Document:

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                                                                   EXHIBIT 10.25

                                                                  EXECUTION COPY

                  AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

         This AMENDED AND RESTATED NOTE PURCHASE AGREEMENT (this "AGREEMENT") is
entered into and effective as of June 12, 2000, among Hastings Entertainment,
Inc., a Texas corporation formerly known as Hastings Books, Music & Video,
Inc.(the "COMPANY"), Metropolitan Life Insurance Company and Metropolitan
Insurance and Annuity Company (collectively, the "PURCHASERS" and, individually,
a "PURCHASER"). The parties hereto agree as follows:

                                   WITNESSETH

         WHEREAS, the Company entered into separate identical Note Purchase
Agreements with each of the Purchasers, each dated June 13, 1996, each as
amended by an Amendment No. 1 to Note Purchase Agreement, dated as of March 6,
2000, and a letter agreement, dated May 3, 2000 (as amended, the "EXISTING
AGREEMENTS");

         WHEREAS, pursuant to the Existing Agreements the Company issued to the
Purchasers its 7.75% Series A Senior Notes due June 13, 2003 in the outstanding
principal amount of $20,000,000 (collectively, the "ORIGINAL NOTES");

         WHEREAS, pursuant to a letter agreement, dated May 3, 2000, among the
Company and the Purchasers the interest rate of the Original Notes was increased
by 2.50% per annum, to 10.25% per annum, effective March 13, 2000, and the
interest rate per annum "9.75%" specified in clause (b) of the first paragraph
of the Original Notes was amended, effective March 13, 2000, to read "12.25%"
(as so amended, the "EXISTING NOTES");

         WHEREAS, the parties hereto wish to amend and restate the Existing
Agreements in their entirety to, inter alia, (i) restate the Existing Agreements
into a single agreement; (ii) provide for the exchange of the Existing Notes for
the Company's 10.25% Series A Senior Secured Notes due June 13, 2003; (iii)
provide for the guaranty of the Company's obligations under this Agreement, the
Notes and the other Note Documents by the Guarantors; (iv) provide for the grant
by the Company and the Guarantors of collateral to secure the Company's
obligations under this Agreement, the Notes and the other Note Documents; and
(v) modify and waive certain covenants;

         NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Existing Agreements are hereby
amended and restated in their entirety as follows:

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1. ISSUANCE OF NOTES.

                  Pursuant to the Existing Agreements, the Company authorized,
issued and sold to the Purchasers and the Purchasers purchased from the Company,
at the purchase price of 100% of the principal amount thereof, $25,000,000
aggregate principal amount of the Existing Notes, of which $20,000,000 is
outstanding. On the Effective Date, the Company is delivering to each Purchaser
its 10.25% Series A Senior Secured Notes due June 13, 2003, in the principal
amount specified opposite such Purchaser's name in Schedule A (the "NOTES", such
term to include any such notes issued in substitution therefor pursuant to
Section 13 of the Existing Agreements or this Agreement) in substitution for the
Existing Notes. The Notes shall be substantially in the form set out in Exhibit
1, with such changes therefrom, if any, as may be approved by the holders of the
Notes and the Company. Certain capitalized terms used in this Agreement are
defined in Schedule B (such definitions to be equally applicable to both the
singular and the plural forms of the terms defined); references to a numbered
section, a "Schedule" or an "Exhibit" are, unless otherwise specified, to
sections of, or a Schedule or an Exhibit attached to, this Agreement.

2. [INTENTIONALLY OMITTED].

3. [INTENTIONALLY OMITTED].

4.   CONDITIONS TO EFFECTIVENESS.

                  This Agreement shall become effective as of the date hereof
(the "EFFECTIVE DATE") subject to the fulfillment to the Purchasers'
satisfaction of the following conditions:

         4.1. COUNTERPARTS OF THIS AGREEMENT.

                  The Purchasers shall have received counterparts of this
Agreement, duly executed and delivered by each of the parties hereto.

         4.2. NEW NOTES.

                  Each of the Purchasers shall have received a new Note,
substantially in the form set out in Exhibit 1, in exchange for the Existing
Note held by such Purchaser, payable to such Purchaser, in a principal amount
equal to the outstanding principal amount of such surrendered Existing Note,
dated and bearing interest from March 13, 2000, and duly executed and delivered
by the Company.

         4.3. SECRETARY'S CERTIFICATES.

                  Each Note Party shall have delivered to the Purchasers a
certificate certifying as to the resolutions attached thereto and other
corporate proceedings relating to the authorization,

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execution and delivery of the Notes, this Agreement and the other Note Documents
to which such Note Party is a party.

         4.4. OPINIONS OF COUNSEL.

                  The Purchasers shall have received opinions, in form and
substance satisfactory to the Purchasers, dated the Effective Date from (a)
Sprouse, Smith & Rowley, counsel for the Company, covering the matters set forth
in Exhibit 4.4(a) and (b) Jones, Day Reavis & Pogue, special counsel for the
Company, covering the matters set forth in Exhibit 4.4(b), and in each case
covering such other matters incident to the transactions contemplated hereby as
the Purchasers or their special counsel may reasonably request (and the Company
hereby instructs its counsel and special counsel to deliver such opinions to the
Purchasers).

         4.5. GUARANTY AGREEMENTS.

                  The Company shall have delivered to the Purchasers Guaranty
Agreements, substantially in the form of Exhibit 4.5, duly executed and
delivered by the Initial Guarantors.

         4.6. PAYMENT OF SPECIAL COUNSEL FEES.

                  Without limiting the provisions of Section 15.1, the Company
shall have paid on or before the Effective Date the reasonable fees, charges and
disbursements of the Purchasers' special counsel, Baker Botts L.L.P., and the
reasonable fees, charges and disbursements of any local counsel employed by the
Purchasers or their special counsel to the extent each is reflected in a
statement of such counsel rendered to the Company at least one day prior to the
Effective Date.

         4.7. UCC SEARCHES.

                  The Purchasers shall have received from the Collateral Agent
copies of the Requests for Information or Copies (Form UCC-11) or equivalent
commercially obtained reports obtained by the Collateral Agent with respect to
the Company and its Subsidiaries.

         4.8. PROJECTIONS.

                  The Company shall have delivered to the Purchasers copies,
certified by an authorized financial officer of the Company, of good-faith
management projections and pro forma consolidated financial statements for the
Company and its Subsidiaries for fiscal years 2000 through 2003.

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         4.9. SECURITY DOCUMENTS.

                  The Purchasers shall have received from the Collateral Agent
copies of (a) the Security Documents, duly executed and delivered by each party
thereto, and (b) all Uniform Commercial Code financing statements, financing
statement amendments, or other required filings or notices deemed necessary or
appropriate by the Purchasers or the Collateral Agent to perfect the Liens in
favor of the Collateral Agent arising under the Security Documents, duly
executed and delivered by the appropriate parties thereto, to be recorded with
the appropriate filing offices.

         4.10. INSURANCE.

                  The Purchasers shall have received copies of a certificate
dated the Effective Date and signed by an authorized representative of Marsh USA
Inc., the Company's and its Subsidiaries' insurance broker, listing the policies
of insurance outstanding and in force on the Effective Date in respect of the
Collateral and the Company and its Subsidiaries as of the Effective Date, the
names of the companies issuing such insurance, the amounts and expiration dates
of such insurance and the risks covered thereby.

         4.11. INTERCREDITOR AGREEMENT.

                  The Intercreditor Agreement shall have been duly executed and
delivered to the Purchasers by Bank of America, N.A. (in both its capacity as
agent and as a lender under the Credit Agreement), each other Bank, the
Collateral Agent, the Company and each other Note Party.

         4.12. CREDIT AGREEMENT.

                  The Credit Agreement and each of the other Loan Documents
shall have been amended, in form and substance satisfactory to the Purchasers.

         4.13. [INTENTIONALLY OMITTED.]

         4.14. VALIDITY OF LIENS.

                  The Security Documents shall be effective to create in favor
of the Collateral Agent first priority security interests in the collateral
described in the Security Documents. All filings, recordings, deliveries of
instruments and other actions necessary or desirable in the Purchasers' opinion
to protect and preserve such security interests shall have been duly effected,
or provided for in a manner satisfactory to the Purchasers.

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         4.15. [INTENTIONALLY OMITTED.]

         4.16. [INTENTIONALLY OMITTED.]

         4.17. BORROWING BASE CERTIFICATE.

                  The Company shall have delivered to each of the Purchasers a
Borrowing Base Certificate, in the form required by Section 7.1(i), signed by a
Senior Financial Officer, and containing a calculation of the Borrowing Base as
of April 30, 2000.

         4.18. 10-K.

                  The Purchasers shall have received the draft dated June 10,
2000 of the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000 (together with the Company's annual report to shareholders, if
any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in
accordance with the requirements therefor.

         4.19. [INTENTIONALLY OMITTED.]

         4.20. FEE.

                  The Purchasers shall have received a fee in the amount of
$100,000, to be paid pro rata to the Purchasers in accordance with the principal
amount of Notes held by each Purchaser by the method and at the address
specified for such purpose below such Purchaser's name in Schedule A.

         4.21. PROCEEDINGS AND DOCUMENTS.

                  All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to the Purchasers and the
Purchasers' special counsel, and the Purchasers and the Purchasers' special
counsel shall have received all such counterpart originals or certified or other
copies of such documents as the Purchasers or the Purchasers' special counsel
may reasonably request.

5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

                  The Company represents and warrants to each Purchaser that:

         5.1. ORGANIZATION; POWER AND AUTHORITY.

                  Each Note Party is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and is duly qualified as a foreign

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corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Each Note
Party has the corporate power and authority to own or hold under lease the
properties it purports to own or hold under lease, to transact the business it
transacts and proposes to transact, to execute and deliver each Note Document to
which it is a party and to perform the provisions thereof.

         5.2. AUTHORIZATION, ETC.

                  Each Note Document has been duly authorized by all necessary
corporate action on the part of each Note Party a party thereto, and each Note
Document constitutes, and upon execution and delivery thereof each Note will
constitute, a legal, valid and binding obligation of each Note Party a party
thereto enforceable against such Note Party in accordance with its terms, except
as such enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

         5.3. DISCLOSURE.

                  Except as expressly described in Schedule 5.3 or Schedule 5.8,
this Agreement, the documents, certificates or other writings delivered to the
Purchasers by or on behalf of the Company in connection with the transactions
contemplated hereby and the Company's Annual Report on Form 10-K delivered
pursuant to Section 4.18, taken as a whole, do not contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made. Except as expressly described in Schedule 5.3, or Schedule 5.8, or in
one of the documents, certificates or other writings identified therein, or in
the Company's Annual Report on Form 10-K delivered pursuant to Section 4.18,
since January 31, 2000, there has been no change in the financial condition,
operations, business, properties or prospects of the Company or any of its
Subsidiaries except changes that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. There is no fact known
to the Company that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect that has not been set forth herein or
in Schedule 5.3, or Schedule 5.8, or in the other documents, certificates and
other writings delivered to the Purchasers by or on behalf of the Company
specifically for use in connection with the transactions contemplated hereby.
The financial projections delivered pursuant to Section 4.8(b) are reasonable
based upon the assumptions contained therein and the best information available
to the Company.

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         5.4. SUBSIDIARIES; AFFILIATES.

                  (a) Schedule 5.4 contains (except as noted therein) complete
and correct lists (i) of the Company's Subsidiaries, showing, as to each such
Subsidiary, the correct name thereof, the jurisdiction of its organization, and
the percentage of shares of each class of its capital stock or similar equity
interests outstanding owned by the Company or another Subsidiary, (ii) of the
Company's Affiliates, other than its Subsidiaries, and (iii) of the Company's
directors and senior officers of the Company.

                  (b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the
Company have been validly issued, are fully paid and nonassessable and are owned
by the Company free and clear of any Lien (except the Lien of the Collateral
Agent and as otherwise disclosed in Schedule 5.4).

                  (c) No Subsidiary is a party to, or otherwise subject to any
legal restriction or any agreement (other than the Note Documents, the
agreements listed on Schedule 5.4 and customary limitations imposed by corporate
law statutes) restricting the ability of such Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the Company or any
of its Subsidiaries that owns outstanding shares of capital stock or similar
equity interests of such Subsidiary.

         5.5. FINANCIAL STATEMENTS.

                  The Company has delivered to each Purchaser a draft of the
Company's Annual Report on Form 10-K required by Section 4.18. All of the
financial statements contained in such draft Annual Report (including in each
case the related schedules and notes) fairly present in all material respects
the consolidated financial position of the Company and its Subsidiaries as of
the respective dates specified in such statements and the consolidated results
of their operations and cash flows for the respective periods so specified and
have been prepared in accordance with GAAP consistently applied throughout the
periods involved except as set forth in the notes thereto (subject, in the case
of any interim financial statements, to normal year-end adjustments).

         5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.

                  The execution, delivery and performance by the Note Parties of
the Note Documents will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien (other than
Liens created pursuant the Security Documents) in respect of any property of the
Company or any of its Subsidiaries under, any indenture, mortgage, deed of
trust, loan, purchase or credit agreement, lease, corporate charter or by-laws,
or any other agreement or instrument to which the Company or any of its
Subsidiaries is bound or by which the Company or any of its Subsidiaries or any
of its properties may be bound or affected, (ii) conflict with or result in a
breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applicable
to the Company or

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any of its Subsidiaries or (iii) violate any provision of any statute or other
rule or regulation of any Governmental Authority applicable to the Company or
any of its Subsidiaries.

         5.7. GOVERNMENTAL AUTHORIZATIONS, ETC.

                  No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Authority is required in connection
with the execution, delivery or performance by any Note Party of any Note
Document (other than filings necessary to perfect the Collateral Agent's Liens
on or in the Collateral).

         5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.

                  (a) Except as disclosed in Schedule 5.8, there are no actions,
suits or proceedings pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries or any property of
the Company or any of its Subsidiaries in any court or before any arbitrator of
any kind or before or by any Governmental Authority that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.

                  (b) Neither the Company nor any of its Subsidiaries is in
violation or breach of or default under any term of any of indenture, mortgage,
deed of trust, loan, purchase or credit agreement, lease, operating agreement,
corporate charter or by-laws or other organizational or governance document or
any other agreement or instrument to which it is a party or by which it is bound
or by which its properties are bound or affected, or any order, judgment, decree
or ruling of any court, arbitrator or Governmental Authority or is in violation
of any applicable law, ordinance, rule or regulation (including without
limitation Environmental Laws) of any Governmental Authority, which violation,
breach or default individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.

         5.9. TAXES.

                  The Company and each of its Subsidiaries has filed all tax
returns that are required to have been filed in any jurisdiction, and has paid
all taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon it or its properties, assets, income or franchises, to
the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (i) the amount
of which is not individually or in the aggregate Material or (ii) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or such
Subsidiary, as the case may be, has established adequate reserves in accordance
with GAAP. The Company knows of no basis for any other tax or assessment that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. The charges, accruals and reserves on the books of the
Company and its Subsidiaries in respect of Federal, state or other taxes for all
fiscal periods are adequate.

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         5.10. TITLE TO PROPERTY; LEASES.

                  The Company and each of its Subsidiaries has good and
sufficient title to its respective properties that individually or in the
aggregate are Material, including all such properties reflected in the most
recent audited balance sheet referred to in Section 5.5 or purported to have
been acquired by the Company or one of its Subsidiaries after said date (except
as sold or otherwise disposed of in the ordinary course of business), in each
case free and clear of Liens prohibited by this Agreement or any other Note
Document other than those encumbrances, if any, that are being released
contemporaneously with the Effective Date. All leases to which the Company or
one its Subsidiaries is a party and that individually or in the aggregate are
Material are valid and subsisting and are in full force and effect in all
material respects.

         5.11. LICENSES, PERMITS, ETC.

                  Except as disclosed in Schedule 5.11,

                  (a) the Company and each of its Subsidiaries owns or possesses
         all licenses, permits, franchises, authorizations, patents, copyrights,
         service marks, trademarks and trade names, or rights thereto, that
         individually or in the aggregate are Material, without known conflict
         with the rights of others;

                  (b) to the best knowledge of the Company, no product, service
         or operation of the Company or any of its Subsidiaries infringes in any
         material respect any license, permit, franchise, authorization, patent,
         copyright, service mark, trademark, trade name or other right owned by
         any other Person; and

                  (c) to the best knowledge of the Company, there is no
         violations by any Person or Persons of any right of the Company or any
         of its Subsidiaries with respect to any patent, copyright, service
         mark, trademark, trade name or other right owned or used by the Company
         or any of its Subsidiaries, which violations, individually or in the
         aggregate, are Material.

         5.12. COMPLIANCE WITH ERISA.

                  (a) Each of the Company and each ERISA Affiliate has operated
and administered each of its Plans in compliance with all applicable laws except
for such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any ERISA Affiliate has incurred any liability pursuant to Title I
or IV of ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans (as defined in Section 3 of ERISA), and no event,
transaction or condition has occurred or exists that could reasonably be
expected to result in the incurrence of any such liability by the Company or any
ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to

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Title I or IV of ERISA or to such penalty or excise tax provisions or to Section
401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not
be individually or in the aggregate Material.

                  (b) The present value of the aggregate benefit liabilities
under each of the Company's and each ERISA Affiliate's Plans (other than
Multiemployer Plans), determined as of the end of such Plan's most recently
ended plan year on the basis of the actuarial assumptions specified for funding
purposes in such Plan's most recent actuarial valuation report, did not exceed
the aggregate current value of the assets of such Plan allocable to such benefit
liabilities. The term "BENEFIT LIABILITIES" has the meaning specified in section
4001 of ERISA and the terms "CURRENT VALUE" and "PRESENT VALUE" have the meaning
specified in section 3 of ERISA.

                  (c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.

                  (d) The expected postretirement benefit obligation (determined
as of the last day of the Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106, without
regard to liabilities attributable to continuation coverage mandated by section
4980B of the Code) of the Company and its Subsidiaries is not Material.

                  (e) The execution and delivery of the Note Documents and the
issuance and sale of the Notes will not involve any transaction that is subject
to the prohibitions of section 406 of ERISA or in connection with which a tax
could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The
representation by the Company in the first sentence of this Section 5.12(e) is
made in reliance upon and subject to the accuracy of the Purchasers'
representation in Section 6.2 as to the sources of the funds used to pay the
purchase price of the Notes purchased by the Purchasers.

         5.13. PRIVATE OFFERING BY THE COMPANY.

                  Neither the Company nor anyone acting on its behalf has
offered the Notes or any similar securities for sale to, or solicited any offer
to buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any person other than the Purchaser and not more than 60 other
Institutional Investors, each of which has been offered the Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf has
taken, or will take, any action that would subject the issuance or sale of the
Notes to the registration requirements of Section 5 of the Securities Act.

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         5.14. USE OF PROCEEDS; MARGIN REGULATIONS.

                  The Company applied the proceeds of the sale of the Existing
Notes as set forth in Schedule 5.14 of the Existing Agreement. No part of the
proceeds from the sale of the Existing Notes hereunder were used, directly or
indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
(12 CFR 221), as in effect on the date of the Existing Agreement, or for the
purpose of buying or carrying or trading in any securities under such
circumstances as to involve the Company in a violation of Regulation X of said
Board (12 CFR 224), as in effect on the date of the Existing Agreement, or to
involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220), as in effect on the date of the Existing Agreement. Margin stock does
not constitute more than 1% of the value of the consolidated assets of the
Company and its Subsidiaries and the Company does not have any present intention
that margin stock will constitute more than 1% of the value of such assets. As
used in this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR
CARRYING" shall have the meanings assigned to them in said Regulation U.

         5.15. EXISTING INDEBTEDNESS; FUTURE LIENS.

                  (a) Except as described therein, Schedule 5.15 sets forth a
complete and correct list of all outstanding Indebtedness of the Company and its
Subsidiaries as of the date hereof, since which date there has been no Material
change in the amounts, interest rates, sinking funds, installment payments or
maturities of the Indebtedness of the Company or its Subsidiaries. Neither the
Company nor any Subsidiary is in default and no waiver of default is currently
in effect, in the payment of any principal or interest on any Indebtedness of
the Company or any of its Subsidiaries and no event or condition exists with
respect to any Indebtedness of the Company or any of its Subsidiaries that would
permit (or that with notice or the lapse of time, or both, would permit) one or
more Persons to cause such Indebtedness to become due and payable before its
stated maturity or before its regularly scheduled dates of payment.

                  (b) Neither the Company nor any of its Subsidiaries has agreed
or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its property, whether now owned or hereafter
acquired, to be subject to a Lien that secures Indebtedness not permitted by
Section 10.3.

         5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC.

                  Neither the sale of the Notes by the Company hereunder nor its
use of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.

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         5.17. STATUS UNDER CERTAIN STATUTES.

                  Neither the Company nor any of its Subsidiaries is subject to
regulation under the Investment Company Act of 1940, as amended, the Public
Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.

         5.18. ENVIRONMENTAL MATTERS.

                  Neither the Company nor any of its Subsidiaries owns any real
property. Neither the Company nor any of its Subsidiaries has any knowledge of
any claim or has received any notice of any claim, neither the Company nor any
of its Subsidiaries has any knowledge that any proceeding has been instituted
raising any claim against any of the real properties or other assets formerly
owned, leased or operated by the Company or any of its Subsidiaries, and no
proceeding has been instituted raising any claim against the Company any of its
Subsidiaries or any of their respective real properties or other assets now
owned, leased or operated by the Company or any of its Subsidiaries, alleging in
any of the foregoing cases any damage to the environment or violation of any
Environmental Laws, except such as could not reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect. Except
as otherwise disclosed to the Purchasers in writing,

                  (a) neither the Company nor any of its Subsidiaries has any
         knowledge of any facts which would give rise to any claim, public or
         private, of violation of Environmental Laws or damage to the
         environment emanating from, occurring on or in any way related to real
         or personal properties now or formerly owned, leased or operated by any
         of them or to other assets or their use, except such as could not
         reasonably be expected to, individually or in the aggregate, result in
         a Material Adverse Effect;

                  (b) neither the Company nor any of its Subsidiaries has stored
         any Hazardous Materials on or in real or personal properties now or
         formerly owned, leased or operated by any of them or has disposed of
         any Hazardous Materials in a manner contrary to any Environmental Laws
         in any manner that could reasonably be expected to result, individually
         or in the aggregate, in a Material Adverse Effect;

                  (c) the portions of the buildings situated on all real
         properties now owned, leased or operated by the Company or any of its
         Subsidiaries are in compliance with applicable Environmental Laws,
         except where failure to comply could not reasonably be expected to
         result, individually or in the aggregate, in a Material Adverse Effect;
         and

                  (d) the Company and its Subsidiaries have obtained all
         permits, licenses and other authorizations and have made all filings,
         registrations and other submittals which are required of them under all
         Environmental Laws except to the extent the failure to have any such
         permits, licenses or authorizations or to have made any such filings,
         registrations or

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         submittals, individually or in the aggregate, could not reasonably be
         expected to have a Material Adverse Effect.

         5.19. VALIDITY OF SECURITY DOCUMENTS.

                  The Security Documents are effective to create in favor of the
Collateral Agent, as security for the Notes and the other obligations described
therein, for the ratable benefit of the holders of the Notes and the Banks, a
legal, valid and enforceable security interest in or other Lien on the
Collateral described therein and the proceeds thereof, and, after the filing of
the Deeds of Trust and UCC financing statements in the appropriate governmental
offices, such Liens and security interests shall constitute fully perfected
Liens on and security interests in, all right, title and interest of the Company
and its Subsidiaries in the Collateral and the proceeds thereof, in each case
prior and superior in right to any Person except Permitted Liens.

6. REPRESENTATIONS OF THE PURCHASER.

         6.1. PURCHASE FOR INVESTMENT.

                  Each Purchaser represents that it purchased the Notes for its
own account or for one or more separate accounts maintained by such Purchaser or
for the account of one or more pension or trust funds and not with a view to the
distribution thereof, provided that the disposition of such Purchaser's or their
property shall at all times be within such Purchaser's or their control. Each
Purchaser understands that the Notes have not been registered under the
Securities Act and may be resold only if registered pursuant to the provisions
of the Securities Act or if an exemption from registration is available, except
under circumstances where neither such registration nor such an exemption is
required by law, and that the Company is not required to register the Notes.

         6.2. SOURCE OF FUNDS.

                  Each Purchaser represents that at least one of the following
statements was at such time an accurate representation as to each source of
funds (a "SOURCE") used by such Purchaser to pay the purchase price of the
Existing Notes:

                  (a) the Source constitutes assets of a general account
         maintained by an insurance company, and the use of such Source for the
         purchase of the Notes is permitted by the terms of Prohibited
         Transaction Class Exemption 95-60; or

                  (b) the Source is either (i) an insurance company pooled
         separate account, within the meaning of Prohibited Transaction
         Exemption ("PTE") 90-1 (issued January 29, 1990), or (ii) a bank
         collective investment fund, within the meaning of the PTE 91-38 (issued
         July 12, 1991) and, except as such Purchaser has disclosed to the
         Company in writing pursuant to this clause (b), no employee benefit
         plan or group of plans maintained

                                       13
<PAGE>   14

         by the same employer or employee organization beneficially owns more
         than 10% of all assets allocated to such pooled separate account or
         collective investment fund; or

                  (c) the Source constitutes assets of an "investment fund"
         (within the meaning of Part V of the QPAM Exemption) managed by a
         "qualified professional asset manager" or "QPAM" (within the meaning of
         Part V of the QPAM Exemption), no employee benefit plan's assets that
         are included in such investment fund, when combined with the assets of
         all other employee benefit plans established or maintained by the same
         employer or by an affiliate (within the meaning of Section V(c)(1) of
         the QPAM Exemption) of such employer or by the same employee
         organization and managed by such QPAM, exceed 20% of the total client
         assets managed by such QPAM, the conditions of Part I(c) and (g) of the
         QPAM Exemption are satisfied, neither the QPAM nor a person controlling
         or controlled by the QPAM (applying the definition of "control" in
         Section V(e) of the QPAM Exemption) owns a 5% or more interest in the
         Company and (i) the identity of such QPAM and (ii) the names of all
         employee benefit plans whose assets are included in such investment
         fund have been disclosed to the Company in writing pursuant to this
         clause (c); or

                  (d) the Source is a governmental plan; or

                  (e) the Source is one or more employee benefit plans, or a
         separate account or trust fund comprised of one or more employee
         benefit plans, each of which has been identified to the Company in
         writing pursuant to this clause (e); or

                  (f) the Source does not include assets of any employee benefit
         plan, other than a plan exempt from the coverage of ERISA.

As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective
meanings assigned to such terms in Section 3 of ERISA as in effect at the time
of the purchase of the Existing Notes.

         6.3. HOLDER OF NOTES.

                  The Purchasers represent that they are the sole owners and
holders of the Existing Notes.

7. INFORMATION AS TO COMPANY.

         7.1. FINANCIAL AND BUSINESS INFORMATION.

                  The Company shall deliver to each holder of Notes that is an
Institutional Investor:

                                       14
<PAGE>   15

                  (a) Monthly Statements -- within 30 days after the end of each
         monthly fiscal period in each fiscal year of the Company, duplicate
         copies of

                           (i) an unaudited a consolidated balance sheet of the
                  Company and its Subsidiaries as at the end of such month, and

                           (ii) unaudited consolidated statements of income of
                  the Company and its Subsidiaries for such month,

         setting forth in each case in comparative form the figures for the
         corresponding periods in the previous fiscal year, all in reasonable
         detail, prepared in accordance with GAAP applicable to monthly
         financial statements generally, and certified by a Senior Financial
         Officer as fairly presenting, in all material respects, the financial
         position of the Company and its Subsidiaries on and their results of
         operations and cash flows, subject to changes resulting from year-end
         adjustments;

                  (b) Quarterly Statements -- within 50 days after the end of
         each quarterly fiscal period in each fiscal year of the Company (other
         than the last quarterly fiscal period of each such fiscal year),
         duplicate copies of

                           (i) an unaudited consolidated balance sheet of the
                  Company and its Subsidiaries as at the end of such quarter,
                  and

                           (ii) unaudited consolidated statements of income,
                  changes in shareholders' equity and cash flows of the Company
                  and its Subsidiaries for such quarter and (in the case of the
                  second and third quarters) for the portion of the fiscal year
                  ending with such quarter,

         setting forth in each case in comparative form the figures for the
         corresponding periods in the previous fiscal year, all in reasonable
         detail, prepared in accordance with GAAP applicable to quarterly
         financial statements generally, and certified by a Senior Financial
         Officer as fairly presenting, in all material respects, the financial
         position of the Company and its Subsidiaries being reported on and
         their results of operations and cash flows, subject to changes
         resulting from year-end adjustments, provided that, in the event the
         Company is subject to the reporting requirements of Section 13 or 15(d)
         of the Exchange Act, delivery within the time period specified above of
         copies of the Company's Quarterly Report on Form 10-Q prepared in
         compliance with the requirements therefor and filed with the Securities
         and Exchange Commission shall be deemed to satisfy the requirements of
         this Section 7.1(b);

                  (c) Annual Statements -- within 95 days after the end of each
         fiscal year of the Company, duplicate copies of

                                       15
<PAGE>   16

                           (i) a consolidated balance sheet of the Company and
                  its Subsidiaries as at the end of such year, and

                           (ii) consolidated statements of income, changes in
                  shareholders' equity and cash flows of the Company and its
                  Subsidiaries for such year,

         setting forth in each case in comparative form the figures for the
         previous fiscal year, all in reasonable detail, prepared in accordance
         with GAAP, and accompanied

                           (A) by an opinion thereon of independent certified
                  public accountants of recognized national standing, which
                  opinion shall state that such financial statements present
                  fairly, in all material respects, the financial position of
                  the Company and its Subsidiaries and their results of
                  operations and cash flows and have been prepared in conformity
                  with GAAP, and that the examination of such accountants in
                  connection with the financial statements of the Company and
                  its Subsidiaries referenced above has been made in accordance
                  with generally accepted auditing standards, and that such
                  audit provides a reasonable basis for such opinion in the
                  circumstances, and

                           (B) by a written notice from such accountants stating
                  that they have reviewed this Agreement and stating further
                  whether, in making such audit, they have become aware of any
                  condition or event that then constitutes a Default or an Event
                  of Default, and, if they are aware that any such condition or
                  event then exists, specifying the nature and period of the
                  existence thereof (it being understood that such accountants
                  shall not be liable, directly or indirectly, for any failure
                  to obtain knowledge of any Default or Event of Default unless
                  such accountants should have obtained knowledge thereof in
                  making an audit in accordance with generally accepted auditing
                  standards or did not make such an audit),

         provided that, in the event the Company is subject to the reporting
         requirements of Section 13 or 15(d) of the Exchange Act, the delivery
         within the time period specified above of the Company's Annual Report
         on Form 10-K for such fiscal year (together with the Company's annual
         report to shareholders, if any, prepared pursuant to Rule 14a-3 under
         the Exchange Act) prepared in accordance with the requirements therefor
         and filed with the Securities and Exchange Commission, together with
         the accountant's certificate described in clause (B) above, shall be
         deemed to satisfy the requirements of this Section 7.1(c);

                  (d) SEC and Other Reports -- in the event the Company is
         subject to the reporting requirements of Section 13 or 15(d) of the
         Exchange Act, promptly upon their becoming available, one copy of (i)
         each financial statement, report, notice or proxy statement sent by the
         Company or any Subsidiary to public securities holders generally,

                                       16
<PAGE>   17

         and (ii) each regular or periodic report, each registration statement
         (without exhibits except as expressly requested by such holder), and
         each prospectus and all amendments thereto filed by the Company or any
         Subsidiary with the Securities and Exchange Commission and of all press
         releases and other statements made available generally by the Company
         or any Subsidiary to the public concerning developments that are
         Material;

                  (e) Notice of Default or Event of Default -- promptly, and in
         any event within ten days after a Responsible Officer becoming aware of
         the existence of any Default or Event of Default or that any Person has
         given any notice or taken any action with respect to a claimed default
         hereunder or that any Person has given any notice or taken any action
         with respect to a claimed default of the type referred to in Section
         11(f), a written notice specifying the nature and period of existence
         thereof and what action the Company is taking or proposes to take with
         respect thereto;

                  (f) ERISA Matters -- promptly, and in any event within five
         days after a Responsible Officer becoming aware of any of the
         following, a written notice setting forth the nature thereof and the
         action, if any, that the Company or an ERISA Affiliate proposes to take
         with respect thereto:

                           (i) with respect to any Plan, any reportable event,
                  as defined in section 4043(b) of ERISA and the regulations
                  thereunder, for which notice thereof has not been waived
                  pursuant to such regulations as in effect on the date hereof;
                  or

                           (ii) the taking by the PBGC of steps to institute, or
                  the threatening by the PBGC of the institution of, proceedings
                  under section 4042 of ERISA for the termination of, or the
                  appointment of a trustee to administer, any Plan, or the
                  receipt by the Company or any ERISA Affiliate of a notice from
                  a Multiemployer Plan that such action has been taken by the
                  PBGC with respect to such Multiemployer Plan; or

                           (iii) any event, transaction or condition that could
                  result in the incurrence of any liability by the Company or
                  any ERISA Affiliate pursuant to Title I or IV of ERISA or the
                  penalty or excise tax provisions of the Code relating to
                  employee benefit plans, or in the imposition of any Lien on
                  any of the rights, properties or assets of the Company or any
                  ERISA Affiliate pursuant to Title I or IV of ERISA or such
                  penalty or excise tax provisions, if such liability or Lien,
                  taken together with any other such liabilities or Liens then
                  existing, could reasonably be expected to have a Material
                  Adverse Effect;

                  (f) Notices from Governmental Authority -- promptly, and in
         any event within 30 days of receipt thereof, copies of any notice to
         the Company or any Subsidiary from any Governmental Authority relating
         to any order, ruling, statute or other law or regulation that could
         reasonably be expected to have a Material Adverse Effect;

                                       17
<PAGE>   18

                  (g) Notice of Litigation, Proceeding and Other Events --
         promptly, and in any event within ten days of a Responsible Officer
         obtaining actual knowledge thereof, notice of any litigation,
         proceeding or other event relating to the Company or any of its
         Subsidiaries which could reasonably be expected to have a Material
         Adverse Effect or which challenges the validity of any of the Note
         Documents or the priority of the Lien created by any of the Security
         Documents;

                  (h) Insurance Certificate -- within 95 days after the end of
         each fiscal year of the Company, a certificate of insurance signed by
         Marsh USA Inc. or another independent insurance broker retained by the
         Company and reasonably acceptable to the Required Holders listing the
         policies of insurance outstanding and in force on such date in respect
         of the Collateral and the Company and its Subsidiaries as of such date,
         the names of the companies issuing such insurance, the amounts and
         expiration dates of such insurance and the risks covered thereby;

                  (i) Borrowing Base Certificate -- within 20 days after the end
         of each fiscal month, a copy of each Borrowing Base Certificate
         delivered to the Banks or Bank Agent, certified to the holders of the
         Notes by a Senior Financial Officer;

                  (j) Appraisals -- within a reasonable time after reasonable
         request by the Required Holders, at the Company's expense, an updated
         Appraisal; provided, however, that so long as no Default or Event of
         Default exists, such a request may be made only once during each fiscal
         quarter (with respect to which the holders of the Notes shall
         coordinate their requests with the lenders under the Credit Agreement
         such that a request for Appraisal under this Agreement shall be deemed
         to be a request for an Appraisal under the Credit Agreement and a
         request for Appraisal under this Agreement shall be a request for
         Appraisal under the Credit Agreement);

                  (k) Auditor's Management Letters -- promptly, and in any event
         within ten days of receipt thereof, any management letters furnished to
         the Company or any of its Subsidiaries by the Company's auditors;

                  (l) Auditor's Opinion for Fiscal year 1999 -- not later than
         5:00 p.m., Dallas time, on June 19, 2000, an unqualified opinion by
         KPMG Peat Marwick with respect to the audited financial statements of
         the Company and its Subsidiaries for the fiscal year ended January 31,
         2000 which such statements shall in all material respects the same
         financial statements delivered pursuant to Section 4.8 (other than the
         addition of such unqualified opinion);

                  (m) 10-K and 10-Q -- not later than 5:00 p.m., Dallas time, on
         June 19, 2000, copies of (a) the report specified in Section 4.18 filed
         with the Securities and Exchange Commission which such report shall in
         all material respects be the same as those report delivered pursuant to
         Section 4.18 and (b) the Company's Quarterly Report on Form 10-Q

                                       18
<PAGE>   19

         for the fiscal quarter ended April 30, 2000 prepared in accordance with
         the requirements therefor and filed with the Securities and Exchange
         Commission;

                  (n) Nevada Opinion -- not later than June 22, 2000, an opinion
         of Nevada counsel in form and substance satisfactory to the Required
         Holders;

                  (o) Requested Information -- with reasonable promptness, such
         other data and information relating to the business, operations,
         affairs, financial condition, assets or properties of the Company or
         any of its Subsidiaries or relating to the ability of any of the Note
         Parties to perform its obligations under any of the Note Documents as
         from time to time may be reasonably requested by any such holder of
         Notes.

         7.2. OFFICER'S CERTIFICATE.

                  Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1(b) or Section 7.1(c) hereof shall be accompanied
by a certificate of a Senior Financial Officer setting forth:

                  (a) Covenant Compliance -- the information (including detailed
         calculations) required in order to establish whether the Company was in
         compliance with the requirements of Section 10.3 through Section 10.12
         hereof, inclusive, during the quarterly or annual period covered by the
         statements then being furnished (including with respect to each such
         Section, where applicable, the calculations of the maximum or minimum
         amount, ratio or percentage, as the case may be, permissible under the
         terms of such Sections, and the calculation of the amount, ratio or
         percentage then in existence); and

                  (b) Event of Default -- a statement that such officer has
         reviewed the relevant terms hereof and has made, or caused to be made,
         under his or her supervision, a review of the transactions and
         conditions of the Company and its Subsidiaries from the beginning of
         the quarterly or annual period covered by the statements then being
         furnished to the date of the certificate and that such review shall not
         have disclosed the existence during such period of any condition or
         event that constitutes a Default or an Event of Default or, if any such
         condition or event existed or exists (including, without limitation,
         any such event or condition resulting from the failure of the Company
         or any Subsidiary to comply with any Environmental Law), specifying the
         nature and period of existence thereof and what action the Company
         shall have taken or proposes to take with respect thereto.

         7.3. INSPECTION.

                  The Company shall, and shall cause each of its Subsidiaries
to, permit the representatives of each holder of Notes that is an Institutional
Investor:

                                       19
<PAGE>   20

                  (a) No Default -- if no Default or Event of Default then
         exists, at the expense of such holder and upon reasonable prior notice
         to the Company, to visit the principal executive office of the Company
         or any of its Subsidiaries, to discuss the affairs, finances and
         accounts of the Company and its Subsidiaries with the Company's and its
         Subsidiaries' officers, and (with the consent of the Company, which
         consent will not be unreasonably withheld) its independent public
         accountants, and (with the consent of the Company, which consent will
         not be unreasonably withheld) to visit the other offices and visit and
         inspect properties (including audits and Appraisals of Collateral) of
         the Company and each Subsidiary, all at such reasonable times and as
         often as may be reasonably requested in writing; and

                  (b) Default -- if a Default or Event of Default then exists,
         at the expense of the Company, which shall be deemed to include the
         reasonable costs and expenses of counsel, accountants, financial
         advisors and other third party advisors of such holder incurred in
         connection with the exercise of the rights of such holder pursuant to
         this Section 7.3(b), to visit and inspect any of the offices or
         properties (including audits and Appraisals of Collateral) of the
         Company or any Subsidiary, to examine all their respective books of
         account, records, reports and other papers, to make copies and extracts
         therefrom, and to discuss their respective affairs, finances and
         accounts with their respective officers and independent public
         accountants (and by this provision the Company authorizes said
         accountants to discuss the affairs, finances and accounts of the
         Company and its Subsidiaries), all at such times and as often as may be
         requested.

8. PREPAYMENT OF THE NOTES.

         8.1. REQUIRED PREPAYMENTS. On June 13, 2000 and on each June 13
thereafter to and including June 13, 2002 the Company will prepay $5,000,000
principal amount (or such lesser principal amount as shall then be outstanding)
of the Notes at par and without payment of the Make-Whole Amount or any premium,
provided that upon any partial prepayment of the Notes pursuant to Section 8.2
or purchase of the Notes permitted by Section 8.5 or Section 8.6, the principal
amount of each required prepayment of the Notes becoming due under this Section
8.1 on and after the date of such prepayment or purchase shall be reduced in the
same proportion as the aggregate unpaid principal amount of the Notes is reduced
as a result of such prepayment or purchase.

         8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.

                  The Company may, at its option, upon notice as provided below,
prepay at any time all, or from time to time any part of, the Notes, in an
amount not less than 5% of the aggregate principal amount of the Notes then
outstanding in the case of a partial prepayment, at 100% of the principal amount
so prepaid, plus the Make-Whole Amount determined for the prepayment date with
respect to such principal amount. The Company will give each holder of Notes
written notice of each optional prepayment under this Section 8.2 not less than
30 days and

                                       20
<PAGE>   21

not more than 90 days prior to the date fixed for such prepayment. Each such
notice shall specify such date, the aggregate principal amount of the Notes to
be prepaid on such date, the principal amount of each Note held by such holder
to be prepaid (determined in accordance with Section 8.3), and the interest to
be paid on the prepayment date with respect to such principal amount being
prepaid, and shall be accompanied by a certificate of a Senior Financial Officer
as to the estimated Make-Whole Amount due in connection with such prepayment
(calculated as if the date of such notice were the date of the prepayment),
setting forth the details of such computation. Two Business Days prior to such
prepayment, the Company shall deliver to each holder of Notes a certificate of a
Senior Financial Officer specifying the calculation of such Make-Whole Amount as
of the specified prepayment date.

         8.3. ALLOCATION OF PARTIAL PREPAYMENTS.

                  In the case of each partial prepayment of the Notes, the
principal amount of the Notes to be prepaid shall be allocated among all of the
Notes at the time outstanding in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof not theretofore called for
prepayment.

         8.4. MATURITY; SURRENDER, ETC.

                  In the case of each prepayment of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
Make-Whole Amount, if any. From and after such date, unless the Company shall
fail to pay such principal amount when so due and payable, together with the
interest and Make-Whole Amount, if any, as aforesaid, interest on such
principal amount shall cease to accrue. Any Note paid or prepaid in full shall
be surrendered to the Company and canceled and shall not be reissued, and no
Note shall be issued in lieu of any prepaid principal amount of any Note.

         8.5. PURCHASE OF NOTES.

                  The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment, prepayment or purchase of the
Notes in accordance with the terms of this Agreement and the Notes. The Company
will promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.

         8.6. RIGHT TO PUT.

                  (a) GRANTING OF PUT. The Company hereby gives and grants to
the holder of each Note the option, right and privilege (such option, right and
privilege herein collectively referred to as the "RIGHT TO PUT") to require the
Company, upon or after the occurrence of any

                                       21
<PAGE>   22

Designated Event, to purchase from such holder all Notes held by such holder on
the terms and conditions hereinafter set forth, and the Company agrees so to
purchase from such holder, for an amount equal to the aggregate outstanding
principal amount of such Notes and the accrued and unpaid interest thereon.

                  (b) EXERCISE OF PUT. Within 10 Business Days after any
Responsible Officer of the Company has knowledge of the occurrence of any
Designated Event, the Company shall give the holder of each Note written notice
thereof describing such Designated Event, and the facts and circumstances
surrounding the occurrence thereof, in reasonable detail. At any time prior to
60 days after any holder shall receive such notice, such holder may exercise its
Right to Put by delivering to the Company, at the address provided by the
Company pursuant to Section 18 (if so provided), an irrevocable notice of sale
substantially in the form of Exhibit 8.6(b) hereto (a "NOTICE OF SALE");
provided, that the Company shall give the holder of each Note prompt written
notice of such Notice of Sale, whereupon the holder of each Note shall have
until the later of (x) the expiration of such sixty-day period or (y) 10 days
after its receipt of such notice from the Company to exercise its Right to Put
by delivering to the Company a Notice of Sale. If the holder of a Note shall
deliver a Notice of Sale pursuant to any provision of the preceding sentence,
the Company shall purchase the Notes then held by such holder on the date
specified in such notice (which shall be not less than 20 days after delivery of
such Notice of Sale), and such holder shall sell such Notes to the Company
without recourse, representation or warranty (other than as to such holder's
full right, title and interest to such Notes free of any adverse claim thereto),
at a price, payable in immediately available funds by wire transfer to the
account specified pursuant to Schedule A hereto or to such other account as may
be specified in such notice, equal to the aggregate outstanding principal amount
of the Notes of such holder and the accrued and unpaid interest thereon;
provided, that if more than one holder shall give a Notice of Sale in compliance
with the foregoing provisions of this Section 8.6(b), the Company shall purchase
the Notes held by all such holders on the same day, which shall be the latest
day specified in all such Notices of Sale but in no event more than 90 days
after the date of the Company's sending of notice of the occurrence of the
Designated Event giving rise thereto, and shall advise the holder of each Note
of such date and the aggregate principal amount of Notes to be purchased by the
Company. Each holder shall have the respective rights specified in this Section
8.6 with respect to each Designated Event that shall occur, regardless of any
act or omission to act with respect to any previous Designated Event.

         8.7. MAKE-WHOLE AMOUNT.

                  The term "MAKE-WHOLE AMOUNT" means, with respect to any Note,
an amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole Amount,
the following terms have the following meanings:

                                       22
<PAGE>   23

                  "CALLED PRINCIPAL" means, with respect to any Note, the
         principal of such Note that is to be prepaid pursuant to Section 8.2 or
         has become or is declared to be immediately due and payable pursuant to
         Section 12.1, as the context requires.

                  "DISCOUNTED VALUE" means, with respect to the Called Principal
         of any Note, the amount obtained by discounting all Remaining Scheduled
         Payments with respect to such Called Principal from their respective
         scheduled due dates to the Settlement Date with respect to such Called
         Principal, in accordance with accepted financial practice and at a
         discount factor (applied on the same periodic basis as that on which
         interest on the Notes is payable) equal to the Reinvestment Yield with
         respect to such Called Principal.

                  "REINVESTMENT YIELD" means, with respect to the Called
         Principal of any Note, 1.00% over the yield to maturity implied by (i)
         the yields reported, as of 10:00 A.M. (New York City time) on the
         second Business Day preceding the Settlement Date with respect to such
         Called Principal, on the display designated as "Page 500" on the
         Telerate Access Service (or such other display as may replace Page 500
         on Telerate Access Service) for actively traded U.S. Treasury
         securities having a maturity equal to the Remaining Average Life of
         such Called Principal as of such Settlement Date, or (ii) if such
         yields are not reported as of such time or the yields reported as of
         such time are not ascertainable, the Treasury Constant Maturity Series
         Yields reported, for the latest day for which such yields have been so
         reported as of the second Business Day preceding the Settlement Date
         with respect to such Called Principal, in Federal Reserve Statistical
         Release H.15 (519) (or any comparable successor publication) for
         actively traded U.S. Treasury securities having a constant maturity
         equal to the Remaining Average Life of such Called Principal as of such
         Settlement Date. Such implied yield in clause (i) or clause (ii) will
         be determined, (a) if necessary, by (x) converting U.S. Treasury bill
         quotations to bond-equivalent yields in accordance with accepted
         financial practice and (y) interpolating linearly between (1) the
         actively traded U.S. Treasury security with the duration closest to and
         greater than the Remaining Average Life and (2) the actively traded
         U.S. Treasury security with the duration closest to and less than the
         Remaining Average Life and (b) by converting all such implied yields to
         a quarterly payment basis in accordance with accepted financial
         practice.

                  "REMAINING AVERAGE LIFE" means, with respect to any Called
         Principal, the number of years (calculated to the nearest one-twelfth
         year) obtained by dividing (i) such Called Principal into (ii) the sum
         of the products obtained by multiplying (a) the principal component of
         each Remaining Scheduled Payment with respect to such Called Principal
         by (b) the number of years (calculated to the nearest one-twelfth year)
         that will elapse between the Settlement Date with respect to such
         Called Principal and the scheduled due date of such Remaining Scheduled
         Payment.

                  "REMAINING SCHEDULED PAYMENTS" means, with respect to the
         Called Principal of any Note, all payments of such Called Principal and
         interest thereon that would be due

                                       23
<PAGE>   24

         after the Settlement Date with respect to such Called Principal if no
         payment of such Called Principal were made prior to its scheduled due
         date, provided that if such Settlement Date is not a date on which
         interest payments are due to be made under the terms of the Notes, then
         the amount of the next succeeding scheduled interest payment will be
         reduced by the amount of interest accrued to such Settlement Date and
         required to be paid on such Settlement Date pursuant to Section 8.2 or
         12.1.

                  "SETTLEMENT DATE" means, with respect to the Called Principal
         of any Note, the date on which such Called Principal is to be prepaid
         pursuant to Section 8.2 or has become or is declared to be immediately
         due and payable pursuant to Section 12.1, as the context requires.

9. AFFIRMATIVE COVENANTS.

                  The Company covenants that so long as any of the Notes are
outstanding:

         9.1. COMPLIANCE WITH LAW.

                  The Company will, and will cause each of its Subsidiaries to,
comply with all laws, ordinances or governmental rules or regulations to which
each of them is subject, including, without limitation, Environmental Laws, and
will obtain and maintain in effect all licenses, certificates, permits,
franchises and other governmental authorizations necessary to the ownership of
their respective properties or to the conduct of their respective businesses, in
each case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

         9.2. INSURANCE.

                  The Company will, and will cause each of its Subsidiaries to,
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as may be required under the Security Documents
and, in any case, as is customary in the case of entities of established
reputations engaged in the same or a similar business and similarly situated.
The Company will not reduce, and will not permit a reduction of, the amount or
scope of insurance coverage unless the Required Holders have consented in
writing to such reduction. All policies of property insurance with respect to
the Collateral either shall have attached thereto a lender's loss payable
endorsement for the benefit of the Collateral Agent for its benefit and the
ratable benefit of the Banks and the holders of the Notes or name the Collateral
Agent as loss payee for its benefit and the ratable benefit of the Banks and the
holders of the Notes, in either case, in form reasonable satisfactory to the
Required

                                       24
<PAGE>   25

Holders, and all policies of liability insurance shall name the holders of the
Notes, the Banks and the Collateral Agent for its benefit and the ratable
benefit of the Banks and the holders of the Notes as additional insureds.

         9.3. MAINTENANCE OF PROPERTIES.

                  The Company will, and will cause each of its Subsidiaries to,
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary wear
and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Company or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Company has concluded that such discontinuance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

         9.4. PAYMENT OF TAXES AND CLAIMS.

                  The Company will, and will cause each of its Subsidiaries to,
file all tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all other
taxes, assessments, governmental charges, or levies imposed on them or any of
their properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary, provided
that neither the Company nor any Subsidiary need pay any such tax, assessment or
claim if (i) the amount, applicability or validity thereof is contested by the
Company or such Subsidiary on a timely basis in good faith and in appropriate
proceedings, and the Company or a Subsidiary has established adequate reserves
therefor in accordance with GAAP on the books of the Company or such Subsidiary
or (ii) the nonpayment of all such taxes, assessments and claims in the
aggregate could not reasonably be expected to have a Material Adverse Effect.

         9.5. CORPORATE EXISTENCE, ETC.

                  Subject to Section 10.2, the Company will, and will cause each
Subsidiary to, at all times preserve and keep in full force and effect its
corporate existence. Subject to Sections 10.2 and 10.11, the Company will at all
times preserve and keep in full force and effect the corporate existence of each
of its Subsidiaries (unless merged into the Company or a Subsidiary) and all
rights and franchises of the Company and its Subsidiaries unless, in the good
faith judgment of the Company, the termination of or failure to preserve and
keep in full force and effect such corporate existence, right or franchise could
not, individually or in the aggregate, have a Material Adverse Effect.

                                       25
<PAGE>   26

         9.6. PARITY WITH OTHER SENIOR INDEBTEDNESS.

                  The Company will, and will cause its Subsidiaries to, execute
all such documents and take such other actions (including such documents and
actions as the Required Holders may reasonably request) in order to assure that
at all times the Notes shall rank pari passu in right of payment with all senior
secured Indebtedness of the Company.

         9.7. COVENANT TO SECURE NOTES EQUALLY.

                  If the Company or any Subsidiary shall create or assume any
Lien upon any of its property or assets, whether now owned or hereafter
acquired, other than Permitted Liens (unless prior written consent to the
creation or assumption thereof shall have been obtained pursuant to this
Agreement), the Company will make or cause to be made effective provision
whereby the Notes will be secured by such Lien equally and ratably with any and
all other Indebtedness so long as such Indebtedness shall be so secured pursuant
to such agreements and instruments as shall be approved by the Required Holders,
and the Company will cause to be delivered to the holder of each Note an opinion
of independent counsel to the effect that such agreements and instruments are
enforceable in accordance with their terms and that the Notes are equally and
ratably secured with such other Indebtedness.

         9.8. INFORMATION REQUIRED BY RULE 144A.

                  The Company will, upon the request of the holder of any Note,
provide such holder, and any qualified institutional buyer designated by such
holder, such financial and other information as such holder may reasonably
determine to be necessary in order to permit compliance with the information
requirements of Rule 144A under the Securities Act in connection with the resale
of Notes, except at such times as the Company is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act. For the purpose of this
Section 9.8, the term "qualified institutional buyer" shall have the meaning
specified in Rule 144A under the Securities Act.

         9.9. ENVIRONMENTAL COVENANTS.

                  The Company will immediately notify each holder of Notes, and
provide such holder with copies of any notifications, of discharges or releases
or threatened releases or discharges of a Polluting Substance on, upon, into or
from any property (including, without limitation, any real property) at any time
owned, occupied, leased, operated or used by the Company or any Subsidiary (any
such property being herein referred to as the "SUBJECT PROPERTY") which are
given or required to be given by or on behalf of the Company or any Subsidiary
to any Governmental Authority if any of the foregoing occurrences, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect, and such copies of notifications shall be delivered to the holders of
the Notes at the same time as they are delivered to such Governmental Authority.
The Company further agrees promptly to undertake and diligently pursue to
completion, or to cause its Subsidiaries to undertake and diligently pursue to
completion, any legally required remedial containment and cleanup action in the
event of any

                                       26
<PAGE>   27

release or discharge or threatened release or discharge of a Polluting Substance
on, upon, into or from the Subject Property. At all times while owning,
occupying, leasing, operating or using the Subject Property, the Company will
maintain and retain, or cause its Subsidiary owning, occupying, leasing,
operating or using such Subject Property to maintain and retain, complete and
accurate records of all releases, discharges or other disposal of Polluting
Substances on, onto, into or from such Subject Property, including, without
limitation, records of the quantity and type of any Polluting Substances
disposed of on, off or from such Subject Property.

         9.10. ENVIRONMENTAL INDEMNITIES.

                  The Company hereby agrees to indemnify, defend and hold
harmless each holder of Notes, the Collateral Agent and each of their respective
officers, directors, employees, agents, consultants, attorneys, contractors,
affiliates, successors, assigns or transferees (each an "INDEMNIFIED PARTY")
from and against, and reimburse said Persons in full with respect to, any and
all loss, liability, damage, fines, penalties, costs and expenses, of every kind
and character, including reasonable attorneys' fees and court costs, known or
unknown, fixed or contingent, occasioned by or associated with any claims,
demands, causes of action, suits and/or enforcement actions, including any
administrative or judicial proceedings, and any remedial, removal or response
actions ever asserted, threatened, instituted or requested by any Persons,
including any Tribunal, arising out of or related to: (i) the breach of any
representation or warranty of the Company contained in Section 5.18 or any
analogous provision contained in any Security Document; (ii) the failure of the
Company to perform, or to cause its Subsidiaries to perform, any of the
covenants contained in Section 9.9 or any analogous provision contained in any
Security Document; (iii) the ownership, construction, occupancy, operation or
use of the Subject Property prior to the earlier of the date on which (a) the
Notes have been paid in full and the Security Documents have been released or
(b) the Subject Property has been sold by the Collateral Agent pursuant to
foreclosure of the Liens granted under the Security Documents, transfer in lieu
of such foreclosure or otherwise (all of the foregoing, collectively, the
"INDEMNIFIED LIABILITIES").THE FOREGOING INDEMNITY OBLIGATIONS OF THE COMPANY
SHALL EXTEND TO ALL INDEMNIFIED LIABILITIES, INCLUDING, WITHOUT LIMITATION, ANY
INDEMNIFIED LIABILITIES ARISING FROM OR ATTRIBUTED TO THE NEGLIGENCE (WHETHER
SOLE, CONTRIBUTORY OR CONCURRENT) OF ANY INDEMNIFIED PARTY.

                  In case any action or proceeding (including any governmental
or regulatory investigation or proceeding) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to the preceding
paragraph the Indemnified Party shall promptly notify the Person against whom
such indemnity may be sought (each an "INDEMNIFYING PARTY") in writing and the
Indemnifying Party, upon request of the Indemnified Party, shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party to represent the Indemnified Party and any others the
Indemnifying Party may designate and shall pay the fees and disbursements of
such counsel related to such proceeding. In any such action or proceeding, any
Indemnified Party shall have the right to retain its own counsel, but the

                                       27
<PAGE>   28

fees and expenses of such counsel shall be at the expense of such Indemnified
Party unless (i) the Indemnifying Party and the Indemnified Party shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
Indemnifying Party and the Indemnified Party, and representation of both parties
by the same counsel would be, in the judgement of the Indemnified Party,
inappropriate due to actual or potential differing interests between them. The
Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm (in addition to any local counsel) for
all holders of Notes and that all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for the holders of
Notes, such firm shall be designated in writing by the Required Holders. The
Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Indemnifying Party agrees to
indemnify the Indemnified Party from and against any loss or liability by reason
of such settlement or judgment. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Party is or is reasonably likely
to have been a party and indemnity could have been sought hereunder by such
Indemnified Party.

         9.11. COLLATERAL; NEW SUBSIDIARIES.

                  The Company shall execute, and shall cause its Subsidiaries to
execute, any and all documents, financing statements, agreements and
instruments, and take all action (including filing Uniform Commercial Code and
other financing statements, assignments of intellectual property, mortgages and
deeds of trust), that may be required under applicable law, or which the
Required Holders or the Collateral Agent may reasonably request in order to
effectuate the transactions contemplated by the Note Documents and in order to
grant, preserve, protect and perfect the validity and priority of the security
interests and Liens created or purported to be created by the Security
Documents. In addition, at the cost and expense of the Company, the Company will
cause each subsequently acquired or organized Subsidiary of the Company
(contemporaneously with such acquisition or organization) to execute and deliver
a Guaranty Agreement, substantially in the form of Exhibit 4.5, and to secure
payment of the Notes and performance and observance of all other obligations of
the Company and its Subsidiaries under the Note Documents by pledging or
creating, or causing to be pledged or created, perfected security interests and
Liens with respect to, unless the Required Holders shall specifically designate
some lesser amount, all the property and assets of each such Subsidiary other
than assets encumbered by Liens permitted by clauses (a), (c), and (e) of
Section 10.3 (it being understood that it is the intent of the parties that such
obligations shall be secured by, among other things, substantially all the
property and assets of the Company and its Subsidiaries (now or hereafter
acquired or created), including, without limitation, real estate and other
properties acquired after the Effective Date). Such security interests and Liens
will be created under the Security Documents and other security agreements,
pledge agreements, mortgages, deeds of trust and other instruments and documents
in form, scope and substance satisfactory to the Required Holders and the
Collateral Agent, and

                                       28
<PAGE>   29

the Company will deliver or cause to be delivered to the Collateral Agent, all
such instruments and documents (including, without limitation, legal opinions,
title insurance policies, surveys, lien searches and environmental assessments)
as any holder of Notes or the Collateral Agent shall reasonably request to
evidence compliance with this Section 9.11. The Company agrees to provide from
time to time such evidence as any holder of Notes or the Collateral Agent shall
reasonably request as to the perfection and priority status of each such
security interest and Lien.

         9.12. LEASES.

                  Each of the Company and its Subsidiaries shall timely and
fully pay and perform its obligations under all leases and other agreements with
respect to each leased location or public warehouse where any Collateral is or
may be located.

         9.13. BORROWING BASE PROVISIONS.

                  (a) Initial Borrowing Base. During the period from the date
hereof to the effective date of the first redetermination of the Borrowing Base
pursuant to the provisions of this Section 9.13, the amount of the Borrowing
Base shall be as set forth on Schedule 9.13.

                  (b) Adjustments to Borrowing Base. The Borrowing Base shall be
redetermined as provided under the Credit Agreement upon each delivery of a
Borrowing Base Certificate as required by Section 7.1(i).

                  (c) Procedures if Borrowing Base Deficiency Occurs. Each time
the aggregate principal amount of all outstanding Loans plus the Letter of
Credit Exposure plus the outstanding principal amount of the Notes exceed the
Borrowing Base then in effect, the Company shall (i) promptly notify the holders
of the Notes of such occurrence and the amount of the Borrowing Base Deficiency
on such date and (ii) the Company shall immediately eliminate the entire unpaid
balance of such Borrowing Base Deficiency by, only to the extent necessary to
eliminate such excess, prepaying the Loans outstanding under the Credit
Agreement until such loans shall have been paid in full. Failure to immediately
eliminate the entire unpaid balance of such Borrowing Base Deficiency shall be
an Event of Default. If a Borrowing Base Deficiency occurs, the Company shall
not take any action otherwise permitted under this Agreement which is
conditioned upon the non-occurrence or non-existence of any Default or Event of
Default until such Borrowing Base Deficiency has been eliminated. The Company
shall not be permitted to cure a Borrowing Base Deficiency by any action
prohibited by this Agreement or any of the other Note Documents.

                                       29
<PAGE>   30

10. NEGATIVE COVENANTS.

                  The Company covenants that so long as any of the Notes are
outstanding:

         10.1. TRANSACTIONS WITH AFFILIATES.

                  The Company will not, and will not permit any Subsidiary to,
enter into directly or indirectly any transaction or Material group of related
transactions (including without limitation the purchase, lease, sale or exchange
of properties of any kind or the rendering of any service) with any Affiliate
(other than the Company or another Subsidiary), except in the ordinary course
and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would be obtainable in a comparable
arm's-length transaction with a Person not an Affiliate.

         10.2. MERGER, CONSOLIDATION, ETC.

                  The Company will not, and will not permit any of its
Subsidiaries to, consolidate with or merge with any other Person or convey,
transfer or lease all or substantially all of its assets in a single transaction
or series of transactions to any Person (except that a Subsidiary of the Company
may (x) consolidate with or merge with, or convey, transfer or lease
substantially all of its assets in a single transaction or series of
transactions to, another Subsidiary of the Company or the Company and (y)
convey, transfer or lease all of its assets in compliance with the provisions of
Section 10.11), provided that the foregoing restriction shall not apply to the
consolidation or merger of the Company with, or the conveyance, transfer or
lease of substantially all of the assets of the Company in a single transaction
or series of transactions to, any Person so long as:

                  (a) the successor formed by such consolidation or the survivor
         of such merger or the Person that acquires by conveyance, transfer or
         lease all or substantially all of the assets of the Company as an
         entirety, as the case may be, shall be a solvent corporation organized
         and existing under the laws of the United States or any State thereof
         (including the District of Columbia), and, if the Company is not such
         surviving corporation, such corporation shall have (i) executed and
         delivered to each holder of Notes its assumption, in a form reasonably
         satisfactory to the Required Holders, of the due and punctual
         performance and observance of each covenant and condition of this
         Agreement, the Other Agreement and the Notes and the other Note
         Documents to which the Company is a party and (ii) caused to be
         delivered to each holder of Notes an opinion of nationally recognized
         independent counsel, or other independent counsel reasonably
         satisfactory to the Required Holders, to the effect that all agreements
         or instruments effecting such assumption are enforceable in accordance
         with their terms and comply with the terms hereof; and

                  (b) immediately after giving effect to such transaction, no
         Default or Event of Default shall have occurred and be continuing.

                                       30
<PAGE>   31

                  No such conveyance, transfer or lease of substantially all of
the assets of the Company shall have the effect of releasing the Company or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 10.2 from its liability under this Agreement, the
Notes or any of the other Note Documents.

         10.3. LIENS.

                  The Company will not, and will not permit any Subsidiary to,
directly or indirectly create, incur, assume or permit to exist (upon the
happening of a contingency or otherwise) any Lien on or with respect to any
property or asset (including, without limitation, any document or instrument in
respect of goods or accounts receivable) of the Company or any Subsidiary,
whether now owned or held or hereafter acquired, or any income or profits
therefrom or assign or otherwise convey any right to receive income or profits,
except:

                  (a) Liens existing on the Effective Date and securing the
         Indebtedness of the Company referred to in Schedule 5.15;

                  (b) Liens incidental to the conduct of business or the
         ownership of properties of the Company and its Subsidiaries (including
         Liens in connection with worker's compensation, unemployment insurance
         and other like laws (other than ERISA Liens), warehousemen's and
         mechanic's liens and statutory landlord's liens) and Liens to secure
         the performance of bids, tenders or trade contracts, or to secure
         statutory obligations, property taxes and assessments or governmental
         charges, surety or appeal bonds or other Liens of like general nature
         which are incurred in the ordinary course of business and not in
         connection with the borrowing of money and which do not in any event
         materially impair the value or use of the property encumbered thereby
         in the operation of the business of the Company and its Subsidiaries;
         provided in each case, that the obligation secured is not overdue or,
         if overdue, is being contested in good faith by appropriate actions or
         proceedings;

                  (c) any Lien created to secure all or any part of the purchase
         price, or to secure Indebtedness incurred or assumed to pay all or any
         part of the purchase price or cost of construction, of equipment
         acquired or constructed by the Company or a Subsidiary after the
         Effective Date, provided that

                           (i) any such Lien shall extend solely to the item or
                  items of such equipment so acquired or constructed,

                           (ii) the principal amount of the Indebtedness secured
                  by any such Lien shall at no time exceed an amount equal to
                  the lesser of (A) the cost to the Company or such Subsidiary
                  of equipment so acquired or constructed and (B) the Fair
                  Market Value (as determined in good faith by

                                       31
<PAGE>   32

                  the board of directors of the Company) of such equipment at
                  the time of such acquisition or construction,

                           (iii) any such Lien shall be created
                  contemporaneously with, or within 90 days after, the
                  acquisition or construction of such equipment; and

                           (iv) such Lien secures Indebtedness permitted by
                  Section 10.17(v);

                  (d) Liens in favor of the Collateral Agent for its benefit and
         the ratable benefit of the Banks and the holders of the Notes under the
         Security Documents.

                  (e) [Intentionally Omitted].

         10.4. FIXED CHARGES COVERAGE RATIO.

                  The Company will not permit for each fiscal quarter of the
Company, the Fixed Charges Coverage Ratio for such quarter to be less than the
ratio specified for such period in the table below:

<TABLE>
<CAPTION>
                PERIOD                                         RATIO
<S>                                                        <C>
Fiscal quarter ended April 30, 2000                        0.45 to 1.00

Fiscal quarter ending July 31, 2000                        0.35 to 1.00

Fiscal quarter ending October 31, 2000                     0.50 to 1.00

Fiscal quarters ending January 31, 2001                    1.00 to 1.00
through October 31, 2001

Fiscal quarter ending January 31, 2002 and                 1.25 to 1.00
thereafter
</TABLE>

         10.5. TANGIBLE NET WORTH.

                  The Company will not permit Tangible Net Worth as of the end
of any fiscal quarter of the Company to be less than the sum of (i) $83,000,000
plus (ii) 50% of the net income of the Company from February 1, 2000 through the
end of such fiscal quarter (without regard to, or reduction for, any net loss
reported for any fiscal quarter) plus (iii) an amount equal to 100% of the
tangible net worth of any Person that becomes a Subsidiary of the Company or is
merged into or consolidated with the Company or any Subsidiary of the Company or
substantially all of the assets of which are acquired by the Company or any
Subsidiary of the Company to the extent the purchase price paid therefor is paid
in equity securities of the Company or any Subsidiary of the Company, plus (iii)
100% of the Net Cash Proceeds of any offerings of Capital Stock of the Company
or any of its Subsidiaries.

                                       32
<PAGE>   33

         10.6. LIMITATION ON INDEBTEDNESS.

                  The Company will not, at any time, permit Consolidated
Indebtedness to exceed 50% of Consolidated Total Capitalization.

         10.7. FUNDED DEBT TO ADJUSTED EBITDA.

                  The Company will not permit the ratio of Funded Debt as of the
end of any fiscal quarter of the Company to Adjusted EBITDA for the four quarter
period ending as of the end of such fiscal quarter of the Company to be greater
than the ratio specified for such period in the table below:

<TABLE>
<CAPTION>
                   PERIOD                                      RATIO
<S>                                                        <C>
Fiscal quarter ended April 30, 2000                        4.00 to 1.00

Fiscal quarter ending July 31, 2000                        5.25 to 1.00

Fiscal quarter ending October 31, 2000                     4.75 to 1.00

Fiscal quarters ending January 31, 2001 and                2.50 to 1.00
thereafter
</TABLE>

         10.8. MINIMUM ADJUSTED EBITDA.

                  The Company will not permit Adjusted EBITDA as of the end of
any fiscal quarter of the Company for the four quarter period ending as of such
fiscal quarter of the Company to be less than the amount specified for such
period in the table below:

<TABLE>
<CAPTION>
                   PERIOD                                     RATIO
<S>                                                        <C>
Fiscal quarter ended April 30, 2000                        $10,500,000

Fiscal quarter ending July 31, 2000                        $8,000,000

Fiscal quarter ending October 31, 2000                     $11,000,000

Fiscal quarter ending January 31, 2001                     $25,000,000

Fiscal quarters ending April 30, 2001 and                  $22,000,000
July 31, 2001

Fiscal quarter ending October 31, 2001                     $24,500,000

Fiscal quarters ending January 31, 2001                    $29,750,000
</TABLE>

                                       33
<PAGE>   34

         10.9. CAPITAL EXPENDITURES LIMITATION.

                  The Company will not permit the aggregate amount of capital
expenditures of the Company and its Subsidiaries (excluding, however, the
capitalized cost of video tapes purchased by the Company and its Subsidiaries
for rental) for each fiscal year of the Company to be greater than $13,500,000.

         10.10. [INTENTIONALLY OMITTED].

         10.11. SALE OF ASSETS.

                  Except as permitted under Section 10.2, the Company will not,
and will not permit any of its Subsidiaries to, make any Asset Sale (a) other
than for Fair Market Value or (b) (i) if the Fair Market Value of the assets
that are the subject of such Asset Sale plus the Fair Market Value of the assets
that are the subjects of all other Asset Sales during the then current fiscal
year would exceed 5% of Consolidated Net Tangible Assets, or (ii) if the Fair
Market Value of the assets that are the subject of such Asset Sale plus the Fair
Market Value of the assets that are the subjects of all other Asset Sales since
the Effective Date would exceed 10% of Consolidated Net Tangible Assets. If the
Net Proceeds Amount for any Asset Sale is applied to a Debt Prepayment
Application or a Property Reinvestment Application within 180 days after such
Asset Sale, then such Asset Sale, only for the purpose of determining compliance
with the preceding sentence as of any date, shall be deemed not to be an Asset
Sale.

         10.12. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS.

                  The Company will not, and will not permit any of its
Subsidiaries to, declare, make or incur any liability to make any Restricted
Payment. The Company will not, and will not permit any of its Subsidiaries to,
make, authorize or have outstanding any Restricted Investment unless immediately
after giving effect to such action (a) the aggregate value of all Restricted
Investments (other than Investments in Subsidiaries) of the Company and its
Subsidiaries (valued immediately after such action) would not exceed $1,000,000
and (b) the aggregate value of all Investments in Subsidiaries of the Company
and its Subsidiaries (valued immediately after such action) would not exceed
$10,000,000.

         10.13. MOST FAVORED LENDER.

                  The Company will not, and will not permit any of its
Subsidiaries to, enter into, assume or otherwise become bound by or obligated
under any indenture, agreement or other instrument under which the Company and
its Subsidiaries could issue or permit to remain outstanding Indebtedness in an
aggregate principal amount greater than $1,000,000 or any amendment or
modification to, or restatement, renewal, rearrangement, refunding or
replacement of, the Credit Agreement and the other Loan Documents (each of the
foregoing being a

                                       34
<PAGE>   35

"RESTRICTED AGREEMENT") containing one or more Additional Covenants or
Additional Defaults, without entering into an amendment to this Agreement to add
such Additional Covenants or Additional Defaults to this Agreement; provided,
however, in the event the Company or any such Subsidiary shall enter into,
assume or otherwise become bound by or obligated under any such Restricted
Agreement, the terms of this Agreement shall, without any further action on the
part of the Company or any of the holders of the Notes, be deemed to be amended
automatically to include each Additional Covenant and each Additional Default
contained in such Restricted Agreement. The Company further covenants to
promptly execute and deliver at its expense (including, without limitation, the
reasonable fees and expenses of counsel for the holders of the Notes) an
amendment to this Agreement in form and substance satisfactory to the Required
Holder(s) evidencing the amendment of this Agreement to include such Additional
Covenants and Additional Defaults; provided that the execution and delivery of
such amendment shall not be a precondition to the effectiveness of such
amendment as provided for in this Section 10.13 but shall merely be for the
convenience of the parties hereto. Without limiting the foregoing and in
addition thereto, neither the Company nor any Subsidiary nor any Affiliate,
directly or indirectly, will offer any economic inducement to any lender party
to the Credit Agreement or to any other Person who is a party to any other
Restricted Agreement for the purpose of inducing such lender or other Person to
enter into any waiver of any event of default under the Credit Agreement or such
other Restricted Agreement or any event which with the lapse of time or the
giving of notice, or both, would constitute such an event of default, unless the
same such economic inducement has been concurrently and proportionately offered,
and (unless such waiver required hereunder is not granted hereunder) paid on a
pro-rata basis, to all of the holders of the Notes if a similar waiver is
required hereunder or if such waiver is sought in connection with an issue as to
which no waiver is required hereunder because the applicable provisions of this
Agreement, on the one hand, and those of the Credit Agreement, on the other
hand, differ as of the date hereof (it being understood and agreed that the
offering of such economic inducement to the holders of the Notes shall not be
deemed or construed to obligate any such holder to enter into any waiver of any
Default or Event of Default hereunder or to conform any of the provisions hereof
to those of such other agreement). Notwithstanding anything herein to the
contrary, the Purchasers acknowledge and agree that the Credit Agreement, as in
effect on the date hereof, does not violate this Section 10.13.

         10.14. INTERCREDITOR AGREEMENT.

                  Neither the Company nor any Subsidiary will enter into any
renewal, extension or replacement of the Credit Agreement or any Guaranty with
respect thereto (in each case, as in effect on the date hereof) unless each
lender under the Credit Agreement (as so renewed, extended or replaced) has
become a party to the Intercreditor Agreement pursuant to Section 12.2 of the
Intercreditor Agreement.

                                       35
<PAGE>   36

         10.15. AMENDMENTS TO AND REFINANCINGS OF CREDIT AGREEMENT.

                  The Company will not amend, modify, renew, extend, replace,
restate or otherwise change any provision of the Credit Agreement as in effect
on the Effective Date, or any documents, instruments or agreement relating
thereto, including, but not limited to, provisions relating to amortization,
interest rates, fees, commitments, borrowing base, collateral, guaranties and
maturity of the Indebtedness thereunder, without the prior written consent of
the Required Holders; provided, that, subject to Section 10.13, the Company
shall have the right to replace or refinance the Indebtedness under the Credit
Agreement, with Indebtedness that, when added to the outstanding principal
amount of the Notes, does not exceed $70,000,000, provided, that (a) the lender
or lenders providing such Indebtedness shall not (i) have an aggregate
commitment to lend on a revolving basis of less than $50,000,000 (and if such
commitment to lend is based on a borrowing base, the terms, conditions, or
provisions relating to such borrowing base shall be substantially the same as
those under the Credit Agreement such as to not reduce the aggregate amount
available to less than the amount that would be available under the Credit
Agreement), (ii) receive a rate of interest (or discount), any default interest
or other penalty interest, or fees in excess of those provided for in the Credit
Agreement as in effect on the date hereof, (iii) accept any security, assets, or
other property whatsoever that is not subject to a Lien in favor of the
Collateral Agent for the ratable benefit of such lender(s) and the holders of
the Notes or (iv) accept any additional guaranty or subordination for the
benefit of, or any other credit support for, the obligations of the Company or
any of its Subsidiaries unless the holders of the Notes receive an equivalent
guarantee, subordination or other credit support, as the case may be, (b) such
Indebtedness shall not have a final maturity on or before December 16, 2001, (c)
such lender(s) shall agree in a writing in form and substance satisfactory to
the holders of the Notes to be bound by the terms and conditions set forth in
the Intercreditor Agreement and to be obligated thereunder as if we were an
original signatory thereto and (d) no Default or Event of Default would exist
immediately after giving effect to such action.

         10.16. NEGATIVE PLEDGE CLAUSES.

                  The Company will not, and will not permit any of its
Subsidiaries to, enter into any agreement, instrument, deed or lease which
prohibits or limits the ability of the Company or any of its Subsidiaries to
create, incur, assume or suffer to exist any Lien upon any of their respective
properties, assets or revenues, whether now owned or hereafter acquired or which
requires the grant of any collateral for such obligation if collateral is
granted for another obligation, except this Agreement, the other Note Documents
and the Credit Agreement and the other Loan Documents.

         10.17. INDEBTEDNESS.

                  The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume, guaranty, have
outstanding, permit or suffer to exist or otherwise become or remain directly or
indirectly liable with respect to any Indebtedness, including Guarantees of
Indebtedness of others, except the following:

                                       36
<PAGE>   37

                  (i) Indebtedness in respect of the Notes;

                  (ii) current liabilities for Taxes incurred in the ordinary
         course of business which are not yet due and payable;

                  (iii) so long as the same is paid in accordance with its terms
         and neither paid in violation of, nor renewed, extended, refinanced or
         modified in a manner or upon terms that would violate, any provision of
         any Note Document, Indebtedness listed in Schedule 5.15, together with
         all renewals, extensions, refinancings and modifications (but not
         increases) thereof;

                  (iv) trade payables arising in the ordinary course of business
         that, except for such trade payables the validity or amount of which is
         being diligently contested in good faith by appropriate proceedings
         being diligently prosecuted and for which adequate reserves, if
         required by GAAP, have been established, are paid within the earlier of
         (A) 60 days of the date when payment thereof is due and payable and (B)
         180 days of the date the respective goods are delivered or services are
         rendered;

                  (v) purchase-money Indebtedness for equipment purchases which
         does not exceed, in aggregate, $2,000,000 for any fiscal year of the
         Company;

                  (vi) Subordinated Debt of the Company and its Subsidiaries
         which, when added together with other Subordinated Debt of the Company
         and its Subsidiaries, does not exceed an aggregate amount approved by
         the Required Holders; and

                  (vii) Indebtedness of the Company and the Subsidiaries under
         the Credit Agreement and the Guaranties executed in connection
         thereunder.

11. EVENTS OF DEFAULT.

                  An "EVENT OF DEFAULT" shall exist if any of the following
conditions or events shall occur and be continuing:

                  (a) the Company defaults in the payment of any principal or
         Make-Whole Amount, if any, on any Note when the same becomes due and
         payable, whether at maturity or at a date fixed for prepayment or by
         declaration or otherwise, including, without limitation, the payment of
         principal due on June 13, 2000 pursuant to Section 8.1; or

                  (b) the Company defaults in the payment of any interest on any
         Note for more than five days after the same becomes due and payable; or

                                       37
<PAGE>   38

                  (c) the Company defaults in the performance of or compliance
         with any term contained in Section 7.1(l), Section 7.1(m), Section
         7.1(n), Section 9.15, Section 10 or there is a "default" or an "event
         of default" under any other Note Document;

                  (d) the Company or any Subsidiary defaults in the performance
         of or compliance with any term contained herein (other than those
         referred to in clauses (a), (b) and (c) of this Section 11) or in any
         of the other Note Documents and such default is not remedied within 30
         days after the earlier of (i) a Responsible Officer obtaining actual
         knowledge of such default and (ii) the Company receiving written notice
         of such default from any holder of a Note (any such written notice to
         be identified as a "notice of default" and to refer specifically to
         this clause (d) of Section 11); or

                  (e) any representation or warranty made in writing by or on
         behalf of the Company or any Subsidiary or by any officer of the
         Company or any Subsidiary or in this Agreement or in any other Note
         Document or in any writing furnished in connection with the
         transactions contemplated hereby proves to have been false, misleading
         or incorrect in any material respect on the date as of which made; or

                  (f) (i) the Company or any Subsidiary is in default (as
         principal or as guarantor or other surety) in the payment of any
         principal of or premium or make-whole amount or interest on any
         Indebtedness that is outstanding in an aggregate principal amount of at
         least $1,000,000 (or on any one or more items of Indebtedness which are
         outstanding in the aggregate principal amount of at least $1,000,000)
         beyond any period of grace provided with respect thereto, or (ii) the
         Company or any Subsidiary is in default in the performance of or
         compliance with any term of any evidence of any Indebtedness in an
         aggregate outstanding principal amount of at least $1,000,000 (or on
         any one or more items of Indebtedness which are outstanding in the
         aggregate principal amount of at least $1,000,000) or of any mortgage,
         indenture or other agreement relating thereto or any other condition
         exists, and as a consequence of such default or condition such
         Indebtedness has become, or has been declared (or one or more Persons
         are entitled to declare such Indebtedness to be), due and payable
         before its stated maturity or before its regularly scheduled dates of
         payment, or (iii) as a consequence of the occurrence or continuation of
         any event or condition (other than the passage of time or the right of
         the holder of Indebtedness to convert such Indebtedness into equity
         interests), (x) the Company or any Subsidiary has become obligated to
         purchase or repay Indebtedness before its regular maturity or before
         its regularly scheduled dates of payment in an aggregate outstanding
         principal amount of at least $1,000,000 (or on any one or more items of
         Indebtedness which are outstanding in the aggregate principal amount of
         at least $1,000,000), or (y) one or more Persons have the right to
         require the Company or any Subsidiary so to purchase or repay such
         Indebtedness; or

                                       38
<PAGE>   39

                  (g) the Company or any Subsidiary (i) is generally not paying,
         or admits in writing its inability to pay, its debts as they become
         due, (ii) files, or consents by answer or otherwise to the filing
         against it of, a petition for relief or reorganization or arrangement
         or any other petition in bankruptcy, for liquidation or to take
         advantage of any bankruptcy, insolvency, reorganization, moratorium or
         other similar law of any jurisdiction, (iii) makes an assignment for
         the benefit of its creditors, (iv) consents to the appointment of a
         custodian, receiver, trustee or other officer with similar powers with
         respect to it or with respect to any substantial part of its property,
         (v) is adjudicated as insolvent or to be liquidated, or (vi) takes
         corporate action for the purpose of any of the foregoing; or

                  (h) a court or governmental authority of competent
         jurisdiction enters an order appointing, without consent by the Company
         and its Subsidiaries affected thereby, a custodian, receiver, trustee
         or other officer with similar powers with respect to it or with respect
         to any substantial part of its property, or constituting an order for
         relief or approving a petition for relief or reorganization or any
         other petition in bankruptcy or for liquidation or to take advantage of
         any bankruptcy or insolvency law of any jurisdiction, or ordering the
         dissolution, winding-up or liquidation of the Company or any of its
         Subsidiaries, or any such petition shall be filed against the Company
         or any of its Subsidiaries and such petition shall not be dismissed
         within 30 days; or

                  (i) a final judgment or judgments for the payment of money
         aggregating in excess of $1,000,000 (exclusive of amounts which
         financially sound and reputable insurers have unconditionally
         acknowledged are covered by policies of insurance issued thereby) are
         rendered against one or more of the Company and its Subsidiaries and
         which judgments are not, within 30 days after entry thereof, bonded,
         discharged or stayed pending appeal, or are not discharged within 30
         days after the expiration of such stay; or

                  (j) if (i) any Plan shall fail to satisfy the minimum funding
         standards of ERISA or the Code for any plan year or part thereof or a
         waiver of such standards or extension of any amortization period is
         sought or granted under section 412 of the Code, (ii) a notice of
         intent to terminate any Plan shall have been or is reasonably expected
         to be filed with the PBGC or the PBGC shall have instituted proceedings
         under ERISA section 4042 to terminate or appoint a trustee to
         administer any Plan or the PBGC shall have notified the Company or any
         ERISA Affiliate that a Plan may become a subject of any such
         proceedings, (iii) the aggregate "amount of unfunded benefit
         liabilities" (within the meaning of section 4001(a)(18) of ERISA) under
         all Plans, determined in accordance with Title IV of ERISA, shall
         exceed $1,000,000, (iv) the Company or any ERISA Affiliate shall have
         incurred or is reasonably expected to incur any liability pursuant to
         Title I or IV of ERISA or the penalty or excise tax provisions of the
         Code relating to employee benefit plans, (v) the Company or any ERISA
         Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or
         any Subsidiary establishes or amends any employee welfare benefit plan
         that provides post-employment welfare benefits in a manner that would
         increase the

                                       39
<PAGE>   40

         liability of the Company or any Subsidiary thereunder; and any such
         event or events described in clauses (i) through (vi) above, either
         individually or together with any other such event or events, could
         reasonably be expected to have a Material Adverse Effect; or

                  (k) except pursuant to the express terms thereof, any Note
         Document shall at any time after its execution and delivery and for any
         reason cease to be in full force and effect or declared to be null and
         void or the Company or any Subsidiary that is a party to a Note
         Document shall deny that it has any further liability or obligation
         under any Note Document to which it is a party or any Security Document
         shall for any reason (other than as expressly provided or permitted
         pursuant to the terms thereof) cease to create a valid and perfected
         first priority Lien in any Collateral, subject to Permitted Liens and
         except as otherwise previously permitted by the Required Holders.

As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.

12. REMEDIES ON DEFAULT, ETC.

         12.1. ACCELERATION.

                  (a) If an Event of Default described in clause (g) or (h) of
Section 11 (other than an Event of Default described in clause (i) of clause (g)
or described in clause (vi) of clause (g) by virtue of the fact that such clause
encompasses clause (i) of clause (g)) has occurred, all the Notes then
outstanding shall automatically become immediately due and payable.

                  (b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than 33 1/3% in principal amount of
the Notes at the time outstanding may at any time at its or their option, by
notice or notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.

                  (c) If any Event of Default described in clause (a) or (b) of
Section 11 has occurred and is continuing, any holder or holders of Notes at the
time outstanding affected by such Event of Default may at any time, at its or
their option, by notice or notices to the Company, declare all the Notes held by
it or them to be immediately due and payable.

                  Upon any Notes becoming due and payable under this Section
12.1, whether automatically or by declaration, such Notes will forthwith mature
and the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and

                                       40
<PAGE>   41

that the provision for payment of a Make-Whole Amount by the Company in the
event that the Notes are prepaid or are accelerated as a result of an Event of
Default, is intended to provide compensation for the deprivation of such right
under such circumstances.

         12.2. OTHER REMEDIES.

                  If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note or any other Note Document, whether directly or through the Collateral
Agent, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.

         12.3. RESCISSION.

                  At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less than
662/3% in principal amount of the Notes then outstanding, by written notice to
the Company, may rescind and annul any such declaration and its consequences if
(a) the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, (b) all Events of Default and Defaults, other than non-payment of amounts
that have become due solely by reason of such declaration, have been cured or
have been waived pursuant to Section 17, and (c) no judgment or decree has been
entered for the payment of any monies due pursuant hereto or to the Notes. No
rescission and annulment under this Section 12.3 will extend to or affect any
subsequent Event of Default or Default or impair any right consequent thereon.

         12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.

                  No course of dealing and no delay on the part of any holder of
any Note or the Collateral Agent in exercising any right, power or remedy shall
operate as a waiver thereof or otherwise prejudice such holder's or the
Collateral Agent's rights, powers or remedies. No right, power or remedy
conferred by this Agreement, by any Note or by any other Note Document upon any
holder thereof or the Collateral Agent shall be exclusive of any other right,
power or remedy referred to herein or therein or now or hereafter available at
law, in equity, by statute or otherwise. Without limiting the obligations of the
Company under Section 15, the Company will pay to the holder of each Note or the
Collateral Agent, as the case may be, on demand such further amount as shall be
sufficient to cover all costs and expenses of such holder or the

                                       41
<PAGE>   42

Collateral Agent, as the case may be, incurred in any enforcement or collection
under this Section 12, including, without limitation, reasonable attorneys'
fees, expenses and disbursements.

13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

         13.1. REGISTRATION OF NOTES.

                  The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The name
and address of each holder of one or more Notes, each transfer thereof and the
name and address of each transferee of one or more Notes shall be registered in
such register. Prior to due presentment for registration of transfer, the Person
in whose name any Note shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.

         13.2. TRANSFER AND EXCHANGE OF NOTES.

                  Upon surrender of any Note at the principal executive office
of the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or his attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1. Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $1,000,000, provided that if necessary
to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $1,000,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
Section 6.2.

         13.3.    REPLACEMENT OF NOTES.

                  Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note (which evidence shall be, in

                                       42
<PAGE>   43

the case of an Institutional Investor, notice from such Institutional Investor
of such ownership and such loss, theft, destruction or mutilation), and

                  (a) in the case of loss, theft or destruction, of indemnity
         reasonably satisfactory to it (provided that if the holder of such Note
         is, or a nominee for, an original Purchaser or another holder of a Note
         with a minimum net worth of at least $50,000,000, such Person's own
         unsecured agreement of indemnity shall be deemed to be satisfactory),
         or

                  (b) in the case of mutilation, upon surrender and cancellation
         thereof,

the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.

14. PAYMENTS ON NOTES.

         14.1. PLACE OF PAYMENT.

                  Subject to Section 14.2, payments of principal, Make-Whole
Amount, if any, and interest becoming due and payable on the Notes shall be made
in New York, New York at the principal office of The Chase Manhattan Bank, N.A.,
in such jurisdiction. The Company may at any time, by notice to each holder of a
Note, change the place of payment of the Notes so long as such place of payment
shall be either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.

         14.2. HOME OFFICE PAYMENT.

                  So long as any Purchaser or its nominee shall be the holder of
any Note, and notwithstanding anything contained in Section 14.1 or in such Note
to the contrary, the Company will pay all sums becoming due on such Note for
principal, Make-Whole Amount, if any, and interest by the method and at the
address specified for such purpose below such Purchaser's name in Schedule A, or
by such other method or at such other address as such Purchaser shall have from
time to time specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that upon written request of the Company made concurrently with or
reasonably promptly after payment or prepayment in full of any Note, such
Purchaser shall surrender such Note for cancellation, reasonably promptly after
any such request, to the Company at its principal executive office or at the
place of payment most recently designated by the Company pursuant to Section
14.1. Prior to any sale or other disposition of any Note held by any Purchaser
or its nominee such Purchaser will, at its election, either endorse thereon the
amount of principal paid thereon and the last date to which interest has been
paid thereon or surrender such Note to the Company in exchange for a new Note or
Notes pursuant to Section 13.2. The Company will afford the benefits of this
Section 14.2 to any

                                       43
<PAGE>   44

Institutional Investor that is the direct or indirect transferee of any Note
purchased by any Purchaser under this Agreement and that has made the same
agreement relating to such Note as the Purchasers have made in this Section
14.2.

15. EXPENSES, ETC.

         15.1. TRANSACTION EXPENSES.

                  Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including reasonable
attorneys' fees of a special counsel and, if reasonably required, local or other
counsel) incurred by each Purchaser or holder of a Note in connection with such
transactions and in connection with any amendments, waivers or consents under or
in respect of this Agreement, the Notes or any other Note Document (whether or
not such amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend) any rights under this
Agreement, the Notes or any other Note Document or in responding to any subpoena
or other legal process or informal investigative demand issued in connection
with this Agreement, the Notes or any other Note Document, or by reason of being
a holder of any Note, (b) the costs and expenses, including financial advisors'
fees, incurred in connection with the insolvency or bankruptcy of the Company or
any Subsidiary or in connection with any work-out or restructuring of the
transactions contemplated hereby and by the Notes and (c) the costs of
Appraisals requested pursuant to Section 7.1(j). The Company will pay, and will
save each Purchaser and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by such Purchaser or such holder).

         15.2. SURVIVAL.

                  The obligations of the Company under this Section 15 and the
indemnification obligations of the Company under Section 9.10 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement, the Notes or any other Note Document, and the
termination of this Agreement.

16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

                  All representations and warranties contained herein and in the
other Note Documents shall survive, subject to any applicable statue of
limitations, the execution and delivery of this Agreement, the Notes and the
other Note Documents, the purchase or transfer by any Purchaser of any Note or
portion thereof or interest therein and the payment of any Note, and may be
relied upon by any subsequent holder of a Note, regardless of any investigation
made at any time by or on behalf of any Purchaser or any other holder of a Note.
All statements contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant to this

                                       44
<PAGE>   45

Agreement or any other Note Document shall be deemed representations and
warranties of the Company under this Agreement. Subject to the preceding
sentence, this Agreement, the Notes and the other Note Documents embody the
entire agreement and understanding between the Purchasers and the Company and
supersede all prior agreements and understandings relating to the subject matter
hereof.

17. AMENDMENT AND WAIVER.

         17.1. REQUIREMENTS.

                  This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and the Required Holders, except that (a) no amendment or waiver of any
of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term
(as it is used therein), will be effective as to any Purchaser unless consented
to by such Purchaser in writing, and (b) no such amendment or waiver may,
without the written consent of the holder of each Note at the time outstanding
affected thereby, (i) subject to the provisions of Section 12 relating to
acceleration or rescission, change the amount or time of any prepayment or
payment of principal of, or reduce the rate or change the time of payment or
method of computation of interest or of the Make-Whole Amount on, the Notes,
(ii) change the percentage of the principal amount of the Notes the holders of
which are required to consent to any such amendment or waiver, (iii) amend any
of Sections 8, 11(a), 11(b), 12, 17 or 20, or (iv) amend the definition of
"Designated Event" or the constituent definitions thereof.

         17.2. SOLICITATION OF HOLDERS OF NOTES.

                  (a) Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.

                  (b) Payment. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any holder of
Notes as consideration for or as an inducement to the entering into by any
holder of Notes or any waiver or amendment of any of the terms and provisions
hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.

                                       45
<PAGE>   46

         17.3. BINDING EFFECT, ETC.

                  Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon them and
upon each future holder of any Note and upon the Company without regard to
whether such Note has been marked to indicate such amendment or waiver. No such
amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default or Event of Default not expressly amended or waived or impair
any right consequent thereon. No course of dealing between the Company and the
holder of any Note or the Collateral Agent nor any delay in exercising any
rights hereunder or under any Note or any other Note Document shall operate as a
waiver of any rights of any holder of such Note or the Collateral Agent. As used
herein, the term "THIS AGREEMENT" and references thereto shall mean this
Agreement as it may from time to time be amended or supplemented.

         17.4. NOTES HELD BY COMPANY, ETC.

                  Solely for the purpose of determining whether the holders of
the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of
its Affiliates shall be deemed not to be outstanding.

18. NOTICES.

                  All notices and communications provided for hereunder shall be
in writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:

                  (i) if to a Purchaser or its nominee, to such Purchaser or
         nominee at the address specified for such communications in Schedule A,
         or at such other address as such Purchaser or nominee shall have
         specified to the Company in writing,

                  (ii) if to any other holder of any Note, to such holder at
         such address as such other holder shall have specified to the Company
         in writing,

                  (iii) if to the Company, to the Company at 3601 Plains Blvd.,
         Amarillo, TX 79120-2104 to the attention of Chief Financial Officer, or
         at such other address as the Company shall have specified to the holder
         of each Note in writing, or

                                       46
<PAGE>   47

                  (iv) if to the Collateral Agent, to it at 901 Main Street,
         67th Floor, Dallas, Texas 75202 or at such other address as the
         Collateral Agent shall have specified the Company and the holder of
         each Note in writing.

Notices under this Section 18 will be deemed given only when actually received.

19. REPRODUCTION OF DOCUMENTS.

                  This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may hereafter
be executed, (b) documents received by any Purchaser in connection with the
closing of the Existing Agreements and this Agreement (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to the Purchasers or the holders of the Notes,
may be reproduced by any Purchaser or holder of any Note by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar
process and such Purchaser or such holder may destroy any original document so
reproduced. The Company agrees and stipulates that, to the extent permitted by
applicable law, any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by such
Purchaser or such holder in the regular course of business) and any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence. This Section 19 shall not prohibit the Company or any
other holder of Notes from contesting any such reproduction to the same extent
that it could contest the original, or from introducing evidence to demonstrate
the inaccuracy of any such reproduction.

20. CONFIDENTIAL INFORMATION.

                  For the purposes of this Section 20, "CONFIDENTIAL
INFORMATION" means information delivered to a Purchaser by or on behalf of the
Company or any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by
such Purchaser as being confidential information of the Company or such
Subsidiary, provided that such term does not include information that (a) was
publicly known or otherwise known to such Purchaser prior to the time of such
disclosure, (b) subsequently becomes publicly known through no act or omission
by such Purchaser or any person acting on its behalf, (c) otherwise becomes
known to such Purchaser other than through disclosure by the Company or any
Subsidiary or (d) constitutes financial statements delivered to such Purchaser
under Section 7.1 that are otherwise publicly available. Each Purchaser will
maintain the confidentiality of such Confidential Information received by such
Purchaser in accordance with procedures adopted by such Purchaser in good faith
to protect confidential information of third parties delivered to such
Purchaser, provided that such Purchaser may deliver or disclose Confidential
Information to (i) its directors, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure

                                       47
<PAGE>   48

reasonably relates to the administration of the investment represented by its
Notes), (ii) its financial advisors and other professional advisors who agree to
hold confidential the Confidential Information substantially in accordance with
the terms of this Section 20, (iii) any other holder of any Note, (iv) any
Institutional Investor to which such Purchaser sells or offers to sell such Note
or any part thereof or any participation therein (if such Person has agreed in
writing prior to its receipt of such Confidential Information to be bound by the
provisions of this Section 20), (v) any Person from which such Purchaser offers
to purchase any security of the Company (if such Person has agreed in writing
prior to its receipt of such Confidential Information to be bound by the
provisions of this Section 20), (vi) any federal or state regulatory authority
having jurisdiction over such Purchaser, (vii) the National Association of
Insurance Commissioners or any similar organization, or any nationally
recognized rating agency that requires access to information about such
Purchaser's investment portfolio or (viii) any other Person to which such
delivery or disclosure may be necessary or appropriate (w) to effect compliance
with any law, rule, regulation or order applicable to such Purchaser, (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which such Purchaser is a party or (z) if an Event of Default has
occurred and is continuing, to the extent such Purchaser may reasonably
determine such delivery and disclosure to be necessary or appropriate in the
enforcement or for the protection of the rights and remedies under the Notes,
this Agreement and the other Note Documents. Each holder of a Note, by its
acceptance of a Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section 20 as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Company embodying the provisions of this Section 20.

21. WAIVER.

                  Upon the effectiveness of this Agreement, the following
Defaults and Events of Default under the Existing Agreements are hereby waived:

                  (a) Default with respect to Section 10.5 of the Existing
         Agreements for the Company's fiscal quarter ended April 30, 1998;

                  (b) Default with respect to Section 10.6 of the Existing
         Agreements for the Company's fiscal quarters ended April 30, 1998,
         January 31, 2000 and April 30, 2000;

                  (c) Default with respect to Section 7.1(b) of the Existing
         Agreements as a result of the failure to deliver the documents required
         therein with respect to the fiscal year ended January 31, 2000; and

                                       48
<PAGE>   49

                  (d) Default with respect to Section 7.2 of the Existing
         Agreements as a result of the failure to deliver the certificate
         required thereby with respect to the financial statements for the
         fiscal year ended January 31, 2000.

22. MISCELLANEOUS.

         22.1. SUCCESSORS AND ASSIGNS.

                  All covenants and other agreements contained in this Agreement
by or on behalf of either of the parties hereto bind and inure to the benefit of
their respective successors and assigns (including, without limitation, any
subsequent holder of a Note) whether so expressed or not.

         22.2. PAYMENTS DUE ON NON-BUSINESS DAYS.

                  Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or interest on
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.

         22.3. ACCOUNTING MATTERS.

                  Wherever reference is made in any provision of this Agreement
to a consolidated balance sheet or other consolidated financial statement or
financial computation with respect to the Company and its Subsidiaries, if at
the time that any such provision is applicable the Company shall not have any
Subsidiary, such terms shall mean a balance sheet or other financial statement
or financial computation, as the case may be, with respect to the Company only.

         22.4. SEVERABILITY.

                  Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.

         22.5. CONSTRUCTION.

                  Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable

                                       49
<PAGE>   50

whether such action is taken directly or indirectly by such Person. Upon and
after the Effective Date, each reference to the Note Purchase Agreement, the
Agreement or other terms of like import referring to the Existing Agreement in
the Security Agreement, and each other Note Document shall mean and be a
reference to this Agreement

         22.6. COUNTERPARTS.

                  This Agreement may be executed in any number of counterparts
(including those transmitted by facsimile), each of which shall be an original
but all of which together shall constitute one instrument. Each counterpart may
consist of a number of copies hereof, each signed by less than all, but together
signed by all, of the parties hereto. Delivery of this Agreement may be made by
facsimile transmission of a duly executed counterpart copy hereof.

         22.7. GOVERNING LAW.

                  This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State
of New York excluding, to the extent permitted by the law of such State,
choice-of-law principles of the law of such State that would require the
application of the laws of a jurisdiction other than such State.

      [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]

                                       50
<PAGE>   51

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the date first above set forth.

                                    HASTINGS ENTERTAINMENT, INC.

                                    By:
                                       ---------------------------------------
                                    Name:
                                         -------------------------------------
                                    Title:
                                          ------------------------------------

                                    METROPOLITAN LIFE INSURANCE
                                    COMPANY

                                    By:
                                       ---------------------------------------
                                    Name:
                                         -------------------------------------
                                    Title:
                                          ------------------------------------

                                    METROPOLITAN INSURANCE AND ANNUITY
                                    COMPANY

                                    By:
                                       ---------------------------------------
                                    Name:
                                         -------------------------------------
                                    Title:
                                          ------------------------------------

<PAGE>   52

                                                                      SCHEDULE A

                       INFORMATION RELATING TO PURCHASERS

                                                    Original Principal Amount of
Name and Address of Purchaser                                              Notes

METROPOLITAN LIFE INSURANCE COMPANY                                   $8,000,000

  (1)    All payments by wire transfer of immediately
         available funds to:

         The Chase Manhattan Bank
         New York, New York 10010
         ABA No. 021000021
         Account No. 002-2-410591

         with sufficient information to identify the
         source and application of such funds
         (including the PPN of the Notes)

(2)      All notices of payments and written
         confirmation of such wire transfer:

         Metropolitan Life Insurance Company
         One Madison Avenue
         Law Dept., Area 6H
         New York, NY 10010-3690
         Attention:  Lisa Glass
         Telecopy:  (212) 251-1563

         with a copy to:

         Metropolitan Life Insurance Company
         334 Madison Avenue
         Convent Station, NJ  07961-0633
         Attention:  Investment Officer
         Telecopy:  (973) 254-3032

(3)      All other communications:

                                   Schedule A

                                        1

<PAGE>   53

         Metropolitan Life Insurance Company
         One Madison Avenue
         Law Dept., Area 6H
         New York, NY 10010-3690
         Attention:  Lisa Glass
         Telecopy:  (212) 251-1563

         with a copy to:

         Metropolitan Life Insurance Company
         334 Madison Avenue
         Convent Station, NJ  07961-0633
         Attention:  Investment Officer
         Telecopy:  (973) 254-3032

         Tax I.D. No. 13-5581829

                                   Schedule A

                                        2

<PAGE>   54

                                                    Original Principal Amount of
Name and Address of Purchaser                                          Notes

METROPOLITAN INSURANCE AND ANNUITY COMPANY                           $12,000,000

  (1)    All payments by wire transfer of immediately
         available funds to:

         The Chase Manhattan Bank
         New York, New York 10010
         ABA No. 021000021
         Account No. 002-1-072301

         with sufficient information to identify the
         source and application of such funds
         (including the PPN of the Notes)

  (2)    All notices of payments and written
         confirmation of such wire transfer:

         Metropolitan Insurance and Annuity
         Company
         One Madison Avenue
         Law Dept., Area 6H
         New York, NY 10010-3690
         Attention:  Lisa Glass
         Telecopy:  (212) 251-1563

         with a copy to:

         Metropolitan Life Insurance Company
         334 Madison Avenue
         Convent Station, NJ  07961-0633
         Attention:  Investment Officer
         Telecopy:  (973) 254-3032

                                   Schedule A

                                        3

<PAGE>   55

  (3)    All other communications:

         Metropolitan Insurance and Annuity Company
         One Madison Avenue
         Law Dept., Area 6H
         New York, NY 10010-3690
         Attention:  Lisa Glass
         Telecopy:  (212) 251-1563

         with a copy to:

         Metropolitan Life Insurance Company
         334 Madison Avenue
         Convent Station, NJ  07961-0633
         Attention:  Investment Officer
         Telecopy:  (973) 254-3032

         Tax I.D. No. 13-2876440

                                   Schedule A

                                        4

<PAGE>   56

                                                                      SCHEDULE B

                                  DEFINED TERMS

                  As used herein, the following terms have the respective
meanings set forth below or set forth in the Section hereof following such term:

                  "ADDITIONAL COVENANT" shall mean any affirmative or negative
covenant or similar restriction applicable to the Company or any Subsidiary
(regardless of whether such provision is labeled or otherwise characterized as a
covenant) the subject matter of which either (i) is similar to that of the
covenants in Sections 9 and 10 of the Agreement, or related definitions in this
Schedule B to the Agreement, but contains one or more percentages, amounts or
formulas that is more restrictive than those set forth herein or more beneficial
to the holder or holders of the Indebtedness created or evidenced by the
document in which such covenant or similar restriction is contained (and such
covenant or similar restriction shall be deemed an "Additional Covenant" only to
the extent that it is more restrictive or more beneficial) or (ii) is different
from the subject matter of the covenants in Sections 9 and 10 of the Agreement,
or related definitions in this Schedule B to the Agreement.

                  "ADDITIONAL DEFAULT" shall mean any provision contained in any
document or instrument creating or evidencing Indebtedness of the Company or any
Subsidiary which permits the holder or holders of Indebtedness to accelerate
(with the passage of time or giving of notice or both) the maturity thereof or
otherwise requires the Company or any Subsidiary to purchase such Indebtedness
prior to the stated maturity thereof and which either (i) is similar to the
Defaults and Events of Default contained in Section 11 of the Agreement, or
related definitions in this Schedule B to the Agreement, but contains one or
more percentages, amounts or formulas that is more restrictive or has a shorter
grace period than those set forth herein or is more beneficial to the holder or
holders of such other Indebtedness (and such provision shall be deemed an
"Additional Default" only to the extent that it is more restrictive, has a
shorter grace period or is more beneficial) or (ii) is different from the
subject matter of the Defaults and Events of Default contained in Section 11 of
the Agreement, or related definitions in this Schedule B of the Agreement

                  "ADJUSTED NET WORTH" means, at any time, Consolidated Net
Worth plus the LIFO valuation reserve of the Company and its Subsidiaries
determined on a consolidated basis in accordance with GAAP.

                  "ADJUSTED EBITDA" means, for any period, the net income (plus
or minus any extraordinary charges or credits) of the Company and its
Subsidiaries, on a consolidated basis, for such period plus (i) interest expense
of the Company and its Subsidiaries, on a consolidated basis, for such period
with respect to the Loans, the Notes and all other borrowed-money Indebtedness

                                   Schedule B

                                        1

<PAGE>   57

and the interest expense component under Capitalized Lease Obligations plus (ii)
income tax expense of the Company and its Subsidiaries, on a consolidated basis,
for such period plus (iii) other non-cash items plus (iv) the aggregate amount
deducted in determining net income of the Company and its Subsidiaries, on a
consolidated basis, for such period for depreciation (excluding depreciation
relating to video tapes held for rental) and amortization of property.

                  "AFFILIATE" means, at any time, and with respect to any
Person, (a) any other Person that at such time directly or indirectly through
one or more intermediaries Controls, or is Controlled by, or is under common
Control with, such first Person, and (b) any Person beneficially owning or
holding, directly or indirectly, 10% or more of any class of voting or equity
interests of the Company or any Subsidiary or any corporation of which the
Company and its Subsidiaries beneficially own or hold, in the aggregate,
directly or indirectly, 10% or more of any class of voting or equity interests.
As used in this definition, "CONTROL" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. Unless the context otherwise clearly requires, any
reference to an "Affiliate" is a reference to an Affiliate of the Company.

                  "APPRAISAL" means, at any time, an appraisal report setting
forth the organized liquidation value of the inventory of the Company, as
determined by an appraisal performed within one month prior to such time by an
independent appraiser of recognized standing and reasonably acceptable to the
Required Holders, it being understood that a report issued by The Ozer Group
constitutes an Appraisal hereunder.

                  "ASSET SALE" means any conveyance, transfer, lease or other
disposition (including, without limitation, by means of a Sale-Leaseback
Transaction or by way of merger or consolidation) (collectively, for purposes of
this definition, a "transfer"), directly or indirectly, in one or a series of
related transactions, of (a) any Capital Stock of any Subsidiary (including,
without limitation, the issuance thereof by such Subsidiary to any Person other
than the Company or a Wholly-Owned Subsidiary); (b) all or substantially all of
the properties of any division or line of business of the Company or any
Subsidiary; or (c) any other properties of the Company or any Subsidiary (other
than (i) transfers of cash or cash equivalents, (ii) any sale in the ordinary
course of business for not less than Fair Market Value, (iii) any transfer of
properties that is made in compliance with the provisions of Section 10.2 hereof
or (iv) any transfer of properties of any Subsidiary to the Company or a
Wholly-Owned Subsidiary).

                  "BANK AGENT" means Bank of America, N.A., in its capacity as
agent for the Banks under the Credit Agreement, together with its successors in
such capacity.

                  "BANKS" means, collectively, the lenders from time to time
party to the Credit Agreement.

                                   Schedule B

                                        2

<PAGE>   58

                  "BOARD OF DIRECTORS" means, at any time, the board of
directors of the Company or any committee thereof which, in the instance, shall
have the lawful power to exercise the power and authority of such board of
directors.

                  "BORROWING BASE" shall have the meaning given to such term
(including the definitions of any and all defined terms which are components
thereof) in the Credit Agreement as in effect on the date hereof.

                  "BORROWING BASE CERTIFICATE" means the Borrowing Base
Certificate as such term is defined in the Credit Agreement.

                  "BUSINESS DAY" means (a) for the purposes of Section 8.7 only,
any day other than a Saturday, a Sunday or a day on which commercial banks in
New York City are required or authorized to be closed, and (b) for the purposes
of any other provision of this Agreement, any day other than a Saturday, a
Sunday or a day on which commercial banks in New York, New York, or Amarillo,
Texas are required or authorized to be closed.

                  "CAPITAL LEASE" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.

                  "CAPITAL LEASE OBLIGATION" means, with respect to any Person
and a Capital Lease, the amount of the obligation of such Person as the lessee
under such Capital Lease which would, in accordance with GAAP, appear as a
liability on a balance sheet of such Person.

                  "CAPITAL STOCK" of any Person means any and all shares,
interests, participations or other equivalents in the equity interest (however
designated) in such Person and any rights (other than debt securities
convertible into an equity interest), warrants or options to acquire an equity
interest in such Person.

                  "CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time.

                  "COLLATERAL" means the collateral described in the Security
Documents which secures payment of the Notes and payment, performance and
observance of the obligations of the Company and its Subsidiaries under this
Agreement and the other Note Documents.

                  "COLLATERAL AGENT" means (i) Bank of America, N.A., in its
capacity as Collateral Agent for the holders of Notes and the Banks, as provided
under the Intercreditor Agreement, and its successors and assigns in such
capacity, or (ii) any successor collateral agent under the Intercreditor
Agreement.

                                   Schedule B

                                        3

<PAGE>   59

                  "COMPANY" is defined in the introductory paragraph of this
Agreement.

                  "CONFIDENTIAL INFORMATION" is defined in Section 20.

                  "CONSOLIDATED EBITAR" means, for any fiscal period, the sum of
(a) Consolidated Net Income for such period, plus (b) to the extent deducted in
determining Consolidated Net Income, Fixed Charges and Taxes for such period.

                  "CONSOLIDATED INDEBTEDNESS" means, as of any date of
determination, the total of all Indebtedness of the Company and its Subsidiaries
outstanding on such date, after eliminating all offsetting debits and credits
between the Company and its Subsidiaries and all other items required to be
eliminated in the course of the preparation of consolidated financial statements
of the Company and its Subsidiaries in accordance with GAAP.

                  "CONSOLIDATED NET INCOME" means, with reference to any period,
the net income (or loss) of the Company and its Subsidiaries for such period
(taken as a cumulative whole), as determined in accordance with GAAP, after
eliminating all offsetting debits and credits between the Company and its
Subsidiaries and all other items required to be eliminated in the course of the
preparation of consolidated financial statements of the Company and its
Subsidiaries in accordance with GAAP, provided that there shall be excluded any
net income or gain and any net loss during such period from any extraordinary
items.

                  "CONSOLIDATED NET TANGIBLE ASSETS" means, at any time, the net
book value of the total assets of the Company and its Subsidiaries shown on the
most recent consolidated balance sheet of the Company and its Subsidiaries
delivered pursuant to Section 5.5, Section 7.1(a), Section 7.1(b) or Section
7.1(c) (after eliminating all amounts properly attributable to minority
interests, if any, in the stock and surplus of Subsidiaries) other than assets
(net of reserves applicable thereto) shown as intangible assets on such balance
sheet.

                  "CONSOLIDATED NET WORTH" means, at any time,

                  (a) the total assets of the Company and its Subsidiaries which
         would be shown as assets on a consolidated balance sheet of the Company
         and its Subsidiaries as of such time prepared in accordance with GAAP,
         after eliminating all amounts properly attributable to minority
         interests, if any, in the stock and surplus of Subsidiaries, minus

                  (b) the total liabilities of the Company and its Subsidiaries
         which would be shown as liabilities on a consolidated balance sheet of
         the Company and its Subsidiaries as of such time prepared in accordance
         with GAAP.

                                   Schedule B

                                        4

<PAGE>   60

                  "CONSOLIDATED TOTAL CAPITALIZATION" means, at any time, the
sum of Adjusted Net Worth and Consolidated Indebtedness.

                  "CREDIT AGREEMENT" shall mean that certain Credit Agreement
among the Company, Bank of America, N.A. (formerly known as NationsBank, N.A.)
individually and as Agent, and the other financial institutions parties thereto,
dated December 16, 1998, as amended and modified by that certain First Amendment
to Credit Agreement and Waiver Agreement, dated May 2, 2000, as modified by that
certain Waiver Agreement, dated as of May 31, 2000, and as amended and modified
by that certain Second Amendment to Credit Agreement, dated as of June 12, 2000.

                  "DEBT PREPAYMENT APPLICATION" means, with respect to any Asset
Sale, the application by the Company or its Subsidiaries of cash in an amount
equal to the Net Proceeds Amount with respect to such Asset Sale to pay the
principal of Senior Funded Debt for borrowed money of the Company ("QUALIFYING
INDEBTEDNESS") (other than (a) mandatory prepayments or payments at maturity of
such Indebtedness, (b) Indebtedness owing to any Subsidiary or any Affiliate and
(c) Indebtedness in respect of any revolving credit or similar credit facility
providing the Company with the right to obtain loans or other extensions of
credit from time to time, except to the extent that in connection with such
payment of such Indebtedness the availability of credit under such credit
facility is permanently reduced by an amount not less than the amount of such
proceeds applied to the payment of such Indebtedness), provided that in the
course of making such application the Company shall prepay each outstanding Note
in accordance with Section 8.2 (other than the requirement in the first sentence
of such Section that partial prepayments be in an amount not less than 20% of
the aggregate principal amount of the Notes then outstanding) in a principal
amount which equals the Ratable Portion for such Note. As used in this
definition, "RATABLE PORTION" for any Note means an amount equal to the product
of (x) the Net Proceeds Amount being so applied to the payment of principal of
Qualifying Indebtedness multiplied by (y) a fraction the numerator of which is
the outstanding principal amount of such Note and the denominator of which is
the aggregate outstanding principal amount of Qualifying Indebtedness.

                  "DEFAULT" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of notice or
both, become an Event of Default.

                  "DEFAULT RATE" means that rate of interest that is the greater
(determined on a daily basis) of (i) 12.25% per annum or (ii) 2% over the rate
of interest publicly announced by The Chase Manhattan Bank, N.A. in New York,
New York as its "base" or "prime" rate.

                  "DESIGNATED EVENT" means (i) the failure of the members of the
Control Group to own at least 33 1/3% of the combined voting power of all then
issued and outstanding Voting Stock of the Company or (ii) following the
election or removal of directors, a majority of the Board of Directors consists
of individuals who were not members of the Board of Directors two

                                   Schedule B

                                        5

<PAGE>   61

years before such election or removal, unless the election of each director who
was not a director at the beginning of such two-year period has been approved in
advance by directors representing at least a majority of the directors then in
office who were directors at the beginning of the two- year period.

                  As used in this definition, "CONTROL GROUP" means:

                  (a) (i) John H. Marmaduke, Mike Woods, Steve S. Marmaduke,
Leonard L. Berry, Peter A. Dallas, Gaines L. Godfrey, Craig R. Lentzsch, Jeffrey
G. Shrader and Ron Stegall,

                      (ii) their respective parents, spouses, children and
lineal descendants, and

                      (iii) the estate, or any foundation or trust for the
benefit, of any of the foregoing persons;

                  (b) the John H. Marmaduke Family Limited Partnership and the
Stephen S. Marmaduke Family Limited Partnership, provided that

                      (i) at least 90% of the equity interests therein are
owned, legally and beneficially, by the spouse, children and lineal descendants
of Sam H. Marmaduke, or by the estate, or any foundation or trust for the
benefit, of any of the foregoing persons (including the estate of Sam H.
Marmaduke); and

                      (ii) each general partner therein is, or (if a general
partner is an entity) all of the equity interests in such general partner are
owned, legally and beneficially, by, one or more of the Persons described in the
foregoing clause (b)(i);

                  (c) Hastings Books, Music & Video Associate Stock Ownership
Plan; and

                  (d) Hastings Books, Music & Video Employee Profit Sharing Plan
& Trust.

                  "DISTRIBUTION" means, in respect of the Company or any
Subsidiary:

                           (a) dividends or other distributions or payments in
                  respect of its Capital Stock (except (i) in the case of the
                  Company, dividends or other distributions of its common stock
                  or warrants, rights or other options to purchase its common
                  stock, and (ii) in the case of a Subsidiary, dividends or
                  other distributions or payments in respect of its Capital
                  Stock to the Company or a Wholly-Owned Subsidiary); and

                                   Schedule B

                                        6

<PAGE>   62

                           (b) the redemption or acquisition of its Capital
                  Stock or of warrants, rights or other options to purchase its
                  Capital Stock (except (i) in the case of the Company, when
                  solely in exchange for shares of its common stock or warrants,
                  rights or other options to purchase its common stock, and (ii)
                  in the case of a Subsidiary, redemptions or acquisitions from
                  the Company or a Wholly-Owned Subsidiary).

                  "EFFECTIVE DATE" is defined in Section 4.

                  "ENVIRONMENTAL LAWS" means any and all Federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to emissions, discharges, releases or
threatened releases of Polluting Substances into the environment (including,
without limitation, airs, surface water, ground, water or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Polluting Substances.

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

                  "ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.

                  "EVENT OF DEFAULT" is defined in Section 11.

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

                  "FAIR MARKET VALUE" means, at any time and with respect to any
property, the sale value of such property that would be realized in an
arm's-length sale at such time between an informed and willing buyer and an
informed and willing seller (neither being under a compulsion to buy or sell).
For purposes of calculating such sale value in the case of an Asset Sale, the
amount shall be determined in good faith at the time of such Asset Sale by a
Senior Financial Officer.

                  "FIXED CHARGES" means, for any period, without duplication,
the sum of (i) rental expense of the Company and its Subsidiaries, on a
consolidated basis, for such period plus (ii) interest expense of the Company
and its Subsidiaries, on a consolidated basis, for such period on the Notes, the
Loans and any other borrowed-money Indebtedness and the interest expense
component under Capitalized Lease Obligations.

                                   Schedule B

                                        7

<PAGE>   63

                  "FIXED CHARGES COVERAGE RATIO" means, at any time, the ratio
of (a) Consolidated EBITAR for the four fiscal quarters ending on, or most
recently ended prior to, such time to (b) Fixed Charges for such period.

                  "FUNDED DEBT" means, as of any time, the outstanding principal
balance of (i) the Loans plus (ii) the Notes plus (iii) reimbursement
obligations under letters of credit plus (iv) any other borrowed-money
Indebtedness of the Company and its Subsidiaries, on a consolidated basis.

                  "GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.

                  "GOVERNMENTAL AUTHORITY"  means

                  (a) the government of

                           (i) the United States of America or any State or
                  other political subdivision thereof, or

                           (ii) any jurisdiction in which the Company or any
                  Subsidiary conducts all or any part of its business, or which
                  asserts jurisdiction over any properties of the Company or any
                  Subsidiary, or

                  (b) any entity exercising executive, legislative, judicial,
                  regulatory or administrative functions of, or pertaining to,
                  any such government.

                  "GUARANTY" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:

                  (a) to purchase such indebtedness or obligation or any
                  property constituting security therefor;

                  (b) to advance or supply funds (i) for the purchase or payment
                  of such indebtedness or obligation, or (ii) to maintain any
                  working capital or other balance sheet condition or any income
                  statement condition of any other Person or otherwise to
                  advance or make available funds for the purchase or payment of
                  such indebtedness or obligation;

                                   Schedule B

                                        8

<PAGE>   64

                  (c) to lease properties or to purchase properties or services
         primarily for the purpose of assuring the owner of such indebtedness or
         obligation of the ability of any other Person to make payment of the
         indebtedness or obligation; or

                  (d) otherwise to assure the owner of such indebtedness or
         obligation against loss in respect thereof.

In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.

                  "GUARANTORS" means the Initial Guarantors and each other
Subsidiary of the Company that executes and delivers a Guaranty Agreement.

                  "GUARANTY AGREEMENT" means, individually, each Guaranty
Agreement, dated as of June 12, 2000, and executed and delivered by each of the
Initial Guarantors in favor of the holders of the Notes, substantially in the
form of Exhibit 4.5 and each Guaranty Agreement hereafter executed by any
Subsidiary as contemplated under Section 9.11, as each may be amended, restated,
supplemented or otherwise modified from time to time, and "GUARANTY AGREEMENTS"
means, collectively, every Guaranty Agreement.

                  "HAZARDOUS MATERIAL" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health or
safety, the removal of which may be required or the generation, manufacture,
refining, production, processing, treatment, storage, handling, transportation,
transfer, use, disposal, release, discharge, spillage, seepage, or filtration of
which is or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).

                  "HOLDER" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company pursuant
to Section 13.1.

                  "INDEBTEDNESS" with respect to any Person means, at any time,
without duplication,

                  (a) its liabilities for borrowed money and its redemption
         obligations in respect of mandatorily redeemable Preferred Stock;

                  (b) its liabilities for the deferred purchase price of
         property acquired by such Person (excluding accounts payable arising in
         the ordinary course of business but including all liabilities created
         or arising under any conditional sale or other title retention
         agreement with respect to any such property);

                                   Schedule B

                                        9

<PAGE>   65

                  (c) all liabilities appearing on its balance sheet in
         accordance with GAAP in respect of Capital Leases;

                  (d) all liabilities for borrowed money secured by any Lien
         with respect to any property owned by such Person (whether or not it
         has assumed or otherwise become liable for such liabilities);

                  (e) all its liabilities in respect of letters of credit or
         instruments serving a similar function issued or accepted for its
         account by banks and other financial institutions (whether or not
         representing obligations for borrowed money);

                  (f) Swaps of such Person; and

                  (g) any Guaranty of such Person with respect to liabilities of
         a type described in any of clauses (a) through (f) hereof.

Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (g) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under GAAP.

                  "INITIAL GUARANTORS" means, collectively, Hastings College
Stores, Inc., a Nevada corporation, Hastings Internet, Inc., a Nevada
corporation, and Hastings Properties, Inc., a Nevada corporation.

                  "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a
Note, (b) any holder of a Note holding more than 10% of the aggregate principal
amount of the Notes then outstanding, and (c) any bank, trust company, savings
and loan association or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer, or any other
similar financial institution or entity, regardless of legal form.

                  "INTERCREDITOR AGREEMENT" means that certain Intercreditor
Agreement, dated as of June 12, 2000, among the Bank Agent, the Banks, the
Purchasers and the Collateral Agent, as amended from time to time.

                  "INVESTMENT" means any investment, made in cash or by delivery
of property, by the Company or any of its Subsidiaries in any Person, whether by
acquisition of Capital Stock, Indebtedness or other obligation or Security, or
by loan, Guaranty, advance, extension of credit (other than to customers of such
Person in the ordinary course of such Person's business), capital contribution
or otherwise.

                                   Schedule B

                                       10

<PAGE>   66

                  "LETTER OF CREDIT EXPOSURE" means the Letter of Credit
Exposure as such term is defined, as of the date hereof, in the Credit
Agreement.

                  "LIEN" means, with respect to any Person, any mortgage, deed
of trust, lien, pledge, charge, security interest or other encumbrance, or any
interest or title of any vendor, lessor, lender or other secured party to or of
such Person under any conditional sale or other title retention agreement or
Capital Lease, upon or with respect to any property or asset of such Person
(including in the case of stock, stockholder agreements, voting trust agreements
and all similar arrangements).

                  "LOAN DOCUMENTS" means the Loan Documents as such term is
defined, as of the date hereof, in the Credit Agreement.

                  "LOANS" means the Loans as such term is defined, as of the
date hereof, in the Credit Agreement.

                  "MAKE-WHOLE AMOUNT" is defined in Section 8.7.

                  "MATERIAL" means material in relation to the business,
operations, affairs, financial condition, assets, properties or prospects of the
Company and its Subsidiaries taken as a whole.

                  "MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, operations, affairs, financial condition, assets or properties
of the Company and its Subsidiaries taken as a whole, or (b) the ability of the
Company or any Subsidiary to perform its obligations under this Agreement, the
Notes or any other Note Document, or (c) the validity or enforceability of this
Agreement, the Notes or any other Note Document.

                  "MEMORANDUM" is defined in Section 5.3.

                  "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).

                  "NET CASH PROCEEDS" means, with respect to any sale, transfer
or issuance of Capital Stock to any Person, the amount of cash received by such
Person in connection with such transaction (including cash proceeds of any
property received in consideration of any such sale, transfer or other
disposition) after deducting therefrom the aggregate, without duplication, of
the following amounts to the extent properly attributable to such transaction or
to any asset that may be the subject thereof: (i) reasonable brokerage
commissions, legal fees, finder's fees, financial advisory fees, fees for
solvency opinions, accounting fees, underwriting fees, investment banking fees
and other similar commissions and fees, and all expenses incurred in such sale,
transfer or

                                   Schedule B

                                       11

<PAGE>   67

issuance, in each case, to the extent paid or payable by such Person; (ii)
filing, recording or registration fees or charges or similar fees or charges
paid by such Person; and (iii) taxes paid or payable by such Person or any
shareholder, partner or member of such Person to governmental taxing authorities
as a result of such sale or other disposition (after taking into account any
available tax credits or deductions or any tax sharing arrangements).

                  "NET PROCEEDS AMOUNT" means, with respect to any Asset Sale,
an amount equal to the difference of

                  (a) the aggregate amount of the consideration (valued at the
         Fair Market Value of such consideration at the time of the consummation
         of such Asset Sale) received by such Person in respect of such Asset
         Sale, minus

                  (b) all ordinary and reasonable out-of-pocket costs and
         expenses actually incurred by such Person in connection with such Asset
         Sale.

                  "NOTE DOCUMENTS" means, collectively, this Agreement, the
Notes, the Guaranty Agreements, the Intercreditor Agreement, the Security
Documents, and all other agreements, instruments, certificates, documents and
other writings now or hereafter executed and delivered by the Company, any
Subsidiary or any other Person pursuant to or in connection with any of the
foregoing or any of the transactions contemplated thereby, and any and all
amendments, supplements and other modifications to any of the foregoing.

                  "NOTE PARTIES" means, collectively, the Company and the
Guarantors.

                  "NOTES" is defined in Section 1.

                  "OFFICER'S CERTIFICATE" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose responsibilities
extend to the subject matter of such certificate.

                  "PERMITTED LIENS" means the Liens permitted by Section 10.3.

                  "PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.

                  "PERSON" means an individual, partnership, corporation,
limited liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.

                                   Schedule B

                                       12

<PAGE>   68

                  "PLAN" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may have
any liability.

                  "POLLUTING SUBSTANCES" means all pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes and shall
include, without limitation, any flammable explosives, radioactive materials,
oil, hazardous materials, hazardous or solid wastes, hazardous or toxic
substances or related materials defined in applicable federal Environmental
Laws; provided that in the event any applicable federal Environmental Law is
amended so as to broaden the meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective date of such amendment and,
provided further, to the extent that the Environmental Laws of any State or
other Governmental Authority establish a meaning for "hazardous substance,"
"hazardous waste," "hazardous material," "solid waste" or "toxic substance"
which is broader than that specified in any applicable Federal law, such broader
meaning shall apply.

                  "PREFERRED STOCK" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.

                  "PROPERTY" or "PROPERTIES" means, unless otherwise
specifically limited, real or personal property of any kind, tangible or
intangible, choate or inchoate.

                  "PROPERTY REINVESTMENT APPLICATION" means, with respect to any
Asset Sale, the application of an amount equal to the Net Proceeds Amount with
respect to such Asset Sale to the acquisition by the Company or any Subsidiary
of operating assets of the Company or any Subsidiary to be used in the principal
business of such Person, provided such assets have a Fair Market Value at least
equal to such Net Proceeds Amount.

                  "QPAM EXEMPTION" means Prohibited Transaction Class Exemption
84-14 issued by the United States Department of Labor.

                  "REQUIRED HOLDERS" means, at any time, the holders of at least
66 2/3% in principal amount of the Notes at the time outstanding (exclusive of
Notes then owned by the Company or any of its Affiliates).

                  "RESPONSIBLE OFFICER" means any Senior Financial Officer and
any other officer of the Company with responsibility for the administration of
the relevant portion of this Agreement.

                                   Schedule B

                                       13

<PAGE>   69

                  "RESTRICTED AGREEMENT" is defined in Section 10.13.

                  "RESTRICTED INVESTMENTS" means all Investments except the
following:

                           (a) Investments in United States Governmental
                  Securities, provided that such obligations mature within 365
                  days from the date of acquisition thereof;

                           (b) Investments in certificates of deposit or
                  banker's acceptances issued by an Acceptable Bank, provided
                  that such obligations mature within 365 days from the date of
                  acquisition thereof;

                           (c) Investments in commercial paper given either of
                  the two highest ratings by a credit rating agency of
                  recognized national standing and maturing not more than 270
                  days from the date of creation thereof;

                           (d) Investments in Repurchase Agreements;

                           (e) Investments in demand deposits made in the
                  ordinary course of business of the Company or any Subsidiary;
                  and

                           (f) Investments in deposits or Eurodollar deposits
                  with any Acceptable Bank, provided that such deposits mature
                  within 365 days from the date of acquisition thereof.

         As of any date of determination, each Restricted Investment shall be
valued at the greater of:

                           (x) the amount at which such Restricted Investment is
                  shown on the books of the Company or any of its Subsidiaries
                  (or zero if such Restricted Investment is not shown on any
                  such books); and

                           (y) either

                                    (i) in the case of any Guaranty of the
                           obligation of any Person, the amount which the
                           Company or any of its Subsidiaries has paid on
                           account of such obligation less any recoupment by the
                           Company or such Subsidiary of any such payments, or

                                    (ii) in the case of any other Restricted
                           Investment, the excess of (x) the greater of (A) the
                           amount originally entered on the books of the Company
                           or any of its Subsidiaries with respect thereto and
                           (B) the cost

                                   Schedule B

                                       14

<PAGE>   70

                           thereof to the Company or its Subsidiary over (y) any
                           return of capital (after income taxes applicable
                           thereto) upon such Restricted Investment through the
                           sale or other liquidation thereof or part thereof or
                           otherwise.

         As used in this definition of "Restricted Investments":

                  "Acceptable Bank" means any bank or trust company (i) which is
         organized under the laws of the United States of America or any State
         thereof, (ii) which has capital, surplus and undivided profits
         aggregating at least $1,000,000,000, and (iii) whose long-term
         unsecured debt obligations shall have been given a rating of "A" or
         better by S&P, "A2" or better by Moody's or an equivalent rating by any
         other credit rating agency of recognized national standing.

                  "Acceptable Broker-Dealer" means any Person other than a
         natural person (i) which is registered as a broker or dealer pursuant
         to the Exchange Act and (ii) whose long-term unsecured debt obligations
         shall have been given a rating of "A" or better by S&P, "A2" or better
         by Moody's or an equivalent rating by any other credit rating agency of
         recognized national standing.

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

                  "Repurchase Agreement" means any written agreement

                           (a) that provides for (i) the transfer of one or more
                  United States Governmental Securities in an aggregate
                  principal amount at least equal to the amount of the Transfer
                  Price (defined below) to the Company or any of its
                  Subsidiaries from an Acceptable Bank or an Acceptable
                  Broker-Dealer against a transfer of funds (the "Transfer
                  Price") by the Company or such Subsidiary to such Acceptable
                  Bank or Acceptable Broker-Dealer, and (ii) a simultaneous
                  agreement by the Company or such Subsidiary, in connection
                  with such transfer of funds, to transfer to such Acceptable
                  Bank or Acceptable Broker-Dealer the same or substantially
                  similar United States Governmental Securities for a price not
                  less than the Transfer Price plus a reasonable return thereon
                  at a date certain not later than 365 days after such transfer
                  of funds,

                           (b) in respect of which the Company or such
                  Subsidiary shall have the right, whether by contract or
                  pursuant to applicable law, to liquidate such agreement upon
                  the occurrence of any default thereunder, and

                                   Schedule B

                                       15

<PAGE>   71

                           (c) in connection with which the Company or such
                  Subsidiary, or an agent thereof, shall have taken all action
                  required by applicable law or regulations to perfect a Lien in
                  such United States Governmental Securities.

                           "S&P" means Standard & Poor's Ratings Group, a
                  division of McGraw Hill, Inc.

                           "United States Governmental Security" means any
                  direct obligation of, or obligation guaranteed by, the United
                  States of America, or any agency controlled or supervised by
                  or acting as an instrumentality of the United States of
                  America pursuant to authority granted by the Congress of the
                  United States of America, so long as such obligation or
                  guarantee shall have the benefit of the full faith and credit
                  of the United States of America which shall have been pledged
                  pursuant to authority granted by the Congress of the United
                  States of America.

                           "RESTRICTED PAYMENT" means

                           (a) any Distribution in respect of the Company or any
                  Subsidiary, including, without limitation, any Distribution
                  resulting in the acquisition by the Company of Securities
                  which would constitute treasury stock, and

                           (b) any payment, repayment, redemption, retirement,
                  repurchase or other acquisition, direct or indirect, by the
                  Company or any Subsidiary of, on account of, or in respect of,
                  the principal of any Subordinated Debt (or any installment
                  thereof) prior to the regularly scheduled final maturity date
                  of such Subordinated Debt (as in effect on the date such
                  Subordinated Debt was originally incurred).

                  For purposes of this Agreement, the amount of any Restricted
Payment made in property shall be the greater of (x) the Fair Market Value of
such property (as determined in good faith by the board of directors (or
equivalent governing body) of the Person making such Restricted Payment) and (y)
the net book value thereof on the books of such Person, in each case determined
as of the date on which such Restricted Payment is made.

                  "RIGHT TO PUT" is defined in Section 8.6(a).

                  "SALE-LEASEBACK TRANSACTION" means, with respect to any
Person, any direct or indirect arrangement pursuant to which properties are sold
or transferred by such Person or a Subsidiary of such Person and are thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries.

                                   Schedule B

                                       16

<PAGE>   72

                  "SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.

                  "SECURITY" has the meaning set forth in section 2(1) of the
Securities Act.

                  "SECURITY AGREEMENTS" means, collectively, the Security
Agreement, dated as of May 26, 2000, among the Company, the Subsidiaries of the
Company from time to time party thereto, Bank of America, N.A., as Collateral
Agent for itself and the other Secured Lenders thereunder, and all security
agreements hereafter executed by any Subsidiary of the Company as contemplated
under Section 9.11, as each may be amended, supplemented or otherwise modified
from time to time.

                  "SECURITY DOCUMENTS" shall mean collectively the Security
Agreements and any mortgage, deed of trust, intellectual property security
instrument, joinder agreement or other collateral or security documents
(including, without limitation, all financing statements, assignments, pledges,
and lien entry forms), notices, documents and other writings executed and
delivered from time to time in favor of the Collateral Agent for the benefit of
the holders of the Notes in order to secure the obligations of the Company and
its Subsidiaries under and in respect of the Note Documents, and any and all
amendments, supplements and other modifications thereto.

                  "SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer or treasurer of the Company.

                  "SENIOR FUNDED DEBT" means Funded Debt of the Company other
than Subordinated Debt.

                  "SUBJECT PROPERTY" is defined in Section 9.9.

                  "SUBORDINATED DEBT" means any Indebtedness of the Company or
any Subsidiary that is in any manner subordinated in right of payment in any
respect to Indebtedness evidenced by the Notes or the Guaranty Agreements,
respectively, pursuant to a subordination agreement in form, scope and substance
satisfactory to the Required Holders.

                  "SUBSIDIARY" means, as to any Person, any corporation,
association or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership, limited
liability company or joint venture if more than a 50% interest in the profits or
capital thereof is owned by such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries (unless such

                                   Schedule B

                                       17

<PAGE>   73

partnership can and does ordinarily take major business actions without the
prior approval of such Person or one or more of its Subsidiaries). Unless the
context otherwise clearly requires, any reference to a "Subsidiary" is a
reference to a Subsidiary of the Company.

                  "SWAPS" means, with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.

                  "TANGIBLE NET WORTH" means, as of any date, the total
shareholders' equity (including common stock and preferred stock (other than
mandatorily redeemable stock) at stated value, additional paid-in capital and
retained earnings after deducting treasury stock) which would appear on the
consolidated balance sheet of the Company and its Subsidiaries prepared as of
such date in accordance with GAAP, plus (i) Subordinated Debt, (ii) the LIFO
reserve and (iii) deferred income taxes of the Company and its Subsidiaries, on
a consolidated basis, less the sum of the following: (i) intellectual property
rights of the Company and its Subsidiaries, on a consolidated basis, (ii)
goodwill and experimental expenses of the Company and its Subsidiaries, on a
consolidated basis, (iii) unamortized debt discount and expense of the Company
and its Subsidiaries, on a consolidated basis, (iv) costs in excess of fair
value of the net assets acquired. If the Company is required by Regulation S-X,
any Financial Reporting Releases, Staff Accounting Bulletins or other
pronouncements or promulgation by the U.S. Securities and Exchange Commission
(collectively, "SEC REQUIREMENTS"), to present any portion of shareholders'
equity separately in its public-filed financial statements differently from a
presentation that would appear when presented in accordance with GAAP (SEC
Requirements notwithstanding), due to the Company's obligations with respect to
redemption or repurchase of shares of its capital stock, then GAAP accounting
conventions shall prevail for the purpose of determining Tangible Net Worth.

                  "TAXES" means, for any period, the sum of all U.S. Federal,
state and foreign income taxes of the Company and its Subsidiaries, all as
determined on a consolidated basis in accordance with GAAP.

                  "VOTING STOCK" shall mean securities or other equity interests
of any class or classes, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a

                                   Schedule B

                                       18

<PAGE>   74

majority of the corporate directors (or persons performing similar functions in
the case of business entities other than corporations).

                  "WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary
one hundred percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or more of
the Company and the Company's other Wholly-Owned Subsidiaries at such time.

                                   Schedule B

                                       19

<PAGE>   75

                                                                       EXHIBIT 1

                                 [FORM OF NOTE]

                          HASTINGS ENTERTAINMENT, INC.

              10.25% SERIES A SENIOR SECURED NOTE DUE JUNE 13, 2003

No. [_____]                                                               [DATE]
$[_______]                                                         PPN 41834*AA4

                  FOR VALUE RECEIVED, the undersigned, Hastings Entertainment,
Inc. (herein called the "COMPANY"), a corporation organized and existing under
the laws of the State of Texas, hereby promises to pay to [__________], or
registered assigns, the principal sum of [__________] DOLLARS on June 13, 2003,
with interest (computed on the basis of a 360-day year of twelve 30-day months)
(a) on the unpaid balance thereof at the rate of 10.25% per annum from the date
hereof, payable quarterly in arrears, on the 13th day of March, June, September
and December in each year, commencing with the 13th day of March, June,
September or December next succeeding the date hereof, until the principal
hereof shall have become due and payable, and (b) to the extent permitted by law
on any overdue payment (including any overdue prepayment) of principal, any
overdue payment of interest and any overdue payment of any Make-Whole Amount (as
defined in the Note Purchase Agreement referred to below), payable quarterly in
arrears as aforesaid (or, at the option of the registered holder hereof, on
demand), at a rate per annum from time to time equal to the greater of (i)
12.25% or (ii) 2.0% over the rate of interest publicly announced by The Chase
Manhattan Bank from time to time in New York, New York as its "base" or "prime"
rate.

                  Payments of principal of, interest on and any Make-Whole
Amount with respect to this Note are to be made in lawful money of the United
States of America at the principal office of The Chase Manhattan Bank in New
York, New York or at such other place as the Company shall have designated by
written notice to the holder of this Note as provided in the Note Purchase
Agreement referred to below.

                  This Note is one of a series of Senior Secured Notes (herein
called the "Notes") delivered pursuant to an Amended and Restated Note Purchase
Agreement, dated June 12, 2000 (as from time to time amended, the "Note Purchase
Agreement"; the capitalized terms used but not defined herein being used with
the respective meanings specified in the Note Purchase Agreement), between the
Company and the Purchasers named therein and is entitled to the benefits
thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i)
to have agreed to the confidentiality provisions set forth in Section 20 of the
Note Purchase Agreement and (ii) to have made the representation set forth in
Section 6.2 of the Note Purchase Agreement.

                  This Note is a registered Note and, as provided in the Note
Purchase Agreement, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a

<PAGE>   76

written instrument of transfer duly executed, by the registered holder hereof or
such holder's attorney duly authorized in writing, a new Note for a like
principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Note is registered as the owner hereof
for the purpose of receiving payment and for all other purposes, and the Company
will not be affected by any notice to the contrary.

                  This Note is entitled to the benefits of the Security
Documents (as such term is defined in the Note Purchase Agreement) and the
Guaranty Agreements (as such term is defined in the Note Purchase Agreement).
This Note is subject to certain prepayments, in whole or from time to time in
part, at the times and on the terms specified in the Note Purchase Agreement.

                  If an Event of Default occurs and is continuing, the principal
of this Note may be declared or otherwise become due and payable in the manner,
at the price (including any applicable Make-Whole Amount) and with the effect
provided in the Note Purchase Agreement.

                  This Note shall be construed in accordance with, and the
rights of the registered holder hereof and the Company shall be governed by, the
law of the State of New York excluding, to the extent permitted by the law of
such State, choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.

                                    HASTINGS ENTERTAINMENT, INC.

                                    By
                                      ---------------------------------------
                                             Name:
                                                   --------------------------
                                             Title:
                                                   --------------------------

                                    Exhibit 1

                                        2

<PAGE>   77

                                                                     EXHIBIT 4.4

                           FORM OF OPINION OF COUNSEL
                                 FOR THE COMPANY

                            Matters To Be Covered In
                       Opinion of Counsel For The Company

                                    [4.4(a)]

                  Each Note Party is duly incorporated, validly existing, in
good standing under the laws of the state of its incorporation and has the
requisite corporate power and authority to execute, deliver and perform its
obligations under the Note Documents to which it is a party.

                  Due authorization, execution and delivery of the Note
Documents.

                  Security Documents being legal, valid, binding and
enforceable.

                  No conflicts with charter documents, laws or material
agreements.

                  All consents required to execute, deliver and perform the Note
Documents having been obtained.

                  No litigation questioning validity of the Agreement, the Notes
or any other Note Document.

                  The Security Agreement (including, without limitation, the
descriptions of the collateral set forth therein and in the exhibits thereto)
creates valid security interests in the interests of the Collateral Agent in
that portion of Collateral that is described therein in which a security
interest can be created under the Uniform Commercial Code (the "UCC"; such
interests are referred to collectively as the "SUBJECT PERSONAL PROPERTY").

                  The financing statements executed concurrently herewith by the
Note Parties (collectively the "FINANCING STATEMENTS") are in proper form for
filing in the Secretary of State of Texas (the "UCC OFFICE"). Upon the filing of
the Financing Statements in the UCC Office, the Collateral Agent will have a
valid and perfected security interest in the Subject Personal Property.

                  The Security Agreement, together with the delivery to the
Collateral Agent on this date of any certificates representing the Securities
Collateral (as defined in the Security Agreement) and any required stock powers
and instruments of transfer or assignment, have created in favor of the
Collateral Agent a valid and perfected security interest in such Securities
Collateral. Assuming the Collateral Agent has acquired its security interest in
the Securities Collateral for value and without notice of any adverse claims (as
defined in Article 8 of the UCC),

<PAGE>   78

the Collateral Agent will have acquired its security interest in the Securities
Collateral free of adverse claims.

                                    [4.4(b)]

                  Note Documents (other than the Security Documents) being
legal, valid, binding and enforceable.

                  No litigation questioning validity of the Agreement, the Notes
or any other Note Document.

                                   Exhibit 4.4

                                        2

<PAGE>   79

                                                                  EXHIBIT 8.6(b)

                             FORM OF NOTICE OF SALE

Hastings Entertainment, Inc.
3601 Plains Blvd., Suite 1
Amarillo, Texas 79120-2104

Attention:  Chief Financial Officer

Ladies and Gentlemen:

                  Reference is made to that certain Amended and Restated Note
Purchase Agreement, dated as of June 12, 2000 (the "Note Agreement", the
capitalized terms herein being used herein as therein defined), between Hastings
Entertainment, Inc. (the "Company"), Metropolitan Life Insurance Company and
Metropolitan Insurance and Annuity Company which governs the Company's 10.25%
Series A Senior Secured Notes due June 13, 2003 in the aggregate principal
amount of $20,000,000. In accordance with Section 8.6 of the Note Agreement, the
undersigned hereby irrevocably exercises its Right to Put with respect to all
Notes held by it.

                  Please transfer in immediately available funds, on
____________________ [NOT LESS THAN 20 DAYS AFTER DELIVERY OF THIS NOTICE OF
SALE], the outstanding principal amount of the Notes held by the undersigned and
accrued and unpaid interest thereon with respect to the foregoing exercise of
the undersigned's Right to Put.

                                             Date:

                                             [NAME OF HOLDER OF NOTES]

                                             By:
                                                -------------------------------
                                             Name:
                                                  -----------------------------
                                             Title:
                                                   ----------------------------

<PAGE>   80

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Section                                                                    Page
-------                                                                    ----
<S>                                                                          <C>
1.       ISSUANCE OF NOTES....................................................2

2.       [INTENTIONALLY OMITTED]..............................................2

3.       [INTENTIONALLY OMITTED]..............................................2

4.       CONDITIONS TO EFFECTIVENESS..........................................2
         4.1.     Counterparts of this Agreement..............................2
         4.2.     New Notes...................................................2
         4.3.     Secretary's Certificates....................................2
         4.4.     Opinions of Counsel.........................................3
         4.5.     Guaranty Agreements.........................................3
         4.6.     Payment of Special Counsel Fees.............................3
         4.7.     UCC Searches................................................3
         4.8.     Projections.................................................3
         4.9.     Security Documents..........................................4
         4.10.    Insurance...................................................4
         4.11.    Intercreditor Agreement.....................................4
         4.12.    Credit Agreement............................................4
         4.13.    [Intentionally Omitted.]....................................4
         4.14.    Validity of Liens...........................................4
         4.15.    [Intentionally Omitted.]....................................5
         4.16.    [Intentionally Omitted.]....................................5
         4.17.    Borrowing Base Certificate..................................5
         4.18.    10-K........................................................5
         4.19.    [Intentionally Omitted.]....................................5
         4.20.    Fee.........................................................5
         4.21.    Proceedings and Documents...................................5

5.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................5
         5.1.     Organization; Power and Authority...........................5
         5.2.     Authorization, etc..........................................6
</TABLE>

                                       -i-

<PAGE>   81

<TABLE>
<S>                                                                         <C>
         5.3.     Disclosure..................................................6
         5.4.     Subsidiaries; Affiliates....................................7
         5.5.     Financial Statements........................................7
         5.6.     Compliance with Laws, Other Instruments, etc................7
         5.7.     Governmental Authorizations, etc............................8
         5.8.     Litigation; Observance of Agreements, Statutes and Orders...8
         5.9.     Taxes.......................................................8
         5.10.    Title to Property; Leases...................................9
         5.11.    Licenses, Permits, etc......................................9
         5.12.    Compliance with ERISA.......................................9
         5.13.    Private Offering by the Company............................10
         5.14.    Use of Proceeds; Margin Regulations........................11
         5.15.    Existing Indebtedness; Future Liens........................11
         5.16.    Foreign Assets Control Regulations, etc....................11
         5.17.    Status under Certain Statutes..............................12
         5.18.    Environmental Matters......................................12
         5.19.    Validity of Security Documents.............................13

6.       REPRESENTATIONS OF THE PURCHASER....................................13
         6.1.     Purchase for Investment....................................13
         6.2.     Source of Funds............................................13
         6.3.     Holder of Notes............................................14

7.       INFORMATION AS TO COMPANY...........................................14
         7.1.     Financial and Business Information.........................14
         7.2.     Officer's Certificate......................................19
         7.3.     Inspection.................................................19

8.       PREPAYMENT OF THE NOTES.............................................20
         8.1.     Required Prepayments.......................................20
         8.2.     Optional Prepayments with Make-Whole Amount................20
         8.3.     Allocation of Partial Prepayments..........................21
         8.4.     Maturity; Surrender, etc...................................21
         8.5.     Purchase of Notes..........................................21
         8.6.     Right to Put...............................................21
         8.7.     Make-Whole Amount..........................................22

9.       AFFIRMATIVE COVENANTS...............................................24
</TABLE>

                                      -ii-

<PAGE>   82

<TABLE>
<S>                                                                         <C>
         9.1.     Compliance with Law........................................24
         9.2.     Insurance..................................................24
         9.3.     Maintenance of Properties..................................25
         9.4.     Payment of Taxes and Claims................................25
         9.5.     Corporate Existence, etc...................................25
         9.6.     Parity with Other Senior Indebtedness......................26
         9.7.     Covenant to Secure Notes Equally...........................26
         9.8.     Information Required by Rule 144A..........................26
         9.9.     Environmental Covenants....................................26
         9.10.    Environmental Indemnities..................................27
         9.11.    Collateral; New Subsidiaries...............................28
         9.12.    Leases.....................................................29
         9.13.    Borrowing Base Provisions..................................29

10.      NEGATIVE COVENANTS..................................................30
         10.1.    Transactions with Affiliates...............................30
         10.2.    Merger, Consolidation, etc.................................30
         10.3.    Liens......................................................31
         10.4.    Fixed Charges Coverage Ratio...............................32
         10.5.    Tangible Net Worth.........................................32
         10.6.    Limitation on Indebtedness.................................33
         10.7.    Funded Debt to Adjusted EBITDA.............................33
         10.8.    Minimum Adjusted EBITDA....................................33
         10.9.    Capital Expenditures Limitation............................34
         10.10.   [Intentionally Omitted]....................................34
         10.11.   Sale of Assets.............................................34
         10.12.   Restricted Payments and Restricted Investments.............34
         10.13.   Most Favored Lender........................................34
         10.14.   Intercreditor Agreement....................................35
         10.15.   Amendments to and Refinancings of Credit Agreement.........36
         10.16.   Negative Pledge Clauses....................................36
         10.17.   Indebtedness...............................................36
 .
11.      EVENTS OF DEFAULT...................................................37

12.      REMEDIES ON DEFAULT, ETC............................................40
         12.1.    Acceleration...............................................40
         12.2.    Other Remedies.............................................41
</TABLE>

                                      -iii-

<PAGE>   83

<TABLE>
<S>      <C>                                                                <C>
         12.3.    Rescission.................................................41
         12.4.    No Waivers or Election of Remedies, Expenses, etc..........41

13.      REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.......................42
         13.1.    Registration of Notes......................................42
         13.2.    Transfer and Exchange of Notes.............................42
         13.3.    Replacement of Notes.......................................42

14.      PAYMENTS ON NOTES...................................................43
         14.1.    Place of Payment...........................................43
         14.2.    Home Office Payment........................................43

15.      EXPENSES, ETC.......................................................44
         15.1.    Transaction Expenses.......................................44
         15.2.    Survival...................................................44

16.      SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT........44

17.      AMENDMENT AND WAIVER................................................45
         17.1.    Requirements...............................................45
         17.2.    Solicitation of Holders of Notes...........................45
         17.3.    Binding Effect, etc........................................46
         17.4.    Notes held by Company, etc.................................46

18.      NOTICES.............................................................46

19.      REPRODUCTION OF DOCUMENTS...........................................47

20.      CONFIDENTIAL INFORMATION............................................47

21.      WAIVER..............................................................48

22.      MISCELLANEOUS.......................................................49
         22.1.    Successors and Assigns.....................................49
         22.2.    Payments Due on Non-Business Days..........................49
         22.3.    Accounting Matters.........................................49
         22.4.    Severability...............................................49
</TABLE>

                                      -iv-

<PAGE>   84

<TABLE>
<S>                                                                         <C>
         22.5.    Construction...............................................49
         22.6.    Counterparts...............................................50
         22.7.    Governing Law..............................................50
</TABLE>

         SCHEDULE A        --       Information Relating to Purchasers

         SCHEDULE B        --       Defined Terms

         SCHEDULE 5.3      --       Disclosure

         SCHEDULE 5.4      --       Subsidiaries, Affiliates, Directors
                                    and Senior Officers of the Company

         SCHEDULE 5.8      --       Certain Litigation

         SCHEDULE 5.11     --       Patents, etc.

         SCHEDULE 5.15     --       Existing Indebtedness

         SCHEDULE 9.13     --       Initial Borrowing Base

         EXHIBIT 1         --       Form of 10.25% Series A Senior Secured Note
                                    due June 13, 2003

         EXHIBIT 4.4       --       Form of Opinion of Counsel for the Company

         EXHIBIT 4.5       --       Form of Guaranty Agreement

         EXHIBIT 8.6(b)    --       Form of Notice of Sale

                                       -v-

<PAGE>   85

                          HASTINGS ENTERTAINMENT, INC.

                                   $20,000,000

             10.25% Series A Senior Secured Notes due June 13, 2003

                                   ---------

                  AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

                                   ---------

                            Dated as of June 12, 2000<PAGE>   1
                                                                   EXHIBIT 10.26

                               SECURITY AGREEMENT

                                      Among

                            The Grantors Named Herein
                                   as Grantors

                                       and

                              BANK OF AMERICA, N.A.
                               as Collateral Agent

                                  May 26, 2000
<PAGE>   2
                                                                              i

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>               <C>                                                      <C>
                                    ARTICLE 1

                                      Grant

Section 1.1       Assignment and Grant of Security                           2
Section 1.2       Description of Obligations                                 5
Section 1.3       Grantor Remains Liable                                     6
Section 1.4       Delivery of Instruments and Securities Collateral          6

                                    ARTICLE 2

                         Representations and Warranties

Section 2.1       Representations and Warranties                             6

                                    ARTICLE 3

                                    Covenants

Section 3.1       Further Assurances                                         8
Section 3.2       Equipment, Fixtures and Inventory                          9
Section 3.3       Insurance                                                 10
Section 3.4       Place of Perfection; Records; Collection of Receivables,
                    Chattel Paper and Instruments                           11
Section 3.5       Transfers and Other Liens                                 11
Section 3.6       Rights to Dividends and Distributions                     11
Section 3.7       Right of the Collateral Agent to Notify Issuers           12
Section 3.8       The Collateral Agent Appointed Attorney-in-Fact           12

                                    ARTICLE 4

                    Rights and Powers of the Collateral Agent

Section 4.1       The Collateral Agent May Perform                          13
Section 4.2       The Collateral Agent's Duties                             13
Section 4.3       Remedies                                                  14
Section 4.4       Further Approvals Required                                17
Section 4.5       INDEMNITY AND EXPENSES                                    18
</TABLE>

<PAGE>   3
                                                                              ii
<TABLE>
<S>                                                                        <C>

                                    ARTICLE 5

                                  Miscellaneous

Section 5.1       Cumulative Rights                                         18
Section 5.2       Modifications; Amendments; Etc.                           19
Section 5.3       Continuing Security Interest                              19
Section 5.4       GOVERNING LAW; TERMS                                      19
SECTION 5.5       WAIVER OF JURY TRIAL                                      19
Section 5.6       The Collateral Agent's Right to Use Agents                20
Section 5.7       Waivers of Rights Inhibiting Enforcement                  20
Section 5.8       Notices and Deliveries                                    20
Section 5.9       Successors and Assigns                                    20
Section 5.10      Consent to Jurisdiction; Waiver of Immunities             20
Section 5.11      Severability                                              20
Section 5.12      Obligations Not Affected                                  21
Section 5.13      Counterparts                                              21
Section 5.14      ENTIRE AGREEMENT                                          21
</TABLE>

<PAGE>   4

                                                                             iii

                                    SCHEDULES

Schedule 1        Equipment, Fixtures and Inventory Locations
Schedule 2        Trade Names
Schedule 3        Restricted Accounts
Schedule 4        Securities Collateral

                                    EXHIBITS

Exhibit A         Instructions for Registration of Pledge of Uncertificated
                    Securities Collateral
Exhibit B         Initial Transaction Statement
Exhibit C         Securities Collateral Stop Transfer Letter

<PAGE>   5

                                                                               1

                               SECURITY AGREEMENT

         SECURITY AGREEMENT (this "Agreement"), dated as of May 26, 2000, made
among Hastings Entertainment, Inc., a Texas corporation (the "Borrower"), the
Subsidiaries of the Borrower party hereto (collectively, the "Guarantors" and
each a "Guarantor" and together with the Borrower, collectively, the "Grantors"
and each a "Grantor") and Bank of America, N.A., a national banking association,
in its capacity as collateral agent (in such capacity, the "Collateral Agent")
for (i) itself, (ii) each lender (and affiliate thereof that has entered into an
Interest Rate Protection Agreement (as defined in the Credit Agreement defined
below) with any Grantor) from time to time a party to the Credit Agreement (each
a "Revolving Lender" and, collectively, the "Revolving Lenders"), and Bank of
America, N.A., as agent (in such capacity, the "Agent") under the Credit
Agreement and (iii) each holder from time to time of any Note (as defined in the
Note Purchase Agreements defined below) (each a "Holder" and, collectively, the
"Holders") (each of the Collateral Agent, a Revolving Lender, the Agent and a
Holder is singularly a "Secured Party", and all are collectively, the "Secured
Parties").

                                   BACKGROUND

(1) The Borrower, the Agent and certain of the Revolving Lenders are parties to
that certain Credit Agreement, dated as of December 16, 1998, as amended by that
certain First Amendment to Credit Agreement and Waiver Agreement, dated as of
May 2, 2000 (the "First Amendment") (said Credit Agreement, as amended by the
First Amendment, and as hereafter amended, modified or supplemented from time to
time, the "Credit Agreement").

(2) The Borrower and each of Metropolitan Life Insurance Company and
Metropolitan Insurance and Annuity Company are parties to those certain Note
Purchase Agreements, each dated as of June 13, 1996, each as amended by an
Amendment No. 1 to Note Purchase Agreement, dated as of March 6, 2000
("Amendment No. 1") and each as amended by that certain letter agreement, dated
as of May 3, 2000 (the "Letter Agreement") (said Note Purchase Agreements, each
as amended by Amendment No. 1 and the Letter Agreement, and each as hereafter
amended, modified or supplemented from time to time, a "Note Purchase Agreement"
and, collectively, the "Note Purchase Agreements").

(3) In consideration for the agreements of the Lenders under the First Amendment
and the Holders under the Letter Agreement, the Borrower agreed, and agreed to
cause each of its Subsidiaries to, grant a first priority security interest in
certain of their respective property.

(4) Accordingly, it is the intention of the parties hereto that this Agreement
create a first priority security interest in certain property of the Grantors
securing the payment of the Secured Obligations set forth in Section 1.2 hereof
for the benefit of the Secured Parties.

<PAGE>   6
                                                                               2

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Grantors hereby agree with the Collateral Agent, as
hereinafter set forth.

                                    ARTICLE 1

                                     Grant

ARTICLE 1.1 Assignment and Grant of Security. Each Grantor hereby grants to the
Collateral Agent for the benefit of the Secured Parties a security interest in,
the entire right, title and interest of such Grantor, in and to the following
assets of such Grantor, whether now owned or hereafter acquired ("Collateral"):

(a) all writings which evidence both a monetary obligation and a security
interest in or a lease of specific goods ("Chattel Paper");

(b) all documents, warehouse receipts, bills of lading, including, without
limitation, documents of title (as defined in the Uniform Commercial Code of
Texas, as amended (the "UCC")) or other receipts covering, evidencing or
representing collateral ("Documents");

(c) all equipment (as defined in the UCC), and (whether or not included in such
definition) all vehicles, tractors, trailers, rolling stock, machinery,
computers, computer equipment, chattels, tools, parts, furniture, furnishings,
and supplies, of every nature, wherever located, all additions, accessories and
improvements thereto and substitutions therefor and all accessories, parts and
equipment which may be attached to or which are necessary for the operation and
use of such personal property, whether or not the same shall be deemed to be
affixed to real property, together with all accessions thereto, and all rights
under or arising out of present or future contracts relating to the foregoing
("Equipment");

(d) all equipment, fixtures and articles of personal property now or hereafter
attached to or used in or about any building or buildings now erected or
hereafter to be erected on any real property now or hereafter owned or leased by
such Grantor (the "Property"), which are necessary to the complete and
comfortable use and occupancy of such building or buildings for the purposes for
which they were or are to be erected; all materials to be delivered to the
Property and used or to be used in connection with the construction of any
building to be constructed on the Property, including, but not limited to, all
masonry, siding, roof shingles, flooring, doors, windows, tile, shutters,
stoves, ovens, awnings, screens, cabinets, shades, blinds, carpets, draperies,
furniture, furnishings, plumbing, heating, air conditioning, lighting,
ventilating, refrigerating, cooking, laundry and incinerating equipment and all
fixtures and appurtenances thereto, and such other goods and chattels and
personal property as are ever used or furnished in

<PAGE>   7
                                                                               3

operating such buildings or the activities conducted therein, and all building
materials and equipment now or hereafter delivered to the Property and intended
to be installed thereon ("Fixtures");

(e) all general intangibles (as defined in the UCC), and (whether or not
included in such definition) all contract rights; all trade secrets, inventions,
processes, production methods, proprietary information and know-how; all
licenses or other agreements granted to such Grantor with respect to any of the
foregoing; all information, advertising lists, customer lists, identification of
suppliers, data, plans, blueprints, specifications, designs, drawings, recorded
knowledge, surveys, engineering reports, test reports, manuals, materials
standards, processing standards, performance standards, telephone numbers and
telephone listings, catalogs, books, records, computer and automatic machinery
software and programs, and the like pertaining to operations by or the business
of such Grantor; all field accounting information and all media in which or on
which any of the information or knowledge or data or records may be recorded or
stored and all computer programs used for the compilation or printout of such
information, knowledge, records or data; all licenses, consents, permits,
variances, certifications and approvals of all Governmental Authorities (as
defined in the Credit Agreement and used herein) now or hereafter held by such
Grantor pertaining to operations or business now or hereafter conducted; all
rights to receive return of deposits and trust payments; all rights to payment
under letters of credit and similar agreements; and all causes of action,
rights, claims and warranties now or hereafter owned or acquired by such Grantor
("General Intangibles");

(f) all instruments and letters of credit (each as defined in the UCC, and
whether or not included in such definitions), all promissory notes, drafts,
bills of exchange and trade acceptances ("Instruments");

(g) all inventory in all of its forms, wherever located, now or hereafter
existing, including, but not limited to, (i) all raw materials and work in
process therefor, finished goods thereof, and materials used or consumed in the
manufacture or production thereof, (ii) goods in which such Grantor has an
interest in mass or a joint or other interest or right of any kind (including,
without limitation, goods in which such Grantor has an interest or right as
consignee but only to the extent of such Grantor's interest therein), and (iii)
goods which are returned to or repossessed by such Grantor, and all accessions
thereto and products thereof and documents therefor (any and all such inventory,
accessions, products and documents being the "Inventory");

(h) all accounts, accounts receivable, contract rights, documents, instruments,
deposit accounts, general intangibles, tax refunds (including, without
limitation, all federal and state income tax refunds and benefits of net
operating loss carry forwards) and other obligations of any kind owing to such
Grantor, now or hereafter existing, whether or not arising out of or in
connection with the sale or lease of goods or the rendering of services, and all
rights now or hereafter existing in and to all security agreements, leases, and
other contracts securing or otherwise relating to any such accounts, accounts
receivable, contract rights, documents, instruments, deposit accounts, general
intangibles or obligations (any and all such accounts,

<PAGE>   8
                                                                               4

accounts receivable, contract rights, chattel paper, documents, instruments,
deposit accounts, general intangibles and obligations being the "Receivables");

(i) all agreements with each manufacturer, vendor, sales agent, sales
representative and each other Person (as defined in the Credit Agreement and as
used herein) pursuant to which such Grantor receives, maintains, sells, leases
or otherwise disposes of Inventory, including all agreements permitting the use
of each such Person's name, logo, trademarks, tradenames and advertising
("Vendor Agreements");

(j) all trademarks, tradenames, service marks, goodwill, patents, patent
applications, copyrights and internet domain names of such Grantor and all
registrations, licenses and rights to use the same and all proprietary
information related thereto ("Intellectual Property");

(k) the balance of every deposit account of such Grantor, now or hereafter
existing, and all money, instruments, securities, documents, chattel paper,
credits, claims, demands, income, and any other property, rights and interests
of such Grantor.

(l) all right, title and interest of such Grantor in and to any equity interests
of each Subsidiary of such Grantor, including, without limitation, the shares of
each class of capital stock in any Person that is a corporation, each class of
partnership interests in any Person that is a partnership, and each class of
membership interests in any Person that is a limited liability company, together
with all dividends, increases, proceeds, profits, instruments, distributions and
other property from time to time distributed in respect thereof and any rights
to acquire or convertible into any such equity interests, whether by purchase,
exercise of any type of options, warrants, conversion of debt or otherwise
("Securities Collateral");

(m) all investment property (as defined in Section 9-115 of the UCC), excluding,
however, to the extent included within such definition, any Securities
Collateral ("Investment Property");

(n) all right, title and interest of such Grantor in, to and under each
contract and other agreement relating to the lease, sale or other disposition of
Collateral;

(o) all rights, claims and benefits of such Grantor against any Person arising
out of, relating to or in connection with Collateral purchased by such Grantor,
including, without limitation, any such rights, claims or benefits against any
Person storing or transporting such Collateral;

(p) all insurance policies and bonds and claims and payments under any
Collateral;

(q) all property similar to the above hereafter acquired by such Grantor; and

(r) all accessions to, substitutions for and replacements, proceeds and
products of any and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property of the types described in this
Section 1.1) and, to the extent not otherwise included, all (i) payments under
insurance (whether or not the Collateral Agent is the loss payee thereof), or
any indemnity,

<PAGE>   9
                                                                               5

warranty or guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral and (ii) cash.

ARTICLE 1.2 Description of Obligations. This Agreement creates an enforceable
security interest in the Collateral to secure the payment and performance of the
following obligations (collectively, "Secured Obligations"):

(a) All debt, obligations, liabilities and agreements of any nature of the
Grantors to the Secured Parties or any Secured Party, whether matured or
unmatured, fixed or contingent, including all future advances, now or hereafter
existing, arising pursuant to or in connection with (i) this Agreement; (ii) the
obligations of the Grantors under the Credit Agreement and the other Loan
Documents (as defined in the Credit Agreement and used herein), including but
not limited to principal, interest, premiums, fees, expenses and indemnities;
(iii) the obligations of the Grantors under the Note Purchase Agreements, the
Notes and the other Note Documents (as defined in the Note Purchase Agreements
and as used herein), including but not limited to, principal, interest,
premiums, any Make-Whole Amount (as defined in the Note Purchase Agreements and
used herein), fees, expenses and indemnities; and (iv) all amendments,
modifications or supplements (but not any replacements or refinancings unless
consented to in writing by the Required Secured Parties) of any of the
foregoing.

(b) All costs incurred by any Secured Party to obtain, preserve, perfect and
enforce this Agreement, the pledge and security interest granted hereby, collect
the Secured Obligations, and maintain, preserve, collect and enforce the
Collateral, including, without limitation, taxes, assessments, reasonable
attorneys' fees and legal expenses, and expenses of sale.

(c) Interest on the above amounts as agreed between the Borrower and the Secured
Parties, including, without limitation, interest, fees and other charges that
would accrue or become owing both prior to and subsequent to and but for the
commencement of any proceeding against or with respect to the Borrower under any
chapter of the Bankruptcy Code of 1978, 11 U.S.C. Section 101 et seq. whether or
not a claim is allowed for the same in any such proceeding.

(d) Without limiting the generality of the foregoing, this Agreement secures the
payment of all amounts which constitute part of the Secured Obligations and
would be owed by any Grantor to any Secured Party under the Credit Agreement,
any other Loan Document, the Note Purchase Agreements, the Notes or any other
Note Document, but for the fact that they are unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding under any
Debtor Law (as defined in the Credit Agreement and used herein) involving such
Grantor or any other Person (including all such amounts which would become due
or would be secured but for the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding of such
Grantor or any other Person under any Debtor Law.

(e) With respect to each Grantor other than the Borrower, notwithstanding
anything herein to the contrary, in any action or proceeding involving any state
corporate law, or any state or federal bankruptcy, insolvency, reorganization or
other law affecting the rights of creditors

<PAGE>   10
                                                                               6

generally if the security interests granted by any such Grantor herein shall be
held void, invalid or unenforceable, or subordinated to the liens or claims of
any other creditors, on account of the amount of the Secured Obligations secured
by such security interests, then, the amount of the Secured Obligations secured
by such security interests shall, without any action by such Grantor, the
Collateral Agent, any other Secured Party or any other Persons, be automatically
limited and reduced to the highest amount that is valid and enforceable as
determined in such action or proceeding.

ARTICLE 1.3 Grantor Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Grantors shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Collateral Agent of any
of the rights hereunder shall not release any Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) neither the Collateral Agent nor any Secured Party shall have any obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Collateral Agent or any Secured Party be
obligated to perform any of the obligations or duties of any Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.

ARTICLE 1.4 Delivery of Instruments and Securities Collateral. All certificates
or instruments representing or evidencing the Collateral shall be delivered to
and held by or on behalf of the Collateral Agent pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Collateral Agent. The Collateral Agent shall have the right,
as provided in Section 3.6, to transfer to or to register in the name of the
Collateral Agent or any of its nominees any or all of the Securities Collateral.
Except as provided in Section 3.8(d), the Grantors maintain all voting rights in
the Securities Collateral.

                                    ARTICLE 2

                         Representations and Warranties

ARTICLE 2.1 Representations and Warranties. Each Grantor represents and
warrants to the Collateral Agent, with respect to itself and the Collateral now
owned or hereafter acquired by it, as follows:

(a) All of the Equipment, Fixtures and Inventory pledged by such Grantor
hereunder are located at the places specified on Schedule 1 hereto (as
supplemented from time to time by such Grantor by written notice to the
Collateral Agent as permitted herein) or in transit to a place specified on
Schedule 1 hereto (as supplemented from time to time by such Grantor by written
notice to Collateral Agent as permitted herein) or in transit for sale to a
third-party purchaser that upon such sale will become the obligor under a
Receivable or promptly pay for such Equipment, Fixtures and Inventory. The chief
place of business and chief executive office of such Grantor

<PAGE>   11
                                                                               7

and the office where such Grantor keeps all of its records concerning the
Receivables, are located at the place specified on Schedule 1 hereto. Schedule 1
is a complete and correct list of, as to any leased property on which any
Collateral is located, the description of such property sufficient for recording
purposes and the name of the record owner of such property. All Instruments,
Chattel Paper, promissory notes and other instruments evidencing Receivables
have been delivered and pledged to the Collateral Agent duly endorsed and
accompanied by such duly executed instruments of transfer or assignment as are
necessary for such pledge, to be held as pledged Collateral.

(b) Such Grantor is the legal and beneficial owner of the Collateral pledged by
it free and clear of any Lien. No effective financing statement or other similar
document used to perfect and preserve a security interest under the laws of any
jurisdiction covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of the Collateral
Agent relating to this Agreement. As of the date hereof, such Grantor has the
trade names set forth on Schedule 2 (and no others). Such Grantor (including any
corporate or partnership predecessor) has not existed or operated under any name
other than as stated on Schedule 2 since the date seven years preceding the date
of this Agreement.

(c) This Agreement and the pledge of the Collateral pursuant hereto, together
with the filing of financing statements containing the description of the
Collateral in the jurisdictions set forth on Schedule 1, which will be made
immediately following the date of closing, creates a valid and perfected first
priority security interest in the Collateral in which a security interest can
be perfected by filing a UCC financing statement, securing the payment of the
Secured Obligations; provided that additional actions may be required with
respect to the perfection of proceeds of the Collateral; and further provided
that the Collateral Agent retains physical possession of any Collateral, the
possession of which is required for perfection.

(d) No consent of any Person (including any Governmental Authority) is required
(i) for the pledge by such Grantor of the Collateral pledged by it hereunder,
for the grant by such Grantor of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by such Grantor, (ii) for
the perfection or maintenance of the pledge, assignment and security interest
created hereby (including the first priority nature of such pledge, assignment
and security interest as provided herein) (except for the filing of financing
and continuation statements under the UCC, fixture filings and filings with the
United States Patent and Trademark Office and Library of Congress) or (iii) for
the exercise by the Collateral Agent of the rights provided for in this
Agreement, except, in each case, for such consents that already have been
obtained by such Grantor.

(e) None of the Securities Collateral is subject to any unpaid capital call or
dispute, any buy-sell, voting trust, transfer restriction, preferential right to
purchase or similar agreement or any option, warrant, put or call or similar
agreement or other rights or restrictions in favor of third Persons. All of the
Securities Collateral are duly authorized, validly issued and non-assessable and
were not issued in violation of the Rights (as defined in the Credit Agreement
and as used herein) of any Person. No Securities Collateral obligates such
Grantor to make any additional

<PAGE>   12
                                                                               8

capital contributions with respect thereto. Schedule 4 accurately describes, as
of the date of this Agreement, the Securities Collateral owned by such Grantor,
the issuer, the percentage owned by such Grantor, the nature of equity interest
owned, and, if applicable, the number and type of shares of capital stock owned.

(f) No dispute, right of setoff, counterclaim or defense exists with respect to
any portion of the Collateral.

(g) All Inventory produced in the United States of America has been produced in
substantial compliance with the Fair Labor Standards Act.

                                   ARTICLE 3

                                   Covenants

ARTICLE 3.1 Further Assurances.

(a) Each Grantor agrees that where any agreement existing as of the date hereof
or hereafter to which such Grantor is a party contains any restriction that
could reasonably be expected to prohibit such Grantor from granting any security
interest under this Agreement, upon request of the Collateral Agent such Grantor
will use its best efforts to obtain the necessary consent to or waiver of such
restriction from any Person so as to enable such Grantor to effectively grant to
the Collateral Agent such security interest under this Agreement.

(b) Each Grantor agrees that from time to time, at the expense of such Grantor,
such Grantor will promptly execute and deliver all further instruments and
documents (including supplements to all schedules), and take all further action,
that may be necessary, and that the Collateral Agent may request, in order to
perfect and protect any pledge, assignment or security interest granted or
purported to be granted hereby, and the priority thereof, or to enable the
Collateral Agent to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
upon request by the Collateral Agent, such Grantor will: (i) mark conspicuously
each Chattel Paper, and each of its records pertaining to the Collateral with
the following legend:

         THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT TO
         A SECURITY AGREEMENT DATED AS OF MAY 26, 2000 (AS THE SAME HAS BEEN AND
         MAY HEREAFTER BE AMENDED, MODIFIED OR RESTATED) MADE BY GRANTOR IN
         FAVOR OF BANK OF AMERICA, N.A., AS COLLATERAL AGENT.

or such other legend, in form and substance satisfactory to and as specified by
the Collateral Agent, indicating that such Chattel Paper or Collateral is
subject to the pledge, assignment and security interest granted hereby; (ii) if
any Collateral shall be evidenced by an Instrument or be

<PAGE>   13
                                                                               9

Chattel Paper, deliver and pledge to the Collateral Agent hereunder each such
Instrument or Chattel Paper duly indorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
the Collateral Agent; and (iii) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary, or as the Collateral Agent may request, in order to perfect and
preserve the pledge, assignment and security interest granted or purported to be
granted hereby.

(a) In addition to such other information as shall be specifically provided for
herein, the Grantors will furnish to the Collateral Agent, the Agent and the
Holders from time to time statements and schedules further identifying and
describing the Collateral and such other lists, documents, reports, and product,
service and sales documents in connection with the Collateral as the Collateral
Agent, the Agent or a Holder may request, all in reasonable detail. In
connection with its enforcement of the security interest, the Collateral Agent,
the Agent and the Holders may use such information or transfer it to any Secured
Party.

(b) Each Grantor hereby authorizes the Collateral Agent to file one or more
continuation statements and during the continuance of an Event of Default,
financing statements, relating to all or any part of the Collateral without the
signature of such Grantor where permitted by Applicable Law (as defined in the
Credit Agreement and as used herein). A photocopy or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by Applicable Law.

(c) If any Securities Collateral are "uncertificated securities" within the
meaning of the UCC or are otherwise not evidenced by any stock certificate or
similar certificate or instrument, such Grantor agrees to promptly notify the
Collateral Agent and take all actions required to perfect the security interest
of the Collateral Agent under Applicable Law, including, as applicable, under
Article 8 or 9 of the UCC, and, without limitation of the foregoing, prior to or
concurrently with the pledge hereunder of any Securities Collateral to which
this section applies, (i) where deemed applicable by the Collateral Agent,
deliver to the relevant corporation, partnership, limited liability company,
joint venture or other Person a fully completed and duly executed letter in the
form of Exhibit A hereto, to obtain from such corporation, partnership, limited
liability company, joint venture or other Person, and deliver to the Collateral
Agent, promptly upon registration of such pledge on the books of the issuer, a
fully completed and duly executed letter in the form of Exhibit B hereto, and
(ii) where deemed applicable by the Collateral Agent, deliver to the Collateral
Agent a fully completed and duly executed "Securities Collateral Stop Transfer
Letter" in the form of Exhibit C hereto.

ARTICLE 3.2 Equipment, Fixtures and Inventory. No Grantor shall keep the
Equipment, Fixtures and Inventory pledged by it hereunder (other than (i)
Inventory sold in the ordinary course of business, (ii) Inventory and Equipment
in transit in the ordinary course of business and (iii) Equipment out for
repairs) in any location other than the places specified in Schedule 1 unless no
later than 60 days prior to removal from any such location such Grantor has
delivered to the Collateral Agent a financing statement for such Equipment,
Fixtures and Inventory kept by

<PAGE>   14
                                                                              10

such Grantor at such other location or such other documentation in the opinion
of the Collateral Agent which is necessary to properly perfect or maintain the
perfection of the security interest granted herein in such Collateral.

ARTICLE 3.3 Insurance. Each Guarantor shall, at its own expense, maintain
insurance with respect to the Collateral in accordance with the terms set forth
in Section 5.10 of the Credit Agreement. Each Grantor further covenants and
agrees to keep the Collateral insured in such amounts and Section 9.2 of the
Note Purchase Agreements, against such risks and with such insurers as is
consistent with customary and usual in the industry for companies of similar
size and capability, provided that none of such insurance shall be in amounts
less than the greater of (a) the replacement value and (b) the original cost of
the covered property (less any deduction standard in the industry for such type
of property). All such policies of insurance shall show the Collateral Agent as
loss payee, as its interests may appear, and shall provide for at least thirty
days' prior written notice of cancellation or change of coverage to the
Collateral Agent, the Agent an the Holders. Each Grantor shall promptly furnish
to the Collateral Agent evidence of such insurance in form and content
reasonably satisfactory to the Collateral Agent, the Agent and the Holders. If
any Grantor fails to maintain the insurance it is required to maintain with
respect to the Collateral in accordance with this Section 3.3, upon written
notice to such Grantor, the Collateral Agent may at its own option obtain
insurance in such Collateral, any premium thereby paid by the Collateral Agent
to become part of the Secured Obligations, bear interest prior to the existence
of an Event of Default (as defined in the Credit Agreement or the Note Purchase
Agreements), at the then applicable Base Rate (as defined in the Credit
Agreement), and during the occurrence of an Event of Default, at the Highest
Lawful Rate (as defined in the Credit Agreement). In the event the Collateral
Agent maintains such substitute insurance, the additional premium for such
insurance shall be due on demand and payable by such Grantor to the Collateral
Agent in accordance with any notice delivered to any Grantor by the Collateral
Agent. Proceeds of insurance shall be applied as follows: first, to reimburse
the Collateral Agent for all reasonable costs and expenses, if any, including
reasonable attorneys' fees, incurred in connection with the collection of such
proceeds; second, if an Event of Default has not occurred and is not continuing,
the proceeds shall be reinvested in productive, tangible assets used in the
business of such Grantor, and such Grantor shall provide the Collateral Agent,
the Agent and the Holders with evidence reasonably satisfactory to the
Collateral of such use; and third, if an Event of Default has occurred and is
continuing, the proceeds shall, at the Collateral Agent's direction, be used to
replace the Collateral or applied to the Secured Obligations as provided in
Section 4.3 of this Agreement.

<PAGE>   15
                                                                              11

ARTICLE 3.4 Place of Perfection; Records; Collection of Receivables, Chattel
Paper and Instruments.

(a) Each Grantor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Receivables, and
the originals of all Chattel Paper and Instruments, at the location therefor
specified on Schedule 1, in each case which may be changed upon written notice
to the Collateral Agent at least 60 days prior to such change. Each Grantor will
hold and preserve such records and Chattel Paper and Instruments and will permit
representatives of the Collateral Agent at any time during normal business hours
to inspect and make abstracts from and copies of such records and Chattel Paper
and Instruments.

(b) Except as otherwise provided in this Section 3.4(b), each Grantor shall
continue to collect, at its own expense, all amounts due or to become due such
Grantor under the Receivables, Chattel Paper and Instruments. In connection with
such collections, such Grantor may take (and, during the continuance of an Event
of Default at the Collateral Agent's direction, shall take) such action as such
Grantor or, during the continuance of an Event of Default, the Collateral Agent,
may deem necessary to enforce collection of the Receivables, Chattel Paper and
Instruments; provided, however, that the Collateral Agent shall have the right
(during the continuance of an Event of Default) to notify the account debtors or
obligors under any Receivables, Chattel Paper and Instruments of the assignment
of such Receivables, Chattel Paper and Instruments to the Collateral Agent and
to direct such account debtors or obligors to make payment of all amounts due or
to become due to such Grantor thereunder directly to the Collateral Agent and,
upon such notification at the expense of such Grantor, to enforce collection of
any such Receivables, Chattel Paper and Instruments, and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the same
extent as such Grantor might have done or as the Collateral Agent deems
necessary. During the continuance of an Event of Default, all amounts and
proceeds (including Instruments) received by such Grantor in respect of the
Receivables, Chattel Paper and Instruments shall be received in trust for the
benefit of the Collateral Agent hereunder, shall be segregated from other funds
of such Grantor and, after receipt of written notice from the Collateral Agent,
shall be forthwith paid over to the Collateral Agent in the same form as so
received (with any necessary indorsement) to be applied as provided in Section
4.3(b) of this Agreement. During the continuation of an Event of Default, such
Grantor shall not adjust, settle or compromise the amount or payment of any
Receivable, Chattel Paper or Instrument, release wholly or partly any account
debtor or obligor thereof, or allow any credit or discount thereon.

ARTICLE 3.5 Transfers and Other Liens. No Grantor shall (a) sell, assign (by
operation of Applicable Law or otherwise) or otherwise dispose of, or grant any
option with respect to, any of the Collateral, except as permitted under the
Credit Agreement and the Note Purchase Agreements, or (b) create or permit to
exist any security interest upon any of the Collateral.

ARTICLE 3.6 Rights to Dividends and Distributions. With respect to any
Securities Collateral, the Collateral Agent shall have authority during the
continuance of an Event of Default, to the

<PAGE>   16
                                                                              12

extent the Collateral Agent determines that such transfer or registration is
necessary to perfect a first priority security interest in such Securities
Collateral, either to have the same registered in the Collateral Agent's name or
in the name of a nominee. If any Grantor shall become entitled to receive or
shall receive any Dividend (as defined in the Credit Agreement and as used
herein) or interest in or certificate (including, without limitation, any
interest in or certificate representing a Dividend in connection with any
reclassification, increase, reduction of capital, or reorganization), or any
option or rights arising from or relating to any of the Collateral that is
evidenced by a certificate or other instrument or security, whether as an
addition to, in substitution of, as a conversion of, or in exchange for any of
the Collateral, or otherwise, such Grantor agrees to accept the same as the
Collateral Agent's agent and to hold the same in trust on behalf of and for the
benefit of the Collateral Agent, and, after receipt of written notice from the
Collateral Agent, to deliver the same promptly to the Collateral Agent in the
exact form received, with appropriate undated stock or similar powers, duly
executed in blank, to be held by the Collateral Agent, subject to the terms
hereof, as Collateral. Unless an Event of Default is in existence, such Grantor
shall be entitled to receive all cash Dividends paid in respect of any of the
Collateral. During the continuance of an Event of Default, the Collateral Agent
shall be entitled to all Dividends, and to any sums paid upon or in respect of
any Collateral, and to any additional securities issued in respect of the
Securities Collateral, upon the liquidation, dissolution, or reorganization of
the issuer thereof, all of which shall be paid to the Collateral Agent to be
held by it as additional Collateral and applied to the Secured Obligations
pursuant to Section 4.3(b) of this Agreement. All Dividends paid or distributed
in respect of the Collateral which are received by any Grantor in violation of
this Agreement shall, until paid or delivered to the Collateral Agent, be held
by such Grantor in trust as additional Collateral.

ARTICLE 3.7 Right of the Collateral Agent to Notify Issuers. At any time during
the continuance of an Event of Default, the Collateral Agent may notify issuers
of the Securities Collateral to make payments of all Dividends directly to the
Collateral Agent and the Collateral Agent may take control of all proceeds of
any Securities Collateral.

ARTICLE 3.8 The Collateral Agent Appointed Attorney-in-Fact. Each Grantor
hereby irrevocably appoints the Collateral Agent such Grantor's attorney-in-fact
(exercisable only during the continuance of an Event of Default), with full
authority in the place and stead of such Grantor and in the name of such Grantor
or otherwise to take any action and to execute any instrument (in accordance
with this Agreement) which the Collateral Agent may deem necessary to accomplish
the purposes of this Agreement, including, without limitation:

(a) to obtain and adjust insurance required to be maintained by such Grantor in
accordance with Section 3.3,

(b) to ask for, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due or to become due under or in connection
with the Collateral,

(c) to receive, indorse, and collect any drafts or other Instruments, documents
and Chattel Paper in connection with clauses (a) or (b) above, and

<PAGE>   17
                                                                              13

(d) to file any claims or take any action or institute any proceedings which the
Collateral Agent may deem necessary for the collection of any of the Collateral
or otherwise to enforce compliance with the terms and conditions of any
Collateral or the rights of the Collateral Agent with respect to any of the
Collateral. EACH GRANTOR HEREBY IRREVOCABLY GRANTS TO THE COLLATERAL AGENT SUCH
GRANTOR'S PROXY (EXERCISABLE ONLY DURING THE CONTINUANCE OF AN EVENT OF DEFAULT
AND AFTER THE COLLATERAL AGENT'S WRITTEN NOTICE OF ITS INTENT TO EXERCISE SUCH
RIGHT) TO VOTE ANY SECURITIES COLLATERAL AND APPOINTS THE COLLATERAL AGENT SUCH
GRANTOR'S ATTORNEY-IN-FACT (EXERCISABLE ONLY DURING THE CONTINUANCE OF AN EVENT
OF DEFAULT) TO PERFORM ALL OBLIGATIONS OF SUCH GRANTOR UNDER THIS AGREEMENT. THE
PROXY AND EACH POWER OF ATTORNEY HEREIN GRANTED ARE COUPLED WITH AN INTEREST AND
ARE IRREVOCABLE PRIOR TO THE DATE THAT THE SECURED OBLIGATIONS ARE PAID IN FULL
AND ALL OBLIGATIONS IF ANY, OF ANY SECURED PARTY UNDER THE CREDIT AGREEMENT, ANY
LOAN DOCUMENT, THE NOTE PURCHASE AGREEMENT AND ANY NOTE DOCUMENT HAVE BEEN
TERMINATED.

(e) This appointment as attorney-in-fact and this proxy shall terminate upon the
termination of this Agreement pursuant to Section 5.3 hereof.

                                   ARTICLE 4

                   Rights and Powers of the Collateral Agent

ARTICLE 4.1 The Collateral Agent May Perform. If any Grantor fails to perform
any agreement contained herein, the Collateral Agent may itself perform, or
cause performance of, such agreement, and the out-of-pocket expenses of the
Collateral Agent incurred in connection therewith shall be payable by such
Grantor pursuant to Section 4.5 hereof.

ARTICLE 4.2 The Collateral Agent's Duties. The powers conferred on the
Collateral Agent hereunder are solely to protect its interest in the Collateral
and shall not impose any duty upon it to exercise any such powers. Except for
the duty to exercise reasonable care in respect of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Collateral Agent shall have no duty as to any Collateral, as to ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relative to any Collateral, whether or not the Collateral Agent
has or is deemed to have knowledge of such matters, or as to the taking of any
necessary steps to preserve rights against prior parties. The Collateral Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Collateral Agent accords its own
property. Except as provided in this Section 4.2 and except to the extent of any
gross negligence or willful

<PAGE>   18
                                                                              14

misconduct of the Collateral Agent, the Collateral Agent shall not have any duty
or liability to protect or preserve any Collateral or to preserve rights
pertaining thereto. Nothing contained in this Agreement shall be construed as
requiring or obligating the Collateral Agent, and the Collateral Agent shall not
be required or obligated, to (i) present or file any claim or notice or take any
action, with respect to any Collateral or in connection therewith or (ii) notify
any Grantor of any decline in the value of any Collateral.

ARTICLE 4.3 Remedies. If any Event of Default shall have occurred and be
continuing:

(a) The Collateral Agent may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party on default under the UCC at that
time (to the extent not prohibited by Applicable Law whether or not the UCC
applies to the affected Collateral), and also may (i) require any Grantor to,
and each Grantor hereby agrees that it will at its expense and upon request of
the Collateral Agent forthwith, assemble all or part of the Collateral which is
capable of being assembled as directed by the Collateral Agent and make it
available to the Collateral Agent at a place to be designated by the Collateral
Agent which is reasonably convenient to both parties or (ii) without notice,
except as specified below, sell the Collateral or any portion thereof in one or
more parcels at public or private sale, at any of the Collateral Agent's offices
or elsewhere, for cash, on credit or for future delivery, and upon such other
terms as the Collateral Agent may deem commercially reasonable. Each Grantor
agrees that, to the extent notice of sale shall be required by Applicable Law,
ten days' written notice to such Grantor of the time and place of any public
sale or the time after which any private sale is to be made shall constitute
reasonable notification, provided that ten days' written notice does not violate
any Applicable Law. The Collateral Agent shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. To the extent not
prohibited by Applicable Law, the Collateral Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. (b)

(b) All cash proceeds received by the Collateral Agent upon any sale of,
collection of, or other realization upon, all or any part of the Collateral
shall be applied as follows:

         First: To the payment of all reasonable out-of-pocket costs and
         expenses incurred in connection with the sale of, collection of or
         other realization upon Collateral, including reasonable attorneys' fees
         and disbursements;

         Second: To the payment of the Funded Obligations of the Secured
         Parties, which payment shall be shared by the Secured Parties according
         to their respective pro rata proportions of such Funded Obligations or
         in such other order and/or manner as may be agreed to in writing by the
         Secured Parties (with the Borrower remaining liable for any
         deficiency); provided, that if an amount originally included in the
         Funded Obligations of a Secured Party (including its assignees, a
         "Reduced Lender") as a contingent obligation (such as a letter of
         credit) ceases to be an obligation because of its expiry, reduction,

<PAGE>   19
                                                                              15

         cancellation or otherwise, with the result that such Funded Obligations
         are reduced, then the Reduced Lender shall promptly notify the
         Collateral Agent thereof, and the respective pro rata proportions of
         Funded Obligations of the Secured Parties shall be adjusted on the
         first Business Day following the Collateral Agent's receipt of such
         notification to reflect such decrease (and the resultant increase in
         the pro rata proportions of the Funded Obligations of the Secured
         Parties other than the Reduced Lender) and the Reduced Lender shall
         promptly repay to the Collateral Agent for the account of the
         respective other Secured Parties the portion of any payments previously
         received by it hereunder in excess of its pro rata proportion thereof
         as so redetermined;

         Third: To the payment of the Other Obligations of the Secured Parties
         (with the Borrower remaining liable for any deficiency) and which
         payment shall be shared by the Secured Parties according to their
         respective pro rata proportions of such Other Obligations or in such
         order and/or manner as may be agreed to in writing by the Secured
         Parties; and

         Fourth: To the extent of the balance (if any) of such proceeds, to the
         payment to the Borrower or other Person legally entitled thereto.

         As used herein, the following terms shall have the meanings set forth
         below:

         "Funded Obligations" shall mean, with respect to any Secured Party, the
         aggregate amount payable (whether or not then due) to such Secured
         Party under the Credit Agreement, the Note Purchase Agreements and all
         notes or other evidences of indebtedness issued pursuant to any of the
         foregoing in respect of principal, interest, premium, Make-Whole Amount
         (as defined in the Note Purchase Agreements) or breakage costs
         (determined in accordance with the applicable provisions of the Credit
         Agreement, Note Purchase Agreements, such notes or such other evidences
         of indebtedness), but only to the extent accrued through the applicable
         determination date and in the case of the Credit Agreement treating as
         principal the sum of (i) the maximum amount that is, or at any time
         thereafter may become, available to be drawn under letters of credit
         then outstanding under the Credit Agreement, assuming compliance with
         all requirements for drawings referred to in such letters of credit,
         plus, without duplication of amounts outstanding as loans under the
         Credit Agreement, and (ii) the aggregate amount of all drawings under
         letters of credit honored by the issuer thereof but not theretofore
         reimbursed (such sum being the "LOC Obligations").

                  "Other Obligations" shall mean, with respect to any Secured
         Party under the Credit Agreement, the Note Purchase Agreements and all
         notes or other evidences of indebtedness issued pursuant to any of the
         foregoing, the aggregate amount payable (whether or not then due) to
         such Secured Party under the Credit Agreement, Note Purchase
         Agreements, such notes or such other evidences of indebtedness other
         than its Funded Obligations thereunder, including, without limitation,
         fees, costs and expenses.

<PAGE>   20
                                                                              16

(a) All payments received by such Grantor under or in connection with any
Collateral shall be received in trust for the benefit of the Collateral Agent,
shall be segregated from other funds of such Grantor and, after receipt of
written notice from the Collateral Agent, shall be forthwith paid over to the
Collateral Agent in the same form as so received (with any necessary
indorsement).

(b) Because of the Securities Act of 1933, as amended ("Securities Act"), and
other Applicable Laws, including without limitation state "blue sky" laws, or
contractual restrictions or agreements, there may be legal restrictions or
limitations affecting the Collateral Agent in any attempts to dispose of the
Collateral and the enforcement of its rights hereunder. For these reasons, the
Collateral Agent is hereby authorized by each Grantor, but not obligated, during
the continuance of any Event of Default, to sell or otherwise dispose of any of
the Collateral at private sale, subject to an investment letter, or in any other
manner which will not require the Collateral, or any part thereof, to be
registered in accordance with the Securities Act, or the rules and regulations
promulgated thereunder, or any other Applicable Law. Each Grantor clearly
understands that the Collateral Agent may in its discretion approach a
restricted number of potential purchasers and that a sale under such
circumstances may yield a lower price for the Collateral than would otherwise be
obtainable if same were registered and sold in the open market. No sale so made
in good faith by the Collateral Agent shall be deemed to be not "commercially
reasonable" because so made. Each Grantor agrees that in the event the
Collateral Agent shall, during the continuance of an Event of Default, sell the
Collateral or any portion thereof at any private sale or sales, the Collateral
Agent shall have the right to rely upon the advice and opinion of independent
appraisers and other Persons, which appraisers and other Persons are acceptable
to the Collateral Agent, as to the best price obtainable upon such a private
sale thereof.

(c) Each Grantor will maintain the accounts listed as restricted and blocked
accounts on Schedule 3 (the "Restricted Accounts") with the Collateral Agent, in
the name of such Grantor, but such Restricted Accounts shall be under the sole
control and dominion of the Collateral Agent.

         (i) It shall be a term and condition of each Restricted Account,
         notwithstanding any term or condition to the contrary in any other
         agreement relating to such Restricted Account (other than the Credit
         Agreement and the Note Purchase Agreements), that no amount (including
         interest and other proceeds of the cash and other property in the
         Restricted Account) shall be paid or released to or for the account of,
         or withdrawn by or for the account of, such Grantor or any other Person
         from such Restricted Account.

         (ii) At the request of the Collateral Agent, such Grantor will promptly
         instruct each account debtor in respect of Receivables arising from any
         sale of Inventory in the ordinary course of business to make payment to
         the Restricted Accounts.

<PAGE>   21
                                                                              17

Each Grantor understands and acknowledges that the Collateral Agent may and
permits the Collateral Agent to remove amounts from the Restricted Accounts from
time to time and use the amounts to reduce the Obligations in accordance with
the terms of the Credit Agreement and the Note Purchase Agreements.

ARTICLE 4.4 Further Approvals Required.

(a) In connection with the exercise by the Collateral Agent of its rights
hereunder that effects the disposition of or use of any Collateral, it may be
necessary to obtain the prior consent or approval of Governmental Authorities
and other Persons to a transfer or assignment of Collateral.

(b) Each Grantor hereby agrees, during the continuance of an Event of Default,
to execute, deliver, and file, and hereby appoints the Collateral Agent as its
attorney-in-fact, during the continuance of an Event of Default, to execute,
deliver, and file on such Grantor's behalf and in such Grantor's name, all
applications, certificates, filings, instruments, and other documents (including
without limitation any application for an assignment or transfer of control or
ownership) that may be necessary, in the Collateral Agent's reasonable opinion,
to obtain such consents, waivers, or approvals. Upon request by the Collateral
Agent, each Grantor further agrees to use its reasonable best efforts to obtain
the foregoing consents, waivers, and approvals. Each Grantor acknowledges that
there is no adequate remedy at law for failure by it to comply with the
provisions of this Section 4.4 and that such failure would not be adequately
compensable in damages, and therefore agrees that this Section 4.4 may be
specifically enforced. This appointment as attorney-in-fact shall terminate upon
the termination of this Agreement pursuant to Section 5.3 hereof.

<PAGE>   22
                                                                             18

ARTICLE 4.5 INDEMNITY AND EXPENSES.

(a) EACH GRANTOR AGREES TO INDEMNIFY THE COLLATERAL AGENT AND EACH OTHER SECURED
PARTY AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND
REPRESENTATIVES (COLLECTIVELY, THE "INDEMNIFIED PARTIES") FROM AND AGAINST ANY
AND ALL CLAIMS, LOSSES AND LIABILITIES (INCLUDING REASONABLE ATTORNEYS' FEES)
ARISING OR RESULTING FROM THIS AGREEMENT (INCLUDING, WITHOUT LIMITATION,
ENFORCEMENT OF THIS AGREEMENT), EXPRESSLY INCLUDING SUCH CLAIMS, LOSSES OR
LIABILITIES ARISING OUT OF OR RESULTING FROM, IN WHOLE OR IN PART, NEGLIGENCE OR
STRICT LIABILITY OF ANY INDEMNIFIED PARTY, EXCEPT CLAIMS, LOSSES OR LIABILITIES
AS FINALLY JUDICIALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION TO HAVE
RESULTED FROM SUCH INDEMNIFIED PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT,
BUT EXCLUDING (i) ANY CLAIM OR LIABILITY THAT ARISES AS A DIRECT RESULT OF THE
OPERATION OF ANY COLLATERAL BY ANY INDEMNIFIED PARTY AFTER TAKING POSSESSION
THEREOF BY FORECLOSURE OR BY TRANSFER IN LIEU OF FORECLOSURE (PROVIDED THAT SUCH
CLAIM OR LIABILITY DOES NOT RELATE TO ANY CONDITION EXISTING ON OR WITH RESPECT
TO SUCH COLLATERAL PRIOR TO FORECLOSURE OR TRANSFER IN LIEU OF FORECLOSURE), AND
(ii) MATTERS RAISED EXCLUSIVELY BY ANY SECURED PARTY AGAINST THE COLLATERAL
AGENT OR ANY OTHER SECURED PARTY.

(b) The Grantors will, jointly and severally, upon demand pay to the Collateral
Agent the amount of any and all reasonable out-of-pocket expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, which
the Collateral Agent may incur in connection with (i) the administration of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Collateral Agent hereunder
or (iv) the failure by the Grantors to perform or observe any of the provisions
hereof.

                                   ARTICLE 5

                                 Miscellaneous

ARTICLE 5.1 Cumulative Rights. All rights of the Secured Parties under the Loan
Documents, the Note Purchase Agreements, the Notes and the other Note Documents
are cumulative of each other and of every other right which the Secured Parties
may otherwise have at law or in equity or under any other contract or other
writing for the enforcement of the security interest herein or the collection of
the Secured Obligations. The exercise of one or more rights shall not prejudice
or impair the concurrent or subsequent exercise of other rights.

<PAGE>   23
                                                                             19

ARTICLE 5.2 Modifications; Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by any Grantor here
from, shall in any event be effective unless the same shall be in writing and
signed by the Required Secured Parties (and such Grantor, in case of amendment),
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. As used herein, "Required Secured
Parties" shall mean (a) Holders holding, in the aggregate, 66.67% of the
outstanding principal amount of Notes (for so long as any Notes remain
outstanding) and (b) the Revolving Lenders holding, in the aggregate 66.67% of
the principal amount outstanding under the Credit Agreement (including the
aggregate LOC Obligations then outstanding) (for so long as obligations and
commitments to fund remain outstanding under the Credit Agreement).

ARTICLE 5.3 Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the Secured Obligations are paid in full and all
commitments of any Secured Party under the Loan Documents, the Note Purchase
Agreements and the other Note Documents have been terminated, (b) be binding
upon each Grantor, its successors and assigns, and (c) inure to the benefit of,
and be enforceable by, the Secured Parties and their successors, transferee and
assigns. Upon any such termination, the Collateral Agent will, at such Grantor's
expense, execute and deliver to such Grantor such documents as such Grantor
shall reasonably request to evidence such termination. Each Grantor agrees that
to the extent that any Secured Party receives any payment or benefit and such
payment or benefit, or any part thereof, is subsequently invalidated, declared
to be fraudulent or preferential, set aside or is required to be repaid to a
trustee, receiver, or any other party under any Debtor Law, then to the extent
of such payment or benefit, the Secured Obligations or part thereof intended to
be satisfied shall be revived and continued in full force and effect as if such
payment or benefit had not been made and, further, any such repayment by such
Secured Party, to the extent that such Secured Party did not directly receive a
corresponding cash payment, shall be added to and be additional Secured
Obligations payable upon demand by such Secured Party and secured hereby, and,
if the lien and security interest hereof shall have been released, such lien and
security interest shall be reinstated with the same effect and priority as on
the date of execution hereof all as if no release of such lien or security
interest had ever occurred, to the extent not prohibited by Applicable Law.

ARTICLE 5.4 GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW) AND THE APPLICABLE FEDERAL LAWS OF THE UNITED
STATES OF AMERICA, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE
SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
TEXAS.

ARTICLE 5.5 WAIVER OF JURY TRIAL. THE COLLATERAL AGENT AND EACH GRANTOR HEREBY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ALL RIGHT TO TRIAL BY
JURY IN ANY JUDICIAL

<PAGE>   24
                                                                             20

PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY.

ARTICLE 5.6 The Collateral Agent's Right to Use Agents. The Collateral Agent
may exercise its rights under this Agreement through an agent or other designee.

ARTICLE 5.7 Waivers of Rights Inhibiting Enforcement. To the extent not
prohibited by Applicable Law, each Grantor waives all rights of redemption,
appraisal, valuation or to the marshaling of assets.

ARTICLE 5.8 Notices and Deliveries.

(a) Manner of Delivery. All notices and other communications provided for
hereunder shall be effectuated in the manner provided for in Section 10.1 of the
Credit Agreement and Section 18 of the Note Purchase Agreements, and to the
extent that a notice or communication is sent to a Grantor other than the
Borrower, said notice shall be addressed to such Grantor, in care of the
Borrower.

ARTICLE 5.9 Successors and Assigns. All of the provisions of this Agreement
shall be binding and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, no Grantor may
assign its liabilities and obligations under this Agreement without the prior
written consent of the Collateral Agent and the Secured Parties.

ARTICLE 5.10 Consent to Jurisdiction; Waiver of Immunities.

(a) Each Grantor, the Collateral Agent and each other Secured Party each hereby
irrevocably submits to the non-exclusive jurisdiction of any United States
Federal or State courts sitting in Dallas, Texas in any action or proceeding
arising out of or relating to this Agreement, and each Grantor, the Collateral
Agent and each other Secured Party each hereby irrevocably waives any objection
it may now or hereafter have as to the venue of any such suit, action or
proceeding brought in such court or that such court is an inconvenient forum.

(b) Nothing in this section shall limit the right of any Grantor, the Collateral
Agent or any other Secured Party to bring any action or proceeding against any
other party or its property in the courts of any other jurisdictions.

ARTICLE 5.11 Severability. Any provision of this Agreement which is for any
reason prohibited or found or held invalid or unenforceable by any court or
governmental agency shall be ineffective to the extent of such prohibition or
invalidity or unenforceability, without invalidating the remaining provisions
hereof in such jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.
<PAGE>   25

                                                                           21

ARTICLE 5.12 Obligations Not Affected. To the fullest extent permitted by
Applicable Law, the obligations of each Grantor under this Agreement shall
remain in full force and effect without regard to, and shall not be impaired or
affected by:

(a) any amendment, modification, addition or supplement to the Credit
Agreement, any other Loan Document, the Note Purchase Agreement, any Note, any
other Note Document, any instrument delivered in connection therewith, or any
assignment or transfer thereof;

(b) any exercise, non-exercise, or waiver by the Collateral Agent or any other
Secured Party of any right, remedy, power or privilege under or in respect of,
or any release of any guaranty, any collateral or the Collateral or any part
thereof provided pursuant to, this Agreement, any other Loan Document, the Note
Purchase Agreement, any other Note Document or any Note;

(c) any waiver, consent, extension, indulgence or other action or inaction in
respect of this Agreement, any other Loan Document, the Note Purchase
Agreement, any Note, any other Note Document or any assignment or transfer of
any thereof; or

(d) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or the like of such Grantor, or any other Person,
whether or not such Grantor shall have notice or knowledge of any of the
foregoing.

ARTICLE 5.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.

ARTICLE 5.14 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE CREDIT
AGREEMENT, THE OTHER LOAN DOCUMENTS, THE NOTE PURCHASE AGREEMENT, THE OTHER NOTE
DOCUMENTS AND THE NOTES, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.

================================================================================
                   REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================

<PAGE>   26
                                                                             22

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

                                             GRANTORS:

                                             HASTINGS ENTERTAINMENT, INC.

                                             By:
                                                --------------------------------
                                                Name:
                                                     ---------------------------
                                                Title:
                                                      --------------------------

                                             HASTINGS COLLEGE STORES, INC.

                                             By:
                                                --------------------------------
                                                Name:
                                                     ---------------------------
                                                Title:
                                                      --------------------------

                                             HASTINGS INTERNET, INC.

                                             By:
                                                --------------------------------
                                                Name:
                                                      --------------------------
                                                Title:
                                                      --------------------------

                                             HASTINGS PROPERTIES, INC.

                                             By:
                                                --------------------------------
                                                Name:
                                                     ---------------------------
                                                Title:
                                                      --------------------------

<PAGE>   27
                                                                             23

                                   Schedule 1

                       Equipment and Inventory Locations

              Chief Place of Business, Chief Executive Office and
                         Location of Books and Records

                          *To Be Provided By Grantors*

<PAGE>   28
                                                                             24

                                   Schedule 2

                                  Trade Names

                          *To Be Provided By Grantors*

<PAGE>   29
                                                                             25

                                   Schedule 3

                              Restricted Accounts

                          *To Be Provided By Grantors*

<PAGE>   30
                                                                             26

                                   Schedule 4

                             Securities Collateral

                          *To Be Provided by Grantors*

<PAGE>   31

                                                                             27

                                   EXHIBIT A

                    INSTRUCTIONS FOR REGISTRATION OF PLEDGE
                                       OF
                           UNCERTIFICATED SECURITIES

Date:
     --------------------

To:      [name of corporation, partnership, joint venture or other Person]

         You are hereby instructed to register the pledge of the following
uncertificated securities to Bank of America, N.A., as Collateral Agent under
that certain Security Agreement, dated as of May ___, 2000, by and among
Hastings Entertainment, Inc., a Delaware corporation (the "Borrower"), certain
Subsidiaries of the Borrower, and Bank of America, N.A., as Bank of --------
America, N.A., as Collateral Agent:

ARTICLE 1.1 A [insert written percentage of interest] (_____%) [insert
description of interest, e.g. General Partnership Interest];

ARTICLE 1.2 [insert similar description of any other interests].

ARTICLE 1.3 This being all of the interest of [INSERT NAME OF PLEDGOR] in [name
of corporation, partnership, joint venture or other Person].

                                                      Very truly yours,

                                             [GRANTOR]

                                             By:
                                                --------------------------------
                                                Name:
                                                     ---------------------------
                                                Title:
                                                      --------------------------

<PAGE>   32
                                                                             28

                                   EXHIBIT B

                         INITIAL TRANSACTION STATEMENT

Date:
     ---------------------

To:      Bank of America, N.A.

         This is to advise you that a pledge to Bank of America, N.A., as
Collateral Agent, under that certain Security Agreement, dated as of May ___,
2000, by and among Hastings Entertainment, Inc., a Delaware corporation (the
"Borrower"), certain Subsidiaries of the Borrower, and Bank of America, N.A., as
Bank of America, N.A., as Collateral Agent, of the following uncertificated
securities owned by [INSERT NAME OF PLEDGOR], a [______________] corporation has
been registered on the books of [name of corporation, partnership, joint venture
or other Person]:

ARTICLE 1.1 A [insert written percentage of interest] (_____%) [insert
description of interest, e.g. General Partnership Interest];

ARTICLE 1.2 [insert similar description of any other interests].

ARTICLE 1.3 This being all of the interest of [INSERT NAME OF PLEDGOR] in, as
shown on books and records of, [name of corporation, partnership, joint venture
or other Person].

ARTICLE 1.4 There are no liens or restrictions of the undersigned, nor any
adverse claims, in each case registered on the books of the undersigned, to
which the interests described hereinabove are subject.

ARTICLE 1.5 The pledge referred to above was registered on ______________,
_____.

ARTICLE 1.6 THIS STATEMENT IS MERELY A RECORD OF THE REGISTRATION OF THE
PLEDGE OF THE ADDRESSEES AS OF THE TIME OF THE ISSUANCE HEREOF. DELIVERY OF
THIS STATEMENT, IN ITSELF, CONFERS NO RIGHTS ON THE RECIPIENT. THIS STATEMENT
IS NEITHER A NEGOTIABLE INSTRUMENT NOR A SECURITY.

                                                 Very truly yours,

                                        [NAME OF CORPORATION, PARTNERSHIP, JOINT
                                        VENTURE OR OTHER PERSON]

                                        [By:              ]
                                            --------------

                                        By:
                                           ------------------------------------
                                           Name:
                                                -------------------------------
                                           Title:
                                                 ------------------------------

<PAGE>   33
                                                                             29

                                    EXHIBIT C

                                __________, 2000

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

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

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

Ladies and Gentlemen:

         This is to advise you that _________________, a ____________________
("Pledgor"), has granted to Bank of America, N.A., as Collateral Agent (in such
capacity, "Collateral Agent') under that certain Security Agreement, dated as of
May ___, 2000, by and among Hastings Entertainment, Inc., a Delaware corporation
(the "Borrower"), certain Subsidiaries of the Borrower, and Bank of America,
N.A., as Collateral Agent, a security interest in [DESCRIBE AMOUNT AND
DESCRIPTION OF INTEREST, E.G. SHARES OF THE COMMON CAPITAL STOCK] of
____________________________________________ (the "Company"), and all other
[REPEAT DESCRIPTION OF INTEREST] of the Company now owned as well as hereafter
acquired by Pledgor (together with any distributions, interests, stock,
liquidating dividends, stock dividends, preemptive rights, dividends paid in
cash or securities, or other properties to which Pledgor may hereafter be
entitled to receive on account of such [REPEAT DESCRIPTION OF INTEREST]), which
[REPEAT DESCRIPTION OF INTEREST] presently constitutes _____% of the issued and
outstanding [REPEAT DESCRIPTION OF INTEREST] of the Company, any other equity
interest or right to acquire any equity interest in Company now owned as well as
hereafter acquired by Pledgor, and all proceeds and products of the foregoing
("Pledged Rights").

<PAGE>   34
                                                                             30

         Until notified otherwise in writing by an authorized officer of
Collateral Agent, you are hereby directed (and you hereby agree) to deliver
after the date hereof all non-cash dividends and other distributions and any and
all other shares of stock, warrants or other property (other than cash) in which
the Secured Parties (as defined in the Security Agreement described above) have
a security interest to Collateral Agent, 901 Main Street, 67th Floor, Dallas,
Texas 75202, Attn: ______________, Facsimile: (___) __________. Upon written
notice from an authorized officer of Collateral Agent, you are directed (and you
hereby agree) to deliver after the date of such notice, all dividends,
distributions and other property in the form of cash directly to Collateral
Agent at the address mentioned in the preceding sentence. Unless notified
otherwise in writing by an authorized officer of Collateral Agent, you are
hereby directed (and you hereby agree) to not acknowledge any encumbrance in
favor of any party other than Collateral Agent with respect to the Pledged
Rights, assign any interest in, encumber, subdivide, issue additional or
different certificates for or otherwise transfer any interest in the Pledged
Rights.

                                      Very truly yours,

                                      By:
                                         --------------------------------
                                         Name:
                                              ---------------------------
                                         Title:
                                               --------------------------

                                      BANK OF AMERICA, N.A., as Collateral Agent

                                      By:
                                         --------------------------------
                                         Name:
                                              ---------------------------
                                         Title:
                                               --------------------------

Accepted and Agreed this ____ day of ________________, ____

                                      By:
                                         --------------------------------
                                         Name:
                                              ---------------------------
                                         Title:
                                               --------------------------

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