Liens.  The Agent shall have
the right,  at any time, in the Agent's name (during the continuance of an Event
of Default) or in the name of a nominee of the Agent (whether or not an Event of
Default is  continuing),  to verify  the  validity,  amount or any other  matter
relating to the Accounts, Inventory, or other Collateral, by mail, telephone, or
otherwise.

          (b) The Borrower agrees that,  subject to the Borrower's prior consent
for uses other  than in a  traditional  tombstone,  which  consent  shall not be
unreasonably  withheld  or  delayed,  the  Agent  and  each  Lender  may use the
Borrower's  name in  advertising  and  promotional  material and in  conjunction
therewith  disclose  the  general  terms of this  Agreement.  The Agent and each
Lender agree to take normal and reasonable  precautions and exercise due care to
maintain the confidentiality of all information  identified as "confidential" or
"secret"  by the  Borrower  and  provided  to the Agent or such  Lender by or on
behalf of the Borrower,  under this  Agreement or any other Loan  Document,  and
neither the Agent, nor such Lender nor any of their respective  Affiliates shall
use any such information other than in connection with or in enforcement of this
Agreement  and  the  other  Loan  Documents,  except  to the  extent  that  such
information (i) was or becomes generally available to the public other than as a
result  of  disclosure  by the  Agent or such  Lender,  or (ii)  was or  becomes
available  on a  nonconfidential  basis from a source  other than the  Borrower,
provided that such source is not bound by a  confidentiality  agreement with the
Borrower known to the Agent or such Lender;  provided,  however,  that the Agent
and any Lender may disclose such  information  (1) at the request or pursuant to
any requirement of any Governmental  Authority to which the Agent or such Lender
is subject or in connection  with an  examination of the Agent or such Lender by
any such  Governmental  Authority;  (2)  pursuant  to  subpoena  or other  court
process;  (3) when  required to do so in accordance  with the  provisions of any
applicable  requirement  of  law;  (4)  to the  extent  reasonably  required  in
connection with any litigation or proceeding (including, but not limited to, any
bankruptcy  proceeding)  to which the  Agent,  any  Lender  or their  respective
Affiliates  may be party;  (5) to the extent  reasonably  required in connection
with the exercise of any remedy hereunder or under any other Loan Document;  (6)
to the Agent's or such Lender's independent auditors, accountants, attorneys and
other  professional  advisors so long as they are  informed of the  confidential
nature  of such  information;  (7) to any  prospective  Participating  Lender or
assignee under any Assignment and Acceptance, actual or potential, provided that
such  prospective   Participating   Lender  or  assignee  agrees  to  keep  such
information  confidential  to the same  extent  required  of the  Agent  and the
Lenders  hereunder;  (8) as  expressly  permitted  under  the terms of any other
document or agreement  regarding  confidentiality to which the Borrower is party
or is deemed party with the Agent or such Lender,  and (9) to its  Affiliates so
long as they are informed of the confidential nature of such information.

     6.7  Collateral  Reporting . The Borrower  shall provide the Agent with the
following  documents at the following  times in form  satisfactory to the Agent:
(a) on a daily basis, a Borrowing Base  Certificate  (reflecting the calculation
of the Accounts and Inventory components

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<PAGE>

thereof as provided in the  definition of Borrowing Base  Certificate)  and on a
weekly basis,  or more  frequently if requested by the Agent,  a schedule of the
Borrower's  sales,  Accounts,  collections  and credits,  in each case  created,
received or granted since the last such  schedule;  (b) on a weekly  basis,  not
later than Tuesday of the following  week, an aging of the Borrower's  Accounts,
together  with,  if requested  by the Agent,  a  reconciliation  to the previous
week's aging of the Borrower's  Accounts and to the Borrower's  general  ledger;
(c) on a monthly basis, not later than the fifteenth day of the following month,
a report indicating for each Account Debtor to whom the Borrower owes $10,000 or
more as of the last day of the previous  month the name of such Account  Debtor,
the amount  owed by the  Borrower to such  Account  Debtor as of the last day of
such previous  month and the amount owed by such Account  Debtor to the Borrower
as of the last day of such  previous  month;  (d) on a  monthly  basis  (or more
frequently  if  requested  by the  Agent),  Inventory  reports by  category  and
location,  with additional detail, if requested by the Agent,  showing additions
to and deletions from the Inventory, and, on a weekly basis, a summary Inventory
report; (e) upon request during the continuance of a Default, copies of invoices
in connection with the Borrower's Accounts,  customer statements,  credit memos,
remittance advices and reports,  deposit slips,  shipping and delivery documents
in  connection  with the  Borrower's  Accounts and for  Inventory  and Equipment
acquired by the  Borrower,  purchase  orders and invoices;  (f) upon request,  a
statement of the balance of each of the Intercompany Accounts; (g) upon request,
an open voucher and cash requirements  report;  (h) such other reports as to the
Collateral  of the Borrower as the Agent shall  reasonably  request from time to
time; and (i) with the delivery of each of the  foregoing,  a certificate of the
Borrower  executed  by an officer  thereof  certifying  as to the  accuracy  and
completeness  of the foregoing.  If any of the Borrower's  records or reports of
the  Collateral  are  prepared  by an  accounting  service or other  agent,  the
Borrower  hereby  authorizes  such  service  or agent to deliver  such  records,
reports, and related documents to the Agent, for distribution to the Lenders.

     6.8  Accounts .

          (a) The Borrower  hereby  represents and warrants to the Agent and the
Lenders,  with  respect to the  Borrower's  Accounts,  that:  (i) each  existing
Account represents,  and each future Account will represent, a bona fide sale or
lease and  delivery of goods by the  Borrower,  or  rendition of services by the
Borrower, in the ordinary course of the Borrower's business;  (ii) each existing
Account is, and each future Account will be, for a liquidated  amount payable by
the Account Debtor thereon on the terms set forth in the invoice  therefor or in
the schedule thereof delivered to the Agent,  without,  with respect to Eligible
Accounts, any offset, deduction,  defense, or counterclaim except those known to
the  Borrower  and  disclosed  to the Agent  and the  Lenders  pursuant  to this
Agreement; (iii) no payment will be received with respect to any Account, and no
credit,  discount,  or extension,  or agreement  therefor will be granted on any
Account, except as reported to the Agent and the Lenders in accordance with this
Agreement; (iv) each copy of an invoice required to be delivered to the Agent by
the Borrower will be a genuine copy of the original  invoice sent to the Account
Debtor named therein; and (v) all goods described in each invoice will have been
delivered to the Account Debtor and all

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<PAGE>

services of the Borrower  described in each invoice will have been  performed in
all material respects.

          (b) The  Borrower  shall not re-date any invoice or sale or make sales
on extended dating beyond that customary in the Borrower's business or extend or
modify any Account  (other than in the  ordinary  course of business  consistent
with past  practices).  If the Borrower  becomes  aware of any matter  adversely
affecting  the  collectibility  of any Account or Account  Debtor  involving  an
amount  greater than  $1,000,000,  including  information  regarding the Account
Debtor's creditworthiness, the Borrower will promptly so advise the Agent.

          (c) The Borrower shall not accept any note or other instrument (except
a check or other instrument for the immediate  payment of money) with respect to
any Eligible Account or, with respect to any ineligible Account, in an amount in
excess of $250,000,  without the Agent's written consent.  If the Agent consents
to the acceptance of any such instrument,  it shall be considered as evidence of
the Account and not payment thereof and the Borrower will promptly  deliver such
instrument  to the  Agent,  endorsed  by the  Borrower  to the Agent in a manner
satisfactory  in form and  substance  to the  Agent.  Regardless  of the form of
presentment,  demand, notice of protest with respect thereto, the Borrower shall
remain liable thereon until such instrument is paid in full.

          (d) The Borrower  shall notify the Agent  promptly of all disputes and
claims in excess of $250,000,  individually, or $1,000,000 in the aggregate with
any Account  Debtor,  and agrees to settle,  contest,  or adjust such dispute or
claim at no expense to the Agent or any Lender. No discount, credit or allowance
shall be granted to any such Account  Debtor  without the Agent's  prior written
consent,  except for  discounts,  credits  and  allowances  made or given in the
ordinary  course of the  Borrower's  business  when no Event of  Default  exists
hereunder. The Borrower shall send the Agent a copy of each credit memorandum in
excess of $250,000 as soon as issued. The Agent may, and at the direction of the
Majority Lenders shall, at all times when an Event of Default exists  hereunder,
settle or adjust  disputes and claims  directly with Account Debtors for amounts
and upon terms which the Agent or the Majority  Lenders,  as  applicable,  shall
consider  advisable and, in all cases, the Agent will credit the Borrower's Loan
Account  with  only the net  amounts  received  by the Agent in  payment  of any
Accounts.

          (e) If an Account Debtor returns any Inventory to the Borrower when no
Event of Default  exists,  then the Borrower shall in the ordinary course of its
business  consistent with past practices  promptly determine the reason for such
return  and  shall  issue a  credit  memorandum  to the  Account  Debtor  in the
appropriate  amount.  The  Borrower  shall  immediately  report to the Agent any
return  involving  an  amount  in excess of  $250,000.  Each such  report  shall
indicate  the reasons for the returns and the  locations  and  condition  of the
returned  Inventory.  In the event any Account Debtor  returns  Inventory to the
Borrower  when an Event of Default  exists,  the  Borrower,  upon request of the
Agent,  shall:  (i) hold the  returned  Inventory  in trust for the Agent;  (ii)
segregate all returned  Inventory from all of its other property;  (iii) dispose
of the returned Inventory solely according to the Agent's written  instructions;
and (iv) not issue any

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<PAGE>

credits or  allowances  with respect  thereto  without the Agent's prior written
consent.  All returned  Inventory shall be subject to the Agent's Liens thereon.
Whenever  any  Inventory  is  returned,  the  related  Account  shall be  deemed
ineligible to the extent of the amount owing by the Account  Debtor with respect
to such returned Inventory.

     6.9  Collection of Accounts; Payments .

          (a) The Borrower shall maintain  lock-box  accounts and other lock-box
arrangements  reasonably  satisfactory  to the  Agent  with  such  banks  as are
reasonably  acceptable  to the  Agent  to which  all  Account  Debtors  shall be
instructed to make payments on Accounts.  If, notwithstanding such instructions,
the Borrower  receives any payments with respect to Accounts or,  subject to the
terms of the  Intercreditor  Agreement  with  respect to Secured  Sale/Leaseback
Collateral  or Shared  Collateral,  if the  Borrower  receives  any  payments on
account of Inventory and other  Collateral  or any other  payments from whatever
source (other than immaterial  amounts not to exceed $50,000 in the aggregate at
any one time),  whether in the form of cash,  checks,  notes,  drafts,  bills of
exchange,  money  orders  or  otherwise  (collectively  all  of  the  foregoing,
including  without  limitation,  payments with respect to Accounts,  referred to
herein as "Payments"), the Borrower will, at its own cost and expense, cause all
such  Payments to be deposited  not less often than daily in one of the lock-box
accounts  referred to above or in a Payment Account.  All funds in such lock-box
accounts shall be transferred on each Business Day to one or more  concentration
accounts designated by the Agent with a bank reasonably acceptable to the Agent.
Each bank  requested by the Agent at which a lock-box  account is maintained and
each  bank at  which a  concentration  account  referred  to in the  immediately
preceding  sentence is  maintained  shall  execute and deliver to the Agent such
agreements,  in form and substance satisfactory to the Agent, as the Agent shall
request with  respect to such  accounts,  including,  without  limitation,  with
respect to prohibitions on the Borrower  withdrawing funds from such accounts or
otherwise  directing or modifying  actions with respect to such  accounts.  Each
agreement  with a bank at which a  concentration  account is  established  shall
provide, among other things, that all funds deposited into such account shall be
transferred  directly  to the Agent on a daily  basis.  The Agent or the Agent's
designee may, at any time after the occurrence  and during the  continuance of a
Default or an Event of Default,  notify  Account  Debtors that the Accounts have
been assigned to the Agent and of the Agent's security interest therein, and may
collect  them  directly  and charge the  collection  costs and  expenses  to the
Borrower's  Loan Account as a Revolving Loan. So long as an Event of Default has
occurred and is continuing,  the Borrower, at the Agent's request, shall execute
and deliver to the Agent such documents as the Agent requires to grant the Agent
access  to any  post office box  in which collections of Accounts are received.

          (b) If  sales of  Inventory  are made for  cash,  the  Borrower  shall
immediately  deliver  to the Agent  or deposi  into a Payment  Account  the cash
which the Borrower receives.

          (c) All payments,  including  immediately  available funds received by
the  Agent  at  a  bank  designated  by it,  received by the Agent on account of
Accounts or as proceeds of

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other  Collateral  (other  than  Secured  Sale/Leaseback  Collateral  and Shared
Collateral  except  as  provided  in the  Intercreditor  Agreement)  will be the
Agent's sole property for its benefit and the benefit of the Lenders and will be
credited to the Borrower's Loan Account  (conditional  upon final collection) on
the Business Day  following  receipt by the Agent  (except for any such payments
received by the Agent by 1:00 p.m.  (New York time) on a Business  Day, in which
case such payments shall be credited to the Borrower's Loan Account (conditional
upon final  collection)  on the  Business  Day  received by the Agent;  it being
agreed  that,  except as otherwise  provided  herein  (including,  in any event,
Section  6.9(d)),  any such  payments  which the Borrower has notified the Agent
prior to 12:00 noon (New York time) on a Business  Day that such payment will be
received by the Agent via wire  transfer  prior to 4:00 p.m.  (New York time) on
such  Business  Day shall be deemed to be received by the Agent for this purpose
prior to 1:00  p.m.  (New  York  time) on such  Business  Day,  but only if such
payment is actually  received by the Agent via wire  transfer no later than 4:00
p.m.  (New York time) on such  Business  Day and the Borrower  hereby  agrees to
indemnify  and hold  harmless the Agent and each Lender from and against any and
all actual out-of-pocket liabilities,  obligations,  losses, damages, penalties,
costs or expenses incurred by the Agent or such Lender in the event such payment
is not actually received by the Agent via wire transfer by such time); provided,
however,  that such  payments  shall be deemed to be credited to the  Borrower's
Loan  Account   immediately   upon  receipt  for  purposes  of  (i)  determining
Availability,  (ii) calculating the unused line fee pursuant to Section 3.5, and
(iii)  calculating  the amount of interest to be distributed by the Agent to the
Lenders (but not the amount of interest payable by the Borrower).

          (d) In the event the Borrower repays all of the  Obligations  upon the
termination of this Agreement or upon  acceleration  of the  Obligations,  other
than  through  the Agent's  receipt of  payments  on account of the  Accounts or
proceeds of the other  Collateral,  such payment  will be credited  (conditional
upon final collection) to the Borrower's Loan Account one (1) Business Day after
the Agent's  receipt of such funds (except for any such payment  received by the
Agent by 1:00 p.m. (New York time) on a Business Day, in which case such payment
shall be  credited  to the  Borrower's  Loan  Account  (conditional  upon  final
collection) on the Business Day received by the Agent).

     6.10 Inventory;  Perpetual Inventory . The Borrower represents and warrants
to the Agent and the Lenders and agrees with the Agent and the Lenders  that all
of the Inventory owned by the Borrower is and will be held for sale or lease, or
to be furnished in connection  with the  rendition of services,  in the ordinary
course of the Borrower's business, and is and will be fit for such purposes. The
Borrower will use commercially  reasonable efforts to keep its Inventory in good
and saleable condition,  at its own expense.  The Borrower will not, without the
prior  written  consent  of the  Agent,  acquire  or  accept  any  Inventory  on
consignment or approval.  The Borrower agrees that all Inventory produced in the
United States will be produced in  accordance in all material  respects with the
Federal  Fair  Labor  Standards  Act  of  1938,  as  amended,   and  all  rules,
regulations,  and orders thereunder.  The Borrower will conduct a physical count
of the  Inventory  at least  once per  Fiscal  Year,  and after and  during  the
continuation of an Event of Default,  at such other times as the Agent requests.
The Borrower will maintain a perpetual

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inventory  reporting  system at all times.  The Borrower  will not,  without the
Agent's written consent, sell any Inventory on a bill-and-hold, guaranteed sale,
sale and return,  sale on approval,  consignment,  or other repurchase or return
basis (other than for damage).

     6.11 Equipment .

          (a) The Borrower  represents and warrants to the Agent and the Lenders
and agrees with the Agent and the Lenders that all of the Equipment owned by the
Borrower  which  is  necessary  for  the  conduct  of  the  Borrower's  business
(including,  in any event, all Credit Agreement Term Loan Equipment  Collateral)
is and will be used or held for use in the Borrower's business,  and is and will
be fit for such  purposes.  The Borrower  shall keep and maintain such Equipment
(including,  in any event, all Credit Agreement Term Loan Equipment  Collateral)
in good  operating  condition and repair  (ordinary  wear and tear excepted) and
shall make all necessary replacements thereof.

          (b) The  Borrower  shall  promptly  inform  the Agent of any  material
additions to or deletions from the Equipment.  The Borrower shall not permit any
Equipment  to become a fixture  with  respect to real  property  or to become an
accession with respect to other personal  property with respect to which real or
personal property the Agent does not have a Lien. The Borrower will not, without
the Agent's prior written  consent,  alter or remove any  identifying  symbol or
number on any of the Borrower's Equipment consisting of Collateral.

          (c) The  Borrower  shall not,  without  the  Majority  Lenders'  prior
written  consent,  sell, lease as a lessor,  or otherwise  dispose of any of the
Borrower's  Equipment;  provided,  however, that the Borrower may dispose of (i)
Equipment  to the extent  permitted  pursuant to Section 9.9,  (ii)  obsolete or
unusable Equipment constituting Secured Sale/Leaseback  Collateral not leased by
the Borrower pursuant to the Secured Sale/Leaseback  Documents having an orderly
liquidation  value,  together  with the orderly  liquidation  value of all other
obsolete or unusable Equipment disposed of by the Borrower,  of not greater than
$10,000,000 in the aggregate in any Fiscal Year, or $30,000,000 in the aggregate
during  the term of this  Agreement  (from the  Original  Closing  Date),  (iii)
obsolete or unusable Equipment constituting Credit Agreement Term Loan Equipment
Collateral having an orderly liquidation value of not greater than $1,000,000 in
the aggregate in any Fiscal Year, or $2,000,000 in the aggregate during the term
of this  Agreement  (from the  Original  Closing  Date),  and (iv)  obsolete  or
unusable  Equipment (other than Equipment  constituting  Secured  Sale/Leaseback
Collateral or Credit Agreement Term Loan Equipment Collateral) having an orderly
liquidation  value of not greater than $2,500,000 in the aggregate in any Fiscal
Year, or $5,000,000 in the aggregate during the term of this Agreement (from the
Original Closing Date), in each instance, without the Majority Lenders' consent,
subject to the  conditions set forth in the remainder of this clause (c). In the
event any of such  Equipment  is sold,  transferred  or  otherwise  disposed  of
pursuant to the proviso contained in the immediately  preceding sentence,  then,
except for the sale by the Borrower on the Closing Date of Equipment pursuant to
the Secured Sale/Leaseback  Arrangements and substitutions and additions thereto
not constituting Credit Agreement Term Loan Equipment

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<PAGE>

Collateral,  the  Borrower  shall use the  proceeds  of such sale,  transfer  or
disposition to purchase replacement  Equipment or to repay Obligations hereunder
and shall deliver to the Agent  written  evidence of the use of the proceeds for
such purchase. All such replacement Equipment purchased by the Borrower shall be
free and clear of all Liens except the Agent's  Lien,  the Liens in favor of the
holders of the  obligations  of the  Borrower  under the Secured  Sale/Leaseback
Documents  (but  only (i) to the  extent  such  replacement  Equipment  does not
constitute Excluded Sale/Leaseback Assets and (ii) in the event such replacement
Equipment  constitutes Credit Agreement Term Loan Equipment  Collateral which is
not  Excluded  Sale/Leaseback  Assets,  if the Lien of such  holders  therein is
subordinate  to  the  Agent's  Lien  therein   pursuant  to  the  terms  of  the
Intercreditor  Agreement)  and Purchase Money Liens in respect of Purchase Money
Obligations  permitted  hereunder  (but  only  to the  extent  such  replacement
Equipment does not constitute Credit Agreement Term Loan Equipment  Collateral).
Any Equipment  replacing Credit  Agreement Term Loan Equipment  Collateral shall
have an orderly liquidation value equal to or greater than that of the Equipment
being replaced as determined by an appraisal in form and substance  satisfactory
to the Agent and by an appraiser  satisfactory to the Agent or by other evidence
satisfactory to the Agent.

     6.12 Assigned  Contracts . The  Borrower  shall  fully  perform  all of its
obligations under each of the Assigned  Contracts,  and shall enforce all of its
rights and remedies  thereunder,  in each case, as it deems  appropriate  in its
business  judgment.  Without  limiting  the  generality  of the  foregoing,  the
Borrower shall take all action necessary or appropriate to permit, and shall not
take any action which would have any  materially  adverse  effect upon, the full
enforcement of all indemnification  rights under its Assigned Contracts taken as
a whole.  The  Borrower  shall  notify  the Agent and the  Lenders  in  writing,
promptly after the Borrower  becomes aware  thereof,  of any event or fact which
could  reasonably be expected to give rise to a claim by it for  indemnification
in excess of $250,000 under any of its Assigned Contracts,  and shall diligently
pursue  such  right and  report to the Agent on all  further  developments  with
respect thereto.  Except as provided  otherwise in the Intercreditor  Agreement,
the  Borrower  shall  remit  directly  to  the  Agent  for  application  to  the
Obligations in such order as the Majority Lenders shall  determine,  all amounts
received  by the  Borrower  as  indemnification  or  otherwise  pursuant  to its
Assigned  Contracts.  If the  Borrower  shall fail after the  Agent's  demand to
pursue  diligently  any material  right under its Assigned  Contracts,  or if an
Event of  Default  then  exists,  the Agent  may,  and at the  direction  of the
Majority Lenders shall, directly enforce such right in its own or the Borrower's
name and may enter  into  such  settlements  or other  agreements  with  respect
thereto as the Agent or the Majority Lenders, as applicable, shall determine. In
any suit,  proceeding  or action  brought  by the Agent for the  benefit  of the
Lenders under any Assigned  Contract for any sum owing  thereunder or to enforce
any  provision  thereof,  the Borrower  shall  indemnify  and hold the Agent and
Lenders harmless from and against all expense, loss or damage suffered by reason
of any defense,  setoff,  counterclaims,  recoupment,  or reduction of liability
whatsoever of the obligor  thereunder arising out of a breach by the Borrower of
any obligation thereunder or arising out of any other agreement, indebtedness or
liability  at any time owing from the Borrower to or in favor of such obligor or
its  successors.  All such  obligations  of the  Borrower  shall  be and  remain
enforceable  only against the Borrower and shall not be enforceable  against the
Agent or the

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Lenders.  Notwithstanding  any provision  hereof to the  contrary,  the Borrower
shall at all times  remain  liable to observe  and perform all of its duties and
obligations  under its  Assigned  Contracts,  and the  Agent's  or any  Lender's
exercise of any of their respective  rights with respect to the Collateral shall
not release the Borrower  from any of such duties and  obligations.  Neither the
Agent nor any  Lender  shall be  obligated  to  perform  or  fulfill  any of the
Borrower's  duties or  obligations  under its Assigned  Contracts or to make any
payment  thereunder,  or to make any inquiry as to the nature or  sufficiency of
any  payment  or  property  received  by it  thereunder  or the  sufficiency  of
performance by any party thereunder, or to present or file any claim, or to take
any action to collect or enforce any performance, any payment of any amounts, or
any delivery of any property.

     6.13 Documents,  Instruments,  and Chattel Paper . The Borrower  represents
and warrants to the Agent and the Lenders that (a) all  documents,  instruments,
and chattel paper describing,  evidencing,  or constituting Collateral,  and all
signatures  and  endorsements  thereon  (except  those of Persons other than the
Borrower or any of its  Affiliates  which shall be only to the  knowledge of the
Borrower),  are and  will be  complete  in all  material  respects,  valid,  and
genuine, and (b) all goods evidenced by such documents, instruments, and chattel
paper are and will be owned by the  Borrower,  free and clear of all Liens other
than Permitted Liens.

     6.14 Right to Cure . The Agent may, in its  discretion,  and shall,  at the
direction of the Majority Lenders,  pay any amount or do any act required of the
Borrower  hereunder  or under  any other  Loan  Document  in order to  preserve,
protect,  maintain or enforce the  Obligations,  the  Collateral  or the Agent's
Liens  therein,  and which the Borrower fails to pay or do,  including,  without
limitation, payment of any judgment against the Borrower, any insurance premium,
any warehouse charge,  any finishing or processing charge, any landlord's claim,
and any other Lien upon or with respect to the Collateral. All payments that the
Agent makes under this Section 6.14 and all reasonable  out-of-pocket  costs and
expenses that the Agent pays or incurs in connection with any action taken by it
hereunder  shall be charged to the Borrower's  Loan Account as a Revolving Loan.
Any payment  made or other  action  taken by the Agent under this  Section  6.14
shall be without  prejudice to any right to assert an Event of Default hereunder
and to proceed thereafter as herein provided.

     6.15 Power of Attorney . The  Borrower  hereby  appoints  the Agent and the
Agent's  designee as the  Borrower's  attorney,  with power:  (a) so long as any
Event of Default has occurred and is continuing,  to endorse the Borrower's name
on any checks,  notes,  acceptances,  money orders, or other forms of payment or
security that come into the Agent's or any Lender's possession;  (b) to sign the
Borrower's  name on any  invoice,  bill of  lading,  warehouse  receipt or other
document of title relating to any Collateral,  on drafts against  customers,  on
assignments  of Accounts,  on notices of  assignment,  financing  statements and
other public  records and to file any such  financing  statements  by electronic
means with or without a signature as authorized or required by applicable law or
filing  procedure;  (c) so long as any  Event of  Default  has  occurred  and is
continuing,  to notify the post  office  authorities  to change the  address for
delivery of the  Borrower's  mail to an address  designated  by the Agent and to
receive, open and dispose of all

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mail  addressed  to the  Borrower;  (d) to send  requests  for  verification  of
Accounts  to  customers  or Account  Debtors  (in the name of the  Borrower or a
nominee of the Agent or,  with the consent of the  Borrower,  in the name of the
Agent so long as no Event of Default has occurred and is continuing,  and in the
name of the Borrower, the Agent or a nominee of the Agent if an Event of Default
has  occurred  and is  continuing);  (e) so long as any  Event  of  Default  has
occurred  and is  continuing,  to clear  Inventory,  the  purchase  of which was
financed with Letters of Credit,  through  customs in the  Borrower's  name, the
Agent's  name or the name of the  Agent's  designee,  and to sign and deliver to
customs  officials  powers of attorney in the Borrower's  name for such purpose;
and (f) so long as any Event of Default has  occurred and is  continuing,  to do
all things  necessary to carry out this  Agreement.  The  Borrower  ratifies and
approves all acts of such  attorney.  None of the Lenders or the Agent nor their
attorneys  will be liable for any acts or omissions or for any error of judgment
or  mistake  of fact or law  unless  determined  by a final  and  non-appealable
decision of a court of competent jurisdiction to constitute the gross negligence
or willful  misconduct of the Agent. This power, being coupled with an interest,
is irrevocable until this Agreement has been terminated and the Obligations have
been fully satisfied.

     6.16 The Agent's and Lenders' Rights, Duties and Liabilities . The Borrower
assumes all  responsibility  and liability  arising from or relating to the use,
sale or other  disposition  of the  Collateral.  The  Obligations  shall  not be
affected  by any failure of the Agent or any Lender to take any steps to perfect
the Agent's Liens or to collect or realize upon the  Collateral,  nor shall loss
of or damage to the Collateral release the Borrower from any of the Obligations.
Following the occurrence and continuation of an Event of Default,  the Agent may
(but shall not be required  to), and at the  direction  of the Majority  Lenders
shall,  without  notice to or consent from the  Borrower,  sue upon or otherwise
collect,  extend  the  time for  payment  of,  modify  or amend  the  terms  of,
compromise or settle for cash,  credit, or otherwise upon any terms, grant other
indulgences,  extensions,  renewals, compositions, or releases, and take or omit
to take any other action with respect to the Collateral,  any security therefor,
any agreement relating thereto,  any insurance applicable thereto, or any Person
liable directly or indirectly in connection  with any of the foregoing,  without
discharging  or  otherwise  affecting  the  liability  of the  Borrower  for the
Obligations  or under this  Agreement  or any other  agreement  now or hereafter
existing between the Agent and/or any Lender and the Borrower.

     6.17 Intercreditor  Agreement .  Notwithstanding  anything  to the contrary
contained in this Agreement or in any other Loan  Document,  the priority of the
Agent's  Lien in, and the rights and  remedies of the Agent with respect to, the
Secured  Sale/Leaseback  Collateral and the Shared Collateral are limited by and
subject to the terms of the Intercreditor Agreement.

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                                    ARTICLE 7

                BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
                -------------------------------------------------

     7.1  Books and Records . Each  of the Borrower  and  Parent shall  maintain
(and shall cause each of their  respective  Subsidiaries  to  maintain),  at all
times,  correct and complete  books,  records and accounts in which complete (in
all material respects),  correct and timely entries are made of its transactions
in conformity  with past  practices.  Each of the Borrower and Parent shall (and
shall cause each of their respective  Subsidiaries  to), by means of appropriate
entries,  reflect  in  such  accounts  and in all  Financial  Statements  proper
liabilities and reserves for all taxes and proper provision for depreciation and
amortization of property and bad debts, all in accordance with GAAP. Each of the
Borrower and Parent  shall  maintain  (and shall cause each of their  respective
Subsidiaries  to  maintain)  at all times  books and records  pertaining  to the
Collateral  in such  detail,  form and  scope as the Agent or any  Lender  shall
reasonably require,  including,  but not limited to, records of (a) all payments
received and all credits and  extensions  granted with respect to the  Accounts;
(b) the return, rejections,  repossession, stoppage in transit, loss, damage, or
destruction  of  any  Inventory;  and  (c)  all  other  dealings  affecting  the
Collateral.

     7.2  Financial Information . Each of the Borrower and Parent shall promptly
furnish  to each  Lender,  all such  financial  information  as the Agent or any
Lender shall  reasonably  request,  and notify its auditors and accountants that
the Agent,  on behalf of the Lenders,  is authorized to obtain such  information
directly from them.  Without  limiting the  foregoing,  each of the Borrower and
Parent will furnish to the Agent, in sufficient  copies for  distribution by the
Agent  to  each  Lender,  in such  detail  as the  Agent  or the  Lenders  shall
reasonably request, the following:

          (a) As soon as available,  but in any event not later than ninety (90)
days after the close of each Fiscal Year, consolidated audited and consolidating
audited balance sheets,  and statements of income and expense,  cash flow and of
stockholders' equity for the Borrower and its Subsidiaries for such Fiscal Year,
and the  accompanying  notes thereto,  setting forth in each case in comparative
form figures for the previous  Fiscal Year,  all in  reasonable  detail,  fairly
presenting in all material  respects the  financial  position and the results of
operations  of the Borrower  and its  consolidated  Subsidiaries  as at the date
thereof and for the Fiscal  Year then ended,  and  prepared in  accordance  with
GAAP.  Such statements  shall be examined in accordance with generally  accepted
auditing  standards  by  and,  in the  case  of such  statements  prepared  on a
consolidated  basis,  accompanied by a report thereon unqualified as to scope of
independent certified public accountants selected by the Borrower and reasonably
satisfactory  to the  Agent.  The Agent  agrees  that  Deloitte  & Touche LLP is
reasonably  satisfactory  to  the  Agent.  The  Borrower,   simultaneously  with
retaining  such  independent  public  accountants  to conduct such annual audit,
shall  send a  letter  to such  accountants,  with a copy to the  Agent  and the
Lenders,  notifying  such  accountants  that  one of the  primary  purposes  for
retaining such  accountants'  services and having audited  financial  statements
prepared by them is for use by the Agent and the Lenders.  The  Borrower  hereby
authorizes  the  Agent  to  communicate   directly  with  its  certified  public
accountants and, by this provision, authorizes those accountants to disclose to

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the Agent  any and all  financial  statements  and  other  supporting  financial
documents  and schedules  relating to the Borrower and to discuss  directly with
the Agent the finances and affairs of the Borrower.  The Agent agrees to provide
the  Borrower  with  reasonable  prior  notice  of  the  Agent's   intention  to
communicate with the Borrower's  certified public accountants and an opportunity
to be present at any such communications.

          (b) As soon as available,  but in any event not later than thirty (30)
days  after  the  end of  each  fiscal  month,  consolidated  and  consolidating
unaudited balance sheets of the Borrower and its consolidated Subsidiaries as at
the end of such fiscal  month,  and  consolidated  and  consolidating  unaudited
statements  of  income  and  expense  and  cash  flow for the  Borrower  and its
consolidated  Subsidiaries  for such  fiscal  month and for the period  from the
beginning of the Fiscal Year to the end of such fiscal month,  all in reasonable
detail,  fairly presenting in all material  respects the financial  position and
results of operations of the Borrower and its  consolidated  Subsidiaries  as at
the date  thereof and for such  periods,  and prepared in  accordance  with GAAP
applied  consistently  with the  audited  Financial  Statements  required  to be
delivered  pursuant to Section  7.2(a)  (except for the absence of footnotes and
subject  to normal  year-end  adjustments).  The  Borrower  shall  certify  by a
certificate  signed by its chief  financial  officer or treasurer  that all such
statements  have been prepared in accordance with GAAP and present fairly in all
material  respects  (except for the absence of  footnotes  and subject to normal
year-end  adjustments) the Borrower's financial position as at the dates thereof
and its results of operations for the periods then ended.

          (c) As soon as available,  but in any event not later than  forty-five
(45) days after the close of each fiscal  quarter other than the fourth  quarter
of a Fiscal Year, consolidated and consolidating unaudited balance sheets of the
Borrower and its  consolidated  Subsidiaries as at the end of such quarter,  and
consolidated and  consolidating  unaudited  statements of income and expense and
statement of cash flows for the Borrower and its  Subsidiaries  for such quarter
and for the period  from the  beginning  of the  Fiscal  Year to the end of such
quarter,  all in reasonable  detail,  fairly presenting in all material respects
the  financial  position  and  results  of  operation  of the  Borrower  and its
Subsidiaries as at the date thereof and for such periods, prepared in accordance
with GAAP  consistent  with the  audited  Financial  Statements  required  to be
delivered  pursuant to Section  7.2(a)  (except for the absence of footnotes and
subject  to normal  year-end  adjustments).  The  Borrower  shall  certify  by a
certificate  signed by its chief  financial  officer or treasurer  that all such
statements  have been prepared in accordance with GAAP and present fairly in all
material  respects  (except for the absence of  footnotes  and subject to normal
year-end  adjustments) the Borrower's financial position as at the dates thereof
and its results of operations for the periods then ended.

          (d) With each of the audited Financial  Statements  delivered pursuant
to Section 7.2(a), a certificate of the independent certified public accountants
that  examined  such  statement  to the effect that they have  reviewed  and are
familiar  with  this  Agreement  and  that,  in the  course of its audit of such
Financial Statements, they did not become aware of any fact or

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<PAGE>

condition  which  then  constituted  a Default or Event of  Default,  except for
those, if any, described in reasonable detail in such certificate.

          (e) With each of the annual  audited  Financial  Statements  delivered
pursuant to Section  7.2(a),  and within  forty-five  (45) days after the end of
each fiscal quarter,  a certificate of the chief financial  officer or treasurer
of the Borrower (i) setting forth in reasonable detail the calculations required
to establish that the Borrower was in compliance with the covenants set forth in
Sections 9.23 and 9.26 during the period  covered in such  Financial  Statements
and as at the end  thereof,  and (ii)  stating  that,  except  as  explained  in
reasonable  detail  in  such  certificate,  (A) all of the  representations  and
warranties  of the  Borrower  contained  in this  Agreement  and the other  Loan
Documents  are correct and complete in all  material  respects as at the date of
such  certificate  as if made at such time,  (B) the Borrower is, at the date of
such  certificate,  in  compliance  in all  material  respects  with  all of its
respective  covenants  and  agreements  in this  Agreement  and the  other  Loan
Documents,  (C) no Default or Event of Default then exists or existed during the
period  covered by such  Financial  Statements,  (D) describing and analyzing in
reasonable detail all material trends, changes, and developments in each and all
Financial  Statements;  and (E)  explaining  the variances of the figures in the
corresponding  budgets  and prior  Fiscal  Year  financial  statements.  If such
certificate  discloses  that a  representation  or  warranty  is not  correct or
complete,  or that a covenant has not been  complied  with, or that a Default or
Event of Default existed or exists, such certificate shall set forth what action
the Borrower has taken or proposes to take with respect thereto.

          (f) No later than 60 days after the  beginning  of each  Fiscal  Year,
annual forecasts (to include forecasted  consolidated and consolidating  balance
sheets,  statements of income and expenses and  statements of cash flow) for the
Borrower and its Subsidiaries as at the end of and for each fiscal month of such
Fiscal Year.

          (g)  Promptly  after  filing with the PBGC and the IRS, a copy of each
annual  report or other  material  filing filed with respect to each Plan of the
Borrower or Parent.

          (h) Promptly upon the filing thereof,  copies of all reports,  if any,
to or other documents filed by the Borrower,  Parent or any of its  Subsidiaries
with the  Securities  and Exchange  Commission  under the Exchange  Act, and all
reports,  notices, or statements sent or received by the Borrower, Parent or any
of its  Subsidiaries to or from the holders of any equity interests of Borrower,
Parent (other than routine  non-material  correspondence sent by shareholders of
Parent to Parent) or any such  Subsidiary or of any Debt of Parent or any of its
Subsidiaries  registered  under  the  Securities  Act of 1933 or to or from  the
trustee under any indenture under which the same is issued.

          (i) As soon as  available,  but in any event  not  later  than 15 days
after the  Borrower's  or Parent's  receipt  thereof,  a copy of all  management
reports and management letters prepared for the Borrower or Parent by Deloitte &
Touche LLP or any other independent certified public accountants of the Borrower
or Parent.

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          (j)  Promptly  after  their  preparation,  copies of any and all proxy
statements, financial statements, and reports which the Borrower or Parent makes
available to its shareholders.

          (k) Upon  request  of the Agent,  a copy of each tax  return  filed by
Parent or by any of its Subsidiaries.

          (l) With the first financial  statements delivered pursuant to Section
7.2(b) after the Closing  Date, a pro forma  balance sheet of the Borrower as at
the first fiscal month end following the Closing Date  reflecting the Borrower's
financial  condition  as at that date after  giving  effect to the  transactions
contemplated  herein to occur on the Closing Date (such pro forma  balance sheet
to be prepared in accordance  with GAAP (subject to the absence of footnotes and
normal  year-end  adjustments)),  together with a  reconciliation  in reasonable
detail of the changes in the  Borrower's  financial  condition on that date as a
result of the transactions contemplated herein to occur on the Closing Date from
that immediately prior to such transactions.

          (m) Such  additional  information  as the Agent  and/or any Lender may
from time to time  reasonably  request  regarding  the  financial  and  business
affairs of Parent or any Subsidiary.

     7.3  Notices  to  the  Lenders .  The  Borrower  or Parent shall notify the
Agent, in writing of the following matters at the following times:

          (a)  Immediately  after  becoming  aware  of any  Default  or Event of
Default or of any Lease Default,  Material Default or Lease Event of Default (as
defined in the Secured Sale/Leaseback Documents), by notice or otherwise.

          (b) Immediately after becoming aware of the assertion by the holder of
any capital stock of Parent,  the Borrower or any  Subsidiary  thereof or of any
Debt of Parent or any of its Subsidiaries in excess of $2,500,000 that a default
exists with respect  thereto or that Parent,  the Borrower or any  Subsidiary is
not in compliance  with the terms thereof,  or the actual threat or commencement
by such holder of any  enforcement  action  because of such asserted  default or
non-compliance.

          (c)  Immediately  after becoming aware of any event which has resulted
in, or which  could  reasonably  be  expected  to result in, a Material  Adverse
Effect.

          (d)  Immediately  after  becoming  aware  of  any  pending  or  actual
threatened  action,  suit,  proceeding,  or counterclaim  by any Person,  or any
pending or actual threatened  investigation by a Governmental  Authority,  which
may  reasonably be expected to materially and adversely  affect the  Collateral,
the repayment of the  Obligations,  the Agent's or any Lender's

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rights under the Loan  Documents,  or the  property,  business,  operations,  or
condition (financial or otherwise) of the Borrower and Parent taken as a whole.

          (e)  Immediately  after  becoming  aware  of  any  pending  or  actual
threatened  strike,  work stoppage,  unfair labor practice claim, or other labor
dispute  affecting  Parent or any of its  Subsidiaries  in a manner  which could
reasonably be expected to have a Material Adverse Effect.

          (f)  Immediately  after  becoming  aware of any  violation of any law,
statute,  regulation,  or ordinance of a Governmental Authority affecting Parent
or any of its Subsidiaries which could reasonably be expected to have a Material
Adverse Effect.

          (g) Immediately after receipt of any notice of any violation by Parent
or any of its Subsidiaries of any  Environmental  Law where such violation could
reasonably  be  expected  to  have  a  Material   Adverse  Effect  or  that  any
Governmental Authority has asserted that Parent or any Subsidiary thereof is not
in compliance with any  Environmental  Law or is investigating  Parent's or such
Subsidiary's compliance therewith which, in either case, is reasonably likely to
give rise to liability in excess of $1,000,000.

          (h) Immediately after receipt of any written notice that Parent or any
of its Subsidiaries is or may be liable to any Person as a result of the Release
or threatened  Release of any  Contaminant  or that Parent or any  Subsidiary is
subject to investigation by any Governmental  Authority  evaluating  whether any
remedial action is needed to respond to the Release or threatened Release of any
Contaminant  which,  in  either  case,  is  reasonably  likely  to give  rise to
liability in excess of $1,000,000.

          (i) Immediately  after receipt of any written notice of the imposition
of any  Environmental  Lien against any  property  owned by Parent or any of its
Subsidiaries.

          (j) Any change in the Borrower's name, state of incorporation, or form
of  organization,  trade  names or styles  under  which the  Borrower  will sell
Inventory or create Accounts, or to which instruments in payment of Accounts may
be made payable, in each case at least thirty (30) days prior thereto.

          (k) Within ten (10) Business  Days after the  Borrower,  Parent or any
ERISA  Affiliate knows or has reaon to know, that an ERISA Event or a non-exempt
prohibited  transaction  (as  defined in  Sections  406 of ERISA and 4975 of the
Code) has occurred,  and, when known, any action taken or threatened by the IRS,
the DOL or the PBGC with respect thereto.

          (l) Upon  request,  or,  in the  event  that such  filing  reflects  a
significant change with respect to the matters covered thereby,  within ten (10)
Business  Days after the filing  thereof  with the PBGC,  the DOL or the IRS, as
applicable,  copies of the following: (i) each annual report (form 5500 series),
including Schedule B thereto, filed with the PBGC,

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the DOL or the IRS with respect to each Plan, (ii) a copy of each funding waiver
request filed with the PBGC, the DOL or the IRS with respect to any Plan and all
communications received by the Borrower,  Parent or any ERISA Affiliate from the
PBGC, the DOL or the IRS with respect to such request,  and (iii) a copy of each
other filing or notice filed with the PBGC,  the DOL or the IRS, with respect to
each Plan of either the Borrower, Parent or any ERISA Affiliate.

          (m) Upon  request,  copies of each  actuarial  report  for any Plan or
Multi-employer  Plan and annual report for any  Multi-employer  Plan; and within
ten (10)  Business Days after  receipt  thereof by the  Borrower,  Parent or any
ERISA  Affiliate,  copies  of the  following:  (i)  any  notices  of the  PBGC's
intention to terminate a Plan or to have a trustee  appointed to administer such
Plan;  (ii) any  favorable  or  unfavorable  determination  letter  from the IRS
regarding the qualification of a Plan under Section 401(a) of the Code; or (iii)
any notice from a  Multi-employer  Plan  regarding the  imposition of withdrawal
liability.

          (n) Within ten (10) Business Days after the  occurrence  thereof:  (i)
any changes in the benefits of any existing  Plans which increase the Borrower's
or  Parent's  annual  costs  with  respect  thereto  by an  amount  in excess of
$1,000,000 in the aggregate for all such Plans, or the  establishment of any new
Plan or the  commencement  of  contributions  to any Plan to which the Borrower,
Parent or any  ERISA  Affiliate  was not  previously  contributing;  or (ii) any
failure  by the  Borrower,  Parent or any  ERISA  Affiliate  to make a  required
installment  or any other  required  payment under Section 412 of the Code on or
before the due date for such installment or payment.

          (o) Within ten (10) Business  Days after the  Borrower,  Parent or any
ERISA Affiliate knows or has reason to know that any of the following events has
or will occur:  (i) a Multi-employer  Plan has been or will be terminated;  (ii)
the administrator or plan sponsor of a Multi-employer  Plan intends to terminate
a  Multi-employer  Plan;  or (iii)  the PBGC has  instituted  or will  institute
proceedings under Section 4042 of ERISA to terminate a Multi-employer Plan.

Each notice given under this Section shall  describe the subject  matter thereof
in reasonable  detail, and shall set forth the action that Parent, the Borrower,
its Subsidiary, or any ERISA Affiliate, as applicable,  has taken or proposes to
take with respect thereto.

                                    ARTICLE 8

                     GENERAL WARRANTIES AND REPRESENTATIONS
                     --------------------------------------

     Each of the  Borrower  and Parent,  jointly  and  severally,  warrants  and
represents  to the Agent and the Lenders that except as  hereafter  disclosed to
and accepted by the Agent and the Majority Lenders in writing:

     8.1  Authorization,  Validity, and Enforceability of this Agreement and the
other Transaction  Documents . Each of the Borrower and Parent has the corporate
power and authority

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to  execute,  deliver  and  perform  this  Agreement  and the other  Transaction
Documents to which it is a party, to incur the Obligations,  and to grant to the
Agent Liens upon and security interests in the Collateral.  Each of the Borrower
and  Parent  has  taken  all  necessary   corporate  action  (including  without
limitation,  obtaining  approval of its  stockholders if necessary) to authorize
its  execution,  delivery,  and  performance  of this  Agreement  and the  other
Transaction Documents to which it is a party. No consent, approval, exemption or
authorization  or other action of, or notice to, or  declaration or filing with,
any Governmental  Authority,  and no consent of any other Person, is required in
connection  with the  execution,  delivery  or  performance  by, or  enforcement
against,  the  Borrower or Parent of this  Agreement  and the other  Transaction
Documents,  except for those  already  duly  obtained or made and except for the
filing of (i)  Uniform  Commercial  Code  financing  statements,  Mortgages  and
security   documents   relating  to  Proprietary   Rights  in  the   appropriate
governmental  filing offices in order to perfect the Agent's Liens in certain of
the Collateral, (ii) Uniform Commercial Code financing statements, mortgages and
other security documents in the appropriate governmental filing offices in order
to perfect the Liens  granted  under the Secured  Sale/Leaseback  Documents  and
(iii) the  Sherwood-Related  Merger  Documents with the Secretaries of State for
the  states  of  Delaware   and   Connecticut   in  order  to   effectuate   the
Sherwood-Related  Mergers.  This Agreement and the other  Transaction  Documents
have been duly executed and delivered by the Borrower and Parent party  thereto,
and  constitute  the legal,  valid and binding  obligations  of the Borrower and
Parent,  enforceable  against each of the Borrower and Parent in accordance with
their respective terms without defense,  setoff or counterclaim.  The Borrower's
and Parent's  execution,  delivery,  and  performance  of this Agreement and the
other  Transaction  Documents do not and will not conflict with, or constitute a
violation or breach of, or constitute a default under, or result in the creation
or imposition of any Lien upon the property of Parent or any of its Subsidiaries
by reason of the terms of (a) any contract,  mortgage,  Lien, lease,  agreement,
indenture,  or instrument to which Parent or any of its  Subsidiaries is a party
or which is binding upon it (except to the extent with respect to the  foregoing
such conflicts,  violations,  breaches or defaults could not  individually or in
the aggregate reasonably be expected to have a Material Adverse Effect), (b) any
material  Requirement  of Law  applicable  to  Parent  or  any  of its  Domestic
Subsidiaries,  or (c) the certificate or articles of  incorporation or bylaws of
Parent  or  any of its  Domestic  Subsidiaries.  Each  borrowing  of a Loan  and
issuance  of a Letter  of  Credit or Credit  Support  and each  delivery  by the
Borrower  of a Borrowing  Base  Certificate  constitutes  a  representation  and
warranty by the  Borrower  and Parent  that,  as of the date of such  borrowing,
issuance or delivery, as the case may be, the financial  accommodations provided
to the  Borrower  under  this  Agreement  do not as of  such  date  violate  the
borrowing limits set forth in the Indenture relating to the Senior  Subordinated
Notes (which as of the Closing Date is, with  respect to the  revolving  line of
credit portion of the Total  Facility,  80% of the Borrower's  accounts not more
than 60 days past due plus 50% of the Borrower's  inventory,  each calculated in
accordance  with GAAP,  (as  provided in clause (a) of the second  paragraph  of
Section 4.09 of such indenture) and, with respect to the Term Loans, $25,000,000
(as  provided  in clause (c) of the  second  paragraph  of Section  4.09 of such
indenture)).

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     8.2  Validity and Priority of Security  Interest . The  provisions  of this
Agreement,  the Mortgage(s) (when executed), and the other Loan Documents create
legal and  valid  Liens on all the  Collateral  in favor of the  Agent,  for the
ratable  benefit  of the  Agent  and the  Lenders,  and  such  Liens  constitute
perfected and continuing Liens on all the Collateral, and with respect to Credit
Agreement  Collateral,  having priority over all other Liens on such Collateral,
securing all the Obligations, and enforceable against the Borrower and all third
parties.

     8.3  Organization and Qualification . Each  of the  Borrower and Parent (a)
is duly  incorporated  and organized and validly existing in good standing under
the laws of the state of its incorporation, (b) is qualified to do business as a
foreign  corporation and is in good standing in the  jurisdictions  set forth on
Schedule 8.3 as updated from time to time by written notice to the Agent,  which
are the only  jurisdictions in which  qualification is necessary in order for it
to own or  lease  its  property  and  conduct  its  business  except  for  those
jurisdictions  in which the failure to so qualify or be in good  standing  could
not  reasonably  be expected to have a Material  Adverse  Effect and (c) has all
requisite power and authority to conduct its business and to own its property.

     8.4  Corporate  Name;  Prior  Transactions . Except as otherwise  expressly
permitted  hereunder  for any of the  following  occurring  after  the  Original
Closing Date (and for which written notice thereof has been given to the Agent),
neither the Borrower nor Parent has, during the past five (5) years,  been known
by or used any other corporate or fictitious name, or been a party to any merger
or  consolidation,  or acquired  all or  substantially  all of the assets of any
Person,  or  acquired  any of its  property  outside of the  ordinary  course of
business.

     8.5  Subsidiaries  and  Affiliates . Schedule 8.5 is a correct and complete
list as of the Closing Date of the name and  relationship  to Parent of each and
all of Parent's  Subsidiaries  (other than the Borrower)  and other  Affiliates.
Each  Subsidiary  of Parent is (a) duly  incorporated  and organized and validly
existing in good standing under the laws of its state of incorporation set forth
on Schedule 8.5, and (b) qualified to do business as a foreign  corporation  and
in good standing in each  jurisdiction  in which the failure to so qualify or be
in good standing could  reasonably be expected to have a Material Adverse Effect
and (c) has all  requisite  power and  authority to conduct its business and own
its property.

     8.6  Financial Statements and Projections .

          (a) The  Borrower  has  delivered  to the  Agent and the  Lenders  the
audited balance sheet and related statements of income,  retained earnings, cash
flows, and changes in stockholders  equity for the Borrower and its consolidated
Subsidiaries  as of  September  26,  1999,  and for the Fiscal  Year then ended,
accompanied by the report thereon of the Borrower's independent certified public
accountants, Deloitte & Touche LLP. The Borrower has also delivered to the Agent
and the Lenders the unaudited balance sheet and related statements of income and
cash flows for the Borrower and its  consolidated  Subsidiaries  as of March 26,
2000.  Such  financial  statements  are  attached  hereto as Exhibit C. All such
financial statements have

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<PAGE>

been prepared in accordance  with GAAP (other than,  with respect to the interim
financial  statements,  the  absence of  footnotes  and being  subject to normal
year-end  adjustments) and present fairly in all material respects the financial
position  of the  Borrower  and its  consolidated  Subsidiaries  as at the dates
thereof and their results of operations for the periods then ended.

          (b) The Latest  Projections  when submitted to the Lenders as required
herein represent the Borrower's reasonable best estimate of the future financial
performance of the Borrower and its  consolidated  Subsidiaries  for the periods
set forth therein. The Latest Projections have been prepared on the basis of the
assumptions  set  forth  therein,  which  the  Borrower  believes  are  fair and
reasonable in light of current and reasonably foreseeable business conditions at
the time submitted to the Lender.

          (c) The pro forma balance sheet of the Borrower as at the first fiscal
month end  following  the Closing  Date  required to be  delivered  to the Agent
pursuant  to Section  7.2(l)  presents  fairly and  accurately  in all  material
respects the Borrower's  financial condition as at that date after giving effect
to the  transactions  contemplated  herein to occur on the Closing Date, and has
been prepared in  accordance  with GAAP (subject to the absence of footnotes and
normal year-end adjustments).  The foregoing representation and warranty in this
clause (c) shall not be made by the Borrower and Parent until such balance sheet
is delivered to the Agent.

     8.7  Capitalization . The Borrower's  authorized  capital stock consists of
500 shares of common  stock,  par value $.05 per share,  all of which shares are
validly  issued and  outstanding,  fully paid and  non-assessable  and are owned
beneficially and of record by Parent.

     8.8  Solvency . The Borrower is Solvent prior to and after giving effect to
the making of the Term Loans and the  Revolving  Loans to be made on the Closing
Date, the issuance of the Letters of Credit to be issued on the Closing Date and
the  consummation  on the Closing Date of the  transactions  contemplated by the
Transaction  Documents,  and  shall  remain  Solvent  during  the  term  of this
Agreement.

     8.9  Debt . After  giving  effect to the making  of the Term  Loans and the
Revolving  Loans  to be made on the  Closing  Date and the  consummation  on the
Closing Date of the transactions  contemplated by the Transaction Documents, the
Borrower and its Subsidiaries have no Debt, except as permitted by Section 9.13.

     8.10 Distributions . Since  September 30, 1996,  no  Distribution  has been
declared,  paid,  or made  upon or in  respect  of any  capital  stock  or other
securities  of the  Borrower  or any of its  Subsidiaries  except  as  otherwise
permitted hereby.

     8.11 Title to  Property  . Each of the  Borrower  and  Parent has  good and
marketable  title in fee simple to its real  property  listed in  Schedule  8.12
hereto (except for any such real property which has been sold in accordance with
Section  9.9),  and each of the Borrower and Parent has good,  indefeasible  and
valid title to all of its inventory, accounts and other material property

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owned by it (including,  without  limitation,  the assets reflected on the March
26, 2000 Financial  Statements of the Borrower and Parent delivered to the Agent
and the Lenders  except as disposed of in the ordinary  course of business since
the date thereof or pursuant to Section 9.9), free of all Liens except Permitted
Liens.

     8.12 Real Estate;  Leases . Schedule 8.12 sets forth a correct and complete
list as of the Closing Date of all Real Estate owned by the Borrower,  Parent or
any of its other  Subsidiaries,  all leases and  subleases  of real or  personal
property  by the  Borrower,  Parent  or its  other  Subsidiaries  as  lessee  or
sublessee  (other  than leases of  personal  property as to which the  Borrower,
Parent or any of its other  Subsidiaries  is lessee or  sublessee  for which the
value of such personal property is less than $50,000  individually or $1,000,000
in the aggregate),  and all leases and subleases of real or personal property by
the Borrower,  Parent or its other Subsidiaries as lessor or sublessor.  Each of
such leases and subleases is valid and  enforceable in accordance with its terms
and is in full force and  effect,  and no default by any party to any such lease
or sublease  exists (other than such  invalidity,  unenforceability  or defaults
which could not reasonably be expected to have a Material Adverse Effect).

     8.13 Proprietary  Rights . Schedule 8.13 sets forth  a correct and complete
list as of the  Closing  Date of all of the  Borrower's  and  Parent's  patents,
registered  trademarks,  registered service marks and registered  copyrights and
applications for any of the foregoing. None of the Proprietary Rights is subject
to any  licensing  agreement  or  similar  arrangement  except  as set  forth on
Schedule 8.13. To the best of the Borrower's and Parent's knowledge, none of the
Proprietary Rights infringes on or conflicts with any other Person's property in
any material respect,  and no other Person's property  infringes on or conflicts
with  the  Proprietary  Rights.  To the  best  of the  Borrower's  and  Parent's
knowledge,  the Proprietary  Rights  described on Schedule 8.13 constitute as of
the Closing Date all of the  property of such type  necessary to the current and
anticipated future conduct of the Borrower's and Parent's business.

     8.14 Trade Names . All trade names or styles  under which  Parent or any of
its Subsidiaries will sell Inventory or create Accounts, or to which instruments
in payment of  Accounts  may be made  payable,  are listed on  Schedule  8.14 as
updated in writing from time to time by the Borrower to the Agent.

     8.15 Litigation . Except as set forth on Schedule 8.15, there is no pending
or (to the best of the Borrower's and Parent's  knowledge)  threatened,  action,
suit,  proceeding,  or  counterclaim  by any  Person,  or  investigation  by any
Governmental  Authority,  or any basis  for any of the  foregoing,  which  could
reasonably be expected to cause a Material Adverse Effect.

     8.16 Restrictive Agreements . Neither Parent nor any of its Subsidiaries is
a party to any  contract  or  agreement,  or  subject  to any  charter  or other
corporate  restriction,  which  affects  its ability to  execute,  deliver,  and
perform the Transaction Documents and repay the Obligations or which, insofar as
the Borrower and Parent can reasonably foresee,  could reasonably be expected to
have a Material Adverse Effect.

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<PAGE>

     8.17 Labor  Disputes  . Except as set forth on  Schedule  8.17,  as  of the
Closing  Date (a) there is no  collective  bargaining  agreement  or other labor
contract covering  employees of Parent or any of its  Subsidiaries,  (b) no such
collective  bargaining  agreement or other labor contract is scheduled to expire
during the term of this Agreement, (c) to the best knowledge of the Borrower and
Parent,  no union or other labor  organization is seeking to organize,  or to be
recognized as, a collective bargaining unit of employees of Parent or any of its
Subsidiaries or for any similar purpose,  and (d) there is no pending or (to the
best  of  the  Borrower's  and  Parent's  knowledge)  threatened,  strike,  work
stoppage,  material unfair labor practice claim, or other material labor dispute
against or affecting Parent or its Subsidiaries or their employees.

     8.18 Environmental Laws . Except as otherwise disclosed on Schedule 8.18:

          (a) Parent and its Subsidiaries  have complied with all  Environmental
Laws  applicable  to its Premises and  business  except for such  non-compliance
which could not reasonably be expected to have a Material  Adverse  Effect,  and
neither Parent nor any Subsidiary nor any of its present Premises or operations,
nor its past property or operations, is subject to any enforcement order from or
liability agreement with any Governmental Authority or private Person respecting
(i) compliance with any Environmental Law or (ii) any potential  liabilities and
costs or remedial  action  arising from the Release or  threatened  Release of a
Contaminant where such enforcement order or liability agreement could reasonably
be expected to have a Material Adverse Effect.

          (b) Parent and its  Subsidiaries  have obtained all permits  necessary
for their current operations under  Environmental Laws, and all such permits are
in good  standing and Parent and its  Subsidiaries  are in  compliance  with all
terms and  conditions  of such  permits,  except  where the failure to obtain or
comply with such  permits  could not  reasonably  be expected to have a Material
Adverse Effect.

          (c) Neither  Parent nor any of its  Subsidiaries,  nor, to the best of
the Borrower's and Parent's knowledge,  any of its predecessors in interest, has
stored,  treated or disposed of any hazardous waste on any Premises,  as defined
pursuant to 40 CFR Part 261 or any equivalent Environmental Law in a manner that
could reasonably be expected to have a Material Adverse Effect.

          (d)  Neither  Parent  nor any of its  Subsidiaries  has  received  any
summons,  complaint, order or similar written notice that it is not currently in
compliance  with,  or that  any  Governmental  Authority  is  investigating  its
compliance  with, any  Environmental  Laws or that it is or may be liable to any
other  Person as a result of a Release or  threatened  Release of a  Contaminant
where such  non-compliance  or liability could  reasonably be expected to have a
Material Adverse Effect.

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<PAGE>

          (e)  None  of the  present  or  past  operations  of  Parent  and  its
Subsidiaries is the subject of any  investigation by any Governmental  Authority
evaluating  whether  any  remedial  action is needed to  respond to a Release or
threatened  Release of a Contaminant  where such remedial action,  if so needed,
could reasonably be expected to have a Material Adverse Effect.

          (f) Neither  Parent nor any of its  Subsidiaries  has filed any notice
under any requirement of  Environmental  Law reporting a spill or accidental and
unpermitted  release or discharge of a Contaminant  into the  environment  where
such spill, release or discharge could reasonably be expected to have a Material
Adverse Effect.

          (g) Neither  Parent nor any of its  Subsidiaries  has entered into any
negotiations  or  settlement  agreements  with any  Person  (including,  without
limitation, the prior owner of its property) imposing obligations or liabilities
on Parent or any of its  Subsidiaries  with  respect to any  remedial  action in
response to the Release of a Contaminant or environmentally  related claim where
such obligations or liabilities  could reasonably be expected to have a Material
Adverse Effect.

          (h) None of the products  manufactured,  distributed or sold by Parent
or any of its Subsidiaries contain asbestos.

          (i) No  Environmental  Lien has  attached to any Premises of Parent or
any of its Subsidiaries.

     8.19 No Violation of Law . Neither Parent nor any of its Subsidiaries is in
violation of any law, statute, regulation, ordinance, judgment, order, or decree
applicable to it which violation could reasonably be expected to have a Material
Adverse Effect.

     8.20 No Default . Neither Parent nor any of its  Subsidiaries is in default
with respect to any note, indenture,  loan agreement,  mortgage, lease, deed, or
other  agreement to which Parent or such Subsidiary is a party or by which it is
bound,  which  default could  reasonably be expected to have a Material  Adverse
Effect.

     8.21 ERISA  Compliance . Except as specifically  disclosed in Schedule 8.21
and subject to the last sentence of this Section 8.21:

          (a) Each  Plan is in  compliance  with the  applicable  provisions  of
ERISA,  the Code and other  federal or state law. Each Plan which is intended to
qualify under Section 401(a) of the Code has received a favorable  determination
letter  from the IRS and to the  best  knowledge  of the  Borrower  and  Parent,
nothing  has  occurred  which would  cause the loss of such  qualification.  The
Borrower, Parent and each ERISA Affiliate has made all required contributions to
any Plan subject to Section 412 of the Code,  and no  application  for a funding
waiver or an extension of any amortization period pursuant to Section 412 of the
Code has been made with respect to any Plan.

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          (b) There are no pending or, to the best  knowledge  of  Borrower  and
Parent,  threatened claims,  actions or lawsuits,  or action by any Governmental
Authority, with respect to any Plan. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan.

          (c) (i) No ERISA Events have  occurred or are  reasonably  expected to
occur; (ii) no Pension Plans have any Unfunded Pension Liability;  (iii) none of
the Borrower, Parent nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent  under Section 4007 of ERISA);  (iv)
none of the Borrower, Parent nor any ERISA Affiliate has incurred, or reasonably
expects to incur,  any  liability  (and no event has  occurred  which,  with the
giving of notice under  Section 4219 of ERISA,  would result in such  liability)
under Section 4201 or 4243 of ERISA with respect to a  Multi-employer  Plan; and
(v) none of the  Borrower,  Parent  nor any ERISA  Affiliate  has  engaged  in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.

     Breaches of one or more of the  representations  and warranties  made under
this Section 8.21 shall not  constitute a Default or Event of Default under this
Section 8.21 unless the aggregate  liability incurred or reasonably  expected to
be incurred by the Borrower,  Parent or any ERISA  Affiliate  under this Section
8.21 for all such breaches shall exceed $5,000,000 in the aggregate for all such
Persons.

     8.22 Taxes . Parent and its Subsidiaries have filed all Federal, provincial
and other material tax returns and reports  required to be filed,  and have paid
all  Federal,   provincial  and  other  taxes,   assessments,   fees  and  other
governmental charges levied or imposed upon them or their properties,  income or
assets  otherwise  due and payable  (except for  non-payment  of any such taxes,
assessments, fees and other governmental charges permitted by Section 9.1).

     8.23 Regulated Entities . None of Parent, any Person controlling Parent, or
any Subsidiary,  is an "Investment Company" within the meaning of the Investment
Company Act of 1940.  Neither the Borrower  nor Parent is subject to  regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate  Commerce Act, any state public  utilities code, or any other Federal
or state statute or regulation limiting its ability to incur indebtedness.

     8.24 Use of Proceeds;  Margin  Regulations  . The proceeds of the Revolving
Loans are to be used solely for working capital  purposes and general  corporate
purposes of the  Borrower  not  prohibited  hereby and,  with respect to certain
Revolving Loans made on the Original  Closing Date, to purchase from Receivables
Corp.  on the  Original  Closing  Date for a  purchase  price  of  approximately
$32,727,815  all  accounts and other assets  (other than  immaterial  assets) of
Receivables  Corp. as contemplated by Section 10.1(f).  Immediately after giving
effect to the  transactions  contemplated  by Section  10.1 (f) and at all times
thereafter, Receivables Corp. will

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<PAGE>

own assets having an aggregate  value not in excess of $75,000.  The proceeds of
the Term Loans are to be used,  together with certain  proceeds from the sale by
the  Borrower  on  the  Closing  Date  of  Equipment  pursuant  to  the  Secured
Sale/Leaseback  Documents,  to redeem all of the Senior Secured  Notes.  Neither
Parent nor any  Subsidiary  is engaged in the business of  purchasing or selling
Margin  Stock or  extending  credit for the  purpose of  purchasing  or carrying
Margin Stock.

     8.25 Copyrights,  Patents, Trademarks and Licenses, etc. Each of Parent and
its  Subsidiaries  owns or is licensed or otherwise  has the right to use all of
the patents,  trademarks,  service marks, trade names,  copyrights,  contractual
franchises,  authorizations  and other rights that are reasonably  necessary for
the operation of its businesses,  without  conflict with the rights of any other
Person except such  conflicts  which could not  reasonably be expected to have a
Material  Adverse Effect.  To the best knowledge of the Borrower and Parent,  no
slogan or other advertising device, product, process, method, substance, part or
other material now employed,  or now  contemplated to be employed,  by Parent or
any Subsidiary  infringes upon any rights held by any other Person,  except such
infringement  which could not reasonably be expected to have a Material  Adverse
Effect.  No claim or litigation  regarding any of the foregoing is pending or to
the knowledge of the Borrower and Parent threatened,  and no patent,  invention,
device, application,  principle or any statute, law, rule, regulation,  standard
or code is pending or, to the  knowledge of the  Borrower and Parent,  proposed,
which, in either case,  could  reasonably be expected to have a Material Adverse
Effect.

     8.26 No Material  Adverse Change . No Material  Adverse Effect has occurred
since the date of the Financial Statements referred to in Section 8.6.

     8.27 Full  Disclosure . None of the  representations  or warranties made by
Parent or any Subsidiary in any of the Transaction Documents as of the date such
representations  and  warranties  are  made  or  deemed  made,  and  none of the
statements contained in any exhibit,  report, statement or certificate furnished
by or on  behalf  of  Parent or any  Subsidiary  in  connection  with any of the
Transaction Documents (including the offering and disclosure materials delivered
by or on behalf of the  Borrower to the Lenders  prior to the  Original  Closing
Date),  contains any untrue  statement of a material  fact or omits any material
fact  required to be stated  therein or  necessary to make the  statements  made
therein, in light of the circumstances under which they are made, not misleading
as of the time when made or delivered.

     8.28 Material Agreements . Schedule 8.28 sets forth all material agreements
and contracts to which Parent or any of its  Subsidiaries is a party or is bound
as of the Closing Date.

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     8.29 Bank Accounts . Schedule 8.29 contains a complete and accurate list of
all bank accounts  maintained  by the Borrower with any bank or other  financial
institution;  provided that such schedule may by written  notice to the Agent be
updated from time to time by the Borrower to add or delete bank accounts so long
as (i) any bank or other financial  institution to be added to such schedule and
not  theretofore on such schedule shall be reasonably  satisfactory to the Agent
and (ii) if any bank account is to be added to such schedule, the Borrower shall
have  notified  the Agent  thereof  prior to opening such bank account and shall
have caused the bank or other  financial  institution at which such bank account
is  maintained  to execute such  agreements,  in form and  substance  reasonably
satisfactory  to the Agent,  as the Agent may request  with respect to such bank
account.

                                    ARTICLE 9

                       AFFIRMATIVE AND NEGATIVE COVENANTS
                       ----------------------------------

     Each of the  Borrower  and Parent  covenants  to the Agent and each  Lender
that, until the Payment and Termination Date:

     9.1  Taxes and  Other Obligations . Parent shall, and  shall cause  each of
its  Subsidiaries  to,  (a) file  when due all  federal,  provincial  and  other
material tax returns and other reports which it is required to file; (b) pay, or
provide for the payment,  when due, of all taxes,  fees,  assessments  and other
governmental  charges  against it or upon its property,  income and  franchises,
make all required  withholding  and other tax deposits,  and establish  adequate
reserves  for the  payment of all such  items,  and provide to the Agent and the
Lenders, upon request, reasonably satisfactory evidence of its timely compliance
with the  foregoing;  and (c) pay when due all Debt owed by it and all claims of
materialmen, mechanics, carriers, warehousemen, landlords and other like Persons
(except,  with respect to such claims, to the extent the aggregate amount of all
such  claims  not  paid  when  due does not  exceed  $1,000,000)  and all  other
indebtedness  owed by it (except,  with  respect to such Debt,  claims and other
indebtedness and subject to the immediately preceding parenthetical with respect
to claims, to the extent the aggregate amount of all such Debt, claims and other
indebtedness not paid when due does not exceed $5,000,000 (with the Agent having
the right in its reasonable  commercial discretion to establish reserves against
Availability for any amount of such Debt, claims and other indebtedness not paid
when due in excess of $100,000 in the aggregate)) and perform and discharge in a
timely manner all other obligations undertaken by it; provided, however, so long
as Borrower or Parent has notified the Agent in writing,  neither Parent nor any
of its Subsidiaries need pay any tax, fee,  assessment,  or governmental charge,
that (i) it is contesting in good faith by  appropriate  proceedings  diligently
pursued,  (ii)  Parent or its  Subsidiary,  as the case may be, has  established
proper  reserves  for as  provided  in GAAP,  and  (iii) no Lien  (other  than a
Permitted Lien) results from such non-payment.

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     9.2  Corporate  Existence and Good Standing . Parent shall, and shall cause
each  of  its  Subsidiaries  to,  maintain  its  corporate   existence  and  its
qualification  and good  standing in all  jurisdictions  in which the failure to
maintain such existence and  qualification  or good standing could reasonably be
expected to have a Material Adverse Effect.

     9.3  Compliance with Law and  Agreements;  Maintenance of Licenses . Parent
shall comply,  and shall cause each Subsidiary to comply,  with all Requirements
of Law of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor  Standards Act) except where the liability for
non-compliance  could not  reasonably  be expected to exceed  $2,000,000  in the
aggregate for all such  non-compliances  (except that where another provision in
Article  6 or this  Article 9  contains  a  different  level of  materiality  or
liability  with  respect  to  non-compliance   with  a  specific  type  of  laws
(including,  without  limitation,   Sections  9.7(a)  and  9.8),  the  level  of
materiality or liability under the other provision shall control with respect to
the type of laws within the scope of such  provision).  Parent shall,  and shall
cause each of its  Subsidiaries  to, obtain and maintain all licenses,  permits,
franchises, and governmental authorizations necessary to own its property and to
conduct its business as conducted on the Closing Date, except for such licenses,
permits,  franchises and governmental  authorizations  the failure to obtain and
maintain  which could not  reasonably  be  expected  to have a Material  Adverse
Effect. The Borrower shall not modify, amend or alter its certificate or article
of  incorporation  other than in a manner  which does not  adversely  affect the
rights of the Lenders or the Agent.

     9.4  Maintenance  of Property . Parent  shall,  and shall cause each of its
Subsidiaries  to,  maintain  all of its  property  necessary  and  useful in the
conduct of its business,  in good operating condition and repair,  ordinary wear
and tear excepted.

     9.5  Insurance

          (a) Parent shall maintain, and shall cause each of its Subsidiaries to
maintain,  with financially  sound and reputable  insurers having a rating of at
least A-VII or better by Best Rating Guide,  insurance against loss or damage by
fire with extended  coverage;  theft,  burglary,  pilferage and loss in transit;
public liability and third party property damage; larceny, embezzlement or other
criminal  liability;  business  interruption;  public  liability and third party
property  damage;  and such other hazards or of such other types as is customary
for  Persons  engaged in the same or  similar  business,  as the  Agent,  in its
discretion,  or acting at the direction of the Majority Lenders,  shall specify,
in  amounts,  and  under  policies  reasonably  acceptable  to the Agent and the
Majority  Lenders.  Without limiting the foregoing,  Parent shall also maintain,
and shall cause each of its Subsidiaries to maintain,  flood  insurance,  in the
event of a  designation  of the area in which any real  property  covered by the
Mortgages and any of the  Equipment and Inventory  located on such real property
is located as "flood  prone" or a "flood  risk  area,"  (hereinafter  "SFHA") as
defined  by the  Flood  Disaster  Protection  Act of 1973,  in an  amount  to be
reasonably  determined  by the  Agent,  and  shall  comply  with the  additional
requirements of the National Flood  Insurance  Program as set forth in said Act.
Upon the Majority Lenders' request,

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<PAGE>

the Borrower  shall  maintain  flood  insurance  for its Inventory and Equipment
which is, at any  time,  located  in a SFHA.  The  Agent  acknowledges  that the
insurance  coverage of Parent and its  Subsidiaries as in effect on the Original
Closing Date is acceptable to the Agent; provided, however that if the rating of
any  insurer  worsens  or  circumstances  with  respect  to Parent or any of its
Subsidiaries  or any  of  their  respective  properties,  operations,  business,
liabilities or financial  condition shall change in any material  respect,  such
insurance may no longer be acceptable to the Agent.

          (b) The  Borrower  and Parent  shall cause the Agent,  for the ratable
benefit of the Agent and the Lenders, to be named in each such policy as secured
party or mortgagee and loss payee or additional  insured, in a manner reasonably
acceptable  to the Agent.  Each policy of  insurance  shall  contain a clause or
endorsement  requiring the insurer to give not less than thirty (30) days' prior
written notice to the Agent in the event of  cancellation  of the policy for any
reason  whatsoever and a clause or endorsement  stating that the interest of the
Agent shall not be impaired  or  invalidated  by any act or neglect of Parent or
any of its  Subsidiaries  or the use of any premises for purposes more hazardous
than are permitted by such policy. All premiums for such insurance shall be paid
by the  Borrower or Parent  when due,  and  certificates  of  insurance  and, if
requested  by the Agent or any Lender,  photocopies  of the  policies,  shall be
delivered to the Agent, in each case in sufficient  quantity for distribution by
the Agent to each of the  Lenders.  If the  Borrower or Parent  fails to procure
such  insurance or to pay the premiums  therefor when due, the Agent may, and at
the  direction  of the  Majority  Lenders  shall,  do so from  the  proceeds  of
Revolving Loans.

          (c) The  Borrower or Parent  shall  promptly  notify the Agent and the
Lenders of any loss,  damage, or destruction to Collateral in excess of $500,000
arising from its or any other Person's use, whether or not covered by insurance.
The Agent is hereby authorized to collect all insurance proceeds  directly,  and
to apply or remit them as follows:

               (i)  With  respect  to  insurance  proceeds  relating  to  Credit
Agreement  Collateral,   after  deducting  from  such  proceeds  the  reasonable
expenses,  if any,  incurred by the Agent in the collection or handling thereof,
the  Agent  shall  apply  such  proceeds,  ratably,  to  the  reduction  of  the
Obligations  in the order  provided  for in Section  4.8;  provided  that,  with
respect to  insurance  proceeds  relating to Credit  Agreement  Collateral  that
constitutes  Equipment  or other  fixed  assets,  the  Agent  shall  apply  such
proceeds,  ratably,  first to the payment in full of principal on the Term Loans
(to be applied to  installments  thereof in the inverse  order of maturity)  and
then to the  reduction  of the other  Obligations  in the order  provided for in
Section 4.8.

               (ii) With respect to insurance  proceeds  relating to  Collateral
other than Credit Agreement Collateral,  except as provided in the Intercreditor
Agreement,  after deducting from such proceeds the reasonable expenses,  if any,
incurred by the Agent in the  collection  or handling  thereof,  the Agent shall
apply such proceeds,  ratably,  first to the payment in full of principal on the
Term Loans (to be applied to installments thereof in the inverse order of

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maturity)  and then to the  reduction  of the  other  Obligations  in the  order
provided for in Section 4.8.

     9.6  Condemnation .

          (a) The Borrower or Parent  shall,  immediately  upon  learning of the
institution of any proceeding for the condemnation or other taking of any of its
or any of its  Subsidiaries'  property  having a value in  excess  of  $500,000,
notify the Agent of the pendency of such  proceeding,  and agrees that the Agent
may participate in any such proceeding, and the Borrower and Parent will deliver
to the Agent all  instruments  reasonably  requested by the Agent to permit such
participation.

          (b) Except as provided in the  Intercreditor  Agreement,  the Agent is
hereby  authorized  to collect the proceeds of any  condemnation  claim or award
directly, and to apply or remit them as follows:

               (i) With respect to  condemnation  proceeds  relating to property
other than Credit Agreement  Collateral,  after deducting from such proceeds the
reasonable expenses, if any, incurred by the Agent in the collection or handling
thereof, the Agent shall apply such proceeds,  ratably,  first to the payment in
full of  principal on the Term Loans (to be applied to  installments  thereof in
the  inverse  order  of  maturity)  and  then  to the  reduction  of  the  other
Obligations in the order provided for in Section 4.8.

               (ii) With  respect to  condemnation  proceeds  relating to Credit
Agreement  Collateral,   after  deducting  from  such  proceeds  the  reasonable
expenses,  if any,  incurred by the Agent in the collection or handling thereof,
the  Agent  shall  apply  such  proceeds,  ratably,  to  the  reduction  of  the
Obligations  in the order  provided  for in Section  4.8;  provided  that,  with
respect to condemnation  proceeds  relating to Credit Agreement  Collateral that
constitutes  Equipment  or other  fixed  assets,  the  Agent  shall  apply  such
proceeds,  ratably,  first to the payment in full of principal on the Term Loans
(to be applied to  installments  thereof in the inverse  order of maturity)  and
then to the  reduction  of the other  Obligations  in the order  provided for in
Section 4.8.

     9.7  Environmental Laws .

          (a) Parent shall, and shall cause each of its Subsidiaries to, conduct
its  business  in  compliance  with all  Environmental  Laws  applicable  to it,
including, without limitation, those relating to the generation,  handling, use,
storage,  and disposal of any Contaminant,  except for such  non-compliance that
could not reasonably be expected to have or result in a Material Adverse Effect.
Parent  shall,  and shall  cause each of its  Subsidiaries  to,  take prompt and
appropriate action to respond to any non-compliance with Environmental Laws.

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          (b) Without limiting the generality of the foregoing,  the Borrower or
Parent shall  submit to the Agent and the Lenders  annually,  commencing  on the
first  Anniversary  Date, and on each Anniversary Date thereafter,  an update of
the status of each material  environmental  compliance or liability  issue.  The
Agent or any Lender may request copies of technical  reports  prepared by Parent
or any  of  its  Subsidiaries  and  its  communications  with  any  Governmental
Authority to determine  whether Parent or any of its  Subsidiaries is proceeding
reasonably to correct, cure or contest in good faith any alleged  non-compliance
or environmental  liability.  The Borrower shall, at the Agent's or the Majority
Lenders'  reasonable  request  and at the  Borrower's  expense,  (a)  retain  an
independent  environmental  consultant  reasonably  acceptable  to the  Agent to
evaluate the environmental non-compliance or liability issue, including tests if
appropriate,  and prepare and deliver to the Agent,  in sufficient  quantity for
distribution by the Agent to the Lenders,  a report setting forth the results of
such evaluation,  a proposed plan for responding to any  environmental  problems
described therein,  and an estimate of the costs thereof, and (b) provide to the
Agent and the Lenders a  supplemental  report of such  consultant  whenever  the
scope of the  environmental  problems,  or the response thereto or the estimated
costs thereof, shall change in any material respect.

          9.8  Compliance  with  ERISA . Except  as  specifically  disclosed  in
Section 8.21 with respect to the litigation therein described and subject to the
last  sentence of this Section 9.8,  Parent  shall,  and shall cause each of its
ERISA  Affiliates  to: (a) maintain each Plan in compliance  with the applicable
provisions  of ERISA,  the Code and other  federal or state law;  (b) cause each
Plan  which is  qualified  under  Section  401(a) of the Code to  maintain  such
qualification;  (c) make all  required  contributions  to any  Plan  subject  to
Section 412 of the Code; (d) not engage in a non-exempt  prohibited  transaction
or violation of the fiduciary responsibility rules with respect to any Plan; and
(e) not engage in a transaction that could be subject to Section 4069 or 4212(c)
of ERISA. Breaches of one or more of the covenants contained in this Section 9.8
shall not constitute a Default or Event of Default under this Section 9.8 unless
the aggregate liability incurred or reasonably expected to be incurred by Parent
and its ERISA  Affiliates for all such breaches  shall exceed  $5,000,000 in the
aggregate for all such Persons.

          9.9  Mergers,  Consolidations or Sales . Neither Parent nor any of its
Subsidiaries  shall enter into any  transaction  of merger,  reorganization,  or
consolidation,  or transfer, sell, assign, lease, or otherwise dispose of all or
any part of its property,  or wind up, liquidate or dissolve, or agree to do any
of the foregoing, except:

               (i)    for  sales of  Inventory in  the  ordinary  course  of its
          business;

               (ii)   for  sales  or   other  dispositions   of   Equipment  and
          Proprietary  Rights  in  the  ordinary  course  of  business  that are
          obsolete or no longer usable by the Borrower or Parent in its business
          as permitted by Section 6.11;

               (iii)  for transactions which are part or all of the Divestiture;

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               (iv)   [Intentionally Omitted];

               (v)    that, in additio  to any  of the  other  clauses  of  this
          Section  9.9,  so long as no Default or Event of Default  exists,  the
          Borrower and its  Subsidiaries  may (A) sell other assets which do not
          constitute  Secured  Sale/Leaseback  Collateral  at fair market  value
          (determined  in good faith by the Board of Directors of the  Borrower)
          in the  ordinary  course  of  business,  provided  that (1) the  gross
          proceeds  thereof  shall  consist  of at  least  75% in  cash  or Cash
          Equivalents,  (2) the aggregate net cash proceeds from which shall not
          exceed  $200,000 per sale so long as all such net cash proceeds do not
          exceed  $1,000,000 in any Fiscal Year and (3) the aggregate gross cash
          proceeds  received  by the  Borrower  with  respect  to  Accounts  and
          Inventory, if any, included as part of such sale shall be in an amount
          not less than the then book value of all such  Accounts and  Inventory
          as shown on a balance  sheet of the  Borrower  prepared in  accordance
          with GAAP or (B) sell assets which constitute  Secured  Sale/Leaseback
          Collateral at fair market value (determined in good faith by the Board
          of Directors of the  Borrower),  provided that (1) the gross  proceeds
          thereof shall consist of at least 75% in cash or Cash  Equivalents and
          (2) the  aggregate  net cash  proceeds  from  which  shall not  exceed
          $3,000,000 in any Fiscal Year and shall not exceed  $15,000,000 in the
          aggregate during the term of this Agreement (from the Original Closing
          Date);

               (vi)   that investments or other  transfers or  sales may be made
          to the extent expressly permitted by Section 9.10;

               (vii)  the Borrower and its Subsidiaries may sell or discount, in
          each case without recourse and only to non-Affiliated  Persons, in the
          ordinary course of business  ineligible accounts receivable arising in
          the  ordinary  course of  business,  but only in  connection  with the
          compromise or collection  thereof  consistent with customary  industry
          practice (and not as part of any bulk sale or financing  receivables);
          provided,  that (A) the account debtor thereon is no longer a customer
          of the  Borrower  or any of its  Subsidiaries  and no  other  accounts
          receivable  which are  Eligible  Accounts  are  owing by such  account
          debtor to the  Borrower or any of its  Subsidiaries  and (B) the gross
          proceeds  from any sale shall be  immediately  deposited  in a lockbox
          account pursuant to Section 6.9;

               (viii) for  licenses of  Proprietary  Rights (x) in the  ordinary
          course of business or (y) to Lily Cup  consistent with past practices;

               (ix)   for  the   Sherwood-Related   Mergers   pursuant   to  the
          Sherwood-Related  Merger Documents;  provided that (a) the Agent shall
          have  received such UCC financing  statements,  intellectual  property
          assignments and other  collateral  documentation  duly executed by the
          Borrower  as the  Agent  shall  have  requested  with  respect  to the
          perfection   of  Liens  in  certain   assets  of   Sherwood   and  its
          Subsidiaries;  (b) the Agent  shall have  received  such UCC and other
          collateral  releases in form and substance  satisfactory  to the Agent
          with  respect  to  all  Liens  on  the  assets  of  Sherwood  and  its
          Subsidiaries (other than

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          Permitted  Liens);  (c) the Agent shall have received evidence in form
          and substance  satisfactory  to the Agent of all  necessary  corporate
          proceedings  of the Borrower,  Sherwood and its  Subsidiaries  to duly
          authorize   the   execution,   delivery   and   performance   of   the
          Sherwood-Related  Merger  Documents and of all  necessary  consents to
          permit the execution,  delivery and performance thereof; (d) the Agent
          shall  have   received   landlord   waivers  in  form  and   substance
          satisfactory  to the Agent  with  respect  to the  premises  leased by
          Sherwood or any of its Subsidiaries; (e) the Agent shall have received
          a blocked account agreement, in form and substance satisfactory to the
          Agent,  duly  executed  by PNC;  (f) the Agent  shall have  received a
          Borrowing Base  Certificate duly executed by the Borrower after giving
          effect to the  Sherwood-Related  Mergers; and (g) the Agent shall have
          received  such  other  documents  as  the  Agent  or  any  Lender  may
          reasonably request in connection with the Sherwood-Related Mergers or
          the transactions related thereto;

               (x)    for  the sale  by the  Borrower  on the  Closing  Date  of
          Equipment (other than Credit Agreement Term Loan Equipment Collateral)
          pursuant  to the Secured  Sale/Leaseback  Documents,  which  documents
          shall be in form and substance  reasonably  satisfactory  to the Agent
          and the  Majority  Lenders;  provided  that (A) the Agent  shall  have
          received the  Intercreditor  Agreement  duly  executed by State Street
          Bank and Trust Company of Connecticut,  National Association, as owner
          trustee/lessor,  the Borrower and Parent,  and (B) the Borrower  shall
          have  received  on the date of such sale net cash  proceeds  from such
          sale of no less than  $212,300,000  and such net cash  proceeds  shall
          have been applied by the  Borrower  (w) together  with the proceeds of
          the Term Loans,  to the  redemption of all Senior Secured Notes (other
          than accrued interest  thereon,  which interest shall be paid with the
          proceeds of Revolving Loans),  (x) to the payment in full of all loans
          and  other  monetary   obligations  of  Sherwood  and/or  any  of  its
          affiliates  under the  financing  arrangements  between one or more of
          such entities, certain lenders and PNC, as agent for such lenders, (y)
          to the payment in full of the Demand Loans,  and (z) to the payment of
          the Revolving Loans (in an amount not less than $25,000,000); and

               (xi)   that, with  the  prior  written  consent  of the  Majority
          Lenders, any other assets may be sold or transferred.

          Except in the case of the transfer of assets  between or among  Parent
and any of its  Subsidiaries  (the  foregoing not  constituting a consent to any
such transfer  except as expressly  permitted  hereunder and in which case if so
permitted  there  shall  be no  release  of  Collateral,  and all  steps  deemed
necessary or, in the  reasonable  opinion of the Agent or the Majority  Lenders,
desirable to maintain the priority and  perfection of the security  interests of
the Agent in the  Collateral  shall be taken in  connection  therewith),  to the
extent any  Collateral is sold as expressly  permitted by this Section 9.9, such
Collateral  shall be sold free and clear of the Liens created by any of the Loan
Documents  (so long as such  Collateral is also sold free and clear of the Liens
created by the  documents  granting  collateral  security for the payment of the
obligations  of  the  Borrower  or  Parent  under  the  Secured   Sale/Leaseback
Documents,  and, subject to the terms of

                                       107
<PAGE>

the Intercreditor  Agreement, the net cash proceeds from such sale are deposited
in the lock-box  accounts  referred to in Section 6.9(a) or in a Payment Account
or, if applicable, applied to the Obligations in accordance with Section 4.5(b);
nothing  contained in this paragraph  constituting a release of any of the Liens
created by any of the Loan Documents in the proceeds of such sale),  and in such
event all Exhibits and  Schedules  hereto or to any of the other Loan  Documents
evidencing a present or prospective  interest of Parent or its  Subsidiaries  in
such Collateral  shall be deemed amended  automatically  (without any consent or
notice)  to reflect  such  sale.  In case of any  release  as  described  in the
immediately  preceding sentence  (including any release with respect to the sale
of Equipment  permitted by clause (x) above), the Agent is hereby authorized and
directed to take such action as may be deemed  necessary  or  desirable by it to
effect the release.

     9.10 Distributions; Capital Change; Restricted Investments . Neither Parent
nor any of its Subsidiaries shall (i) directly or indirectly declare or make, or
incur any  liability to make,  any  Distribution,  except  Distributions  to the
Borrower  by its  Subsidiaries,  (ii) make any change in its  capital  structure
which  could  have a  Material  Adverse  Effect  or (iii)  make  any  Restricted
Investment; provided, however that notwithstanding clauses (i) and (iii) above:

               (A)    the Borrower may (a) pay cash dividends and make loans and
          advances to Parent, in each instance,  for the purpose of paying,  and
          so long as all proceeds  thereof are  promptly  used by Parent to pay,
          its operating expenses incurred in the ordinary course of business and
          other  corporate  overhead  costs and  expenses of Parent  (including,
          without  limitation,  any payments,  fees and expenses owing by Parent
          pursuant to this Agreement or the  transactions  contemplated  by this
          Agreement  and which  are paid by Parent to the Agent or a Lender,  as
          appropriate),  (b) pay cash  dividends  and make loans and advances to
          Parent,  in each instance,  for the purpose of paying,  and so long as
          all  proceeds  thereof are promptly  used by Parent to pay,  franchise
          taxes and federal,  state and local income  taxes,  in each  instance,
          with  respect to the  operations  of the  Borrower  and  interest  and
          penalties with respect  thereto,  if any,  payable by Parent (provided
          that any refund  shall be promptly  returned by Parent to the Borrower
          and provided that dividends may be made pursuant to this clause (b) if
          all proceeds  thereof are immediately  used to repay loans made by the
          Borrower to Parent  pursuant to this  clause  (b)),  (c) so long as no
          Default or Event of Default  then exists or would  exist after  giving
          effect  thereto,   upon  the  death,   disability  or  termination  of
          employment  of  any  officer  or  employee  of  Parent  or  any of its
          Subsidiaries,  and pursuant to the terms and  conditions  set forth in
          any subscription  agreements with respect thereto,  pay cash dividends
          and make loans and  advances  to  Parent,  in each  instance,  for the
          purpose of purchasing or making payments in respect of, and so long as
          all proceeds  thereof are promptly  used by Parent to purchase or make
          payments in respect of,  common stock of Parent held by such  Persons,
          their estates or certain other related Persons,  provided that (x) the
          total cash  consideration  paid  after the  Original  Closing  Date in
          respect of all such purchases shall not exceed  $3,000,000  (with cash
          permitted  to be paid  pursuant  to this clause (x) only to the extent
          such cash  payment  would be  permitted  pursuant  to the terms of the
          indentures relating to each of the Senior

                                       108
<PAGE>

          Secured  Notes (with  respect to  payments  made while such notes were
          outstanding)  and the  Senior  Subordinated  Notes)  and (y) all other
          consideration paid to such Persons or their estates for such purchases
          shall be subordinated  to the payment of all  Obligations  (including,
          without  limitation,  the  obligations  of  Parent  under  the  Parent
          Guaranty) and be evidenced by a  subordinated  promissory  note in the
          form of Exhibit H (each, a "Stockholder Subordinated Note") and (d) so
          long as no  Default  or Event of Default  then  exists or would  exist
          after giving  effect  thereto,  pay cash  dividends and make loans and
          advances  to  Parent,  in each  instance,  for the  purpose  of Parent
          reimbursing  Buyer,  and so long as all proceeds  thereof are promptly
          used by  Parent  to  reimburse  Buyer,  for  out-of-pocket  costs  and
          expenses  incurred by Buyer with respect to the stock  option  program
          provided by Buyer to  employees  of Parent and its  Subsidiaries  with
          respect to capital stock of Buyer (including,  without limitation, any
          out-of-pocket  costs and expenses  with respect to the  repurchase  by
          Buyer from any of such employees or its estate of any capital stock of
          Buyer issued to such employee  pursuant to such stock option program),
          provided  that the  aggregate  amount  of such  dividends,  loans  and
          advances by the Borrower to Parent in any Fiscal Year shall not exceed
          $1,000,000;

               (B)    Parent and its Subsidiaries may make  loans, advances  and
          other  payments to  officers,  employees  and agents of Parent and its
          Subsidiaries  in the  ordinary  course  of  business,  including  with
          respect to travel and  relocation  expenses,  so long as the aggregate
          principal amount thereof at any time outstanding  (determined  without
          regard to any  write-downs  or  write-offs of such loans and advances)
          shall not exceed $4,500,000;

               (C)    the Borrower may make intercompany  loans  to  Lilly  Cup,
          provided  that (i) all such  intercompany  loans are  evidenced  by an
          intercompany  promissory note in the form of Exhibit I payable by Lily
          Cup to the  Borrower,  which is  pledged  by the  Borrower  as  Shared
          Collateral  pursuant  to the  Pledge  Agreement  (or  if  constituting
          Excluded  Sale/Leaseback  Assets, pledged by the Borrower to the Agent
          to  secure  the  payment  of  the  Obligations  pursuant  to a  pledge
          agreement  having terms  substantially  similar to those in the Pledge
          Agreement),   (ii)  the  aggregate   principal  amount  of  all  loans
          outstanding  pursuant  to this  clause  (C)  shall  at no time  exceed
          $5,000,000,  and (iii)  prior to making  any such loan,  the  Borrower
          shall  provide the Agent with  evidence  reasonably  acceptable to the
          Agent that, after giving effect to such loan, Availability shall be no
          less than $10,000,000, with Availability being determined after giving
          effect to all of the Borrower's obligations being current;

               (D)    the Borrower may hold non-cash  proceeds from assets sales
          permitted pursuant to Section 9.9, such proceeds to be held subject to
          the Agent's Lien therein;

               (E)    Parent may own the stock of the Borrower, and the Borrower
          may own the stock of its Subsidiaries in existence on the Closing Date
          as set forth on Schedule 8.5; provided that no additional  investments
          shall be permitted in  Subsidiaries of the Borrower except as provided
          in clause (C) above;

                                       109
<PAGE>

               (F)    the  Borrower   and   its   Subsidiaries   may   establish
          Wholly-Owned  Subsidiaries with the prior written consent of the Agent
          and the Majority Lenders;

               (G)    to the extent otherwise  prohibited by  this Section 9.10,
          the  Borrower  and  its  Subsidiaries   may  make  investments   which
          constitute Debt permitted pursuant to Section 9.13;

               (H)    any Subsidiary of the Borrower may make intercompany loans
          to the Borrower, provided that the aggregate  principal  amount of all
          loans  outstanding  pursuant  to this  clause  shall at no time exceed
          $5,000,000;

               (I)    Parent may  make  loans  to certain  of its  employees  in
          aggregate  principal  amount not to exceed  $5,000,000  so long as (a)
          such loans are used by such employees  solely to purchase common stock
          of Parent,  (b) such loans are evidenced by full  recourse  promissory
          notes executed by such  employees and pledged to the Collateral  Agent
          pursuant to the Parent Pledge  Agreement (or if constituting  Excluded
          Sale/Leaseback  Assets,  pledged  by Parent to the Agent to secure the
          payment of the Obligations pursuant to a pledge agreement having terms
          substantially  similar to those in the Parent Pledge  Agreement);  and
          (c) no cash is actually  remitted to any such  employee as proceeds of
          any such loan;

               (J)    the Borrower and Parent may effect transactions related to
          assets other than Credit  Agreement  Collateral in accordance with the
          terms of the Asset  Transfer  Documents  as in effect on the  Original
          Closing Date; and

               (K)    the  Borrowe  may  acquire  all  of  the  capital stock of
          Sherwood pursuant to the Sherwood Stock Purchase  Agreement;  provided
          that (a) the stock  acquisition  contemplated  thereby shall have been
          duly  consummated  in  accordance  with the  Sherwood  Stock  Purchase
          Documents  without waiver and in accordance  with  applicable law; and
          (b) after such acquisition (but in any event no later than the Closing
          Date), the  Sherwood-Related  Mergers shall have been duly consummated
          in  accordance  with  the  Sherwood-Related  Merger  Documents  (which
          documents  shall be  satisfactory to the Agent) and applicable law and
          the requirements with respect to such mergers set forth in the proviso
          to Section 9.9(ix) shall have been satisfied.

     All loans and  advances  made by the  Borrower to Parent  (pursuant to this
Section 9.10 or otherwise)  shall be evidenced by an  intercompany  note payable
from Parent to the  Borrower  and pledged as Shared  Collateral  pursuant to the
Pledge Agreement (or if constituting Excluded  Sale/Leaseback Assets, pledged by
the Borrower to the Agent to secure the payment of the Obligations pursuant to a
pledge  agreement  having  terms  substantially  similar  to those in the Pledge
Agreement).

                                       110
<PAGE>

     9.11 Transactions  Affecting Collateral or Obligations . Neither Parent nor
any of its  Subsidiaries  shall  enter  into  any  transaction  which  would  be
reasonably expected to have a Material Adverse Effect.

     9.12 Guaranties . Neither Parent  nor any of its  Subsidiaries  shall make,
issue, or become liable on any Guaranty, except Guaranties of the Obligations in
favor of the Agent and  guaranties of the  obligations of the Borrower under the
Secured Sale/Leaseback Documents.

     9.13 Debt .  Neither  Parent  nor any of its  Subsidiaries  shall  incur or
maintain any Debt, other than:

          (a) the Obligations;

          (b) Purchase Money Obligations,  Capital Leases and any other Debt, in
an aggregate outstanding principal amount not to exceed $25,000,000 at any time;
provided  that such other  Debt may not be secured by Liens in Credit  Agreement
Collateral  and any Lien in any  assets  of  Parent  or any of its  Subsidiaries
securing  such other Debt  shall be junior  and  subordinate  to the Lien of the
Agent therein;

          (c) other Debt  existing on the Closing Date and set forth on Schedule
9.13  and any and all  interest  and  other  amounts  owing in  respect  thereof
("Existing  Debt"),  but no increases  in the  principal  amount  thereof and no
refinancings or renewals  thereof except to the extent that such  refinancing or
renewal  does  not  increase  the  principal  amount  of such  Debt  outstanding
immediately prior to such refinancing or renewal, or add guarantors, obligors or
security from that which applied to such Debt being  refinanced or renewed,  and
all other terms of such  refinancing or renewal are no more  restrictive or less
favorable to the Borrower or its  Subsidiary,  as  applicable,  than  previously
existing with respect to such Debt;

          (d) Lily Cup may (x) incur Debt as  described  in Section 9.10 (C) and
(y)  incur or  suffer  to exist  Debt not in  excess  of Cd.  $30,000,000  in an
aggregate  principal  amount  at any time  outstanding  under  the  Lily  Credit
Facility and any  refinancing or renewal  thereof on terms and conditions  which
are no more  restrictive or less favorable to Lily Cup than previously  existing
with respect to such Debt; provided,  however,  that the Debt permitted pursuant
to clause (y) shall not be secured by any assets of Parent,  the Borrower or any
Subsidiary of Parent other than Lily Cup but may be guaranteed  (on an unsecured
basis) by Parent and/or the Borrower;

          (e) unsecured Debt under any Interest Rate Protection or Other Hedging
Agreement or under any similar type of agreement  entered into with a Person not
a Lender,  in each case to the extent the respective  agreement  relates to Debt
outstanding as otherwise permitted under this Section 9.13;

          (f) unsecured Debt under any Permitted Commodities Agreements;

                                       111
<PAGE>

          (g) unsecured  Debt owing to  non-Affiliated  Persons in  an aggregate
principal amount not to exceed $5,000,000 at any time outstanding;

          (h) Debt subject to Liens  permitted  under clauses (c) and (d) of the
definition  of  Permitted  Liens  (such Debt to be  subject  to any  limitations
(including, without limitation, as to amount) set forth in such clauses);

          (i) upon the purchase by Parent of common stock of Parent as permitted
by  Section   9.10(A)(c),   Debt  of  Parent   represented  by  the  Stockholder
Subordinated Note issued as the consideration therefor; and

          (j)  unsecured  Debt  under  the  Senior  Subordinated  Notes  and the
Sherwood-Related  Subordinated  Notes,  but no increases in the principal amount
thereof and no refinancings or renewals thereof.

     9.14 Prepayment  .  Neither  Parent  nor  any  of  its  Subsidiaries  shall
voluntarily prepay,  redeem or repurchase prior to its final stated maturity any
Debt (not including  refinancings,  refundings or replacements thereof expressly
permitted  hereunder)  (including,  without limitation,  the Senior Subordinated
Notes),  except the  Obligations in accordance  with the terms of this Agreement
and except for other Debt (other than the Senior  Subordinated Notes) so long as
the aggregate principal amount of such prepayments,  redemptions and repurchases
of such other Debt shall not exceed $2,500,000 during the term of this Agreement
(from the Original  Closing Date).  Neither Parent,  the Borrower nor any of its
Subsidiaries  shall incur any liability to make any payment or prepayment of the
Senior  Subordinated  Notes prior to their final stated  maturity date.  Neither
Parent,  the Borrower nor any of its Subsidiaries  shall voluntarily  prepay any
rental  payments  owing  by  the  Borrower  under  the  Secured   Sale/Leaseback
Documents.  The Borrower  shall not make any payment or  prepayment  (whether of
principal,  interest  or  otherwise)  under  or  with  respect  to  any  of  the
Sherwood-Related  Subordinated Notes, except upon the scheduled maturity thereof
and only then if there is not  continuing  a Default or Event of  Default.

     9.15 Transactions  with  Affiliates  .  Except  as  set  forth  below or as
otherwise  permitted by Section 9.10, neither Parent nor any of its Subsidiaries
shall sell, transfer,  distribute, or pay any money or property,  including, but
not limited to, any fees or expenses of any nature  (including,  but not limited
to, any fees or expenses for management services),  to any Affiliate, or lend or
advance  money  or  property  to  any  Affiliate,   or  invest  in  (by  capital
contribution or otherwise) or purchase or repurchase any stock or  indebtedness,
or any  property,  of any  Affiliate,  or become  liable on any  Guaranty of the
indebtedness,  dividends, or other obligations of any Affiliate. Notwithstanding
the  foregoing,  Parent and its  Subsidiaries  may engage in  transactions  with
Affiliates in the ordinary  course of business,  in amounts and upon terms fully
disclosed to the Agent and the Lenders,  and no less favorable to Parent and its
Subsidiaries  than would be obtained in a  comparable  arm's-length  transaction
with  a  third  party  who is not an  Affiliate.  Further,  notwithstanding  the
foregoing, (a) so long as no Event of Default exists at the time of

                                       112
<PAGE>

payment or would exist  immediately  after giving effect thereto,  Parent or the
Borrower  may pay the  fees as  required  pursuant  to the  Management  Services
Agreement as in effect on the Closing Date in an aggregate  amount not to exceed
$2,000,000 in any Fiscal Year (payable semi-annually 45 days after each interest
payment date with respect to, and as defined in, the Senior  Subordinated Notes;
it being understood and agreed that in the event the Senior  Subordinated  Notes
shall be redeemed in full,  such fees shall continue to be payable at such times
as if the Senior  Subordinated  Notes were not redeemed) and  reimbursement  for
reasonable  out-of-pocket expenses,  provided,  however, that all obligations of
Parent  or the  Borrower  to pay  fees  pursuant  to  said  Management  Services
Agreement  shall  also be  subordinated  to the  payment of all  Obligations  in
respect of this  Agreement  and the other  Loan  Documents  (including,  without
limitation,  pursuant to the Parent Guaranty) to at least the same extent as the
obligations  of the  Borrower  in respect of the Senior  Subordinated  Notes are
subordinated  to the prior payment of "Senior  Indebtedness"  (as defined in the
Indenture for the Senior  Subordinated  Notes) (it being  understood  and agreed
that in the event the Senior  Subordinated Notes shall be redeemed in full, such
subordination  of such fees shall continue as if the Senior  Subordinated  Notes
were not redeemed);  (b) Parent and its Subsidiaries may enter into transactions
with employees  and/or  officers of Parent and its  Subsidiaries in the ordinary
course of business so long as any such material  transactions have been approved
by the Board of  Directors  of Parent or such  Subsidiaries;  (c) Parent and its
Subsidiaries  may engage in  immaterial  transactions  with each other;  and (d)
Parent and its Subsidiaries  may, subject to Section  9.10(A)(b),  make payments
under tax sharing,  disaffiliation,  tax allocation and other similar agreements
entered into by Parent or any  Subsidiary  of Parent after the Original  Closing
Date with the prior written  approval of the Agent and the Majority Lenders (and
in the form as originally  executed) so long as, in each instance,  the Borrower
shall not, and shall not be liable or required to, make any payments  thereunder
in excess of any tax  payments of the type  covered by such  agreement  that the
Borrower   would  have  to  make  had  such   agreement   not  been  in  effect.
Notwithstanding  anything herein to the contrary,  neither Parent nor any of its
Subsidiaries may make any payment,  sale,  transfer or other disposition of cash
or any other  property  to  Receivables  Corp.  except  for the  payment  by the
Borrower to  Receivables  Corp.  on the  Original  Closing Date in the amount of
approximately  $32,727,815 to purchase all accounts and other assets (other than
immaterial  assets) owned by Receivables  Corp. on such date as  contemplated by
Section 10.1(f).

     9.16 Investment  Banking and Finder's Fees . Neither  Parent nor any of its
Subsidiaries  shall  pay or agree to pay,  or  reimburse  any other  party  with
respect to, any investment banking or similar or related fee, underwriter's fee,
finder's fee, or broker's fee to any Person in connection  with this  Agreement.
The Borrower  shall defend and indemnify  the Agent and the Lenders  against and
hold them  harmless  from all claims of any Person that Parent,  the Borrower or
any of its Subsidiaries is obligated to pay for any such fees, and all costs and
expenses (including without  limitation,  attorneys' fees) incurred by the Agent
and/or any Lender in connection therewith.

     9.17 Amendments of Senior  Subordinated Notes and Other Documents . Neither
Parent nor any of its  Subsidiaries  shall,  directly  or  indirectly,  amend or
modify, or permit the

                                       113
<PAGE>

amendment or modification of, the Senior  Subordinated Notes or any indenture or
other agreement or document related thereto, except for Permitted Amendments and
Consents (as defined in the Intercreditor  Agreement (as defined in the Existing
Loan and Security  Agreement)  as in effect on the Original  Closing  Date) with
respect  thereto  (assuming  for this  purpose  that  Permitted  Amendments  and
Consents  applied to the Senior  Subordinated  Notes and related  agreements and
documents).  Neither  Parent  nor any of its  Subsidiaries  shall,  directly  or
indirectly,  amend or modify,  or permit the amendment or  modification  of, the
Secured Sale/Leaseback Documents,  except for amendments and modifications which
do not result in the violation of, and which are not otherwise  contrary to, any
provisions  of  the  Intercreditor  Agreement.  Neither  Parent  nor  any of its
Subsidiaries  shall,  directly  or  indirectly,  amend or modify,  or permit the
amendment or  modification  of, any  Sherwood  Stock  Purchase  Documents or any
Sherwood-Related Merger Documents.

     9.18 Business  Conducted  . Neither  Parent nor  the  Borrower  shall,  and
neither Parent nor the Borrower shall permit any of its  Subsidiaries to, engage
directly or  indirectly,  in any line of business  other than the  businesses in
which the  Borrower  is  engaged on the  Original  Closing  Date and  reasonable
extensions  thereof.  Receivables Corp. shall not engage in any line of business
or activities or incur any Debt.

     9.19 Liens .  Neither  Parent nor any  of its  Subsidiaries  shall  create,
incur,  assume,  or  permit  to exist  any  Lien on any  property  now  owned or
hereafter acquired by any of them, except Permitted Liens.

     9.20 Sale and  Leaseback  Transactions  .  Neither  Parent  nor  any of its
Subsidiaries shall, directly or indirectly,  enter into any arrangement with any
Person  providing  for Parent or such  Subsidiary to lease or rent property that
Parent or such  Subsidiary  has sold or will sell or otherwise  transfer to such
Person, except for such arrangements under the Secured Sale/Leaseback  Documents
and for any such other transactions with non-Affiliates relating to Fixed Assets
(other than Credit  Agreement Term Loan Equipment  Collateral)  for an aggregate
sales price for all such  transactions  not to exceed  $10,000,000 in any Fiscal
Year and  $30,000,000  during  the term of this  Agreement  (from  the  Original
Closing Date).

     9.21 New Subsidiaries . Parent shall not, directly or indirectly, organize,
create,  acquire or permit to exist any  Subsidiary  other than those  listed on
Schedule  8.5  and  the   acquisition  by  the  Borrower  of  Sherwood  and  its
Subsidiaries pursuant to the Sherwood Stock Purchase Agreement.

     9.22 Fiscal Year . Neither the  Borrower nor Parent shall change its Fiscal
Year  without the prior  written  consent of the Agent  (such  consent not to be
unreasonably withheld) and the receipt by the Agent of a duly executed amendment
to the financial  covenants herein contained,  in form and substance  reasonably
satisfactory  to the Agent and the Majority  Lenders,  to equitably  reflect the
effect of such change in Fiscal Year.

                                       114
<PAGE>

     9.23 Capital  Expenditures  . Neither  Parent nor any  of its  Subsidiaries
shall make or incur any Capital  Expenditures in any Fiscal Year set forth below
if,  after  giving  effect  thereto,   the  aggregate   amount  of  all  Capital
Expenditures by Parent and its Subsidiaries on a consolidated  basis during such
Fiscal Year shall exceed the amount set forth below opposite such Fiscal Year:

<TABLE>
<CAPTION>
                        Fiscal Year                             Amount
                       -------------                          -------------
<S>                    <C>                                    <C>

                           2000                               $47,000,000
                           2001                               $30,000,000
                           2002                               $30,000,000
                           2003                               $30,000,000
                           2004                               $30,000,000
                           2005                               $30,000,000
                           2006                               $30,000,000
</TABLE>

The Borrower will use its  commercially  reasonable  best efforts to use the net
proceeds  (but in any event shall use not less than 75% of the net  proceeds) of
each sale of Secured  Sale/Leaseback  Collateral  permitted pursuant to Sections
9.9(ii),  (iii) and (iv) to incur Capital Expenditures,  to the extent otherwise
permitted  under this Section.  The Borrower agrees to promptly notify the Agent
of any such sale and the amount of net  proceeds  to be  derived  from each such
sale.

     9.24 [Reserved.]

     9.25 Minimum  Availability  . The  Borrower  will  maintain  at  all  times
Availability of not less than $5,000,000, except as permitted by Section 2.2(h).

     9.26 Fixed  Charge  Coverage  Ratio . The  Borrower  will  maintain a Fixed
Charge  Coverage  Ratio  for each  Test  Period  ended at the end of the  fiscal
quarter  of the  Borrower  set forth  below of not less than the ratio set forth
below opposite such fiscal quarter:
<TABLE>
<CAPTION>

               Fiscal Quarter                               Year        Ratio
               --------------                               ----        -----
<S>               <C>                                       <C>         <C>
               Each of First, Second, Third and Fourth       2000       .90/1
               Each of First, Second, Third and Fourth       2001       .90/1
               Each of First, Second, Third and Fourth       2002       1.00/1
               Each of First, Second, Third and Fourth       2003       1.10/1
               Each of First, Second, Third and Fourth       2004       1.20/1
               Each of First, Second, Third and Fourth       2005       1.20/1
</TABLE>

     9.27 Use of  Proceeds . The  Borrower  shall  not,  and shall not suffer or
permit  Parent or any  Subsidiary  to,  use any  portion  of the Loan  proceeds,
directly or indirectly,  (i) to purchase or carry Margin Stock, (ii) to repay or
otherwise refinance  indebtedness of the Borrower or others incurred to purchase
or carry Margin Stock, (iii) to extend credit for the purpose of purchasing or

                                       115
<PAGE>

carrying any Margin  Stock,  or (iv) to acquire any security in any  transaction
that is subject to Section 13 or 14 of the Exchange Act.

     9.28 Senior Indebtedness and Secured Sale/Leaseback Collateral .

          (a) Each of Parent and the  Borrower  covenants  and  agrees  that its
obligations  in respect of this  Agreement and the other Loan  Documents are and
will be prior to the Stated Termination Date the only obligations  designated as
"Material Senior  Indebtedness" for purposes of, and as such term is defined in,
the indenture governing the Senior Subordinated Notes.

          (b) Neither Parent nor the Borrower shall designate any documents with
respect to any Debt (other than this  Agreement)  as the "Credit  Agreement"  or
"Bank Credit Agreement" for purposes of the receipt of notices by the Agent, and
delivery of blockage  notices  pursuant to the  subordination  provisions of the
documents with respect to the Senior Subordinated Notes.

          (c) Neither  Parent  nor the  Borrower  shall  designate  any Debt as
"Material  Senior  Indebtedness,"  as such  term  is  defined  in the  indenture
governing  the Senior  Subordinated  Notes as in effect on the Original  Closing
Date or pursuant to any analogous provision.

          (d) Neither  Parent,  nor the  Borrower,  nor any of its  Subsidiaries
shall  assign,  transfer  or  otherwise  dispose of any  Secured  Sale/Leaseback
Collateral  except  in  accordance  with  Section  3.5(b)  of the  Intercreditor
Agreement (for this purpose, without giving effect to changes thereto not agreed
to by the Borrower).

          (e) Neither Parent nor the Borrower  shall deliver or otherwise  remit
to or deposit with or into the Trustee or the Collateral  Account (as such terms
are defined in the  Intercreditor  Agreement)  any  Collateral  or any  proceeds
thereof, other than Secured Sale/Leaseback Collateral and proceeds thereof.

          (f)   Neither   Parent  nor  the   Borrower   shall  use  (i)  Secured
Sale/Leaseback  Collateral or proceeds thereof to purchase or otherwise  acquire
Credit  Agreement  Collateral  or (ii) Credit  Agreement  Collateral or proceeds
thereof to purchase or otherwise acquire Secured Sale/Leaseback Collateral.

     9.29 Further  Assurances  . The  Borrower  and Parent  shall  execute  and
deliver, or cause to be executed and delivered,  to the Agent and/or the Lenders
such documents and agreements, and shall take or cause to be taken such actions,
as the Agent or any Lender may, from time to time,  reasonably  request to carry
out the terms and  conditions of this  Agreement  and the other Loan  Documents.

                                       116
<PAGE>

                                   ARTICLE 10

                              CONDITIONS OF LENDING
                              ---------------------

     10.1 Conditions Precedent to Making of Loans on the Original Closing Date .
The  obligation  of the  Lenders  to make  the  initial  Revolving  Loans on the
Original  Closing Date and the  obligation of the Agent to cause to be issued or
provide  Credit  Support for any Letter of Credit on the Original  Closing Date,
are subject to the following  conditions  precedent  having been  satisfied in a
manner satisfactory to the Agent and each Lender:

          (a) The  Existing  Loan and  Security  Agreement  and the  other  Loan
Documents  (as  defined  therein)  have  been  executed  by each  party  thereto
(including,  without limitation,  if requested by the Agent, amendments, in form
and substance  reasonably  satisfactory  to the Agent,  to Credit  Documents (as
defined in the Original Credit Agreement) assigned to BABC or the Agent pursuant
to the Bank  Assignment  Agreement)  and the  Borrower  and  Parent  shall  have
performed and complied with all covenants,  agreements and conditions  contained
therein  which are required to be performed or complied  with by the Borrower or
Parent before or on the Original Closing Date.

          (b) Upon  making the  Revolving  Loans on the  Original  Closing  Date
(including  such Revolving  Loans made to finance the Closing Fee (as defined in
the Existing Loan and Security  Agreement) or otherwise  pursuant to Section 4.7
as  reimbursement  for fees,  costs and expenses then payable under the Existing
Loan and  Security  Agreement)  and with all its  obligations  current and after
giving effect to the effectiveness of the assignments and transfers contemplated
by the Bank  Assignment  Agreement,  the Borrower  would have  Availability  (as
defined in the Existing  Loan and Security  Agreement) in an amount no less than
$13,500,000.

          (c) All  representations  and warranties  made under the Existing Loan
and Security  Agreement  and in the other Loan  Documents  (as defined  therein)
shall be true and  correct as of the  Original  Closing  Date as if made on such
date.

          (d) No Default or Event of Default shall exist on the Original Closing
Date, or would exist  immediately after giving effect to the Loans to be made on
such date.

          (e) The Agent and the Lenders  shall have  received  such  opinions of
counsel  for  Parent  and its  Subsidiaries  as the  Agent or any  Lender  shall
reasonably  request,  each such opinion to be in a form,  scope,  and  substance
satisfactory to the Agent, the Lenders, and their respective counsel.

          (f) The Agent shall have received evidence reasonably  satisfactory to
it that (i) Receivables  Corp. shall have transferred to the Borrower all of its
assets  (including  in any event all  accounts  receivable  and cash) other than
immaterial  assets and  terminated  any and all present  and future  receivables
transfers by the Borrower to Receivables Corp., in each instance,

                                       117
<PAGE>

on terms and conditions and pursuant to agreements satisfactory to the Agent and
(ii) the receivables  securitization  facility entered into by Receivables Corp.
shall have been terminated on terms and conditions satisfactory to the Agent.

          (g) The Agent shall have received:

               (i)    acknowledgment copies of proper financing  statements duly
filed on or before the Original Closing Date under the UCC of all  jurisdictions
that the Agent may deem  necessary  or desirable in order to perfect the Agent's
Lien.

               (ii)   duly executed  UCC-3 Termination Statements and such other
instruments,  in form  and  substance  satisfactory  to the  Agent,  as shall be
necessary to  terminate  and satisfy all Liens on the property of Parent and its
Subsidiaries  (including,   without  limitation,  UCC-3  Termination  Statements
terminating all UCC filings made under the receivables  transfer and receivables
securitization  facilities  referred to in clause (f) above),  except  Permitted
Liens.

               (iii)  the Bank Assignment  Agreement duly executed and delivered
by all the  parties  thereto  and all  conditions  to the  effectiveness  of the
assignments  and transfers  contemplated  thereby (other than the payment of any
monies by BABC under Section  3(a)(i)  thereof and the return to the agent under
the Original Credit Agreement of the BT Letter of Credit (as defined in the Bank
Assignment Agreement)) shall have been satisfied.

               (iv)   a  duly  executed  acknowledgment  and  agreement  to  the
Intercreditor   Agreement   (as  defined  in  the  Existing  Loan  and  Security
Agreement),  in form and substance satisfactory to the Agent,  acknowledging the
Agent as the "Credit Agent" under and as defined in the Intercreditor  Agreement
(as so defined).

          (h) The  Borrower  shall have paid all fees and  expenses of the Agent
and the Attorney Costs  reasonably  incurred by the Agent in connection with any
of the Loan  Documents (as defined in the Existing Loan and Security  Agreement)
and the transactions contemplated thereby.

          (i) The Agent  shall  have  received  evidence,  in form,  scope,  and
substance,  reasonably  satisfactory to the Agent, of all insurance  coverage as
required by the Existing Loan and Security Agreement.

          (j) The Agent and the Lenders shall have had an  opportunity,  if they
so choose, to examine the books of account and other records and files of Parent
and its  Subsidiaries  and to make copies thereof,  and to conduct a pre-closing
audit  which shall  include,  without  limitation,  verification  of  Inventory,
Accounts,  and  Availability  (as  defined  in the  Existing  Loan and  Security
Agreement),  and the  results  of such  examination  and audit  shall  have been
satisfactory to the Agent and the Lenders in all respects.

                                       118
<PAGE>

          (k) All  proceedings  taken in  connection  with the  execution of the
Existing  Loan and  Security  Agreement,  all other Loan  Documents  (as therein
defined) and all documents and papers relating  thereto shall be satisfactory in
form, scope, and substance to the Agent and the Lenders.

          (l) The Agent  shall  have  received  certified  copies of the  Senior
Secured Notes, the Senior  Subordinated  Notes, the Intercreditor  Agreement (as
defined  in the  Existing  Loan and  Security  Agreement),  the  Asset  Transfer
Documents and all documents,  instruments  and agreements  entered into pursuant
thereto or in connection therewith.

     The  acceptance  by the Borrower of any Loans made on the Original  Closing
Date shall be deemed to be a representation and warranty made by the Borrower to
the effect that all of the conditions precedent to the making of such Loans have
been satisfied, with the same effect as delivery to the Agent and the Lenders of
a  certificate  signed  by a  Responsible  Officer  of the  Borrower,  dated the
Original Closing Date, to such effect.

     Execution  and  delivery to the Agent by a Lender of a  counterpart  of the
Existing Loan and Security Agreement shall be deemed confirmation by such Lender
that (i) all  conditions  precedent in this Section 10.1 have been  fulfilled to
the  satisfaction of such Lender and (ii) the decision of such Lender to execute
and  deliver  to the Agent an  executed  counterpart  of the  Existing  Loan and
Security Agreement was made by such Lender independently and without reliance on
the Agent or any other Lender as to the satisfaction of any condition  precedent
set forth in this Section 10.1.

     10.2 Conditions  Precedent to Each Loan . The obligation  of the Lenders to
make each Loan,  including the initial  Revolving Loans on the Original  Closing
Date and the Term Loans and any  Revolving  Loans on the Closing  Date,  and the
obligation  of the  Agent to take  reasonable  steps to cause to be issued or to
provide Credit Support for any Letter of Credit, shall be subject to the further
conditions precedent that on and as of the date of any such extension of credit:

          (a) the following  statements shall be true, and the acceptance by the
Borrower of any  extension  of credit  shall be deemed to be a statement  to the
effect set forth in clauses (i) and (ii),  with the same effect as the  delivery
to the Agent and the Lenders of a certificate  signed by a Responsible  Officer,
dated the date of such extension of credit, stating that:

               (i)    The representations  and  warranties   contained  in  this
Agreement and the other Loan  Documents are correct in all material  respects on
and as of the date of such  extension of credit as though made on and as of such
date,  other  than  any such  representation  or  warranty  which  relates  to a
specified  prior date and except to the  extent the Agent and the  Lenders  have
been notified by the Borrower that any representation or warranty is not correct
and the Majority Lenders have explicitly waived in writing  compliance with such
representation or warranty; and

                                       119
<PAGE>

               (ii)   No event has occurred  and is  continuing, or would result
from such  extension  of  credit,  which  constitutes  a Default  or an Event of
Default; and

          (b) without limiting  Section 10.1(b),  the amount of the Availability
shall be sufficient to make such  Revolving  Loan or permit the issuance of such
Letter of Credit or Credit Support without exceeding the Availability, provided,
however,  that the foregoing  conditions  precedent  are not  conditions to each
Lender  participating  in or reimbursing BofA or the Agent for such Lenders' Pro
Rata Share of any BofA Loan or Agent Advance as provided in Sections 2.2(h), (i)
and (j).

     10.3 Conditions Precedent to Effectiveness of Amendment and Restatement and
Making  of  Loans on  Closing  Date . The  effectiveness  of the  amendment  and
restatement of the Existing Loan and Security  Agreement as provided  herein and
the obligation of the Lenders to make the Term Loans and any Revolving  Loans on
the  Closing  Date and the  obligation  of the  Agent to cause to be  issued  or
provide Credit Support for any Letter of Credit on the Closing Date, are subject
to the following  conditions  precedent having been satisfied prior thereto (or,
in the case of clauses  (e)(ii)  and (g)  below,  concurrently  therewith)  in a
manner satisfactory to the Agent and each Lender:

          (a) This Agreement,  the Term Loan Notes,  the Fee Letter,  the Pledge
Agreement,  the Assignment of Contract As Collateral Security, the Intercreditor
Agreement and the other Loan Documents (to the extent not heretofore executed by
the  parties  thereto)  have been  executed  by each party  thereto  (including,
without limitation, if requested by the Agent, amendments, in form and substance
reasonably  satisfactory to the Agent, to Loan Documents  previously executed by
the parties thereto to reflect  modifications  to the Existing Loan and Security
Agreement  being made hereby) and the  Borrower and Parent shall have  performed
and  complied  in all  material  respects  with all  covenants,  agreements  and
conditions  contained  herein and in the other Loan Documents which are required
to be  performed  or complied  with by the  Borrower or Parent  before or on the
Closing Date.

          (b) All representations and warranties made hereunder and in the other
Loan  Documents  shall be true and correct as of the Closing  Date as if made on
such date.

          (c) No Default or Event of Default shall exist on the Closing Date, or
would exist immediately after giving effect to the Loans,  Letters of Credit and
Credit Support to be made or issued on such date.

          (d) The Agent and the Lenders  shall have  received  such  opinions of
counsel  for  Parent  and its  Subsidiaries  as the  Agent or any  Lender  shall
reasonably  request,  each such opinion to be in a form,  scope,  and  substance
reasonably satisfactory to the Agent, the Lenders, and their respective counsel.

          (e) The Agent shall have received:

                                       120
<PAGE>

               (i)    acknowledgment copies of proper financing  statements duly
filed on or before the Closing Date under the UCC of all jurisdictions  that the
Agent may deem reasonably necessary or desirable in order to perfect the Agent's
Lien (to the extent not heretofore received by the Agent).

               (ii)   duly executed  UCC-3 Termination Statements and such other
instruments,  in form and substance  reasonably  satisfactory  to the Agent,  as
shall be necessary to terminate  and satisfy all Liens on the property of Parent
and its  Subsidiaries  (including,  without  limitation and in any event,  UCC-3
Termination  Statements and other  documents to terminate all Liens securing the
Senior Secured Notes and the financing arrangements with PNC referred to below),
except Permitted Liens.

          (f) The  Borrower  shall  have paid (i) all fees and  expenses  of the
Agent and the Attorney Costs reasonably incurred by the Agent in connection with
any of the Loan Documents and the transactions contemplated thereby and (ii) all
interest and fees owing to the Agent and the Lenders under the Existing Loan and
Security  Agreement  which have accrued  through but  excluding the Closing Date
(whether or not then otherwise due and payable).

          (g) The Secured Sale/Leaseback Documents,  which documents shall be in
form  and  substance  reasonably  satisfactory  to the  Agent  and the  Majority
Lenders,  shall  have  been  duly  executed  by all  the  parties  thereto,  all
conditions  precedent to the closing  thereof shall have been  satisfied and the
Borrower  shall have received the net cash proceeds from the sale on the Closing
Date of Equipment as  contemplated  thereby (which net cash proceeds shall be no
less than  $212,300,000)  and such net cash proceeds  shall have been applied by
the Borrower (w) together with the proceeds of the Term Loans, to the redemption
of all Senior Secured Notes (other than accrued interest thereon, which interest
shall be paid with the proceeds of Revolving Loans),  (x) to the payment in full
of all  loans and other  monetary  obligations  of  Sherwood  and/or  any of its
affiliates  under  the  financing  arrangements  between  one or  more  of  such
entities, certain lenders and PNC, as agent for such lenders, (y) to the payment
in full of the Demand Loans,  and (z) to the payment of the Revolving  Loans (in
an amount not less than $25,000,000).

          (h) All  proceedings  taken in  connection  with the execution of this
Agreement, all other Transaction Documents and all documents and papers relating
thereto shall be reasonably  satisfactory in form,  scope,  and substance to the
Agent and the Lenders.

          (i) The Agent  shall have  received  certified  copies of the  Secured
Sale/Leaseback   Documents,  the  documents  prepared  in  connection  with  the
redemption  of the  Senior  Secured  Notes and all  documents,  instruments  and
agreements entered into pursuant thereto or in connection therewith.

                                       121
<PAGE>

          (j) No material  adverse change shall have occurred,  as determined by
the Agent or the  Lenders  in its or their  sole  discretion,  in the  business,
operations, profits or prospects of the Borrower since September 26, 1999.

          (k) There shall exist no action, suit,  investigation,  litigation, or
proceeding  pending or, to any of the  Borrower's,  the Agent's or any  Lender's
knowledge,  threatened  in any court or before any  arbitrator  or  governmental
instrumentality  that in the Agent's or the  Lenders'  reasonable  judgment  (i)
could  reasonably be expected to have a material adverse effect on the business,
condition (financial or otherwise), operations, performance, or prospects of the
Borrower or which could impair in any material respect the Borrower's ability to
perform  satisfactorily  under the Loan  Documents or (ii) could  reasonably  be
expected to materially and adversely affect the transactions contemplated by the
Transaction Documents.

          (l) All governmental and third party consents and approvals  necessary
in connection with the  transactions  contemplated by the Transaction  Documents
have been obtained by the Borrower.

          (m)  Satisfaction  by the  Agent  and  Lenders  that the  Borrower  is
adequately  capitalized,  that the fair salable value of the  Borrower's  assets
will exceed its  liabilities  on the Closing  Date (after  giving  effect to the
transactions  contemplated hereunder to occur on the Closing Date), and that the
Borrower will have  sufficient  working  capital to pay its debts as they become
due.

          (n) The Agent shall have conducted a collateral  takedown  examination
with respect to the assets of Sherwood and its subsidiaries and such examination
shall have been satisfactory to the Agent.

          (o) The Borrower shall have satisfied such other conditions  precedent
reasonably requested by the Agent or any Lender.

     The  acceptance  by the  Borrower  of any  Loans  made or  other  financial
accommodations  hereunder  provided on the Closing  Date shall be deemed to be a
representation  and warranty  made by the Borrower to the effect that all of the
conditions precedent to the making of such Loans and the provision of such other
financial  accommodations have been satisfied,  with the same effect as delivery
to the Agent and the Lenders of a certificate signed by a Responsible Officer of
the Borrower, dated the Closing Date, to such effect.

     Execution  and delivery to the Agent by a Lender of a  counterpart  of this
Agreement  shall be deemed  confirmation  by such Lender that (i) all conditions
precedent in this Section 10.3 have been fulfilled to the  satisfaction  of such
Lender and (ii) the  decision of such Lender to execute and deliver to the Agent
an executed  counterpart of this Agreement was made by such Lender independently
and without  reliance on the Agent or any other Lender as to the satisfaction of
any condition precedent set forth in this Section 10.3.

                                       122
<PAGE>

                                   ARTICLE 11

                                DEFAULT; REMEDIES
                                -----------------
     11.1 Events of Default . It shall constitute an event of default ("Event of
Default") if any one or more of the following shall occur for any reason:

          (a) (i) any failure to pay the principal in respect of any Obligations
when due, whether upon demand or otherwise,  or (ii) any failure to pay interest
or  premium  on any of the  Obligations  or any fees  owing  hereunder  within 3
Business Days of when due, whether upon demand or otherwise;

          (b) any representation or warranty made or deemed made by the Borrower
or Parent in this  Agreement or by Parent or any of its  Subsidiaries  in any of
the other Loan Documents,  any Financial Statement, or any certificate furnished
by Parent  or any of its  Subsidiaries  at any time to the  Agent or any  Lender
shall prove to be untrue in any  material  respect as of the date on which made,
deemed made, or furnished;

          (c) (i) any default shall occur in the  observance or  performance  of
any of the covenants and agreements contained in Section 6.2, 6.3, 6.7 or 6.9 or
in Article 7 or in Article 9 (other than Section 9.4, 9.6, 9.16,  9.20,  9.24 or
9.29) of this Agreement  (provided,  however, to the extent that any covenant in
Article 7 specifies  the number of days within which the Borrower or Parent must
comply (including, without limitation, for the giving of notice or delivery of a
financial  statement,  forecast or report),  the Borrower or Parent, as the case
may be, shall have the numbers of days  specified in such  covenant  plus 5 days
within which to comply  before such  non-compliance  becomes an Event of Default
under this clause (i)),  or (ii) any default  shall occur in the  observance  or
performance of any of the covenants and  agreements  contained in any of Section
9.4,  9.6,  9.16,  9.20,  9.24 or 9.29 of this  Agreement and such default shall
continue  unremedied  for a period of 10 days after the  earlier to occur of (x)
notice  thereof  from the Agent or any Lender to Parent or the  Borrower  or (y)
Parent's or the Borrower's actual knowledge thereof,  or (iii) any default shall
occur in the  observance or  performance  of any of the covenants and agreements
contained in this Agreement  (other than as specified in clause (a) or (c)(i) or
(ii) above),  any other Loan Documents,  or any other agreement  entered into at
any time to which the Borrower,  Parent or any  Subsidiary  and the Agent or any
Lender are party and such default shall  continue  unremedied for a period of 30
days  after the  earlier to occur of (x)  notice  thereof  from the Agent or any
Lender  to Parent or the  Borrower  or (y)  Parent's  or the  Borrower's  actual
knowledge  thereof,  or (iv) if any agreement or document referred to in clauses
(i),  (ii) or (iii) above shall  terminate  (other than in  accordance  with its
terms or the  terms  hereof  or with the  written  consent  of the Agent and the
Majority Lenders) or become void or  unenforceable,  without the written consent
of the Agent and the Majority Lenders;

                                       123
<PAGE>

          (d)  (i) default shall occur with  respect to the Senior  Subordinated
Notes or any  Sherwood-Related  Subordinated  Notes or with respect to any other
Debt (other than the Obligations) in an aggregate  outstanding  principal amount
for all such other Debt which  exceeds  $5,000,000,  or under any  agreement  or
instrument  under or  pursuant  to which  the  Senior  Subordinated  Notes,  the
Sherwood-Related Subordinated Notes or any such other Debt may have been issued,
created,  assumed, or guaranteed by Parent or any of its Subsidiaries,  and such
default  shall  continue  for more than the  period of  grace,  if any,  therein
specified,  if the  effect  thereof  (with or  without  the  giving of notice or
further lapse of time or both) is to accelerate, or to permit the holders of the
Senior Subordinated Notes, the  Sherwood-Related  Subordinated Notes or any such
other Debt to accelerate,  the maturity of any such Debt; or any such Debt shall
be  declared  due and  payable or be  required  to be prepaid  (other  than by a
regularly  scheduled required  prepayment) prior to the stated maturity thereof,
or (ii) a Lease  Event of  Default  (as  defined in the  Secured  Sale/Leaseback
Documents) shall occur;

          (e)  Parent  or any of its  Subsidiaries  shall  (i) file a  voluntary
petition in  bankruptcy  or file a voluntary  petition or an answer or otherwise
commence  any  action  or  proceeding  seeking  reorganization,  arrangement  or
readjustment  of its debts or for any other relief under the federal  Bankruptcy
Code, as amended,  or under any other bankruptcy or insolvency act or law, state
or federal,  now or hereafter existing,  or consent to, approve of, or acquiesce
in, any such petition, action or proceeding;  (ii) apply for or acquiesce in the
appointment  of  a  receiver,  assignee,  liquidator,  sequestrator,  custodian,
monitor,  trustee  or  similar  officer  for it or for  all or any  part  of its
property;  (iii) make an  assignment  for the benefit of  creditors;  or (iv) be
unable generally to pay its debts as they become due;

          (f) an involuntary petition or proposal shall be filed or an action or
proceeding    otherwise   commenced   seeking    reorganization,    arrangement,
consolidation  or readjustment of the debts of Parent or any of its Subsidiaries
or for any other relief under the federal Bankruptcy Code, as amended,  or under
any  other  bankruptcy  or  insolvency  act or law,  state  or  federal,  now or
hereafter existing and either (i) such petition,  proposal, action or proceeding
shall  not have been  dismissed  within a period  of sixty  (60) days  after its
commencement or (ii) an order for relief against Parent or such Subsidiary shall
have been entered in such proceeding;

          (g)  a  receiver,  assignee,  liquidator,   sequestrator,   custodian,
monitor, trustee or similar officer for Parent or any of its Subsidiaries or for
all or any part of its property  shall be appointed or a warrant of  attachment,
execution or similar process shall be issued against any part of the property of
Parent or any of its Subsidiaries;

          (h)  Parent or any of its  Subsidiaries  shall file a  certificate  of
dissolution  under  applicable  state law or shall be  liquidated,  dissolved or
wound-up or shall commence or have commenced against it any action or proceeding
for dissolution,  winding-up or liquidation,  or shall take any corporate action
in furtherance thereof;

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<PAGE>

          (i) all or any  material  part of the property of Parent or any of its
Subsidiaries or the equipment subject to the Secured Sale/Leaseback Arrangements
shall  be   nationalized,   expropriated  or  condemned,   seized  or  otherwise
appropriated,  or  custody  or  control  of such  property  or of Parent or such
Subsidiary  shall be  assumed  by any  Governmental  Authority  or any  court of
competent  jurisdiction at the instance of any  Governmental  Authority,  except
where contested in good faith by proper  proceedings  diligently pursued where a
stay of enforcement is in effect;

          (j) any guaranty of the  Obligations  shall be terminated,  revoked or
declared void or invalid;

          (k)  one or  more  judgments  or  orders  for  the  payment  of  money
aggregating in excess of $2,500,000,  which amount shall not be fully covered by
insurance, shall be rendered against Parent or any of its Subsidiaries;

          (l) any loss,  theft,  damage or  destruction  of any item or items of
Collateral,  any other  property of Parent or any  Subsidiary  or any  equipment
subject to the Secured  Sale/Leaseback  Arrangements occurs which materially and
adversely affects the property,  business,  operation or financial  condition of
Parent and the Borrower taken as a whole;

          (m) there occurs a Material Adverse Effect;

          (n)  there is filed  against  Parent  or any of its  Subsidiaries  any
criminal  action,  suit or  proceeding  under any federal or state  racketeering
statute  (including,  without limitation,  the Racketeer  Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding (1) is not dismissed
within one hundred  twenty (120) days,  and (2) could  reasonably be expected to
result  in the  confiscation  or  forfeiture  of  any  material  portion  of the
Collateral;

          (o) for any  reason  other  than the  failure of the Agent to take any
action  available to it to maintain  perfection of the Agent's Liens pursuant to
the Loan  Documents,  any Loan Document ceases to be in full force and effect or
any Lien with respect to any material  portion of the Collateral  intended to be
secured thereby ceases to be, or is not, valid, perfected and prior to all other
Liens (other than Permitted Liens) or is terminated, revoked or declared void;

          (p) (i) one or more ERISA Events shall occur;  (ii) any Pension  Plans
shall have any Unfunded Pension Liability;  or (iii) Parent, the Borrower or any
ERISA  Affiliate  shall  fail to pay  when  due,  after  the  expiration  of any
applicable grace period,  one or more  installment  payments with respect to its
withdrawal liability under Section 4201 of ERISA under any Multi-employer Plans;
provided,  however, that (x) the events, acts or conditions described in clauses
(i),  (ii) and (iii)  above shall not  constitute  a Default or Event of Default
under this clause (p) unless the  aggregate  liability  incurred  or  reasonably
expected to be incurred by Parent,  the Borrower or any ERISA Affiliates for all
such events, acts or conditions shall exceed $5,000,000

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in the aggregate for all such Persons and (y) the Agent and the Majority Lenders
hereby  agree  that the  occurrence  of any  event set  forth  above,  resulting
directly from the litigation described in Schedule 8.21 so long as the aggregate
amount of,  without  duplication,  liens,  security  interests  and  liabilities
resulting therefrom shall not exceed  $17,500,000,  shall not be deemed to be or
otherwise  constitute  a Default  or Event of  Default  under  this  clause  (p)
(however,  notwithstanding the foregoing, the Agent shall have the right, in its
sole  discretion,  to establish  reserves  against  Availability if any liens or
security  interests on the assets of Parent or any of its Subsidiaries  securing
greater  than  $100,000  in  liabilities  in the  aggregate  for  Parent and its
Subsidiaries shall attach or otherwise arise as a result of such litigation);

          (q) there occurs a Change of Control;

          (r) there shall occur any of the events, acts or conditions  described
in Section 6 of the Waiver dated January 21, 1998 by the Lenders to the Borrower
and Parent or any of the waivers or other  agreements of the Majority Lenders in
such Waiver shall be revoked or of no further force or effect as contemplated by
such Section 6; or the Borrower or Parent shall breach any agreement  made by it
under such Waiver; or

          (s) the Secured  Sale/Leaseback  Arrangements shall terminate prior to
the Stated Termination Date.

     11.2 Remedies .

          (a) If a Default or an Event of Default exists,  the Agent may, in its
discretion,  and shall, at the direction of the Majority Lenders, do one or more
of the  following  at any time or times and in any order,  without  notice to or
demand on the Borrower or Parent: (i) reduce the Maximum Revolver Amount, or the
advance  rates against  Eligible  Accounts  and/or  Eligible  Inventory  used in
computing the Availability,  or reduce one or more of the other elements used in
computing  the  Availability;  (ii)  restrict  the  amount  of or refuse to make
Revolving  Loans; and (iii) restrict or refuse to arrange for or provide Letters
of Credit or Credit Support.  If an Event of Default exists, the Agent shall, at
the  direction  of the Majority  Lenders,  do one or more of the  following,  in
addition to the actions  described  in the  preceding  sentence,  at any time or
times and in any order,  without  notice to or demand on the Borrower or Parent:
(a)  terminate  the  Commitments  and this  Agreement;  (b)  declare  any or all
Obligations to be immediately due and payable; provided,  however, that upon the
occurrence  of any Event of  Default  described  in  Section  11.1(e),  11.1(f),
11.1(g) or 11.1(h),  the Commitments shall  automatically and immediately expire
and all  Obligations  shall  automatically  become  immediately  due and payable
without  notice or  demand of any kind;  and (c)  pursue  its other  rights  and
remedies under the Loan Documents and applicable law.

          (b)  If an  Event  of  Default  exists,  except  as  provided  in  the
Intercreditor  Agreement with respect to Secured  Sale/Leaseback  Collateral and
Shared Collateral: (i) the Agent shall have for the benefit of the Agent and the
Lenders, in addition to all other rights of the

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Agent and the Lenders, the rights and remedies of a secured party under the UCC;
(ii) the Agent may, at any time,  take  possession of the Collateral and keep it
on the  Borrower's  and/or  Parent's  premises,  at no cost to the  Agent or any
Lender,  or remove any part of it to such other place or places as the Agent may
desire,  or the Borrower shall, upon the Agent's demand, at the Borrower's cost,
assemble or cause to be assembled  the  Collateral  and make it available to the
Agent at a place  reasonably  convenient  to the Agent;  and (iii) the Agent may
sell and deliver  any  Collateral  at public or private  sales,  for cash,  upon
credit or  otherwise,  at such  prices  and upon such  terms as the Agent  deems
advisable,  in its sole  discretion,  and may, if the Agent deems it reasonable,
postpone or adjourn any sale of the  Collateral by an  announcement  at the time
and place of sale or of such  postponed or adjourned  sale without  giving a new
notice of sale. Without in any way requiring notice to be given in the following
manner,  each of Parent and the Borrower  agrees that any notice by the Agent of
sale,  disposition or other intended action hereunder or in connection herewith,
whether required by the UCC or otherwise,  shall constitute reasonable notice to
it if such notice is mailed by  registered  or certified  mail,  return  receipt
requested, postage prepaid, or is delivered personally against receipt, at least
five (5)  Business  Days  prior to such  action to  Parent's  or the  Borrower's
address,  as  appropriate,  specified  in or  pursuant to Section  15.8.  If any
Collateral  is sold on terms other than payment in full at the time of sale,  no
credit  shall be given  against the  Obligations  until the Agent or the Lenders
receive payment,  and if the buyer defaults in payment, the Agent may resell the
Collateral  without  further notice to the Borrower or Parent.  In the event the
Agent  seeks to take  possession  of all or any  portion  of the  Collateral  by
judicial process,  each of Parent and the Borrower  irrevocably  waives: (a) the
posting  of any bond,  surety or  security  with  respect  thereto  which  might
otherwise be required;  (b) any demand for possession  prior to the commencement
of any suit or action to recover the Collateral;  and (c) any  requirement  that
the Agent retain  possession and not dispose of any Collateral until after trial
or final judgment.  Each of Parent and the Borrower agrees that the Agent has no
obligation to preserve  rights to the  Collateral or marshal any  Collateral for
the benefit of any Person.  The Agent is hereby granted a license or other right
to use, without charge, the Borrower's and Parent's labels, patents, copyrights,
name, trade secrets,  trade names,  trademarks,  and advertising  matter, or any
similar  property,  in  completing  production  of,  advertising  or selling any
Collateral,  and the Borrower's  and Parent's  rights under all licenses and all
franchise  agreements  shall inure to the Agent's benefit for such purpose.  The
proceeds  of sale  shall be applied  first to all  expenses  of sale,  including
attorneys' fees, and then to the Obligations in whatever order the Agent elects.
The Agent  will,  subject to the terms of the  Intercreditor  Agreement  and any
applicable law or court order,  return any excess to the Borrower or Parent,  as
appropriate,  and each of Parent and the Borrower  shall  remain  liable for any
deficiency.

          (c) If an Event of Default  occurs,  each of Parent  and the  Borrower
hereby  waives all rights to notice and  hearing  prior to the  exercise  by the
Agent of the Agent's rights to repossess the Collateral without judicial process
or to replevy, attach or levy upon the Collateral without notice or hearing.

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                                   ARTICLE 12

                              TERM AND TERMINATION
                              --------------------

     12.1 Term and  Termination  . The term of this  Agreement  shall end on the
Stated  Termination Date. The Agent upon direction from the Majority Lenders may
terminate  this  Agreement  without  notice upon the  occurrence  and during the
continuance  of an Event of Default.  Upon the effective  date of termination of
this Agreement for any reason whatsoever,  all outstanding  monetary Obligations
(including,  without limitation, all unpaid principal,  accrued interest and any
early termination or prepayment fees or penalties) shall become  immediately due
and payable and the Borrower shall  immediately  arrange for the cancellation of
Letters of Credit then  outstanding.  Notwithstanding  the  termination  of this
Agreement,  until all outstanding  monetary Obligations are indefeasibly paid in
full in cash and the Payment and Termination  Date shall have occurred,  each of
Parent and the Borrower  shall remain bound by the terms of this  Agreement  and
shall not be relieved of any of its Obligations hereunder, and the Agent and the
Lenders shall retain all their rights and remedies hereunder (including, without
limitation, the Agent's Liens in and all rights and remedies with respect to all
then  existing  and  after-arising  Collateral).  From and after the Payment and
Termination Date, the Agent shall, at the reasonable request of the Borrower and
at the  Borrower's  sole cost and  expense,  execute and deliver to the Borrower
such  instruments and agreements in form reasonably  acceptable to the Agent, to
release the Agent's Liens in the  Collateral.  Such  instruments  and agreements
shall be without  representation  or warranty  by, and without  recourse to, the
Agent or any Lender.

                                   ARTICLE 13

           AMENDMENTS; WAIVER; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS
           -----------------------------------------------------------

     13.1 No  Waivers;  Cumulative  Remedies  . No  failure  by the Agent or any
Lender to exercise  any right,  remedy,  or option  under this  Agreement or any
other Loan Document or any present or future supplement thereto, or in any other
agreement  between  or among  the  Borrower  and/or  Parent  or any of its other
Subsidiaries  and the  Agent  and/or  any  Lender,  or delay by the Agent or any
Lender in exercising the same,  will operate as a waiver  thereof.  No waiver by
the Agent or any Lender will be effective unless it is in writing, and then only
to the extent specifically  stated. No waiver by the Agent or the Lenders on any
occasion  shall  affect  or  diminish  the  Agent's  and  each  Lender's  rights
thereafter  to require  strict  performance  by the  Borrower  and Parent of any
provision of this  Agreement.  The Agent's and each  Lender's  rights under this
Agreement  will be  cumulative  and not  exclusive  of any other right or remedy
which the Agent or any Lender may have.

     13.2 Amendments  and Waivers . No amendment or waiver of any  provision of
this  Agreement or any other Loan  Document,  and no consent with respect to any
departure by the Borrower,  Parent or any of its other  Subsidiaries  therefrom,
shall be effective unless the same

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shall be in writing and signed by the  Majority  Lenders (or by the Agent at the
written request of the Majority  Lenders),  the Borrower and Parent and then any
such waiver or consent shall be effective only in the specific  instance and for
the specific purpose for which given;  provided,  however,  that no such waiver,
amendment,  or consent  shall,  unless in writing and signed by all the Lenders,
the Borrower and Parent and acknowledged by the Agent, do any of the following:

          (a)  increase or extend the Commitment of any Lender;

          (b)  postpone or delay any date fixed by this  Agreement  or any other
Loan Document for any payment of principal,  interest, fees or other amounts due
to the Lenders (or any of them) hereunder or under any other Loan Document;

          (c)  reduce the principal of, or the rate of interest specified herein
on any Loan, or any fees or other amounts  payable  hereunder or under any other
Loan Document;

          (d)  change  the  percentage  of the Commitments  or of the  aggregate
unpaid principal amount of the Loans which is required for the Lenders or any of
them to take any action hereunder;

          (e)  increase any of the  percentages  set forth in the definition  of
Availability;

          (f)  amend this Section or any  provision of this  Agreement providing
for consent or other action by all Lenders;

          (g)  release  Collateral  other  than as permitted by Section 14.12 or
any guaranty of any Obligations;

          (h)  change  the  definitions  of  "Majority   Lenders"  or  "Required
Lenders."

and, provided  further,  that no amendment,  waiver or consent shall,  unless in
writing and signed by the Agent,  affect the rights or duties of the Agent under
this Agreement or any other Loan Document.

     13.3 Assignments; Participations .

          (a) Any Lender may, with the written consent of the Agent,  assign and
delegate to one or more assignees (provided that no written consent of the Agent
shall be required in connection  with any  assignment and delegation by a Lender
to an Affiliate of such Lender) (each an "Assignee") all, or any ratable part of
all, of the Loans,  the Commitments and the other rights and obligations of such
Lender  hereunder,  in a minimum  amount of  $10,000,000  or if less the  entire
amount of such Lender's Commitment and Loans (provided,  that unless an assignor
Lender has assigned  and  delegated  all of its  Commitment  and Loans,  no such
assignment and/or  delegation shall be permitted unless,  after giving effect to
such assignment

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and/or delegation, such assignor Lender retains a Commitment in a minimum amount
of $10,000,000);  provided, however, that the Borrower, Parent and the Agent may
continue to deal solely and  directly  with such Lender in  connection  with the
interest so assigned to an Assignee until (i) written notice of such assignment,
together  with payment  instructions,  addresses  and related  information  with
respect to the Assignee, shall have been given to the Borrower (on behalf of the
Borrower  and Parent) and the Agent by such Lender and the  Assignee;  (ii) such
Lender and its Assignee  shall have  delivered to the Borrower (on behalf of the
Borrower and Parent) and the Agent an Assignment and Acceptance in substantially
the form of Exhibit G ("Assignment and Acceptance"), together with the Term Loan
Note subject to such  assignment  and (iii) the assignor  Lender or Assignee has
paid to the Agent a processing fee in the amount of $3,000.

          (b) From and  after  the date that the  Agent  notifies  the  assignor
Lender that it has received an executed Assignment and Acceptance and payment of
the  above-referenced  processing  fee, (i) the Assignee  thereunder  shall be a
party hereto and, to the extent that rights and obligations,  including, but not
limited  to,  the  obligation  to  participate  in  Letters of Credit and Credit
Support have been  assigned to it pursuant to such  Assignment  and  Acceptance,
shall have the rights and obligations of a Lender under the Loan Documents,  and
(ii) the  assignor  Lender  shall,  to the extent  that  rights and  obligations
hereunder and under the other Loan  Documents  have been assigned by it pursuant
to such  Assignment and  Acceptance,  relinquish its rights and be released from
its  obligations  under this  Agreement  (and in the case of an  Assignment  and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and  obligations  under this  Agreement,  such Lender  shall cease to be a party
hereto).

          (c) By executing  and  delivering an Assignment  and  Acceptance,  the
assigning  Lender  thereunder and the Assignee  thereunder  confirm to and agree
with each  other and the other  parties  hereto as  follows:  (1) other  than as
provided in such  Assignment  and  Acceptance,  such  assigning  Lender makes no
representation  or warranty  and assumes no  responsibility  with respect to any
statements,  warranties or  representations  made in or in connection  with this
Agreement  or any other Loan  Document  or the  execution,  legality,  validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
Loan Document  furnished  pursuant  hereto;  (2) such assigning  Lender makes no
representation  or warranty  and assumes no  responsibility  with respect to the
financial condition of the Borrower,  Parent or any of its other Subsidiaries or
the  performance  or  observance  by the  Borrower,  Parent  or any of its other
Subsidiaries  of any of its  obligations  under this Agreement or any other Loan
Document  furnished  pursuant  hereto;  (3) such  Assignee  confirms that it has
received  a copy of this  Agreement,  together  with such  other  documents  and
information  as it has deemed  appropriate  to make its own credit  analysis and
decision to enter into such Assignment and  Acceptance;  (4) such Assignee will,
independently  and without reliance upon the Agent, such assigning Lender or any
other  Lender,  and based on such  documents  and  information  as it shall deem
appropriate at the time,  continue to make its own credit decisions in taking or
not  taking  action  under  this  Agreement;  (5)  such  Assignee  appoints  and
authorizes  the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the

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terms hereof,  together with such powers as are reasonably  incidental  thereto;
and (6) such Assignee agrees that it will perform in accordance with their terms
all of the  obligations  which by the terms of this Agreement are required to be
performed by it as a Lender.

          (d) Immediately upon each Assignee's making its processing fee payment
under  the  Assignment  and  Acceptance,  this  Agreement  shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of  the  Assignee  and  the  resulting  adjustment  of the  Commitments  arising
therefrom.   The  Commitment  allocated  to  each  Assignee  shall  reduce  such
Commitments of the assigning Lender pro tanto.

          (e) Any Lender may at any time sell to one or more  commercial  banks,
financial  institutions,  or other  Persons not  Affiliates  of the  Borrower (a
"Participant")  participating  interests in any Loans,  the  Commitment  of that
Lender  and the  other  interests  of that  Lender  (the  "originating  Lender")
hereunder and under the other Loan Documents;  provided,  however,  that (i) the
originating  Lender's  obligations  under this Agreement shall remain unchanged,
(ii) the originating  Lender shall remain solely responsible for the performance
of such obligations,  (iii) the Borrower, Parent and the Agent shall continue to
deal solely and directly  with the  originating  Lender in  connection  with the
originating  Lender's rights and obligations  under this Agreement and the other
Loan  Documents,  and (iv) no Lender shall  transfer or grant any  participating
interest under which the  Participant has rights to approve any amendment to, or
any  consent  or waiver  with  respect  to,  this  Agreement  or any other  Loan
Document,  and all amounts payable by the Borrower hereunder shall be determined
as if such  Lender  had not sold such  participation;  except  that,  if amounts
outstanding under this Agreement are due and 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 set-off in respect of its
participating  interest in amounts owing under this Agreement to the same extent
as if the amount of its  participating  interest were owing  directly to it as a
Lender under this Agreement.

          (f) Notwithstanding any other provision in this Agreement,  any Lender
may at any time create a security interest in, or pledge,  all or any portion of
its rights under and interest in this Agreement in favor of any Federal  Reserve
Bank in accordance with Regulation A of the FRB or U.S.  Treasury  Regulation 31
CFR ss.  203.14,  and such  Federal  Reserve  Bank may  enforce  such  pledge or
security interest in any manner permitted under applicable law.

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<PAGE>

                                   ARTICLE 14

                                    THE AGENT
                                    ---------

     14.1 Appointment  and  Authorization  . Each  Lender hereby  designates and
appoints Bank of America,  N.A. as its Agent under this  Agreement and the other
Loan Documents and each Lender hereby  irrevocably  authorizes the Agent to take
such action on its behalf under the  provisions of this Agreement and each other
Loan  Document  and to  exercise  such  powers and  perform  such  duties as are
expressly  delegated  to it by the terms of this  Agreement  or any  other  Loan
Document,  together with such powers as are reasonably  incidental thereto.  The
Agent agrees to act as such on the express conditions  contained in this Article
14. The  provisions  of this  Article 14 are solely for the benefit of the Agent
and the  Lenders  and the  Borrower  and Parent  shall have no rights as a third
party beneficiary of any of the provisions contained herein. Notwithstanding any
provision to the contrary contained  elsewhere in this Agreement or in any other
Loan Document,  the Agent shall not have any duties or responsibilities,  except
those expressly set forth herein,  nor shall the Agent have or be deemed to have
any fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities,  duties,  obligations or  liabilities  shall be read into this
Agreement  or any other Loan  Document  or  otherwise  exist  against the Agent.
Without limiting the generality of the foregoing  sentence,  the use of the term
"agent" in this Agreement with reference to the Agent is not intended to connote
any  fiduciary or other  implied (or express)  obligations  arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market  custom,  and is  intended  to create or reflect  only an  administrative
relationship  between  independent  contracting  parties.  Except  as  expressly
otherwise provided in this Agreement,  the Agent shall have and may use its sole
discretion  with  respect  to  exercising  or  refraining  from  exercising  any
discretionary  rights or taking or refraining  from taking any actions which the
Agent is expressly entitled to take or assert under this Agreement and the other
Loan Documents,  including,  without  limitation,  (a) the  determination of the
applicability of  ineligibility  criteria with respect to the calculation of the
Availability,  (b) the making of Agent Advances pursuant to Section 2.2(i),  and
(c) the exercise of remedies  pursuant to Section 11.2,  and any action so taken
or not taken shall be deemed consented to by the Lenders.

     14.2 Delegation  of Duties . The Agent  may execute any of its duties under
this  Agreement or any other Loan  Document by or through  agents,  employees or
attorneys-in-fact  and shall be  entitled  to advice of counsel  concerning  all
matters  pertaining to such duties.  The Agent shall not be responsible  for the
negligence  or misconduct  of any agent or  attorney-in-fact  that it selects as
long as such selection was made without gross negligence or willful misconduct.

     14.3 Liability of Agent . None  of the  Agent-Related  Persons shall (i) be
liable  for any  action  taken or omitted to be taken by any of them under or in
connection  with this  Agreement or any other Loan Document or the  transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be  responsible  in any manner to any of the  Lenders  for any  recital,
statement, representation or warranty made by the Borrower or any Subsidiary or

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Affiliate of the Borrower,  or any officer thereof,  contained in this Agreement
or in any other Loan Document, or in any certificate, report, statement or other
document  referred to or  provided  for in, or received by the Agent under or in
connection  with,  this Agreement or any other Loan  Document,  or the validity,
effectiveness,  genuineness,  enforceability or sufficiency of this Agreement or
any other Loan  Document,  or for any failure of the Borrower or any other party
to any Loan  Document to perform its  obligations  hereunder or  thereunder.  No
Agent-Related Person shall be under any obligation to any Lender to ascertain or
to  inquire  as to the  observance  or  performance  of  any  of the  agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect  the  properties,  books  or  records  of  the  Borrower  or  any of the
Borrower's Subsidiaries or Affiliates.

     14.4 Reliance by Agent .

          (a) The Agent shall be entitled to rely, and shall be fully  protected
in  relying,  upon  any  writing,  resolution,   notice,  consent,  certificate,
affidavit, letter, telegram, facsimile, telex or telephone message, statement or
other document or  conversation  believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons,  and upon advice
and statements of legal counsel (including counsel to the Borrower), independent
accountants  and other experts  selected by the Agent.  The Agent shall be fully
justified in failing or refusing to take any action under this  Agreement or any
other Loan Document  unless it shall first receive such advice or concurrence of
the Majority Lenders as it deems  appropriate  and, if it so requests,  it shall
first be  indemnified  to its  satisfaction  by the Lenders  against any and all
liability  and  expense  which  may be  incurred  by it by  reason  of taking or
continuing  to take any  such  action.  The  Agent  shall in all  cases be fully
protected in acting,  or in refraining from acting,  under this Agreement or any
other Loan  Document  in  accordance  with a request or consent of the  Majority
Lenders and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Lenders.

          (b)  For  purposes  of  determining  compliance  with  the  conditions
specified in Section 10.1, each Lender that has executed this Agreement shall be
deemed to have consented to,  approved or accepted or to be satisfied with, each
document or other  matter  either sent by the Agent to such Lender for  consent,
approval,  acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to the Lender.

    14.5  Notice  of  Default  . The  Agent  shall  not be  deemed  to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the  Lenders,  unless the Agent shall
have  received  written  notice from a Lender or the Borrower  referring to this
Agreement,  describing  such  Default or Event of Default and stating  that such
notice is a "notice  of  default."  The Agent  will  notify  the  Lenders of its
receipt of any such  notice.  The Agent shall take such  action with  respect to
such Default or Event of Default as may be requested by the Majority  Lenders in
accordance with Section 11; provided,  however,  that unless and until the Agent
has received  any such  request,  the Agent may (but shall not be

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obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable.

     14.6 Credit  Decision  .  Each   Lender   acknowledges  that  none  of  the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter  taken,  including any review of the affairs of the
Borrower and its Subsidiaries and Affiliates,  shall be deemed to constitute any
representation  or warranty  by any  Agent-Related  Person to any  Lender.  Each
Lender  represents to the Agent that it has,  independently and without reliance
upon any Agent-Related  Person and based on such documents and information as it
has deemed  appropriate,  made its own appraisal of and  investigation  into the
business,  prospects,  operations,  property,  financial and other condition and
creditworthiness  of the Borrower and its Subsidiaries  and Affiliates,  and all
applicable  bank  regulatory  laws  relating  to the  transactions  contemplated
hereby,  and made its own  decision to enter into this  Agreement  and to extend
credit to the Borrower. Each Lender also represents that it will,  independently
and without reliance upon any  Agent-Related  Person and based on such documents
and information as it shall deem  appropriate at the time,  continue to make its
own credit  analysis,  appraisals  and  decisions in taking or not taking action
under  this  Agreement  and  the  other  Loan   Documents,   and  to  make  such
investigations  as it deems  necessary  to  inform  itself  as to the  business,
prospects,   operations,   property,   financial   and   other   condition   and
creditworthiness of the Borrower and its Subsidiaries and Affiliates. Except for
notices,  reports and other documents  expressly herein required to be furnished
to the Lenders by the Agent, the Agent shall not have any duty or responsibility
to  provide  any  Lender  with any credit or other  information  concerning  the
business,  prospects,  operations,  property,  financial and other  condition or
creditworthiness  of the Borrower or any of its Subsidiaries or Affiliates which
may  come  into  the  possession  of  any  of the  Agent-Related  Persons.

     14.7 Indemnification . Whether or not the transactions  contemplated hereby
are  consummated,  the Lenders  shall  indemnify  upon demand the  Agent-Related
Persons  (to the  extent  not  reimbursed  by or on behalf of the  Borrower  and
without  limiting the  obligation of the Borrower to do so), pro rata,  from and
against any and all  Indemnified  Liabilities as such term is defined in Section
15.11; provided,  however, that no Lender shall be liable for the payment to the
Agent-Related  Persons of any portion of such Indemnified  Liabilities resulting
solely  from such  Person's  gross  negligence  or willful  misconduct.  Without
limitation of the foregoing,  each Lender shall  reimburse the Agent upon demand
for its ratable share of any costs or out-of-pocket expenses (including Attorney
Costs)  incurred by the Agent in  connection  with the  preparation,  execution,
delivery,  administration,   modification,  amendment  or  enforcement  (whether
through  negotiations,  legal  proceedings  or otherwise) of, or legal advice in
respect of rights or  responsibilities  under,  this  Agreement,  any other Loan
Document,  or any document  contemplated by or referred to herein, to the extent
that the  Agent is not  reimbursed  for such  expenses  by or on  behalf  of the
Borrower.  The undertaking in this Section 14.7 shall survive the payment of all
Obligations hereunder and the resignation or replacement of the Agent.

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     14.8  Agent in Individual Capacity . BofA and its Affiliates may make loans
to, issue letters of credit for the account of, accept  deposits  from,  acquire
equity  interests  in and  generally  engage  in any  kind  of  banking,  trust,
financial  advisory,  underwriting  or other  business with the Borrower and its
Subsidiaries  and  Affiliates  as though BofA were not the Agent  hereunder  and
without  notice to or consent of the  Lenders.  The  Lenders  acknowledge  that,
pursuant to such  activities,  BofA or its  Affiliates  may receive  information
regarding  the Borrower or its  Affiliates  (including  information  that may be
subject  to  confidentiality  obligations  in  favor  of the  Borrower  or  such
Affiliate)  and  acknowledge  that the  Agent  shall be under no  obligation  to
provide such information to them. With respect to its Loans, BofA shall have the
same rights and powers under this Agreement as any other Lender and may exercise
the same as though it were not the Agent,  and the terms  "Lender" and "Lenders"
include BofA in its individual capacity.

     14.9  Successor  Agent . The Agent may resign as Agent upon 30 days' notice
to the Lenders and the Borrower. If the Agent resigns under this Agreement,  the
Majority  Lenders shall appoint from among the Lenders a successor agent for the
Lenders.  If no successor  agent is appointed prior to the effective date of the
resignation  of the Agent,  the Agent may  appoint,  after  consulting  with the
Lenders and the  Borrower,  a successor  agent from among the Lenders.  Upon the
acceptance of its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring Agent and the
term  "Agent"  shall  mean  such  successor  agent  and  the  retiring   Agent's
appointment,  powers and duties as Agent shall be terminated. After any retiring
Agent's resignation  hereunder as Agent, the provisions of this Section 14 shall
inure to its benefit as to any actions  taken or omitted to be taken by it while
it  was  Agent  under  this  Agreement.  If  no  successor  agent  has  accepted
appointment as Agent by the date which is 30 days  following a retiring  Agent's
notice of  resignation,  the retiring  Agent's  resignation  shall  nevertheless
thereupon  become  effective  and the Lenders shall perform all of the duties of
the Agent hereunder  until such time, if any, as the Majority  Lenders appoint a
successor agent as provided for above.

     14.10 Withholding Tax .

          (a) If any Lender is a  "foreign  corporation,  partnership  or trust"
within the  meaning of the Code and such  Lender  claims  exemption  from,  or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such
Lender agrees with and in favor of the Agent, to deliver to the Agent:

               (i)    if such  Lender claims  an exemption from,  or a reduction
of,  withholding  tax under a United States tax treaty,  properly  completed IRS
Forms 1001 and W-8 before the payment of any interest in the first calendar year
and before the payment of any interest in each third  succeeding  calendar  year
during which interest may be paid under this Agreement;

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               (ii)   if  such  Lender  claims  that interest  paid  under  this
Agreement is exempt from United States withholding tax because it is effectively
connected  with a United  States trade or business of such Lender,  two properly
completed  and  executed  copies  of IRS Form 4224  before  the  payment  of any
interest is due in the first taxable year of such Lender and in each  succeeding
taxable  year of such  Lender  during  which  interest  may be paid  under  this
Agreement, and IRS Form W-9; and

               (iii) such other form or forms as may be required  under the Code
or other  laws of the  United  States  as a  condition  to  exemption  from,  or
reduction of, United States withholding tax.

Such Lender agrees to promptly  notify the Agent of any change in  circumstances
which would modify or render invalid any claimed exemption or reduction.

          (b) If any Lender claims exemption from, or reduction of,  withholding
tax under a United  States tax treaty by providing IRS Form 1001 and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of the Borrower to such Lender, such Lender agrees to notify the
Agent of the percentage  amount in which it is no longer the beneficial owner of
Obligations  of the  Borrower to such Lender.  To the extent of such  percentage
amount, the Agent will treat such Lender's IRS Form 1001 as no longer valid.

          (c) If any Lender  claiming  exemption from United States  withholding
tax  by  filing  IRS  Form  4224  with  the  Agent  sells,  assigns,   grants  a
participation  in, or otherwise  transfers all or part of the Obligations of the
Borrower to such Lender, such Lender agrees to undertake sole responsibility for
complying with the  withholding  tax  requirements  imposed by Sections 1441 and
1442 of the Code.

          (d) If  any  Lender  is  entitled  to a  reduction  in the  applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the applicable withholding tax after taking into account
such reduction.  If the forms or other documentation  required by subsection (a)
of this  Section  14.10  are not  delivered  to the  Agent,  then the  Agent may
withhold from any interest  payment to such Lender not  providing  such forms or
other documentation an amount equivalent to the applicable withholding tax.

          (e) If the  IRS or any  other  Governmental  Authority  of the  United
States or other  jurisdiction  asserts a claim  that the Agent did not  properly
withhold tax from amounts paid to or for the account of any Lender  (because the
appropriate form was not delivered,  was not properly executed,  or because such
Lender failed to notify the Agent of a change in  circumstances  which  rendered
the exemption  from, or reduction of,  withholding tax  ineffective,  or for any
other reason) such Lender shall indemnify the Agent and the Borrower (but in the
case of the Borrower  only if the  appropriate  form was either not delivered or
not properly  executed either at the time that such Lender first became a Lender
hereunder  or at any  later  time if such  form then  could  have  been  legally
delivered by such Lender) fully for all amounts paid, directly

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or indirectly,  by the Agent or the  Borrower  as  tax  or  otherwise, including
penalties and interest,  and including any taxes imposed by any  jurisdiction on
the amounts  payable to the Agent under this Section  14.10,  together  with all
costs and expenses  (including  Attorney Costs), and the Borrower shall not have
any  obligation  pursuant  to  Section  5.1 for  such  withholding  taxes if the
appropriate  form is not  delivered  under  the  circumstances  set forth in the
second immediately preceding parenthetical.  The obligation of the Lenders under
this subsection shall survive the payment of all Obligations and the resignation
or replacement of the Agent.

     14.11 [Reserved.]

     14.12 Collateral Matters .

          (a) The Lenders hereby irrevocably  authorize the Agent, at its option
and in its sole discretion,  to release any Agent's Lien upon any Collateral (i)
upon the termination of the Commitments and payment and  satisfaction in full by
the Borrower of all Loans and reimbursement obligations in respect of Letters of
Credit and Credit Support,  and,  subject to Section 2.4(j),  the termination of
all outstanding  Letters of Credit  (whether or not any of such  obligations are
due) and all other outstanding monetary Obligations;  (ii) constituting property
being sold or disposed of if the  Borrower  certifies to the Agent that the sale
or  disposition  is made in compliance  with Section 9.9 (and the Agent may rely
conclusively  on  any  such  certificate,   without  further   inquiry);   (iii)
constituting  property in which  neither the Borrower  nor any other  grantor of
Collateral  owned any  interest  at the time the Lien was granted or at any time
thereafter;  (iv)  constituting  property  leased to the  Borrower  or any other
grantor of  Collateral  under a lease which has expired or been  terminated in a
transaction  permitted  under this  Agreement;  or (v) as and when  provided  or
required by the terms of the Intercreditor Agreement.  Except as provided above,
the Agent will not release any of the Agent's  Liens  without the prior  written
authorization  of the Lenders;  provided that the Agent may, in its  discretion,
release the Agent's Liens on Collateral valued in the aggregate not in excess of
$5,000,000 without the prior written  authorization of the Lenders. Upon request
by the Agent or the  Borrower at any time,  the Lenders  will confirm in writing
the Agent's  authority  to release any Agent's  Liens upon  particular  types or
items of Collateral pursuant to this Section 14.12.

          (b) Upon receipt by the Agent of any  authorization  required pursuant
to Section  14.12(a)  from the Lenders of the Agent's  authority  to release any
Agent's Liens upon  particular  types or items of Collateral,  and upon at least
five (5) Business Days' prior written  request by the Borrower,  the Agent shall
(and is hereby irrevocably  authorized by the Lenders to) execute such documents
as may be  necessary  to evidence  the  release of the  Agent's  Liens upon such
Collateral;  provided,  however,  that (i) the Agent  shall not be  required  to
execute any such document on terms which, in the Agent's  opinion,  would expose
the Agent to liability or create any obligation or entail any consequence  other
than the  release of such Liens  without  recourse  or  warranty,  and (ii) such
release shall not in any manner  discharge,  affect or impair the Obligations or
any Liens (other than those  expressly  being  released) upon (or obligations of
the Borrower or any other  grantor of  Collateral  in respect of) all  interests
retained by the Borrower or any other

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grantor of Collateral,  including (without limitation) the proceeds of any sale,
all of which shall continue to constitute part of the Collateral.

          (c) The  Agent  shall  have  no  obligation  whatsoever  to any of the
Lenders to assure that the Collateral  exists or is owned by the Borrower or any
other grantor of  Collateral  or is cared for,  protected or insured or has been
encumbered,  or that the Agent's  Liens have been  properly or  sufficiently  or
lawfully  created,  perfected,  protected  or  enforced  or are  entitled to any
particular priority,  or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising,  any of the
rights, authorities and powers granted or available to the Agent pursuant to any
of the Loan  Documents,  it being  understood  and agreed that in respect of the
Collateral,  or any act, omission or event related thereto, the Agent may act in
any manner it may deem appropriate, in its sole discretion given the Agent's own
interest in the  Collateral  in its  capacity as one of the Lenders and that the
Agent shall have no other duty or liability  whatsoever  to any Lender as to any
of the foregoing.

     14.13 Restrictions on Actions by Lenders; Sharing of Payments .

          (a) Each of the Lenders agrees that it shall not,  without the express
consent of all Lenders, and that it shall, to the extent it is lawfully entitled
to do so, upon the request of all Lenders,  set off against the  Obligations  or
any guarantee  thereof,  any amounts owing by such Lender to the Borrower or any
other party liable for any  Obligations or any guarantee  thereof or any grantor
of any Collateral or any accounts of the Borrower or such other party or grantor
now or hereafter maintained with such Lender. Each of the Lenders further agrees
that it shall not, unless specifically  requested to do so by the Agent, take or
cause to be taken any action to enforce its rights  under this  Agreement or any
other Loan  Document or against the  Borrower or any other party  liable for any
Obligations  or  any  guarantee  thereof  or  any  grantor  of  any  Collateral,
including,  without  limitation,  the  commencement  of any  legal or  equitable
proceedings,  to  foreclose  any Lien on,  or  otherwise  enforce  any  security
interest in, any of the Collateral.

          (b) If at any time or times any Lender  shall  receive (i) by payment,
foreclosure,  setoff or  otherwise,  any proceeds of  Collateral or any payments
with respect to the Obligations of the Borrower to such Lender arising under, or
relating  to, this  Agreement or the other Loan  Documents,  except for any such
proceeds  or payments  received  by such  Lender from the Agent  pursuant to the
terms of this  Agreement,  or (ii)  payments  from the  Agent in  excess of such
Lender's  ratable portion of all such  distributions  by the Agent,  such Lender
shall  promptly  (1) turn the same  over to the  Agent,  in kind,  and with such
endorsements  as may be required to negotiate the same to the Agent,  or in same
day  funds,  as  applicable,  for  the  account  of all of the  Lenders  and for
application to the Obligations in accordance  with the applicable  provisions of
this  Agreement,  or (2) purchase,  without  recourse or warranty,  an undivided
interest and  participation in the Obligations owed to the other Lenders so that
such excess payment  received  shall be applied  ratably as among the Lenders in
accordance with their Pro Rata Shares; provided, however, that if all or part of
such excess payment received by the purchasing party is

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thereafter  recovered  from  it,  those  purchases  of  participations  shall be
rescinded in whole or in part, as applicable,  and the applicable portion of the
purchase price paid therefor  shall be returned to such  purchasing  party,  but
without  interest except to the extent that such purchasing party is required to
pay interest in connection with the recovery of the excess payment.

     14.14 Agency for Perfection . Each Lender hereby appoints each other Lender
as agent for the purpose of perfecting the Lenders'  security interest in assets
which,  in  accordance  with  Article  9 of the UCC,  can be  perfected  only by
possession.  Should any Lender (other than the Agent)  obtain  possession of any
such Collateral,  such Lender shall notify the Agent thereof, and, promptly upon
the Agent's  request  therefor shall deliver such  Collateral to the Agent or in
accordance with the Agent's instructions.

     14.15  Payments by Agent to Lenders . All  payments to be made by the Agent
to the  Lenders  shall be made by bank wire  transfer  or  internal  transfer of
immediately   available   funds  to  each  Lender   pursuant  to  wire  transfer
instructions  delivered  in writing to the Agent on or prior to the Closing Date
(or if such Lender is an Assignee, on the applicable Assignment and Acceptance),
or pursuant to such other wire transfer instructions as each party may designate
for itself by written notice to the Agent.  Concurrently with each such payment,
the  Agent  shall  identify  whether  such  payment  (or  any  portion  thereof)
represents principal,  premium or interest on the Revolving Loans, Term Loans or
otherwise.

     14.16  Concerning  the  Collateral  and the Related  Loan  Documents . Each
Lender  authorizes  and directs the Agent to enter into this  Agreement  and the
other Loan Documents relating to the Collateral,  for the ratable benefit of the
Agent and the  Lenders.  Each Lender  agrees that any action taken by the Agent,
Majority  Lenders or Required  Lenders,  as applicable,  in accordance  with the
terms of this Agreement or the other Loan Documents  relating to the Collateral,
and the exercise by the Agent, the Majority Lenders, or the Required Lenders, as
applicable,  of their  respective  powers set forth therein or herein,  together
with such other powers that are reasonably incidental thereto,  shall be binding
upon all of the Lenders.

     14.17  Field  Audit and  Examination  Reports;  Disclaimer  by Lenders . By
signing this Agreement, each Lender:

          (a) is deemed to have  requested  that the Agent  furnish such Lender,
promptly after it becomes  available,  a copy of each field audit or examination
report (each a "Report" and collectively, "Reports") prepared by the Agent;

          (b) expressly agrees and acknowledges  that neither BofA nor the Agent
(i) makes any  representation or  warranty  as to the accuracy of any Report, or
(ii) shall be liable for any information contained in any Report;

          (c)  expressly  agrees  and  acknowledges  that  the  Reports  are not
comprehensive audits or examinations, that the Agent or  other  party performing
any audit or

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examination will inspect only specific information regarding the Borrower or any
of its Affiliates and will rely  significantly  upon the Borrower's  and/or such
Affiliate's books and records,  as well as on  representations of the Borrower's
and/or such Affiliate's personnel;

          (d)  agrees to keep all  Reports  confidential  and  strictly  for its
internal  use,  and not to  distribute  except to its  participants,  or use any
Report in any other manner; and

          (e)  without  limiting  the  generality  of any other  indemnification
provision  contained in this  Agreement,  agrees:  (i) to hold the Agent and any
such other Lender  preparing a Report harmless from any action the  indemnifying
Lender may take or conclusion the indemnifying Lender may reach or draw from any
Report in  connection  with any loans or other  credit  accommodations  that the
indemnifying  Lender has made or may make to the Borrower,  or the  indemnifying
Lender's  participation in, or the indemnifying  Lender's purchase of, a loan or
loans of the Borrower;  and (ii) to pay and protect,  and indemnify,  defend and
hold the Agent and any such other Lender  preparing a Report  harmless  from and
against, the claims,  actions,  proceedings,  damages, costs, expenses and other
amounts (including, without limitation attorney costs) incurred by the Agent and
any such other Lender preparing a Report as the direct or indirect result of any
third  parties  who  might  obtain  all  or  part  of  any  Report  through  the
indemnifying Lender.

     14.18  Relation   Among   Lenders  .  The  Lenders  are   not  partners  or
co-venturers,  and no Lender  shall be liable for the acts or  omissions  of, or
(except as otherwise  set forth herein in case of the Agent)  authorized  to act
for, any other Lender.

                                   ARTICLE 15

                                  MISCELLANEOUS
                                  -------------

     15.1   Cumulative   Remedies;   No  Prior   Recourse  to  Collateral .  The
enumeration  herein of the Agent's and each Lender's  rights and remedies is not
intended to be  exclusive,  and such rights and  remedies are in addition to and
not by way of  limitation of any other rights or remedies that the Agent and the
Lenders  may have  under  the UCC or other  applicable  law.  The  Agent and the
Lenders  shall have the right,  in their sole  discretion,  to  determine  which
rights and remedies are to be exercised and in which order.  The exercise of one
right or remedy  shall not  preclude  the  exercise of any others,  all of which
shall be cumulative. The Agent and the Lenders may, without limitation,  proceed
directly  against the  Borrower or any other  Person to collect the  Obligations
without any prior  recourse  to the  Collateral.  No failure to exercise  and no
delay in exercising,  on the part of the Agent or any Lender, any right, remedy,
power or privilege  hereunder,  shall operate as a waiver thereof; nor shall any
single or partial exercise of any right,  remedy,  power or privilege  hereunder
preclude  any other or further  exercise  thereof or the  exercise  of any other
right, remedy, power or privilege.

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     15.2   Severability . The illegality or unenforceability  of  any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way  affect  or impair  the  legality  or  enforceability  of the  remaining
provisions of this Agreement or any instrument or agreement required hereunder.

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

          (a) THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES
OF THE PARTIES  HERETO  DETERMINED  IN  ACCORDANCE  WITH THE  INTERNAL  LAWS (AS
OPPOSED TO THE CONFLICT OF LAWS PROVISIONS  PROVIDED THAT PERFECTION ISSUES WITH
RESPECT TO ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT
OF LAW  RULES  SET  FORTH IN  ARTICLE  9 OF THE UCC) OF THE  STATE OF NEW  YORK;
PROVIDED  THAT THE AGENT AND THE LENDERS  SHALL RETAIN ALL RIGHTS  ARISING UNDER
FEDERAL LAW.

          (b) ANY LEGAL ACTION OR PROCEEDING  WITH RESPECT TO THIS  AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR
OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND
DELIVERY OF THIS  AGREEMENT,  EACH OF THE  BORROWER,  PARENT,  THE AGENT AND THE
LENDERS  CONSENTS,   FOR  ITSELF  AND  IN  RESPECT  OF  ITS  PROPERTY,   TO  THE
NON-EXCLUSIVE  JURISDICTION OF THOSE COURTS.  EACH OF THE BORROWER,  PARENT, THE
AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION,  INCLUDING ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER  HAVE TO THE BRINGING OF ANY ACTION OR  PROCEEDING  IN SUCH
JURISDICTION  IN RESPECT  OF THIS  AGREEMENT  OR ANY  DOCUMENT  RELATED  HERETO.
NOTWITHSTANDING  THE  FOREGOING:  (1) THE AGENT AND THE  LENDERS  SHALL HAVE THE
RIGHT TO BRING ANY ACTION OR PROCEEDING  AGAINST ANY OF THE BORROWER,  PARENT OR
THEIR RESPECTIVE  PROPERTY IN THE COURTS OF ANY OTHER  JURISDICTION THE AGENT OR
THE LENDERS DEEM  NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL
OR  OTHER  SECURITY  FOR THE  OBLIGATIONS  AND (2)  EACH OF THE  PARTIES  HERETO
ACKNOWLEDGES  THAT ANY  APPEALS  FROM THE COURTS  DESCRIBED  IN THE  IMMEDIATELY
PRECEDING  SENTENCE  MAY  HAVE TO BE  HEARD  BY A COURT  LOCATED  OUTSIDE  THOSE
JURISDICTIONS.

          (c) EACH OF THE BORROWER AND PARENT HEREBY WAIVES PERSONAL  SERVICE OF
ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE
MADE BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO IT AT ITS ADDRESS
SET FORTH IN SECTION  15.8 AND  SERVICE SO MADE SHALL BE DEEMED TO BE  COMPLETED
FIVE (5) DAYS

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AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S. MAILS. NOTHING CONTAINED
HEREIN SHALL AFFECT THE RIGHT OF AGENT OR THE LENDERS TO SERVE LEGAL  PROCESS BY
ANY OTHER MANNER PERMITTED BY LAW.

          (d) No provision of this Agreement  shall limit the right of the Agent
or the  Lenders to  exercise  self-help  remedies  such as  setoff,  foreclosure
against or sale of any real or personal  property  collateral  or  security,  or
obtaining   provisional  or  ancillary   remedies  from  a  court  of  competent
jurisdiction  before,  after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration or reference.  At the Agent's option,  foreclosure under a
deed of trust or  mortgage  may be  accomplished  either by exercise of power of
sale under the deed of trust or mortgage or by judicial foreclosure.

     15.4   WAIVER  OF  JURY TRIAL . THE  BORROWER, PARENT, THE LENDERS  AND THE
AGENT  EACH  WAIVE  THEIR  RESPECTIVE  RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS  AGREEMENT,  THE
OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR ANY  AGENT-RELATED  PERSON,  PARTICIPANT OR ASSIGNEE,
WHETHER  WITH  RESPECT TO  CONTRACT  CLAIMS,  TORT  CLAIMS,  OR  OTHERWISE.  THE
BORROWER,  PARENT,  THE  LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING
THE FOREGOING,  THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL
BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER  PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY  OF THIS  AGREEMENT OR THE OTHER LOAN  DOCUMENTS OR ANY PROVISION
HEREOF  OR  THEREOF.  THIS  WAIVER  SHALL  APPLY TO ANY  SUBSEQUENT  AMENDMENTS,
RENEWALS,  SUPPLEMENTS  OR  MODIFICATIONS  TO THIS  AGREEMENT AND THE OTHER LOAN
DOCUMENTS.

     15.5   Survival of Representations and Warranties . All  of the  Borrower's
and Parent's  representations  and warranties  contained in this Agreement shall
survive  the  execution,  delivery,  and  acceptance  thereof  by  the  parties,
notwithstanding  any  investigation  by  the  Agent  or  the  Lenders  or  their
respective agents.

     15.6   Other  Security and Guaranties . The Agent, may,  without  notice or
demand and without affecting the Borrower's or Parent's  obligations  hereunder,
from time to time: (a) take from any Person and hold collateral  (other than the
Collateral)  for the payment of all or any part of the Obligations and exchange,
enforce or release such collateral or any part thereof;  and

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<PAGE>

(b) accept and hold any endorsement or guaranty of payment of all or any part of
the Obligations and release or substitute any such endorser or guarantor, or any
Person  who has given  any Lien in any  other  collateral  as  security  for the
payment of all or any part of the  Obligations,  or any other  Person in any way
obligated to pay all or any part of the Obligations.

     15.7   Fees and Expenses . The Borrower agrees to pay to the Agent, for its
benefit,  on demand, all reasonable costs and expenses that Agent pays or incurs
in connection with the negotiation, preparation,  consummation,  administration,
syndication,  enforcement, and termination of this Agreement, including, without
limitation or duplication: (a) Attorney Costs; (b) reasonable costs and expenses
(including  reasonable  attorneys' and paralegals' fees and disbursements  which
shall include the reasonable  allocated costs of Agent's  in-house  counsel fees
and disbursements) for any amendment, supplement, waiver, consent, or subsequent
closing in connection with the Loan Documents and the transactions  contemplated
thereby;  (c) costs and expenses of lien and title searches and title insurance;
(d) taxes, fees and other charges for recording the Mortgages,  filing financing
statements  and  continuations,  and other  actions  to  perfect,  protect,  and
continue the Agent's Liens (including costs and expenses paid or incurred by the
Agent in connection with the consummation of this  Agreement);  (e) sums paid or
incurred to pay any amount or take any action  required of the Borrower,  Parent
or any of its other  Subsidiaries  under the Loan  Documents  that the Borrower,
Parent or such other  Subsidiary  fails to pay or take; (f) costs of appraisals,
inspections, and verifications of the Collateral, including, without limitation,
travel,  lodging, and meals for inspections of the Collateral and the Borrower's
operations  by the  Agent  plus the  Agent's  then  customary  charge  for field
examinations  and audits and the  preparation of reports thereof (such charge is
currently  $750 per day (or portion  thereof)  for each agent or employee of the
Agent with respect to each field examination or audit) (such field  examinations
and audits to be conducted  not more often than three times each  calendar  year
unless an Event of  Default  shall have  occurred);  (g) costs and  expenses  of
forwarding  loan  proceeds,  collecting  checks and other items of payment,  and
establishing  and  maintaining  Payment  Accounts and lock boxes;  (h) costs and
expenses of preserving and protecting the Collateral; and (i) costs and expenses
(including attorneys' and paralegals' fees and disbursements which shall include
the allocated cost of Agent's in-house counsel fees and  disbursements)  paid or
incurred to obtain payment of the Obligations,  enforce the Agent's Liens,  sell
or otherwise  realize upon the Collateral,  and otherwise enforce the provisions
of the Loan  Documents,  or to defend any claims made or threatened  against the
Agent  or  any  Lender  arising  out  of the  transactions  contemplated  hereby
(including without limitation, preparations for and consultations concerning any
such  matters).  The  foregoing  shall  not be  construed  to  limit  any  other
provisions of the Loan Documents  regarding costs and expenses to be paid by the
Borrower.  All of the  foregoing  costs and  expenses  shall be  charged  to the
Borrower's Loan Account as Revolving Loans as described in Section 4.7.

         15.8  Notices . Except  as  otherwise  provided  herein,  all  notices,
demands and  requests  that any party is required or elects to give to any other
shall be in writing,  or by a  telecommunications  device  capable of creating a
written  record,  and any such notice shall become  effective  (a) upon personal
delivery thereof,  including, but not limited to, delivery by

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overnight mail and courier  service,  (b) four (4) days after it shall have been
mailed by United States mail, first class, certified or registered, with postage
prepaid, or (c) in the case of notice by such a telecommunications  device, when
properly  transmitted,  in each case  addressed  to the party to be  notified as
follows:

If to the Agent or to BofA:

         Bank of America, N.A.
         40 East 52nd Street
         New York, New York  10022
         Attention:  Division Manager
         Telecopy No.  (212) 836-5167

         with copies to:

         Bank of America, N.A.
         335 Madison Avenue
         New York, New York  10017
         Attention:  Legal Department
         Telecopy No.  (212) 503-7350

If to any other Lender: at its address below its signature on the signature
pages hereof

If to the Borrower or Parent:

         Sweetheart Cup Company Inc.
         or Sweetheart Holdings Inc. (as appropriate)
         10100 Reisterstown Road
         Owings Mills, Maryland  21117
         Attention:   Director of Treasury Services
         Telecopy No.  (410) 998-1492

         with copies to:

         Sweetheart Cup Company Inc.
         10100 Reisterstown Road
         Owings Mills, Maryland  21117
         Attention:  Daniel M. Carson, Vice President - General Counsel and
                     Corporate Secretary
         Telecopy No.  (410) 998-1313

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<PAGE>
                  -and-

         Kramer Levin Naftalis & Frankel LLP
         919 Third Avenue
         New York, New York  10022
         Attention:  Michael S. Nelson, Esq.
         Telecopy No.  (212) 715-8000

or to such other  address as each party may designate for itself by like notice.
Failure or delay in delivering copies of any notice, demand,  request,  consent,
approval,  declaration or other communication to the persons designated above to
receive  copies shall not  adversely  affect the  effectiveness  of such notice,
demand, request, consent, approval, declaration or other communication.

     15.9   Waiver of Notices . Unless otherwise expressly provided herein, each
of the Borrower and Parent waives  presentment,  protest and notice of demand or
dishonor and protest as to any  instrument,  notice of intent to accelerate  the
Obligations and notice of acceleration  of the  Obligations,  as well as any and
all other  notices  to which it might  otherwise  be  entitled.  No notice to or
demand on the Borrower or Parent which the Agent or any Lender may elect to give
shall  entitle the Borrower or Parent to any or further  notice or demand in the
same, similar or other circumstances.

     15.10   Binding Effect . The provisions of this  Agreement shall be binding
upon and inure to the benefit of the respective representatives, successors, and
assigns of the parties hereto; provided, however, that no interest herein may be
assigned by the Borrower or Parent  without prior  written  consent of the Agent
and each Lender.  The rights and benefits of the Agent and the Lenders hereunder
shall,  if such Persons so agree,  inure to any party  acquiring any interest in
the Obligations or any part thereof.

     15.11   Indemnity  of  the  Agent  and  the  Lenders  by the Borrower . The
Borrower agrees to defend,  indemnify and hold the  Agent-Related  Persons,  and
each Lender and each of its respective officers, directors,  employees, counsel,
agents and  attorneys-in-fact  (each, an "Indemnified Person") harmless from and
against  any and  all  liabilities,  obligations,  losses,  damages,  penalties,
actions, judgments, suits, costs, charges, expenses and disbursements (including
Attorney  Costs)  of any  kind  or  nature  whatsoever  which  may  at any  time
(including  at any time  following  repayment of the Loans and the  termination,
resignation or replacement of the Agent or replacement of any Lender) be imposed
on,  incurred by or asserted  against any such Person in any way  relating to or
arising out of this  Agreement  or any document  contemplated  by or referred to
herein, or the transactions  contemplated hereby, or any action taken or omitted
by any such Person under or in connection  with any of the foregoing,  including
with respect to any  investigation,  litigation  or  proceeding  (including  any
Insolvency Proceeding or appellate proceeding) related to or arising out of this
Agreement,  any other  Loan  Document,  or the Loans or the use of the  proceeds
thereof, whether or not any Indemnified Person is a party

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<PAGE>

thereto  (all  the  foregoing,  collectively,  the  "Indemnified  Liabilities");
provided,   that  the  Borrower  shall  have  no  obligation  hereunder  to  any
Indemnified  Person  with  respect  to  Indemnified  Liabilities  to the  extent
resulting from the willful misconduct of such Indemnified Person. The agreements
in this Section shall survive payment of all other Obligations.

     15.12   Limitation  of Liability  . No claim  may be made by the  Borrower,
Parent,  any Lender or other  Person  against  the  Agent,  any  Lender,  or the
affiliates,  directors,  officers, officers, employees, or agents of any of them
for any special,  indirect,  consequential or punitive damages in respect of any
claim for breach of contract or any other theory of liability  arising out of or
related to the  transactions  contemplated  by this  Agreement or any other Loan
Document, or any act, omission or event occurring in connection  therewith,  and
the Borrower,  Parent and each Lender hereby waive, release and agree not to sue
upon any claim for such damages,  whether or not accrued and whether or not know
or suspected to exist in its favor.

     15.13   Final  Agreement . This Agreement and the other Loan  Documents are
intended  by the  Borrower,  Parent,  the Agent and the Lenders to be the final,
complete, and exclusive expression of the agreement between them. This Agreement
supersedes any and all prior oral or written agreements  relating to the subject
matter hereof (including,  without limitation,  the terms of the Original Credit
Agreement,  which terms were amended and restated in their entirety  pursuant to
the Existing Loan and Security  Agreement).  Further,  the terms of the Borrower
Security  Agreement,  the Parent Security  Agreement and each of the Amended and
Restated Borrower  Intellectual  Property Agreement and the Amended and Restated
Holdings Intellectual Property Agreement,  each dated as of the Original Closing
Date, between the Borrower or Parent,  respectively,  and the Agent supersede in
their  entirety the terms of the  predecessors  thereof,  which were amended and
restated (such amendments and restatements not affecting the security  interests
and liens created under the predecessor  agreements  (which shall remain in full
force and  effect) or the time of creation  thereof,  except as modified by such
amendments and restatements).  No modification,  rescission, waiver, release, or
amendment of any provision of this Agreement or any other Loan Document shall be
made, except by a written agreement signed by the Borrower and Parent and a duly
authorized officer of each of the Agent and the requisite Lenders.

     15.14   Counterparts  . This Agreement  may be  executed  in any  number of
counterparts, and by the Agent, each Lender, the Borrower and Parent in separate
counterparts,  each of  which  shall  be an  original,  but all of  which  shall
together constitute one and the same agreement.

     15.15   Captions  .  The captions  contained  in  this  Agreement  are  for
convenience of reference only, are without substantive meaning and should not be
construed to modify, enlarge, or restrict any provision.

     15.16   Right of Setoff . In  addition  to any rights and  remedies  of the
Lenders  provided by law,  if an Event of Default  exists or the Loans have been
accelerated,  each  Lender  is  authorized  at any time  and from  time to time,
without prior notice to the Borrower or Parent, any

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<PAGE>

such  notice  being  waived by the  Borrower  and Parent to the  fullest  extent
permitted by law, to set off and apply any and all deposits (general or special,
time  or  demand,  provisional  or  final)  at  any  time  held  by,  and  other
indebtedness  at any time  owing by,  such  Lender  to or for the  credit or the
account of the Borrower or Parent against any and all Obligations  owing to such
Lender, now or hereafter  existing,  irrespective of whether or not the Agent or
such Lender shall have made demand under this Agreement or any Loan Document and
although such  Obligations  may be  contingent or unmatured.  Each Lender agrees
promptly to notify the Borrower or Parent,  as appropriate,  and the Agent after
any such set-off and application made by such Lender;  provided,  however,  that
the failure to give such notice  shall not affect the  validity of such  set-off
and  application.  NOTWITHSTANDING  THE FOREGOING,  NO LENDER SHALL EXERCISE ANY
RIGHT OF SET-OFF,  BANKER'S  LIEN,  OR THE LIKE  AGAINST ANY DEPOSIT  ACCOUNT OR
PROPERTY OF THE BORROWER OR PARENT HELD OR MAINTAINED BY SUCH LENDER WITHOUT THE
PRIOR WRITTEN UNANIMOUS CONSENT OF THE LENDERS.

     15.17   Credit  Agreement  and Conflicts . This  Agreement is and is hereby
deemed  to be a  "Credit  Agreement"  for  all  purposes  of  the  Intercreditor
Agreement. In the event of a conflict between any of the terms and provisions of
this  Agreement  and any of the terms and  provisions  of the Borrower  Security
Agreement, the terms and provisions of this Agreement shall control.

     15.18   Intercreditor Agreement .

          (a) EACH LENDER HEREBY GRANTS TO THE AGENT ALL REQUISITE  AUTHORITY TO
EXECUTE AND DELIVER THE  INTERCREDITOR  AGREEMENT  (OR OTHERWISE TO BECOME BOUND
THEREBY) AND TO BIND THE LENDERS  THERETO BY THE AGENT'S  EXECUTION AND DELIVERY
THEREOF OR BY THE AGENT OTHERWISE BECOMING BOUND THEREBY, AND NO FURTHER CONSENT
OR APPROVAL ON THE PART OF THE LENDERS IS OR WILL BE REQUIRED IN CONNECTION WITH
THE EXECUTION, DELIVERY AND PERFORMANCE OF THE INTERCREDITOR AGREEMENT.

          (b) EACH LENDER  ACKNOWLEDGES  AND AGREES THAT THIS  AGREEMENT AND THE
OTHER  SECURITY  DOCUMENTS  (INCLUDING THE ALLOCATION OF PROCEEDS OF COLLATERAL)
ARE SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT.

     15.19   Amendments to Certain Security Documents.  The parties hereto agree
that the following Security Documents are amended as provided below:

          (a) Each of the Parent  Security  Agreement and the Borrower  Security
Agreement is amended by (x) replacing the term "Senior Note Priority Collateral"
in each  place  where it  appears  in such  agreements  with  the term  "Secured
Sale/Leaseback Collateral," (y) replacing the term "Senior Secured Note Security
Documents" in each place where it appears

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<PAGE>

in such agreements with the term "Secured Sale/Leaseback Security Documents" and
(z) replacing the term "Intercreditor  Agreement" in each place where it appears
in such agreements with the term "Intercreditor Agreement" as defined herein.

          (b) Each of the Amended and Restated  Borrower  Intellectual  Property
Agreement,  dated as of October 24, 1997, between the Borrower and the Agent and
the Amended and Restated Holdings Intellectual  Property Agreement,  dated as of
October 24, 1997,  between Parent and Agent is amended by (x) replacing the term
"Intercreditor Agreement" in each place where it appears in such agreements with
the term  "Intercreditor  Agreement" as defined herein and (y) adding the phrase
"(or with respect to any  Trademarks  not  constituting  Secured  Sale/Leaseback
Collateral,  ending on the Payment and Termination  Date)" immediately after the
phrase  "ending on the date which  occurs six months  thereafter"  in the second
sentence of Section 3.1 thereof.

     15.20   Ratification  and Confirmation  . Each of the  Borrower  and Parent
hereby  ratifies and confirms its grant of security  interests  and liens in the
Collateral (including,  without limitation, any and all Collateral granted under
the  Existing  Loan and  Security  Agreement  and the other Loan  Documents  (as
therein  defined))  in which it has rights  and  confirms  and agrees  that such
Collateral  secures  any  and  all  of  the  Obligations,   including,   without
limitation,  the  Revolving  Loans and Term Loans.  Parent  hereby  ratifies and
confirms  its  guarantee  pursuant  to  the  Parent  Guaranty  of  any  and  all
Obligations,  including, without limitation, the Revolving Loans and Term Loans.
All  Obligations  outstanding  under the Existing  Loan and  Security  Agreement
immediately  prior to the  amendment  and  restatement  thereof as  contemplated
hereby  (such   Obligations,   the   "Existing   Loan  and  Security   Agreement
Obligations") shall, unless and until paid, continue to remain outstanding under
this Agreement and shall not constitute new Obligations incurred by the Borrower
on or after the Closing  Date.  The Borrower  hereby  confirms that all Existing
Loan and  Security  Agreement  Obligations  are due and  owing  without  offset,
defense,  counterclaim  or  recoupment  of any kind or nature.  Except as herein
otherwise  agreed,  each of the Security  Documents is ratified and confirmed in
accordance with its terms and shall continue in full force and effect.

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<PAGE>

         IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.

                                        "BORROWER"

                                        SWEETHEART CUP COMPANY INC.

                                        By: ___________________________
                                            Name:
                                            Title:

                                        "PARENT"

                                        SWEETHEART HOLDINGS INC.

                                        By: ___________________________
                                            Name:
                                            Title:

                                        "AGENT"

                                        BANK OF AMERICA, N.A.,
                                        as the Agent

                                        By: ___________________________
                                            Name:
                                            Title:

                                        "LENDERS"

Commitment:  $67,500,000                BANK OF AMERICA, N.A.,
Pro Rata Share:  42.1875%               as a Lender

                                        By: ___________________________
                                            Name:
                                            Title:

                                       149
<PAGE>

Commitment:  $30,000,000                CONGRESS FINANCIAL CORPORATION,
Pro Rata Share:   18.75%                as a Lender

                                        By: ___________________________
                                            Name:
                                            Title:

                                            Address:
                                              1133 Avenue of the Americas,
                                              29th Floor
                                              New York, New York  10036
                                              Attention:  Steve Schuit
                                              Telecopy No.  (212) 545-4283

Commitment:  $20,000,000                TRANSAMERICA BUSINESS CREDIT
Pro Rata Share:  12.50%                 CORPORATION, as a Lender

                                        By: ___________________________
                                            Name:
                                            Title:

                                            Address:

                                              555 Theodore Fremd Avenue,
                                              Suite C-301
                                              Rye, New York  10580
                                              Attention:  Christopher Norrito
                                              Telecopy No.  (914) 921-5883

Commitment:  $17,500,000                JACKSON NATIONAL LIFE INSURANCE
Pro Rata Share: 10.9375%                COMPANY, as a Lender

                                        By: PPM Finance Inc.,
                                            as its Attorney-in-Fact

                                        By: ___________________________
                                            Name:
                                            Title:

                                            Address:

                                              225 West Wacker Drive,
                                              Suite 1200
                                              Chicago, Illinois  60606
                                              Attention:  James Gurgone
                                              Telecopy No.  (312) 634-0815

                                       150
<PAGE>

Commitment:  $25,000,000                PNC BANK, NATIONAL ASSOCIATION,
Pro Rata Share:  15.625%                as a Lender

                                        By: ___________________________
                                            Name:
                                            Title:

                                            Address:

                                              Two Tower Center Boulevard
                                              East Brunswick, New Jersey  08816
                                              Attention:  Michelle Stanley-Nurse
                                              Telecopy No.  (732) 220-4393

                                       151

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