Document:

EXHIBIT NO.:  4.9

                                WARRANT AGREEMENT

                          Dated as of February 5, 2001

                                 by and between

                                  CRYOCON, INC.

                                       and

J. BRIAN MORRISON

         THIS WARRANT  AGREEMENT (this  "Agreement") is made and entered into as
of February 5, 2001 by and between  CRYOCON,  INC., a Colorado  Corporation (the
"Company"), and J. BRIAN MORRISON ("Holder").

         WHEREAS,   the  Company  agrees  to  issue  Common  Stock  warrants  as
hereinafter  described (the  "Warrants") to purchase  shares of Common Stock (as
defined below),  in such number and at such price  determined in accordance with
this Agreement. Each Warrant entitles the holder thereof to purchase one Warrant
Share (as defined below).

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
agreements  herein set forth,  and for the  purpose of defining  the  respective
rights and  obligations  of the Company and Holder,  the parties hereto agree as
follows:

         Section  1.  Certain  Definitions.  As  used  in  this  Agreement,  the
following terms shall have the following respective meanings:

         "Commission" means the Securities and Exchange Commission.
          ----------

         "Common  Stock" means the common stock,  no par value,  of the Company,
and any other  capital  stock of the Company into which such common stock may be
converted or  reclassified or that may be issued in respect of, in exchange for,
or in substitution  for, such common stock by reason of any stock splits,  stock
dividends, distributions, mergers, consolidations or other like events.

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

         "Exercise  Price" means the purchase price to be paid upon the exercise
of the Warrants in accordance with the terms hereof.  The initial Exercise Price
per  share  shall be equal to $0.10,  subject  to  adjustment  from time to time
pursuant to Section 11 hereof.

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         "Expiration  Date" means December 31, 2005, as the same may be extended
pursuant to Section 6 hereof.

         "Holder"  means J. BRIAN MORRISON and any other person who is the owner
of Warrants as shown on the Warrant register maintained by the Company.

         "Issue  Date" means the date of the initial  issuance of the  Warrants,
which shall be the date of this Agreement.

         "Rule 144" shall mean Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the Commission providing for offers and
sales of securities made in compliance  therewith  resulting in offers and sales
by subsequent  holders that are not  affiliates of an issuer of such  securities
being free of the  registration  and  prospectus  delivery  requirements  of the
Securities Act.

         "Rule 144A" shall mean Rule 144A promulgated  under the Securities Act,
as such Rule may be amended  from time to time,  or any similar rule (other than
Rule 144) or regulation hereafter adopted by the Commission.

         "Securities  Act"  means the  Securities  Act of 1933 or any  successor
statute and the rules and regulations promulgated thereunder.

         "Warrant  Shares"  means the fully  paid and  non-assessable  shares of
Common Stock issued or issuable upon the exercise of the Warrants.

         Section 2.        Issuance of Warrants; Warrant Certificates.
                           ------------------------------------------

         (a) The Warrants will be issued in the form of definitive certificates,
substantially  in the  form of  Exhibit  A (the  "Warrant  Certificates").  Each
Warrant  shall  provide  that  it  shall  represent  the  aggregate   amount  of
outstanding  Warrants from time to time endorsed  thereon and that the aggregate
amount of  outstanding  Warrants  represented  thereby  may from time to time be
reduced or increased, as appropriate.

         (b) The  Warrants  shall be  initially  issued on the Issue Date in the
aggregate  amount of FIVE HUNDRED  THOUSAND  (500,000)  shares of Common  Stock,
subject to adjustment as herein provided,  and shall be issued under one Warrant
Certificate.

         Section 3.  Execution  of Warrant  Certificates.  Warrant  Certificates
shall be signed on behalf of the Company by the  Company's  President  or a Vice
President  and by its  Secretary or an Assistant  Secretary  under its corporate
seal. Each such signature upon the Warrant  Certificates may be in the form of a
facsimile  signature  of the present or any future  President,  Vice  President,
Secretary or Assistant Secretary and may be imprinted or otherwise reproduced on
the Warrant  Certificates and for that purpose the Company may adopt and use the
facsimile signature of any person who shall have been President, Vice President,
Secretary or Assistant Secretary,  notwithstanding the fact that at the time the

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Warrant  Certificates  shall be countersigned and delivered or disposed of, such
person shall have ceased to hold such office.  The seal of the Company may be in
the form of a facsimile  thereof and may be  impressed,  affixed,  imprinted  or
otherwise reproduced on the Warrant Certificates.

         In case any  officer of the  Company  who shall have  signed any of the
Warrant  Certificates  shall  cease  to  be  such  officer  before  the  Warrant
Certificates so signed shall have been disposed of by the Company,  such Warrant
Certificates  nevertheless may be countersigned  and delivered or disposed of as
though such  person had not ceased to be such  officer of the  Company;  and any
Warrant Certificate may be signed on behalf of the Company by any person who, at
the actual date of the execution of such Warrant Certificate,  shall be a proper
officer of the Company to sign such Warrant Certificate, although at the date of
the execution of this Warrant Agreement any such person was not such officer.

         Section 4.  Registration.  The Company  shall  number and  register the
Warrant Certificates in a register as they are issued by the Company.

         The  Company may deem and treat the person in whose name any Warrant is
registered as the absolute owner(s) thereof,  for all purposes,  and the Company
shall not be affected by any notice to the contrary.

         Section 5.        Registration of Transfers and Exchanges.
                           ---------------------------------------

         (a) Transfer and Exchange of Warrants.  When  Warrants are presented to
the  Company  with a request to register  their  transfer;  or to exchange  such
Warrants for an equal number of Warrants of other authorized denominations,  the
Company  shall  register  the  transfer or make the exchange as requested if the
Warrants presented or surrendered for registration of transfer or exchange shall
be duly endorsed or  accompanied  by a written  instruction  of transfer in form
satisfactory  to the  Company,  duly  executed  by the Holder  thereof or by his
attorney-in-fact, duly authorized in writing.

         (b)      Legends.
                  -------

                  Each Warrant  Certificate (and all Warrants issued in exchange
         therefor or substitution thereof) and each certificate representing the
         Warrant Shares shall bear a legend in substantially the following form:

         "THE  SECURITY (OR ITS  PREDECESSOR)  EVIDENCED  HEREBY WAS  ORIGINALLY
         ISSUED IN A  TRANSACTION  EXEMPT  FROM  REGISTRATION  UNDER THE  UNITED
         STATES SECURITIES ACT OF 1933 (THE "SECURITIES  ACT"), AND THE SECURITY
         EVIDENCED HEREBY AND THE SECURITIES DELIVERED UPON EXERCISE THEREOF MAY
         NOT BE EXERCISED, OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
         OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.

<PAGE>

         (c)    Obligations With Respect to Transfers and Exchanges of Warrants.
                ---------------------------------------------------------------

                  (i) To permit  registrations  of transfers and exchanges,  the
         Company shall execute in  accordance  with the  provisions of Section 4
         and this Section 5, Warrants as required  pursuant to the provisions of
         this  Section 5.  Notwithstanding  anything to the  contrary  contained
         herein,  the  Company  shall  refuse to  register  any  transfer of the
         Warrants not made in accordance with Regulation S promulgated under the
         Securities Act,  pursuant to  registration  under the Securities Act or
         pursuant to an available  exemption from the registration  requirements
         of the  Securities  Act;  provided,  however,  that  if a  foreign  law
         prevents the Company from  refusing to register  securities  transfers,
         the Company  shall  implement  other  reasonable  measures  designed to
         prevent   transfers  of  the  Warrants  not  made  in  accordance  with
         Regulation  S, pursuant to  registration  under the  Securities  Act or
         pursuant to an available  exemption from the registration  requirements
         of the Securities Act.

                  (ii) All Warrants issued upon any  registration of transfer or
         exchange of Warrants  shall be the valid  obligations  of the  Company,
         entitled to the same  benefits  under this  Warrant  Agreement,  as the
         Warrants surrendered upon such registration of transfer or exchange.

                  (iii) Prior to due presentment for registration of transfer of
         any  Warrant,  the  Company may deem and treat the person in whose name
         any Warrant is registered as the absolute owner of such Warrant and the
         Company shall not be affected by notice to the contrary.

                  (iv) No  service  charge  shall  be made to a  Holder  for any
         registration of transfer or exchange.

         Section 6. Terms of  Warrants;  Exercise  of  Warrants.  Subject to the
terms of this  Agreement,  each  Holder  shall  have  the  right,  which  may be
exercised at any time and from time to time, in whole or in part,  commencing on
the  date  hereof  and  ending  at 4:00  p.m.,  Central  Standard  Time,  on the
Expiration  Date,  to  receive  from the  Company  the  number of fully paid and
nonassessable  Warrant  Shares  which the Holder may at the time be  entitled to
receive on exercise of such  Warrants and payment of the Exercise  Price then in
effect for such  Warrant  Shares.  Subject to the  provisions  of the  following
paragraph  of this  Section 6, each  Warrant not  exercised  prior to 4:00 p.m.,
Central  Standard Time, on the Expiration  Date shall become void and all rights
thereunder and all rights in respect thereof under this Agreement shall cease as
of such time. No  adjustments  as to dividends will be made upon exercise of the
Warrants.

         The Company  shall use its  reasonable  efforts to give notice not less
than 90, and not more than 120, days prior to the Expiration Date to the Holders
of all then outstanding  Warrants to the effect that the Warrants will terminate
and become void as of 4:00 p.m.,  Central Standard Time, on the Expiration Date.
Notwithstanding  the Company's failure to give such notice,  the Expiration Date
shall not be extended  and, in no event will  Holders be entitled to any damages
or other remedy for the Company's failure to give such notice.

<PAGE>

         A  Warrant  may be  exercised  upon  surrender  to the  Company  of the
certificate or certificates evidencing the Warrant to be exercised with the form
of election to purchase on the reverse  thereof  properly  completed and signed,
and upon  payment to the  Company of the  Exercise  Price as  adjusted as herein
provided,  for each of the Warrant  Shares in respect of which such Warrants are
then exercised. Payment of the aggregate Exercise Price shall be made in cash or
by certified or official bank check, payable to the order of the Company. In the
alternative,  each Holder may exercise its right to receive  Warrant Shares on a
net basis, such that without the exchange of any funds, the Holder receives that
number of Warrant Shares  otherwise  issuable upon exercise of its Warrants less
that number of Warrant Shares  determined  from the application of the following
formula:  exercise price divided by current market price multiplied by the total
number of warrant  shares  available.  For purposes of the  foregoing  sentence,
"current  market  value"  of  the  Warrant  Shares  shall  be as  determined  in
accordance  with Section  11(c)  hereof.  The Company shall notify the Holder in
writing of any such determination of current market value.

         Subject  to the  provisions  of  Section 7 hereof,  upon  surrender  of
Warrants and payment of the Exercise Price as provided above,  the Company shall
promptly  transfer to the Holder of such Warrant a certificate  or  certificates
for the  appropriate  number of Warrant  Shares or other  securities or property
(including  any money) to which the Holder is entitled,  registered or otherwise
placed in, or payable to the order of,  such name or names as may be directed in
writing by the  Holder,  and shall  deliver  such  certificate  or  certificates
representing the Warrant Shares and any other securities or property  (including
any money) to the person or persons entitled to receive the same,  together with
an amount in cash in lieu of any  fraction of a share as provided in Section 13.
Any such  certificate or certificates  representing  the Warrant Shares shall be
deemed to have been  issued and any  person so  designated  to be named  therein
shall be deemed to have become a Holder of record of such  Warrant  Shares as of
the later of the date of the  surrender  of such  Warrants  and  payment  of the
Exercise Price.

         The Warrants shall be exercisable  commencing on the Issue Date, at the
election  of the  Holders  thereof,  either in full or from time to time in part
and, in the event that a certificate evidencing Warrants is exercised in respect
of fewer than all of the Warrant  Shares  issuable on such  exercise at any time
prior to the date of expiration of the Warrants,  a new  certificate  evidencing
the remaining  Warrant or Warrants will be issued and delivered  pursuant to the
provisions of this Section and of Section 3 hereof.

         All Warrant Certificates surrendered upon exercise of Warrants shall be
canceled.  Such  canceled  Warrant  Certificates  shall then be  disposed  of in
accordance with customary procedures.

         Section 7. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any,  attributable to the issuance of the Warrant  Certificates or the
initial  issuance of Warrant  Shares upon the  exercise of  Warrants;  provided,
however,  that the  Company  shall not be required to pay any tax or taxes which
may be  payable  in  respect  of any  transfer  involved  in  the  issue  of any
certificates  for  Warrant  Shares in a name  other than that of the Holder of a
Warrant Certificate surrendered upon the exercise of a Warrant.

         Section 8. Mutilated or Missing  Warrant  Certificates.  In case any of
the Warrant  Certificates  shall be mutilated,  lost,  stolen or destroyed,  the
Company may in its discretion  issue in exchange and  substitution  for and upon

<PAGE>

cancellation  of  the  mutilated  Warrant   Certificate,   or  in  lieu  of  and
substitution  for the  Warrant  Certificate  lost,  stolen or  destroyed,  a new
Warrant  Certificate  of like tenor and  representing  an  equivalent  number of
Warrants,  but only upon  receipt of  evidence  reasonably  satisfactory  to the
Company of such loss,  theft or destruction of such Warrant  Certificate and, if
requested,  indemnity  reasonably  satisfactory  to  them.  Applicants  for such
substitute  Warrant  Certificates  shall also comply with such other  reasonable
regulations and pay such other reasonable charges as the Company may prescribe.

         Section 9. Reservation of Warrant Shares. The Company will at all times
reserve  and  keep  available,  free  from  any  preemptive  rights,  out of the
aggregate of its  authorized  but unissued  Common Stock or its  authorized  and
issued  Common  Stock held in its  treasury,  for the  purpose of enabling it to
satisfy any  obligation to issue Warrant  Shares upon exercise of Warrants,  the
maximum number of shares of Common Stock which may then be deliverable  upon the
exercise of all outstanding Warrants.

         The  transfer  agent for the Common  Stock (the  "Transfer  Agent") and
every  subsequent  transfer agent for any shares of the Company's  capital stock
issuable  upon the exercise of any of the rights of purchase  aforesaid  will be
irrevocably  authorized  and  directed  at all times to reserve  such  number of
authorized shares as shall be required for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent and with every subsequent
transfer  agent for any shares of the Company's  capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Company will
supply such Transfer Agent with duly executed certificates for such purposes and
will  provide  or  otherwise  make  available  any cash  which may be payable as
provided in Section 13. The Company will furnish such  Transfer  Agent a copy of
all notices of adjustments and certificates related thereto, transmitted to each
Holder of the Warrants pursuant to Section 14 hereof.

         Before  taking any action which would cause an  adjustment  pursuant to
Section 11 hereof that would reduce the Exercise  Price below the then par value
(if any) of the Warrant Shares, the Company will take any corporate action which
may, in the opinion of its  counsel,  be necessary in order that the Company may
validly and legally  issue fully paid and  nonassessable  Warrant  Shares at the
Exercise Price as so adjusted.

         The Company  covenants that all Warrant Shares which may be issued upon
exercise of Warrants in accordance  with the terms of this Agreement  (including
the payment of the Exercise Price) will, upon issue, be duly and validly issued,
fully paid, nonassessable, and free of preemptive rights and Liens.

         Section 10.       Intentionally omitted.

         Section 11.  Adjustment of Exercise  Price and Number of Warrant Shares
Issuable.  The  number  and kind of  shares  purchasable  upon the  exercise  of
Warrants and the Exercise Price shall be subject to adjustment from time to time
(as set forth in the notices required by Section 14 hereof) as follows:

         (a)  Stock  Splits,  Combinations,  etc.  In  case  the  Company  shall
hereafter  (A) pay a dividend  or make a  distribution  on its  Common  Stock in
shares of its capital stock (whether  shares of Common Stock or of capital stock
of any other class),  (B) subdivide its outstanding  shares of Common Stock, (C)

<PAGE>

combine its outstanding  shares of Common Stock into a smaller number of shares,
or (D) issue by  reclassification  of its  shares of Common  Stock any shares of
capital  stock of the Company,  the  Exercise  Price in effect and the number of
Warrant Shares issuable upon exercise of each Warrant  immediately prior to such
action shall be adjusted so that the Holder of any Warrant thereafter  exercised
shall be  entitled  to  receive  the  number of shares of  capital  stock of the
Company which such Holder would have owned immediately following such action had
such Warrant been  exercised  immediately  prior thereto.  Any  adjustment  made
pursuant to this paragraph shall become effective  immediately  after the record
date in the case of a dividend and shall become effective  immediately after the
effective  date in the case of a subdivision,  combination or  reclassification.
If, as a result of an adjustment made pursuant to this paragraph,  the Holder of
any Warrant thereafter  exercised shall become entitled to receive shares of two
or more classes of capital  stock of the Company,  the Board of Directors of the
Company  (whose  determination  shall be  conclusive  and  evidenced  by a Board
resolution)  shall  determine  the  allocation  of the adjusted  Exercise  Price
between or among shares of such classes of capital stock.

         (b)  Reclassification,  Combinations,  Mergers,  etc.  In  case  of any
reclassification  or change of outstanding  shares of Common Stock issuable upon
exercise of the  Warrants  (other than as set forth in  paragraph  (a) above and
other than a change in par value,  or from par value to no par value, or from no
par value to par value or as a result of a subdivision  or  combination),  or in
case of any  consolidation  or  merger  of the  Company  with  or  into  another
corporation  (other  than a  merger  in  which  the  Company  is the  continuing
corporation and which does not result in any  reclassification  or change of the
then  outstanding  shares of Common Stock or other capital  stock  issuable upon
exercise  of the  Warrants)  or in case of any  sale or  conveyance  to  another
corporation of all or substantially all of the assets of the Company, then, as a
condition  of such  reclassification,  change,  consolidation,  merger,  sale or
conveyance,  the Company or such a successor or purchasing  corporation,  as the
case may be,  shall  forthwith  make lawful and adequate  provision  whereby the
Holder of each  Warrant  then  outstanding  shall have the right  thereafter  to
receive on exercise  of such  Warrant the kind and amount of shares of stock and
other  securities and property  receivable upon such  reclassification,  change,
consolidation, merger, sale or conveyance by a Holder of the number of shares of
Common Stock  issuable upon exercise of such Warrant  immediately  prior to such
reclassification,  change,  consolidation,  merger, sale or conveyance and enter
into a  supplemental  warrant  agreement so  providing.  Such  provisions  shall
include  provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 11. If the issuer of
securities  deliverable upon exercise of Warrants under the supplemental warrant
agreement is an affiliate of the formed,  surviving or  transferee  corporation,
that issuer shall join in the supplemental warrant agreement.  The Company shall
not  effect  any  such  reclassification,   consolidation,  merger,  conveyance,
transfer,  dissolution,  liquidation or winding up or change of control  unless,
prior to the consummation  thereof, the successor corporation (if other than the
Company)   resulting   from  such   reclassification,   consolidation,   merger,
conveyance,  transfer,  dissolution,  liquidation  or  winding  up or  change of
control,  shall  assume,  by written  instrument  executed and  delivered to the
Holder, the obligation to deliver to the Holder such shares of stock, securities
or assets, which, in accordance with the foregoing provisions, such Holder shall
be  entitled to  purchase.  The above  provisions  of this  paragraph  (b) shall
similarly apply to successive  reclassifications and changes of shares of Common
Stock and to successive consolidations, mergers, sales or conveyances.

<PAGE>

         (c) Current Market Price. For the purpose of any computation of current
market price under this Agreement,  the current market price per share of Common
Stock at any date shall be the daily  closing price the last full trading day on
the exchange or market specified in the second succeeding  sentence prior to the
Time of Determination  (as defined below).  The term "Time of  Determination" as
used  herein  shall be the time and date of the earlier to occur of (A) the date
as of which the current  market  price is to be  computed  and (B) the last full
trading day on such exchange or market before the  commencement of "ex-dividend"
trading in the Common Stock  relating to the event giving rise to the adjustment
required by paragraph  (a) or (b) above.  The closing price for any day shall be
the last reported sale price regular way or, in case no such reported sale takes
place on such day, the average of the closing bid and asked  prices  regular way
for such day, in each case (1) on the principal national  securities exchange on
which the shares of Common Stock are listed or to which such shares are admitted
to trading or (2) if the Common  Stock is not listed or admitted to trading on a
national  securities  exchange,  in the  over-the-counter  market as reported by
Nasdaq  National  or  SmallCap  Markets or any  comparable  system or (3) if the
Common  Stock  is not  listed  on  Nasdaq  National  or  SmallCap  Markets  or a
comparable  system but a public market for the Common Stock exists, as furnished
by two members of the NASD selected from time to time in good faith by the Board
of  Directors  of the  Company  for that  purpose.  In the absence of all of the
foregoing,  or if for any other reason the current market price per share cannot
be determined  pursuant to the foregoing  provisions of this  paragraph (c), the
current  market  price per  share  shall be the fair  market  value  thereof  as
determined  in good faith by the Board of Directors of the Company and evidenced
by a resolution of such Board, subject to the following dispute resolution right
of the Holders of the  Warrants.  In the event that Holders of a majority of the
Warrants dispute the determination of the Board of Directors, such Holders shall
notify the  Company  and the  current  market  price  shall be  determined  in a
reasonably prompt manner as follows:

         (1) The Company and  Holders of a majority of the  Warrants  shall each
         appoint  an  independent,  experienced  appraiser  who is a member of a
         recognized  professional  association of business  appraisers.  The two
         appraisers  shall  determine the value of shares of Common Stock at the
         relevant  date,  assuming a sale between a willing  buyer and a willing
         seller,  both of whom have full  knowledge of the  financial  and other
         affairs of the Company,  and neither of whom is under any compulsion to
         sell or to buy.

         (2) If the higher of the two  appraisals is not more than 20% more than
         the lower of the  appraisals,  the current market price per share shall
         be the  average  of  the  two  appraisals.  If the  higher  of the  two
         appraisals is 20% or more than the lower of the two appraisals,  then a
         third appraiser  shall be appointed by the two appraisers,  and if they
         cannot agree on a third appraiser, the American Arbitration Association
         shall appoint the third appraiser.  The third appraiser,  regardless of
         who  appoints  him or her,  shall have the same  qualifications  as the
         first two appraisers.

         (3) The current  market  price per share after the  appointment  of the
         third  appraiser  shall be the average of the two  appraisals  that are
         closest in value to each other.

         (4) The fees and expenses of the  appraisers  shall be paid one-half by
         the Company and one-half by the Holders.

<PAGE>

         (d)  Consideration  Received.  If any shares of Common  Stock  shall be
issued,  sold or distributed for a consideration  other than cash, the amount of
the  consideration  other than cash  received by the Company in respect  thereof
shall be deemed to be the then current  market value of such  consideration  (as
determined in accordance with Section 11(c) hereof).

         (e)  Deferral of Certain  Adjustments.  No  adjustment  to the Exercise
Price (including the related  adjustment to the number of shares of Common Stock
purchasable  upon the  exercise of each  Warrant)  shall be  required  hereunder
unless such  adjustment,  together  with other  adjustments  carried  forward as
provided below,  would result in an increase or decrease of at least one percent
of the Exercise  Price;  provided that any  adjustments  which by reason of this
paragraph  (e) are not  required  to be made shall be carried  forward and taken
into account in any  subsequent  adjustment.  No  adjustment  need be made for a
change in the par value of the Common Stock. All calculations under this Section
11(e) shall be made to the nearest  1/1,000 of one cent or to the nearest 1/1000
of a share, as the case may be.

         (f) Other Adjustments. In the event that at any time, as a result of an
adjustment  made pursuant to this Section 11, the Holders shall become  entitled
to receive  any  securities  of the Company  other than shares of Common  Stock,
thereafter  the number of such other  securities so receivable  upon exercise of
the Warrants and the Exercise Price applicable to such exercise shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable  to the  provisions  with  respect  to the  shares of  Common  Stock
contained in this Section 11.

         Section 12.  Statement on Warrants.  Irrespective  of any adjustment in
the number or kind of shares  issuable  upon the exercise of the Warrants or the
Exercise  Price,  Warrants  theretofore  or  thereafter  issued may  continue to
express  the same  number  and kind of  shares  as are  stated  in the  Warrants
initially issuable pursuant to this Agreement.

         Section 13. Fractional  Interest.  The Company shall not be required to
issue  fractional  shares of Common Stock on the  exercise of Warrants.  If more
than one Warrant shall be presented for exercise in full at the same time by the
same  Holder,  the number of full shares of Common Stock which shall be issuable
upon such  exercise  shall be computed on the basis of the  aggregate  number of
shares of Common Stock  acquirable on exercise of the Warrants so presented.  If
any fraction of a share of Common Stock would, except for the provisions of this
Section  13, be issuable on the  exercise of any Warrant (or  specified  portion
thereof),  the Company shall direct the Transfer  Agent to pay an amount in cash
calculated by it equal to (i) the then current market price per share multiplied
by such fraction  computed to the nearest whole cent,  less (ii) an amount equal
to the Exercise Price multiplied by such fraction  computed to the nearest whole
cent. The Holders,  by their acceptance of the Warrant  Certificates,  expressly
waive any and all rights to receive any fraction of a share of Common Stock or a
stock certificate representing a fraction of a share of Common Stock.

         Section 14.  Notices to Holders.  Upon any  adjustment  of the Exercise
Price pursuant to Section 11, the Company shall promptly  thereafter cause to be
given to each of the registered  Holders by first-class mail, postage prepaid, a
certificate executed by the Chief Financial Officer of the Company setting forth
the Exercise Price after such adjustment and setting forth in reasonable  detail
the method of calculation and the facts upon which such  calculations  are based
and setting  forth the number of Warrant  Shares (or portion  thereof)  issuable

<PAGE>

after such  adjustment  in the Exercise  Price,  upon  exercise of a Warrant and
payment of the adjusted  Exercise Price,  which  certificate shall be conclusive
evidence,  absent  manifest  error,  of the correctness of the matters set forth
therein.

         In case:

                  (a) the Company shall authorize the issuance to all holders of
         shares of Common Stock of rights,  options or warrants to subscribe for
         or purchase shares of Common Stock or of any other subscription  rights
         or warrants; or

                  (b)  the  Company  shall  authorize  the  distribution  to all
         holders of shares of Common Stock of evidences of its  indebtedness  or
         assets (other than cash dividends or cash distributions  payable out of
         consolidated  earnings or earned surplus or dividends payable in shares
         of Common Stock or distributions referred to in Section 11 hereof); or

                  (c) of any  consolidation  or merger to which the Company is a
         party for which approval of any shareholders of the Company is required
         and  following  which  the  shareholders  of the  Company  before  such
         consolidation  or merger no longer hold at least 50% of the outstanding
         capital stock of the Company following the merger or consolidation,  or
         of the  conveyance  or  transfer  of all  or  substantially  all of the
         properties  and assets of the Company,  or of any  reclassification  or
         change of Common Stock  issuable upon  exercise of the Warrants  (other
         than a change in par value,  or from par value to no par value, or from
         no  par  value  to  par  value,  or as a  result  of a  subdivision  or
         combination),  or a tender offer or exchange offer for shares of Common
         Stock, or other  transaction  that would result in a change in control;
         or

                  (d) of the voluntary or involuntary  dissolution,  liquidation
         or winding up of the Company; or

                  (e) the Company  proposes to take any other  action that would
         require an  adjustment  of the Exercise  Price or the number of Warrant
         Shares pursuant to Section 11; then the Company shall cause to be given
         to each of the  registered  Holders of the  Warrants  at such  Holder's
         address  appearing on the Warrant  register,  at least 10 days prior to
         the applicable  record date hereinafter  specified,  or promptly in the
         case of events for which there is no record date, by first-class  mail,
         postage prepaid,  a written notice stating (i) the date as of which the
         holders of record of shares of Common  Stock to be  entitled to receive
         any  such  rights,   options,   warrants  or  distribution  are  to  be
         determined, or (ii) the initial expiration date set forth in any tender
         offer or exchange  offer for shares of Common Stock,  or (iii) the date
         on which any such reclassification,  consolidation, merger, conveyance,
         transfer,  dissolution,  liquidation or winding up or change of control
         is  expected to become  effective  or  consummated,  and the date as of
         which it is expected  that  holders of record of shares of Common Stock
         shall be  entitled  to exchange  such  shares for  securities  or other
         property,    if   any,   deliverable   upon   such    reclassification,
         consolidation,  merger, conveyance, transfer, dissolution,  liquidation
         or  winding  up or change of  control.  The  failure to give the notice
         required by this Section 14 or any defect  therein shall not affect the
         legality or  validity  of any  distribution,  right,  option,  warrant,
         consolidation,  merger, conveyance, transfer, dissolution,  liquidation
         or  winding  up,  or  change of  control  or the vote upon any  action.
         Nothing   contained  in  this  Agreement  or  in  any  of  the  Warrant
         Certificates  shall be construed as conferring upon the Holders thereof

<PAGE>

         the right to vote or to consent or to receive notice as shareholders in
         respect of the meetings of shareholders or the election of Directors of
         the  Company  or  any  other  matter,   or  any  rights  whatsoever  as
         shareholders of the Company.

         Section 15.       Intentionally omitted.

         Section 16.       Intentionally omitted.

         Section 17. Notices to Company. Any notice or demand authorized by this
Agreement to be given or made by the Holder of any Warrants to or on the Company
shall  be  sufficiently  given  or  made  when  and if  deposited  in the  mail,
first-class  or certified,  postage  prepaid,  or delivered via Federal  Express
overnight  delivery or by facsimile (with  confirmation  of receipt),  addressed
(until another address is filed in writing by the Company), as follows:

                  Cryocon, Inc.
                  2250 North 1500 West
                  Ogden, Utah 84404
                  Attn:  James Retallick

         Any notice pursuant to this Agreement to be given by the Company to the
Holder  shall  be  sufficiently  given  when  and  if  deposited  in  the  mail,
first-class  or certified,  postage  prepaid,  or delivered via Federal  Express
overnight  delivery or by facsimile (with  confirmation  of receipt),  addressed
(until another address is filed in writing with the Company) to:

                  J. BRIAN MORRISON
                  15 Fontenay Circle
                  Little Rock, AR  72223

         Section 18. Supplements and Amendments. The Company and Holder may from
time to time  supplement  or amend this  Agreement  without the  approval of any
Holders of Warrants in order to cure any  ambiguity or to correct or  supplement
any provision  contained herein which may be defective or inconsistent  with any
other provision  herein, or to make any other provisions in regard to matters or
questions  arising  hereunder which the Company and Holder may deem necessary or
desirable and which shall not in any way  adversely  affect the interests of the
Holders of Warrants.  Any amendment or supplement to this  Agreement  that has a
material  adverse  effect on the  interests of Holders shall require the written
consent of Holders  representing  a majority  of the then  outstanding  Warrants
(excluding  Warrants  held by the Company or any of its  Affiliates);  provided,
however, that the consent of each Holder of a Warrant affected shall be required
for any amendment pursuant to which the Exercise Price would be increased or the
number  of  Warrant  Shares  purchasable  upon  exercise  of  Warrants  would be
decreased  (other  than  pursuant  to  adjustments  provided  for in  Section 11
hereof).  Holder  shall be entitled to receive and shall be fully  protected  in
relying  upon an  officer's  certificate  and  opinion of counsel as  conclusive
evidence  that any such  amendment  or  supplement  is  authorized  or permitted
hereunder,  that it does or does not,  as the case may be,  require  the written
consent  of  Holders  to be  effective  hereunder,  that it is not  inconsistent
herewith,  and that it will be valid and binding upon the Company in  accordance
with its terms.

<PAGE>

         Section  19.  Successors.  All the  covenants  and  provisions  of this
Agreement  by or for the  benefit  of the  Company  shall  bind and inure to the
benefit of its respective successors and assigns hereunder.

         Section  20.  Termination.  This  Agreement  (other  than  any  party's
obligations  with respect to Warrants  previously  exercised and with respect to
indemnification)  shall  terminate at 4:00 p.m.,  Central  Standard  Time on the
Expiration Date.

         Section 21. Governing Law. THIS AGREEMENT AND EACH WARRANT  CERTIFICATE
ISSUED  HEREUNDER  SHALL BE DEEMED TO BE A  CONTRACT  MADE UNDER THE LAWS OF THE
STATE OF UTAH AND FOR ALL PURPOSES  SHALL BE CONSTRUED  IN  ACCORDANCE  WITH THE
INTERNAL  LAWS OF SAID STATE,  WITHOUT  GIVING  EFFECT TO THE  CONFLICTS OF LAWS
PRINCIPLES THEREOF.

         Section 22.       Benefits of This Agreement.
                           --------------------------

         (a) Nothing in this Agreement  shall be construed to give to any person
other than the Company  and the Holder of the  Warrants  any legal or  equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and  exclusive  benefit of the Company and the Holder of the Warrants  from
time to time.

         (b) Prior to the exercise of the Warrants,  no Holder of a Warrants, as
such, shall be entitled to any rights of a stockholder of a Company,  including,
without limitation,  the right to receive dividends or subscription  rights, the
right to vote,  to consent,  to exercise any  preemptive  right,  to receive any
notice of or to  participate  in meetings of  stockholders  for the  election of
directors  of the  Company or any other  matter or to receive  any notice of any
proceedings of the Company, except as may be specifically and expressly provided
for herein.  The Holders of the Warrants are not entitled to share in the assets
of the Company in the event of the liquidation, dissolution or winding up of the
Company's affairs.

         (c) All rights of action in respect of this Agreement are vested in the
Holders of the Warrants,  and any Holder of any Warrant,  without the consent of
the Holder of any other  Warrant,  may, on such Holder's own behalf and for such
Holder's own benefit,  enforce,  and may institute and maintain any suit, action
or proceeding  against the Company suitable to enforce,  or otherwise in respect
of, such Holder's rights hereunder, including the right to exercise, exchange or
surrender  for purchase such  Holder's  Warrants in the manner  provided in this
Agreement.

         Section 23.  Representations and Warranties of the Company. The Company
represents and warrants to the Holder as follows:

         (a)  Due  Issuance  and  Authorization  of  Capital  Stock.  All of the
outstanding shares of capital stock of the Company have been validly issued, are
fully paid and nonassessable  and, except as set forth in Schedule 23(b) hereto,
are free from preemptive rights.

         (b)  Organization.  The Company (i) is a  corporation  duly  organized,
validly  existing and in good standing  under the laws of the State of Colorado,
(ii) is duly  qualified to do business as a foreign  corporation  and is in good

<PAGE>

standing in each  jurisdiction  where the nature of the property owned or leased
by it or the nature of the  business  conducted  by it makes such  qualification
necessary,  and (iii) has all requisite  corporate power and authority to own or
lease and  operate  its  assets and carry on its  business  as  presently  being
conducted.

         (c) Consents.  Neither the  execution,  delivery or performance of this
Agreement by the Company,  nor the  consummation  by it of the  obligations  and
transactions contemplated hereby (including,  without limitation,  the issuance,
the reservation  for issuance and the delivery of the Warrant  Shares)  requires
any consent of,  authorization  by, exemption from, filing with or notice to any
governmental authority or any other person.

         (d) Authorization; Enforcement. The Company has all requisite corporate
power  and  has  taken  all  necessary  corporate  action  required  for the due
authorization,  execution,  delivery  and  performance  by the  Company  of this
Agreement and to consummate the  transactions  contemplated  hereby  (including,
without limitation, the issuance of the Warrant Shares). The execution, delivery
and  performance  by the Company of this Agreement and the  consummation  by the
Company of the  transactions  contemplated  hereby and  thereby,  have been duly
authorized by all necessary  corporate  action on the part of the Company.  This
Agreement has been duly executed and delivered by the Company and  constitutes a
valid and binding obligation of the Company enforceable against it in accordance
with its terms.

         (e) No  Conflicts.  The  execution,  delivery and  performance,  by the
Company of this Agreement and the consummation of the transactions  contemplated
hereby (including, without limitation, the issuance and reservation for issuance
of the Warrant  Shares) by the Company will not (i) result in a violation of the
Certificate  of  Incorporation  or By-Laws,  (ii) conflict with or result in the
material  breach of the terms,  conditions  or  provisions  of or  constitute  a
default (or an event  which with notice or lapse of time or both would  become a
default)  under,  or give  rise to any  right of  termination,  acceleration  or
cancellation under, any material agreement, lease, mortgage, license, indenture,
instrument or other contract to which the Company or any of its  Subsidiaries is
a party,  (iii)  result in a  violation  of any law,  rule,  regulation,  order,
judgment  or decree  (including,  without  limitation,  U.S.  federal  and state
securities  laws  and  regulations)  applicable  to  the  Company  or any of its
Subsidiaries  or by which any property or asset of the Company or any Subsidiary
is bound or affected,  or (iv) result in the creation of any lien or encumbrance
upon any of their assets.

         Section  24.  Representations  and  Warranties  of the  Holder.  Holder
represents and warrants to the Company as follows:

         (a)  Corporate  Existence.  The  Holder  is an entity  duly  organized,
validly  existing and in good  standing  under the laws of its  jurisdiction  of
incorporation.

         (b)  Acknowledgment  of Risks.  The Holder has  carefully  reviewed and
understands the risks of, and other considerations  relating to, this Agreement,
the Warrants and the Warrant Shares.

<PAGE>

         (c)  Acquisition  of Warrant  Shares.  Upon  exercise of the  Warrants,
Holder will  acquire  the Warrant  Shares for its own account or for one or more
separate  accounts  maintained  by it and without  the view to the  distribution
thereof within the meaning of the  Securities Act or with any present  intention
of  distributing  or selling the Warrant  Shares except in  compliance  with the
Securities Act.

         (d) No Registration.  The Holder  understands that (i) the Warrants and
the Warrant Shares (A) have not been registered  under the Securities Act or any
state securities laws, (B) will be issued in reliance upon an exemption from the
registration  and prospectus  delivery  requirements  of the Securities Act, (C)
will be issued in reliance upon exemptions from the  registration and prospectus
delivery  requirements of state securities laws, (ii) there is not currently any
trading  market  for the  Warrants  or the  Warrant  Shares  and there can be no
assurances  that the  Warrants  and the  Warrant  Shares  will be  listed on any
exchange or quoted on any quotation system,  and (iii) the Holder must therefore
bear the  economic  risk of such  investment  indefinitely  unless a  subsequent
disposition  thereof is registered under the Securities Act and applicable state
securities laws or is exempt therefrom. The Holder further understands that such
exemption  depends  upon,  among  other  things,  the bona  fide  nature  of the
investment intent of the Holder expressed herein. Pursuant to the foregoing, the
Holder  acknowledges  that  any  certificate  representing  any  Warrant  Shares
acquired by the Holder shall bear the  restrictive  legends set forth in Section
5(b).

         (e) Investment Experience.  The Holder, together with its advisors, has
knowledge,  skill and experience in financial,  business and investment  matters
relating to an investment  of this type and is capable of evaluating  the merits
and risks of such investment and protecting the Holder's  interest in connection
with  the  acquisition  of the  Warrants  and any  Warrant  Shares.  The  Holder
understands  that the  acquisition  of the Warrants and any Warrant  Shares is a
speculative  investment and involves substantial risks and that the Holder could
lose the Holder's entire  investment in the Warrants and any Warrant Shares.  To
the extent deemed necessary by the Holder,  the Holder has retained,  at its own
expense,  and has relied upon  appropriate  professional  advice  regarding  the
investment,  tax and legal merits and  consequences of purchasing and owning the
Warrants and any Warrant Shares. The Holder has the ability to bear the economic
risks of investment in the Company, including a complete loss of the investment,
and the Holder has no need for liquidity in such investment.

         (f)  Status  as  Accredited  Investor.  The  Holder  is an  "Accredited
Investor"  within the meaning of Rule 501 of  Regulation D,  promulgated  by the
United States Securities and Exchange Commission pursuant to the Securities Act.

         Section 25. Counterparts.  This Agreement may be executed in any number
of counterparts and each of such  counterparts  shall for all purposes be deemed
to be an original,  and all such counterparts shall together  constitute but one
and the same instrument.

         Section  26.  Superceding  Prior  Option  Agreements.   This  agreement
supercedes  a previous  agreement  between  the  parties  for the same number of
shares executed in December, 2000.

<PAGE>

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

                                     CRYOCON, INC.

                                     By:             /s/
                                              ------------------------------
                                     Name:    ROBERT W. BRUNSON
                                     Title:   President, Chief Executive Officer

                                                     /s/
                                              ---------------------------------
                                              J. BRIAN MORRISON

<PAGE>

                                                                       Exhibit A
                                                                       ---------

                           FORM OF WARRANT CERTIFICATE

THE SECURITY (OR ITS PREDECESSOR)  EVIDENCED  HEREBY WAS ORIGINALLY  ISSUED IN A
TRANSACTION  EXEMPT FROM REGISTRATION  UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES  ACT"), AND THE SECURITY  EVIDENCED HEREBY AND
THE SECURITIES  DELIVERED UPON EXERCISE  THEREOF MAY NOT BE EXERCISED,  OFFERED,
SOLD  OR  OTHERWISE  TRANSFERRED  IN THE  ABSENCE  OF  SUCH  REGISTRATION  OR AN
APPLICABLE EXEMPTION THEREFROM.

500,000 Shares of Common Stock                       Warrant Certificate No. 001

                               WARRANT CERTIFICATE
                       For the Purchase of Common Stock of
                                  CRYOCON, INC.

         1.  Certificate.  THIS IS TO  CERTIFY  THAT J. Brian  Morrison,  or its
registered assigns ("Holder"),  is entitled to exercise this Warrant Certificate
to purchase from Cryocon,  Inc., a Colorado  corporation (the  "Company"),  FIVE
HUNDRED  THOUSAND  (500,000)  shares of common stock, no par value per share, of
the Company (the "Common  Stock"),  all on the terms and conditions and pursuant
to the provisions  hereinafter set forth.  This Warrant  Certificate is executed
pursuant to the terms of that certain  Warrant  Agreement of even date  herewith
(the "Agreement")  between the Company and the Holder. Any capitalized terms not
defined herein will have the meanings set forth in the Agreement.

         2. Exercise  Price.  The exercise price to be paid upon the exercise of
the warrants in accordance  with the terms of the  Agreement,  in the aggregate,
shall  initially be $0.10 (the  "Exercise  Price").  Such Exercise Price and the
number  of shares of  Common  Stock  into  which  this  Warrant  Certificate  is
exercisable  are  subject to  adjustment  from time to time as  provided  in the
Agreement.

         3. Exercise.  This Warrant Certificate may be exercised, in whole or in
part,  at any time or from time to time on or after the date  hereof;  provided,
however,  that this Warrant Certificate shall be void and all rights represented
hereby shall cease unless  exercised in full on or before December 31, 2005 (the
"Expiration Date").

         In order to exercise this Warrant Certificate, in whole or in part, the
Holder hereof shall deliver to the Company at its principal  office,  or at such
other office as shall be designated by the Company pursuant to the Agreement:

         (a) written  notice of  Holder's  election  to  exercise  this  Warrant
Certificate, in substantially the form of the Notice of Exercise attached hereto
as Annex A;

         (b) payment of the Exercise Price in cash or by certified check or on a
"net basis" as set forth in Section 6 of the Agreement; and

Upon receipt thereof, the Company shall promptly execute or cause to be executed
and  deliver to such  Holder a  certificate  or  certificates  representing  the
aggregate number of full shares of Common Stock issuable upon such exercise. The

<PAGE>

stock  certificate or  certificates so delivered shall be registered in the name
of such  Holder,  or such  other  name as shall  be  designated  in said  notice
(subject to any  restrictions  on transfer set forth in the  Agreement).  If the
exercise is for less than all of the shares of Common Stock issuable as provided
in the Warrant Certificate,  the Company will issue a new Warrant Certificate of
like tenor and date for the balance of such  shares  issuable  hereunder  to the
Holder.

         4.  Transfer.  This  Warrant  Certificate  and all  options  and rights
hereunder  are  transferable,  as to all or any part of the  number of shares of
Common Stock purchasable upon its exercise, in accordance with the Agreement.

         5.  Registration  Rights.  The Common  Stock  into  which this  Warrant
Certificate is exercisable is subject to registration  rights as provided in the
Registration Rights Agreement.

         6.  Successors  and Assigns.  This Warrant  Certificate  and the rights
evidenced  hereby  shall  inure  to  the  benefit  of and be  binding  upon  the
successors  and assigns of the Holder hereof and,  shall be  enforceable  by any
such Holder.

         7. Headings. Headings of the paragraphs in this Warrant Certificate are
for convenience  and reference only and shall not, for any purpose,  be deemed a
part of this Warrant Certificate.

         IN WITNESS WHEREOF,  the Company has caused this Warrant Certificate to
be duly executed and issued.

         DATED as of February 5, 2001.

                                     CRYOCON, INC.

                                     By:                /s/
                                              ------------------------------
                                     Name:    ROBERT W. BRUNSON
                                     Title:   President, Chief Executive Officer

                                     ATTEST:

                                     By:                /s/
                                              --------------------------------
                                     Name:    DEBRA L. BRUNSON
                                     Title:   Corporate Secretary

                                     CORPORATE SEAL:

<PAGE>

                                     ANNEX A
                                     -------

                           FORM OF NOTICE OF EXERCISE

     [To be signed only upon exercise of the attached Warrant Certificate]

TO CRYOCON, INC.

         The  undersigned  hereby  irrevocably  exercises  the right to purchase
_______ shares of Common Stock which the  undersigned is entitled to purchase by
the  terms of the  attached  Warrant  Certificate  according  to the  conditions
thereof, and herewith

[check one]
--       makes payment of $____________ therefor; or
--       directs  the Company to issue  ______  shares of Common  Stock,  and to
         withhold  ______  shares  of  Common  Stock in lieu of  payment  of the
         Exercise Price, as described in Section 6 of the Warrant Agreement.

         Please issue a certificate  or  certificates  for such shares of Common
Stock in the following name or names and denominations:

         If said number of shares shall not be all the shares  issuable upon the
exercise of the attached Warrant Certificate, a new Warrant Certificate is to be
issued in the name of the undersigned  for the balance  remaining of such shares
less any fraction of a share paid in cash.

Dated:  ____________________, ________

                                                --------------------------------
                                                Note: The above signature should
                                                      correspond   exactly  with
                                                      the  name  of the  face of
                                                      the    attached    Warrant
                                                      Certificate  or  with  the
                                                      name   of   the   assignee
                                                      appearing      in      the
                                                      assignment form below.

<PAGE>

                                                                       Exhibit B
                                                                       ---------

                  CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
                      REGISTRATION OF TRANSFER OF WARRANTS

Re:      _______ Warrants to Purchase Common Stock (the "Warrants") of Cryocon,
         Inc.

         This Certificate  relates to ________ Warrants held in _____ book-entry
or _____ definitive form by _______________ (the "Transferor"). The Transferor:

         [ ] has  requested the Company by written order to exchange or register
the transfer of a Warrant or Warrant(s).

         In  connection  with such request and in respect of each such  Warrant,
the  Transferor  does hereby  certify that the  Transferor  is familiar with the
Warrant Agreement relating to the above captioned Warrants and that the transfer
of each such Warrant does not require  registration  under the Securities Act of
1933 (the "Securities Act") because:

         [ ] Each  such  Warrant  is being  acquired  for the  Transferor's  own
account without transfer.

         [ ]  Each  such  Warrant  is  being  transferred  (i)  to a  "qualified
institutional  buyer" (as  defined in Rule 144A under the  Securities  Act),  in
reliance on Rule 144A or (ii)  pursuant to an  exemption  from  registration  in
accordance  with Rule 904 under the  Securities Act (and, in the case of clauses
(i) and (ii),  based on an opinion of counsel and written  certification  if the
Company so requests).

         [ ] Each such Warrant is being  transferred (i) in accordance with Rule
144 under the  Securities Act (and based on an opinion of counsel if the Company
so requests) or (ii) pursuant to an effective  registration  statement under the
Securities Act.

         [ ] Each  such  Warrant  is being  transferred  in  reliance  on and in
compliance  with another  exemption from the  registration  requirements  of the
Securities Act (and based on an opinion of counsel if the Company so requests).

                                        [INSERT NAME OF TRANSFEROR]

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

Date:
       --------------------LOAN AND SECURITY AGREEMENT

                            FLEET RETAIL FINANCE INC.

                                    AGENT FOR
                          THE LENDERS REFERENCED HEREIN

                             HELLER FINANCIAL, INC.
                        CO-AGENT AND DOCUMENTATION AGENT

                                 PHAR-MOR, INC.

                                THE LEAD BORROWER

                                 PHAR-MOR, INC.

                               PHAR-MOR, INC. LLC
                           PHAR-MOR OF DELAWARE, INC.
                            PHAR-MOR OF FLORIDA, INC.
                             PHAR-MOR OF OHIO, INC.
                           PHAR-MOR OF VIRGINIA, INC.
                           PHAR-MOR OF WISCONSIN, INC.
                                PHARMHOUSE CORP.

                                  THE BORROWERS

                              Fleet Securities Inc.

                              THE SYNDICATION AGENT

                                November 16, 2000

<PAGE>

                                TABLE OF CONTENTS

Article 1: - DEFINITIONS:.....................................................1

Article 2: - THE REVOLVING CREDIT:...........................................28

         2-1 -ESTABLISHMENT OF  REVOLVING CREDIT.............................28

         2-2 -INITIAL RESERVES. CHANGES TO RESERVES..........................28

         2-3 -ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS)...............29

         2-4 -RISKS OF VALUE OF COLLATERAL...................................29

         2-5 -COMMITMENT TO MAKE REVOLVING CREDIT LOANS AND SUPPORT
                    LETTERS OF CREDIT........................................30

         2-6 -REVOLVING CREDIT LOAN REQUESTS.................................30

         2-7 -MAKING OF REVOLVING CREDIT LOANS...............................32

         2-8 -SWINGLINE LOANS................................................32

         2-9 -THE LOAN ACCOUNT...............................................33

         2-10 -THE REVOLVING CREDIT NOTES....................................34

         2-11 -PAYMENT OF THE LOAN ACCOUNT...................................34

         2-12 -INTEREST ON REVOLVING CREDIT LOANS............................35

         2-13 -REVOLVING CREDIT COMMITMENT FEE...............................36

         2-14 -AGENT'S FEE...................................................36

         2-15 -UNUSED LINE FEE...............................................36

         2-16 -EARLY TERMINATION FEE.........................................36

         2-17 -CONCERNING FEES...............................................36

         2-18 -AGENT'S AND REVOLVING CREDIT LENDERS' DISCRETION..............37

         2-19 -PROCEDURES FOR ISSUANCE OF L/C'S..............................38

         2-20 -FEES FOR L/C'S................................................39

         2-21 -CONCERNING L/C'S..............................................40

         2-22 -CHANGED CIRCUMSTANCES.........................................41

         2-23 -DESIGNATION OF LEAD BORROWER AS BORROWERS'  AGENT.............42

         2-24 -LENDERS' COMMITMENTS..........................................42

Article 3: - CONDITIONS PRECEDENT:...........................................44

         3-1 -CORPORATE DUE DILIGENCE........................................44

         3-2 -OPINION........................................................44

         3-3 -ADDITIONAL DOCUMENTS...........................................44

         3-4 -REPRESENTATIONS AND WARRANTIES.................................44

         3-5 -PERFECTION OF ENCUMBRANCES.....................................45

         3-6 -SATISFACTION OF EXISTING INDEBTEDNESS..........................45

         3-7 -CONSENTS AND APPROVALS.........................................45

         3-8 -NO DEFAULTS UNDER APPLICABLE LAW OR MATERIAL AGREEMENTS........45

         3-9 -NO LITIGATION..................................................45

         3-10 -ALL FEES AND EXPENSES PAID....................................45

         3-11 -NO MATERIAL ADVERSE CHANGE....................................45

         3-12 -MINIMUM DAY ONE AVAILABILITY..................................45

         3-13 -BORROWER NOT IN DEFAULT.......................................45

         3-14 -BOND INDENTURES...............................................45

         3-15 -PROJECTIONS...................................................46

         3-16 -OTHER INFORMATION.............................................46

         3-17 -NO NEGATIVE EFFECT  ON SYNDICATION............................46

         3-18 -GOVERNMENT REGULATIONS........................................46

         3-19 -BENEFIT OF CONDITIONS PRECEDENT...............................46

Article 4: - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:..............46

         4-1 -PAYMENT AND PERFORMANCE OF LIABILITIES.........................47

         4-2 -DUE ORGANIZATION. AUTHORIZATION. NO CONFLICTS..................47

         4-3 -TRADE NAMES....................................................48

         4-4 -INFRASTRUCTURE.................................................48

         4-5 -LOCATIONS......................................................49

         4-6 -TITLE TO ASSETS................................................50

         4-7 -INDEBTEDNESS...................................................50

         4-8 -INSURANCE......................................................50

         4-9 -LICENSES.......................................................51

         4-10 -LEASES........................................................51

         4-11 -REQUIREMENTS OF LAW...........................................52

         4-12 -LABOR RELATIONS...............................................52

         4-13 -MAINTAIN PROPERTIES...........................................53

         4-14 -TAXES.........................................................53

         4-15 -NO MARGIN STOCK...............................................54

         4-16 -ERISA.........................................................54

         4-17 -HAZARDOUS MATERIALS...........................................55

         4-18 -LITIGATION....................................................55

         4-19 -DIVIDENDS. INVESTMENTS. CORPORATE ACTION......................55

         4-20 -NEW BORROWERS.................................................56

         4-21 -LOANS.........................................................57

         4-22 -PROTECTION OF ASSETS..........................................57

         4-23 -LINE OF BUSINESS..............................................58

         4-24 -AFFILIATE TRANSACTIONS........................................58

         4-25 -FURTHER ASSURANCES............................................58

         4-26 -ADEQUACY OF DISCLOSURE........................................59

         4-27 -NO RESTRICTIONS ON LIABILITIES................................59

         4-28 -OTHER COVENANTS...............................................60

Article 5: FINANCIAL REPORTING AND PERFORMANCE COVENANTS:....................60

         5-1 -MAINTAIN RECORDS...............................................60

         5-2 -ACCESS TO RECORDS..............................................60

         5-3 -IMMEDIATE NOTICE TO AGENT......................................61

         5-4 -Borrowing Base Certificate.....................................62

         5-5 -MONTHLY REPORTS................................................62

         5-6 -QUARTERLY REPORTS..............................................62

         5-7 -ANNUAL REPORTS.................................................63

         5-8 -OFFICERS' CERTIFICATES.........................................63

         5-9 -INVENTORIES, APPRAISALS, AND AUDITS............................64

         5-10 -ADDITIONAL FINANCIAL INFORMATION..............................65

         5-11 -FINANCIAL PERFORMANCE COVENANTS...............................66

Article 6: - USE OF COLLATERAL:..............................................66

         6-1 -USE OF INVENTORY COLLATERAL....................................66

         6-2 -INVENTORY QUALITY..............................................66

         6-3 -ADJUSTMENTS AND ALLOWANCES.....................................67

         6-4 -VALIDITY OF ACCOUNTS...........................................67

         6-5 -NOTIFICATION TO ACCOUNT DEBTORS................................67

Article 7: - CASH MANAGEMENT. PAYMENT OF LIABILITIES:........................67

         7-1 -DEPOSITORY ACCOUNTS............................................67

         7-2 -CREDIT CARD RECEIPTS...........................................68

         7-3 -THE CONCENTRATION, BLOCKED, AND OPERATING ACCOUNTS.............68

         7-4 -PROCEEDS AND COLLECTIONS.......................................69

         7-5 -PAYMENT OF LIABILITIES.........................................70

         7-6 -THE OPERATING ACCOUNT..........................................71

Article 8: - GRANT OF SECURITY INTEREST:.....................................71

         8-1 -GRANT OF SECURITY INTEREST.....................................71

         8-2 -EXTENT AND DURATION OF SECURITY INTEREST.......................72

Article 9: - AGENT AS BORROWER'S ATTORNEY-IN-FACT:...........................72

         9-1 -APPOINTMENT AS ATTORNEY-IN-FACT................................72

         9-2 -NO OBLIGATION TO ACT...........................................73

Article 10: - EVENTS OF DEFAULT:.............................................73

         10-1 -FAILURE TO PAY THE REVOLVING CREDIT...........................73

         10-2 -FAILURE TO MAKE OTHER PAYMENTS................................73

         10-3 -FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD)....74

         10-4 -Financial Reporting Requirements..............................74

         10-5 -FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD).......74

         10-6 -MISREPRESENTATION.............................................74

         10-7 -ACCELERATION OF OTHER DEBT. BREACH OF LEASE...................74

         10-8 -DEFAULT UNDER OTHER AGREEMENTS................................75

         10-9 -UNINSURED CASUALTY LOSS.......................................75

         10-10 -ATTACHMENT. JUDGMENT. RESTRAINT OF BUSINESS..................75

         10-11 -BUSINESS FAILURE.............................................75

         10-12 -BANKRUPTCY...................................................76

         10-13 -DEFAULT BY GUARANTOR.........................................76

         10-14 -INDICTMENT - FORFEITURE......................................76

         10-15 -TERMINATION OF GUARANTY......................................76

         10-16 -CHALLENGE TO LOAN DOCUMENTS..................................76

         10-17 -CHANGE IN CONTROL............................................76

Article 11: - RIGHTS AND REMEDIES UPON DEFAULT:..............................77

         11-1 -Acceleration..................................................77

         11-2 -RIGHTS OF ENFORCEMENT.........................................77

         11-3 -SALE OF COLLATERAL............................................77

         11-4 -OCCUPATION OF BUSINESS LOCATION...............................78

         11-5 -GRANT OF NONEXCLUSIVE LICENSE.................................79

         11-6 -ASSEMBLY OF COLLATERAL........................................79

         11-7 -RIGHTS AND REMEDIES...........................................79

Article 12: - REVOLVING CREDIT FUNDINGS AND DISTRIBUTIONS:...................79

         12-1 -REVOLVING CREDIT FUNDING PROCEDURES...........................79

         12-2 -SWINGLINE LOANS...............................................80

         12-3 -AGENT'S COVERING OF FUNDINGS:.................................80

         12-4 -ORDINARY COURSE DISTRIBUTIONS.................................82

Article 13: - ACCELERATION AND LIQUIDATION:..................................83

         13-1 -ACCELERATION NOTICES..........................................83

         13-2 -ACCELERATION..................................................84

         13-3 -INITIATION OF LIQUIDATION.....................................84

         13-4 -ACTIONS AT AND  FOLLOWING INITIATION OF LIQUIDATION...........84

         13-5 -AGENT'S CONDUCT OF LIQUIDATION................................84

         13-6 -DISTRIBUTION OF LIQUIDATION PROCEEDS:.........................85

         13-7 -RELATIVE PRIORITIES TO PROCEEDS OF LIQUIDATION................85

Article 14: - THE AGENT:.....................................................86

         14-1 -APPOINTMENT OF THE AGENT......................................86

         14-2 -RESPONSIBILITIES OF AGENT.....................................86

         14-3 -CONCERNING DISTRIBUTIONS BY THE AGENT.........................87

         14-4 -DISPUTE RESOLUTION:...........................................88

         14-5 -DISTRIBUTIONS OF NOTICES AND OF DOCUMENTS.....................88

         14-6 -CONFIDENTIAL INFORMATION......................................89

         14-7 -RELIANCE BY AGENT.............................................89

         14-8 -NON-RELIANCE ON AGENT AND OTHER REVOLVING CREDIT LENDERS......89

         14-9 -INDEMNIFICATION...............................................90

         14-10 -RESIGNATION OF AGENT.........................................91

Article 15: - ACTION BY AGENTS - CONSENTS - AMENDMENTS - WAIVERS:............91

         15-1 -ADMINISTRATION OF CREDIT FACILITIES...........................91

         15-2 -   ACTIONS REQUIRING OR ON DIRECTION OF MAJORITY LENDERS......92

         15-3 -ACTIONS REQUIRING OR ON DIRECTION OF SUPERMAJORITY LENDERS....92

         15-4 -   ACTION REQUIRING CERTAIN CONSENT...........................93

         15-5 -ACTIONS REQUIRING OR DIRECTED BY UNANIMOUS CONSENT............93

         15-6 -ACTIONS REQUIRING SWINGLINE LENDER CONSENT....................94

         15-7 -ACTIONS REQUIRING AGENT'S CONSENT.............................94

         15-8 -MISCELLANEOUS ACTIONS.........................................94

         15-9 -ACTIONS REQUIRING BORROWER'S CONSENT..........................95

         15-10 -NONCONSENTING REVOLVING CREDIT LENDER........................95

Article 16: - ASSIGNMENTS BY REVOLVING CREDIT LENDERS:

         16-1 -ASSIGNMENTS AND ASSUMPTIONS:..................................96

         16-2 -ASSIGNMENT PROCEDURES.........................................97

         16-3 -EFFECT OF ASSIGNMENT..........................................98

Article 17: - NOTICES:.......................................................98

         17-1 -NOTICE ADDRESSES..............................................98

         17-2 -NOTICE GIVEN..................................................99

Article 18: - TERM:.........................................................100

         18-1 -TERMINATION OF REVOLVING CREDIT..............................100

         18-2 -ACTIONS ON TERMINATION.......................................100

Article 19: - GENERAL:......................................................100

         19-1 -PROTECTION OF COLLATERAL.....................................100

         19-2 -PUBLICITY....................................................101

         19-3 -SUCCESSORS AND ASSIGNS.......................................101

         19-4 -SEVERABILITY.................................................101

         19-5 -AMENDMENTS.  COURSE OF DEALING...............................101

         19-6 -POWER OF ATTORNEY............................................102

         19-7 -APPLICATION OF PROCEEDS......................................102

         19-8 -INCREASED COSTS..............................................102

         19-9 -COSTS AND EXPENSES OF THE AGENT..............................103

         19-10 -COPIES AND FACSIMILES.......................................104

         19-11 -MASSACHUSETTS LAW...........................................104

         19-12 -CONSENT TO JURISDICTION.....................................104

         19-13 -INDEMNIFICATION.............................................105

         19-14 -RULES OF CONSTRUCTION.......................................105

         19-15 -INTENT......................................................107

         19-16 -PARTICIPATIONS:.............................................107

         19-17 -RIGHT OF SET-OFF............................................107

         19-18 -PLEDGES TO FEDERAL RESERVE BANKS:...........................107

         19-19 -MAXIMUM INTEREST RATE.......................................108

         19-20 -EXECUTION IN COUNTERPARTS...................................108

         19-21 -WAIVERS.....................................................108

<PAGE>

                                    EXHIBITS

         2:2-8(c) :        :        SwingLine Note
         2:2-10            :        Revolving Credit Note
         2:2-24            :        Revolving Credit Lenders' Commitments
         4:4-2             :        Corporate Information
         4:4-3             :        Trade Names
         4:4-5             :        Locations, Leases, and Landlords
         4:4-6             :        Encumbrances
         4:4-6(c)(ii)      :        Equipment Usage Agreement
         4:4-7             :        Indebtedness
         4:4-8             :        Insurance Policies
         4:4-10            :        Capital Leases
         4:4-12            :        Labor Relations
         4:4-14            :        Taxes
         4:4-16(a)         :        ERISA
         4:4-17(a)         :        Hazardous Materials
         4:4-18            :        Litigation
         5:5-4             :        Borrowing Base Certificate
         5:5-5             :        Monthly Reports
         7:7-1(a) :                 DDA's.
         7:7-1(b)(ii)      :        Blocked Account Agreement
         7:7-2             :        Credit Card Arrangements
         16:16-2  :                 Assignment and Acceptance

<PAGE>

LOAN AND SECURITY AGREEMENT

                                                               November 16, 2000

         THIS AGREEMENT is made between

                   Fleet  Retail  Finance  Inc.  (in such  capacity,  herein the
         "Agent"),  a Delaware  corporation  with  offices  at 40 Broad  Street,
         Boston,  Massachusetts  02109,  as agent for the ratable benefit of the
         "Revolving  Credit  Lenders",  who are,  at  present,  those  financial
         institutions  identified on the signature  pages of this  Agreement and
         who in the future  are those  Persons  (if any) who  become  "Revolving
         Credit  Lenders" in accordance  with the provisions of Section  2:2-24,
         below;

                  and

                  The Revolving Credit Lenders;

                  and

                  Phar-Mor,  Inc. in such capacity,  ( the "Lead  Borrower"),  a
         Pennsylvania  corporation  with its principal  executive  offices at 20
         Federal Plaza West, Youngstown,  Ohio 44503, as agent for the following
         (individually, a "Borrower" and collectively, the "Borrowers"):

                  Phar-Mor,  Inc.,  a  Pennsylvania  corporation,   Phar-Mor  of
                  Florida, Inc., a Pennsylvania  corporation,  Phar-Mor of Ohio,
                  Inc.,  an Ohio  corporation,  Phar-Mor of  Virginia,  Inc.,  a
                  Virginia corporation, Phar-Mor of Wisconsin, Inc., a Wisconsin
                  corporation,   Phar-Mor   of   Delaware,   Inc.,   a  Delaware
                  corporation,   Phar-Mor,  Inc.  LLC,  a  Pennsylvania  limited
                  liability company and Pharmhouse Corp., a New York corporation

in  consideration  of the mutual  covenants  contained herein and benefits to be
derived herefrom,

                                   WITNESSETH:
Article 1:        - DEFINITIONS:

         As used herein,  the following terms have the following meanings or are

                                       1
<PAGE>

defined in the section of this Agreement so indicated:

         "1995    Indenture":  The September 11, 1995 Indenture between the Lead
                  Borrower and IBJ Schroeder Bank & Trust Company,  Trustee,  as
                  assigned  to  The  Bank  of  New  York,  as  successor  to IBJ
                  Schroeder  Bank & Trust  Company,  pursuant  to which the Lead
                  Borrower issued its 11.72% Senior Notes Due 2002.

         "Acceleration":   The  making  of  demand  or   declaration   that  any
                  indebtedness,  not  otherwise  due  and  payable,  is due  and
                  payable.  Derivations  of the  word  "Acceleration"  (such  as
                  "Accelerate") are used with like meaning in this Agreement.

         "Acceleration Notice":     Written notice as follows:
                           (a) From the Agent to the Revolving  Credit  Lenders,
                               as provided in 13:13-1(a).
                           (b) From the  SuperMajority  Lenders to the Agent, as
                               provided in Section 13:13-1(b).

         "Account Debtor": Has the meaning given that term in the UCC.

         "Accounts"  and  "Accounts  Receivable"  include,  without  limitation,
                  "accounts"  as  defined  in the UCC,  and also all:  accounts,
                  accounts  receivable,   receivables,  and  rights  to  payment
                  (whether or not earned by performance)  for: property that has
                  been  or  is  to  be  sold,  leased,  licensed,  assigned,  or
                  otherwise disposed of; services rendered or to be rendered;  a
                  policy  of  insurance  issued  or to be  issued;  a  secondary
                  obligation incurred or to be incurred;  arising out of the use
                  of a credit or charge card or information contained on or used
                  with  that  card;  and  also all  Inventory  which  gave  rise
                  thereto,  and  all  rights  associated  with  such  Inventory,
                  including  the right of stoppage in  transit;  all  reclaimed,
                  returned,  rejected or repossessed Inventory (if any) the sale
                  of which gave rise to any Account.

         "ACH":   Automated clearing house.

         "Affiliate":      The following:
                           (a) With respect to any two Persons,  a  relationship
                  in which (i) one holds, directly or indirectly,  not less than
                  twenty five  percent  (25%) of the capital  stock,  beneficial

                                       2
<PAGE>

                  interests, partnership interests, or other equity interests of
                  the other; or (ii) one has, directly or indirectly, the right,
                  under  ordinary  circumstances,  to vote for the election of a
                  majority  of the  directors  (or other  body or Person who has
                  those powers  customarily  vested in a board of directors of a
                  corporation); or (iii) not less than twenty five percent (25%)
                  of their  respective  ownership is directly or indirectly held
                  by the same third Person.
                           (b) Any Person  which:  is a parent,  brother-sister,
                  subsidiary,  of a Borrower;  could have such  enterprise's tax
                  returns  or  financial   statements   consolidated  with  that
                  Borrower's;  could be a member of the same controlled group of
                  corporations  (within the meaning of Section  1563(a)(1),  (2)
                  and (3) of the Internal  Revenue Code of 1986, as amended from
                  time to time) of which any  Borrower is a member;  or controls
                  or is controlled by any Borrower.

         "Agent": Is referred to in the Preamble.

         " Agent's  Cover":         Defined in Section 12:12-3(c)(i).

         " Agent's Fee": Is defined in Section 2:2-14.

         " Agent's Rights and Remedies":    Is defined in Section 11:11-7.

         "Applicable  Law":  As  to  any   Person:(i)   All   statutes,   rules,
                  regulations, orders, or other requirements having the force of
                  law and (ii) all court  orders and  injunctions,  arbitrator's
                  decisions,  and/or similar rulings,  in each instance ((i) and
                  (ii))  of or by  any  federal,  state,  municipal,  and  other
                  governmental  authority,  or court, tribunal,  panel, or other
                  body which has jurisdiction  over such Person, or any property
                  of such Person,  or of any other Person for whose conduct such
                  Person would be responsible.

         "Applicable Margin":  The Base Margin Loans,  Eurodollar  Loans and L/C
                  Fees  determined as of the date of this  Agreement  based upon
                  the following criteria:
<TABLE>
<CAPTION>

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

         Tier         Availability       Base Margin        Eurodollar        Documentary L/C     Standby L/C
                                         Applicable Margin  Applicable        Fees               Fees
                                                            Margin
         ----------- ------------------- ------------------ ----------------- ------------------ ----------------
         ----------- ------------------- ------------------ ----------------- ------------------ ----------------

         <S>                             <C>                <C>               <C>                <C>
         1           In excess of        0%                 2.00%             1.50%              2.00%
                     $50,000,000
         ----------- ------------------- ------------------ ----------------- ------------------ ----------------

                                       3
<PAGE>

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

         2           In excess of        0%                 2.25%             1.75%              2.25%
                     $20,000,000 but
                     less than or
                     equal to
                     $50,000,000
         ----------- ------------------- ------------------ ----------------- ------------------ ----------------

         3           Less than or        0%                 2.50%             2.00%              2.50%
                     equal to
                     $20,000,000
         ----------- ------------------- ------------------ ----------------- ------------------ ----------------
</TABLE>

                  The initial  Applicable  Margin and L/C Fees shall be at level
                  1, above. The Applicable Margin and L/C Fees shall be adjusted
                  quarterly as of the first day of each  calendar  quarter based
                  upon the average  Availability  for the immediately  preceding
                  quarter,  as shown on the Borrowing Base Certificates for such
                  quarter. Upon the occurrence of an Event of Default,  interest
                  shall accrue at the rate set forth in Section  2:2-11(f),  and
                  L/C Fees shall accrue at 200 basis points in excess of the L/C
                  Fees set forth at Level 3, above.

         "Assigning Revolving Credit Lender":     Defined in Section 16:16-1(a).

         "Assignment and Acceptance":       Defined in Section 16:16-2.

         "Availability":   The lesser of (a) or (b), where:
                           (a) is the result of
                                    (i)     The Revolving Credit Ceiling
                                            Minus
                                    (ii)    The aggregate unpaid balance of the
                                               Loan Account
                                            Minus
                                    (iii)   The aggregate undrawn Stated Amount
                                               of all then outstanding  L/C's.

                           (b) is the result of
                                    (i)     The Borrowing Base
                                            Minus
                                    (ii)    The aggregate unpaid balance of the
                                               Loan Account
                                            Minus
                                    (iv)    The aggregate undrawn Stated Amount
                                               of all then outstanding L/C's.

                                       4
<PAGE>

                                            Minus
                                    (v)     The aggregate of the Availability
                                               Reserves.

         "Availability  Reserves":  Such reserves as the Agent from time to time
                  determines in the Agent's  discretion as being  appropriate to
                  reflect the impediments to the Agent's ability to realize upon
                  the Collateral.

         "Bankruptcy Code":      Title 11, U.S.C., as amended from time to time.

         "Base":  The higher of (i) the annual rate of interest  announced  from
                  time to time by  Fleet  National  Bank at its head  office  in
                  Boston, Massachusetts, as its "Prime Rate" or (ii) one-half of
                  one percent  (.50%) above the Federal  Funds  Effective  Rate.
                  Federal Funds  Effective Rate shall mean for any day, the rate
                  per  annum  equal  to the  weighted  average  of the  rates on
                  overnight  federal  funds  transactions  with  members  of the
                  Federal Reserve System  arranged by federal funds brokers,  as
                  published for such day (or, if such day is not a Business Day,
                  for the next  preceding  Business Day) by the Federal  Reserve
                  Bank of New York,  or, if such rate is not  published  for any
                  day that is a Business Day, the average of the  quotations for
                  such day on such transactions  received by Fleet National Bank
                  from three funds  brokers of recognized  standing  selected by
                  Fleet  National Bank. Any change in "Base" shall be effective,
                  for purposes of the  calculation  of interest  due  hereunder,
                  when such change is made  effective  generally  by the bank on
                  whose rate or index "Base" is being set.

         "Base Margin Loan":Each Revolving Credit Loan while bearing interest at
                  the Base Margin Rate.

         "Base Margin Rate":The aggregate of Base plus the Applicable Margin per
                  annum.

         "Blocked Account"   Any DDA into which the contents of any other DDA is
                  transferred.

         "Blocked Account Agreement":  An Agreement substantially in the form of
                  EXHIBIT 7:7-1(b)(ii).

         "Borrower" and "Borrowers":        Is defined in the Preamble.

                                       5
<PAGE>

         "Borrowing Base": The aggregate of the following:
                           The  face  amount  of  Eligible  Receivables  (net of
                  Receivables  Reserves)  multiplied by the Receivables  Advance
                  Rate.
                                    Plus
                           The lesser of (a) the Cost of Eligible Inventory (net
                  of Inventory  Reserves)  multiplied by the  Inventory  Advance
                  Rate or (b) ninety percent (90%) of the appraised  liquidation
                  value of Eligible Inventory  (expressed as a percentage of the
                  Cost of  appraised  Eligible  Inventory)  (provided  that  the
                  appraised  liquidation  value of the  Borrowers'  prescription
                  list  shall  in no  event  exceed  nine  percent  (9%)  of the
                  appraised   liquidation  value  of  Eligible   Inventory,   as
                  determined in accordance with Section 5:5-9).

         "Borrowing Base Certificate":      Is defined in Section 5:5-4.

         "BusinessDay":  Any day other  than (a) a Saturday  or Sunday;  (b) any
                  day on which banks in Boston,  Massachusetts or in Youngstown,
                  Ohio,  generally  are not open to the  general  public for the
                  purpose of conducting  commercial  banking business;  or (c) a
                  day on  which  the  principal  office  of the  Agent  or Fleet
                  National  Bank is not open to the  general  public to  conduct
                  business.

         "Capital Expenditures":  The  expenditure of funds or the incurrence of
                  liabilities which may be capitalized in accordance with GAAP.

         "Capital Lease":  Any lease which may be capitalized in accordance with
                  GAAP.

         "Cash    Control  Event":  Availability at any time is less than Twenty
                  Million Dollars ($20,000,000.00).

         "Change in Control":       The occurrence of any of the following:
                           (a) The acquisition,  by any group of persons (within
                  the  meaning  of  the  Securities  Exchange  Act of  1934,  as
                  amended) or by any Person, of beneficial ownership (within the
                  meaning  of  Rule  13d-3  of  the   Securities   and  Exchange
                  Commission)  of 20% or  more  of the  issued  and  outstanding
                  capital  stock of the Lead  Borrower  having the right,  under
                  ordinary circumstances,  to vote for the election of directors
                  of the Lead Borrower  (excluding  any  acquisition of stock by
                  Avatex Corporation).

                                       6
<PAGE>

                           (b) More than half of the persons who were  directors
                  of the Lead Borrower on the first day of any period consisting
                  of twelve (12) consecutive calendar months (the first of which
                  twelve (12) month periods commencing with the first day of the
                  month during which this  Agreement was executed),  cease,  for
                  any reason other than death,  disability,  or  replacement  by
                  other  Persons  nominated  by Avatex  Corporation,  a Delaware
                  corporation to be directors of the Lead Borrower.
                           (c)  Any  failure  of  the  Lead   Borrower  to  own,
                  beneficially  and of record,  100% of the capital stock of all
                  other Borrowers,  either directly or through ownership of 100%
                  of the capital stock of any entity which owns the stock of any
                  other Borrower.

         "Chattel Paper":  Has the meaning given that term in the UCC.

         "Collateral":     Is defined in Section 8:8-1.

         "Collateral   Interest":   Any   interest  in  property  to  secure  an
                  obligation,   including,   without   limitation,   a  security
                  interest, mortgage, and deed of trust.

         "Concentration Account":   Is defined in Section 7:7-3.

         "Consent": Actual  consent  given by the  Revolving  Credit Lender from
                  whom such  consent  is  sought;  or the  passage  of seven (7)
                  Business  Days from  receipt of written  notice to a Revolving
                  Credit Lender from the Agent of a proposed course of action to
                  be  followed  by  the  Agent  without  such  Revolving  Credit
                  Lender's  giving the Agent  written  notice of that  Revolving
                  Credit Lender's  objection to such course of action,  provided
                  that the Agent may rely on such  passage of time as consent by
                  a Revolving  Credit Lender only if such written  notice states
                  that  consent  will be deemed  effective  if no  objection  is
                  received within such time period.

         "Consigned  Inventory":  Inventory  held by a Borrower  on  consignment
                  (including, without limitation, GE lightbulbs).

         "Consolidated Net  Worth":  At any date as of which the amount  thereof
                  shall  be   determined,   Consolidated   Total   Assets  minus
                  Consolidated Total  Liabilities,  provided,  however,  for the
                  purpose  of  the   calculation  of   Consolidated   Net  Worth
                  hereunder,   extraordinary   income  (e.g.   discounted   bond
                  repurchases)  and  noncash  losses,  charges,  write-downs  or

                                       7
<PAGE>

                  reserves to any non-current assets or liabilities  existing as
                  of the  date of this  Agreement,  other  than  on  account  of
                  inventory  write-downs,  shall be excluded and such adjustment
                  shall  be  carried  over  from  year to year  in  making  such
                  calculation.

         "Consolidated Total Assets": At any date as of which the amount thereof
                  shall be  determined,  all assets that should,  in  accordance
                  with GAAP, be classified as assets on the consolidated balance
                  sheet of the Lead Borrower.

         "Consolidated  Total  Liabilities":  At any date as of which the amount
                  thereof shall be determined,  all obligations that should,  in
                  accordance  with GAAP,  be classified  as  liabilities  on the
                  consolidated balance sheet of the Lead Borrower,  including in
                  any event all Indebtedness.

         "Cost":  The lower of (a) or (b), where:
                           (a) is the calculated  cost of purchases,  based upon
                  the Borrowers' accounting practices, known to the Agent, which
                  practices  are in effect on the date on which  this  Agreement
                  was  executed  as such  calculated  cost is  determined  from:
                  invoices  received by the Borrowers;  the Borrowers'  purchase
                  journal; or the Borrowers' stock ledger.
                           (b) is the cost  equivalent of the lowest ticketed or
                  promoted  price at which the subject  Inventory  is offered to
                  the public, after all mark-downs (whether or not such price is
                  then   reflected  on  the   Borrowers'   accounting   system),
                  reflecting the Borrowers' Current Practices.
                           "Cost"  does  not  include  inventory  capitalization
                  costs or other  non-purchase  price  charges (such as freight)
                  used in the Borrowers' calculation of cost of goods sold.

         "Costs   of Collection":  All reasonable attorneys' fees and reasonable
                  out-of-pocket expenses incurred by the Agent's attorneys,  and
                  all  reasonable  out-of-pocket  costs incurred by the Agent in
                  the   administration  of  the  Liabilities   and/or  the  Loan
                  Documents, including, without limitation, reasonable costs and
                  expenses  associated with travel on behalf of the Agent, where
                  such costs and expenses are directly or indirectly  related to
                  or in respect of the Agent's: administration and management of
                  the Liabilities; negotiation,  documentation, and amendment of
                  any Loan Document; or efforts to preserve,  protect,  collect,
                  or enforce the Collateral, the Liabilities, and/or the Agent's
                  Rights and  Remedies  and/or any of the rights and remedies of
                  the Agent  against  or in respect  of any  guarantor  or other
                  person  liable in respect of the  Liabilities  (whether or not

                                       8
<PAGE>

                  suit is instituted in connection with such efforts). "Costs of
                  Collection"   shall  also  include  the  reasonable  fees  and
                  expenses of Lenders' Special Counsel.  The Costs of Collection
                  are Liabilities,  and at the Agent's option may bear interest,
                  after demand, at the then effective Base Margin Rate.

         "Current Practices":       Practices in effect on October 1, 2000.

         "CustomerCredit  Liability":  Gift certificates,  merchandise  credits,
                  layaway  obligations,  customer  deposits,  frequent  shopping
                  programs,  and  similar  liabilities  of any  Borrower  to its
                  retail customers and prospective customers.

         "DDA":   Any  checking  or  other  demand  daily   depository   account
                  maintained by any Borrower.

         "Default": Any occurrence, circumstance, or state of facts with respect
                  to any Borrower which (a) is an Event of Default; or (b) would
                  become an Event of Default if any requisite  notice were given
                  and/or  any  requisite  period  of time  were to run and  such
                  occurrence,   circumstance,   or  state  of  facts   were  not
                  absolutely cured within any applicable grace period.

         "Delinquent Revolving Credit Lender":    Defined in Section 12:12-3(c).

         "Deposit Account":         Has the meaning given that term in the UCC.

         "Documents":      Has the meaning given that term in the UCC.

         "Documents of Title":      Has the meaning given that term in the UCC.

         "Eligible Assignee":  A bank, insurance company,  or company engaged in
                  the  business  of making  commercial  loans  having a combined
                  capital and surplus in excess of three hundred million dollars
                  ($300,000,000.00)  or any  Affiliate of any  Revolving  Credit
                  Lender,  or any  Person  to  whom a  Revolving  Credit  Lender
                  assigns its rights and  obligations  under this  Agreement  as
                  part of a programmed assignment and transfer of such Revolving
                  Credit  Lender's  rights in and to a material  portion of such
                  Revolving  Credit  Lender's  portfolio  of asset based  credit
                  facilities.

                                       9
<PAGE>

         "Eligible Inventory": Eligible L/C Inventory and such of the Borrowers'
                  Inventory  consisting of merchandise  inventory  (inclusive of
                  pharmaceutical  Inventory  and  prescription  list),  at  such
                  locations,  and  of  such  types,  character,   qualities  and
                  quantities,  as the Agent in its discretion  from time to time
                  determines  to  be  acceptable  for  borrowing,  as  to  which
                  Inventory,  the Agent has a perfected  security interest which
                  is prior and superior to all security  interests,  claims, and
                  Encumbrances  (other than  Permitted  Encumbrances).  Eligible
                  Inventory will exclude, without limitation,  Inventory that is
                  not saleable,  including  non-merchandise  categories (labels,
                  bags, packaging, etc.), Inventory in foreign locations (except
                  for Eligible L/C Inventory), fresh produce inventory, samples,
                  damaged goods, return to vendor  merchandise,  and consignment
                  Inventory.

         "Eligible L/C Inventory":  Inventory to be acquired by a Borrower,  the
                  purchase  of  which is  supported  by a  documentary  L/C then
                  having  an  initial  expiry of forty  five (45) or less  days,
                  provided that
                                    (a)  Such   Inventory   is  of  such  types,
                           character, qualities and quantities (net of Inventory
                           Reserves) as the Agent in its  reasonable  discretion
                           from  time  to  time  reasonably   determines  to  be
                           eligible for borrowing; and
                                    (b)  The  documentary  L/C  supporting  such
                           purchase  names the Agent or any Issuer as  consignee
                           of the  subject  Inventory  and the Agent has control
                           over the documents  which  evidence  ownership of the
                           subject  Inventory  (such as by the  providing to the
                           Agent  of  a  Customs   Brokers   Agreement  in  form
                           reasonably satisfactory to the Agent).

         "EligibleReceivables":  Such of the Borrowers' Accounts as arise in the
                  ordinary  course of the  Borrowers'  business  for goods  sold
                  and/or services rendered by the Borrowers, which Accounts have
                  been   determined  by  the  Agent  in  its  discretion  to  be
                  satisfactory  and have been earned by performance and are owed
                  to the Borrowers by such of the Borrowers'  trade customers as
                  the  Agent  determines  to be  satisfactory,  in  the  Agent's
                  discretion in each instance,  as to which Accounts,  the Agent
                  has a perfected  security interest which is prior and superior
                  to all security  interests,  claims,  and Encumbrances  (other
                  than Permitted Encumbrances).

         "Employee Benefit Plan":   As defined in ERISA.

         "Encumbrance":    Each of the following:

                                       10
<PAGE>

                           (a) A  Collateral  Interest or agreement to create or
                  grant a Collateral Interest;  the interest of a lessor under a
                  Capital  Lease;  conditional  sale or  other  title  retention
                  agreement;  sale of accounts  receivable or chattel paper;  or
                  other arrangement  pursuant to which any Person is entitled to
                  any  preference  or priority  with  respect to the property or
                  assets of  another  Person or the  income or  profits  of such
                  other  Person;  each of the  foregoing  whether  consensual or
                  non-consensual  and  whether  arising  by  way  of  agreement,
                  operation of law, legal process or otherwise.

                           (b)       The filing of any financing statement under
                  the UCC or comparable law of any jurisdiction.

         "End Date":      The date upon which both (a) all Liabilities have been
                  paid in full and (b) all  obligations of any Revolving  Credit
                  Lender  to  make  loans  and  advances  and to  provide  other
                  financial accommodations to the Borrowers hereunder shall have
                  been irrevocably terminated.

         "Environmental Laws":      All of the following:
                           (a) Applicable Law which  regulates or relates to, or
                  imposes any  standard of conduct or liability on account of or
                  in respect to  environmental  protection  matters,  including,
                  without  limitation,   Hazardous  Materials,  as  are  now  or
                  hereafter in effect.

                           (b) The common law  relating  to damage to Persons or
                  property from Hazardous Materials.

         "Equipment": Includes,  without  limitation,  "equipment" as defined in
                  the  UCC,  and  also  all  furniture,  store  fixtures,  motor
                  vehicles,  rolling stock, machinery,  office equipment,  plant
                  equipment,  tools, dies, molds, and other goods, property, and
                  assets  which are used  and/or were  purchased  for use in the
                  operation or furtherance of a Borrower's business, and any and
                  all  accessions  or  additions   thereto,   and  substitutions
                  therefor.

         "ERISA": The  Employee  Retirement  Income  Security  Act of  1974,  as
                  amended.

         "ERISA   Affiliate":  Any Person which is under  common  control with a
                  Borrower  within the  meaning  of Section  4001 of ERISA or is
                  part of a group which includes any Borrower and which would be
                  treated as a single employer under Section 414 of the Internal
                  Revenue Code of 1986, as amended.

                                       11
<PAGE>

         "Eurodollar Business  Day":  Any day which is both a Business Day and a
                  day on which  the  principal  market in  Eurodollars  in which
                  Fleet  National  Bank  participates  is open for  dealings  in
                  United States Dollar deposits.

         "Eurodollar Loan":  Any Revolving Credit Loan which bears interest at a
                  Eurodollar Rate.

         "Eurodollar Offer Rate":  That rate of interest  (rounded  upwards,  if
                  necessary, to the next 1/100 of 1%) determined by the Agent to
                  be a  prevailing  rate per  annum at  which  deposits  on U.S.
                  Dollars are offered to Fleet  National  Bank,  by  first-class
                  banks in the  Eurodollar  market in which Fleet  National Bank
                  participates  at  or  about  10:00AM  (Boston  Time)  two  (2)
                  Eurodollar  Business Days before the first day of the Interest
                  Period  for  the  subject   Eurodollar  Loan,  for  a  deposit
                  approximately  in the amount of the subject  loan for a period
                  of time approximately equal to such Interest Period.

         "Eurodollar Rate":  That per annum rate which is the  aggregate  of the
                  Eurodollar   Offer  Rate  plus  the   Applicable   Margin  for
                  Eurodollar  Loans  except  that,  in the event  that the Agent
                  determines that any Revolving  Credit Lender may be subject to
                  the Reserve Percentage, the "Eurodollar Rate" shall mean, with
                  respect to any  Eurodollar  Loans then  outstanding  (from the
                  date on which that Reserve  Percentage first became applicable
                  to such  loans),  and with  respect  to all  Eurodollar  Loans
                  thereafter  made,  an interest rate per annum equal the sum of
                  (a) plus (b), where:
                           (a) is the decimal equivalent of the following
                                 fraction:
                                  Eurodollar Offer Rate
                                  ---------------------
                                 1 minus Reserve Percentage
                           (b) is the Applicable Margin for Eurodollar Loans.

         "Events  of Default":  Is defined in Article 10:. An "Event of Default"
                  shall be deemed to have occurred and to be  continuing  unless
                  and until that Event of  Default  has been duly  waived by the
                  requisite   Revolving  Credit  Lenders  or  by  the  Agent  as
                  applicable.

         "Exempt  DDA": A depository  account  maintained by any  Borrower,  the
                  only  contents of which may be  transfers  from the  Operating
                  Account and actually used solely (i) for petty cash  purposes;
                  or (ii) for payroll.

         "Fee     Letter":  That  letter  dated  October 6, 2000 and styled "Fee
                  Letter"  between  the Lead  Borrower  and the  Agent,  as such
                  letter may from time to time be amended.

                                       12
<PAGE>

         "Fiscal":When  followed by "month" or  "quarter",  the relevant  fiscal
                  period  based on the  Borrowers'  fiscal  year and  accounting
                  conventions.  When  followed by reference to a specific  year,
                  the  fiscal  year  which  ends in a month of the year to which
                  reference is being made (e.g.  if the  Borrowers'  fiscal year
                  ends in January  2001  reference  to that year would be to the
                  Borrowers' "Fiscal 2001").

         "Fixtures":       Has the meaning given that term in the UCC.

         "FRFI":           Fleet Retail Finance Inc.

         "GAAP":  Generally  accepted  accounting   principles   promulgated  or
                  adopted by the Financial  Accounting  Standards  Board and its
                  predecessors  (or successors) in effect and applicable to that
                  accounting  period in  respect of which  reference  to GAAP is
                  being  made,  provided,  however,  in the event of a  Material
                  Accounting Change,  then unless otherwise  specifically agreed
                  to by the  Agent,  (a)  the  Borrowers'  compliance  with  the
                  financial  performance  covenants  imposed pursuant to Section
                  5:5-11  shall be  determined  as if such  Material  Accounting
                  Change  had not taken  place and (b) the Lead  Borrower  shall
                  include,  with its monthly,  quarterly,  and annual  financial
                  statements a schedule,  certified by the Lead Borrower's chief
                  financial  officer,  on  which  the  effect  of such  Material
                  Accounting Change on that statement shall be described.

         "General Intangibles":    Includes,   without   limitation,    "general
                  intangibles"  as defined in the UCC;  and also all:  rights to
                  payment  for credit  extended;  deposits;  amounts  due to any
                  Borrower; credit memoranda in favor of any Borrower;  warranty
                  claims;  tax refunds  and  abatements;  insurance  refunds and
                  premium  rebates;  all means and  vehicles  of  investment  or
                  hedging, including, without limitation, options, warrants, and
                  futures contracts; records; customer lists; telephone numbers;
                  goodwill;  causes of  action;  judgments;  payments  under any
                  settlement  or other  agreement;  literary  rights;  rights to
                  performance;  royalties; license and/or franchise fees; rights
                  of  admission;   licenses;   franchises;  license  agreements,
                  including all rights of any Borrower to enforce same; permits,
                  certificates of convenience and necessity,  and similar rights
                  granted  by  any  governmental   authority;   patents,  patent
                  applications,   patents   pending,   and  other   intellectual
                  property;  internet addresses and domain names;  developmental
                  ideas  and  concepts;   proprietary   processes;   blueprints,
                  drawings,  designs,  diagrams,  plans,  reports,  and  charts;
                  catalogs;  manuals; technical data; computer software programs
                  (including  the source and object  codes  therefor),  computer

                                       13
<PAGE>

                  records,  computer  software,  rights of  access  to  computer
                  record service bureaus, service bureau computer contracts, and
                  computer  data;  tapes,  disks,   semi-conductors   chips  and
                  printouts; trade secrets rights, copyrights,  mask work rights
                  and  interests,  and  derivative  works and  interests;  user,
                  technical  reference,  and other manuals and materials;  trade
                  names,  trademarks,  service marks, and all goodwill  relating
                  thereto;  applications for registration of the foregoing;  and
                  all other general  intangible  property of any Borrower in the
                  nature of intellectual  property;  proposals;  cost estimates,
                  and  reproductions  on  paper,  or  otherwise,  of any and all
                  concepts or ideas,  and any matter  related  to, or  connected
                  with, the design, development,  manufacture,  sale, marketing,
                  leasing,  or use of any or all  property  produced,  sold,  or
                  leased,  by the or credit extended or services  performed,  by
                  any Borrower,  whether intended for an individual  customer or
                  the  general  business of any  Borrower,  or used or useful in
                  connection with research by any Borrower.

         "Goods": Has the meaning  given that term in the UCC, and also includes
                  all things movable when a security  interest  therein attaches
                  and also  all  computer  programs  embedded  in goods  and any
                  supporting   information   provided  in   connection   with  a
                  transaction  relating  to the  program  if (i) the  program is
                  associated  with the goods in such manner that it  customarily
                  is considered  part of the goods or (ii) by becoming the owner
                  of the goods, a Person  acquires a right to use the program in
                  connection with the goods.

         "Hazardous Materials":  Any (a) substance which is defined or regulated
                  as a hazardous  material in or under any Environmental Law and
                  (b) oil in any physical state.

         "Indebtedness":  All  indebtedness and obligations of or assumed by any
                  Person on account of or in respect to any of the following:
                           (a) In  respect  of  money  borrowed  (including  any
                  indebtedness  which  is  non-recourse  to the  credit  of such
                  Person but which is secured by an  Encumbrance on any asset of
                  such Person)  whether or not  evidenced by a promissory  note,
                  bond, debenture or other written obligation to pay money.
                           (b) In  connection  with  any  letter  of  credit  or
                  acceptance  transaction  (including,  without limitation,  the
                  face  amount of all letters of credit and  acceptances  issued
                  for the account of such Person or  reimbursement on account of
                  which such Person would be obligated).
                           (c) In  connection  with  the  sale  or  discount  of
                  accounts receivable or chattel paper of such Person.

                                       14
<PAGE>

                           (d)      As lessee under Capital Leases.
                           (e)  In  connection   with  any  sale  and  leaseback
                                transaction.
                                    "Indebtedness" also includes
                                            (x)   Any   guaranty,   endorsement,
                                    suretyship or other undertaking  pursuant to
                                    which  that  Person may be liable on account
                                    of any obligation of any third party.
                                            (y)    The    Indebtedness    of   a
                                    partnership  or joint venture for which such
                                    Person is liable  as a  general  partner  or
                                    joint venturer.

         "Indemnified Person":      Is defined in Section 19:19-13.

         "Instruments":    Has the meaning given that term in the UCC.

         "Interest Payment Date":   With reference to:
                           Each  Eurodollar  Loan:  The last day of the Interest
                  Period  relating  thereto  (and on the last day of month three
                  for any such loan which has a six month Interest Period);  the
                  Termination Date; and the End Date.
                           Each Base Margin  Loan:  The first day of each month;
                  the Termination Date; and the End Date.

         "Interest Period":         The following:
                           (a) With respect to each Eurodollar Loan:  Subject to
                  Subsection  (c), below,  the period  commencing on the date of
                  the making or  continuation  of, or conversion to, the subject
                  Eurodollar  Loan and ending  one,  two,  three,  or six months
                  thereafter, as the Lead Borrower may elect by notice (pursuant
                  to Section 2:2-6) to the Agent.
                           (b) With respect to each Base Margin Loan: Subject to
                  Subsection  (c), below,  the period  commencing on the date of
                  the  making  or  continuation  of or  conversion  to such Base
                  Margin  Loan and  ending  on that  date  (i) as of  which  the
                  subject Base Margin Loan is converted to a Eurodollar Loan, as
                  the Lead  Borrower  may elect by notice  (pursuant  to Section
                  2:2-6) to the Agent,  or (ii) on which the subject Base Margin
                  Loan is paid by the Borrowers.
                           (c)  The  setting  of  Interest  Periods  is  in  all
                  instances subject to the following:
                                    (i) Any  Interest  Period for a Base  Margin
                           Loan which would  otherwise end on a day which is not
                           a  Business   Day  shall  be  extended  to  the  next

                                       15
<PAGE>

                           succeeding Business Day.
                                    (ii) Any  Interest  Period for a  Eurodollar
                           Loan which would otherwise end on a day that is not a
                           Business Day shall be extended to the next succeeding
                           Business Day, unless that succeeding  Business Day is
                           in the  next  calendar  month,  in which  event  such
                           Interest Period shall end on the last Business Day of
                           the month during which the Interest Period ends.
                                    (iii) Subject to Subsection (iv), below, any
                           Interest  Period  applicable  to a  Eurodollar  Loan,
                           which Interest Period begins on a day for which there
                           is no numerically  corresponding  day in the calendar
                           month during which such Interest  Period ends,  shall
                           end on the  last  Business  Day of the  month  during
                           which that Interest Period ends.
                                    (iv)  Any   Interest   Period   which  would
                           otherwise end after the Termination Date shall end on
                           the Termination Date.
                                    (v) The number of Interest Periods in effect
                           at any  one  time is  subject  to  Section  2:2-12(d)
                           hereof.

         "Inventory": Includes,  without  limitation,  "inventory" as defined in
                  the UCC and also all:  (a) Goods  which are leased by a Person
                  as  lessor;  are held by a  Person  for sale or lease or to be
                  furnished  under a contract of  service;  are  furnished  by a
                  Person  under  a  contract  of  service;  or  consist  of  raw
                  materials, work in process, or materials used or consumed in a
                  business;  (b) Goods of said description in transit; (c) Goods
                  of  said  description  which  are  returned,  repossessed  and
                  rejected; (d) packaging,  advertising,  and shipping materials
                  related to any of the  foregoing;  (e) all names,  marks,  and
                  General  Intangibles  affixed or to be  affixed or  associated
                  thereto;  and (f)  Documents  and  Documents  of  Title  which
                  represent  any  of  the  foregoing,  provided,  however,  that
                  Inventory shall not include Consigned Inventory.

         "Inventory Advance Rate":  Sixty-five percent (65%), for so long as the
                  1995 Indenture remains  outstanding,  and sixty-eight  percent
                  (68%)   following  the  termination  of  the  1995  Indenture,
                  provided that no Indebtedness  incurred in connection with any
                  refinancing  of the 1995  Indenture  restricts the  Borrower's
                  Inventory Advance Rate below sixty-eight percent (68%).

         "Inventory Reserves":  Such Reserves as may be established from
                  time to time  by the  Agent  in the  Agent's  discretion  with
                  respect to the determination of the saleability, at retail, of

                                       16
<PAGE>

                  the Eligible  Inventory or which reflect such other factors as
                  affect the market  value of the  Eligible  Inventory.  Without
                  limiting the generality of the foregoing,  Inventory  Reserves
                  may include  (but are not limited  to)  reserves  based on the
                  following:
                           (i)      Obsolescence (based upon Inventory on hand
                                     beyond a given number of days).
                           (ii)     Seasonality.
                           (iii)    Shrinkage.
                           (iv)     Imbalance.
                           (v)      Change in Inventory character.
                           (vi)     Change in Inventory composition
                           (vii)    Change in Inventory mix.
                           (viii)   Markdowns (both permanent and point of sale)
                           (ix)     Retail markons and markups inconsistent with
                                    prior  period   practice  and   performance;
                                    industry standards;  current business plans;
                                    or   advertising    calendar   and   planned
                                    advertising events.

         "Investment Property":     Has the meaning given that term in the UCC.

         "Issuer":         The issuer of any L/C.

         "L/C":   Any letter of credit, the issuance of which is procured by the
                  Agent for the account of any Borrower and any acceptance  made
                  on account of such letter of credit.

         "L/C     Landing  Costs":  To the  extent  not  included  in the Stated
                  Amount  of  an  L/C,  customs,   duty,   freight,   and  other
                  out-of-pocket  costs and  expenses  which will be  expended to
                  "land" the  Inventory,  the  purchase of which is supported by
                  such L/C.

         "Lease": Any  lease  or  other  agreement,  no  matter  how  styled  or
                  structured,  pursuant to which the Borrower is entitled to the
                  use or occupancy of any space.

         "Leasehold  Interest":  Any  interest of a Borrower as lessee under any
                  Lease.

         "Lenders'Special Counsel":  A single counsel,  selected by the Majority
                  Lenders  following the  occurrence of an Event of Default,  to
                  represent  the interests of the  Revolving  Credit  Lenders in
                  connection with the  enforcement,  attempted  enforcement,  or
                  preservation  of any rights and  remedies  under this,  or any

                                       17
<PAGE>

                  other  Loan  Document,  as  well  as in  connection  with  any
                  "workout",   forbearance,   or  restructuring  of  the  credit
                  facility contemplated hereby.

         "Letter-of-Credit  Right":  Has the meaning given that term in UCC 9'99
                  and also refers to any right to payment or  performance  under
                  an L/C,  whether or not the  beneficiary has demanded or is at
                  the time entitled to demand payment or performance.

         "Liabilities":    Includes, without limitation, the following:
                  (a) All and each of the  following,  whether  now  existing or
         hereafter  arising under this  Agreement or under any of the other Loan
         Documents:
                           (i) Any  and all  direct  and  indirect  liabilities,
                  debts,  and  obligations  of each Borrower to the Agent or any
                  Revolving  Credit  Lender,  each of every  kind,  nature,  and
                  description.
                           (ii) Each  obligation  to repay  any  loan,  advance,
                  indebtedness,  note, obligation,  overdraft,  or amount now or
                  hereafter  owing by any Borrower to the Agent or any Revolving
                  Credit Lender  (including all future  advances  whether or not
                  made  pursuant to a commitment  by the Agent or any  Revolving
                  Credit  Lender),  whether  or not any of such are  liquidated,
                  unliquidated,  primary, secondary, secured, unsecured, direct,
                  indirect, absolute,  contingent, or of any other type, nature,
                  or description,  or by reason of any cause of action which the
                  Agent or any  Revolving  Credit  Lender may hold  against  any
                  Borrower.
                           (iii)  All  notes  and  other   obligations  of  each
                  Borrower now or hereafter  assigned to or held by the Agent or
                  any Revolving Credit Lender,  each of every kind,  nature, and
                  description.
                           (iv)  All  interest,  fees,  and  charges  and  other
                  amounts  which may be  charged  by the Agent or any  Revolving
                  Credit Lender to any Borrower and/or which may be due from any
                  Borrower to the Agent or any Revolving Credit Lender from time
                  to time.
                           (v)      All Costs of Collection.
                           (vi) Any and all  covenants  of each  Borrower  to or
                  with the Agent or any Revolving  Credit Lender and any and all
                  obligations  of each Borrower to act or to refrain from acting
                  in accordance with any agreement between that Borrower and the
                  Agent or any Revolving  Credit Lender or instrument  furnished
                  by that Borrower to the Agent or any Revolving Credit Lender.

                                       18
<PAGE>

                           (vii) Each of the  foregoing as if each  reference to
                  the " the Agent or any Revolving  Credit  Lender" were to each
                  Affiliate of the Agent.

                           (b) Any  and  all  direct  or  indirect  liabilities,
                  debts,  and  obligations  of each Borrower to the Agent or any
                  Affiliate  of the  Agent,  each of  every  kind,  nature,  and
                  description  owing on account of any service or  accommodation
                  provided  to, or for the account of any  Borrower  pursuant to
                  this or any other Loan  Document,  including  cash  management
                  services and the issuances of L/C's.

         "Liquidation": The exercise,  by the Agent, of those rights accorded to
                  the  Agent  under  the Loan  Documents  as a  creditor  of the
                  Borrowers  following  and on account of the  occurrence  of an
                  Event  of  Default  looking  towards  the  realization  on the
                  Collateral.  Derivations  of the word  "Liquidation"  (such as
                  "Liquidate") are used with like meaning in this Agreement.

         "Loan Account":   Is defined in Section 2:2-9.

         "Loan    Commitment":  With respect to each  Revolving  Credit  Lender,
                  that respective  Revolving  Credit Lender's  Revolving  Credit
                  Dollar Commitment.

         "Loan    Documents":  This  Agreement,  each  instrument  and  document
                  executed  and/or  delivered  as  contemplated  by Article  3:,
                  below, and each other instrument or document from time to time
                  executed and/or  delivered in connection with the arrangements
                  contemplated hereby or in connection with any transaction with
                  the Agent or any  Affiliate of the Agent,  including,  without
                  limitation,  any  transaction  which  arises  out of any  cash
                  management, depository, investment, letter of credit, interest
                  rate protection, or equipment leasing services provided by the
                  Agent or any  Affiliate  of the Agent,  as each may be amended
                  from time to time.

         "MajorityLenders":  Revolving  Credit  Lenders  (other than  Delinquent
                  Revolving  Credit  Lenders)  holding  51% or more of the  Loan
                  Commitments   (other  than  any  Loan   Commitments   held  by
                  Delinquent   Revolving  Credit   Lenders),   or  if  the  Loan
                  Commitments  have been  terminated,  Revolving  Credit Lenders
                  whose percentage of the outstanding Revolving Credit Loans and
                  face  amount of all  outstanding  L/Cs (after  settlement  and
                  repayment  of all  SwingLine  Loans  by the  Revolving  Credit
                  Lenders) aggregate not less than 51% of all such Liabilities.

                                       19
<PAGE>

         "MaterialAccounting   Change":   Any  change  in  GAAP   applicable  to
                  accounting  periods  subsequent to the Borrowers'  fiscal year
                  most  recently  completed  prior  to  the  execution  of  this
                  Agreement,   which  change  has  a  material   effect  on  the
                  Borrowers'   Consolidated  financial  condition  or  operating
                  results,  as  reflected on  financial  statements  and reports
                  prepared  by or for the  Borrowers,  when  compared  with such
                  condition  or results as if such change had not taken place or
                  where preparation of the Borrowers'  statements and reports in
                  compliance  with  such  change  results  in  the  breach  of a
                  financial  performance  covenant  imposed  pursuant to Section
                  5:5-11  where such a breach  would not have  occurred  if such
                  change had not taken place or visa versa.

         "MaterialAdverse Change": Any event, fact, circumstance,  change in, or
                  effect on, the business of, any Borrower  which,  individually
                  or in the  aggregate or on a  cumulative  basis with any other
                  circumstances, changes in, or effects on, the Borrowers or the
                  Collateral, taken as a whole which:
                           (a)  Is,  or  would  reasonably  be  expected  to be,
                  materially  adverse  to the  business,  operations,  assets or
                  liabilities   (including,   without   limitation,   contingent
                  liabilities), results of operations or the financial condition
                  of that Borrower.
                           (b)  Would   reasonably  be  expected  to  materially
                  adversely  affect the  ability of that  Borrower to operate or
                  conduct its  business in all  material  respects in the manner
                  necessary to perform its obligations  under the Loan Documents
                  .
                           (c) Would  reasonably  be expected to have a material
                  adverse  effect or result in a material  adverse change in the
                  value,  enforceability,  collectability  or the  nature of the
                  Collateral.

         "MaterialAdverse  Effect":  A  result,  consequence,  or  outcome  with
                  respect to the Borrowers which  constitutes a Material Adverse
                  Change.

         "Maturity Date":   November 30, 2003.

         "New Borrower":   Is defined in Section 4:4-20.

         "Nominee":  A  business  entity  (such  as  a  corporation  or  limited
                  partnership)  formed by the  Agent to own or  manage  any Post
                  Foreclosure Asset.

         "Operating Account":       Is defined in Section 7:7-3.

                                       20
<PAGE>

         "OverLoan": A loan,  advance,  or providing of credit  support (such as
                  the issuance of any L/C) to the extent that, immediately after
                  its having been made, Availability is less than zero.

         "Participant":    Is defined in Section 19:19-16, hereof.

         "Payment Intangible":  Has the meaning  given that term in UCC 9'99 and
                  also refers to any general  intangible under which the Account
                  Debtor's primary obligation is a monetary obligation.

         "Permissible  OverLoans":  Revolving  Credit Loans which are OverLoans,
                  but as to which each of the following conditions is satisfied:
                  (a) the Revolving Credit Ceiling is not exceeded; and (b) when
                  aggregated  with  all  other   Permissible   OverLoans,   such
                  Revolving  Credit Loans do not aggregate more than ten percent
                  (10%) of the  aggregate of the  Borrowing  Base;  and (c) such
                  Revolving  Credit Loans are made or  undertaken in the Agent's
                  discretion  to  protect  and  preserve  the  interests  of the
                  Revolving Credit Lenders.

         "Permitted Encumbrances":  The following:
                           (a)  Encumbrances in favor of the Agent.

                           (b)  Encumbrances  listed on EXHIBIT  4:4-6,  annexed
                  hereto.

                           (c)  Encumbrances  on  Equipment  or  real  property,
                  subject  to  compliance  with the terms of  Section  4:4-6(c),
                  below.
                           (d) Non-consensual  statutory liens (other than liens
                  securing the payment of taxes) arising in the ordinary  course
                  of a  Borrowers'  business  to the extent:  such liens  secure
                  obligations  which  are  not  overdue  or  such  liens  secure
                  obligations  relating to claims or liabilities which are fully
                  insured (subject to commercially  reasonable  deductibles) and
                  being  defended  at the sole cost and  expense and at the sole
                  risk of the  insurer or are being  contested  in good faith by
                  appropriate  proceedings diligently pursued and available to a
                  Borrower,  in  each  instance  prior  to the  commencement  of
                  foreclosure or other similar  proceedings  and with respect to
                  which adequate  reserves have been set aside on the Borrowers'
                  books.
                           (e) Carriers', warehousemen's, mechanics, repairmen's
                  or similar liens incurred in the ordinary course of business.
                           (f)   Zoning   restrictions,   easements,   licenses,
                  covenants  and other  restrictions  affecting  the use of real
                  property.

                                       21
<PAGE>

                           (g)   Deposits    under    workmen's    compensation,
                  unemployment  insurance and social security laws, or to secure
                  the performance of bids,  tenders,  contracts  (other than for
                  the  repayment  of  borrowed  money) or  leases,  or to secure
                  statutory  obligations or surety or appeal bonds, or to secure
                  indemnity,  performance  or other similar bonds arising in the
                  ordinary course of business.
                           (h)       Landlord's liens by operation of law.
                           (i)       Interests of lessors under Capital Leases.
                           (j) Liens  consisting of security  deposits made by a
                  Borrower.   The  inclusion  of  any  of  the  foregoing  as  a
                  "Permitted  Encumbrance" does not affect its relative priority
                  vis a vis any  Collateral  Interest  created by a Borrower  in
                  favor of the Agent.

         "Permitted Investments":  Investments by the Lead Borrower, or financed
                  by the Lead Borrower pursuant to Section 4:4-21(f),  below, in
                  readily  marketable   securities  (but  in  no  event  in  any
                  securities of Avatex  Corporation) where each of the following
                  conditions is met:
                           (a) The Agent  shall have a first and only  perfected
                  security interest in the security.
                           (b) The cost, to the Lead Borrower (whether by direct
                  investment  or loans  made to  Cabot  Noble,  Inc.),  for such
                  marketable  security,  when  aggregated  with  the cost of all
                  other  securities  purchased by the Lead Borrower  (whether by
                  direct investment or loans made to Cabot Noble,  Inc.),  since
                  October 1, 2000, does not exceed $5,000,000.00.
                           (c)  At the  making  of the  relevant  purchase,  the
                  Borrowers  are not then in  Default  nor  would be in  Default
                  immediately following such purchase.
                           (d)  Availability,  immediately  after  the  relevant
                  purchase, is equal to not less than $30,000,000.00.
                           (e) The Lead Borrower  provides to the Agent,  within
                  seven  (7) days of the  making  of the  relevant  purchase,  a
                  forecast  of  Availability  through  the next  ninety (90) day
                  period,  which  forecast  reflects  Availability  at all times
                  equal to not less than $30,000,000.00.

         "Permitted  Repurchases":  Repurchases  of (i)  the  Borrower's  11.72%
                  Unsecured Senior  Debentures,  and (ii) the Borrower's  common
                  stock up to $2,500,000.00 in the aggregate per annum, provided
                  that  in the  case  of  either  (i) or  (ii),  above,  (A) the
                  Borrowers  are not then in  Default  nor  would be in  Default
                  immediately   following   the  subject   repurchase   and  (B)
                  Availability,  immediately after the relevant  repurchase,  is
                  equal to not less than $30,000,000.00.

                                       22
<PAGE>

         "Person":Any natural person,  and any  corporation,  limited  liability
                  company,   trust,   partnership,   joint  venture,   or  other
                  enterprise or entity.

         "Post    Foreclosure  Asset":  All  or  any  part  of  the  Collateral,
                  ownership  of which is  acquired  by the Agent or a Nominee on
                  account  of the  "bidding  in" at a  disposition  as part of a
                  Liquidation  or  by  reason  of  a  "deed  in  lieu"  type  of
                  transaction.

         "Proceeds": Includes, without limitation,  "Proceeds" as defined in the
                  UCC and each  type of  property  described  in  Section  8:8-1
                  hereof.

         "Receipts": All cash,  cash  equivalents,  money,  checks,  credit card
                  slips,  receipts  and  other  Proceeds  from  any  sale of the
                  Collateral.

         "Receivables Advance Rate":        Eighty five percent (85%).

         "Receivables Collateral": That portion of the Collateral which consists
                  of Accounts, Accounts Receivable, General Intangibles, Chattel
                  Paper, Instruments,  Documents of Title, Documents, Investment
                  Property,   Payment  Intangibles,   Letter-of-Credit   Rights,
                  bankers' acceptances, and all other rights to payment.

         "Receivables Reserves":  Such Reserves as may be established  from time
                  to time by the Agent in the Agent's discretion with respect to
                  the determination of the collectability in the ordinary course
                  and of the  creditworthiness  of the relevant  Account Debtor.
                  Without limiting the generality of the foregoing,  Receivables
                  Reserves may include  (but are not limited to) reserves  based
                  on the following:
                           (a) The aggregate of all accounts  receivables  which
                  are more than sixty (60) days past original invoice date.
                           (b) The aggregate of all accounts  receivable owed by
                  any Account  Debtor twenty five percent (25%) or more of whose
                  accounts are described in Subsection (a), above.
                           (c) That portion of Eligible  Receivables owed by any
                  Account  Debtor  which  exceed  thirty  percent  (30%)  of all
                  Eligible Receivables.

                                       23
<PAGE>

                           (d) The  aggregate of all accounts  receivable  which
                  arise out of the sale by any  Borrower of goods  consigned  or
                  delivered to that Borrower or to the Account Debtor on sale or
                  return terms (whether or not compliance has been made with the
                  applicable  provisions of Article 2 of the Uniform  Commercial
                  Code).
                           (e) The  aggregate of all accounts  receivable  which
                  arise out of any sale made on a basis  other  than upon  terms
                  usual to the business of any Borrower.
                           (f) The  aggregate of all accounts  receivable  which
                  arise out of any sale made on a "bill and  hold,"  dating,  or
                  delayed shipping basis.
                           (g) The  aggregate of all accounts  receivable  which
                  are  owed by any  Account  Debtor  whose  principal  place  of
                  business is not within the  continental  United  States or the
                  District of Columbia.
                           (h) The  aggregate of all accounts  receivable  which
                  are owed by any Affiliate.
                           (i) So much of any  account  as to which the  subject
                  Account   Debtor   holds  or  is   entitled   to  any   claim,
                  counterclaim,  set off, or  chargeback  as  determined  by the
                  Agent in its discretion.
                           (j) The  aggregate of all accounts  receivable  which
                  are  evidenced  by a  promissory  note or other  documentation
                  evidencing modified payment terms.
                           (k) The  aggregate of all accounts  receivable  which
                  arise out of any agreement  with,  or purchase  order from (a)
                  the United States, or any instrumentality thereof, or (b) with
                  any  other  state or  local  governmental  entity  as to whose
                  contracts, the assignment thereof is subject to any limitation
                  or prohibition,  including,  without limitation, all so-called
                  Medicare and Medicaid receivables.

                           (l) The  aggregate of all accounts  receivable  which
                  are owed by any person  employed by, or a salesperson  of, any
                  Borrower.

         "Register":       Is defined in Section 16:16-2(c).

         "Requirements of Law":     As to any Person:
                           (a)      Applicable Law.
                           (b)      That Person's organizational documents.
                           (c) That Person's  by-laws  and/or other  instruments
                  which  deal  with   corporate   or  similar   governance,   as
                  applicable.

                                       24
<PAGE>

         "Reserve Percentage": The decimal equivalent of that rate applicable to
                  a Revolving Credit Lender under  regulations  issued from time
                  to time by the  Board  of  Governors  of the  Federal  Reserve
                  System for determining the maximum reserve requirement of that
                  Revolving   Credit   Lender  with  respect  to   "Eurocurrency
                  liabilities"  as  defined  in such  regulations.  The  Reserve
                  Percentage applicable to a particular Eurodollar Loan shall be
                  based upon that in effect during the subject  Interest Period,
                  with  changes in the  Reserve  Percentage  which  take  effect
                  during   such   Interest   Period  to  take   effect  (and  to
                  consequently   change  any  interest  rate   determined   with
                  reference to the Reserve  Percentage)  if and when such change
                  is applicable to such loans.

         "Reserves": The following: Receivables Reserves; Availability Reserves;
                  and Inventory Reserves.
         "Revolving Credit":        Is defined in Section 2:2-1.

         "Revolving Credit Ceiling":        $150,000,000.00.

         "Revolving Credit Commitment Fee": Is defined in Section 2:2-13.

         "Revolving Credit Dollar  Commitment":  As set forth on EXHIBIT 2:2-24,
                  annexed hereto (as such amounts may change in accordance  with
                  the provisions of this Agreement).

         "Revolving Credit Early Termination Fee": Is defined in Section 2:2-16.

         "Revolving Credit Lenders":  Each Revolving Credit Lender party to this
                  Agreement  as of the date  hereof  and any  other  Person  who
                  becomes a "Revolving  Credit  Lender" in  accordance  with the
                  provisions of to this Agreement.

         "Revolving Credit Loans": Loans made under the Revolving Credit, except
                  that  where  the term  "Revolving  Credit  Loan" is used  with
                  reference to available  interest rates applicable to the loans
                  under the Revolving Credit, it refers to so much of the unpaid
                  principal  balance of the Loan  Account as bears the same rate
                  of  interest  for  the  same  Interest  Period.  (See  Section
                  2:2-11(c)).

         "Revolving Credit Note":   Is defined in Section 2:2-10.

                                       25
<PAGE>

         "Revolving  Credit  Obligations":   The  aggregate  of  the  Borrowers'
                  liabilities, obligations, and indebtedness of any character on
                  account of or in respect to the Revolving Credit.

         "Revolving Credit  Commitment  Percentage":  As set  forth  on  EXHIBIT
                  2:2-24,   annexed  hereto  (as  such  amounts  may  change  in
                  accordance with the provisions of this Agreement).

         "SEC":   The Securities and Exchange Commission.

         "Stated Amount":  The maximum amount for which an L/C may be honored.

         "Store": A place at which a Borrower  customarily  offers its Inventory
                  for retail sale to the public.

         "Subsidiary":  Any  corporation,   association,  joint  stock  company,
                  business trust or other similar  organization  of which 50% or
                  more  of the  ordinary  voting  power  for the  election  of a
                  majority  of the  members of the board of  directors  or other
                  governing  body of such  entity  is  held or  controlled  by a
                  Borrower  or a  Subsidiary  of a  Borrower;  or any other such
                  organization the management of which is directly or indirectly
                  controlled by a Borrower or a Subsidiary of a Borrower through
                  the  exercise  of  voting  power or  otherwise;  or any  joint
                  venture,  whether  incorporated or not, in which a Borrower or
                  any of its Subsidiaries has a 50% ownership interest.

         "SuperMajority   Lenders":   Revolving   Credit   Lenders  (other  than
                  Delinquent  Revolving  Credit Lenders) holding 66-2/3% or more
                  the Loan  Commitments  (other than Loan  Commitments held by a
                  Delinquent   Revolving   Credit   Lender),   or  if  the  Loan
                  Commitments  have been  terminated,  Revolving  Credit Lenders
                  whose percentage of the outstanding Revolving Credit Loans and
                  face  amount of all  outstanding  L/Cs (after  settlement  and
                  repayment  of all  SwingLine  Loans  by the  Revolving  Credit
                  Lenders)   aggregate   not  less  than  66-2/3%  of  all  such
                  Liabilities.

         "Supporting  Obligation":  Has the meaning  given that term in UCC 9'99
                  and also  refers  to a  Letter-of-Credit  Right  or  secondary
                  obligation  which  supports the payment or  performance  of an
                  Account,  Chattel Paper, a Document, a General Intangible,  an
                  Instrument, or Investment Property.

                                       26
<PAGE>

         "SwingLine": The facility  pursuant to which the  SwingLine  Lender may
                  advance Revolving Credit Loans aggregating up to the SwingLine
                  Loan Ceiling.

         "SwingLine Lender":        FRFI.

         "SwingLine  Loan  Ceiling":  $20,000,000.00  (subject  to  increase  as
                  provided in Section 15:15-4).

         "SwingLine Loans":         Defined in Section 2:2-8.

         "SwingLine Note": Defined in Section 3-7(c).

         "Syndication Agent":      Fleet Securities Inc.

         "Termination Date":  The earliest of (a) the Maturity  Date; or (b) the
                  occurrence of any event described in Section 10:10-12,  below;
                  or (c) the  Agent's  notice to the Lead  Borrower  setting the
                  Termination  Date on account of the occurrence of any Event of
                  Default other than as described in Section 10:10-12, below; or
                  (d) that date, thirty (30) days irrevocable  written notice of
                  which is provided by the Lead Borrower to the Agent.

         "Transfer":  Wire  transfer   pursuant  to  the  wire  transfer  system
                  maintained  by the Board of Governors  of the Federal  Reserve
                  Board,  or as otherwise  may be agreed to from time to time by
                  the Agent  making  such  Transfer  and the  subject  Revolving
                  Credit Lender.  Wire  instructions  may be changed in the same
                  manner that Notice Addresses may be changed (Section 17:17-1),
                  except that no change of the wire  instructions  for Transfers
                  to any Revolving Credit Lender shall be effective  without the
                  consent of the Agent.

         "UCC":   The Uniform  Commercial Code as in effect from time to time in
                  Massachusetts.

         "UCC9'99": The Uniform  Commercial Code, Article 9, 1999 Official Text,
                  except that following the effectiveness,  in Massachusetts, of
                  the  revision  of  Article 9 of the  Uniform  Commercial  Code
                  contemplated  by UCC9'99 (with such  nonuniform  variations as
                  may be adopted  as part of the  enactment  of that  revision),
                  each reference to "UCC9'99" shall be to the UCC.

                                       27
<PAGE>

         "Unanimous Consent":  Consent of Revolving  Credit  Lenders (other than
                  Delinquent  Revolving Credit Lenders) holding 100% of the Loan
                  Commitments  (other than Loan Commitments held by a Delinquent
                  Revolving Credit Lender).

         "Unused Line Fee":         Is defined in Section 2:2-15.

Article 2:        - THE REVOLVING CREDIT:

2-1      -.       Establishment of  Revolving Credit
         (a) The Revolving  Credit Lenders hereby  establish a revolving line of
credit (the "Revolving  Credit") in the Borrowers'  favor pursuant to which each
Revolving  Credit Lender,  subject to, and in accordance  with,  this Agreement,
acting  through the Agent,  shall make loans and advances and otherwise  provide
financial  accommodations  to and for the account of the  Borrowers  as provided
herein.
         (b) Loans, advances,  and financial  accommodations under the Revolving
Credit shall be made with  reference to the Borrowing  Base and shall be subject
to Availability.  The Borrowing Base and Availability shall be determined by the
Agent by  reference  to  Borrowing  Base  Certificates  furnished as provided in
Section  5:5-4,  below.  The Cost of Eligible  Inventory will be determined in a
manner  consistent with the Borrower's  Current  Practices and shall be based on
the Borrowers' general ledger inventory.
         (c) The  commitment  of each  Revolving  Credit  Lender to provide such
loans, advances, and financial accommodations is subject to Section 2:2-24.
         (d) The proceeds of borrowings under the Revolving Credit shall be used
solely for the  Borrowers'  working  capital  (including,  repayment of existing
Indebtedness to  institutional  lenders),  Capital  Expenditures,  and Permitted
Repurchases,  to the  extent  permitted  by this  Agreement.  No  proceeds  of a
borrowing  under the Revolving  Credit may be used,  nor shall any be requested,
with a view towards the  accumulation  of any general fund or funded  reserve of
the Borrowers other than in the ordinary  course of the Borrowers'  business and
consistent with the provisions of this Agreement.
         (e) Notwithstanding anything to the contrary set forth herein or in any
other Loan Document,  in no event, while the 1995 Indenture remains outstanding,
shall the  Borrowers  permit the  aggregate  amount of  principal  and  interest
outstanding  hereunder  at any time to exceed the sum of (i) 90% of the accounts
receivable  of the  Borrowers,  plus (ii) 65% of the  inventory of the Borrowers
(where the terms "accounts  receivable" and "inventory"  have the meanings given
to them in accordance with GAAP), and the Borrowers shall refrain from borrowing
or  immediately  repay any advance to the extent  necessary  to  accomplish  the
foregoing.

2-2      -INITIAL RESERVES. CHANGES TO RESERVES.

                                       28
<PAGE>

         (a) At the  execution  of this  Agreement,  the  only  Reserves  are as
reflected on the initial Borrowing Base Certificate.
         (b)  Reserves  that may be  revised,  by the Agent in good faith in its
reasonable business judgment:

                  (i) To  reflect  events,  conditions,  contingencies  or risks
         that,  as  determined  by the  Agent in good  faith  in its  reasonable
         business judgment, do or may affect any of:

                           (A)  The  Collateral  or  any  other  property  which
                  secures the Liabilities.
                           (B)  The  assets,   business  or   prospects  of  any
                  Borrower.
                           (C) The Collateral  Interests and other rights of the
                  Agent in, or to realize upon,  the  Collateral  (including the
                  enforceability, perfection and priority thereof).

                  (ii)  To  reflect  the  Agent's   good  faith  belief  in  its
         reasonable  business  judgment that any collateral  report or financial
         information  furnished  by or on behalf of the Borrower to the Agent is
         or may have been  incomplete,  inaccurate or misleading in any material
         respect.
                  (iii) To reflect any state of facts which constitutes an Event
         of Default.

         (c) A change to a then existing  Reserve may be made only with not less
than seven (7)  Business  Days prior notice to the Lead  Borrower,  during which
period the Agent shall afford the Borrower an opportunity  to  demonstrate  that
such Reserve is not necessary  (unless the Agent  determines that the Collateral
would be materially and adversely  affected by such delay or an Event of Default
exists,  in which case such Reserve may be immediately  imposed),  except that a
change to a then existing Reserve,  which change reflects changed  circumstances
of which the Lead Borrower has  knowledge  (such as a change in the aggregate of
taxes then outstanding), may be made without such notice.

2-3      -ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS).

         (a) No Revolving  Credit Lender has any  obligation to make any loan or
advance,  or  otherwise  to  provide  any  credit to or for the  benefit  of the
Borrowers where the result of such loan, advance, or credit is an OverLoan.
         (b) The Revolving Credit Lenders'  obligations,  among themselves,  are
subject to Section  12:12-3(a)  (which relates to each Revolving Credit Lender's
making amounts available to the Agent) and to Section  15:15-3(a) (which relates
to Permissible OverLoans).
         (c) The Revolving  Credit Lenders'  providing of an OverLoan on any one
occasion does not affect the obligations of each Borrower  hereunder  (including
each  Borrower's  obligation  to  immediately  repay any amount which  otherwise
constitutes  an OverLoan) nor obligate the Revolving  Credit Lenders to do so on
any other occasion.

                                       29
<PAGE>

2-4 -RISKS OF VALUE OF  COLLATERAL.  The Agent's  reference  to a given asset in
connection with the making of loans,  credits, and advances and the providing of
financial  accommodations  under the Revolving  Credit and/or the  monitoring of
compliance with the provisions hereof shall not be deemed a determination by the
Agent or any Revolving  Credit Lender  relative to the actual value of the asset
in question.  All risks  concerning  the value of the  Collateral are and remain
upon the Borrowers.  All Collateral secures the prompt,  punctual,  and faithful
performance  of the  Liabilities  whether  or not  relied  upon by the  Agent in
connection with the making of loans,  credits, and advances and the providing of
financial accommodations under the Revolving Credit.

2-5  -COMMITMENT TO MAKE REVOLVING  CREDIT LOANS AND SUPPORT  LETTERS OF CREDIT.
Subject to the provisions of this Agreement,  the Revolving Credit Lenders shall
make Revolving Credit Loans and the Agent shall cause L/C's to be issued for the
account of the Lead Borrower,  in each instance if duly and timely  requested by
the Lead Borrower as provided  herein  provided that:
         (a) The  amount of the loan or  advance  or L/C so  requested  does not
exceed Availability.
         (b) No Borrower is in Default.

2-6      -REVOLVING CREDIT LOAN REQUESTS.

         (a)  Requests for  Revolving  Credit  Loans or for the  continuance  or
conversion  of an interest  rate  applicable  to a Revolving  Credit Loan may be
requested  by the Lead  Borrower  in such  manner  as may  from  time to time be
acceptable to the Agent.
         (b) Subject to the provisions of this Agreement,  the Lead Borrower may
request a Revolving  Credit Loan and elect an interest rate and Interest  Period
to be applicable to that Revolving  Credit Loan by giving notice to the Agent by
no later than the following:

                  (i)  If  such  Revolving  Credit  Loan  is  to  be or is to be
         converted  to a Base Margin  Loan:  By 12:00 PM on the  Business Day on
         which the  subject  Revolving  Credit Loan is to be made or is to be so
         converted. Base Margin Loans requested by the Lead Borrower, other than
         those resulting from the conversion of a Eurodollar  Loan, shall not be
         less than  $10,000.00.

                  (ii)  If such  Revolving  Credit  Loan  is to be,  or is to be
         continued as, or converted  to, a Eurodollar  Loan: By 1:00PM three (3)
         Eurodollar  Business Days before the  commencement  of any new Interest
         Period or the end of the then applicable  Interest  Period.  Eurodollar
         Loans and  conversions to Eurodollar  Loans shall each be not less than
         $500,000.00 and in increments of $100,000.00 in excess of such minimum.

                                       30
<PAGE>

                  (iii) Any Eurodollar  Loan which matures while any Borrower is
         in Default  shall be converted,  at the option of the Agent,  to a Base
         Margin Loan notwithstanding any notice from the Lead Borrower that such
         Loan is to be continued as a Eurodollar Loan.

         (c) Any request for a Revolving  Credit Loan or for the  continuance or
conversion  of an interest rate  applicable to a Revolving  Credit Loan which is
made after the applicable deadline therefor, as set forth above, shall be deemed
to have been made at the opening of business  on the then next  Business  Day or
Eurodollar Business Day, as applicable.

         (d) The Lead  Borrower may request that the Agent cause the issuance by
the Issuer of L/C's for the  account of the  Borrowers  as  provided  in Section
2:2-19.

         (e) The Agent may rely on any request  for a loan or advance,  or other
financial  accommodation  under the  Revolving  Credit which the Agent,  in good
faith,  believes to have been made by a Person duly  authorized to act on behalf
of the Lead Borrower and may decline to make any such requested loan or advance,
or issuance, or to provide any such financial  accommodation pending the Agent's
being furnished with such  documentation  concerning that Person's  authority to
act as may be reasonably satisfactory to the Agent.

         (f) A  request  by the  Lead  Borrower  for loan or  advance,  or other
financial  accommodation  under the Revolving  Credit shall be  irrevocable  and
shall  constitute  certification  by each  Borrower  that as of the date of such
request, each of the following is true and correct:

                  (i)  There  has  been  no  material   adverse  change  in  the
         Borrowers'   financial   condition  from  the  most  recent   financial
         information  furnished Agent or any Revolving Credit Lender pursuant to
         this Agreement.

                  (ii) If on any day  that an  advance  is made  hereunder,  any
         sales tax owed by the Borrowers is due and payable and remains  unpaid,
         then  some or all of  such  advance  shall  be  applied  to  cover  the
         Borrowers' payment of such sales tax.

                  (iii) Each  representation  which is made  herein or in any of
         the Loan  Documents is then true and complete in all material  respects
         as of and as if made on the date of such request.

                  (iv) The  granting of the request  will not result in a breach
         of or default under the 1995 Indenture.

                  (v) No Borrower is in Default.

         (g) If, at any time or from time to time, any Borrower is in Default:

                  (i) The Agent may suspend the Revolving Credit immediately.

                  (ii) Neither the Agent nor any  Revolving  Credit Lender shall
         be obligated,  during such suspension, to make any loans or advance, or
         to  provide  any  financial  accommodation  hereunder  or to  seek  the
         issuance of any L/C.

                  (iii) The Agent may suspend the right of the Lead  Borrower to
         request  any  Eurodollar  Loan or to convert  any Base Margin Loan to a

                                       31
<PAGE>

         Eurodollar Loan.

2-7      -Making of Revolving Credit Loans.

         (a) A loan or advance under the  Revolving  Credit shall be made by the
transfer of the proceeds of such loan or advance to the Operating  Account or as
otherwise instructed by the Lead Borrower.

         (b) A loan or  advance  shall be deemed  to have  been  made  under the
Revolving  Credit  (and the  Borrowers  shall be  indebted  to the Agent and the
Revolving Credit Lenders for the amount thereof immediately) at the following:

                  (i) The Agent's  initiation of the transfer of the proceeds of
         such  loan  or  advance  in   accordance   with  the  Lead   Borrower's
         instructions (if such loan or advance is of funds requested by the Lead
         Borrower).

                  (ii)  The  charging  of the  amount  of such  loan to the Loan
         Account (in all other circumstances).

         (c) There shall not be any recourse to or liability of the Agent or any
Revolving Credit Lender, on account of:

                  (i) Any delay  beyond the  reasonable  control of the Agent in
         the making of any loan or advance requested under the Revolving Credit.

                  (ii) Any delay by any bank or other depository  institution in
         treating the proceeds of any such loan or advance as collected funds.

                  (iii)  Any delay in the  receipt,  and/or  any loss,  of funds
         which constitute a loan or advance under the Revolving Credit, the wire
         transfer of which was  properly  initiated  by the Agent in  accordance
         with wire instructions provided to the Agent by the Lead Borrower.

2-8      -SwingLine Loans.

         (a) For ease of  administration,  Base Margin  Loans may be made by the
SwingLine  Lender (in the aggregate,  the "SwingLine  Loans") in accordance with
the  procedures set forth in this Agreement for the making of loans and advances
under the Revolving Credit.  The unpaid principal balance of the SwingLine Loans
shall not at any one time be in excess of the SwingLine Loan Ceiling.

         (b) The aggregate  unpaid  principal  balance of SwingLine  Loans shall
bear interest at the rate applicable to Base Margin Loans and shall be repayable
as a loan under the Revolving Credit.

         (c) The  Borrowers'  obligation  to  repay  SwingLine  Loans  shall  be
evidenced by a Note in the form of EXHIBIT 2:2-8(c), annexed hereto, executed by
the Borrowers,  and payable to the SwingLine Lender.  Neither the original nor a
copy of that  Note  shall be  required,  however,  to  establish  or  prove  any

                                       32
<PAGE>

Liability. The Borrowers shall execute a replacement of any SwingLine Note which
has been lost,  mutilated,  or destroyed thereof and deliver such replacement to
the SwingLine Lender.

         (d) For all purposes of this Loan  Agreement,  the SwingLine  Loans and
the Borrowers'  obligations to the SwingLine Lender constitute  Revolving Credit
Loans and are secured as "Liabilities".

         (e) SwingLine  Loans shall be subject to periodic  settlement  with the
Revolving Credit Lenders as provided in this Agreement.

2-9      -The Loan Account.

         (a) An  account  ("Loan  Account")  shall be opened on the books of the
Agent in which a record shall be kept of all loans and  advances  made under the
Revolving Credit.

         (b) The Agent shall also keep a record  (either in the Loan  Account or
elsewhere,  as the  Agent may from time to time  elect) of all  interest,  fees,
service charges,  costs,  expenses,  and other debits owed to the Agent and each
Revolving Credit Lender on account of the Liabilities and of all credits against
such amounts so owed.

         (c) All credits against the Liabilities shall be conditional upon final
payment to the Agent for the  account  of each  Revolving  Credit  Lender of the
items giving rise to such credits.  The amount of any item credited  against the
Liabilities  which is charged  back  against the Agent or any  Revolving  Credit
Lender for any reason or is not so paid shall be a Liability  and shall be added
to the Loan  Account,  whether or not the item so charged back or not so paid is
returned.

         (d) Except as otherwise  provided  herein,  all fees,  service charges,
costs, and expenses for which any Borrower is obligated hereunder are payable on
demand. In the determination of Availability,  the Agent may deem fees,  service
charges,  accrued  interest,  and other  payments  which will be due and payable
between  the date of such  determination  and the  first  day of the  then  next
succeeding  month as having been advanced under the Revolving  Credit whether or
not such amounts are then due and payable.

         (e) The Agent,  without the request of the Lead  Borrower,  may advance
under the Revolving Credit any interest,  fee, service charge,  or other payment
to which the Agent or any Revolving  Credit Lender is entitled from any Borrower
pursuant hereto and may charge the same to the Loan Account notwithstanding that
such amount so advanced may result in  Borrowing  Base's  being  exceeded.  Such
action on the part of the Agent  shall not  constitute  a waiver of the  Agent's
rights and each Borrower's obligations under Section 2:2-11(b). Any amount which
is added to the  principal  balance  of the Loan  Account  as  provided  in this
Section  2:2-9(e)  shall bear interest at the interest rate then and  thereafter
applicable to Base Margin Loans.

         (f) Any written statement rendered by the Agent or any Revolving Credit

                                       33
<PAGE>

Lender  to the Lead  Borrower  concerning  the  Liabilities  shall  be  reviewed
promptly by the Lead  Borrower.  To the extent that the Lead  Borrower  believes
that there is any mistake in such  statement  the Lead Borrower  shall  promptly
provide the Agent with written objection thereto,  which written objection shall
indicate,  with particularity,  the reason for such objection.  The Loan Account
and the Agent's books and records  concerning the loan arrangement  contemplated
herein and the Liabilities  shall be prima facie evidence of the items described
therein.

2-10 -The Revolving Credit Notes.  The Borrowers'  obligation to repay loans and
advances under the Revolving Credit, with interest as provided herein,  shall be
evidenced by Notes  (each,  a  "Revolving  Credit  Note") in the form of EXHIBIT
2:2-10, annexed hereto, executed by each Borrower, one payable to each Revolving
Credit  Lender.  Neither the  original nor a copy of any  Revolving  Credit Note
shall be required,  however,  to establish or prove any Liability.  In the event
that any  Revolving  Credit Note is ever lost,  mutilated,  or  destroyed,  each
Borrower,  at the request of the Agent, shall execute a replacement  thereof and
deliver such replacement to the Agent.

2-11     -Payment of The Loan Account.

         (a) The Borrowers may repay all or any portion of the principal balance
of the Loan Account from time to time until the Termination Date.

         (b) The  Borrowers,  without  notice  or  demand  from the Agent or any
Revolving  Credit  Lender,  shall pay the Agent that amount,  from time to time,
which is necessary so that there is no OverLoan outstanding.

         (c) Subject to Section  7:7-4(c),  following  the  occurrence of a Cash
Control Event, the Borrowers shall repay the Revolving Credit:

                  (i) in an amount equal to the proceeds realized from the sale,
         refinancing,   or  other  disposition  of,  or  realization  upon,  any
         Collateral; and

                  (ii) in  accordance  with the  provisions of Article 7 hereof.
         All amounts  prepaid  under this Section  2:2-11(c)  may be  reborrowed
         under the  Revolving  Credit,  subject to and in accordance  with,  the
         terms of this Agreement.

         (d) The  Borrowers  shall repay the then entire  unpaid  balance of the
Loan Account and all other Liabilities on the Termination Date.

         (e) The Agent shall follow the Lead Borrower's timely instructions with
respect to the application of payments against  Eurodollar Loans. In the absence
of timely instructions from the Lead Borrower, the Agent shall endeavor to cause
the  application  of  payments  (if any),  pursuant to  Sections  2:2-11(a)  and
2:2-11(b) against Eurodollar Loans then outstanding in such manner as results in
the least cost to the Borrowers,  but shall not have any affirmative  obligation
to do so nor liability on account of the Agent's  failure to have done so. In no

                                       34
<PAGE>

event shall action or inaction  taken by the Agent excuse any Borrower  from any
indemnification obligation under Section 2:2-11(f).

         (f) The Borrowers shall  indemnify the Agent and each Revolving  Credit
Lender and hold the Agent and each  Revolving  Credit  Lender  harmless from and
against any loss,  cost or expense  (including  amounts  payable by the Agent or
such Revolving  Credit Lender on account of "breakage fees"  (so-called))  which
the Agent or such  Revolving  Credit  Lender may  sustain  or incur  (including,
without limitation,  by virtue of acceleration after the occurrence of any Event
of Default) as a consequence of the following:

                  (i) Default by any Borrower in payment of the principal amount
         of or any interest on any Eurodollar  Loan as and when due and payable,
         including  any such  loss or  expense  arising  from  interest  or fees
         payable  by such  Revolving  Credit  Lender  in order to  maintain  its
         Eurodollar Loans.

                  (ii)  Default  by  any  Borrower  in  making  a  borrowing  or
         conversion  after the Borrower has given (or is deemed to have given) a
         request for a Revolving Credit Loan or a request to convert a Revolving
         Credit Loan from one applicable interest rate to another.

                  (iii) The making of any  payment on a  Eurodollar  Loan or the
         making of any conversion of any such  Eurodollar  Loan to a Base Margin
         Loan on a day  that  is not the  last  day of the  applicable  Interest
         Period with respect thereto.

2-12     -Interest on Revolving Credit Loans.

         (a) Each  Revolving  Credit Loan shall bear interest at the Base Margin
Rate  unless  timely  notice is given (as  provided  in Section  2:2-6) that the
subject  Revolving  Credit Loan (or a portion thereof) is, or is to be converted
to, a Eurodollar Loan.

         (b) Each  Revolving  Credit Loan which  consists of a  Eurodollar  Loan
shall bear interest at the applicable Eurodollar Rate.

         (c)  Subject  to,  and in  accordance  with,  the  provisions  of  this
Agreement,  the Lead  Borrower  may cause all or a part of the unpaid  principal
balance of the Loan  Account to bear  interest  at the Base  Margin  Rate or the
Eurodollar Rate as specified from time to time by the Lead Borrower.

         (d) The Lead Borrower shall not select,  renew, or convert any interest
rate for a Revolving  Credit Loan such that, in addition to interest at the Base
Margin Rate,  there are more than five (5)  Eurodollar  Rates  applicable to the
Revolving Credit Loans at any one time.

         (e) The  Borrowers  shall  pay  accrued  and  unpaid  interest  on each
Revolving Credit Loan in arrears as follows:

                  (i) On the applicable Interest Payment Date for that Revolving
         Credit Loan.

                  (ii) On the Termination Date and on the End Date.

                  (iii)  Following the occurrence of any Event of Default,  with

                                       35
<PAGE>

         such frequency as may be determined by the Agent.

         (f)  Following  the  occurrence of any Event of Default (and whether or
not the Agent  exercises the Agent's rights on account  thereof),  all Revolving
Credit  Loans  shall  bear  interest,  at  the  option  of the  Agent  or at the
instruction of the  SuperMajority  Lenders at rate which is the aggregate of the
rate applicable to Base Margin Loans plus two Percent (2%) per annum.

2-13 -Revolving  Credit  Commitment Fee. In  consideration  of the commitment to
make loans and advances to the  Borrowers  under the  Revolving  Credit,  and to
maintain sufficient funds available for such purpose,  there has been earned and
the Borrowers  shall pay the "Revolving  Credit  Commitment Fee" (so referred to
herein) in the amount and payable as provided in the Fee Letter.

2-14  -Agent's  Fee.  In  addition to any other fee or expense to be paid by the
Borrowers on account of the Revolving Credit,  the Borrowers shall pay the Agent
the " Agent's Fee" at the times and in the amounts as set forth the Fee Letter.

2-15 -Unused Line Fee. In addition to any other fee to be paid by the  Borrowers
on  account  of the  Revolving  Credit,  the  Borrowers  shall pay the Agent the
"Unused  Line Fee" (so  referred  to herein)  of 0.25% per annum of the  average
difference,  during the quarter just ended (or  relevant  period with respect to
the payment being made on the  Termination  Date)  between the Revolving  Credit
Ceiling and the  aggregate of the unpaid  principal  balance of the Loan Account
and the undrawn Stated Amount of L/C's  outstanding  during the relevant period.
The Unused Line Fee shall be paid in arrears,  on the first day of each  quarter
after the execution of this Agreement and on the Termination Date.

2-16 -Early  Termination Fee. In the event that the Termination Date occurs, for
any reason,  prior to the second anniversary hereof (other than by virtue of the
Borrower's  refinancing of the  Liabilities  with FRFI or Fleet National Bank or
any of their respective  Affiliates),  the Borrowers shall pay to the Agent, for
the  benefit of the  Revolving  Credit  Lenders,  the  "Revolving  Credit  Early
Termination  Fee" (so  referred to herein) in an amount  equal to the  following
percentage  of the  Revolving  Credit  Ceiling  in  effect  on the  date of this
Agreement:

         (a) Termination Date on or before November 30, 2001: 1.0%.

         (b) Termination  Date after November 30, 2001 and on or before November
30, 2002: 0.5%.

2-17     -Concerning Fees.

         (a) In addition to any other right to which the Agent is then  entitled

                                       36
<PAGE>

on  account  thereof,  the Agent may  assess an  additional  fee  payable by the
Borrowers on account of the  accommodation,  from time to time,  by the Agent of
the Lead  Borrower's  request that the Agent depart or dispense with one or more
of the administrative provisions of this Agreement and/or any Borrower's failure
to comply with any of such provisions.

         (b) By way of  non-exclusive  example,  the Agent  may  assess a fee on
account of any of the following:

                  (i)  The  Borrowers'  failure  to pay  that  amount  which  is
         necessary so that no OverLoan is outstanding (as required under Section
         2:2-11(b) hereof).

                  (ii) The  providing of a loan or advance  under the  Revolving
         Credit or charging of the Loan Account such that an OverLoan is made.

                  (iii)  The  foreshortening  of  any of the  time  frames  with
         respect to the making of Revolving Credit Loans as set forth in Section
         2:2-6.

                  (iv)  The Lead  Borrower's  failure  to  provide  a  financial
         statement or report within the applicable  time frame provided for such
         report under Article 5: hereof.

         (c) The  Borrowers  shall  not be  entitled  to any  credit,  rebate or
repayment of any fee earned by the Agent or any Revolving Credit Lender pursuant
to this Agreement or any Loan Document  notwithstanding  any termination of this
Agreement or suspension or termination  of the Agent's and any Revolving  Credit
Lender's respective obligation to make loans and advances hereunder.

2-18     -Agent's and Revolving Credit Lenders' Discretion.

         (a) Each  reference in the Loan Documents to the exercise of discretion
or the  like by the  Agent  or any  Revolving  Credit  Lender  shall  be to such
Person's  reasonable  exercise of its  judgment,  in good faith  (which shall be
presumed), based upon such Person's reasonable consideration of any such factors
as the Agent or that Revolving Credit Lender, taking into account information of
which that Person then has actual knowledge, believes:

                  (i) Will or  reasonably  could be expected to affect the value
         of  the  Collateral,  the  enforceability  of  the  Agent's  Collateral
         Interests  therein,  or the amount which the Agent would likely realize
         therefrom (taking into account delays which may possibly be encountered
         in the  Agent's  realizing  upon the  Collateral  and  likely  Costs of
         Collection).

                  (ii)  Indicates  that  any  report  or  financial  information
         delivered to the Agent or any  Revolving  Credit Lender by or on behalf
         of  any  Borrower  is  incomplete,  inaccurate,  or  misleading  in any
         material manner or was not prepared in accordance with the requirements
         of this Agreement.

                  (iii) Suggests an increase in the likelihood that any Borrower
         will become the subject of a bankruptcy or insolvency proceeding.

                  (iv) Suggests that any Borrower is in Default.

                                       37
<PAGE>

         (b) In the  exercise  of such  judgment,  the Agent and each  Revolving
Credit Lender also may take into account any of the following factors:

                  (i) Those  included  in,  or tested  by,  the  definitions  of
         "Eligible  Accounts," "Eligible  Inventory",  "Eligible L/C Inventory",
         "Eligible Receivables" and "Cost".

                  (ii)  The  current  financial  and  business  climate  of  the
         industry  in which  each  Borrower  competes  (having  regard  for that
         Borrower's position in that industry).

                  (iii) General  macroeconomic  conditions which have a material
         effect on the Borrowers' cost structure.

                  (iv)  Material  changes  in or to the  mix  of the  Borrowers'
         Inventory.

                  (v) Seasonality  with respect to the Borrowers'  Inventory and
         patterns of retail sales.

                  (vi) Such other factors as the Agent and each Revolving Credit
         Lender  determines  as  having  a  material  bearing  on  credit  risks
         associated with the providing of loans and financial  accommodations to
         the Borrowers.

         (c)  The  burden  of  establishing  the  failure  of the  Agent  or any
Revolving  Credit  Lender to have acted in a reasonable  manner in such Person's
exercise  of such  discretion  shall be the  Borrowers'  and may be made only by
clear and convincing evidence.

2-19     -Procedures For Issuance of L/C's.

         (a) The Lead  Borrower may request that the Agent cause the issuance by
the Issuer of L/C's for the account of any Borrower.  Each such request shall be
in such manner as may from time to time be acceptable to the Agent.

         (b) The Agent will cause the  issuance of any L/C so  requested  by the
Lead  Borrower,  provided  that , at the time  that  the  request  is made,  the
Revolving  Credit has not been suspended as provided in Section  2:2-6(g) and if
so issued:

                  (i) The aggregate Stated Amount of all L/C's then outstanding,
         does not  exceed  Twenty  Million  Dollars  ($20,000,000.00).

                  (ii) The  expiry of the L/C is not later  than the  earlier of
         thirty (30) days prior to the Maturity Date or the following:

                         (A)      Standby's: One (1) year from initial issuance.

                         (B)      Documentary's: Sixty (60) days from issuance.

                  (iii) An  OverLoan  will not result  from the  issuance of the
         subject L/C.

         (c) Each Borrower shall execute such  documentation to apply for an L/C
as may be required by the Issuer.

         (d) There shall not be any recourse to, nor  liability of, the Agent or
any  Revolving  Credit  Lender on  account  of any of the  following  beyond the
reasonable control of the Agent:

                                       38
<PAGE>

                  (i) Any delay or refusal by an Issuer to issue an L/C:

                  (ii) Any action or  inaction  of an Issuer on account of or in
         respect to, any L/C.

         (e) The  Borrowers  shall  reimburse  the  Issuer for the amount of any
honoring of a drawing under an L/C on the same day on which such honoring  takes
place.  The Agent,  without the request of any  Borrower,  may advance under the
Revolving  Credit (and charge to the Loan Account) the amount of any honoring of
any L/C and other amount for which any  Borrower,  the Issuer,  or the Revolving
Credit Lenders  become  obligated on account of, or in respect to, any L/C. Such
advance  shall be made whether or not any Borrower is in Default or such advance
would  result in an OverLoan.  Such action shall not  constitute a waiver of the
Agent's rights under Section 2:2-11(b) hereof.

2-20     -Fees For L/C's.
         (a) The  Borrowers  shall  pay to the  Agent,  for the  benefit  of the
Revolving Credit Lenders,  a fee, on account of L/C's, the issuance of which had
been procured by the Agent,  monthly in arrears, and on the Termination Date and
on the End Date, equal to the applicable L/C Fees of the weighted average Stated
Amount of all standby and documentary  L/C's, as applicable,  outstanding during
the period in respect of which such fee is being paid except that, following the
occurrence  of any Event of Default,  such fee shall be increased by two percent
(2%) per annum.

         (b) In  addition  to the  fee to be  paid  as  provided  in  Subsection
2:2-20(a),  above, the Borrowers shall pay to the Agent (or to the Issuer, if so
requested  by  Agent),  on  demand,  all  issuance,   processing,   negotiation,
amendment,  and  administrative  fees and other amounts charged by the Issuer on
account of, or in respect to, any L/C.

         (c)If any change in Applicable Law shall either:

                  (i) impose,  modify or deem  applicable  any reserve,  special
         deposit or similar requirements against letters of credit heretofore or
         hereafter  issued by any Issuer or with respect to which any  Revolving
         Credit  Lender or any Issuer has an obligation to lend to fund drawings
         under any L/C; or

                  (ii) impose on any Issuer any other  condition or requirements
         relating  to any such  letters of  credit;  and the result of any event
         referred to in Section  2:2-20(c)(i) or 2:2-20(c)(ii),  above, shall be
         to increase the cost to any Revolving Credit Lender or to any Issuer of
         issuing or  maintaining  any L/C (which  increase  in cost shall be the
         result of such  Issuer's  reasonable  allocation  among that  Revolving
         Credit Lender's or Issuer's letter of credit customers of the aggregate
         of such cost increases  resulting from such events),  then, upon demand
         by the  Agent  and  delivery  by the  Agent to the Lead  Borrower  of a
         certificate of an officer of the subject Revolving Credit Lender or the
         subject  Issuer  describing  such  change  in  law,   executive  order,
         regulation,  directive,  or interpretation  thereof, its effect on such

                                       39
<PAGE>

         Revolving  Credit Lender or such Issuer,  and the basis for determining
         such  increased  costs  and  their  allocation,   the  Borrowers  shall
         immediately  pay to the Agent,  from time to time as  specified  by the
         Agent,  such amounts as shall be sufficient  to compensate  the subject
         Revolving  Credit Lender or the subject Issuer for such increased cost.
         Any Revolving  Credit Lender's or any Issuer's  determination  of costs
         incurred under Section  2:2-20(c)(i) or  2:2-20(c)(ii),  above, and the
         allocation,  if any, of such costs among the Borrowers and other letter
         of credit customers of such Revolving Credit Lender or such Issuer,  if
         done in good  faith and made on an  equitable  basis and in  accordance
         with such officer's certificate, shall be conclusive and binding on the
         Borrowers.

2-21     -Concerning L/C's.

         (a) None of the Issuer,  the  Issuer's  correspondents,  any  Revolving
Credit  Lender,  the Agent,  or any advising,  negotiating,  or paying bank with
respect to any L/C shall be responsible in any way for:

                  (i) The performance by any  beneficiary  under any L/C of that
         beneficiary's obligations to any Borrower.

                  (ii)  The   form,   sufficiency,   correctness,   genuineness,
         authority of any person signing; falsification; or the legal effect of;
         any  documents  called  for  under  any  L/C if  (with  respect  to the
         foregoing) such documents on their face appear to be in order.

         (b) The Issuer may honor, as complying with the terms of any L/C and of
any drawing  thereunder,  any drafts or other documents  otherwise in order, but
signed  or  issued  by  an  administrator,  executor,  conservator,  trustee  in
bankruptcy,  debtor  in  possession,  assignee  for the  benefit  of  creditors,
liquidator,  receiver,  or other legal  representative  of the party  authorized
under such L/C to draw or issue such drafts or other documents.

         (c)  Unless  otherwise  agreed  to, in the  particular  instance,  each
Borrower hereby authorizes any Issuer to:

                  (i) Select an advising bank, if any.

                 (ii) Select a paying bank, if any.

                (iii) Select a negotiating bank.

         (d) All directions, correspondence, and funds transfers relating to any
L/C are at the risk of the  Borrowers.  The  Issuer  shall have  discharged  the
Issuer's  obligations under any L/C which, or the drawing under which,  includes
payment instructions,  by the initiation of the method of payment called for in,
and  in  accordance  with,  such  instructions  (or by  any  other  commercially
reasonable  and  comparable  method).  None of the Agent,  any Revolving  Credit
Lender,  or the  Issuer  shall  have  any  responsibility  for  any  inaccuracy,
interruption,  error, or delay in transmission or delivery by post, telegraph or
cable, or for any inaccuracy of translation.

         (e) The  Agent's,  each  Revolving  Credit  Lender's,  and the Issuer's

                                       40
<PAGE>

rights,  powers,  privileges and  immunities  specified in or arising under this
Agreement are in addition to any heretofore or at any time  hereafter  otherwise
created or arising, whether by statute or rule of law or contract.

         (f) Except to the extent  otherwise  expressly  provided  hereunder  or
agreed to in writing by the Issuer and the Lead Borrower, documentary L/C's will
be  governed  by the  Uniform  Customs and  Practice  for  Documentary  Credits,
International  Chamber of Commerce,  Publication No. 500, and standby L/C's will
be  governed  by   International   Standby   Practices  ISP98  (adopted  by  the
International  Chamber  of  Commerce  on  April  6,  1998)  and  any  respective
subsequent revisions thereof.

         (g) The  obligations of the Borrowers under this Agreement with respect
to L/C's are absolute,  unconditional,  and  irrevocable  and shall be performed
strictly in accordance with the terms hereof under all circumstances, whatsoever
including, without limitation, the following:

                  (i) Any lack of validity  or  enforceability  or  restriction,
         restraint,  or stay in the enforcement of this  Agreement,  any L/C, or
         any other agreement or instrument relating thereto.

                  (ii) Any Borrower's  consent to any amendment or waiver of, or
         consent to the departure from, any L/C.

                  (iii) The existence of any claim,  set-off,  defense, or other
         right which any Borrower  may have at any time against the  beneficiary
         of any L/C.

2-22     -Changed Circumstances.

         (a) The Agent may advise the Lead  Borrower that the Agent has made the
good faith determination  (which determination shall be final and conclusive) of
any of the following:

                  (i) Adequate and fair means do not exist for  ascertaining the
         rate for Eurodollar Loans.

                  (ii) The continuation of or conversion of any Revolving Credit
         Loan to a Eurodollar  Loan has been made  impracticable  or unlawful by
         the occurrence of a contingency  that materially and adversely  affects
         the  applicable  market or the compliance by the Agent or any Revolving
         Credit Lender in good faith with any Applicable Law.

                  (iii) The indices on which the interest  rates for  Eurodollar
         Loans are based shall no longer  represent  the  effective  cost to the
         Agent or any Revolving  Credit Lender for U.S.  dollar  deposits in the
         interbank market for deposits in which it regularly participates.

         (b) In the  event  that  the  Agent  advises  the Lead  Borrower  of an
occurrence  described in Section  2:2-22(a),  then, until the Agent notifies the
Lead Borrower that the circumstances giving rise to such notice no longer apply:

                  (i) The  obligation  of the  Agent  or each  Revolving  Credit
         Lender to make loans of the type affected by such changed circumstances
         or to permit the Lead Borrower to select the affected  interest rate as
         otherwise  applicable to any Revolving Credit Loans shall be suspended.

                                       41
<PAGE>

                  (ii) Any notice  which the Lead  Borrower  had given the Agent
         with respect to any  Eurodollar  Loan, the time for action with respect
         to which has not  occurred  prior to the Agent's  having  given  notice
         pursuant  to  Section  2:2-22(a),  shall be deemed at the option of the
         Agent to not having been given.

2-23     -Designation of Lead Borrower as Borrowers'  Agent.

         (a) Each Borrower hereby  irrevocably  designates and appoints the Lead
Borrower  as that  Borrower's  agent to  obtain  loans  and  advances  under the
Revolving Credit,  the proceeds of which shall be available to each Borrower for
those uses as those set forth in Section  2:2-1(d).  As the disclosed  principal
for its agent,  each Borrower shall be obligated to the Agent and each Revolving
Credit  Lender on account  of loans and  advances  so made  under the  Revolving
Credit as if made directly by the  Revolving  Credit  Lenders to that  Borrower,
notwithstanding  the manner by which such loans and advances are recorded on the
books and records of the Lead Borrower and of any Borrower.

         (b) Each  Borrower  recognizes  that credit  available  to it under the
Revolving  Credit is in excess of and on better  terms than it  otherwise  could
obtain on and for its own account  and that one of the  reasons  therefor is its
joining in the credit  facility  contemplated  herein with all other  Borrowers.
Consequently,   each  Borrower  hereby  assumes  and  agrees  to  discharge  all
Liabilities  of all other  Borrowers  as if the  Borrower so assuming  were each
other Borrower.

         (c)  The  Lead  Borrower  shall  act as a  conduit  for  each  Borrower
(including  itself,  as a  "Borrower")  on whose  behalf the Lead  Borrower  has
requested a Revolving Credit Loan.

         (d) The proceeds of each loan and advance  provided under the Revolving
Credit  which is  requested by the Lead  Borrower  shall be  deposited  into the
Operating  Account or as  otherwise  indicated  by the Lead  Borrower.  The Lead
Borrower  shall  cause the  transfer  of the  proceeds  thereof  to the  (those)
Borrower(s)  on whose  behalf such loan and advance  was  obtained.  Neither the
Agent nor any Revolving  Credit  Lender shall have any  obligation to see to the
application of such proceeds.

2-24     -Lenders' Commitments

         (a) Subject to Section  16:16-1  (which  provides for  assignments  and
assumptions of commitments),  each Revolving Credit Lender's  "Revolving  Credit
Commitment Percentage",  and "Revolving Credit Dollar Commitment"  (respectively
so referred to herein) is set forth on EXHIBIT 2:2-24, annexed hereto.

         (b) The obligations of each Revolving Credit Lender are several and not
joint. No Revolving  Credit Lender shall have any obligation to make any loan or
advance under the Revolving Credit in excess of the lesser of the following:

                  (i) That Revolving Credit Lender's Revolving Credit Commitment

                                       42
<PAGE>

         Percentage of the subject loan or advance or of Availability.

                  (ii) that Revolving  Credit Lender's  Revolving  Credit Dollar
         Commitment.

         (c)  No  Revolving  Credit  Lender  shall  have  any  liability  to the
Borrowers  on account of the  failure of any other  Revolving  Credit  Lender to
provide any loan or advance  under the  Revolving  Credit nor any  obligation to
make up any shortfall which may be created by such failure.

         (d)  The  Revolving   Credit  Dollar   Commitments,   Revolving  Credit
Commitment  Percentages,  and identities of the Revolving  Credit Lenders may be
changed, from time to time by the reallocation or assignment of Revolving Credit
Dollar  Commitments  and Revolving  Credit  Commitment  Percentages  amongst the
Revolving  Credit  Lenders  or  with  other  Persons  who  determine  to  become
"Revolving Credit Lenders",  as described in Section 16:16-1,  below,  provided,
however  unless an Event of Default has occurred (in which event,  no consent of
any  Borrower  is  required)   subsequent  to  the  completion  of  the  initial
syndication  by the  Syndication  Agent,  any  assignment to a Person not then a
Revolving  Credit  Lender  shall be  subject  to the prior  consent  of the Lead
Borrower (not to be unreasonably  withheld),  which consent will be deemed given
unless the Lead  Borrower  provides the Agent with written  objection,  not more
than five (5) Business  Days after the Agent shall have given the Lead  Borrower
written notice of a proposed assignment).

         (e) . Upon written  notice given the Lead Borrower from time to time by
the Agent, of any assignment or allocation referenced in Section 2:2-24(d):

                  (i)  Each  Borrower  shall  execute  one or  more  replacement
         Revolving Credit Notes to reflect such changed  Revolving Credit Dollar
         Commitments,  Revolving Credit Commitment  Percentages,  and identities
         and shall deliver such replacement  Revolving Credit Notes to the Agent
         (which  promptly  thereafter  shall  deliver to the Lead  Borrower  the
         Revolving Credit Notes so replaced),  provided,  however,  in the event
         that  a  Revolving  Credit  Note  is  to  be  exchanged  following  its
         acceleration  or the entry of an order for relief under the  Bankruptcy
         Code with respect to any  Borrower,  the Agent,  in lieu of causing the
         Borrowers to execute one or more new Revolving  Credit Notes, may issue
         the Agent's  Certificate  confirming  the  resulting  Revolving  Credit
         Dollar Commitments and Revolving Credit Commitment Percentages.

                  (ii) Such change shall be effective  from the  effective  date
         specified  in such  written  notice and any Person added as a Revolving
         Credit Lender shall have all rights,  privileges,  and obligations of a
         Revolving Credit Lender hereunder thereafter as if such Person had been
         a signatory to this  Agreement  and any other Loan  Document to which a
         Revolving  Credit  Lender is a  signatory  and any Person  removed as a
         Revolving  Credit  Lender  shall  be  relieved  of any  obligations  or
         responsibilities  of a Revolving  Credit  Lender  hereunder  thereafter
         arising.

                                       43
<PAGE>

Article 3:        - Conditions Precedent:

         As  a  condition  to  the   effectiveness   of  this   Agreement,   the
establishment  of the Revolving  Credit,  and the making of the first loan under
the  Revolving  Credit,  each  of  the  documents  and  conditions  respectively
described  below,  shall have been delivered to the Agent, or satisfied (in form
and substance satisfactory to the Agent):

3-1      -Corporate Due Diligence.

         (a)   Certificates  of  corporate  good  standing  for  each  Borrower,
respectively,  issued by the  Secretary  of State  for the  state in which  that
Borrower is incorporated.

         (b) Certificates of due qualification,  in good standing, issued by the
Secretary(ies) of State of each State in which the nature a Borrower's  business
conducted or assets owned could require such qualification.

         (c)  Certificates  of each  Borrower's  secretary of the due  adoption,
continued  effectiveness,  and  setting  forth  the  texts  of,  each  corporate
resolution  adopted in connection with the establishment of the loan arrangement
contemplated  by the Loan Documents and attesting to the true signatures of each
Person authorized as a signatory to any of the Loan Documents.

3-2  -Opinion.  An opinion of counsel  to the  Borrowers  in form and  substance
satisfactory to the Agent.

3-3  -Additional  Documents.  Such  additional  instruments and documents as the
Agent or its counsel reasonably may require or request.

3-4 -Representations  and Warranties.  Each of the representations made by or on
behalf of each Borrower in this  Agreement or in any of the other Loan Documents
or in any other report,  statement,  document, or paper provided by or on behalf
of each Borrower  shall be true and complete in all material  respects as of the
date as of which such representation or warranty was made.

3-5 -Perfection of Encumbrances. The Agent shall have received all documents and
instruments, including Uniform Commercial Code financing statements, required by
law or reasonably requested by the Agents to be filed, registered or recorded to
create or perfect the first priority  Encumbrances  intended to be created under
the Loan  Documents and all such  documents and  instruments  shall have been so
filed to the satisfaction of the Agent.

                                       44
<PAGE>

3-6  -Satisfaction  of Existing  Indebtedness.  The Agent shall have  received a
payoff letter from Bank of America reasonably satisfactory in form and substance
to the Agent,  together with releases of all Encumbrances held by such Person on
the assets of the Borrower.  Contemporaneously  with the first advance under the
Revolving  Credit,  the Borrower  shall pay all  indebtedness  reflected in such
payoff letter in full.

3-7  -Consents  and  Approvals.  All  necessary  consents  and  approvals to the
transactions   contemplated  hereby  shall  have  been  obtained  and  shall  be
reasonably satisfactory to the Agent.

3-8 -No Defaults under Applicable law or Material  Agreements.  The consummation
of the transactions contemplated hereby shall not (a) violate any Requirement of
Law or (b) conflict with, or result in a default or event of default under,  any
material agreement of the Borrowers.

3-9 -No Litigation.  There shall not exist any litigation or other  proceedings,
the  result of which has or is likely to have a Material  Adverse  Effect on any
Borrower.

3-10 -All Fees and Expenses Paid. All fees due at or immediately after the first
funding  under the Revolving  Credit and all costs and expenses  incurred by the
Agent in connection with the establishment of the credit facilities contemplated
hereby  (including  the  reasonable  fees and  expenses of counsel to the Agent)
shall have been paid in full.

3-11 -No Material  Adverse Change.  Except as otherwise  disclosed in writing to
the Agent or in a filing with the SEC, no event shall have occurred or failed to
occur, which occurrence has or is reasonably likely to have a materially adverse
effect upon any Borrower's financial condition when compared with such financial
condition at September 2, 2000.

3-12  -Minimum Day One  Availability.  After giving  effect to the first funding
under the Revolving Credit, Availability shall not be less than $50,000,000.00.

3-13     -Borrower Not In Default.  No Borrower is in Default.

3-14 -Bond Indentures.  Review of the 1995 Indenture  satisfactory to the Agent,
including, without limitation, the Agent's satisfaction that no event of default
will arise  thereunder by virtue of the consummation of loan the credit facility
described herein, and that the terms thereof do not impede the Agent's obtaining

                                       45
<PAGE>

a lien on the Borrower's assets and do not result in the bondholders'  obtaining
a lien on any of the  Borrower's  assets.  The Agent may  require  an opinion of
Borrower's counsel to the foregoing satisfactory to the Agent in all respects.

3-15 -Projections.  The Agent shall have received and be satisfied with detailed
one-year financial projections and business assumptions for the Borrower.

3-16  -Other  Information.   Any  other  information  (financial  or  otherwise)
requested  by the Agent  shall have been  received  by the Agent and shall be in
form and substance reasonably satisfactory to the Agent.

3-17 -No  Negative  Effect on  Syndication.  There shall not have  occurred  any
disruption or material  adverse  change in the  financial or capital  markets in
general that would, in the opinion of the Agent,  have a material adverse effect
on the market for loan  syndications or in the markets for equity  securities in
particular, or adversely affecting the syndication.

3-18 -Government Regulations. The proposed financing is subject to the condition
that no material changes in governmental  regulations or policies  affecting the
Borrower,  the Agent or Lenders  involved  in this  transaction  occur  prior to
Closing.

3-19 -Benefit of Conditions Precedent.  The conditions set forth in this Article
3: are for the sole benefit of the Agent and each  Revolving  Credit  Lender and
may be waived by the Agent in whole or in part without prejudice to the Agent or
any Revolving Credit Lender.

No  document  shall be deemed  delivered  to the Agent or any  Revolving  Credit
Lender  until  received  and  accepted  by the Agent at its  offices  in Boston,
Massachusetts.  Under no  circumstances  shall this  Agreement take effect until
executed and accepted by the Agent at said offices.

Article 4:        - General Representations, Covenants and Warranties:

         To induce each Revolving Credit Lender to establish the credit facility
contemplated  herein and to induce the Revolving Credit Lenders to provide loans
and advances under the Revolving  Credit (each of which loans shall be deemed to
have been made in reliance  thereupon) the  Borrowers,  in addition to all other
representations,  warranties,  and  covenants  made by any Borrower in any other

                                       46
<PAGE>

Loan Document, make those representations, warranties, and covenants included in
this Agreement.

4-1  -Payment and  Performance  of  Liabilities.  The  Borrowers  shall pay each
payment  Liability when due (or when  demanded,  if payable on demand) and shall
promptly, punctually, and faithfully perform each other Liability.

4-2      -Due Organization. Authorization. No Conflicts.

         (a) Each  Borrower  presently  is and  hereafter  shall  remain in good
standing as a corporation  under the laws of the State in which it is organized,
as set forth in the Preamble to this Agreement and is and shall hereafter remain
duly qualified and in good standing in every other State in which,  by reason of
the nature or location of each Borrower's assets or operation of each Borrower's
business,  such  qualification may be necessary,  except where the failure to so
qualify would have a Material Adverse Effect.

         (b) Each Borrower's  respective  organizational  identification  number
assigned  to it by the State of its  incorporation  and its  respective  federal
employer identification number is stated on EXHIBIT 4:4-2, annexed hereto.

         (c)  No  Borrower   shall  change  its  State  of   organization;   any
organizational identification number assigned to that Borrower by that State; or
that Borrower's federal taxpayer identification number.

         (d) Each Affiliate is listed on EXHIBIT 4:4-2.  The Lead Borrower shall
provide the Agent with prior written notice of any entity's  becoming or ceasing
to be an Affiliate.

         (e) Each Borrower has all requisite  power and authority to execute and
deliver all Loan  Documents  to which that  Borrower is a party and has and will
hereafter retain all requisite power to perform all Liabilities.

         (f) The  execution  and delivery by each Borrower of each Loan Document
to  which  it is a  party;  each  Borrower's  consummation  of the  transactions
contemplated by such Loan Documents (including, without limitation, the creation
of  Collateral  Interests  by that  Borrower  to secure the  Liabilities);  each
Borrower's performance under those of the Loan Documents to which it is a party;
the borrowings hereunder; and the use of the proceeds thereof:

                  (i) Have been duly authorized by all necessary action.

                  (ii) Do not, and will not,  contravene in any material respect
         any provision of any Requirement of Law or obligation of that Borrower.

                  (iii) Will not result in the creation or imposition of, or the
         obligation to create or impose, any Encumbrance upon any assets of that
         Borrower  pursuant  to any  Requirement  of Law or  obligation,  except
         pursuant to the Loan Documents.

                                       47
<PAGE>

         (g) The Loan  Documents  have been duly  executed and delivered by each
Borrower  and are the legal,  valid and binding  obligations  of each  Borrower,
enforceable against each Borrower in accordance with their respective terms.

4-3      -Trade Names.

         (a) EXHIBIT 4:4-3, annexed hereto, is a listing of:

                  (i) All names  under which any  Borrower  ever  conducted  its
         business after September 11, 1995.

                  (ii) All Persons with whom any Borrower ever  consolidated  or
         merged, or from whom any Borrower ever acquired in a single transaction
         or in a  series  of  related  transactions  substantially  all of  such
         Person's assets.

         (b) The Lead  Borrower  will  provide  the  Agent  with  not less  than
twenty-one (21) days prior written notice (with reasonable particularity) of any
change to any Borrower's  name from that under which that Borrower is conducting
its business at the execution of this  Agreement and will not effect such change
unless  each  Borrower  is  then  in  compliance  with  all  provisions  of this
Agreement.

4-4      -Infrastructure.

         (a) Each Borrower has and will maintain a sufficient  infrastructure to
conduct its business as presently  conducted and as contemplated to be conducted
following its execution of this Agreement.

         (b) Each Borrower owns and possesses, or has the right to use (and will
hereafter  own,  possess,  or have such  right to use) all  patents,  industrial
designs,  trademarks,  trade names,  trade styles,  brand names,  service marks,
logos, copyrights, trade secrets, know-how,  confidential information, and other
intellectual  or  proprietary  property of any third Person  necessary  for that
Borrower's conduct of that Borrower's business.

         (c) The conduct by each Borrower of that  Borrower's  business does not
presently  infringe (nor will any Borrower conduct its business in the future so
as to infringe) the patents, industrial designs,  trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights,  trade secrets, know-how,
confidential  information,  or other intellectual or proprietary property of any
third Person, to the extent that any infringement  would have a Material Adverse
Effect.

4-5      -Locations.
         (a) The Collateral,  and the books,  records,  and papers of Borrowers'
pertaining thereto, are kept and maintained solely at the following locations:

                  (i) The Lead Borrower's  chief executive  offices which are at

                                       48
<PAGE>

         20 Federal Plaza West, Youngstown, Ohio 44503.

                 (ii) Those locations which are listed on EXHIBIT 4:4-5, annexed
         hereto, which EXHIBIT includes, with respect to each such location, the
         name and  address  of the  landlord  on the  Lease  which  covers  such
         location (or an indication  that a Borrower owns the subject  location)
         and of all service  bureaus with which any such records are  maintained
         and the names and addresses of each of then Borrowers' landlords.

         (b) Notwithstanding  anything herein to the contrary, the Borrowers may
remove  and  destroy  records  and  papers of the  Borrowers  pertaining  to the
Collateral  to the extent that it is  consistent  with Current  Practices of the
Borrowers.

         (c) No  Borrower  shall  remove any of the  Collateral  from said chief
executive  office or those  locations  listed on  EXHIBIT  4:4-5  except for the
following purposes:

                  (i) To accomplish sales of Inventory in the ordinary course of
         business.

                  (ii) To move  Inventory from one such location to another such
         location of the same Borrower.

                  (iii) To utilize  such of the  Collateral  as is removed  from
         such  locations  in the  ordinary  course  of  business  (such as motor
         vehicles).

         (d) No  Borrower  will  execute  any Lease other than where each of the
following conditions is satisfied:

                  (i) Such execution is in the ordinary course of business.

                  (ii) Neither such  execution nor any  Borrower's  acting under
         such Lease results in any Borrower's becoming in Default.

                  (iii) Not less than  fifteen  (15) days prior  written  notice
         (with reasonable  particularity) is given to the Agent of the execution
         of the subject Lease.

                  (iv) Such execution will not result in the Borrowers'  opening
         of one or more  Stores,  if the  opening  of such  Store or  Stores  is
         otherwise prohibited by this Agreement.

         (e) Each Borrower may alter, modify, or amend any Lease in the ordinary
course  of  its  business;  provided   that  such  alteration,  modification  or
amendment does not cause any Borrower to become in Default.

         (f) During any fiscal year during which this Agreement is in effect:

                  (i) The Borrowers may open and/or  relocate up to an aggregate
         of 10 Stores  more than  reflected  in the  forecast  furnished  to the
         Agent,  provided that such opening and/or relocation otherwise complies
         with this Agreement.

                  (ii) The Borrowers may permanently close up to an aggregate of
         10 Stores more than  reflected in the  forecast  furnished to the Agent
         ("permanently  close"  meaning  a Store's  going  dark for more than 30
         consecutive  days other  than on  account  of an event or  circumstance
         which constitutes force majeures).

                                       49
<PAGE>

         (g) Except as otherwise  disclosed  pursuant to, or permitted  by, this
Section 4:4-5, no tangible  personal  property of any Borrower is in the care or
custody of any third party or stored or  entrusted  with a bailee or other third
party and none shall hereafter be placed under such care,  custody,  storage, or
entrustment.

4-6      -Title to Assets.

         (a) The Borrowers are, and shall  hereafter  remain,  the owners of the
Collateral free and clear of all  Encumbrances  with the exceptions of Permitted
Encumbrances.

         (b) No Borrower has, and none shall,  have,  possession of any property
on  consignment  to that  Borrower  other than such  property  disclosed  in the
Borrowing Base Certificate.

         (c) No Borrower  shall acquire or obtain the right to use any Equipment
in which Equipment any third party has an interest, except for:

                  (i)  Equipment  which  is  used  to  conduct  that  Borrower's
         business.

                  (ii) Equipment with respect to which the Agent has received an
         agreement  (substantially in the form of EXHIBIT 4:4-6(c)(ii),  annexed
         hereto) with the third party which has an interest in such Equipment.

4-7  -Indebtedness.  The  Borrowers  do not and  shall  not  hereafter  have any
Indebtedness with the exceptions of:

         (a) Any Indebtedness on account of the Revolving Credit.

         (b) The Indebtedness (if any) listed on EXHIBIT 4:4-7, annexed hereto.

         (c)   Indebtedness   incurred  in  connection  with  the  financing  or
refinancing of any Equipment and real estate.

         (d) Indebtedness incurred in the refinancing and retirement of the 1995
Indenture.

         (e)   Indebtedness   incurred  in  connection  with  loans  made  among
Borrowers.

4-8      -Insurance.

         (a) EXHIBIT  4:4-8,  annexed  hereto,  is a schedule  of all  insurance
policies  owned by the  Borrowers  or under  which  any  Borrower  is the  named
insured.  Each of such policies is in full force and effect.  Neither the issuer
of any such policy nor any Borrower is in material default or material violation
of any such policy.

         (b) The  Borrowers  shall  have and  maintain  at all  times  insurance
covering such risks,  in such amounts,  containing such terms, in such form, for
such periods, and written by such companies as may be satisfactory to the Agent.

                                       50
<PAGE>

         (c) All insurance  carried by the Borrowers shall provide for a minimum
of thirty (30) days' written  notice of  cancellation  to the Agent and all such
insurance  which covers the Collateral  shall include an endorsement in favor of
the Agent, which endorsement shall provide that the insurance,  to the extent of
the Agent's interest therein, shall not be impaired or invalidated,  in whole or
in part,  by reason of any act or neglect of any  Borrower  or by the failure of
any Borrower to comply with any warranty or condition of the policy.

         (d) The coverage  reflected on EXHIBIT  4:4-8  presently  satisfies the
foregoing requirements, it being recognized by each Borrower, however, that such
requirements may change hereafter to reflect changing circumstances.

         (e) The Lead  Borrower  shall  furnish the Agent from time to time with
certificates or other evidence satisfactory to the Agent regarding compliance by
the Borrowers with the foregoing requirements.

         (f) In the event of the failure by the Borrowers to maintain  insurance
as  required  herein,  the Agent,  at its  option,  may obtain  such  insurance,
provided,  however, the Agent's obtaining of such insurance shall not constitute
a cure or waiver of any Event of Default occasioned by the Borrowers' failure to
have maintained such insurance.

4-9 -Licenses. Each license,  distributorship,  franchise, and similar agreement
issued  to, or to which any  Borrower  is a party is in full force and effect in
all material  respects.  No party to any such license or agreement is in default
or violation thereof which would have a Material Adverse Effect. No Borrower has
received any notice or threat of  cancellation  of any such license or agreement
where such cancellation could have a Material Adverse Effect.

4-10 -Leases.  EXHIBIT 4:4-10,  annexed  hereto,  is a schedule of all presently
effective Capital Leases.  (Exhibit 4:4-5 includes a list of all other presently
effective  Leases).  Each of such Leases and Capital Leases is in full force and
effect in all material respects.  No party to any such Lease or Capital Lease is
in default or  violation  of any such Lease or Capital  Lease which would have a
Material  Adverse  Effect.  No  Borrower  has  received  any notice or threat of
cancellation  of any such Lease or Capital Lease where such  cancellation  could
have a Material Adverse Effect. Each Borrower hereby authorizes the Agent at any
time and from time to time to contact any of the Borrowers' respective landlords
in accordance with commercially reasonable lending practices in order to confirm
the  Borrowers'  continued  compliance  with the  terms  and  conditions  of the
Lease(s)  between the subject  Borrower  and that  landlord  and to discuss such
issues,  concerning the subject Borrower's occupancy under such Lease(s), as the
Agent may determine.

                                       51
<PAGE>

4-11  -Requirements  of Law.  Each  Borrower is in  compliance  in all  material
respects with, and shall hereafter  comply with and use its assets in compliance
in all material  respects with, all Requirements of Law if the failure to comply
with any Requirements of Law would have a Material  Adverse Effect.  No Borrower
has received any notice of any  violation  of any  Requirement  of Law where the
effect of such violation could have a Material Adverse Effect.

4-12     -Labor Relations. Except as described in EXHIBIT 4:4-12:

         (a) No  Borrower  has  been,  and  none is  presently  a  party  to any
collective bargaining or other labor contract.

         (b) There is not presently  pending and, to any  Borrower's  knowledge,
there is not threatened any of the following:

                  (i)  Any  strike,  slowdown,   picketing,  work  stoppage,  or
         employee grievance process.

                  (ii) Any proceeding against or affecting any Borrower relating
         to the alleged  violation of any  Applicable  Law  pertaining  to labor
         relations  or  before  National  Labor  Relations   Board,   the  Equal
         Employment Opportunity Commission, or any comparable governmental body,
         organizational  activity,  or other labor or employment dispute against
         or affecting  any  Borrower,  which,  if  determined  adversely to that
         Borrower could have a Material Adverse Effect on that Borrower

                  (iii) Any lockout of any  employees  by any  Borrower  (and no
         such action is contemplated by any Borrower).

                  (iv) Any  application  for the  certification  of a collective
         bargaining agent.

         (c) No event has occurred or  circumstance  exists which could  provide
the basis for any work stoppage or other labor dispute.

         (d) Each Borrower:

                  (i) Has complied in all material  respects with all Applicable
         Law   relating   to   employment,    equal   employment    opportunity,
         nondiscrimination,  immigration,  wages,  hours,  benefits,  collective
         bargaining,   the  payment  of  social   security  and  similar  taxes,
         occupational  safety and health,  and plant closing,  if the failure to
         comply  with any such  Applicable  Laws would  have a Material  Adverse
         Effect.

                  (ii) Is not liable for the  payment of more than a de minimius
         amount of compensation,  damages,  taxes,  fines,  penalties,  or other
         amounts, however designated, for that Borrower's failure to comply with
         any Applicable Law referenced in Section  4:4-12(d)(i),  the failure of
         which had or has a Material Adverse Effect.

                                       52
<PAGE>

4-13     -Maintain Properties. The Borrowers shall:

         (a) Keep the  Collateral in good order and repair  consistent  with the
Borrowers'  Current  Practices  (ordinary  reasonable  wear and tear and insured
casualty excepted).

         (b) Not suffer or cause the waste or  destruction  of any material part
of the Collateral.

         (c) Not use any material  portion of the Collateral in violation of any
policy of insurance thereon.

         (d) Not sell,  lease,  or otherwise  dispose of any of the  Collateral,
other than the following:

                  (i) The sale of Inventory in compliance with this Agreement.

                  (ii) The  disposal of Equipment  which is obsolete,  worn out,
         damaged  beyond  repair,  or no  longer  useful  in the  business  of a
         Borrower,  which  Equipment  is  replaced  to the extent  necessary  to
         preserve or improve the operating efficiency of any Borrower.

                  (iii)  The  turning  over  to the  Agent  of all  Receipts  as
         provided herein.

4-14     -Taxes.

         (a) With  respect  to the  Borrowers'  federal,  state,  and  local tax
liability and obligations:

                  (i) The Lead Borrower,  in compliance with all Applicable Law,
         has  properly  filed all returns due to be filed up to the date of this
         Agreement.

                  (ii) Except as described on EXHIBIT 4:4-14:

                           (A) At no time  during  the past  three (3) years has
                  any Borrower received from any taxing authority any request to
                  perform any examination of or with respect to any Borrower nor
                  any other  written  notice in any way  relating to any claimed
                  failure  by  any  Borrower  to  materially   comply  with  all
                  Applicable  Law  concerning  payment  of any  taxes  or  other
                  amounts in the  nature of taxes,  the  failure of which  would
                  have a Material Adverse Effect.

                           (B) No  agreement  is extant  which waives or extends
                  any  statute  of  limitations  applicable  to the right of any
                  taxing  authority  to  assert a  deficiency  or make any other
                  claim for or in respect to federal income taxes.

                           (C) No issue has been  raised in any tax  examination
                  of any Borrower which,  by application of similar  principles,
                  reasonably  could be expected to result in the  assertion of a
                  deficiency   for  any  fiscal   year  open  for   examination,
                  assessment, or claim by any taxing authority.

         (b) The Borrowers  have, and hereafter  shall:  pay, as they become due
and payable,  all taxes and unemployment  contributions and other charges of any

                                       53
<PAGE>

kind  or  nature  levied,  assessed  or  claimed  against  any  Borrower  or the
Collateral  by any person or entity whose claim could  result in an  Encumbrance
upon any  asset  of any  Borrower  or by any  governmental  authority;  properly
exercise  any trust  responsibilities  imposed  upon any  Borrower  by reason of
withholding from employees' pay or by reason of any Borrower's  receipt of sales
tax or  other  funds  for the  account  of any  third  party;  timely  make  all
contributions  and other  payments as may be required  pursuant to any  Employee
Benefit Plan now or hereafter  established by any Borrower;  and timely file all
tax and other returns and other reports with each governmental authority to whom
any Borrower is obligated to so file.

4-15 -No Margin  Stock.  No  Borrower is engaged in the  business  of  extending
credit for the purpose of  purchasing  or carrying any margin stock  (within the
meaning of  Regulations  U, T, and X of the Board of  Governors  of the  Federal
Reserve System of the United  States).  No part of the proceeds of any borrowing
hereunder will be used at any time to purchase or carry any such margin stock or
to extend  credit to others for the purpose of  purchasing  or carrying any such
margin stock.

4-16     -ERISA.

         (a) Except as described in EXHIBIT 4:4-16(a),  neither any Borrower nor
any ERISA Affiliate, since September 11, 1995:

                  (i)  Violated  or  failed  to be in full  compliance  with any
         Borrower's  Employee  Benefit  Plan it  maintains,  except  where  such
         failure or  noncompliance  could not  reasonably  be expected to have a
         Material Adverse Effect.

                  (ii) Failed timely to file all reports and filings required by
         ERISA  to be  filed by any  Borrower,  except  where  such  failure  or
         noncompliance  could not  reasonably  be  expected  to have a  Material
         Adverse Effect.

                  (iii) Engaged in any nonexempt  "prohibited  transactions"  or
         "reportable events" (respectively as described in ERISA).

                  (iv)  Engaged  in,  or  committed,  any act such that a tax or
         penalty  reasonably  could be  imposed  upon any  Borrower  on  account
         thereof pursuant to ERISA.

                  (v) Accumulated  any material  cumulative  funding  deficiency
         within the meaning of ERISA.

                  (vi)  Terminated  any  Employee  Benefit Plan such that a lien
         could be asserted against any assets of any Borrower on account thereof
         pursuant to ERISA.

                  (vii) Been a member of, contributed to, or have any obligation
         under any Employee  Benefit Plan which is a  multiemployer  plan within
         the meaning of Section 4001(a) of ERISA.

         (b) Neither any Borrower nor any ERISA  Affiliate  shall ever engage in

                                       54
<PAGE>

any action of the type described in Section 4:4-16(a).

4-17     -Hazardous Materials.

         (a) Except as  described  in EXHIBIT  4:4-17(a),  no Borrower has since
September 11, 1995: (i) been held legally  responsible for any release or threat
of release of any Hazardous Material in violation of any Environmental  Laws, or
(ii) received  notification  of the incurrence of any expense in connection with
the assessment, containment, or removal of any Hazardous Material for which that
Borrower would be responsible.

         (b) Each Borrower shall: (i) dispose of any Hazardous  Material only in
compliance with all Environmental Laws and (ii) have possession of any Hazardous
Material  only  in the  ordinary  course  of  that  Borrower's  business  and in
compliance with all Environmental Laws.

4-18 -Litigation.  Except as described in EXHIBIT 4:4-18,  annexed hereto, there
is not  presently  pending or  threatened  by or against any  Borrower any suit,
action,  proceeding,  or  investigation  which,  if determined  adversely to any
Borrower, could have a Material Adverse Effect on a Borrower.

4-19     -Dividends. Investments. Corporate Action.   No Borrower shall:

         (a) Pay any cash dividend or make any other  distribution in respect of
any class of that Borrower's capital stock.

         (b) Own,  redeem,  retire,  purchase,  or acquire any of any Borrower's
capital stock other than

                  (i) in  connection  with the creation of a New Borrower (as to
         which, see Section 4:4-20).

                  (ii) Permitted Repurchases.

         (c) Invest in or purchase any stock or securities or rights to purchase
any such stock or  securities,  of any Person,  including,  without  limitation,
Avatex Corporation, other than:

                  (i) In  connection  with the creation of a New Borrower (as to
         which, see Section 4:4-20)

                  (ii) Permitted Investments.

         (d) Merge or consolidate or be merged or consolidated  with or into any
other corporation or other entity.

         (e)  Consolidate  any of that  Borrower's  operations with those of any
other Person other than of another Borrower.

         (f) Organize or create any Affiliate  other than in connection with the
creation of a New Borrower (as to which, see Section 4:4-20).

                                       55
<PAGE>

         (g) Subordinate  any debts or obligations  owed to that Borrower by any
third party to any other debts owed by such third party to any other Person.

         (h) Acquire any assets other than in the ordinary course and conduct of
that Borrower's business as conducted at the execution of this Agreement, except
for assets  acquired in connection  with the opening of new stores (as permitted
hereunder),  and otherwise with the consent of the Agent, such consent not to be
unreasonably withheld.

4-20     -New Borrowers.

         (a) Subject to and conditioned on the  satisfaction of the requirements
included and referred to in this  Section  4:4-20,  any Borrower may organize or
create a wholly owned subsidiary (a "New Borrower").

         (b) A Borrower may organize or create a New Borrower provided that each
of the following is satisfied:

                  (i) The  Borrowers  are not  then  and  will  not  thereby  be
         rendered in Default.

                  (ii)  The Lead  Borrower  has  furnished  the  Agent  with the
         following by no less than fifteen (15) days prior to any New Borrower's
         acquiring any assets:

                           (A)  A  certificate  of  incorporation  for  the  New
                  Borrower,  issued no more than seven (7) days  previous to the
                  date when so  furnished,  by the  Secretary  of State in which
                  that New Borrower is organized.

                           (B)  Certificates  of  qualification  to do  business
                  issued by any  State in which  such  qualification  of the New
                  Borrower may be necessary.

                           (C)  A  Certificate  of  the  Secretary  of  the  New
                  Borrower which includes  copies of the  resolutions of the New
                  Borrower to become a party to this Agreement as a "Borrower".

                           (D)  The  written   assumption   agreement  (in  form
                  reasonably  satisfactory  to the  Agent)  by the New  Borrower
                  pursuant to which the New Borrower  assumes all Liabilities as
                  if the New Borrower were a Borrower  immediately prior to such
                  assumption and agreement.

                           (E) Financing  statements to satisfy the requirements
                  of Section 4:4-25 (which relates to additional assurances).

                           (F) Notifications to the New Borrower's  depositories
                  (if different from that to which notices have  previously been
                  provided  pursuant to Section  7:7-1(b)(i)) in form reasonably
                  satisfactory to the Agent.

                           (G)  Notices  to  the  New  Borrower's   credit  card
                  processor  (if  different  from  that to  which  notices  have
                  previously been provided pursuant to Section 7:7-2(b)) in form

                                       56
<PAGE>

                  reasonably satisfactory to the Agent.

                           (H) All  stock  certificates  (each  with a  separate
                  transfer  power,  executed in blank by the holder thereof) for
                  the New Borrower.

                           (I) Such other  instruments  and documents  which the
                  Agent  reasonably  may request in connection  with the subject
                  New Borrower.

         (c) Any New Borrower  shall be a "Borrower"  within the meaning of this
Agreement  from the  earliest  moment  that such  Person is  required  to be the
subject of the notice required by Section 4:4-20(b)(ii).

4-21  -Loans.  No Borrower  shall make any loans or advances to, nor acquire the
Indebtedness of, any Person, provided,  however, the foregoing does not prohibit
any of the following:

         (a) Advance payments made to that Borrower's  suppliers in the ordinary
course.

         (b) Advances to that Borrower's officers,  employees,  and salespersons
with respect to reasonable expenses to be incurred by such officers,  employees,
and salespersons  for the benefit of that Borrower,  which expenses are properly
substantiated  by the person seeking such advance and properly  reimbursable  by
that Borrower.

         (c) Advances made to incentivize  employees and  prospective  employees
employed or to be employed as pharmacists,  not to exceed  $20,000.00 per person
and $200,000.00 in any twelve (12) month period.

         (d) Advances made to employees in the nature of bridge loans associated
with relocation expenses, not to exceed $200,000.00 per person and $1,000,000.00
in any twelve (12) month period.

         (e) Loans made between two (2) or more Borrowers.

         (f) Loans made to Cabot  Noble,  Inc. for the sole purpose of financing
Permitted Investments.

         (g) Loans made to Strouss Building Associates not to exceed Two Hundred
Thousand Dollars ($200,000.00) in any twelve (12) month period.

4-22 -Protection of Assets. The Agent, in the Agent's discretion,  and following
written  notice to the Lead  Borrower,  and from time to time, may discharge any
tax or Encumbrance on any of the Collateral,  or take any other action which the
Agent may deem  necessary or desirable to repair,  insure,  maintain,  preserve,
collect,  or realize  upon any of the  Collateral.  The Agent shall not have any
obligation  to  undertake  any of the  foregoing  and shall have no liability on
account of any action so undertaken  except where there is a specific finding in
a judicial  proceeding  (in which the Agent has had an opportunity to be heard),
from which finding no further  appeal is available,  that the Agent had acted in

                                       57
<PAGE>

actual bad faith or in a grossly  negligent  manner.  The Borrowers shall pay to
the Agent,  on  demand,  or the Agent,  in its  discretion,  may add to the Loan
Account,  all amounts  paid or incurred  by the Agent  pursuant to this  section
4:4-22.

4-23 -Line of Business.  No Borrower shall engage in any business other than the
business  in which it is  currently  engaged  or a business  reasonably  related
thereto.

4-24 -Affiliate  Transactions.  No Borrower shall make any payment, nor give any
value to any  Affiliate  (other  than  another  Borrower)  except  for goods and
services actually  purchased by that Borrower from, or sold by that Borrower to,
such Affiliate for a price and on terms which shall:

         (a) be competitive  and fully  deductible as an "ordinary and necessary
business  expense" and/or fully  depreciable  under the Internal Revenue Code of
1986 and the Treasury Regulations, each as amended; and

         (b) be no less  favorable to that  Borrower than those which would have
been charged and imposed in an arms length transaction.

4-25     -Further Assurances.

         (a) Except for Permitted Encumbrances, no Borrower is the owner of, nor
has it any  interest  in, any  property  or asset  which,  immediately  upon the
satisfaction  of the  conditions  precedent to the  effectiveness  of the credit
facility  contemplated  hereby  (Article  3:) will not be subject to a perfected
Collateral   Interest  in  favor  of  the  Agent   (subject  only  to  Permitted
Encumbrances) to secure the Liabilities.

         (b) Except for  Permitted  Encumbrances,  no  Borrower  will  hereafter
acquire any asset or any  interest in property  which is not,  immediately  upon
such acquisition,  subject to such a perfected  Collateral  Interest in favor of
the Agent to secure the Liabilities (subject only to Permitted Encumbrances).

         (c)  Each  Borrower  shall  execute  and  deliver  to  the  Agent  such
instruments,  documents,  and papers,  and shall do all such things from time to
time  hereafter  as the Agent  reasonably  may  request to carry into effect the
provisions  and intent of this  Agreement;  to protect  and  perfect the Agent's
Collateral  Interests  in the  Collateral;  and to  comply  with all  applicable
statutes and laws, and facilitate the collection of the Receivables  Collateral.
Each Borrower shall execute all such instruments as may be required by the Agent
with respect to the recordation  and/or  perfection of the Collateral  Interests
created or contemplated herein.

         (d)  Each  Borrower  hereby  designates  the  Agent  as  and  for  that
Borrower's true and lawful attorney,  with full power of  substitution,  to sign

                                       58
<PAGE>

and file any  financing  statements  in order to perfect or protect  the Agent's
Collateral Interests in the Collateral.

         (e) Each Borrower  hereby  authorizes  the Agent to file such financing
statements  as the Agent  determines  as  appropriate  to perfect or protect the
Agent's Collateral Interests in the Collateral.

         (f) A carbon, photographic,  or other reproduction of this Agreement or
of any financing statement or other instrument executed pursuant to this Section
4:4-25 shall be sufficient for filing to perfect the security  interests granted
herein.

4-26     -Adequacy of Disclosure.

         (a)  All  financial  statements  furnished  to the  Agent  and to  each
Revolving  Credit Lender by each Borrower have been prepared in accordance  with
GAAP  consistently  applied and present fairly the condition of the Borrowers at
the  date(s)  thereof  and the  results  of  operations  and cash  flows for the
period(s) covered (provided  however,  that unaudited  financial  statements are
subject to normal year end adjustments and to the absence of footnotes).  Except
as otherwise  disclosed  in writing by the Lead  Borrower to the Agent or in its
filings  with the  SEC,  there  has been no  material  change  in the  financial
condition,  results  of  operations,  or cash flows of the  Borrowers  since the
date(s) of such financial statements,  other than changes in the ordinary course
of business,  which changes have not been materially adverse,  either singularly
or in the aggregate.

         (b) No Borrower has any contingent  obligations or obligation under any
Lease or Capital Lease which is not noted in the Borrowers' financial statements
furnished  to the  Agent  and to  each  Revolving  Credit  Lender  prior  to the
execution of this Agreement (except to the extent not required by GAAP).

         (c) No document, instrument, agreement, or paper now or hereafter given
the Agent and to each  Revolving  Credit Lender by or on behalf of each Borrower
or any guarantor of the  Liabilities  in  connection  with the execution of this
Agreement  by the Agent and to each  Revolving  Credit  Lender  contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements  therein not misleading.
There is no fact known to any Borrower which has, or which, is reasonably likely
to have, a material  adverse  effect on the financial  condition of any Borrower
which has not been  disclosed  in  writing  to the  Agent and to each  Revolving
Credit Lender.

4-27 -No  Restrictions on Liabilities.  No Borrower shall enter into or directly
or indirectly  become subject to any agreement which prohibits or restricts,  in
any manner, any Borrower's:

         (a) Creation of, and granting of  Collateral  Interests in favor of the
Agent.

         (b) Incurrence of Liabilities.

                                       59
<PAGE>

4-28 -Other  Covenants.  No Borrower shall indirectly do or cause to be done any
act  which,  if done  directly  by that  Borrower,  would  breach  any  covenant
contained in this Agreement.

Article 5:        Financial Reporting and Performance Covenants:

5-1      -Maintain Records.   The Borrowers shall:

         (a) At all times,  keep proper books of account,  in which full,  true,
and  accurate  entries  shall  be  made  of  all  of  the  Borrowers'  financial
transactions,  all in  accordance  with GAAP  applied  consistently  with  prior
periods to fairly reflect the financial  condition of the Borrowers at the close
of, and its results of operations for, the periods in question.

         (b) Timely provide the Agent with those financial reports,  statements,
and schedules  required by this Article 5: or otherwise,  each of which reports,
statements  and  schedules  shall be  prepared,  to the  extent  applicable,  in
accordance with GAAP applied  consistently  with prior periods to fairly reflect
the  financial  condition  of the  Borrowers at the close of, and the results of
operations for, the period(s) covered therein.

         (c) At all times,  keep  accurate  current  records  of the  Collateral
including,  without limitation,  accurate current stock, cost, and sales records
of its  Inventory,  accurately  and  sufficiently  itemizing and  describing the
kinds,  types,  and  quantities  of  Inventory  and the cost and selling  prices
thereof.

         (d) At all times,  retain independent  certified public accountants who
are reasonably  satisfactory to the Agent and instruct such accountants to fully
cooperate  with,  and be  available  to,  the Agent to  discuss  the  Borrowers'
financial  performance,  financial condition,  operating results,  controls, and
such other matters,  within the scope of the retention of such  accountants,  as
may be raised by the Agent.

         (e) Not change any Borrower's fiscal year.

5-2      -Access to Records.

         (a) Each  Borrower  shall accord the Agent with access,  at  reasonable
times, on reasonable  notice,  from time to time as the Agent may require to all
properties owned by or over which any Borrower has control. The Agent shall have
the right,  and each  Borrower  will permit the Agent from time to time as Agent
may request,  to examine,  inspect,  copy, and make extracts from any and all of
the Borrowers' books,  records,  electronically  stored data, papers, and files.
Each Borrower shall make all of that Borrower's copying facilities  available to
the Agent.

         (b) Each Borrower hereby authorizes the Agent to:

                  (i) Inspect,  copy, duplicate,  review, cause to be reduced to

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         hard copy, run off, draw off, and otherwise use any and all computer or
         electronically   stored  information  or  data  which  relates  to  any
         Borrower,  or any  service  bureau,  contractor,  accountant,  or other
         person, and directs any such service bureau, contractor, accountant, or
         other person fully to cooperate with the Agent with respect thereto.

                  (ii) Verify at any time the Collateral or any portion thereof,
         including   verification   with  Account  Debtors,   and/or  with  each
         Borrower's  computer  billing  companies,   collection  agencies,   and
         accountants  (such  verification  to  be  undertaken  in  keeping  with
         commercially  reasonable  commercial lending practices) and to sign the
         name of each Borrower on any notice to each Borrower's  Account Debtors
         or verification of the Collateral.

         (c) Notwithstanding  anything to the contrary herein, no Borrower shall
be required to deliver or disclose any customer  pharmacy  records to the extent
prohibited by Applicable Law.

         (d)  The  Agent   from  time  to  time  may   designate   one  or  more
representatives to exercise the Agent's rights under this Section 5:5-2 as fully
as if the Agent were doing so.

5-3      -Immediate Notice to Agent.

         (a) The Lead  Borrower  shall  provide  the Agent with  written  notice
promptly  upon the  occurrence  of any of the  following  events,  which written
notice shall be with reasonable  particularity as to the facts and circumstances
in respect of which such notice is being given:

                  (i) Any change in any Borrower's  President,  chief  executive
         officer,  chief operating officer, and chief financial officer (without
         regard to the title(s)  actually given to the Persons  discharging  the
         duties customarily discharged by officers with those titles).

                  (ii) Any ceasing of any Borrower's  making of payment,  in the
         ordinary  course,  to any of its  creditors  (other than its ceasing of
         making  of such  payments  on  account  of a  dispute  in the  ordinary
         course).

                  (iii) Any  failure by any  Borrower to pay rent at any of that
         Borrower's  locations,  which failure continues for more than Three (3)
         days following the last day on which such rent was payable without more
         than a de minimis adverse effect to that Borrower.

                  (iv) Any material adverse change in the business,  operations,
         or financial affairs of any Borrower.

                  (v) Any Borrower's becoming in Default.

                  (vi) Any  intention  on the part of any  Borrower to discharge
         that Borrower's  present  independent  accountants or any withdrawal or
         resignation by such  independent  accountants from their acting in such
         capacity (as to which, see Subsection 5:5-1(d)).

                  (vii) Any  litigation  which,  if determined  adversely to any
         Borrower,  might  have a  material  adverse  effect  on  the  financial
         condition of that Borrower.

         (b) The Lead Borrower shall:

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<PAGE>

                  (i) Provide the Agent, when so distributed, with copies of any
         materials  distributed  to the  shareholders  of the Lead Borrower (qua
         such shareholders).

                  (ii) Provide the Agent:

                           (A) When filed, copies of all filings with the SEC.

                           (B) When received,  copies of all correspondence from
                  the  SEC,   other   than   routine   non-substantive   general
                  communications from the SEC.

                  (iii)  Add the  Agent as an  addressee  on all  mailing  lists
         maintained by or for each Borrower.

                  (iv) At the request of the Agent,  from time to time,  provide
         the Agent with copies of all advertising (including copies of all print
         advertising and duplicate tapes of all video and radio advertising).

                  (v) Provide the Agent, when received by any  Borrower,  with a
         copy of any  management  letter  or  similar  communications  from  any
         accountant of any Borrower.

5-4 -Borrowing Base Certificate.  The Lead Borrower shall provide the Agent with
a collateral  report and a Borrowing  Base  Certificate  (in the form of EXHIBIT
5:5-4  annexed  hereto,  as such  form may be  revised  from time to time by the
Agent) at such times as are set forth in EXHIBIT  5:5-5  hereto,  provided  that
upon the occurrence and continuance of a Cash Control Event,  such reports shall
be  provided  by  2:00PM,  weekly,  on  Friday  of  each  week  (as of the  then
immediately  preceding  Saturday).  Such Certificate may be sent to the Agent by
facsimile  transmission,  provided  that the  original  thereof is mailed to the
Agent on the date of such transmission.

5-5      -Monthly Reports.
                  Monthly,  the Lead  Borrower  shall  provide  the  Agent  with
original counterparts of the following (each in such form as the Agent from time
to time may specify):

                  (i) Those reports  described in EXHIBIT  5:5-5 hereto,  at the
         times set forth in such EXHIBIT; and

                  (ii) The officer's compliance certificate described in Section
         5:5-8.

5-6 -Quarterly Reports. Quarterly, within forty five (45) days following the end
of each of the Borrowers'  fiscal quarters,  the Lead Borrower shall provide the
Agent with the following:

         (a)  An  original   counterpart  of  a  management  prepared  financial
statement of the Borrowers  for the period from the beginning of the  Borrowers'
then  current  fiscal  year  through  the  end  of  the  subject  quarter,  with
comparative  information for the same period of the previous fiscal year,  which
statement shall include,  at a minimum, a balance sheet,  income statement (on a

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<PAGE>

store  specific  and  on  a  "consolidated"  basis),  statement  of  changes  in
shareholders'  equity,  and cash  flows and  comparisons  for the  corresponding
quarter of the then immediately previous year.

         (b) The officer's compliance certificate described in Section 5:5-8.

5-7       -Annual Reports.

         (a)  Annually,  within  ninety  (90)  days  following  the  end  of the
Borrowers'  fiscal  year,  the Lead  Borrower  shall  furnish the Agent with the
following:

                  (i) The Borrowers' annual financial statement, which statement
         shall bear the unqualified opinion of, the Lead Borrower's  independent
         certified public  accountants (i.e. said statement shall be "certified"
         by such accountants) and shall include,  at a minimum (with comparative
         information  for the then prior  fiscal year) a balance  sheet,  income
         statement,  statement  of changes  in  shareholders'  equity,  and cash
         flows.

                  (ii) The officer's compliance certificate described in Section
         5:5-8.

         (b) No later than the earlier of Fifteen  (15) days prior to the end of
each of the  Borrowers'  fiscal  years  or the date on  which  such  accountants
commence  their  work on the  preparation  of the  Borrowers'  annual  financial
statement, the Lead Borrower shall give written notice to such accountants (with
a copy of such notice, when sent, to the Agent) that:

                  (i) Such annual  financial  statement will be delivered by the
         Lead  Borrower  to the  Agent  (for  subsequent  distribution  to  each
         Revolving Credit Lender).

                  (ii) It is the  primary  intention  of the  Borrowers,  in its
         engagement  of such  accountants,  to satisfy the  financial  reporting
         requirements set forth in this Article 5:.

                  (iii) The Lead  Borrower  has been  advised that the Agent and
         each  Revolving  Credit  Lender will rely  thereon  with respect to the
         administration   of,  and  transactions   under,  the  credit  facility
         contemplated by this Agreement.

         (c) Each annual  statement  shall be accompanied  by such  accountant's
Certificate  indicating that, in conducting the audit for such annual statement,
nothing came to the attention of such  accountants  to believe that the Borrower
is  in  Default  (or  that,  if  the  Borrower  is in  Default,  the  facts  and
circumstances thereof).

5-8  -Officers'  Certificates.  The Lead  Borrower  shall cause  either the Lead
Borrower's  President,  Chief  Financial  Officer,  or its  Controller,  in each
instance,  to provide such Person's  Certificate  with those monthly  statements
required pursuant to Section 5:5-5(a)(ii),  quarterly,  and annual statements to
be furnished pursuant to this Agreement, which Certificate shall:

         (a)  Indicate  that,  to the  best of such  Person's  knowledge,  after
inquiry, the subject statement was prepared in accordance with GAAP consistently

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<PAGE>

applied and presents  fairly the  financial  condition  of the  Borrowers at the
close of, and the results of the  Borrowers'  operations and cash flows for, the
period(s) covered, subject, however to the following:

                  (i) Usual year end  adjustments  (this  exception shall not be
         included in the Certificate which accompanies such annual statement).

                  (ii)  Material   Accounting  Changes  (in  which  event,  such
         Certificate  shall  include a schedule  (in  reasonable  detail) of the
         effect  of  each  such  Material   Accounting  Change)  not  previously
         specifically  taken into account in the  determination of the financial
         performance covenant imposed pursuant to Section 5:5-11.

         (b) Indicate either that (i) no Borrower is in Default, or (ii) if such
an event has occurred,  its nature (in reasonable detail) and the steps (if any)
being taken or contemplated by the Borrowers to be taken on account thereof.

5-9      -Inventories, Appraisals, and Audits.

         (a) The Agent,  at the expense of the  Borrowers,  may  participate  in
and/or observe each physical count and/or inventory of so much of the Collateral
as consists of Inventory which is undertaken on behalf of any Borrower.

         (b) The Borrowers,  at their own expense, shall cause not less than one
(1) physical  inventory to be  undertaken  in each Fiscal year during which this
Agreement is in effect,  conducted by such  inventory  takers as are  reasonably
satisfactory  to the Agent  and  following  such  methodology  as is  reasonably
satisfactory to the Agent.

                  (i) Each such  inventory  shall be reconciled  and recorded in
         the Borrowers' financial statements within thirty (30) days of the date
         following the completion of such inventory.

                  (ii) The Lead Borrower,  within thirty (30) days following the
         end of each  month,  shall  provide  the Agent with the results of each
         such inventory that was recorded in that month.

                  (iii) The Agent,  in its  discretion,  if any  Borrower  is in
         Default, may cause such additional inventories to be taken as the Agent
         determines (each, at the expense of the Borrowers).

         (c) The Agent may obtain  appraisals  of the  Collateral,  from time to
time (in all events,  at the  Borrowers'  expense),  up to a maximum cost to the
Borrowers of $50,000.00 in any twelve (12) month period provided that no Default
or Event of Default has occurred, conducted by such appraisers as are reasonably
satisfactory to the Agent.

         (d) The Agent  contemplates  conducting  three (3)  commercial  finance
field  examinations  (in each event,  at the Borrowers'  expense up to a maximum
cost to the  Borrowers of  $45,000.00  in any twelve (12) month period  provided
that no  Default  or  Event  of  Default  has  occurred,  and in each  event  on
reasonable  prior  notice  to the Lead  Borrower)  of the  Borrowers'  books and
records  during any twelve (12) month period  during which this  Agreement is in

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effect, but in its discretion,  may undertake additional such audits during such
period.

5-10     -Additional Financial Information.

         a) In  addition  to  all  other  information  required  to be  provided
pursuant to this Article 5:, the Lead Borrower  promptly shall provide the Agent
(and  any  guarantor  of  the  Liabilities),  with  such  other  and  additional
information  concerning  the  Borrowers,  the  Collateral,  the operation of the
Borrowers' business,  and the Borrowers'  financial condition,  as the Agent may
from time to time reasonably request from the Lead Borrower.

         (b)  The  Lead  Borrower  may  provide  the  Agent,  from  time to time
hereafter,  with updated forecasts of the Borrowers' anticipated performance and
operating results.

         (c) In all events,  the Lead Borrower,  no sooner than Ninety (90) days
prior to the end of each of the Borrowers' fiscal years, shall provide the Agent
with an updated and extended  forecast  which shall go out at least  through the
end of the then next fiscal year and shall include an income statement,  balance
sheet,  and statement of cash flow, by month,  each prepared in conformity  with
GAAP and consistent with the Borrowers' then current practices.

         (d) The Agent and each of the  Revolving  Credit  Lenders  agrees that,
except with the prior  consent of the Lead  Borrower,  it will not  disclose any
confidential  information  with respect to the Borrowers  which is now or in the
future  furnished  pursuant  to this  Agreement  or any other  Loan  Document  ,
provided,  however, that the Agent and each Revolving Credit Lender may disclose
any such information as follows:

                  (i) To the  following  (but  only  if the  Person  to  whom so
         disclosed is instructed to treat such information as confidential):

                           (A)  To  its  employees,   Affiliates,   advisors  or
                  counsel.

                           (B)  To  any  prospective  or  actual  transferee  or
                  participant in connection  with any  contemplated  transfer or
                  participation  of  this  Agreement,  the  Liabilities,  or any
                  interest  therein by the Agent or any Revolving Credit Lender,
                  which transfer or  participation  is permitted by the terms of
                  this Agreement.

                           (C) To the Agent and other Revolving Credit Lenders.

                  (ii) As has become generally available to the public.

                  (iii)  As may  be  required  or  appropriate  in  any  report,
         statement or testimony  submitted to any municipal,  state,  or federal
         regulatory body having or claiming to have  jurisdiction over the Agent
         or any Revolving Credit Lender.

                  (iv) As may be  required  or  appropriate  in  respect  to any
         summons or subpoena or in connection with any litigation

                  (v) In order to  comply  with any law,  order,  regulation  or
         ruling applicable to the Agent or any Revolving Credit Lender.

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<PAGE>

5-11 -Financial  Performance  Covenants.  In the event that Availability is less
than $20,000,000.00 the Borrowers,  at all times thereafter,  measured as of the
end of each  month,  shall  maintain a  Consolidated  Net Worth of not less than
$45,000,000.00.  Compliance  with such financial  performance  covenant shall be
made as if no Material Accounting Changes had been made (other than any Material
Accounting  Changes  specifically  taken  into  account  in the  setting of such
covenants). The Agent may determine the Borrowers' compliance with such covenant
based upon financial reports and statements provided by the Lead Borrower to the
Agent (whether or not such  financial  reports and statements are required to be
furnished  pursuant  to  this  Agreement)  as well as by  reference  to  interim
financial information provided to, or developed by, the Agent.

Article 6:        - Use of Collateral:

6-1      -Use of Inventory Collateral.

         (a) No Borrower shall engage

                  (i) In any  sale of the  Inventory  other  than  for (a)  fair
         consideration in the conduct of the Borrowers' business in the ordinary
         course,  or  (b)  dispositions  of  damaged  or  unsaleable   Inventory
         consistent with Current Practices .

                  (ii) Sales or other dispositions to creditors.

                  (iii) Sales or other dispositions in bulk.

                  (iv) Sales of any  Collateral  in breach of any  provision  of
         this Agreement.

         (b) No sale of Inventory  shall be on consignment,  approval,  or under
any  other  circumstances  such  that,  with  the  exception  of the  Borrowers'
customary return policy  applicable to the return of inventory  purchased by the
Borrowers'  retail  customers  in the ordinary  course,  such  Inventory  may be
returned to a Borrower without the consent of the Agent.

6-2 -Inventory  Quality.  All Inventory now owned or hereafter  acquired by each
Borrower is and will be of good and merchantable  quality and free from material
defects (other than defects within customary trade tolerances).

6-3  -Adjustments  and  Allowances.  Each Borrower may grant such  allowances or
other adjustments to that Borrower's Account Debtors (exclusive of extending the
time for payment of any Account or Account  Receivable,  which shall not be done
without first  obtaining the Agent's prior written  consent in each instance) as

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that  Borrower  may  reasonably  deem to accord  with sound  business  practice,
provided,  however, the authority granted the Borrowers pursuant to this Section
6:6-3 may be  limited  or  terminated  by the  Agent at any time in the  Agent's
discretion.

6-4      -Validity of Accounts.

         (a) The  amount  of each  Account  shown  on the  books,  records,  and
invoices of the  Borrowers  represented  as owing by each Account  Debtor is and
will be the correct amount  actually owing by such Account Debtor and shall have
been fully earned by performance by the Borrowers.

         (b) The Agent from time to time may verify the  Receivables  Collateral
directly with the Borrowers' Account Debtors, such verification to be undertaken
in keeping with commercially reasonable commercial lending standards.

         (c) No Borrower has any knowledge of any  impairment of the validity or
collectibility of any of the Accounts.  The Lead Borrower shall notify the Agent
of any such impairment  immediately after any Borrower becomes aware of any such
impairment.

6-5  -Notification to Account Debtors.  The Agent shall have the right (after an
Event of Default has occurred),  to notify any of the Borrowers' Account Debtors
to make payment  directly to the Agent and to collect all amounts due on account
of the Collateral.

Article 7:        - CASH MANAGEMENT. PAYMENT OF LIABILITIES:

7-1      -DEPOSITORY ACCOUNTS.

         (a)  Annexed  hereto as EXHIBIT  7:7-1(a)  is a Schedule of all present
DDA's, which Schedule includes, with respect to each depository (i) the name and
address  of that  depository;  (ii)  the  account  number(s)  of the  account(s)
maintained with such depository; and (iii) a contact person at such depository.

         (b) The Lead Borrower  shall  deliver the following to the Agent,  as a
condition to the effectiveness of this Agreement:

                  (i)  Notification,  executed on behalf of each  Borrower,  to
         each  depository  institution  with which any DDA is maintained  (other
         than  any  Exempt  DDA and the  Blocked  Account),  in form  reasonably
         satisfactory to the Agent of the Agent's interest in such DDA.

                  (ii) A Blocked Account Agreement substantially in the form of
         EXHIBIT 7:7-1(b)(ii),  annexed hereto, with any depository  institution
         at which either of the following conditions applies:

                           (A) Both any DDA (other than the  Operating  Account)
                  and the Operating Account is maintained.

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                           (B) A Blocked Account is maintained.

         (c) No Borrower will establish any DDA hereafter  (other than an Exempt
DDA) unless, contemporaneous with such establishment, the Lead Borrower delivers
the following to the Agent:

                  (i)  Notification  to the  depository  at  which  such  DDA is
         established  if the same would have been  required  pursuant to Section
         7:7-1(b)(ii)(A)  if the subject DDA were open at the  execution of this
         Agreement.

                  (ii) A Blocked  Account  Agreement  executed  on behalf of the
         depository at which such DDA is established if the same would have been
         required  pursuant to Section  7:7-1(b)(ii)(B)  if the subject DDA were
         open at the execution of this Agreement.

7-2      -Credit Card Receipts.

         (a) Annexed hereto as EXHIBIT 7:7-2,  is a Schedule which describes all
arrangements  to which any  Borrower  is a party with  respect to the payment to
that Borrower of the proceeds of credit card charges for sales by that Borrower.

         (b) The Lead Borrower shall deliver to the Agent, as a condition to the
effectiveness  of this  Agreement,  notification,  executed  on  behalf  of each
Borrower,  to each of each Borrower's credit card  clearinghouses and processors
of notice (in form reasonably  satisfactory to the Agent), which notice provides
that  upon  notification  by the  Agent,  payment  of all  credit  card  charges
submitted by that  Borrower to that  clearinghouse  or other  processor  and any
other amount payable to that Borrower by such  clearinghouse  or other processor
shall be directed to the Blocked Account or as otherwise designated from time to
time by the Agent. No Borrower shall change such direction or designation except
upon and with the prior written consent of the Agent.

7-3      -The Concentration, Blocked, and Operating Accounts .

         (a) The following  checking  accounts have been or will be  established
(and are so referred to herein):

                  (i) The  "Concentration  Account"  (so  referred  to  herein):
         Established by the Agent with Fleet National Bank.

                  (ii)  The   "Blocked   Account"   (so   referred  to  herein):
         Established by the Lead Borrower with PNC Bank.

                  (iii)  The  "Operating   Account"  (so  referred  to  herein):
         Established by the Borrower with PNC Bank.

         (b) The contents of each DDA (other than the Operating  Account) and of
the Blocked  Account  constitutes  Collateral  and Proceeds of  Collateral.  The
contents of the Concentration Account constitutes proceeds of the Collateral.

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<PAGE>

         (c) The Borrowers  shall pay all fees and charges of, and maintain such
impressed  balances as may be required by the depository in which any account is
opened  as  required  hereby  (even if such  account  is opened by and/or is the
property of the Agent).

7-4      -Proceeds and Collections .

          (a) All Receipts constitute Collateral and proceeds of Collateral.

          (b)  Subject to Section  7:7-4(c),  upon  notice from the Agent to the
     Lead Borrower that a Cash Control Event has occurred:

               (i) All Receipts:

                    (A) Shall be held in trust by the Borrowers for the Agent.

                    (B) Shall not be commingled with any of any Borrower's other
               funds.

                    (C)  Shall  be  deposited  and/or  transferred  only  to the
               Blocked Account or the Concentration Account.

               (ii) The Lead  Borrower  shall cause the ACH or wire  transfer to
          the  Blocked  Account or the  Concentration  Account  (except in those
          instances in which such transfer is not within the control of the Lead
          Borrower or any other  Borrower),  no less  frequently than daily (and
          whether  or not  there  is then an  outstanding  balance  in the  Loan
          Account) of the following:

                    (A) The then  contents  of each DDA  (other  than any Exempt
               DDA), each such transfer to be net of any minimum balance, not to
               exceed  $2,000.00,  as may be  required to be  maintained  in the
               subject DDA by the bank at which such DDA is maintained.

                    (B) The  proceeds of all credit card  charges not  otherwise
               provided for pursuant hereto.

               (iii) In the event that,  notwithstanding  the provisions of this
          Section  7:7-4(b) the Borrower  receives or otherwise has dominion and
          control  of  any  Receipts,  or any  proceeds  or  collections  of any
          Collateral, such Receipts,  proceeds, and collections shall be held in
          trust by that Borrower for the Agent and shall not be commingled  with
          any of that Borrower's  other funds or deposited in any account of any
          Borrower other than as instructed by the Agent.

          (c) The effect of a Cash Control Event is subject to the following:

               (i) The Lead Borrower has a one-time  opportunity,  following the
          Agent's giving of notice of the occurrence of a Cash Control Event, to
          cancel the  effectiveness  of  Sections  2:2-11(c)  (which  relates to
          certain  mandatory  payments  to be made by the  Borrowers),  7:7-4(b)
          (which relates to the imposition of certain cash management features),
          and Section 5:5-4 (which relates to the Lead Borrower's  furnishing of
          periodic Borrowing Base Certificates).

               (ii)  Such  one-time  opportunity  may be  exercised  by the Lead

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          Borrower on written notice to the Agent if (and only if)  Availability
          following the  occurrence of a Cash Control Event has been equal to or
          in excess of $20,000,000.00 for not less than 180 consecutive days.

               (iii) In the  event  that  Section  2:2-11(c)  becomes  operative
          and/or the Agent invokes the provisions of Sections 7:7-4(b) and 5:5-4
          thereafter on account of the  occurrence of a subsequent  Cash Control
          Event, the Lead Borrower shall not have another  opportunity to cancel
          the effectiveness of those Sections.

7-5       -Payment of Liabilities.

          (a) On each  Business  Day,  the Agent shall apply the then  collected
     balance of the  Concentration  Account  (net of fees  charged,  and of such
     impressed   balances   as  may  be  required  by  the  bank  at  which  the
     Concentration Account is maintained) First, towards the SwingLine Loans and
     Second,  towards  the  unpaid  balance  of the Loan  Account  and all other
     Liabilities.

          (b) The following rules shall apply to deposits and payments under and
     pursuant to this Agreement:

               (i)  Funds  shall  be  deemed  to  have  been  deposited  to  the
          Concentration Account on the Business Day on which deposited.

               (ii)  Funds  paid to the  Agent,  other  than by  deposit  to the
          Concentration  Account,  shall be deemed to have been  received on the
          Business Day when they are good and  collected  funds,  provided  that
          notice of such  payment  is  available  to the Agent by 2:00PM on that
          Business Day.

               (iii)  If  notice  of a  deposit  to  the  Concentration  Account
          (Section  7:7-5(b)(i))  or  payment  (Section   7:7-5(b)(ii))  is  not
          available  to the Agent until  after  2:00PM on a Business  Day,  such
          deposit or payment  shall be deemed to have been made at 9:00AM on the
          then next Business Day.

               (iv) All deposits to the Concentration Account and other payments
          to the Agent are subject to clearance and collection.

          (c) The Agent shall  transfer to the Operating  Account any surplus in
     the  Concentration  Account  remaining  after the  application  towards the
     Liabilities referred to in Section 7:7-5(a), above (less those amount which
     are to be netted out, as provided therein) provided,  however, in the event
     that

               (i) any Borrower is in Default; and

               (ii) one or more L/C's are then  outstanding,  then the Agent may
          establish  a  funded  reserve  of up to 110% of the  aggregate  Stated
          Amounts  of such  L/C's.  Such  funded  reserve  shall  either  be (i)
          returned to the Lead Borrower  provided that no Borrower is in Default
          or (ii) applied  towards the  Liabilities  following the occurrence of
          any Event of Default  described  in Section  10:10-12 or  acceleration
          following the occurrence of any other Event of Default.

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<PAGE>

7-6 -The Operating  Account.  Except as otherwise  specifically  provided in, or
permitted by, this Agreement,  all check clearings and other disbursements shall
be funded by the Lead Borrower solely from, the Operating Account.

Article 8:        - Grant of Security Interest:

8-1 -Grant of Security Interest. To secure the Borrowers' prompt,  punctual, and
faithful  performance of all and each of the  Liabilities,  each Borrower hereby
grants to the Agent, for the ratable benefit of the Revolving Credit Lenders,  a
continuing  security  interest  in and to, and  assigns  to the  Agent,  for the
ratable benefit of the Revolving  Credit Lenders,  the following,  and each item
thereof,  whether  now  owned  or now  due,  or in which  that  Borrower  has an
interest,  or hereafter  acquired,  arising,  or to become due, or in which that
Borrower obtains an interest,  and all products,  Proceeds,  substitutions,  and
accessions of or to any of the following (all of which,  together with any other
property in which the Agent may in the future be granted a security interest, is
referred to herein as the "Collateral"):

          (a) All Accounts and accounts receivable.

          (b) All Inventory.

          (c) All General Intangibles.

          (d) All Chattel Paper.

          (e) All Letter-of-Credit Rights.

          (f) All Payment Intangibles.

          (g) All Supporting Obligations.

          (h) All books,  records,  and  information  relating to the Collateral
     and/or to the  operation  of each  Borrower's  business,  and all rights of
     access to such books,  records, and information,  and all property in which
     such books, records, and information are stored, recorded, and maintained.

          (i) All Investment Property, Instruments, Documents, Deposit Accounts,
     money,  policies  and  certificates  of  insurance,   deposits,   impressed
     accounts, compensating balances, and cash (but not equipment (as defined in
     the UCC) or real estate).

          (j) All insurance proceeds,  refunds, and premium rebates,  including,
     without limitation,  proceeds of fire and credit insurance,  whether any of
     such  proceeds,  refunds,  and  premium  rebates  arise  out  of any of the
     foregoing. (8:8-1(a) through 8:8-1(i)).

          (k) All liens, guaranties, rights, remedies, and privileges pertaining

                                       71
<PAGE>

     to any of the foregoing (8:8-1(a) through 8:8-1(j)), including the right of
     stoppage in transit.

8-2      -Extent and Duration of Security Interest.

          (a) The security  interest  created and granted  herein is in addition
     to, and supplemental of, any security  interest  previously  granted by any
     Borrower  to the  Agent  and  shall  continue  in  full  force  and  effect
     applicable to all Liabilities until both (a) all Liabilities have been paid
     and/or  satisfied in full and (b) the security  interest  created herein is
     specifically  terminated  in  writing by a duly  authorized  officer of the
     Agent.

          (b) It is intended that the Collateral Interests created herein extend
     to and cover all  assets of each  Borrower  other than  Equipment  and real
     estate.

          (c) It is further  intended that, with respect to any term used herein
     to describe  Collateral,  which term is defined in either (or both) the UCC
     as in effect on the date when this  Agreement was executed by the Borrowers
     or in UCC9'99,  the meaning given that term shall be the more  encompassing
     of the two definitions.

Article 9:        - Agent As Borrower's Attorney-In-Fact:

9-1  -Appointment  as   Attorney-In-Fact.   Each  Borrower  hereby   irrevocably
constitutes  and appoints the Agent as that (acting through any of its officers)
Borrower's true and lawful attorney, with full power of substitution,  following
the occurrence of an Event of Default,  to convert the  Collateral  into cash at
the sole risk, cost, and expense of that Borrower. The rights and powers granted
the Agent by this appointment include but are not limited to the right and power
to:

          (a) Prosecute,  defend,  compromise, or release any action relating to
     the Collateral.

          (b) Sign  change of address  forms to change the address to which each
     Borrower's mail is to be sent to such address as the Agent shall designate;
     receive and open each Borrower's  mail;  remove any Receivables  Collateral
     and Proceeds of Collateral therefrom and turn over the balance of such mail
     either to the Lease Borrower or to any trustee in bankruptcy or receiver of
     the Lead  Borrower,  or other legal  representative  of a Borrower whom the
     Agent determines to be the appropriate  person to whom to so turn over such
     mail.

          (c)  Endorse the name of the  relevant  Borrower in favor of the Agent
     upon any and all  checks,  drafts,  notes,  acceptances,  or other items or
     instruments;  sign and endorse the name of the  relevant  Borrower  on, and
     receive as secured party, any of the Collateral, any invoices, schedules of
     Collateral,  freight  or  express  receipts,  or bills of  lading,  storage
     receipts,  warehouse  receipts,  or other  documents of title  respectively
     relating to the Collateral.

          (d) Sign the name of the  Borrower  on any  notice  to the  Borrower's

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<PAGE>

     Account Debtors or verification  of the  Receivables  Collateral;  sign any
     Borrower's  name on any  Proof  of  Claim  in  Bankruptcy  against  Account
     Debtors, and on notices of lien, claims of mechanic's liens, or assignments
     or releases of mechanic's liens securing the Accounts.

          (e) Take all such action as may be  necessary to obtain the payment of
     any letter of credit and/or banker's  acceptance of which any Borrower is a
     beneficiary.

          (f) Repair, manufacture,  assemble,  complete, package, deliver, alter
     or supply  goods,  if any,  necessary  to  fulfill  in whole or in part the
     purchase order of any customer of each Borrower.

          (g) Use,  license or transfer any or all General  Intangibles  of each
     Borrower.

9-2 -No  Obligation  to Act.  The Agent shall not be  obligated to do any of the
acts or to exercise any of the powers authorized by Section 9:9-1 herein, but if
the Agent elects to do any such act or to exercise any of such powers,  it shall
not be  accountable  for more  than it  actually  receives  as a result  of such
exercise of power,  and shall not be  responsible to any Borrower for any act or
omission  to act except for any act or  omission  to act as to which  there is a
final determination made in a judicial proceeding (in which proceeding the Agent
has had an  opportunity  to be heard)  which  determination  includes a specific
finding that the subject act or omission to act had been grossly negligent or in
actual bad faith.

Article 10:       - Events of Default:

         The occurrence of any event described in this Article 10:  respectively
shall constitute an "Event of Default" herein.  Upon the occurrence of any Event
of Default described in Section  10:10-12,  any and all Liabilities shall become
due and  payable  without  any  further  act on the part of the Agent.  Upon the
occurrence of any other Event of Default,  the Agent may, and on the instruction
of the SuperMajority  Lenders as provided in Section  13:13-1(b) shall,  declare
any and all Liabilities shall become immediately due and payable. The occurrence
of any Event of  Default  shall also  constitute,  without  notice or demand,  a
default under all other  agreements  between the Agent or any  Revolving  Credit
Lender and any Borrower and instruments and papers heretofore, now, or hereafter
given the Agent or any Revolving Credit Lender by any Borrower.

10-1  -Failure to Pay the Revolving  Credit.  The failure by any Borrower to pay
when due any  principal  of,  interest on, or fees in respect of, the  Revolving
Credit.

10-2 -Failure To Make Other Payments.  The failure by any Borrower to pay within

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<PAGE>

five (5) days of when due any payment Liability other than any payment liability
on account  of the  principal  of, or  interest  on, or fees in respect  of, the
Revolving Credit.

10-3  -Failure to Perform  Covenant or Liability (No Grace Period) . The failure
by  any  Borrower  to  promptly,  punctually,  faithfully  and  timely  perform,
discharge,  or comply  with any  covenant  or  Liability  included in any of the
following provisions hereof:

   Section            Relates to:
   ------------------------------
   4:4-7              Indebtedness
   4:4-19             Dividends. Investments. Other  Corporate Actions
   4:4-24             Affiliate Transactions
   Article 7:         Cash Management

10-4  -Financial  Reporting  Requirements.  The failure by the Lead  Borrower to
promptly,  punctually,  faithfully and timely perform, discharge, or comply with
the financial reporting requirements included in Article 5, subject, however, to
the following  limited  number of grace  periods  applicable to certain of those
requirements:

<TABLE>
<CAPTION>
------------------------------------- ------------------ -------------------------- --------------------------------

REPORT / STATEMENT                    REQUIRED BY        GRACE PERIOD               NUMBER OF GRACE PERIODS
                                      SECTION
------------------------------------- ------------------ -------------------------- --------------------------------
------------------------------------- ------------------ -------------------------- --------------------------------

<S>                                   <C>                <C>                        <C>
Borrowing Base Certificates           5:5:5-4            One Business Day           3 per fiscal Quarter
------------------------------------- ------------------ -------------------------- --------------------------------

Monthly Report (15 Days)              5:5-5              Three Business Days        4 in any 12 months
------------------------------------- ------------------ -------------------------- --------------------------------
</TABLE>

10-5 -Failure to Perform  Covenant or Liability  (Grace Period).  The failure by
any Borrower  within twenty (20) days  following  the earlier of any  Borrower's
actual  knowledge of a breach of any covenant or Liability  not described in any
of Sections  10:10-1,10:10-2,  10:10-3,  or 10:10-4 or of its receipt of written
notice  from  the  Agent  of the  breach  of any of  any of  such  covenants  or
Liabilities.

10-6 -Misrepresentation.  The determination by the Agent that any representation
or  warranty  at any time made by any  Borrower  to the  Agent or any  Revolving
Credit Lender was not true or complete in all material respects when given.

10-7  -Acceleration of Other Debt.  Breach of Lease. The occurrence of any event
such that any  Indebtedness  of any Borrower in excess of  $1,000,000.00  to any
creditor  other  than  the  Agent  or  any  Revolving  Credit  Lender  could  be
accelerated  or,  without  the  consent  of any  Borrower,  any  Lease  could be
terminated  (whether or not the subject  creditor or lessor  takes any action on
account of such occurrence).

10-8  -Default  Under  Other  Agreements.  The  occurrence  of any breach of any

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<PAGE>

covenant  or  Liability  imposed  by, or of any  default  under,  any  agreement
(including any Loan Document)  between the Agent or any Revolving  Credit Lender
and any  Borrower  or  instrument  given  by any  Borrower  to the  Agent or any
Revolving  Credit Lender and the expiry,  without cure, of any applicable  grace
period  (notwithstanding  that the subject Agent or Revolving  Credit Lender may
not have  exercised  all or any of its  rights  on  account  of such  breach  or
default).

10-9  -Uninsured  Casualty Loss. The  occurrence of any uninsured  loss,  theft,
damage, or destruction of or to any material portion of the Collateral.

10-10    -Attachment. Judgment. Restraint of Business.

          (a) The  service of  process  upon the Agent or any  Revolving  Credit
     Lender or any Participant  seeking to attach,  by trustee,  mesne, or other
     process,  any  funds of any  Borrower  on  deposit  with,  or assets of any
     Borrower in the possession  of, the Agent or that Revolving  Credit or such
     Participant.

          (b) The  entry of any  judgment  against  any  Borrower  in  excess of
     $1,000,000.00,  which  judgment is not satisfied  (if a money  judgment) or
     appealed from (with  execution or similar  process  stayed)  within fifteen
     (15) days of its entry.

          (c) The entry of any  order or the  imposition  of any  other  process
     having the force of law, the effect of which is to restrain in any material
     way the conduct by any Borrower of its business in the ordinary course.

10-11 -Business Failure.  Any act by, against,  or relating to any Borrower,  or
its  property  or  assets,  which  act  constitutes  the  determination,  by any
Borrower,   to  initiate  a  program  of  partial  or  total   self-liquidation;
application  for,  consent to, or sufferance of the  appointment  of a receiver,
trustee,  or other person,  pursuant to court action or otherwise,  over all, or
any part of any  Borrower's  property;  the  granting  of any trust  mortgage or
execution of an assignment for the benefit of the creditors of any Borrower,  or
the occurrence of any other voluntary liquidation or extension of debt agreement
for any Borrower or involuntary liquidation which is not timely contested, or if
timely  contested,  is not dismissed  within sixty (60) days of when filed;  the
offering by or entering into by any Borrower of any composition,  extension,  or
any other  arrangement  seeking  relief  from or  extension  of the debts of any
Borrower;  or the  initiation  of any  judicial or  non-judicial  proceeding  or
agreement  by,  against,  or including  any  Borrower  which seeks or intends to
accomplish a reorganization or arrangement with creditors; and/or the initiation
by or on behalf of any Borrower of the  liquidation  or winding up of all or any
part of any Borrower's business or operations

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<PAGE>

10-12 -Bankruptcy. The failure by any Borrower to generally pay the debts of any
Borrower as they mature;  adjudication  of bankruptcy or insolvency  relative to
any Borrower;  the entry of an order for relief or similar order with respect to
any  Borrower in any  proceeding  pursuant to the  Bankruptcy  Code or any other
federal bankruptcy law; the filing of any complaint, application, or petition by
any  Borrower  initiating  any matter in which any Borrower is or may be granted
any relief from the debts of that Borrower  pursuant to the  Bankruptcy  Code or
any  other  insolvency  statute  or  procedure;  the  filing  of any  complaint,
application,  or petition  against any Borrower  initiating  any matter in which
that  Borrower is or may be granted  any relief from the debts of that  Borrower
pursuant to the Bankruptcy  Code or any other  insolvency  statute or procedure,
which complaint,  application, or petition is not timely contested in good faith
by  that  Borrower  by  appropriate  proceedings  or,  if so  contested,  is not
dismissed within sixty (60) days of when filed.

10-13 -Default by Guarantor.  The  occurrence of any of the foregoing  Events of
Default with respect to any guarantor or endorser of the  Liabilities as if such
guarantor were a "Borrower" described therein.

10-14  -Indictment - Forfeiture.  The indictment of, or institution of any legal
process or proceeding against, any Borrower,  under any Applicable Law where the
relief, penalties, or remedies sought or available include the forfeiture of any
property of any Borrower  aggregating  for all Borrowers an amount not to exceed
$1,000,000.00,and/or  the  imposition of any stay or other order,  the effect of
which would have a Material Adverse Effect.

10-15 -Termination of Guaranty.  The termination or attempted termination of any
guaranty by any guarantor of the Liabilities.

10-16    -Challenge to Loan Documents.

          (a) Any  challenge by or on behalf of any Borrower or any guarantor of
     the  Liabilities to the validity of any Loan Document or the  applicability
     or enforceability  of any Loan Document which seeks to void, avoid,  limit,
     or otherwise  adversely  affect any security  interest created by or in any
     Loan Document or any payment made pursuant thereto.

          (b) Any determination by any court or any other judicial or government
     authority that any Loan Document is not enforceable or which voids, avoids,
     limits, or otherwise adversely affects any security interest created by any
     Loan Document or any payment made pursuant thereto.

10-17    -Change in Control.        Any Change in Control.

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<PAGE>

Article 11:       - Rights and Remedies Upon Default:

11-1 -Acceleration.  Upon the occurrence of any Event of Default as described in
Section  10:10-12,  all  Indebtedness  of the Borrower to the  Revolving  Credit
Lenders shall be immediately  due and payable.  Upon the occurrence of any Event
of Default  other than as described in Section  10:10-12,  the Agent may (and on
the issuance of Acceleration Notice(s) requisite to the causing of Acceleration,
the Agent  shall)  declare all  Indebtedness  of the  Borrower to the  Revolving
Credit  Lenders to be  immediately  due and payable and may  exercise all of the
Agent's Rights and Remedies as the Agent from time to time thereafter determines
as appropriate.

11-2 -Rights of  Enforcement.  Following the occurrence of any Event of Default,
the Agent  shall  have all of the rights and  remedies  of a secured  party upon
default under the UCC, in addition to which the Agent shall have all and each of
the following rights and remedies:

          (a) To give notice to any bank at which any DDA or Blocked  Account is
     maintained and in which Proceeds of Collateral are deposited,  to turn over
     such Proceeds directly to the Agent.

          (b) To give notice to any customs  broker of any of the  Borrowers  to
     follow the  instructions of the Agent as provided in any written  agreement
     or undertaking of such broker in favor of the Agent.

          (c) To collect the  Receivables  Collateral with or without the taking
     of possession of any of the Collateral.

          (d) To take possession of all or any portion of the Collateral.

          (e)  To  sell,  lease,  or  otherwise  dispose  of  any  or all of the
     Collateral,  in  its  then  condition  or  following  such  preparation  or
     processing  as the Agent deems  advisable and with or without the taking of
     possession of any of the Collateral.

          (f) To conduct one or more going out of business  sales which  include
     the sale or other disposition of the Collateral.

          (g)  To  apply  the  Receivables  Collateral  or the  Proceeds  of the
     Collateral  towards (but not necessarily in complete  satisfaction  of) the
     Liabilities.

          (h)  To  exercise  all  or  any  of  the  rights,  remedies,   powers,
     privileges, and discretions under all or any of the Loan Documents.

11-3     -Sale of Collateral.

          (a) Any sale or other  disposition  of the Collateral may be at public
     or  private  sale upon such  terms  and in such  manner as the Agent  deems
     advisable,  having due regard to compliance  with any statute or regulation
     which  might  affect,  limit,  or apply to the Agent's  disposition  of the
     Collateral.

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<PAGE>

          (b) The Agent, in the exercise of the Agent's rights and remedies upon
     default,  may  conduct  one or more  going out of  business  sales,  in the
     Agent's own right or by one or more agents and  contractors.  Such  sale(s)
     may be  conducted  upon any  premises  owned,  leased,  or  occupied by any
     Borrower.  The Agent and any such agent or contractor,  in conjunction with
     any such sale,  may  augment the  Inventory  with other goods (all of which
     other  goods shall  remain the sole  property of the Agent or such agent or
     contractor).  Any  amounts  realized  from  the  sale of such  goods  which
     constitute augmentations to the Inventory (net of an allocable share of the
     costs  and  expenses  incurred  in  their  disposition)  shall  be the sole
     property of the Agent or such agent or contractor  and neither any Borrower
     nor any Person  claiming  under or in right of any Borrower  shall have any
     interest therein.

          (c)  Unless the  Collateral  is  perishable  or  threatens  to decline
     speedily in value, or is of a type customarily sold on a recognized  market
     (in which event the Agent shall  provide the Lead  Borrower  such notice as
     may be practicable under the circumstances),  the Agent shall give the Lead
     Borrower at least ten (10) days prior written notice of the date, time, and
     place of any proposed  public sale, and of the date after which any private
     sale or other  disposition  of the  Collateral  may be made.  Each Borrower
     agrees that such written notice shall satisfy all  requirements  for notice
     to that Borrower  which are imposed under the UCC or other  applicable  law
     with  respect to the  exercise  of the  Agent's  rights and  remedies  upon
     default.

          (d) The  Agent  and any  Revolving  Credit  Lender  may  purchase  the
     Collateral, or any portion of it at any sale held under this Article.

          (e) If any of the Collateral is sold, leased, or otherwise disposed of
     by the Agent on credit,  the  Liabilities  shall not be deemed to have been
     reduced as a result  thereof  unless and until payment is finally  received
     thereon by the Agent.

          (f) The Agent shall apply the proceeds of the Agent's  exercise of its
     rights and remedies upon default pursuant to this Article 11: in accordance
     with Sections 13:13-6 and 13:13-7.

11-4 -Occupation of Business  Location.  In connection with the Agent's exercise
of the Agent's rights under this Article 11:, the Agent may enter upon,  occupy,
and use any premises  owned or occupied by each  Borrower,  and may exclude each
Borrower from such premises or portion thereof as may have been so entered upon,
occupied, or used by the Agent. The Agent shall not be required to remove any of
the  Collateral  from  any such  premises  upon the  Agent's  taking  possession
thereof,  and may render any Collateral  unusable to the Borrowers.  In no event
shall the Agent be liable to any  Borrower  for use or occupancy by the Agent of
any premises pursuant to this Article 11:, nor for any charge (such as wages for
any Borrower's  employees and utilities) incurred in connection with the Agent's
exercise of the Agent's Rights and Remedies.

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<PAGE>

11-5 -Grant of Nonexclusive  License. Each Borrower hereby grants to the Agent a
royalty free nonexclusive  irrevocable  license to (i) use, apply, and affix any
trademark,  trade name, logo, or the like in which any Borrower now or hereafter
has rights,  and/or (ii) use any of any Borrower's Equipment and Fixtures,  such
license  being with  respect to the  Agent's  exercise  of the rights  hereunder
including,  without  limitation,  in  connection  with  any  completion  of  the
manufacture of Inventory or sale or other disposition of Inventory.

11-6 -Assembly of Collateral. The Agent may require any Borrower to assemble the
Collateral  and make it available to the Agent at the  Borrowers'  sole risk and
expense at a place or places which are  reasonably  convenient to both the Agent
and the Lead Borrower.

11-7  -Rights  and  Remedies.  The rights,  remedies,  powers,  privileges,  and
discretions of the Agent  hereunder  (herein, the "Agent's Rights and Remedies")
shall be cumulative  and not exclusive of any rights or remedies  which it would
otherwise have. No delay or omission by the Agent in exercising or enforcing any
of the Agent's  Rights and Remedies  shall operate as, or  constitute,  a waiver
thereof.  No waiver by the Agent of any Event of Default or of any default under
any other agreement shall operate as a waiver of any other default  hereunder or
under any other  agreement.  No single or partial exercise of any of the Agent's
Rights or  Remedies,  and no express  or implied  agreement  or  transaction  of
whatever  nature  entered  into  between the Agent and any person,  at any time,
shall preclude the other or further exercise of the Agent's Rights and Remedies.
No waiver by the Agent of any of the  Agent's  Rights  and  Remedies  on any one
occasion  shall be deemed a waiver on any subsequent  occasion,  nor shall it be
deemed a continuing  waiver. The Agent's Rights and Remedies may be exercised at
such time or times and in such order of preference  as the Agent may  determine.
The Agent's Rights and Remedies may be exercised without resort or regard to any
other source of satisfaction of the Liabilities.

Article 12:       - Revolving Credit Fundings and Distributions:

12-1     -Revolving Credit Funding Procedures.  Subject to Section 12:12-2:

          (a) The Agent shall advise each Revolving Credit Lender, no later than
     2:00PM on a date on which any Revolving Credit Loan (other than a SwingLine
     Loan) is to be made on that date. Such advice, in each instance,  may be by
     telephone or  facsimile  transmission,  provided  that if such advice is by
     telephone,  it shall be confirmed in writing.  Advice of a Revolving Credit
     Loan  shall  include  the amount of and  interest  rate  applicable  to the
     subject Revolving Credit Loan.

          (b) Subject to that Revolving Credit Lender's  Revolving Credit Dollar
     Commitment,  each  Revolving  Credit  Lender,  by no later  than the end of
     business  on the day on which the  subject  Revolving  Credit Loan is to be

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<PAGE>

     made,  shall  Transfer that  Revolving  Credit  Lender's  Revolving  Credit
     Commitment Percentage of the subject Revolving Credit Loan to the Agent.

12-2     -SwingLine Loans.

          (a) In the event that, when a Revolving Credit Loan is requested,  the
     aggregate  unpaid  balance of the SwingLine Loan is less than the SwingLine
     Loan  Ceiling,  then the  SwingLine  Lender  may  advise the Agent that the
     SwingLine  Lender  has  determined  to  include  up to  the  amount  of the
     requested  Revolving  Credit Loan as part of the  SwingLine  Loan.  In such
     event,  the  SwingLine  Lender shall  Transfer the amount of the  requested
     Revolving Credit Loan to the Agent.

          (b) The SwingLine  Loan shall be converted to a Revolving  Credit Loan
     in which all Revolving Credit Lenders participate as follows:

               (i) At any time and from time to time, the SwingLine  Lender may
          advise the Agent that all, or any part of the SwingLine  Loan is to be
          converted  to a Revolving  Credit Loan in which all  Revolving  Credit
          Lenders  participate,  provided that if the Agent is not so advised by
          the SwingLine  Lender,  then all SwingLine Loans shall be converted to
          Revolving   Credit  Loans  in  which  all  Revolving   Credit  Lenders
          participate no less frequently than weekly.

               (ii) At the initiation of a Liquidation,  the then entire unpaid
          principal  balance  of the  SwingLine  Loan  shall be  converted  to a
          Revolving   Credit  Loan  in  which  all  Revolving   Credit   Lenders
          participate.

In either such event,  the Agent shall advise each  Revolving  Credit  Lender of
such  conversion as if, and with the same effect as if such  conversion were the
making of a Revolving Credit Loan as provided in Section 12:12-1.

          (c) The  SwingLine  Lender,  in separate  capacities,  may also be the
     Agent and a Revolving Credit Lender.

          (d) The SwingLine  Lender, in its capacity as SwingLine Lender, is not
     a "Revolving Credit Lender" for any of the following purposes:

               (i) Except as  otherwise  specifically  provided in the  relevant
          Section, any distribution pursuant to Section 13:13-6.

               (ii) Determination of whether the requisite Loan Commitments have
          Consented to action requiring such Consent.

12-3     -Agent's Covering of Fundings:

          (a) Each Revolving Credit Lender shall make available to the Agent, as
     provided herein, that Revolving Credit Lender's Revolving Credit Commitment
     Percentage of the following:

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               (i) Each Revolving  Credit Loan, up to the maximum amount of that
          Revolving Credit Lender's  Revolving  Credit Dollar  Commitment of the
          Revolving Credit Loans.

               (ii) Up to the maximum amount of that Revolving  Credit  Lender's
          Revolving Credit Dollar  Commitment of each L/C Drawing (to the extent
          that such L/C Drawing is not  "covered" by a Revolving  Credit Loan as
          provided herein).

          (b) In all circumstances, the Agent may:

               (i) Assume that each Revolving Credit Lender,  subject to Section
          12:12-3(a),  timely shall make  available to the Agent that  Revolving
          Credit  Lender's  Revolving  Credit  Commitment   Percentage  of  each
          Revolving Credit Loan, notice of which is provided pursuant to Section
          12:12-1.

               (ii)  In  reliance  upon  such  assumption,  make  available  the
          corresponding amount to the Borrowers.

               (iii) Assume that each Revolving  Credit Lender timely shall pay,
          and shall make  available,  to the Agent all other  amounts which that
          Revolving  Credit Lender is obligated to so pay and/or make  available
          hereunder or under any of the Loan Documents.

          (c) In the event that, in reliance upon any of such  assumptions,  the
     Agent  makes  available,  a  Revolving  Credit  Lender's  Revolving  Credit
     Commitment  Percentage of one or more Revolving  Credit Loans, or any other
     amount to be made available  hereunder or under any of the Loan  Documents,
     which amount a Revolving  Credit  Lender (a  "Delinquent  Revolving  Credit
     Lender")  fails to provide  to the Agent  within  One (1)  Business  Day of
     written notice of such failure, then:

               (i) The amount which had been made available by the Agent is an "
          Agent's Cover" (and is so referred to herein).

               (ii)  All  interest  paid  by the  Borrowers  on  account  of the
          Revolving  Credit Loan or  coverage  of the subject L/C Drawing  which
          consist of the Agent's  Cover shall be retained by the Agent until the
          Agent's Cover, with interest, has been paid.

               (iii) The  Delinquent  Revolving  Credit  Lender shall pay to the
          Agent, on demand,  interest at a rate equal to the prevailing  federal
          funds  rate  on any  Agent's  Cover  in  respect  of  that  Delinquent
          Revolving Credit Lender.

               (iv) The Agent shall have  succeeded  to all rights to payment to
          which the Delinquent Revolving Credit Lender otherwise would have been
          entitled  hereunder in respect of those  amounts paid by or in respect
          of the  Borrowers  on  account  of the  Agent's  Cover  together  with
          interest until it is repaid.  Such payments shall be deemed made first
          towards the amounts in respect of which the Agent's Cover was provided
          and only then towards amounts in which the Delinquent Revolving Credit
          Lender is then participating. For purposes of distributions to be made
          pursuant  to Section  12:12-4(a)  (which  relates to  ordinary  course
          distributions)  or Section 13:13-6 (which relates to  distributions of

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          proceeds   of  a   Liquidation)   below,   amounts   shall  be  deemed
          distributable   to  a   Delinquent   Revolving   Credit   Lender  (and
          consequently,  to the  Agent to the  extent to which the Agent is then
          entitled) at the highest  level of  distribution  (if  applicable)  at
          which the Delinquent Revolving Credit Lender would otherwise have been
          entitled to a distribution.

               (v)  Subject  to  Subsection   12:12-3(c)(iv),   the   Delinquent
          Revolving Credit Lender shall be entitled to receive any payments from
          the Borrowers to which the Delinquent  Revolving Credit Lender is then
          entitled,  provided  however  there shall be deducted from such amount
          and  retained  by the  Agent any  interest  to which the Agent is then
          entitled on account of Section 12:12-3(c)(ii), above.

          (d) A Delinquent  Revolving Credit Lender shall not be relieved of any
     obligation of such Delinquent  Revolving  Credit Lender  hereunder (all and
     each of which shall  constitute  continuing  obligations on the part of any
     Delinquent Revolving Credit Lender).

          (e) A  Delinquent  Revolving  Credit  Lender  may cure its status as a
     Delinquent Revolving Credit Lender by paying the Agent the aggregate of the
     following:

               (i) The Agent's Cover (to the extent not previously repaid by the
          Borrowers  and  retained by the Agent in  accordance  with  Subsection
          12:12-3(c)(iv),  above)  with  respect  to that  Delinquent  Revolving
          Credit Lender.

          Plus

               (ii)  The  aggregate  of  the  amount  payable  under  Subsection
          12:12-3(c)(iii),  above (which  relates to interest to be paid by that
          Delinquent Revolving Credit Lender).

          Plus

               (iii) All such costs and expenses as may be incurred by the Agent
          in the  enforcement  of the Agent's  rights  against  such  Delinquent
          Revolving Credit Lender.

12-4 -Ordinary  Course  Distributions.  (This Section 12:12-4 applies unless the
provisions of Section 13:13-6 (which relates to  distributions in the event of a
Liquidation) becomes operative).

          (a)  Weekly,  on such day as may be set from time to time by the Agent
     (or more  frequently  at the Agent's  option) the Agent and each  Revolving
     Credit  Lender  shall  settle up on amounts  advanced  under the  Revolving
     Credit and collected funds received in the Concentration Account.

          (b) The Agent shall  distribute  to the  SwingLine  Lender and to each
     Revolving  Credit  Lender,  such  Person's  respective  Pro-Rata  share  of
     interest  payments on the Revolving Credit Loans when actually received and
     collected  by the Agent.  For  purposes of  calculating  interest  due to a

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     Revolving Credit Lender,  that Revolving Credit Lender shall be entitled to
     receive interest on the actual amount  contributed by that Revolving Credit
     Lender  towards  the  principal  balance  of  the  Revolving  Credit  Loans
     outstanding  during the applicable  period covered by the interest  payment
     made by the Borrowers. Any net principal reductions to the Revolving Credit
     Loans received by the Agent in accordance  with the Loan  Documents  during
     such  period  shall not  reduce  such  actual  amount so  contributed,  for
     purposes of calculation  of interest due to that  Revolving  Credit Lender,
     until  the  Agent has  distributed  to that  Revolving  Credit  Lender  its
     pro-rata share thereof.

          (c) The Agent shall  distribute  fees paid on account of the Revolving
     Credit, as follows:

               (i) The Agent shall pay each Revolving Credit Lender a portion of
          the Revolving  Credit  Commitment Fee in accordance  with the terms of
          the  letter  agreement  between  the Agent and such  Revolving  Credit
          Lender  within  two (2)  Business  days after  such  Person  becomes a
          Revolving Credit Lender hereunder.

               (ii) The Agent shall distribute the Unused Fee, the L/C Fees, and
          the Early  Termination  Fees to the Revolving  Credit Lenders pro rata
          based upon their respective  Revolving Credit Commitment  Percentages,
          within two (2) Business Days after the Agent's receipt thereof.

          (d) No Revolving Credit Lender shall have any interest in, or right to
     receive  any part of, the Agent's  Fee to be paid by the  Borrowers  to the
     Agent pursuant to this Agreement.

          (e) Any amount received by the Agent as reimbursement  for any cost or
     expense (including without limitation, reasonable attorneys' fees) shall be
     distributed  by the  Agent  to  that  Person  which  is  entitled  to  such
     reimbursement as provided in this Agreement (and if such Person(s) is (are)
     the  Revolving  Credit  Lenders,   pro-rata  based  upon  their  respective
     Revolving Credit  Commitment  Percentages at the date on which the expense,
     in respect of which such reimbursement is being made, was incurred).

          (f) Each  distribution  pursuant to this Section 12:12-4 is subject to
     Section 12:12-3(c), above.

Article 13:       - Acceleration and Liquidation:

13-1     -Acceleration Notices

          (a) The Agent may give the Revolving  Credit  Lenders an  Acceleration
     Notice at any time following the occurrence of an Event of Default.

          (b) The  SuperMajority  Lenders  may  give the  Agent an  Acceleration
     Notice at any time  following the  occurrence of an Event of Default.  Such

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     notice may be by multiple counterparts, provided that counterparts executed
     by the requisite  Revolving Credit Lenders are received by the Agent within
     a period of five (5) consecutive Business Days.

13-2  -Acceleration  Unless stayed by judicial or statutory  process,  the Agent
shall  Accelerate  the  Revolving  Credit   Obligations  within  a  commercially
reasonable time following:

          (a) The  Agent's  giving of an  Acceleration  Notice to the  Revolving
     Credit Lenders as provided in Section 13:13-1(a).

          (b)  The  Agent's   receipt  of  an   Acceleration   Notice  from  the
     SuperMajority Lenders, in compliance with Section 13:13-1(b) .

13-3 -Initiation of Liquidation  Unless stayed by judicial or statutory process,
a Liquidation  shall be initiated by the Agent within a commercially  reasonable
time following Acceleration of the Revolving Credit Obligations.

13-4     -Actions At and  Following Initiation of Liquidation

          (a) At the initiation of a Liquidation:

               (i) The unpaid  principal  balance of the SwingLine Loan (if any)
          shall be converted, pursuant to Section 12:12-2(b)(ii), to a Revolving
          Credit Loan in which all Revolving Credit Lenders participate.

               (ii) The Agent and the Revolving  Credit  Lenders shall "net out"
          each Revolving Credit Lender's  respective  contributions  towards the
          Revolving  Credit Loans,  so that each  Revolving  Credit Lender holds
          that Revolving Credit Lender's Revolving Credit Commitment  Percentage
          of the Revolving Credit Loans and advances.

          (b) Following the initiation of a Liquidation,  each Revolving  Credit
     Lender  shall  contribute,  towards  any  L/C  thereafter  honored  and not
     immediately  reimbursed by the Borrowers,  that Revolving  Credit  Lender's
     Revolving Credit Commitment Percentage of such honoring.

13-5     -Agent's Conduct of Liquidation

          (a) Any Liquidation  shall be conducted by the Agent,  with the advice
     and assistance of the Revolving Credit Lenders.

          (b) The  Agent  may  establish  one or more  Nominees  to "bid  in" or
     otherwise acquire ownership to any Post Foreclosure Asset.

          (c) The Agent  shall  manage the Nominee and manage and dispose of any
     Post Foreclosure Assets with a view towards the realization of the economic
     benefits  of the  ownership  of the  Post  Foreclosure  Assets  and in such
     regard, the Agent and/or the Nominee may operate, repair, manage, maintain,

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     develop,  and dispose of any Post  Foreclosure  Asset in such manner as the
     Agent determines as appropriate under the circumstances.

          (d) The Agent may decline to undertake or to continue  taking a course
     of action or to execute an action  plan  (whether  proposed by the Agent or
     any Revolving Credit Lender) unless indemnified to the Agent's satisfaction
     by the Revolving  Credit Lenders  against any and all liability and expense
     which may be  incurred  by the Agent by reason of taking or  continuing  to
     take that course of action or action plan.

          (e) Each  Revolving  Credit Lender shall execute all such  instruments
     and documents not inconsistent with the provisions of this Agreement as the
     Agent  and/or  the  Nominee  reasonably  may  request  with  respect to the
     creation and governance of any Nominee, the conduct of the Liquidation, and
     the management and disposition of any Post Foreclosure Asset.

13-6     -Distribution of Liquidation Proceeds:

          (a) The Agent may  establish  one or more  reasonably  funded  reserve
     accounts  into which  proceeds  of the  conduct of any  Liquidation  may be
     deposited in  anticipation  of future expenses which may be incurred by the
     Agent in the exercise of rights as a secured  creditor of the Borrowers and
     prior claims which the Agent anticipates may need to be paid.

          (b) The Agent shall  distribute  the net  proceeds of  Liquidation  in
     accordance with the relative priorities set forth in Section 13:13-7.

          (c) Each Revolving Credit Lender,  on the written request of the Agent
     and/or  any  Nominee,  not more  frequently  than  once each  month,  shall
     reimburse the Agent and/or any Nominee,  pro-rata,  for any cost or expense
     reasonably  incurred  by the Agent  and/or the  Nominee in the conduct of a
     Liquidation,  which  amount is not covered  out of current  proceeds of the
     Liquidation,  which  reimbursement shall be paid over to and distributed by
     the Agent.

13-7 -Relative  Priorities To Proceeds of Liquidation The relative priorities to
the proceeds of a Liquidation are as follows:

          (a) To the Agent as reimbursement for all reasonable third party costs
     and expenses  incurred by the Agent and to Lenders'  Special Counsel and to
     any funded reserve established pursuant to Section 13:13-6(a); and then

          (b) To the SwingLine  Lender,  on account of any  SwingLine  loans not
     converted to Revolving Credit Loans pursuant to Section 13:13-4(a)(i);  and
     then

          (c) To  the  Revolving  Credit  Lenders  (other  than  any  Delinquent
     Revolving Credit Lender),  pro-rata, to the unpaid principal balance of the
     Revolving Credit; and then

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<PAGE>

          (d) To  the  Revolving  Credit  Lenders  (other  than  any  Delinquent
     Revolving  Credit Lender),  pro-rata,  to accrued interest on the Revolving
     Credit; and then

          (e) To  the  Revolving  Credit  Lenders  (other  than  any  Delinquent
     Revolving Credit Lender),  pro-rata, to those fees distributable  hereunder
     to the Revolving Credit Lenders; and then

          (f) To any Delinquent Revolving Credit Lenders, pro-rata to amounts to
     which such  Revolving  Credit  Lenders  otherwise  would have been entitled
     pursuant to Sections 13:13-7(c), 13:13-7(d), 13:13-7(e) ; and then

          (g) To the Revolving  Credit Lenders,  pro-rata,  to the extent of the
     Revolving Credit Early Termination Fee; and then

          (h) To any other Liabilities.

Article 14:       - The Agent:

14-1     -Appointment of The Agent

          (a) Each Lender  appoints and designates  Fleet Retail Finance Inc. as
     the "Agent" hereunder and under the Loan Documents.

          (b) Each Revolving Credit Lender authorizes the Agent:

               (i) To  execute  those  of  the  Loan  Documents  and  all  other
          instruments relating thereto to which the Agent is a party.

               (ii) To take  such  action  on  behalf  of the  Revolving  Credit
          Lenders and to exercise all such powers as are expressly  delegated to
          the  Agent  hereunder  and in  the  Loan  Documents  and  all  related
          documents,  together with such other powers as are reasonably incident
          thereto.

          (c) Heller  Financial,  Inc.  has been granted the title of " Co-Agent
     and Documentation  Agent", in which capacity,  it shall not have any rights
     nor any  responsibilities.  It may resign such  position,  at any time,  on
     written  notice  to  the  Agent;   and  shall  cease  to  be  Co-Agent  and
     Documentation  Agent  contemporaneous  with its  ceasing to be a  Revolving
     Credit Lender.

14-2     -Responsibilities of Agent

          (a) The Agent shall not have any duties or responsibilities to, or any
     fiduciary  relationship  with, any Revolving Credit Lender except for those
     expressly set forth in this Agreement.

          (b) Neither the Agent nor any of its  Affiliates  shall be responsible
     to any Revolving Credit Lender for any of the following:

               (i) Any recitals, statements,  representations or warranties made
          by any Borrower or any other Person.

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<PAGE>

               (ii) Any  appraisals  or other  assessments  of the assets of any
          Borrower or of any other Person  responsible  for or on account of the
          Liabilities.

               (iii)   The   value,   validity,   effectiveness,    genuineness,
          enforceability,  or  sufficiency  of  the  Loan  Agreement,  the  Loan
          Documents or any other document referred to or provided for therein.

               (iv) Any failure by any Borrower or any other Person  (other than
          the Agent) to perform its obligations under the Loan Documents.

          (c)  The  Agent  may   employ   attorneys,   accountants,   and  other
     professionals and agents and attorneys-in-fact and shall not be responsible
     for the negligence or misconduct of any such  attorneys,  accountants,  and
     other  professionals or agents or  attorneys-in-fact  selected by the Agent
     with reasonable  care. No such attorney,  accountant,  other  professional,
     agent,  or  attorney-in-fact  shall be responsible  for any action taken or
     omitted to be taken by any other such Person.

          (d)  Neither  the  Agent,  nor  any of  its  directors,  officers,  or
     employees  shall be  responsible  to any  Revolving  Credit  Lender for any
     action  taken or omitted to be taken or omitted to be taken by any other of
     them in connection  herewith in reliance upon advice of its counsel nor, in
     any other  event  except for any action  taken or omitted to be taken as to
     which a final judicial  determination  has been or is made (in a proceeding
     in which such Person has had an  opportunity  to be heard) that such Person
     had acted in a grossly negligent manner, in actual bad faith, or in willful
     misconduct.

          (e) The Agent shall not have any  responsibility in any event for more
     funds than the Agent actually receives and collects.

          (f) The Agent,  in its separate  capacity as a Lender,  shall have the
     same rights and powers hereunder as any other Lender.

          (g) The Syndication Agent (except as provided in the commitment letter
     for  this   transaction)   shall   have  no  powers,   rights,   duties  or
     responsibilities  with  respect  to  this  Agreement  and  the  other  Loan
     Documents.

14-3     -Concerning Distributions By the Agent

          (a) The Agent in the  Agent's  reasonable  discretion  based  upon the
     Agent's  determination  of the likelihood that additional  payments will be
     received,  expenses incurred, and/or claims made by third parties to all or
     a portion  of such  proceeds,  may delay the  distribution  of any  payment
     received on account of the Liabilities.

          (b) The Agent may disburse  funds prior to  determining  that the sums
     which the Agent  expects to receive have been  finally and  unconditionally
     paid to the Agent.  If and to the extent that the Agent does disburse funds
     and it later becomes apparent that the Agent did not then receive a payment
     in an amount equal to the sum paid out, then any Revolving Credit Lender to
     whom the Agent made the funds  available,  on demand from the Agent,  shall
     refund to the Agent the sum paid to that person.

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<PAGE>

          (c) If, in the opinion of the Agent,  the  distribution  of any amount
     received by the Agent might  involve  the Agent in  liability,  or might be
     prohibited hereby, or might be questioned by any Person, then the Agent may
     refrain  from  making   distribution   until  the  Agent's  right  to  make
     distribution has been adjudicated by a court of competent jurisdiction.

          (d) The  proceeds of any  Revolving  Credit  Lender's  exercise of any
     right of, or in the  nature of,  set-off  shall be  deemed,  First,  to the
     extent that a  Revolving  Credit  Lender is  entitled  to any  distribution
     hereunder, to constitute such distribution and Second, shall be shared with
     the other Revolving Credit Lenders as if distributed pursuant to (and shall
     be deemed as distributions under) Section 13:13-7.

          (e) Each Revolving Credit Lender  recognizes that the crediting of the
     Borrowers  with  the  "proceeds"  of  any   transaction  in  which  a  Post
     Foreclosure  Asset is  acquired  is a  non-cash  transaction  and that,  in
     consequence,  no  distribution of such "proceeds" will be made by the Agent
     to any Lender.

          (f) In the  event  that (x) a court of  competent  jurisdiction  shall
     adjudge  that any amount  received  and  distributed  by the Agent is to be
     repaid or disgorged or (y) the  SuperMajority  Lenders  determine to effect
     such repayment or disgorgement,  then each Revolving Credit Lender to which
     any such distribution  shall have been made shall repay, to the Agent which
     had made such  distribution,  that Revolving Credit Lender's Pro-Rata share
     of the amount so adjudged or determined to be repaid or disgorged.

14-4 -Dispute Resolution:  Any dispute among the Revolving Credit Lenders and/or
the Agent concerning the interpretation,  administration,  or enforcement of the
financing  arrangements  contemplated  by this or any other Loan Document or the
interpretation or administration of this or any other Loan Document which cannot
be resolved  amicably shall be resolved in the United States  District Court for
the District of  Massachusetts,  sitting in Boston or in the  Superior  Court of
Suffolk  County,  Massachusetts,  to  the  jurisdiction  of  which  courts  each
Revolving Credit Lender hereto hereby submits.

14-5  -Distributions  of Notices and of Documents The Agent will forward to each
Revolving Credit Lender,  promptly after the Agent's receipt thereof,  a copy of
each notice or other document furnished to the Agent pursuant to this Agreement,
including monthly,  quarterly, and annual financial statements received from the
Lead Borrower  pursuant to Article 5: of this  Agreement,  other than any of the
following:

          (a) Routine  communications  associated  with  requests for  Revolving
     Credit Loans and/or the issuance of L/C's.

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<PAGE>

          (b) Routine or nonmaterial communications.

          (c) Any notice or document required by any of the Loan Documents to be
     furnished to the Revolving Credit Lenders by the Lead Borrower.

          (d) Any notice or document of which the Agent has knowledge  that such
     notice or document had been forwarded to the Revolving Credit Lenders other
     than by the Agent.

14-6     -Confidential Information

          (a) Each Revolving Credit Lender will maintain,  as confidential,  all
     of the following:

               (i) Proprietary approaches,  techniques,  and methods of analysis
          which are  applied  by the Agent in the  administration  of the credit
          facility contemplated by this Agreement.

               (ii)  Proprietary  forms  and  formats  utilized  by the Agent in
          providing  reports to the Revolving  Credit Lenders  pursuant  hereto,
          which forms or formats are not of general currency.

          (b) Nothing  included herein shall prohibit the disclosure of any such
     information  as may be required  to be  provided by judicial  process or by
     regulatory   authorities  having   jurisdiction  over  any  party  to  this
     Agreement.

14-7  -Reliance  by  Agent  The  Agent  shall  be  entitled  to  rely  upon  any
certificate,  notice or other document (including any cable, telegram, telex, or
facsimile)  reasonably  believed  by the Agent to be genuine  and correct and to
have been signed or sent by or on behalf of the proper  person or  persons,  and
upon advice and statements of attorneys,  accountants and other experts selected
by the Agent.  As to any matters not expressly  provided for in this  Agreement,
any Loan Document, or in any other document referred to therein, the Agent shall
in all events be fully  protected in acting,  or in refraining  from acting,  in
accordance with the applicable Consent required by this Agreement.  Instructions
given  with the  requisite  Consent  shall be binding  on all  Revolving  Credit
Lenders.

14-8     -Non-Reliance on Agent and Other Revolving Credit Lenders

          (a) Each  Revolving  Credit Lender  represents to all other  Revolving
     Credit Lenders and to the Agent that such Revolving Credit Lender:

               (i) Independently  and without reliance on any  representation or
          act by Agent or by any other  Revolving  Credit  Lender,  and based on
          such documents and  information  as that  Revolving  Credit Lender has
          deemed  appropriate,  has made  such  Revolving  Credit  Lender's  own
          appraisal of the financial  condition and affairs of the Borrowers and
          decision to enter into this Agreement.

               (ii) Has relied upon that Revolving  Credit  Lender's  review of

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          the Loan Documents by that  Revolving  Credit Lender and by counsel to
          that Revolving  Credit Lender as that  Revolving  Credit Lender deemed
          appropriate under the circumstances.

          (b) Each  Revolving  Credit Lender agrees that such  Revolving  Credit
     Lender,  independently  and  without  reliance  upon  Agent  or  any  other
     Revolving  Credit Lender,  and based upon such documents and information as
     such  Revolving  Credit  Lender shall deem  appropriate  at the time,  will
     continue to make such  Revolving  Credit  Lender's  own  appraisals  of the
     financial  condition and affairs of the Borrowers when determining  whether
     to take or not to take any discretionary action under this Agreement.

          (c) The Agent,  in the  discharge  of that Agent's  duties  hereunder,
     shall not be required to make inquiry of, or to inspect the  properties  or
     books of, any Person.

          (d) Except for notices,  reports,  and other documents and information
     expressly  required to be furnished to the Revolving  Credit Lenders by the
     Agent  hereunder (as to which,  see Section  14:14-5),  the Agent shall not
     have any affirmative duty or  responsibility to provide any Lender with any
     credit or other  information  concerning any Person,  which information may
     come into the possession of Agent or any Affiliate of the Agent.

          (e) Each Revolving  Credit Lender,  at such Revolving  Credit Lender's
     request, shall have reasonable access to all nonprivileged documents in the
     possession of the Agent, which documents relate to the Agent's  performance
     of its duties hereunder.

14-9  -Indemnification  Without  limiting the liabilities of the Borrowers under
any this or any of the other Loan Documents,  each Revolving Credit Lender shall
indemnify the Agent, Pro-Rata, for any and all liabilities, obligations, losses,
damages, penalties,  actions, judgments, suits, costs, expenses or disbursements
of any kind or  nature  whatsoever  (including  reasonable  attorneys'  fees and
expenses and other out-of-pocket  expenditures) which may at any time be imposed
on,  incurred  by, or asserted  against the Agent and in any way  relating to or
arising  out of this  Agreement  or any other  Loan  Document  or any  documents
contemplated by or referred to therein or the transactions  contemplated thereby
or the  enforcement  of any of terms  hereof  or  thereof  or of any such  other
documents, provided, however, no Revolving Credit Lender shall be liable for any
of the foregoing to the extent that any of the foregoing  arises from any action
taken  or  omitted  to be  taken  by the  Agent  as to  which a  final  judicial
determination has been or is made (in a proceeding in which the Agent has had an
opportunity to be heard) that the Agent had acted in a grossly negligent manner,
in actual bad faith, or in willful misconduct.

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14-10    -Resignation of Agent

          (a) The Agent may resign at any time by giving 60 days  prior  written
     notice thereof to the Revolving  Credit  Lenders.  Upon receipt of any such
     notice of resignation,  the  SuperMajority  Lenders shall have the right to
     appoint a successor to such Agent (and if no Event of Default has occurred,
     with the consent of the Lead Borrower, not to be unreasonably withheld and,
     in any event,  deemed given by the Lead Borrower if no written objection is
     provided by the Lead  Borrower to the  (resigning)  Agent  within seven (7)
     Business Days notice of such proposed  appointment).  If a successor  Agent
     shall not have been so appointed  and accepted such  appointment  within 30
     days after the giving of notice by the resigning Agent,  then the resigning
     Agent may appoint a successor Agent, which shall be a financial institution
     having a combined capital and surplus in excess of  $1,000,000,000.00.  The
     consent of the Lead Borrower otherwise required by this Section 14:14-10(a)
     shall not be required if an Event of Default has occurred.

          (b) Upon the  acceptance of any  appointment  as Agent  hereunder by a
     successor  Agent,  such successor  shall  thereupon  succeed to, and become
     vested  with,  all  the  rights,  powers,  privileges,  and  duties  of the
     (resigning)  Agent  so  replaced,   and  the  (resigning)  Agent  shall  be
     discharged from the (resigning)  Agent's duties and obligations  hereunder,
     other than on account of any responsibility for any action taken or omitted
     to be  taken  by  the  (resigning)  Agent  as to  which  a  final  judicial
     determination has been or is made (in a proceeding in which the (resigning)
     Person has had an  opportunity to be heard) that such Person had acted in a
     grossly negligent manner or in bad faith.

          (c) After any retiring  Agent's  resignation,  the  provisions of this
     Agreement and of all other Loan Documents  shall continue in effect for the
     retiring  Person's benefit in respect of any actions taken or omitted to be
     taken by it while it was acting as Agent.

Article 15:       - Action By Agents - Consents - Amendments - Waivers:

15-1     -Administration of Credit Facilities

          (a) Except as otherwise  specifically provided in this Agreement,  the
     Agent may take any action with respect to the credit facility  contemplated
     by the Loan Documents as the Agent determines to be appropriate , provided,
     however,  the  Agent is not under any  affirmative  obligation  to take any
     action  which it is not required by this  Agreement  or the Loan  Documents
     specifically to so take.

          (b) Except as specifically  provided in the following Sections of this
     Agreement,  whenever a Loan Document or this Agreement provides that action
     may be taken or  omitted to be taken in an  Agent's  discretion,  the Agent
     shall have the sole right to take,  or refrain  from  taking,  such  action
     without, and notwithstanding, any vote of the Revolving Credit Lender:

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                  Actions Described in Section  Type of Consent Required
                  ----------------------------  ------------------------
                           15:15-2              Majority Lenders
                           15:15-3              SuperMajority Lenders
                           15:15-4              Certain Consent
                           15:15-5              Unanimous Consent
                           15:15-6              Consent of SwingLine Lender
                           15:15-7              Consent of the Agent

          (c) The  rights  granted  to the  Revolving  Credit  Lenders  in those
     sections  referenced in Section  15:15-1(b)  shall not  otherwise  limit or
     impair the Agent's exercise of its discretion under the Loan Documents.

15-2 - Actions Requiring or On Direction of Majority Lenders Except as otherwise
provided in this Agreement,  the Consent or direction of the Majority Lenders is
required for any amendment, waiver, or modification of any Loan Document.

15-3 -Actions Requiring or On Direction of SuperMajority  Lenders The Consent or
direction of the SuperMajority Lenders is required as follows:

          (a) The Revolving  Credit Lenders agree that any loan or advance under
     the Revolving  Credit which results in a Permissible  OverLoan may be made,
     subject to Section 2:2-1(e),  above, by the Agent in its discretion without
     the Consent of the Revolving  Credit Lenders and that each Revolving Credit
     Lender shall be bound thereby, provided,  however, the Consent or direction
     of the SuperMajority  Lenders is required to permit a Permissible  OverLoan
     to be outstanding  for more than 45 consecutive  Business Days or more than
     twice in any twelve month period.

          (b) If any Borrower is then in Default, the SuperMajority  Lenders may
     direct the Agent to suspend the Revolving  Credit  (including the making of
     any Permissible OverLoans), whereupon, as long as a Borrower is in Default,
     the only Revolving Credit Loans which may be made are either

               (i)  Revolving  Credit  Loans made or  undertaken  in the Agent's
          discretion  to protect and  preserve the  interests  of the  Revolving
          Credit Lenders; or

               (ii)   Revolving   Credit   Loans   made  with   Consent  of  the
          SuperMajority Lenders.

          (c) If an Event of Default has occurred and not been duly waived,  the
     SuperMajority Lenders may:

               (i) Give the  Agent an  Acceleration  Notice in  accordance  with
          Section 13:13-1(b).

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<PAGE>

               (ii)  Direct the Agent to  increase  the rate of  interest to the
          default rate of interest as provided  in, and to the extent  permitted
          by, this Agreement.

15-4 - Action Requiring  Certain Consent The consent of the SwingLine Lender and
Revolving  Credit  Lenders  (other than  Delinquent  Revolving  Credit  Lenders)
holding 66 2/3 % or more of the Loan Commitments of the Revolving Credit Lenders
(other than any Loan  Commitments  held by Delinquent  Revolving Credit Lenders)
shall be required to increase the SwingLine Loan Ceiling.

15-5 -Actions  Requiring or Directed By Unanimous  Consent None of the following
may take place except with the Consent of each Revolving Credit Lender adversely
affected thereby or with Unanimous Consent:

          (a) Any increase in any Revolving  Credit  Lender's  Revolving  Credit
     Dollar Commitment or Revolving Credit Commitment  Percentage (other than by
     reason  of  the   application  of  Section   15:15-10   (which  deals  with
     NonConsenting  Revolving  Credit  Lenders) or Section  16:16-1 (which deals
     with assignments and participations)).

          (b) Any decrease in any interest  rate or fee payable to the Revolving
     Credit Lenders on account of the Revolving Credit Loans.

          (c) Any extension of the Maturity Date.

          (d) Any forgiveness of all or any portion of any payment Liability.

          (e) Any decrease in any interest  rate or fee payable under any of the
     Loan  Documents  (other  than any Agent's Fee (for which the consent of the
     Agent  shall  also be  required))  and of any fee  provided  for by the Fee
     Letter (which may be amended by written agreement between the Lead Borrower
     on the one hand, and the Agent on the other).

          (f) Any release of a material  portion of the Collateral not otherwise
     required  or  provided  for  in  the  Loan  Documents  or to  facilitate  a
     Liquidation.

          (g) Any amendment of the definition of the terms  "Borrowing  Base" or
     "Availability"  or of any  Definition of any component  thereof,  such that
     more credit would be available to the Borrowers,  based on the same assets,
     as would have been  available to the  Borrowers  immediately  prior to such
     amendment , it being understood, however, that:

               (i) The foregoing  shall not limit the adjustment by the Agent of
          any Reserve in the Agent's  administration  of the Revolving Credit as
          otherwise permitted by this Agreement.

               (ii)  The  foregoing   shall  not  prevent  the  Agent,   in  its
          administration of the Revolving  Credit,  from restoring any component
          of  Borrowing  Base  which had been  lowered  by the Agent back to the
          value  of  such  component,  as  stated  in  this  Agreement  or to an
          intermediate value.

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<PAGE>

          (h) Any release of any Person obligated on account of the Liabilities.

          (i) The making of any Revolving Credit Loan which, when made,  exceeds
     Availability and is not either a Permissible OverLoan, provided, however,

               (i) no Consent shall be required in connection with the making of
          any  Revolving  Credit Loan to "cover" any honoring of a drawing under
          any L/C; and

               (ii) each Lender  recognizes  that  subsequent to the making of a
          Revolving   Credit  Loan  which  does  not  constitute  a  Permissible
          OverLoan,  the unpaid principal balance of the Loan Account may exceed
          Borrowing Base on account of changed  circumstances beyond the control
          of the Agent (such as a drop in collateral value).

          (j) The waiver of the obligation of the Borrowers to reduce the unpaid
     principal  balance of loans under the  Revolving  Credit to an amount which
     does not exceed a  Permissible  OverLoan  or,  subject  to the time  limits
     included in Section  15:15-3(a)  (which places time and frequency limits on
     Permissible OverLoans), to eliminate an OverLoan.

          (k) Any amendment of this Article 15:.

          (l) Amendment of any of the following  Definitions:
                                "Majority Lender"
                                "Permissible OverLoan"
                                "SuperMajority Lenders
                                "Unanimous Consent"

15-6 -Actions Requiring SwingLine Lender Consent No action, amendment, or waiver
of compliance  with,  any provision of the Loan  Documents or of this  Agreement
which affects the SwingLine Lender may be undertaken  without the Consent of the
SwingLine Lender.

15-7     -Actions Requiring Agent's Consent

          (a) No action,  amendment, or waiver of compliance with, any provision
     of the Loan Documents or of this  Agreement  which affects the Agent in its
     capacity as Agent may be  undertaken  without  the  written  consent of the
     Agent.

          (b) No action  referenced  herein  which  affects the rights,  duties,
     obligations,  or  liabilities  of the Agent shall be effective  without the
     written consent of the Agent.

15-8     -Miscellaneous Actions

          (a) Notwithstanding  any other provision of this Agreement,  no single
     Revolving Credit Lender  independently  may exercise any right of action or
     enforcement against or with respect to any Borrower.

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<PAGE>

          (b) The Agent shall be fully  justified in failing or refusing to take
     action under this Agreement or any Loan Document on behalf of any Revolving
     Credit Lender unless the Agent shall first

               (i) receive such clear, unambiguous,  written instructions as the
          Agent deems appropriate; and

               (ii) be indemnified to the Agent's  satisfaction by the Revolving
          Credit Lenders  against any and all liability and expense which may be
          incurred  by the Agent by reason of taking or  continuing  to take any
          such action, unless such action had been grossly negligent, in willful
          misconduct, or in bad faith.

          (c) The Agent may establish reasonable procedures for the providing of
     direction and instructions  from the Revolving Credit Lenders to the Agent,
     including its reliance on multiple counterparts,  facsimile  transmissions,
     and time  limits  within  which such  direction  and  instructions  must be
     received  in  order  to be  included  in a  determination  of  whether  the
     requisite  Loan  Commitments  has  provided  its  direction,   Consent,  or
     instructions.

15-9  -Actions  Requiring  Borrower's  Consent  The Lead  Borrower's  consent is
required for any amendment of this Agreement,  except that each of the following
Articles  of this  Agreement  may be  amended  without  the  consent of the Lead
Borrower:

         Article           Title of Article
         -------           ----------------
         12:               Revolving Credit Fundings and Distributions
         13:               Acceleration and Liquidation
         14:               The Agent

15-10    -NonConsenting Revolving Credit Lender

          (a) In the event  that a  Revolving  Credit  Lender  (in this  Section
     15:15-10,  a "NonConsenting  Revolving Credit Lender") does not provide its
     Consent to a proposal by the Agent to take action  which  requires  consent
     under this  Article  15:,  then one or more  Revolving  Credit  Lenders who
     provided  Consent  to such  action  may  require  the  assignment,  without
     recourse and in accordance with the procedures outlined in Section 16:16-1,
     below, of the NonConsenting  Revolving Credit Lender's commitment hereunder
     on fifteen (15) days written  notice to the Agent and to the  NonConsenting
     Revolving Credit Lender.

          (b) At the end of such  fifteen  (15)  days,  and  provided  that  the
     NonConsenting  Revolving  Credit Lender delivers the Revolving  Credit Note
     held  by the  NonConsenting  Revolving  Credit  Lender  to the  Agent,  the
     Revolving  Credit Lenders who have given such written notice shall Transfer
     the following to the NonConsenting Revolving Credit Lender:

               (i) Such  NonConsenting  Revolving Credit Lender's Pro-Rata share

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<PAGE>

          of the  principal  and interest of the  Revolving  Credit Loans to the
          date of such assignment.

               (ii)  All  fees  distributable  hereunder  to  the  NonConsenting
          Revolving Credit Lender to the date of such assignment.

               (iii)  Any  out-of-pocket   costs  and  expenses  for  which  the
          NonConsenting  Revolving  Credit  Lender is entitled to  reimbursement
          from the Borrowers.

          (c) In the event that the NonConsenting  Revolving Credit Lender fails
     to deliver to the Agent the Revolving Credit Note held by the NonConsenting
     Revolving Credit Lender as provided in Section 15:15-10(b), then:

               (i) The amount  otherwise to be Transferred to the  NonConsenting
          Revolving  Credit Lender shall be Transferred to the Agent and held by
          the Agent,  without  interest,  to be turned over to the NonConsenting
          Revolving  Credit Lender upon  delivery of the  Revolving  Credit Note
          held by that NonConsenting Revolving Credit Lender.

               (ii)  The  Revolving  Credit  Note  held  by  the   NonConsenting
          Revolving Credit Lender shall have no force or effect whatsoever.

               (iii) The NonConsenting Revolving Credit Lender shall cease to be
          a "Revolving Credit Lender".

               (iv) The Revolving  Credit  Lender(s) which have  Transferred the
          amount to the Agent as  described  above shall have  succeeded  to all
          rights  and  become   subject  to  all  of  the   obligations  of  the
          NonConsenting Revolving Credit Lender as "Revolving Credit Lender".

          (d) In the event that more than One (1) Revolving Credit Lender wishes
     to require such  assignment,  the  NonConsenting  Revolving Credit Lender's
     commitment  hereunder shall be divided among such Revolving Credit Lenders,
     pro-rata  based  upon  their   respective   Revolving   Credit   Commitment
     Percentages, with the Agent coordinating such transaction.

          (e) The Agent shall  coordinate the retirement of the Revolving Credit
     Note held by the NonConsenting  Revolving Credit Lender and the issuance of
     Revolving  Credit Notes to those Revolving  Credit Lenders which "take-out"
     such  NonConsenting   Revolving  Credit  Lender,   provided,   however,  no
     processing fee otherwise to be paid as provided in Section 16:16-2(b) shall
     be due under such circumstances.

Article 16:       -        Assignments By Revolving Credit Lenders:

16-1     -Assignments and Assumptions:

          (a) Except as provided  herein,  each Revolving Credit Lender (in this
     Section 16:16-1(a),  an "Assigning  Revolving Credit Lender") may assign to
     one or  more  Eligible  Assignees  (in  this  Section  16:16-1(a),  each an
     "Assignee  Revolving  Credit  Lender")  all or a portion of that  Revolving

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<PAGE>

     Credit Lender's interests,  rights and obligations under this Agreement and
     the Loan Documents  (including all or a portion of its  Commitment) and the
     same portion of the Revolving  Credit Loans at the time owing to it, and of
     the Revolving  Credit Note held by the Assigning  Revolving  Credit Lender,
     provided that:

               (i) The Agent shall have given its prior written  consent to such
          assignment, which consent shall not be unreasonably withheld, but need
          not be given if the proposed  assignment would result in any resulting
          Revolving Credit Lender's having a Dollar  Commitment of less than the
          "minimum hold" amount specified in Section 16:16-1(a)(iii).

               (ii)  Each  such  assignment  shall be of a  constant,  and not a
          varying,  percentage of all the Assigning  Revolving  Credit  Lender's
          rights and obligations under this Agreement.

               (iii)  Following  the  effectiveness  of  such  assignment,   the
          Assigning  Revolving  Credit  Lender's  Dollar  Commitment  (if not an
          assignment  of  all  of  the  Assigning   Revolving   Credit  Lender's
          Commitment) shall not be less than $10,000,000.00.

16-2 -Assignment  Procedures.  (This Section 16:16-2 describes the procedures to
be followed in connection with an assignment  effected  pursuant to this Article
16: and permitted by Section 16:16-1).

          (a) The parties to such an assignment shall execute and deliver to the
     Agent,  for  recording  in  the  Register,  an  Assignment  and  Acceptance
     substantially in the form of EXHIBIT 16:16-2, annexed hereto.

          (b) The Assigning  Revolving Credit Lender shall deliver to the Agent,
     with such Assignment and Acceptance,  the Revolving Credit Note held by the
     subject Assigning Revolving Credit Lender and the Agent's processing fee of
     $3,500.00, provided, however, no such processing fee shall be due where the
     Assigning Revolving Credit Lender is one of the Revolving Credit Lenders at
     the initial execution of this Agreement.

          (c) The Agent shall maintain a copy of each  Assignment and Acceptance
     delivered  to it and a register or similar  list (the  "Register")  for the
     recordation of the names and addresses of the Revolving  Credit Lenders and
     of  the  Revolving  Credit  Commitment   Percentage  and  Revolving  Credit
     Commitment  Percentage of each Revolving Credit Lender.  The Register shall
     be  available  for  inspection  by  the  Revolving  Credit  Lenders  at any
     reasonable time and from time to time upon reasonable prior notice.  In the
     absence of manifest error,  the entries in the Register shall be conclusive
     and binding on all Revolving  Credit  Lenders.  The Agent and the Revolving
     Credit Lenders may treat each Person whose name is recorded in the Register
     as  a  "Revolving  Credit  Lender"  hereunder  for  all  purposes  of  this
     Agreement.

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<PAGE>

          (d) The  Assigning  Revolving  Credit  Lender and  Assignee  Revolving
     Credit Lender,  directly  between  themselves,  shall make all  appropriate
     adjustments  in payments  for  periods  prior to the  effective  date of an
     Assignment and Acceptance.

16-3     -Effect of Assignment.

          (a) From and after the effective  date  specified in an Assignment and
     Acceptance  which  has  been  executed,   delivered,  and  recorded  (which
     effective  date the Agent may delay by up to five (5)  Business  Days after
     the delivery of such Assignment and Acceptance):

               (i) The Assignee Revolving Credit Lender:

                    (A)  Shall  be a  party  to  this  Agreement  and  the  Loan
               Documents  (and to any  amendments  thereof)  as  fully as if the
               Assignee Revolving Credit Lender had executed each.

                    (B) Shall  have the  rights  of a  Revolving  Credit  Lender
               hereunder  to the  extent  of  the  Revolving  Credit  Commitment
               Percentage and Revolving Credit Commitment Percentage assigned by
               such Assignment and Acceptance.

               (ii) The Assigning Revolving Credit Lender shall be released from
          the Assigning Revolving Credit Lender's obligations arising thereafter
          under  this  Agreement  and the Loan  Documents  to the  extent of the
          Commitment assigned by such Assignment and Acceptance.

               (iii)  The  Agent  shall  undertake  to  obtain  and   distribute
          replacement  Revolving Credit Notes to the subject Assigning Revolving
          Credit Lender and Assignee Revolving Credit Lender.

          (b) By executing  and  delivering an Assignment  and  Acceptance,  the
     parties  thereto  confirm to and agree with each other and with all parties
     to this  Agreement as to those  matters  which are set forth in the subject
     Assignment and Acceptance.

Article 17:       - Notices:

17-1 -Notice Addresses.  All notices,  demands, and other communications made in
respect  of any Loan  Document  (other  than a request  for a loan or advance or
other financial  accommodation  under the Revolving Credit) shall be made to the
following  addresses,  each of which may be changed  upon seven (7) days written
notice to all others given by certified mail, return receipt requested:

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<PAGE>

If to the Agent:
                                    Fleet Retail Finance Inc.
                                    40 Broad Street, 10th Floor
                                    Boston, Massachusetts 02109
                                    Attention        : Mr. Michael D. Murray

                                    Fax              : 617 434-4312

         With a copy to:
                                    Riemer & Braunstein LLP
                                    Three Center Plaza
                                    Boston, Massachusetts  02108
                                    Attention        :  Robert E. Paul, Esquire
                                    Fax              :  617 880-3456

If to the Borrower:
                                    Phar-Mor, Inc.
                                    20 Federal Plaza West
                                    Youngstown, Ohio 44503
                                    Attention        : Mr. Martin Seekely
                                    Fax              :

         With a copy to:
                                    Morrison & Foerster LLP
                                    1290 Avenue of the Americas
                                    New York, New York 10104-0050
                                    Attention        : Peter Dopsch, Esquire
                                    Fax:             : 212 468-7900

17-2     -Notice Given.

          (a) Except as otherwise specifically provided herein, notices shall be
     deemed made and correspondence  received, as follows (all times being local
     to the place of delivery or receipt):

               (i) By mail:  the sooner of when  actually  received or Three (3)
          days following deposit in the United States mail, postage prepaid.

               (ii) By recognized  overnight express delivery:  the Business Day
          following the day when sent.

               (iii) By Hand:  If  delivered on a Business Day after 9:00 AM and
          no later than Three (3) hours prior to the close of customary business
          hours of the recipient,  when delivered.  Otherwise, at the opening of
          the then next Business Day.

               (iv) By  Facsimile  transmission  (which must include a header on
          which the party sending such transmission is indicated):  If sent on a
          Business  Day after 9:00 AM and no later than Three (3) hours prior to
          the close of customary  business hours of the recipient,  one (1) hour
          after being sent. Otherwise,  at the opening of the then next Business
          Day.

          (b)  Rejection or refusal to accept  delivery and inability to deliver
     because of a changed  address or  Facsimile  Number for which no due notice
     was given shall each be deemed receipt of the notice sent.

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<PAGE>

Article 18:       - Term:

18-1  -Termination  of Revolving  Credit.  The Revolving  Credit shall remain in
effect (subject to suspension as provided in Section  2:2-6(g) hereof) until the
Termination Date.

18-2     -Actions On Termination.

          (a) On the  Termination  Date,  the  Borrowers  shall  pay  the  Agent
     (whether  or not  then  due),  in  immediately  available  funds,  all then
     Liabilities including, without limitation: the following:

               (i) The entire balance of the Loan Account  (including the unpaid
          principal  balance of the Revolving  Credit  Loans,  and the SwingLine
          Loan ).

               (ii) Any then  remaining  installments  of the  Revolving  Credit
          Commitment Fee.

               (iii) Any then remaining installments of the Agent's Fee.

               (iv)  Any  payments   due  on  account  of  the   indemnification
          obligations included in Section 2:2-11(f).

               (v) Any accrued and unpaid Unused Line Fee.

               (vi) All  unreimbursed  costs  and  expenses  of the Agent and of
          Lenders' Special Counsel for which the Borrower is responsible.

          (b) On the Termination  Date, the Borrowers shall also shall make such
     arrangements  concerning  any  L/C's  then  outstanding  as are  reasonably
     satisfactory to the Agent.

          (c)  Until  such  payment   (Section   18:18-2(a))  and   arrangements
     concerning  L/C's (Section  18:18-2(b)),  all provisions of this Agreement,
     other than those  included in Article 2: which place any  obligation on the
     Agent or any  Revolving  Credit  Lender to make any loans or advances or to
     provide any financial  accommodations  to any Borrower shall remain in full
     force and effect until all Liabilities shall have been paid in full.

          (d) The release by the Agent of the Collateral  Interests  granted the
     Agent  by  the  Borrowers   hereunder  may  be  upon  such  conditions  and
     indemnifications as the Agent reasonably may require.

Article 19:       - General:

19-1  -Protection of  Collateral.  The Agent has no duty as to the collection or
protection of the  Collateral  beyond the safe custody of such of the Collateral
as may come into the possession of the Agent.

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19-2 -Publicity.  The Agent may issue a "tombstone"  notice of the establishment
of the credit facility  contemplated by this Agreement and may make reference to
each Borrower (and may utilize any logo or other  distinctive  symbol associated
with each Borrower) in connection with any advertising,  promotion, or marketing
undertaken by the Agent.

19-3 -Successors and Assigns. This Agreement shall be binding upon the Borrowers
and their respective representatives, successors, and assigns and shall enure to
the benefit of the Agent and each Revolving  Credit Lender and their  respective
successors  and  assigns,  provided,  however,  no  trustee  or other  fiduciary
appointed with respect to any Borrower shall have any rights  hereunder.  In the
event that the Agent or any  Revolving  Credit  Lender  assigns or transfers its
rights under this Agreement,  the assignee shall thereupon succeed to and become
vested  with  all  rights,  powers,  privileges,  and  duties  of such  assignor
hereunder and such assignor shall  thereupon be discharged and relieved from its
duties and obligations hereunder.

19-4  -Severability.  Any determination  that any provision of this Agreement or
any application thereof is invalid,  illegal, or unenforceable in any respect in
any instance shall not affect the validity,  legality, or enforceability of such
provision in any other instance, or the validity, legality, or enforceability of
any other provision of this Agreement.

19-5     -Amendments.  Course of Dealing.

          (a) This  Agreement  and the  other  Loan  Documents  incorporate  all
     discussions and  negotiations  between each Borrower and the Agent and each
     Revolving Credit Lender, either express or implied,  concerning the matters
     included herein and in such other instruments, any custom, usage, or course
     of  dealings  to  the  contrary   notwithstanding.   No  such  discussions,
     negotiations,  custom, usage, or course of dealings shall limit, modify, or
     otherwise  affect the  provisions  thereof.  No failure by the Agent or any
     Revolving  Credit  Lender  to  give  notice  to the  Lead  Borrower  of any
     Borrower's  having  failed to  observe  and  comply  with any  warranty  or
     covenant  included in any Loan Document  shall  constitute a waiver of such
     warranty or covenant or the  amendment  of the subject  Loan  Document.  No
     change  made  by the  Agent  to the  manner  by  which  Borrowing  Base  is
     determined shall obligate the Agent to continue to determine Borrowing Base
     in that manner (subject to the specific terms hereof).

          (b) Each  Borrower  may  undertake  any  action  otherwise  prohibited
     hereby, and may omit to take any action otherwise required hereby, upon and
     with the express  prior  written  consent of the Agent.  Subject to Article
     15:, no consent, modification, amendment, or waiver of any provision of any

                                      101
<PAGE>

     Loan Document shall be effective unless executed in writing by or on behalf
     of the party to be charged  with such  modification,  amendment,  or waiver
     (and if such party is the Agent then by a duly authorized officer thereof).
     Any  modification,  amendment,  or waiver provided by the Agent shall be in
     reliance upon all  representations  and warranties  theretofore made to the
     Agent by or on behalf of the Borrowers  (and any  guarantor,  endorser,  or
     surety of the  Liabilities)  and consequently may be rescinded in the event
     that any of such representations or warranties was not true and complete in
     all material respects when given.

19-6 -Power of Attorney.  In connection with all powers of attorney  included in
this  Agreement,  each Borrower hereby grants unto the Agent (acting through any
of its officers) full power to do any and all things necessary or appropriate in
connection  with the  exercise of such powers as fully and  effectually  as that
Borrower might or could do, hereby  ratifying all that said attorney shall do or
cause to be done by virtue of this Agreement.  No power of attorney set forth in
this Agreement shall be affected by any disability or incapacity suffered by any
Borrower and each shall survive the same. All powers conferred upon the Agent by
this Agreement,  being coupled with an interest, shall be irrevocable until this
Agreement is terminated by a written  instrument  executed by a duly  authorized
officer of the Agent.

19-7  -Application  of  Proceeds.  The  proceeds  of any  collection,  sale,  or
disposition  of the  Collateral,  or of any other payments  received  hereunder,
shall be applied  towards the  Liabilities in such order and manner as the Agent
determines in its sole discretion,  consistent,  however,  with Sections 13:13-6
and 13:13-7 and any other applicable provisions of this Agreement. The Borrowers
shall remain liable for any deficiency remaining following such application.

19-8 -Increased Costs. If, after the date hereof,  the adoption of or any change
in any Requirement of Law, or of the  interpretation  or application  thereof by
any court or by any  governmental  or other authority or entity charged with the
administration thereof, whether or not having the force of law, which:

          (a) subjects any  Revolving  Credit Lender to any taxes or changes the
     basis of  taxation,  or  increases  any  existing  taxes,  on  payments  of
     principal,  interest or other amounts  payable by any Borrower to the Agent
     or any Revolving  Credit Lender under this  Agreement  (except for taxes on
     the Agent or any  Revolving  Credit  Lender  based on net income or capital
     imposed by the  jurisdictions  in which the principal or lending offices of
     the Agent or that Revolving Credit Lender are located);

          (b) imposes,  modifies or deems  applicable any reserve,  cash margin,
     special deposit or similar requirements against assets held by, or deposits

                                      102
<PAGE>

     in or for the account of or loans by or any other  acquisition  of funds by
     the relevant lending office of any Revolving Credit Lender;

          (c) . imposes on any Revolving  Credit Lender any other condition with
     respect to any Loan Document; or

          (d) imposes on any Revolving  Credit Lender a requirement  to maintain
     or allocate capital in relation to the  Liabilities;  and the result of any
     of the foregoing,  in such Revolving Credit Lender's reasonable opinion, is
     to  increase  the  cost  to that  Revolving  Credit  Lender  of  making  or
     maintaining any loan,  advance or financial  accommodation or to reduce the
     income  receivable by that Revolving  Credit Lender in respect of any loan,
     advance or financial accommodation by an amount which that Revolving Credit
     Lender deems to be material,  then upon written notice from the Agent, from
     time to time,  to the Lead  Borrower  (such notice to set out in reasonable
     detail the facts giving rise to and a summary calculation of such increased
     cost or reduced  income),  the Borrowers  shall forthwith pay to the Agent,
     for the benefit of the subject  Revolving  Credit  Lender,  upon receipt of
     such  notice,  that amount  which shall  compensate  the subject  Revolving
     Credit Lender for such additional cost or reduction in income.

19-9     -Costs and Expenses of the Agent .

          (a) The Borrowers shall pay from time to time on demand all reasonable
     costs,  expenses,  and disbursements  (including reasonable attorneys' fees
     and  expenses)  which  are  incurred  by the Agent in  connection  with the
     preparation,  negotiation, execution, and delivery of this Agreement and of
     any other Loan  Documents,  not  exceeding,  with  respect  to the  Agent's
     attorneys,  the  aggregate  of  $75,000.00  fees plus  actual out of pocket
     expenses incurred by such attorneys.

          (b) The  Borrowers  shall pay from  time to time on  demand  all other
     reasonable  costs,  expenses,   and  disbursements   (including  reasonable
     attorneys' fees and expenses) which may be incurred, after the execution of
     this  Agreement,  in connection  with or in respect to the credit  facility
     contemplated  hereby or which  otherwise  are incurred  with respect to the
     Liabilities.

          (c) The Borrowers shall pay from time to time on demand all reasonable
     costs and expenses  (including  reasonable  attorneys'  fees and  expenses)
     incurred,  following  the  occurrence  of  any  Event  of  Default,  by the
     Revolving Credit Lenders to Lenders' Special Counsel.

          (d) Each  Borrower  authorizes  the  Agent  to pay all  such  fees and
     expenses  and in the Agent's  discretion,  to add such fees and expenses to
     the Loan Account.

          (e) The  undertaking  on the  part of each  Borrower  in this  Section
     19:19-9 shall survive  payment of the Liabilities  and/or any  termination,
     release, or discharge executed by the Agent in favor of any Borrower, other
     than a termination, release, or discharge which makes specific reference to
     this Section 19:19-9.

                                      103
<PAGE>

19-10  -Copies and  Facsimiles.  Each Loan Document and all documents and papers
which relates thereto which have been or may be hereinafter  furnished the Agent
or any Revolving Credit Lender may be reproduced by that Revolving Credit Lender
or by the Agent by any photographic, microfilm, xerographic, digital imaging, or
other process, and such Person making such reproduction may destroy any document
so  reproduced.  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 in the
regular  course of business).  Any facsimile  which bears proof of  transmission
shall be binding on the party  which or on whose  behalf such  transmission  was
initiated and likewise  shall be so admissible in evidence as if the original of
such  facsimile  had been  delivered  to the party which or on whose behalf such
transmission was received.

19-11  -Massachusetts  Law.  This  Agreement  and  all  rights  and  obligations
hereunder,  including matters of construction,  validity, and performance, shall
be governed by the law of The Commonwealth of Massachusetts.

19-12    -Consent to Jurisdiction.

          (a) Each Borrower agrees that any legal action,  proceeding,  case, or
     controversy  against any Borrower  with respect to any Loan Document may be
     brought in the Superior  Court of Suffolk  County  Massachusetts  or in the
     United States District Court, District of Massachusetts, sitting in Boston,
     Massachusetts,  as the Agent may elect in the Agent's sole  discretion.  By
     execution and delivery of this Agreement,  each Borrower, for itself and in
     respect of its  property,  accepts,  submits,  and consents  generally  and
     unconditionally, to the jurisdiction of the aforesaid courts.

          (b) Each Borrower WAIVES personal  service of any and all process upon
     it, and  irrevocably  consents  to the service of process out of any of the
     aforementioned  courts in any such action or  proceeding  by the mailing of
     copies thereof by certified mail, postage prepaid,  to the Lead Borrower at
     the Lead Borrower's  address for notices as specified herein,  such service
     to become effective five (5) Business Days after such mailing.

          (c) Each Borrower  WAIVES any objection  based on forum non conveniens
     and any objection to venue of any action or proceeding instituted under any
     of the Loan Documents.

          (d) Nothing  herein shall affect the right of the Agent to bring legal
     actions or proceedings in any other competent jurisdiction.

          (e) Each  Borrower  agrees that any action  commenced  by any Borrower
     asserting any claim arising under or in connection  with this  Agreement or
     any other Loan Document  shall be brought  solely in the Superior  Court of
     Suffolk  County  Massachusetts  or in the  United  States  District  Court,
     District of Massachusetts,  sitting in Boston, Massachusetts, and that such
     Courts shall have exclusive jurisdiction with respect to any such action.

                                      104
<PAGE>

19-13  -Indemnification.  Each Borrower shall  indemnify,  defend,  and hold the
Agent and each Revolving  Credit Lender and any of their  respective  employees,
officers,  or agents (each,  an "Indemnified  Person")  harmless of and from any
claim brought or threatened against any Indemnified Person by any Borrower,  any
guarantor or endorser of the  Liabilities,  or any other Person (as well as from
reasonable attorneys' fees, expenses, and disbursements in connection therewith)
on account of the  relationship  of the  Borrowers or of any other  guarantor or
endorser of the Liabilities,  including all costs,  expenses,  liabilities,  and
damages as may be suffered by any Indemnified  Person in connection with (x) the
Collateral;  (y) the occurrence of any Event of Default;  or (z) the exercise of
any rights or remedies under any of the Loan Documents (each of claims which may
be defended,  compromised,  settled,  or pursued by the Indemnified  Person with
counsel of the Lender's  selection,  but at the expense of the Borrowers)  other
than  any  claim  as to  which a  final  determination  is  made  in a  judicial
proceeding  (in which the Agent  and any  other  Indemnified  Person  has had an
opportunity to be heard),  which determination  includes a specific finding that
the Indemnified Person seeking  indemnification had acted in a grossly negligent
manner or in actual bad faith or in  violation  of this  Agreement  or any other
Loan Document.  This  indemnification  shall survive  payment of the Liabilities
and/or any termination,  release, or discharge executed by the Agent in favor of
the Borrowers, other than a termination,  release, or discharge duly executed on
behalf of the Agent which makes specific reference to this Section 19:19-13.

19-14 -Rules of  Construction.  The  following  rules of  construction  shall be
applied in the interpretation,  construction,  and enforcement of this Agreement
and of the other Loan Documents:

          (a) Unless otherwise  specifically  provided for herein,  interest and
     any fee or  charge  which is  stated  as a per  annum  percentage  shall be
     calculated based on a 360 day year and actual days elapsed.

          (b) Any term used herein to  describe  Collateral  or a Person,  which
     term is  defined  in either (or both) the UCC as in effect on the date when
     this Agreement was executed by the Borrowers or in UCC9'99,  shall be given
     the meaning which is the more encompassing of the two definitions.

          (c) Words in the  singular  include the plural and words in the plural
     include the singular.

          (d) Cross  references  to  Sections in this  Agreement  begin with the
     Article in which that Section  appears,  followed by a colon,  and then the
     Section to which reference is made.  (For example,  a reference to "Section
     5:5-6" is to Section 5-6, which appears in Article 5 of this Agreement).

          (e) Titles,  headings (indicated by being underlined or shown in SMALL
     CAPITALS)  and  any  Table  of  Contents  are  solely  for  convenience  of

                                      105
<PAGE>

     reference;  do not constitute a part of the  instrument in which  included;
     and do not affect such instrument's meaning, construction, or effect.

          (f) The words "includes" and "including" are not limiting.

          (g) Text which follows the words "including,  without  limitation" (or
     similar words) is illustrative and not limitational.

          (h)  Text  which  is  shown  in  italics  (except  for   parenthesized
     italicized  text),  shown in bold, shown IN ALL CAPITAL LETTERS,  or in any
     combination of the foregoing, shall be deemed to be conspicuous.

          (i) The words "may not" are prohibitive and not permissive.

          (j) Any  reference  to a  Person's  "knowledge"  (or words of  similar
     import)  are to such  Person's  knowledge  assuming  that such  Person  has
     undertaken  reasonable  and  diligent  investigation  with  respect  to the
     subject of such "knowledge" (whether or not such investigation has actually
     been undertaken).

          (k) Terms which are defined in one  section of any Loan  Document  are
     used with such definition throughout the instrument in which so defined.

          (l) The symbol "$" refers to United States Dollars.

          (m) Unless limited by reference to a particular  Section or provision,
     any  reference  to  "herein",  "hereof",  or "within" is to the entire Loan
     Document in which such reference is made.

          (n) References to "this Agreement" or to any other Loan Document is to
     the subject  instrument as amended to the date on which application of such
     reference is being made.

          (o) Except as otherwise  specifically provided, all references to time
     are to Boston time.

          (p) In the determination of any notice, grace, or other period of time
     prescribed or allowed hereunder:

               (i) Unless  otherwise  provided (I) the day of the act, event, or
          default from which the  designated  period of time begins to run shall
          not be included  and the last day of the period so  computed  shall be
          included  unless  such last day is not a Business  Day, in which event
          the last day of the relevant  period  shall be the then next  Business
          Day and  (II)  the  period  so  computed  shall  end at 5:00 PM on the
          relevant Business Day.

               (ii) The word "from" means "from and including".

               (iii) The words "to" and "until" each mean "to, but excluding".

               (iv) The word "through" means "to and including".

          (q) The  Loan  Documents  shall  be  construed  and  interpreted  in a
     harmonious  manner and in keeping with the  intentions set forth in Section
     19:19-15  hereof,  provided,  however,  in the  event of any  inconsistency
     between the provisions of this  Agreement and any other Loan Document,  the
     provisions of this Agreement shall govern and control.

                                      106
<PAGE>

19-15    -Intent.   It is intended that:

          (a) This Agreement take effect as a sealed instrument.

          (b) The scope of all Collateral  Interests  created by the Borrower to
     secure the Liabilities be broadly  construed in favor of the Agent and that
     they cover all assets of the Borrower.

          (c) All Collateral Interests created in favor of the Agent at any time
     and  from  time to time by any the  secure  all  Liabilities,  whether  now
     existing or contemplated or hereafter arising.

          (d) Unless otherwise  explicitly  provided herein, the Agent's consent
     to any action of the Borrower  which is  prohibited  unless such consent is
     given may be given or refused by the Agent in its sole discretion,  subject
     to the terms of Section 2:2-18 hereof.

19-16  -Participations:  Each Revolving Credit Lender may sell participations to
one or more financial  institutions  (each, a  "Participant")  in that Revolving
Credit  Lender's  interests  herein  provided that no such  participation  shall
include any provision which accords that Participant with any rights,  vis a vis
the Agent,  with respect to any  requirement  herein for approval by a requisite
number  or  proportion  of the  Revolving  Credit  Lenders.  No  such  sale of a
participation shall relieve a Revolving Credit Lender from that Revolving Credit
Lender's obligations hereunder nor obligate the Agent to any Person other than a
Revolving Credit Lender.

19-17 -Right of Set-Off. Any and all deposits or other sums at any time credited
by or due to the Borrower from the Agent or any  Revolving  Credit Lender or any
Participant  or from  any  Affiliate  of any of the  foregoing,  and  any  cash,
securities,  instruments  or other property of the Borrower in the possession of
any of the foregoing,  whether for  safekeeping or otherwise  (regardless of the
reason  such Person had  received  the same)  shall at all times  following  the
occurrence of an Event of Default  constitute  security for all  Liabilities and
for any and all  obligations  of the  Borrower  to the Agent and such  Revolving
Credit Lender or any Participant or such Affiliate and may be applied or set off
against  the  Liabilities  and  against  such  obligations  whether or not other
collateral is then available to the Agent or that Revolving Credit Lender.

19-18  -Pledges To Federal  Reserve  Banks:  Nothing  included in this Agreement
shall  prevent or limit any  Revolving  Credit  Lender,  to the extent that such
Revolving  Credit Lender is subject to any of the twelve  Federal  Reserve Banks
organized under ss.4 of the Federal Reserve Act (12 U.S.C. ss.341) from pledging
all or any portion of that  Lender's  interest and rights under this  Agreement,
provided, however, neither such pledge nor the enforcement thereof shall release
the pledging  Revolving  Credit Lender from any of its obligations  hereunder or
under any of the Loan Documents.

                                      107
<PAGE>

19-19 -Maximum Interest Rate.  Regardless of any provision of any Loan Document,
neither the Agent nor any Revolving  Credit Lender shall be entitled to contract
for, charge, receive, collect, or apply as interest on any Liability, any amount
in excess of the maximum rate imposed by  Applicable  Law. Any payment  which is
made  which,  if  treated  as  interest  on a  Liability  would  result  in such
interest's  exceeding  such  maximum  rate shall be held,  to the extent of such
excess,  as additional  collateral  for the  Liabilities  as if such excess were
"Collateral."

19-20 -Execution in Counterparts. This Agreement and other Loan Documents may be
executed  in any  number of  counterparts,  each of which when so  executed  and
delivered shall be deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same instrument.

19-21    -Waivers.

          (a) The Borrower (and all guarantors,  endorsers,  and sureties of the
     Liabilities)  make each of the  waivers  included  in Section  19:19-21(b),
     below,  knowingly,  voluntarily,  and  intentionally,  and understands that
     Agent and each Revolving  Credit  Lender,  in  establishing  the facilities
     contemplated   hereby   and  in   providing   loans  and  other   financial
     accommodations  to or for the account of the  Borrower as provided  herein,
     whether not or in the future, is relying on such waivers.

          (b) THE  BORROWER,  AND EACH  SUCH  GUARANTOR,  ENDORSER,  AND  SURETY
     RESPECTIVELY WAIVES THE FOLLOWING:

               (i) Except as otherwise  specifically  required hereby or by any
          other  Loan  Document,  notice of  non-payment,  demand,  presentment,
          protest and all forms of demand and notice,  both with  respect to the
          Liabilities and the Collateral.

               (ii) Except as otherwise  specifically required hereby, the right
          to  notice  and/or  hearing  prior to the  Agent's  exercising  of the
          Agent's rights upon default.

               (iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY
          IN WHICH  THE AGENT OR ANY  REVOLVING  CREDIT  LENDER IS OR  BECOMES A
          PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE
          AGENT OR ANY  REVOLVING  CREDIT  LENDER  OR IN WHICH  THE AGENT OR ANY
          REVOLVING CREDIT LENDER IS JOINED AS A PARTY LITIGANT),  WHICH CASE OR
          CONTROVERSY  ARISES  OUT  OF OR IS IN  RESPECT  OF,  ANY  RELATIONSHIP
          AMONGST OR BETWEEN THE  BORROWER OR ANY OTHER PERSON AND THE AGENT AND
          EACH REVOLVING  CREDIT LENDER  LIKEWISE  WAIVES THE RIGHT TO A JURY IN
          ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).

               (iv)  The  benefits  or  availability  of any  stay,  limitation,

                                      108
<PAGE>

          hindrance,  delay, or restriction (including,  without limitation, any
          automatic stay which  otherwise  might be imposed  pursuant to Section
          362 of the Bankruptcy Code) with respect to any action which the Agent
          may or may become entitled to take hereunder.

                   REMAINDER OF PAGE LEFT INTENTIONALLY BLANK

                                      109
<PAGE>

               (v) Any claim to consequential, special, or punitive damages.

                                                                  PHAR-MOR, INC.
                                                               ("lead borrower")

                                             By_________________________________

                                                   Print Name: Martin S. Seekely

                                   Title: Vice President Chief Financial Officer

                                                                   ("borrowers")

                                                                  PHAR-MOR, INC.

                                             By_________________________________

                                                   Print Name: Martin S. Seekely

                                   Title: Vice President Chief Financial Officer

                                                       PHAR-MOR OF FLORIDA, INC.

                                             By_________________________________

                                                   Print Name: Martin S. Seekely

                                   Title: Vice President Chief Financial Officer

                                                          PHAR-MOR OF OHIO, INC.

                                             By_________________________________

                                                   Print Name: Martin S. Seekely

                                   Title: Vice President Chief Financial Officer

                                                      PHAR-MOR OF VIRGINIA, INC.

                                             By_________________________________

                                                   Print Name: Martin S. Seekely

                                   Title: Vice President Chief Financial Officer

                                      110
<PAGE>

                                                     PHAR-MOR OF WISCONSIN, INC.

                                             By_________________________________

                                                   Print Name: Martin S. Seekely

                                   Title: Vice President Chief Financial Officer

                                                      PHAR-MOR OF DELAWARE, INC.

                                             By_________________________________

                                                   Print Name: Martin S. Seekely

                                   Title: Vice President Chief Financial Officer

                                                              PHAR-MOR, INC. LLC

                                             By_________________________________

                                                   Print Name: Martin S. Seekely

                                   Title: Vice President Chief Financial Officer

                                                                PHARMHOUSE CORP.

                                             By_________________________________

                                                   Print Name: Martin S. Seekely

                                   Title: Vice President Chief Financial Officer

                                                       FLEET RETAIL FINANCE INC.
                                                                       ("AGENT")

                                             By_________________________________

                                     Print Name:________________________________

                                          Title:________________________________

                                      111
<PAGE>

                         The "Revolving Credit Lenders"

                                                       FLEET RETAIL FINANCE INC.

                                             By_________________________________

                                     Print Name:________________________________

                                          Title:________________________________

                                                          HELLER FINANCIAL, INC.

                                             By_________________________________

                                     Print Name:________________________________

                                          Title:________________________________

                                                    FOOTHILL CAPITAL CORPORATION

                                             By_________________________________

                                     Print Name:________________________________

                                          Title:________________________________

                                                      GMAC COMMERCIAL CREDIT LLC

                                             By_________________________________

                                     Print Name:________________________________

                                          Title:________________________________

                                                   LASALLE BUSINESS CREDIT, INC.

                                             By_________________________________

                                     Print Name:________________________________

                                          Title:________________________________

601804.8

                                      112

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