Document:

EXECUTION VERSION

                                                                  Exhibit 10.1

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                           LOAN AND SECURITY AGREEMENT

                                  by and among

                            SHARPER IMAGE CORPORATION

                                  as Borrower,

                     THE LENDERS THAT ARE SIGNATORIES HERETO

                                 as the Lenders,

                                       and

                         WELLS FARGO RETAIL FINANCE, LLC

                    as the Arranger and Administrative Agent

                          Dated as of October 31, 2003

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1.   DEFINITIONS AND CONSTRUCTION..............................................1
     1.1      Definitions......................................................1
     1.2      Accounting Terms................................................31
     1.3      Code............................................................31
     1.4      Construction....................................................32
     1.5      Schedules and Exhibits..........................................32
2.   LOAN AND TERMS OF PAYMENT................................................32
     2.1      Revolver Advances...............................................32
     2.2      Capital Expenditures Loans......................................33
     2.3      Borrowing Procedures and Settlements............................34
     2.4      Payments........................................................41
     2.5      Overadvances....................................................44
     2.6      Interest Rates and Letter of Credit Fee: Rates, Payments, and
              Calculations....................................................44
     2.7      Cash Management.................................................46
     2.8      Crediting Payments..............................................48
     2.9      Designated Account..............................................48
     2.10     Maintenance of Loan Account; Statements of Obligations..........49
     2.11     Fees............................................................49
     2.12     Letters of Credit...............................................50
     2.13     LIBOR Option....................................................54
     2.14     Capital Requirements............................................57
3.   CONDITIONS; TERM OF AGREEMENT............................................57
     3.1      Conditions Precedent to the Initial Extension of Credit.........57
     3.2      Conditions Subsequent to the Initial Extension of Credit........60
     3.3      Conditions Precedent to all Extensions of Credit................60
     3.4      Term............................................................61
     3.5      Effect of Termination...........................................61
     3.6      Early Termination by Borrower...................................62
4.   CREATION OF SECURITY INTEREST............................................62
     4.1      Grant of Security Interest......................................62
     4.2      Negotiable Collateral...........................................63
     4.3      Collection of Accounts, General Intangibles, and Negotiable
              Collateral......................................................63

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     4.4      Filing of Financing Statements; Commercial Tort Claims; Delivery
              of Additional Documentation Required............................63
     4.5      Power of Attorney...............................................64
     4.6      Right to Inspect................................................65
     4.7      Control Agreements..............................................65
5.   REPRESENTATIONS AND WARRANTIES...........................................65
     5.1      No Encumbrances.................................................66
     5.2      Eligible Accounts...............................................66
     5.3      Eligible Inventory..............................................66
     5.4      Equipment.......................................................66
     5.5      Location of Inventory and Equipment.............................66
     5.6      Inventory Records...............................................66
     5.7      State of Incorporation; Location of Chief Executive Office; FEIN;
              Organizational ID Number; Commercial Tort Claims................67
     5.8      Due Organization and Qualification; Subsidiaries................67
     5.9      Due Authorization; No Conflict..................................68
     5.10     Litigation......................................................68
     5.11     No Material Adverse Change......................................69
     5.12     Fraudulent Transfer.............................................69
     5.13     Employee Benefits...............................................69
     5.14     Environmental Condition.........................................69
     5.15     Brokerage Fees..................................................69
     5.16     Intellectual Property...........................................70
     5.17     Leases..........................................................70
     5.18     Deposit Accounts and Securities Accounts........................70
     5.19     Complete Disclosure.............................................70
     5.20     Indebtedness....................................................70
     5.21     Credit Card Receipts............................................71
     5.22     Margin Stock....................................................71
6.   AFFIRMATIVE COVENANTS....................................................71
     6.1      Accounting System...............................................71
     6.2      Collateral Reporting............................................71
     6.3      Financial Statements, Reports, Certificates.....................71

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     6.4      Guarantor Reports...............................................73
     6.5      Returns.........................................................74
     6.6      Maintenance of Properties.......................................74
     6.7      Taxes...........................................................74
     6.8      Insurance.......................................................74
     6.9      Location of Inventory and Equipment.............................75
     6.10     Compliance with Laws............................................76
     6.11     Leases..........................................................76
     6.12     Existence.......................................................76
     6.13     Environmental...................................................76
     6.14     Disclosure Updates..............................................77
     6.15     Formation of Subsidiaries.......................................77
7.   NEGATIVE COVENANTS.......................................................77
     7.1      Indebtedness....................................................77
     7.2      Liens...........................................................78
     7.3      Restrictions on Fundamental Changes.............................78
     7.4      Disposal of Assets..............................................78
     7.5      Change Name.....................................................78
     7.6      Nature of Business..............................................79
     7.7      [Intentionally Omitted].........................................79
     7.8      Change of Control...............................................79
     7.9      Consignments....................................................79
     7.10     Distributions...................................................79
     7.11     Accounting Methods..............................................79
     7.12     Investments.....................................................79
     7.13     Transactions with Affiliates....................................79
     7.14     Suspension......................................................80
     7.15     [Intentionally Omitted].........................................80
     7.16     Use of Proceeds.................................................80
     7.17     Inventory and Equipment Storage.................................80
     7.18     Financial Covenants.............................................80

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8.   EVENTS OF DEFAULT........................................................81
9.   THE LENDER GROUP'S RIGHTS AND REMEDIES...................................84
     9.1      Rights and Remedies.............................................84
     9.2      Remedies Cumulative.............................................86
10.  TAXES AND EXPENSES.......................................................86
11.  WAIVERS; INDEMNIFICATION.................................................87
     11.1     Demand; Protest; etc............................................87
     11.2     The Lender Group's Liability for Borrower Collateral............87
     11.3     Indemnification.................................................87
12.  NOTICES..................................................................88
13.  CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER...............................89
14.  ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS...............................90
     14.1     Assignments and Participations..................................90
     14.2     Successors......................................................92
15.  AMENDMENTS; WAIVERS......................................................92
     15.1     Amendments and Waivers..........................................92
     15.2     Replacement of Holdout Lender...................................94
     15.3     No Waivers; Cumulative Remedies.................................94
16.  AGENT; THE LENDER GROUP..................................................94
     16.1     Appointment and Authorization of Agent..........................94
     16.2     Delegation of Duties............................................95
     16.3     Liability of Agent..............................................95
     16.4     Reliance by Agent...............................................96
     16.5     Notice of Default or Event of Default...........................96
     16.6     Credit Decision.................................................97
     16.7     Costs and Expenses; Indemnification.............................97
     16.8     Agent in Individual Capacity....................................98
     16.9     Successor Agent.................................................98
     16.10    Lender in Individual Capacity...................................99
     16.11    Withholding Taxes...............................................99
     16.12    Collateral Matters..............................................02
     16.13    Restrictions on Actions by Lenders; Sharing of Payments........103
     16.14    Agency for Perfection..........................................103

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     16.15    Payments by Agent to the Lenders...............................103
     16.16    Concerning the Collateral and Related Loan Documents...........104
     16.17    Field Audits and Examination Reports; Confidentiality;
              Disclaimers by Lenders; Other Reports and Information..........104
     16.18    Several Obligations; No Liability..............................105
     16.19    Legal Representation of Agent..................................105
17.  GENERAL PROVISIONS......................................................105
     17.1     Effectiveness..................................................105
     17.2     Section Headings...............................................105
     17.3     Interpretation.................................................106
     17.4     Severability of Provisions.....................................106
     17.5     Amendments in Writing..........................................106
     17.6     Counterparts; Telefacsimile Execution..........................106
     17.7     Revival and Reinstatement of Obligations.......................106
     17.8     Confidentiality................................................106
     17.9     Integration....................................................107

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                           LOAN AND SECURITY AGREEMENT

      THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
October 31, 2003, by and among,  on the one hand, the lenders  identified on the
signature pages hereof (such lenders,  together with their respective successors
and  permitted  assigns,  are referred to  hereinafter  each  individually  as a
"Lender" and collectively as the "Lenders") and WELLS FARGO RETAIL FINANCE, LLC,
a Delaware limited liability company,  as the arranger and administrative  agent
for the Lenders ("Agent"), and, on the other hand, SHARPER IMAGE CORPORATION,  a
Delaware corporation ("Borrower").

      The parties agree as follows:

1.  DEFINITIONS AND CONSTRUCTION.

    1.1 Definitions.  As used in this Agreement,  the following terms shall have
the following definitions:

      "Account" means an account (as that term is defined in the Code),  and any
and all supporting obligations in respect thereof.

      "Account  Availability  Activation  Date" means such date as Borrower  may
select in a  written  notice  delivered  to Agent  indicating  its  election  to
activate the Eligible  Accounts  component of the Borrower  Base, so long as (1)
such written notice  provides Agent with a reasonable  period of time (and in no
event  less  than  30  days)  within  which  to  conduct  and  complete  (to its
satisfaction)  its usual and customary due diligence  and,  based on the results
thereof, to establish account eligibility,  caps, and reserves, all prior to the
designated  Account  Availability  Activation  Date, and (2) on both the date of
delivery  of the such  written  notice  and the  selected  Account  Availability
Activation Date, there shall be not have occurred and be continuing any Event of
Default.

      "Account Debtor" means any Person who is obligated under, with respect to,
or on account of, an Account, chattel paper, or a General Intangible.

      "ACH   Transactions"   means  any  cash  management  or  related  services
(including the Automated  Clearing House processing of electronic fund transfers
through the direct Federal Reserve  Fedline  system)  provided by a Bank Product
Provider for the account of Borrower or its Subsidiaries.

      "Additional Documents" has the meaning set forth in Section 4.4(c).

      "Adjusted Letter of Credit Usage" means, as of the date of  determination,
the sum of (a) with respect to Qualified Import Letters of Credit issued for the
purpose of purchasing  Eligible  Inventory,  the Adjusted  Qualified  Import L/C
Amount,  plus (b) 100% of the undrawn amount of all other outstanding Letters of
Credit,  plus (c) 100% of the amount

                                      -1-
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of  outstanding  time drafts  accepted by the  Underlying  Issuer as a result of
drawings under Underlying Letters of Credit.

      "Adjusted   Qualified  Import  L/C  Amount"  means,  as  of  any  date  of
determination with respect to all outstanding Qualified Import Letters of Credit
issued for the purpose of purchasing Eligible Inventory,  an amount equal to (a)
100% of the undrawn amount of such Qualified Import Letters of Credit,  less (b)
the  incremental   additional  Borrowing  Base  attributable  to  the  Inventory
purchased pursuant thereto, which Inventory is not Eligible In-Transit Inventory
at such time, but would be Eligible In-Transit Inventory but for the limitations
in clause (g) of the definition of Eligible In-Transit Inventory.

      "Adjusted Revolver Usage" means, as of any date of determination,  the sum
of (a) the then extant amount of outstanding Advances,  plus (b) the then extant
amount of  outstanding  Capital  Expenditures  Loans,  plus (c) the then  extant
amount of the Adjusted Letter of Credit Usage.

      "Advances" has the meaning set forth in Section 2.1(a).

      "Affiliate"  means,  as  applied  to any  Person,  any other  Person  who,
directly  or  indirectly  through  one  or  more  intermediaries,  controls,  is
controlled  by, or is under common  control with,  such Person.  For purposes of
this definition,  "control" means the possession, directly or indirectly through
one or more  intermediaries,  of the power to direct the management and policies
of a Person,  whether through the ownership of Stock, by contract, or otherwise;
provided, however, that, for purposes of the definition of Eligible Accounts and
Section 7.13 hereof:  (a) any Person which owns  directly or  indirectly  10% or
more of the Stock having  ordinary voting power for the election of directors or
other  members  of  the  governing  body  of a  Person  or 10%  or  more  of the
partnership  or other  ownership  interests of a Person (other than as a limited
partner of such Person)  shall be deemed an  Affiliate of such Person,  (b) each
director (or comparable  manager) of a Person shall be deemed to be an Affiliate
of such Person, and (c) each partnership or joint venture in which a Person is a
partner or joint venturer shall be deemed an Affiliate of such Person.

      "Agent" means WFRF, in its capacity as arranger and  administrative  agent
hereunder, and any successor thereto.

      "Agent Advances" has the meaning set forth in Section 2.3(e)(i).

      "Agent-Related   Persons"  means  Agent,  together  with  its  Affiliates,
officers, directors, employees, attorneys, and agents.

      "Agent's  Account"  means  the  Deposit  Account  of Agent  identified  on
Schedule A-1.

      "Agent's Liens" means the Liens granted by Borrower or its Subsidiaries to
Agent under this Agreement or the other Loan Documents.

      "Agreement" has the meaning set forth in the preamble to this Agreement.

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      "Applicable Prepayment Premium" means, as of any date of determination, an
amount equal to 0.10% times the average Daily Balance of the Revolver Usage over
the 360 day period  immediately  preceding such date of  determination  (or such
lesser  period  of time  that has  elapsed  from the date of the  execution  and
delivery  of this  Agreement  up to the date  immediately  prior to such date of
determination).

      "Assignee" has the meaning set forth in Section 14.1(a).

      "Assignment and Acceptance"  means an Assignment and Acceptance  Agreement
substantially in the form of Exhibit A-1.

      "Authorized Person" means those individuals identified on Schedule A-2, as
such schedule may be modified by written notice from Borrower to Agent from time
to time.

      "Availability"  means,  as of any date of  determination,  the amount that
Borrower is entitled to borrow as Advances hereunder (after giving effect to all
then  outstanding  Obligations  (other than Bank  Product  Obligations)  and all
sublimits and reserves then applicable hereunder).

      "Bank Product" means any financial  accommodation  extended to Borrower or
its  Subsidiaries  by a Bank  Product  Provider  (other  than  pursuant  to this
Agreement) including: (a) credit cards, (b) credit card processing services, (c)
debit cards,  (d) purchase cards,  (e) ACH  Transactions,  (f) cash  management,
including  controlled  disbursement,  accounts or services,  or (g) transactions
under Hedge Agreements.

      "Bank Product Agreements" means those agreements entered into from time to
time by Borrower or its Subsidiaries  with a Bank Product Provider in connection
with the obtaining of any of the Bank Products.

      "Bank Product Obligations" means all obligations,  liabilities, contingent
reimbursement  obligations,   fees,  and  expenses  owing  by  Borrower  or  its
Subsidiaries to any Bank Product  Provider  pursuant to or evidenced by the Bank
Product Agreements and irrespective of whether for the payment of money, whether
direct or indirect,  absolute or contingent,  due or to become due, now existing
or hereafter  arising,  and  including  all such  amounts  that  Borrower or its
Subsidiaries  are  obligated  to  reimburse to Agent or any member of the Lender
Group  as a result  of  Agent or such  member  of the  Lender  Group  purchasing
participations from, or executing indemnities or reimbursement obligations to, a
Bank Product  Provider with respect to the Bank  Products  provided by such Bank
Product Provider to Borrower or its Subsidiaries.

      "Bank Product Provider" means Wells Fargo or any of its Affiliates.

      "Bank Product Reserve" means, as of any date of determination,  the lesser
of (a)  $3,000,000,  and (b) the amount of reserves  that Agent has  established
(based upon the Bank Product Providers'  reasonable  determination of the credit
exposure in respect of then extant Bank  Products)  in respect of Bank  Products
then provided or outstanding.

                                      -3-
<PAGE>

      "Bankruptcy  Code" means title 11 of the United  States Code, as in effect
from time to time.

      "Base  LIBOR  Rate"  means  the rate  per  annum,  determined  by Agent in
accordance with its customary procedures, and utilizing such electronic or other
quotation  sources  as it  considers  appropriate  in its  Permitted  Discretion
(rounded  upwards,  if necessary,  to the next 1/100%),  to be the rate at which
Dollar deposits (for delivery on the first day of the requested Interest Period)
are offered to major banks in the London  interbank  market at  approximately 11
a.m.  (London time) 2 Business Days prior to the  commencement  of the requested
Interest Period,  for a term and in an amount  comparable to the Interest Period
and the amount of the LIBOR Rate Loan  requested  (whether  as an initial  LIBOR
Rate Loan or as a  continuation  of an extant LIBOR Rate Loan or as a conversion
of a Base Rate Loan to a LIBOR Rate Loan) by  Borrower in  accordance  with this
Agreement,  which  determination  shall be conclusive in the absence of manifest
error.

      "Base  Rate"  means,  the rate of interest  announced,  from time to time,
within Wells Fargo at its principal office in San Francisco as its "prime rate",
with the understanding  that the "prime rate" is one of Wells Fargo's base rates
(not  necessarily  the lowest of such  rates) and serves as the basis upon which
effective  rates of interest are  calculated  for those loans  making  reference
thereto and is evidenced by the recording thereof after its announcement in such
internal publications as Wells Fargo may designate.

      "Base  Rate  Loan"  means  the  portion  of the  Advances  or the  Capital
Expenditures  Loans that bears interest at a rate determined by reference to the
Base Rate.

      "Base Rate Margin" means -0.25 percentage points.

      "Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35)
of ERISA) for which  Borrower or any  Subsidiary or ERISA  Affiliate of Borrower
has been an "employer" (as defined in Section 3(5) of ERISA) within the past six
years.

      "Board of Directors" means the board of directors (or comparable managers)
of Borrower or any  committee  thereof duly  authorized  to act on behalf of the
board of directors (or comparable managers).

      "Books"  means  Borrower's  and its  Subsidiaries'  now owned or hereafter
acquired  books  and  records  (including  all  of  their  Records   indicating,
summarizing,   or  evidencing   their  assets   (including  the  Collateral)  or
liabilities,  all of Borrower's or its  Subsidiaries'  Records relating to their
business  operations or financial  condition,  and all of their goods or General
Intangibles related to such information).

      "Borrower" has the meaning set forth in the preamble to this Agreement.

      "Borrower  Collateral"  means all of  Borrower's  now  owned or  hereafter
acquired right, title, and interest in and to each of the following:

                                      -4-
<PAGE>

            (a) all of its Accounts,

            (b) all of its Books,

            (c) all of its Deposit Accounts,

            (d) all of its Equipment,

            (e) all of its General Intangibles,

            (f) all of its Inventory,

            (g) all of its Investment  Property (including all of its securities
and Securities Accounts),

            (h) all of its Negotiable Collateral,

            (i) money or other  assets of Borrower  that now or  hereafter  come
into the possession, custody, or control of any member of the Lender Group, and

            (j) the proceeds and products,  whether  tangible or intangible,  of
any of the foregoing, including proceeds of insurance covering any or all of the
foregoing, and any and all Accounts, Books, Deposit Accounts, Equipment, General
Intangibles,   Inventory,   Investment  Property,  Negotiable  Collateral,  Real
Property,  money,  or other tangible or intangible  property  resulting from the
sale, exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.

Notwithstanding anything to the contrary contained in this definition,  the term
"Borrower Collateral" shall not include the Excluded Collateral.

      "Borrowing" means a borrowing hereunder  consisting of Advances or Capital
Expenditures  Loans  made on the same day by the  Lenders  (or  Agent on  behalf
thereof),  or by Swing  Lender in the case of a Swing  Loan,  or by Agent in the
case of an Agent Advance.

      "Borrowing Base" means, as of any date of determination, the result of:

            (a) from and after the Account Availability  Activation Date, 85% of
the amount of  Eligible  Accounts,  less the  amount,  if any,  of the  Dilution
Reserve, plus

            (b) the lesser of

                        (i) (A) for the period from  October 1 through  December
                  15  of  each  year,  80%  of  the  value  of  Eligible  Landed
                  Inventory, or (B) for the period from December 16 of each year
                  through  September 30 of the following  year, 75% of the value
                  of Eligible Landed Inventory, and

                                      -5-
<PAGE>

                        (ii)  85%  times  the  then   extant   Net   Liquidation
                  Percentage times the book value of Borrower's  Eligible Landed
                  Inventory, plus

            (c) from and after the  Eligible  Refurbished  Inventory  Activation
Date, the lowest of

                        (i) 50% of the value of Eligible Refurbished Inventory,

                        (ii)  85%  times  the  then   extant   Net   Liquidation
                  Percentage  times  the  book  value  of  Borrower's   Eligible
                  Refurbished Inventory, and

                        (iii) $6,500,000, plus

            (d) the lowest of

                        (i) 75% of the value of Eligible In-Transit Inventory,

                        (ii)  85%  times  the  then   extant   Net   Liquidation
                  Percentage  times  the  book  value  of  Borrower's   Eligible
                  In-Transit Inventory, and

                        (iii) $7,000,000, minus

            (e)  the sum of (i) the  Bank  Product  Reserve,  (ii)  the  Minimum
Availability  Reserve,  (iii) the  Landlord  Lien  Reserves,  (iv) the  Customer
Liability Reserves, (v) the Inventory Reserves, and (vi) the aggregate amount of
such additional reserves, if any, established by Agent under Section 2.1(b).

      "Borrowing Base Availability" means, as of any date of determination,  the
Borrowing Base,  less the Adjusted Letter of Credit Usage,  less the then extant
amount  of  outstanding  Advances,  and  less  the  then  extant  amount  of the
outstanding Capital Expenditures Loans.

      "Business Day" means any day that is not a Saturday,  Sunday, or other day
on which banks are  authorized or required to close in the state of  California,
except that, if a  determination  of a Business Day shall relate to a LIBOR Rate
Loan,  the term  "Business  Day" also shall  exclude  any day on which banks are
closed for dealings in Dollar deposits in the London interbank market.

      "Capital  Expenditures"  means, with respect to any Person for any period,
the aggregate of all  expenditures  by such Person and its  Subsidiaries  during
such period that are capital expenditures as determined in accordance with GAAP,
whether such expenditures are paid in cash or financed.

      "Capital Expenditures Loans" has the meaning set forth in Section 2.2.

                                      -6-
<PAGE>

      "Capital Expenditures Sublimit" has the meaning set forth in Section 2.2.

      "Capital  Lease"  means a lease that is  required  to be  capitalized  for
financial reporting purposes in accordance with GAAP.

      "Capitalized Lease Obligation" means that portion of the obligations under
a Capital Lease that is required to be capitalized in accordance with GAAP.

      "Cash  Equivalents"  means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States or issued by any agency thereof
and  backed by the full  faith and  credit of the  United  States,  in each case
maturing within 18 months from the date of acquisition  thereof,  (b) marketable
direct  obligations  issued by any state of the United  States or any  political
subdivision  of any such state or any public  instrumentality  thereof  maturing
within  18  months  from the date of  acquisition  thereof  and,  at the time of
acquisition,  having  one of the two  highest  ratings  obtainable  from  either
Standard  &  Poor's  Rating  Group  ("S&P"),  Moody's  Investors  Service,  Inc.
("Moody's") or Fitch IBCA,  (c) commercial  paper maturing no more than 270 days
from the date of  creation  thereof  and, at the time of  acquisition,  having a
rating of at least A-2 from S&P, at least P-2 from  Moody's or at least F-2 from
Fitch IBCA, (d) certificates of deposit or bankers' acceptances or time deposits
maturing  within 18 months from the date of  acquisition  thereof  issued by, or
unconditionally  guaranteed by or placed with, any bank organized under the laws
of the  United  States or any state  thereof  having at the date of  acquisition
thereof combined capital and surplus of not less than  $250,000,000,  (e) demand
Deposit Accounts maintained with any bank organized under the laws of the United
States or any state thereof so long as the amount maintained with any individual
bank is less than or equal to  $100,000  and is insured by the  Federal  Deposit
Insurance  Corporation,  (f) auction rate notes, floating rate notes,  corporate
notes/bonds  or  asset-backed  securities,  in each case having,  at the time of
acquisition,  a rating of at least AA from S&P, at least  P-1/MIG-1 from Moody's
or at least F-1/A from Fitch IBCA and in each case having such  maturities,  not
to exceed 18 months, as may be customary for investments of such types (based on
maturities of similar  investments as offered by a Bank Product  Provider),  (g)
Investments in money market funds substantially all of whose assets are invested
in the  types of  assets  described  in  clauses  (a)  through  (f)  above,  (h)
Investments in repurchase agreements maturing (as to any repurchase  obligation)
within 90 days from the date of  acquisition  thereof,  involving only assets of
the types  described  in clauses (a) through (f) above,  and entered into with a
financial  institution  (acting through a branch or agency in the United States)
having  total  assets  in  excess  of  $250,000,000,  and (i) any Bank  Products
obtained from a Bank Product Provider.

      "Cash Management Accounts" has the meaning set forth in Section 2.7(a).

      "Cash   Management   Agreements"   means  those  certain  cash  management
agreements,  in form and substance satisfactory to Agent, each of which is among
Borrower  or one of its  Subsidiaries,  Agent,  and one of the  Cash  Management
Banks.

      "Cash Management Bank" has the meaning set forth in Section 2.7(a).

                                      -7-
<PAGE>

      "Change of Control"  means that (a) any  "person"  or "group"  (within the
meaning of Sections 13(d) and 14(d) of the Exchange  Act),  other than Permitted
Holders,  becomes  the  beneficial  owner (as  defined in Rule  13d-3  under the
Exchange Act), directly or indirectly, of 30%, or more, of the Stock of Borrower
having the right to vote for the election of members of the Board of  Directors,
or (b) a majority of the  members of the Board of  Directors  do not  constitute
Continuing Directors.

      "Check Clearance  Collection Account" has the meaning set forth in Section
2.7(b).

      "Closing  Date"  means the date of the making of the  initial  Advance (or
other extension of credit) hereunder or the date on which Agent sends Borrower a
written  notice that each of the  conditions  precedent set forth in Section 3.1
either have been satisfied or have been waived.

      "Code" means the New York Uniform  Commercial Code, as in effect from time
to time.

      "Collateral" means all assets and interests in assets and proceeds thereof
now owned or hereafter acquired by Borrower or its Subsidiaries in or upon which
a Lien is granted under any of the Loan Documents.

      "Collateral  Access Agreement" means a landlord waiver,  bailee letter, or
acknowledgement agreement of any lessor, warehouseman,  processor, consignee, or
other Person in possession of, having a Lien upon, or having rights or interests
in Borrower's or its Subsidiaries' Books, Equipment, or Inventory, in each case,
in form and substance satisfactory to Agent.

      "Collection Accounts" has the meaning set forth in Section 2.7(a).

      "Collections" means all cash, checks, notes, instruments,  and other items
of  payment  (including  insurance  proceeds,  proceeds  of cash  sales,  rental
proceeds, license related payments, and tax refunds).

      "Commercial  Tort Claim  Assignment"  has the meaning set forth in Section
4.4(b).

      "Commitment" means, with respect to each Lender, its Revolver  Commitment,
and, with respect to all Lenders,  their  Revolver  Commitments,  as such Dollar
amounts are set forth beside such Lender's name under the applicable  heading on
Schedule C-1 or in the Assignment  and Acceptance  pursuant to which such Lender
became a Lender hereunder in accordance with the provisions of Section 14.1.

      "Compliance Certificate" means a certificate  substantially in the form of
Exhibit  C-1  delivered  by the chief  financial  officer  or VP of  Finance  of
Borrower to Agent.

      "Concentration Accounts" has the meaning set forth in Section 2.7(a).

                                      -8-
<PAGE>

      "Consumer   Installment   Sales   Receivables"   means,  on  any  date  of
determination,  Accounts  consisting  of rights of  Borrower  to  payment  under
consumer  installment  sales agreements where reasonable credit scoring criteria
(that has been approved by Agent in its Permitted Discretion) has been utilized.

      "Continuing  Director"  means (a) any member of the Board of Directors who
was a director (or comparable  manager) of Borrower on the Closing Date, and (b)
any individual who becomes a member of the Board of Directors  after the Closing
Date if such  individual was appointed or nominated for election to the Board of
Directors by a majority of the  Continuing  Directors,  but  excluding  any such
individual  originally  proposed  for  election  in  opposition  to the Board of
Directors  in office at the  Closing  Date in an actual or  threatened  election
contest  relating to the election of the directors (or  comparable  managers) of
Borrower and whose initial  assumption  of office  resulted from such contest or
the settlement thereof.

      "Control  Agreement"  means a  control  agreement,  in form and  substance
satisfactory  to Agent in its  Permitted  Discretion,  executed and delivered by
Borrower  or one of its  Subsidiaries,  Agent,  and  the  applicable  securities
intermediary  (with respect to a Securities  Account) or bank (with respect to a
Deposit Account).

      "Control Exercise Notice" has the meaning set forth in Section 2.7(c).

      "Corporate  Wholesale  Receivables"  means, on any date of  determination,
corporate  wholesale Accounts that have been approved in writing by Agent in its
Permitted Discretion (and as to which such approval remains in effect).

      "Credit  Card  Agreements"   means  those  certain  credit  card  receipts
agreements,  each in form and substance  reasonably  satisfactory to Agent,  and
each of  which is among  Agent,  Borrower,  and one of  Borrower's  Credit  Card
Processors,   whereby,  among  other  things,  such  Credit  Card  Processor  is
irrevocably  directed and agrees to transfer all proceeds of credit card charges
for sales by Borrower  received by it (or other  amounts  payable by such Credit
Card Processor) into a designated Concentration Account on a daily basis or such
other periodic basis as Agent may otherwise direct.

      "Credit Card Processor" means any Person  (including an issuer of a credit
card)  that  acts as a credit  card  clearinghouse  or  remits  payments  due to
Borrower with respect to credit card charges accepted by Borrower.

      "Credit Card  Receivables"  means, on any date of  determination  thereof,
Accounts  consisting  of  rights of  Borrower  to  payment  by any  Credit  Card
Processor  in  connection  with  consumer  retail  sales for which  Borrower has
accepted  payment by means of charges to major credit cards  (MasterCard,  VISA,
American Express, Discover, Diner's Club, and such other bank or non-bank credit
or debit cards as may be approved by Agent in its Permitted Discretion).

      "Customer  Liabilities Reserve" means an amount equal to (a) 50% times (b)
the amount of reserves  established  by Borrower on its financial  statements in
accordance

                                      -9-
<PAGE>

with GAAP with respect to its and its  Subsidiaries'  potential  liabilities  to
their  customers,  including in connection with merchandise  deposits,  returns,
merchandise credits, gift certificates, and frequent shopper programs.

      "Customs  Broker" means V.  Alexander & Co, Inc., or such other Persons as
may be selected by Borrower after the date hereof who are reasonably  acceptable
to Agent to  perform  port of entry  services  to accept and  process  Inventory
imported by  Borrower  and who have  executed  and  delivered  a Customs  Broker
Agreement.

      "Customs  Broker  Agreement"  means a custom broker  agreement in form and
substance  satisfactory to Agent in its Permitted Discretion,  duly executed and
delivered to Agent by a Customs Broker and Borrower.

      "Daily Balance" means, as of any date of determination and with respect to
any Obligation, the amount of such Obligation owed at the end of such day.

      "Default" means an event,  condition,  or default that, with the giving of
notice, the passage of time, or both, would be an Event of Default.

      "Defaulting  Lender"  means any Lender  that fails to make any Advance (or
other  extension  of credit)  that it is required to make  hereunder on the date
that it is required to do so hereunder.

      "Defaulting Lender Rate" means (a) for the first 3 days from and after the
date the  relevant  payment  is due,  the Base  Rate,  and (b)  thereafter,  the
interest rate then applicable to Advances or Capital Expenditures Loans that are
Base Rate Loans (inclusive of the Base Rate Margin applicable thereto).

      "Deferred  Compensation  Account" means any Deposit  Account or Securities
Account  maintained  and used by  Borrower  exclusively  for deposit of Deferred
Compensation Amounts pending payment thereof as deferred compensation.

      "Deferred Compensation Amounts" means such amounts as may be reserved from
time to time by  Borrower as  reasonably  contemplated  or required  pursuant to
Borrower's deferred  compensation program as in effect from time to time for use
exclusively as deferred compensation for Borrower's officers or directors.

      "Deferred  Compensation Life Insurance" means life insurance policies with
respect to Borrower's  officers or directors  maintained by Borrower pursuant to
its deferred compensation program.

      "Deposit  Account"  means any deposit  account (as that term is defined in
the Code).

      "Designated  Account" means the Deposit Account of Borrower  identified on
Schedule D-1.

                                      -10-
<PAGE>

      "Designated  Account  Bank" has the meaning  ascribed  thereto on Schedule
D-1.

      "Dilution"  means, as of any date of  determination,  a percentage,  based
upon the experience of the immediately  prior 360 consecutive  days, that is the
result of dividing  the Dollar  amount of (a) bad debt  write-downs,  discounts,
advertising  allowances,  credits,  or  such  other  dilutive  items  as  may be
identified  by Borrower or Agent (in its Permitted  Discretion)  with respect to
Borrower's  Accounts during such period, by (b) Borrower's billings with respect
to Accounts during such period.

      "Dilution  Reserve"  means,  as of any date of  determination,  an  amount
sufficient to reduce the advance rate against Eligible  Accounts by 1 percentage
point for each percentage point by which Dilution is in excess of 5%.

      "Disbursement Letter" means an instructional letter executed and delivered
by  Borrower  to Agent  regarding  the  extensions  of  credit to be made on the
Closing Date,  the form and substance of which is  satisfactory  to Agent in its
Permitted Discretion.

      "Dollars" or "$" means United States dollars.

      "Due  Diligence  Letter"  means the due  diligence  letter sent by Agent's
counsel  to  Borrower,  together  with  Borrower's  completed  responses  to the
inquiries  set forth  therein,  the form and  substance of such  responses to be
satisfactory to Agent.

      "EBITDA"  means,  with respect to any fiscal  period,  Borrower's  and its
Subsidiaries  consolidated net earnings (or loss), minus extraordinary gains and
interest  income,  plus interest  expense,  income taxes,  and  depreciation and
amortization for such period, as determined in accordance with GAAP.

      "Eligible  Accounts"  means those  Accounts  consisting of (1) Credit Card
Receivables,  (2) Corporate Wholesale Receivables,  and (3) Consumer Installment
Sales  Receivables,  in each case (for all such  Accounts)  that are  created by
Borrower in the ordinary  course of its  business,  that arise out of Borrower's
sale  of  goods  or  rendition  of  services,  that  comply  with  each  of  the
representations  and warranties  respecting  Eligible  Accounts made in the Loan
Documents,  and that are not excluded as  ineligible by virtue of one or more of
the excluding criteria set forth below; provided,  however, that reserves may be
imposed from time to time by Agent in Agent's  Permitted  Discretion  to address
the results of any audit  performed by Agent from time to time after the Closing
Date.  In  determining  the amount to be included,  Eligible  Accounts  shall be
calculated net of customer deposits and unapplied cash.  Eligible Accounts shall
not include the following:

            (a) (i) Credit  Card  Receivables  that the  applicable  Credit Card
Processor has failed to pay within 5 days after the applicable  sale date,  (ii)
Corporate Wholesale Receivables that the Account Debtor has failed to pay within
60 days of original invoice date or Corporate Wholesale Receivables with selling
terms of more than 30 days, or (iii) Consumer  Installment  Sales Receivables as
to which the Account Debtor has failed to pay within 60 days of purchase;

                                      -11-
<PAGE>

            (b) Accounts owed by an Account Debtor (or its Affiliates) where 50%
or more of all Accounts  owed by that  Account  Debtor (or its  Affiliates)  are
deemed ineligible under clause (a) above,

            (c)  Accounts  with  respect  to  which  the  Account  Debtor  is an
Affiliate  of Borrower or an employee or agent of Borrower or any  Affiliate  of
Borrower,

            (d) Accounts  arising in a  transaction  wherein goods are placed on
consignment or are sold pursuant to a guaranteed  sale, a sale or return, a sale
on approval,  a bill and hold, or any other terms by reason of which the payment
by the Account Debtor may be conditional,

            (e) Accounts that are not payable in Dollars,

            (f)  Accounts  with respect to which the Account  Debtor  either (i)
does not maintain its residence or chief executive  office in the United States,
or (ii) in the case of Account  Debtors  that are not  natural  persons,  is not
organized under the laws of the United States or any state thereof,  or (iii) is
the  government  of any foreign  country or  sovereign  state,  or of any state,
province,  municipality,  or  other  political  subdivision  thereof,  or of any
department, agency, public corporation, or other instrumentality thereof, unless
(y) the Account is supported by an irrevocable letter of credit  satisfactory to
Agent in its Permitted Discretion (as to form, substance, and issuer or domestic
confirming  bank) that has been  delivered to Agent and is directly  drawable by
Agent, or (z) the Account is covered by credit insurance in form, substance, and
amount, and by an insurer, satisfactory to Agent in its Permitted Discretion,

            (g) Accounts with respect to which the Account  Debtor is either (i)
the United States or any department,  agency, or  instrumentality  of the United
States  (exclusive,  however,  of Accounts  with  respect to which  Borrower has
complied, to the reasonable satisfaction of Agent, with the Assignment of Claims
Act, 31 USC ss. 3727), or (ii) any state of the United States,

            (h) Accounts with respect to which the Account  Debtor is a creditor
of  Borrower,  has or has  asserted  a right  of  setoff,  or has  disputed  its
obligation  to pay all or any  portion  of the  Account,  to the  extent of such
claim, right of setoff, or dispute,

            (i) Accounts (other than Credit Card Receivables) with respect to an
Account  Debtor  whose total  obligations  owing to  Borrower  exceed 10% of all
Eligible Accounts, to the extent of the obligations owing by such Account Debtor
in  excess  of  such  percentage,  unless  such  obligations  are  backed  by an
irrevocable letter of credit  satisfactory to Agent in its Permitted  Discretion
(as to form,  substance  and  issuer)  that has been  delivered  to Agent and is
directly drawable by Agent; provided, however, that, in each case, the amount of
Eligible Accounts that are excluded because they exceed the foregoing percentage
shall be  determined by Agent based on all of the  otherwise  Eligible  Accounts
prior  to  giving   effect  to  any   eliminations   based  upon  the  foregoing
concentration limit,

                                      -12-
<PAGE>

            (j) Accounts with respect to which the Account  Debtor is subject to
an Insolvency  Proceeding,  is not Solvent, or as to which Borrower has received
notice of an imminent  Insolvency  Proceeding  or a material  impairment  of the
financial condition of such Account Debtor,

            (k) Accounts with respect to which the Account  Debtor is located in
a state or jurisdiction  (e.g., New Jersey,  Minnesota,  and West Virginia) that
requires,  as a condition to access to the courts of such  jurisdiction,  that a
creditor  qualify to transact  business,  file a business  activities  report or
other report or form, or take one or more other actions,  unless Borrower has so
qualified,  filed such  reports or forms,  or taken such actions  (and,  in each
case,  paid any  required  fees or other  charges),  except to the  extent  that
Borrower may qualify  subsequently  as a foreign  entity  authorized to transact
business in such state or jurisdiction  and gain access to such courts,  without
incurring any cost or penalty viewed by Agent to be  significant in amount,  and
such later  qualification  cures any access to such courts to enforce payment of
such Account,

            (l)  Accounts,  the  collection  of which,  Agent,  in its Permitted
Discretion,  believes to be doubtful by reason of the Account Debtor's financial
condition,

            (m)  Accounts  that are not subject to a valid and  perfected  first
priority  Agent's Lien,  and, with respect to Credit Card  Receivables,  are not
subject to a Credit Card Agreement,

            (n) Accounts with respect to which (i) the goods giving rise to such
Account  have not been  shipped  and billed to the Account  Debtor,  or (ii) the
services  giving rise to such Account have not been  performed and billed to the
Account Debtor,

            (o) Accounts that represent the right to receive  progress  payments
or other advance billings that are due prior to the completion of performance by
Borrower of the subject contract for goods or services, or

            (p) Accounts owed under Consumer  Installment  Sales  Contracts that
are not  currently  due and payable or that are due and payable as a result of a
default thereunder.

      "Eligible In-Transit Inventory" means those items of Inventory that do not
qualify as Eligible Landed  Inventory  solely because they are not in a location
set forth on Schedule E-1 or in transit  among such  locations,  but as to which
(a) the Inventory was the subject of a Qualified  Import Letter of Credit or was
paid in full by Borrower (it being  understood  that such  in-transit  Inventory
shall be  considered  as paid in full on or after the tenth (10th) day after the
date of  shipment  thereof,  so  long as  Borrower  is in full  compliance  with
applicable  payment terms  relating  thereto and has  certified  (pursuant to an
applicable borrowing base certificate  delivered pursuant to Schedule 6.2(a)) to
Agent that,  to Borrower's  knowledge  based on available  information  and past
payment  history,  such  Inventory  has been paid in full),  (b) such  Inventory
currently is, and has been for a period not exceeding  forty-five  (45) days, in
transit (whether by vessel,  air, or land) from a location outside of the United
States to a location set forth on Schedule E-1, (c) title to such  Inventory

                                      -13-
<PAGE>

has passed to Borrower,  (d) such  Inventory is insured  against  types of loss,
damage,  hazards,  and  risks,  and in  amounts,  satisfactory  to  Agent in its
Permitted  Discretion,  (e) such  Inventory is in the possession or control of a
Freight  Forwarder  then subject to a Freight  Forwarder  Agreement  and, to the
extent such  Inventory  is the subject of a bill of lading or other  document of
title,  the same (1) is  consigned to Borrower  (either  directly or by means of
endorsements)  and (2) is either (x) in the  possession  of Borrower,  a Freight
Forwarder then subject to a Freight Forwarder Agreement or a Customs Broker then
subject to a Customs  Broker  Agreement,  or (y) the subject of a  telefacsimile
copy that  Borrower has  received  from the  Underlying  Issuer which issued the
Underlying  Letter  of  Credit  and as to which  Borrower  also has  received  a
confirmation  from such  Underlying  Issuer that such  document is in-transit by
air-courier  to Borrower or a Customs  Broker then  subject to a Customs  Broker
Agreement (in each case, in the State of California), (f) Borrower has certified
to  Agent  (pursuant  to an  applicable  borrowing  base  certificate  delivered
pursuant to Schedule  6.2(a))  that  certifies  that,  to the best  knowledge of
Borrower, such Inventory meets all of Borrower's  representations and warranties
contained in the Loan Documents concerning Eligible Inventory,  that it knows of
no reason why such  Inventory  would not be accepted by Borrower when it arrives
in the State of California,  and that the shipment as evidenced by the documents
conforms  to the  related  order  documents,  and (g) if subject to a  Qualified
Import Letter of Credit,  the Underlying Letter of Credit has been drawn upon in
full and the  Underlying  Issuer has honored  such drawing and Agent has honored
its obligations to the Underlying  Issuer under the applicable  Qualified Import
Letter of Credit.  Delivery  of each  borrowing  base  certificate  pursuant  to
Schedule 6.2(a) shall constitute a representation  and warranty by Borrower that
the Inventory listed (or otherwise treated) therein as being Eligible In-Transit
Inventory satisfies the foregoing definition.

      "Eligible Inventory" means Eligible Landed Inventory, Eligible Refurbished
Inventory or Eligible In-Transit Inventory.

      "Eligible Landed  Inventory"  means Inventory  consisting of first quality
(including as a result of refurbishing  or repackaging)  finished goods held for
sale in the ordinary  course of  Borrower's  business that complies with each of
the  representations  and warranties  respecting  Eligible Inventory made in the
Loan  Documents,  and that is not excluded as ineligible by virtue of the one or
more of the excluding criteria set forth below; provided, however, that reserves
may be imposed  from time to time by Agent in Agent's  Permitted  Discretion  to
address the results of any audit or  appraisal  performed  by Agent from time to
time after the  Closing  Date.  In  determining  the  amount to be so  included,
Inventory  shall be valued at the lower of cost or market on a basis  consistent
with Borrower's historical accounting practices,  but excluding, for purposes of
any such  determination,  the value of any  capitalized  costs  unrelated to the
acquisition of Inventory. An item of Inventory shall not be included in Eligible
Landed Inventory if:

            (a)  Borrower  does not  have  good,  valid,  and  marketable  title
thereto,

            (b) it is not located at one of the  locations in the United  States
set forth on Schedule E-1 (or in transit from one such  location to another such
location),

                                      -14-
<PAGE>

            (c) it is  located  on real  property  leased  by  Borrower  or in a
contract warehouse, unless it is segregated or otherwise separately identifiable
from goods of others, if any, stored on the premises,

            (d) it is not  subject  to a  valid  and  perfected  first  priority
Agent's Lien,

            (e)  it  consists  of  goods  returned  or  rejected  by  Borrower's
customers,  unless such goods have been fully refurbished (if necessary) and are
packaged and ready for sale in the ordinary course of Borrower's business, or

            (f)  it  consists  of  goods  that  are  obsolete  or  slow  moving,
restrictive  or custom  items,  work-in-process,  raw  materials,  or goods that
constitute  spare parts,  packaging  and shipping  materials,  supplies  used or
consumed in Borrower's business, bill and hold goods, defective goods, "seconds"
or Inventory acquired on consignment;

provided,   however,  that,  notwithstanding  the  foregoing,   Eligible  Landed
Inventory  shall  exclude  Inventory  located at any  non-store  location to the
extent  the  aggregate  amount  of all  Eligible  Landed  Inventory  located  at
non-store  locations exceeds a percentage of all Eligible Landed Inventory equal
to (i) 75% at any time during the period from July 1 through  October 31 of each
year,  or (ii) 70% at any time  during the period  from  November 1 of each year
through June 30 of the following year;  provided,  further,  that, in each case,
the amount of Eligible Landed  Inventory that is excluded because it exceeds the
foregoing percentages shall be determined by Agent based on all of the otherwise
Eligible Landed Inventory prior to giving effect to any eliminations  based upon
the foregoing percentage limits.

      "Eligible Refurbished Inventory" means Inventory consisting of refurbished
goods that is packaged and ready for sale in the ordinary  course of  Borrower's
business and that does not qualify as Eligible Landed  Inventory  solely because
it is located at the Refurbishing  Facility.  In determining the amount to be so
included,  Inventory  shall be  valued at the lower of cost or market on a basis
consistent with Borrower's historical accounting practices,  but excluding,  for
purposes of any such determination, the value of any capitalized costs unrelated
to the acquisition of Inventory.

      "Eligible  Refurbished  Inventory  Activation  Date"  means  such  date as
Borrower  may  select in a written  notice  delivered  to Agent  indicating  its
election  to  activate  the  Eligible  Refurbished  Inventory  component  of the
Borrowing  Base,  so long as (1) Agent shall have  received a report in form and
substance  satisfactory to Agent describing such Eligible Refurbished  Inventory
(including  for each  item,  the cost  thereof)  and  setting  forth a basis for
determination  of the value thereof,  (2), Great American  Appraisal & Valuation
Services, L.L.C. shall have completed its desktop appraisal with respect to such
Eligible Refurbished Inventory (and shall have determined, based on such desktop
appraisal,  the applicable Net Liquidation Percentage to be applied with respect
thereto),  and (3) on both the date of delivery of the such  written  notice and
the selected Eligible Refurbished  Inventory Activation Date, there shall be not
have occurred and be continuing any Event of Default.

                                      -15-
<PAGE>

      "Eligible Transferee" means (a) a commercial bank organized under the laws
of the United States, or any state thereof, and having total assets in excess of
$250,000,000,  (b) a  commercial  bank  organized  under  the laws of any  other
country  which is a member of the  Organization  for  Economic  Cooperation  and
Development  or a political  subdivision of any such country and which has total
assets in excess of  $250,000,000,  provided that such bank is acting  through a
branch or agency located in the United States, (c) a finance company,  insurance
company,  or other  financial  institution  or fund that is  engaged  in making,
purchasing, or otherwise investing in commercial loans in the ordinary course of
its business and having (together with its Affiliates) total assets in excess of
$250,000,000,  (d) any Affiliate  (other than  individuals) of a Lender,  (e) so
long as no Event of Default has  occurred  and is  continuing,  any other Person
approved  by Agent  and  Borrower  (which  approval  of  Borrower  shall  not be
unreasonably withheld, delayed, or conditioned), and (f) during the continuation
of an Event of Default, any other Person approved by Agent.

      "Environmental Actions" means any complaint,  summons,  citation,  notice,
directive, order, claim, litigation,  investigation,  judicial or administrative
proceeding,  judgment,  letter,  or other  communication,  each,  by or from any
Governmental   Authority,  or  any  third  party  involving  (x)  violations  of
Environmental  Laws or (y) releases of Hazardous  Materials (a) from any assets,
properties,  or  businesses  of  Borrower,  its  Subsidiaries,  or any of  their
predecessors in interest,  (b) from adjoining  properties or businesses,  or (c)
from or onto any facilities  which  received  Hazardous  Materials  generated by
Borrower, its Subsidiaries, or any of their predecessors in interest.

      "Environmental  Law"  means any  applicable  federal,  state,  provincial,
foreign or local statute, law, rule,  regulation,  ordinance,  code, binding and
enforceable guideline, binding and enforceable written policy, or rule of common
law now or hereafter  in effect and in each case as amended,  or any judicial or
administrative  interpretation thereof, including any judicial or administrative
order,  consent  decree or  judgment,  in each case,  to the  extent  binding on
Borrower or its  Subsidiaries,  relating to the  environment,  the effect of the
environment on employee  health and safety,  or Hazardous  Materials,  including
CERCLA,  42 USC. ss. 9601 et seq.;  RCRA, 42 USC. ss. 6901 et seq.;  the Federal
Water  Pollution  Control  Act,  33 USC ss. 1251 et seq.;  the Toxic  Substances
Control  Act,  15 USC ss.  2601 et seq.;  the Clean Air Act,  42 USC ss. 7401 et
seq.;  the Safe Drinking  Water Act, 42 USC ss. 300f et seq.;  the Oil Pollution
Act of 1990, 33 USC ss. 2701 et seq.;  the Emergency  Planning and the Community
Right-to-Know  Act of 1986,  42 USC ss. 11001 et seq.;  the  Hazardous  Material
Transportation  Act, 49 USC ss. 5101 et seq.;  and the  Occupational  Safety and
Health  Act,  29 USC  ss.651 et seq.  (to the extent it  regulates  occupational
exposure to Hazardous Materials); any state and local or foreign counterparts or
equivalents, in each case as amended from time to time.

      "Environmental  Liabilities  and Costs"  means all  liabilities,  monetary
obligations,  losses, damages,  punitive damages,  consequential damages, treble
damages,  costs and expenses  (including all reasonable fees,  disbursements and
expenses of counsel,  experts,  or consultants,  and costs of investigation  and
feasibility studies),  fines, penalties,  sanctions,  and interest incurred as a
result of any claim or demand, or Remedial Actions

                                      -16-
<PAGE>

required, by any Governmental  Authority or any third party, and which relate to
any Environmental Action.

      "Environmental Lien" means any Lien in favor of any Governmental Authority
for Environmental Liabilities and Costs.

      "Equipment"  means  equipment  (as that term is  defined  in the Code) and
includes machinery,  machine tools, motors,  furniture,  furnishings,  fixtures,
vehicles (including motor vehicles),  computer hardware, tools, parts, and goods
(other than consumer  goods,  farm products,  or Inventory),  wherever  located,
including all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing.

      "ERISA"  means the Employee  Retirement  Income  Security Act of 1974,  as
amended, and any successor statute thereto.

      "ERISA  Affiliate"  means (a) any Person subject to ERISA whose  employees
are treated as employed by the same employer as the employees of Borrower or its
Subsidiaries  under IRC Section  414(b),  (b) any trade or  business  subject to
ERISA  whose  employees  are  treated as  employed  by the same  employer as the
employees of Borrower or its Subsidiaries  under IRC Section 414(c),  (c) solely
for  purposes  of  Section  302  of  ERISA  and  Section  412 of  the  IRC,  any
organization subject to ERISA that is a member of an affiliated service group of
which Borrower or any of its  Subsidiaries is a member under IRC Section 414(m),
or (d) solely for  purposes  of Section 302 of ERISA and Section 412 of the IRC,
any Person subject to ERISA that is a party to an  arrangement  with Borrower or
any of its Subsidiaries and whose employees are aggregated with the employees of
Borrower or its Subsidiaries under IRC Section 414(o).

      "Event of Default" has the meaning set forth in Section 8.

      "Excess  Availability" means, as of any date of determination,  the amount
equal to Availability  minus the aggregate amount, if any, of all trade payables
of  Borrower  and its  Subsidiaries  aged in excess of  historical  levels  with
respect  thereto and all book  overdrafts  of Borrower and its  Subsidiaries  in
excess of historical  practices with respect thereto, in each case as determined
by Agent in its Permitted Discretion.

      "Exchange  Act" means the  Securities  Exchange Act of 1934,  as in effect
from time to time.

      "Excluded Collateral" means (a) any lease, license, contract, or agreement
to which Borrower is a party or any of its rights or interests thereunder if and
for so long as the grant of a Lien to Agent  shall  constitute  or result in (i)
the  abandonment,  invalidation,  or  unenforceability  of any  right,  title or
interest of  Borrower  therein or (ii) a breach or  termination  pursuant to the
terms of, or a default under, any such lease, license, contract or agreement (in
each  case,  other  than to the extent  that the  restrictive  terms of any such
lease, license, contract, or agreement would be rendered ineffective pursuant to
Sections 9-406, 9-407, 9-408 or 9-409 of the Code (or any successor provision or
provisions) of any relevant  jurisdiction or any other applicable law (including
the Bankruptcy Code) or principles of

                                      -17-
<PAGE>

equity), provided, however, that such Lien shall attach immediately at such time
as the  condition  causing  such  abandonment,  invalidation,  unenforceability,
breach,  or  termination  shall be remedied and shall attach  immediately to the
products and proceeds of such lease, license, contract, or agreement and, to the
extent severable, to any portion of such lease, license,  contract, or agreement
that does not result in any of the consequences specified in clauses (i) or (ii)
above;  (b) motor  vehicles  owned by Borrower,  but only until such time as the
aggregate  net book value (net of any Purchase  Money  Indebtedness  relating to
such  vehicles)  of  such  motor  vehicles  first  exceeds  $500,000  (it  being
understood  that, from and after such time, all Borrower's  motor vehicles shall
be included in the Borrower Collateral),  and provided,  that Agent's Lien shall
attach immediately to the products and proceeds of all such motor vehicles;  and
(c) any Deferred Compensation Life Insurance.

      "Existing Lender" means The CIT Group/Business Credit, Inc.

      "Family  Member"  means,  with  respect  to  any  individual,   any  other
individual   having  a   relationship   by  blood  (to  the  second   degree  of
consanguinity), marriage, or adoption to such individual.

      "Family  Trusts" means,  with respect to any  individual,  trusts or other
estate  planning  vehicles  established  for the benefit of such  individual  or
Family Members of such individual and in respect of which such individual serves
as trustee or in a similar capacity.

      "Fee  Letter"  means  that  certain  fee  letter,  dated  as of even  date
herewith,  between  Borrower and Agent,  in form and substance  satisfactory  to
Agent.

      "FEIN" means Federal Employer Identification Number.

      "Freight Forwarder" means Panalpina, Inc., or such other Persons as may be
selected by  Borrower  after the date hereof who are  reasonably  acceptable  to
Agent to perform freight forwarding or international transportation of Inventory
imported by Borrower  and who have  executed and  delivered a Freight  Forwarder
Agreement.

      "Freight Forwarder  Agreement" means a freight forwarder agreement in form
and substance  satisfactory to Agent in its Permitted Discretion,  duly executed
and delivered to Agent by a Freight Forwarder and Borrower.

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

      "Funding Losses" has the meaning set forth in Section 2.13(b)(ii).

      "GAAP" means generally  accepted  accounting  principles as in effect from
time to time in the United States, consistently applied.

      "General  Intangibles" means general  intangibles (as that term is defined
in the Code), including payment intangibles, contract rights, rights to payment,
rights arising under common law, statutes,  or regulations,  choses or things in
action, goodwill, patents, trade names, trade secrets, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase

                                      -18-
<PAGE>

orders,  customer  lists,  monies due or recoverable  from pension funds,  route
lists,  rights to  payment  and other  rights  under any  royalty  or  licensing
agreements,  infringement claims,  computer programs,  information  contained on
computer disks or tapes,  software,  literature,  reports,  catalogs,  insurance
premium rebates,  tax refunds, and tax refund claims, and any and all supporting
obligations  in respect  thereof,  and any other  personal  property  other than
Accounts,   Deposit  Accounts,   goods,   Investment  Property,  and  Negotiable
Collateral.

      "Governing  Documents" means, with respect to any Person,  the certificate
or articles of incorporation, by-laws, or other organizational documents of such
Person.

      "Governmental  Authority"  means  any  federal,  state,  local,  or  other
governmental or administrative body,  instrumentality,  department, or agency or
any court, tribunal, administrative hearing body, arbitration panel, commission,
or other similar dispute-resolving panel or body.

      "Guarantor" means any Person that from time to time may become a guarantor
of the Obligations.

      "Guarantor  Security  Agreement"  means  one or more  security  agreements
executed and  delivered by each  Guarantor in favor of Agent,  in each case,  in
form and substance satisfactory to Agent in its Permitted Discretion.

      "Guaranty"  means on or more general  continuing  guaranties  executed and
delivered  by each  Guarantor  in favor of Agent,  for the benefit of the Lender
Group and the Bank Product  Providers,  in form and  substance  satisfactory  to
Agent.

      "Hazardous  Materials" means (a) substances that are defined or listed in,
or otherwise  classified  pursuant to, any  applicable  laws or  regulations  as
"hazardous   substances,"  "hazardous  materials,"  "hazardous  wastes,"  "toxic
substances," or any other  formulation  intended to define,  list, or classify a
substance by reason of such substance's ignitability,  corrosivity,  reactivity,
carcinogenicity, reproductive toxicity, or "EP (Extraction Procedure) toxicity",
(b) oil, petroleum,  or petroleum derived  substances,  natural gas, natural gas
liquids,  synthetic gas,  drilling  fluids,  produced  waters,  and other wastes
associated  with the  exploration,  development,  or  production  of crude  oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any  radioactive  materials,  and (d)  asbestos  in any  form  or  electrical
equipment  that  contains  any oil or  dielectric  fluid  containing  levels  of
polychlorinated biphenyls in excess of 50 parts per million.

      "Hedge  Agreement"  means any and all agreements or documents now existing
or hereafter  entered into by Borrower or its  Subsidiaries  that provide for an
interest rate,  credit,  commodity or equity swap, cap, floor,  collar,  forward
foreign exchange transaction,  currency swap, cross currency rate swap, currency
option,  or any  combination  of, or option with  respect  to,  these or similar
transactions,  for  the  purpose  of  hedging  Borrower's  or its  Subsidiaries'
exposure to fluctuations in interest or exchange rates,  loan,  credit exchange,
security, or currency valuations or commodity prices.

      "Holdout Lender" has the meaning set forth in Section 15.2(a).

                                      -19-
<PAGE>

      "Indebtedness"  means (a) all  obligations  for  borrowed  money,  (b) all
obligations evidenced by bonds, debentures,  notes, or other similar instruments
and all  reimbursement  or other  obligations  in  respect of letters of credit,
bankers acceptances,  interest rate swaps, or other financial products,  (c) all
obligations as a lessee under Capital Leases, (d) all obligations or liabilities
of  others  secured  by a Lien on any  asset  of a Person  or its  Subsidiaries,
irrespective  of whether  such  obligation  or  liability  is  assumed,  (e) all
obligations  to pay the  deferred  purchase  price of assets  (other  than trade
payables incurred in the ordinary course of business and repayable in accordance
with  customary  trade  practices),  and (f) all  obligations  owing under Hedge
Agreements  (provided  that the amount of such  obligations  shall be calculated
based on the net  termination  value),  and (g) any obligation  guaranteeing  or
intended to guarantee  (whether  directly or  indirectly  guaranteed,  endorsed,
co-made,  discounted,  or sold with recourse) any obligation of any other Person
that constitutes Indebtedness under any of clauses (a) through (f) above.

      "Indemnified Liabilities" has the meaning set forth in Section 11.3.

      "Indemnified Person" has the meaning set forth in Section 11.3.

      "Initial  Business Plan" means the  Projections of Borrower for its fiscal
year ending January 31, 2004, as delivered to Agent prior to the date hereof.

      "Insolvency  Proceeding" means any proceeding  commenced by or against any
Person under any  provision of the  Bankruptcy  Code or under any other state or
federal bankruptcy or insolvency law,  assignments for the benefit of creditors,
formal   or   informal   moratoria,   compositions,   or   proceedings   seeking
reorganization, arrangement, or other similar relief.

      "Interest  Period"  means,  with respect to each LIBOR Rate Loan, a period
commencing  on  the  date  of the  making  of  such  LIBOR  Rate  Loan  (or  the
continuation  of a LIBOR  Rate Loan or the  conversion  of a Base Rate Loan to a
LIBOR Rate Loan) and  ending 1, 2, 3 or 6 months  thereafter,  as elected by the
Borrower  pursuant  to  Section  2.13 and  subject  to  Section  2.13(d)(ii)(y);
provided,  however,  that (a) if any Interest  Period would end on a day that is
not a Business Day, such Interest  Period shall be extended  (subject to clauses
(c)-(e) below) to the next succeeding Business Day, (b) interest shall accrue at
the  applicable  rate based upon the LIBOR Rate from and including the first day
of each Interest Period to, but excluding,  the day on which any Interest Period
expires,  (c) any Interest Period that would end on a day that is not a Business
Day shall be extended to the next  succeeding  Business Day unless such Business
Day falls in another  calendar  month,  in which case such Interest Period shall
end on the next preceding  Business Day, (d) with respect to an Interest  Period
that begins on the last Business Day of a calendar  month (or on a day for which
there is no  numerically  corresponding  day in the calendar month at the end of
such Interest Period), the Interest Period shall end on the last Business Day of
the  calendar  month  that is 1, 2, 3, or 6 months  after  the date on which the
Interest Period began, as applicable, and (e) Borrower may not elect an Interest
Period which will end after the Maturity Date.

      "Inventory" means inventory (as that term is defined in the Code).

                                      -20-
<PAGE>

      "Inventory Reserves" means reserves (determined from time to time by Agent
in its Permitted  Discretion) for the estimated costs relating to unpaid freight
charges, warehousing or storage charges, taxes, duties, and other similar unpaid
costs  associated  with the  acquisition  of Eligible  In-Transit  Inventory  by
Borrower.

      "Investment"  means,  with respect to any Person,  any  investment by such
Person  in any  other  Person  (including  Affiliates)  in the  form  of  loans,
guarantees,  advances,  or  capital  contributions  (excluding  (a)  commission,
travel,  and similar  advances to officers and  employees of such Person made in
the  ordinary  course of  business,  and (b) bona fide  Accounts  arising in the
ordinary course of business  consistent with past practice),  purchases or other
acquisitions of Indebtedness,  Stock, or all or substantially  all of the assets
of such other Person (or of any division or business line of such other Person),
and any other items that are or would be classified as  investments on a balance
sheet prepared in accordance with GAAP.

      "Investment  Property" means investment  property (as that term is defined
in the Code), and any and all supporting obligations in respect thereof.

      "IRC" means the Internal  Revenue Code of 1986,  as in effect from time to
time.

      "Issuing  Lender"  means WFRF or any other Lender that,  at the request of
Borrower  and  with  the  consent  of  Agent,  agrees,  in  such  Lender's  sole
discretion,  to become an Issuing  Lender for the purpose of issuing L/Cs or L/C
Undertakings pursuant to Section 2.12.

      "Landlord Lien Reserve" means,  without  limitation of Section 2.1(b), (a)
with respect to any Leased Store  Location in a Landlord Lien State for which an
acceptable Collateral Access Agreement has not been received by Agent, a reserve
in the  amount of 1 month of rent and  other  amounts  payable  (during 1 month)
under  the  applicable  lease  (or  other  applicable  agreement)  for each such
location  (irrespective of whether any rent or other amounts are currently due),
and (b) with  respect to any  Non-Owned  Storage  Facility  (whether or not in a
Landlord Lien State) for which an acceptable Collateral Access Agreement has not
been  received  by Agent,  a reserve in the amount of 2 months of rent and other
amounts  payable  (during  2  months)  under  the  applicable  lease  (or  other
applicable  agreement) for each such location  (irrespective of whether any rent
or other amounts are currently due); provided, that, as to any such location for
which the applicable Collateral Access Agreement retains or includes any Lien in
favor of the applicable  lessor,  warehouseman or other Person in any Collateral
or otherwise  requires,  as a condition to release of Collateral  to Agent,  the
payment of amounts  owing by  Borrower  to such  lessor,  warehouseman  or other
Person,  the initial Landlord Lien Reserve with respect thereto shall be in such
amount (not in excess of the foregoing 1 or 2 month  amounts,  as applicable) as
may be established by Agent in its Permitted Discretion.

      "Landlord  Lien  State"  means each of  Arkansas,  Delaware,  District  of
Columbia, Iowa, Louisiana, Pennsylvania, Virginia and Washington.

                                      -21-
<PAGE>

      "L/C" has the meaning set forth in Section 2.12(a).

      "L/C Disbursement"  means a payment made by the Issuing Lender pursuant to
a Letter of Credit.

      "L/C Undertaking" has the meaning set forth in Section 2.12(a).

      "Leased Store  Location"  means any Sharper Image store for which Borrower
has a leasehold interest,  and any related kiosk location leased by Borrower and
serviced from any such store.

      "Lender"  and  "Lenders"  have the  respective  meanings  set forth in the
preamble to this  Agreement,  and shall include any other Person made a party to
this Agreement in accordance with the provisions of Section 14.1.

      "Lender Group" means,  individually and collectively,  each of the Lenders
(including the Issuing Lender) and Agent.

      "Lender Group Expenses" means all (a) costs or expenses  (including taxes,
and  insurance  premiums)  required to be paid by  Borrower or its  Subsidiaries
under any of the Loan  Documents  that are paid,  advanced,  or  incurred by the
Lender Group,  (b) fees or charges paid or incurred by Agent in connection  with
the Lender Group's  transactions with Borrower or its  Subsidiaries,  including,
fees  or  charges  for  photocopying,  notarization,  couriers  and  messengers,
telecommunication,  public record searches (including tax lien, litigation,  and
UCC searches and including  searches with the patent and trademark  office,  the
copyright  office,  or the  department of motor  vehicles),  filing,  recording,
publication,  appraisal  (including periodic  collateral  appraisals or business
valuations  to the extent of the fees and  charges  (and up to the amount of any
limitation) contained in this Agreement), real estate surveys, real estate title
policies and  endorsements,  and  environmental  audits,  (c) costs and expenses
incurred by Agent in the  disbursement  of funds to Borrower or other members of
the Lender Group (by wire transfer or  otherwise),  (d) charges paid or incurred
by Agent  resulting  from the  dishonor  of  checks,  (e)  reasonable  costs and
expenses  paid or incurred by the Lender Group to correct any default or enforce
any provision of the Loan Documents,  or in gaining possession of,  maintaining,
handling,  preserving,  storing,  shipping,  selling,  preparing  for  sale,  or
advertising to sell the  Collateral,  or any portion  thereof,  irrespective  of
whether a sale is  consummated,  (f) audit fees and expenses of Agent related to
audit examinations of the Books to the extent of the fees and charges (and up to
the amount of any limitation) contained in this Agreement,  (g) reasonable costs
and  expenses  of third  party  claims or any other suit paid or incurred by the
Lender Group in enforcing or defending the Loan Documents or in connection  with
the  transactions  contemplated  by the Loan  Documents  or the  Lender  Group's
relationship with Borrower or any its Subsidiaries, (h) Agent's reasonable costs
and expenses  (including  attorneys  fees)  incurred in  advising,  structuring,
drafting, reviewing, administering, syndicating, or amending the Loan Documents,
and (i) Agent's  and each  Lender's  reasonable  costs and  expenses  (including
attorneys,  accountants,  consultants,  and other  advisors  fees and  expenses)
incurred  in   terminating,   enforcing   (including   attorneys,   accountants,
consultants,  and other advisors fees

                                      -22-
<PAGE>

and expenses incurred in connection with a "workout," a  "restructuring,"  or an
Insolvency  Proceeding  concerning Borrower or its Subsidiaries or in exercising
rights or remedies under the Loan  Documents),  or defending the Loan Documents,
irrespective  of  whether  suit is  brought,  or in taking any  Remedial  Action
concerning the Collateral.

      "Lender-Related  Person" means,  with respect to any Lender,  such Lender,
together  with  such  Lender's  Affiliates,   officers,  directors,   employees,
attorneys, and agents.

      "Letter  of Credit"  means an L/C or an L/C  Undertaking,  as the  context
requires.

      "Letter  of Credit  Usage"  means,  as of any date of  determination,  the
aggregate undrawn amount of all outstanding Letters of Credit.

      "LIBOR Deadline" has the meaning set forth in Section 2.13(b)(i).

      "LIBOR Notice" means a written notice in the form of Exhibit L-1.

      "LIBOR Rate" means, for each Interest Period for each LIBOR Rate Loan, the
rate per annum determined by Agent (rounded upwards,  if necessary,  to the next
1/100%) by dividing  (a) the Base LIBOR Rate for such  Interest  Period,  by (b)
100% minus the Reserve Percentage. The LIBOR Rate shall be adjusted on and as of
the effective day of any change in the Reserve Percentage.

      "LIBOR Rate Loan" means each portion of an Advance or Capital Expenditures
Loan that bears interest at a rate determined by reference to the LIBOR Rate.

      "LIBOR Rate Margin" means 1.5 percentage points.

      "Lien" means any interest in an asset securing an obligation owed to, or a
claim by, any Person other than the owner of the asset,  irrespective of whether
(a) such  interest is based on the common law,  statute,  or contract,  (b) such
interest is recorded or perfected,  and (c) such interest is contingent upon the
occurrence  of some  future  event or events  or the  existence  of some  future
circumstance or circumstances. Without limiting the generality of the foregoing,
the term "Lien" includes the lien or security  interest arising from a mortgage,
deed  of  trust,  encumbrance,   pledge,  hypothecation,   assignment,   deposit
arrangement,  security  agreement,  conditional sale or trust receipt, or from a
lease,  consignment,  or  bailment  for  security  purposes  and  also  includes
reservations,  exceptions, encroachments,  easements, rights-of-way,  covenants,
conditions,  restrictions,  leases,  and other title exceptions and encumbrances
affecting Real Property.

      "Loan Account" has the meaning set forth in Section 2.10.

      "Loan Documents" means this Agreement,  the Bank Product  Agreements,  the
Cash Management Agreements,  the Control Agreements, the Credit Card Agreements,
the Customs Broker  Agreements,  Disbursement  Letter, the Due Diligence Letter,
the Fee Letter,  the Letters of Credit,  the Officers'  Certificate,  the Patent
Security Agreement, the Trademark

                                      -23-
<PAGE>

Security  Agreement,  any note or notes executed by Borrower in connection  with
this  Agreement  and  payable  to a member of the  Lender  Group,  and any other
agreement  entered into, now or in the future,  by Borrower and the Lender Group
in connection with this Agreement.

      "Material  Adverse  Change"  means (a) a  material  adverse  change in the
business,  operations,  results of operations,  assets, liabilities or condition
(financial or otherwise) of Borrower and its Subsidiaries, taken as a whole, (b)
a material  impairment of  Borrower's  and its  Subsidiaries  ability to perform
their  obligations  under the Loan Documents to which they are parties or of the
Lender  Group's   ability  to  enforce  the  Obligations  or  realize  upon  the
Collateral,  or (c) a material  impairment of the  enforceability or priority of
the Agent's  Liens with  respect to the  Collateral  as a result of an action or
failure to act on the part of Borrower or its Subsidiaries.

      "Maturity Date" has the meaning set forth in Section 3.4.

      "Maximum Revolver Amount" means $50,000,000.

      "Minimum Availability Reserve" means $5,000,000.

      "Multicurrency  Collection  Account"  has the meaning set forth in Section
2.7(b).

      "Negotiable  Collateral" means letters of credit, letter of credit rights,
instruments,  promissory notes, drafts,  documents, and chattel paper (including
electronic chattel paper and tangible chattel paper), and any and all supporting
obligations in respect thereof.

      "Net  Liquidation  Percentage"  means the  percentage of the book value of
Borrower's  Inventory  that  is  estimated  to  be  recoverable  in  an  orderly
liquidation of such Inventory,  such percentage to be as determined from time to
time by a qualified appraisal company selected by Agent.

      "Non-Owned  Storage  Facility" means any distribution  center or warehouse
facility leased by Borrower, together with any other location where Inventory or
Equipment  of  Borrower  is  stored  or  held  pursuant  to a  lease,  bailment,
warehousing or similar arrangement, which location (a) is not owned by Borrower,
and (b) is not a Leased Store Location.

      "Obligations"  means (a) all loans  (including  the  Capital  Expenditures
Loans), Advances,  debts, principal,  interest (including any interest that, but
for  the  commencement  of  an  Insolvency  Proceeding,   would  have  accrued),
contingent  reimbursement  obligations  with respect to  outstanding  Letters of
Credit, premiums,  liabilities (including all amounts charged to Borrower's Loan
Account pursuant hereto),  obligations (including indemnification  obligations),
fees (including the fees provided for in the Fee Letter), charges, costs, Lender
Group Expenses (including any fees or expenses that, but for the commencement of
an Insolvency  Proceeding,  would have  accrued),  lease  payments,  guaranties,
covenants,  and

                                      -24-
<PAGE>

duties  of any kind  and  description  owing by  Borrower  to the  Lender  Group
pursuant to or evidenced by the Loan Documents and  irrespective  of whether for
the payment of money, whether direct or indirect, absolute or contingent, due or
to become due, now existing or hereafter arising, and including all interest not
paid when due and all Lender Group  Expenses that Borrower is required to pay or
reimburse  by the Loan  Documents,  and (b) all Bank  Product  Obligations.  Any
reference in this  Agreement or in the Loan Documents to the  Obligations  shall
include all extensions,  modifications,  renewals,  or alterations thereof, both
prior and subsequent to any Insolvency Proceeding.

      "Officers'  Certificate"  means  the  representations  and  warranties  of
officers form submitted by Agent to Borrower, together with Borrower's completed
responses to the  inquiries  set forth  therein,  the form and substance of such
responses to be satisfactory to Agent in its Permitted Discretion.

      "Originating Lender" has the meaning set forth in Section 14.1(e).

      "Overadvance" has the meaning set forth in Section 2.5.

      "Participant" has the meaning set forth in Section 14.1(e).

      "Patent Security Agreement" means a patent security agreement executed and
delivered by Borrower and Agent, the form and substance of which is satisfactory
to Agent in its Permitted Discretion.

      "Pay-Off  Letter" means a letter,  in form and substance  satisfactory  to
Agent in its Permitted Discretion,  from Existing Lender to Agent respecting the
amount  necessary to repay in full all of the  obligations  of Borrower owing to
Existing  Lender and obtain a release of all of the Liens  existing  in favor of
Existing Lender in and to the assets of Borrower.

      "Permitted  Discretion"  means a  determination  made in the  exercise  of
reasonable  (from the  perspective  of a secured  asset-based  lender)  business
judgment.

      "Permitted   Dispositions"  means  (a)  sales  or  other  dispositions  of
Equipment  that is  substantially  worn,  damaged,  or obsolete in the  ordinary
course of business,  (b) sales of Inventory to buyers in the ordinary  course of
business,  (c) the use or transfer of money or Cash Equivalents in a manner that
is not  prohibited by the terms of this  Agreement or the other Loan  Documents,
(d) the  licensing,  on a  non-exclusive  basis (or on an exclusive  basis as to
foreign  jurisdictions  only),  of patents,  trademarks,  copyrights,  and other
intellectual  property  rights  in  the  ordinary  course  of  business,  (e) in
connection with any store closing,  the subleasing of the applicable store space
for the  remainder  of the then  current term of the  applicable  lease(s),  (f)
dispositions  of Equipment in the ordinary course of business in connection with
the  remodeling  or  refurbishing  or closing of stores in an  aggregate  amount
(based on the  aggregate  consideration,  calculated as of the date of each such
disposition) not in excess of $5,000,000 in any fiscal year, (g) the disposition
of  Borrower's  ownership  interest in any joint  inventions  and/or  contracted
inventions  and any  patents  covering  the  same,  in each  case to the  extent
required  pursuant  to the terms of the License  Agreement  dated as of June 30,
1995  between  Zenion  Industries,  Inc.  and  Borrower,  as  amended,  and  (h)

                                      -25-
<PAGE>

dispositions not otherwise  permitted in clauses (a) through (g) of assets other
than  Inventory,   Accounts,  or  patents,  trademarks,   copyrights,  or  other
intellectual  property rights, so long as (i) no Default or Event of Default has
occurred or is continuing or would result therefrom,  (ii) each such disposition
is  consummated  at fair value,  in good faith,  and pursuant to an arm's length
transaction,  (iii) both immediately  before and immediately after giving effect
to any such  disposition,  Borrowing  Base  Availability  shall be in  excess of
$20,000,000,  and (iv) the aggregate amount of all such  dispositions  (based on
the aggregate consideration, calculated as of the date of each such disposition)
under this clause does not exceed $5,000,000 in any fiscal year.

      "Permitted Holder" means Richard Thalheimer,  his Family Members,  and his
Family Trusts.

      "Permitted   Investments"   means  (a)   Investments   in  cash  and  Cash
Equivalents,  (b)  Investments in negotiable  instruments  for  collection,  (c)
advances made in connection  with purchases of goods or services in the ordinary
course of business,  (d)  Investments  received in  settlement of amounts due to
Borrower or any of its Subsidiaries  effected in the ordinary course of business
or owing to  Borrower  or any of its  Subsidiaries  as a  result  of  Insolvency
Proceedings  involving an Account Debtor or upon the  foreclosure or enforcement
of any Lien in favor of Borrower or its Subsidiaries, (e) Investments consisting
of  guarantees  constituting  Indebtedness  permitted  under  Section  7.1,  (f)
Investments in Deferred  Compensation  Life Insurance to the extent permitted in
Section  6.8(d),  and (g)  Investments  not  otherwise  permitted in clauses (a)
through  (f) so long as (i) no Default or Event of Default  has  occurred  or is
continuing  or  would  result  therefrom,   (ii)  both  immediately  before  and
immediately  after  giving  effect  to  any  such  Investment,   Borrowing  Base
Availability  shall be in excess of $20,000,000,  and (iii) the aggregate amount
of  all  such  Investments  at  any  one  time  outstanding   would  not  exceed
$10,000,000.

      "Permitted  Liens"  means (a) Liens  held by Agent,  (b) Liens for  unpaid
taxes that either (i) are not yet delinquent, or (ii) do not constitute an Event
of Default  hereunder and are the subject of Permitted  Protests,  (c) Liens set
forth on Schedule P-1, (d) the interests of lessors under operating leases,  (e)
purchase  money Liens or the interests of lessors  under  Capital  Leases to the
extent that such Liens or interests secure Permitted Purchase Money Indebtedness
and so long as such Lien  attaches  only to the asset  purchased or acquired and
the  proceeds  thereof,  (f)  Liens  arising  by  operation  of law in  favor of
warehousemen,   landlords,  carriers,  mechanics,   materialmen,   laborers,  or
suppliers,  incurred in the ordinary  course of business  and not in  connection
with the borrowing of money, and which Liens either (i) are for sums not overdue
by more than 30 days,  so long as Agent is satisfied  that,  during such overdue
period, such Liens will not impair the  enforceability,  validity or priority of
any of the Agent's  Liens,  or (ii) are the subject of Permitted  Protests,  (g)
Liens  arising  from  deposits  made  in  connection  with  obtaining   worker's
compensation or other  unemployment  insurance,  (h) Liens or deposits to secure
performance  of bids,  tenders,  or leases  incurred in the  ordinary  course of
business and not in connection with the borrowing of money, (i) Liens granted as
security for surety or appeal bonds,  performance bonds and other obligations of
a like nature in connection  with obtaining such bonds in the ordinary course of
business,  (j) inchoate and unperfected  Liens for escheat or use taxes that are
not the

                                      -26-
<PAGE>

subject of any judgment or other  asserted  claim for the payment of money,  and
any Liens resulting from any judgment or other asserted claim for the payment of
money that is not an Event of Default  pursuant to Section 8.7, (k) with respect
to any Real Property, easements, rights of way, zoning restrictions, and similar
encumbrances  that  do not  materially  interfere  with  or  impair  the  use or
operation thereof, and (m) Liens on assets other than Inventory,  Accounts, Real
Property, Cash Management Accounts,  Deferred Compensation Accounts, or patents,
trademarks,  copyrights,  or other  intellectual  property rights,  and securing
Indebtedness or other obligations permitted hereunder in an aggregate amount not
exceeding $1,000,000.

      "Permitted Protest" means the right of Borrower or any of its Subsidiaries
to protest any Lien (other than any Lien that  secures the  Obligations),  taxes
(other than payroll taxes), or rental payment,  provided that (a) a reserve with
respect to such  obligation  is  established  on the Books in such  amount as is
required under GAAP, (b) any such protest is instituted  promptly and prosecuted
diligently by Borrower or its Subsidiary,  as applicable, in good faith, and (c)
Agent is satisfied  that,  while any such  protest is pending,  there will be no
impairment of the  enforceability,  validity,  or priority of any of the Agent's
Liens.

      "Permitted  Purchase  Money  Indebtedness"   means,  as  of  any  date  of
determination,  Purchase Money  Indebtedness  in an aggregate  principal  amount
outstanding at any one time not in excess of $5,000,000.

      "Person" means natural persons, corporations, limited liability companies,
limited  partnerships,  general  partnerships,  limited liability  partnerships,
joint ventures,  trusts, land trusts,  business trusts, or other  organizations,
irrespective  of whether they are legal  entities,  and governments and agencies
and political subdivisions thereof.

      "Projections"  means Borrower's  forecasted (a) balance sheets, (b) profit
and loss  statements,  and (c) cash flow  statements,  all  prepared  on a basis
consistent  with  Borrower's  historical  financial  statements,  together  with
appropriate supporting details and a statement of underlying assumptions.

      "Pro Rata Share" means, as of any date of determination,:

      (a) with  respect to a Lender's  obligation  to make  Advances (or Capital
Expenditures  Loans) and receive payments of principal,  interest,  fees, costs,
and expenses with respect thereto,  (i) prior to the Revolver  Commitments being
terminated  or reduced to zero,  the  percentage  obtained by dividing  (y) such
Lender's Revolver  Commitment,  by (z) the aggregate Revolver Commitments of all
Lenders,  and (ii) from and after the time that the  Revolver  Commitments  have
been terminated or reduced to zero, the percentage  obtained by dividing (y) the
aggregate  outstanding  principal  amount of such Lender's  Advances and Capital
Expenditures  Loans by (z) the  aggregate  outstanding  principal  amount of all
Advances and Capital Expenditures Loans,

      (b) with respect to a Lender's  obligation  to  participate  in Letters of
Credit,  to reimburse the Issuing Lender,  and to receive  payments of fees with
respect  thereto,  (i) prior to the Revolver  Commitments  being  terminated  or
reduced to zero, the percentage

                                      -27-
<PAGE>

obtained by dividing (y) such Lender's Revolver Commitment, by (z) the aggregate
Revolver  Commitments of all Lenders,  and (ii) from and after the time that the
Revolver  Commitments  have been  terminated or reduced to zero,  the percentage
obtained by dividing  (y) the  aggregate  outstanding  principal  amount of such
Lender's  Advances  and  Capital   Expenditures   Loans  by  (z)  the  aggregate
outstanding principal amount of all Advances and Capital Expenditures Loans, and

      (c) with respect to all other matters as to a particular Lender (including
the  indemnification  obligations  arising under Section  16.7),  the percentage
obtained by dividing (i) such Lender's Revolver  Commitment plus the outstanding
principal   amount  of  such  Lender's  portion  of  the  Advances  and  Capital
Expenditures Loans, by (ii) the aggregate amount of Revolver  Commitments of all
Lenders  plus the  aggregate  outstanding  principal  amount of all Advances and
Capital Expenditures Loans;  provided,  however,  that in the event the Revolver
Commitments  have been  terminated or reduced to zero, Pro Rata Share under this
clause  shall  be the  percentage  obtained  by  dividing  (A)  the  outstanding
principal amount of such Lender's Advances plus such Lender's ratable portion of
the Risk Participation  Liability with respect to outstanding  Letters of Credit
plus the outstanding  principal  amount of such Lender's  portion of the Capital
Expenditures Loans, by (B) the outstanding principal amount of all Advances plus
the  aggregate  amount  of the Risk  Participation  Liability  with  respect  to
outstanding  Letters  of Credit  plus the  outstanding  principal  amount of all
Capital Expenditures Loans.

      "Purchase  Money   Indebtedness"   means  Indebtedness   (other  than  the
Obligations, but including Capitalized Lease Obligations),  incurred at the time
of, or within 90 days after, the acquisition of any fixed assets for the purpose
of financing all or any part of the acquisition cost thereof  (together with any
refinancings thereof permitted under Section 7.1(c)).

      "Qualified  Cash" means,  as of any date of  determination,  the amount of
unrestricted  cash and Cash Equivalents of Borrower and its Subsidiaries that is
in Deposit Accounts or in Securities  Accounts,  or any combination thereof, and
which such  Deposit  Account or  Securities  Account is the subject of a Control
Agreement  and is  maintained  by a  branch  office  of the  bank or  securities
intermediary located within the United States.

      "Qualified  Import  Letter of Credit" means a Letter of Credit that (a) is
issued to facilitate the purchase by Borrower of Eligible Inventory,  (b) has an
expiry  date of less  than  120  days and is  otherwise  in form  and  substance
acceptable to Agent in its Permitted Discretion, and (c) is issued to support an
Underlying Letter of Credit that only is drawable by the beneficiary  thereof by
the  presentation  of,  among  other   documents,   such  applicable   documents
satisfactory to Agent as evidencing Borrower's title to the subject Inventory.

      "Real  Property" means any estates or interests in real property now owned
or  hereafter  acquired  by Borrower or its  Subsidiaries  and the  improvements
thereto.

      "Record" means information that is inscribed on a tangible medium or which
is stored in an electronic  or other medium and is  retrievable  in  perceivable
form.

                                      -28-
<PAGE>

      "Refurbishing  Facility" means that certain Proactive  Solutions  facility
located at 350 Wainwright Drive, Northbrook, IL 60062.

      "Remedial  Action"  means  all  actions  taken to (a)  clean  up,  remove,
remediate,  contain,  treat,  monitor,  assess,  evaluate, or in any way address
Hazardous  Materials  in the  indoor or  outdoor  environment,  (b)  prevent  or
minimize a release or threatened  release of Hazardous  Materials so they do not
migrate or endanger or  threaten  to  endanger  public  health or welfare or the
indoor  or  outdoor   environment,   (c)  perform  any   pre-remedial   studies,
investigations,  or post-remedial operation and maintenance activities, each, in
connection  with a release of  Hazardous  Materials,  or (d)  conduct  any other
removal or remedial actions authorized by 42 USC ss. 9601.

      "Replacement Lender" has the meaning set forth in Section 15.2(a).

      "Report" has the meaning set forth in Section 16.17.

      "Required  Lenders" means,  at any time,  Lenders whose aggregate Pro Rata
Shares  (calculated under clause (c) of the definition of Pro Rata Shares) equal
or exceed 50.1%.

      "Reserve  Percentage"  means,  on any day,  for any  Lender,  the  maximum
percentage  prescribed by the Board of Governors of the Federal  Reserve  System
(or  any  successor   Governmental   Authority)  for   determining  the  reserve
requirements  (including  any  basic,   supplemental,   marginal,  or  emergency
reserves) that are in effect on such date with respect to  eurocurrency  funding
(currently  referred to as "eurocurrency  liabilities")  of that Lender,  but so
long as such Lender is not required or directed under applicable  regulations to
maintain such reserves, the Reserve Percentage shall be zero.

      "Revolver  Commitment"  means,  with respect to each Lender,  its Revolver
Commitment,  and, with respect to all Lenders,  their Revolver  Commitments,  in
each case as such Dollar  amounts are set forth beside such  Lender's name under
the  applicable  heading on Schedule  C-1 or in the  Assignment  and  Acceptance
pursuant to which such Lender became a Lender  hereunder in accordance  with the
provisions of Section 14.1.

      "Revolver  Usage" means, as of any date of  determination,  the sum of (a)
the then extant amount of outstanding Advances,  plus (b) the then extant amount
of outstanding  Capital  Expenditures  Loans, plus (c) the then extant amount of
the Letter of Credit Usage.

      "Risk  Participation  Liability"  means, as to each Letter of Credit,  all
reimbursement  obligations  of Borrower to the Issuing Lender with respect to an
L/C Undertaking, consisting of (a) the amount available to be drawn or which may
become available to be drawn, (b) all amounts that have been paid by the Issuing
Lender to the  Underlying  Issuer to the  extent  not  reimbursed  by  Borrower,
whether by the making of an Advance or otherwise, and (c) all accrued and unpaid
interest, fees, and expenses payable with respect thereto.

                                      -29-
<PAGE>

      "SEC" means the United States  Securities and Exchange  Commission and any
successor thereto.

      "Securities  Account" means a securities  account (as that term is defined
in the Code).

      "Settlement" has the meaning set forth in Section 2.3(f)(i).

      "Settlement Date" has the meaning set forth in Section 2.3(f)(i).

      "Special  Account and  Securities  Investments"  means,  at any time,  (a)
Deferred  Compensation  Amounts in the Deferred  Compensation  Account,  and (b)
Permitted  Investments  of Borrower and its  Subsidiaries  (other than  Deferred
Compensation  Amounts in the  Deferred  Compensation  Account),  in an aggregate
amount not in excess of $1,500,000,  that at such time,  both (i) consist of (x)
Permitted  Investments held in a Deposit Account or Securities  Account,  or (y)
securities  or  other  Investment  Property,  and  (ii)  are  not  (x) in a Cash
Management Account,  (y) in a Deposit Account or Securities Account then subject
to a Control  Agreement,  or (z)  otherwise  subject to the  control of Agent in
accordance with Sections 9-104 or 9-106 of the Code.

      "Solvent" means, with respect to any Person on a particular date, that, at
fair  valuations,  the sum of such  Person's  assets is greater than all of such
Person's debts.

      "Stock" means all shares, options, warrants, interests, participations, or
other  equivalents  (regardless of how  designated)  of or in a Person,  whether
voting or nonvoting,  including  common  stock,  preferred  stock,  or any other
"equity  security"  (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the SEC under the Exchange Act).

      "Store  Account"  means,  for each of Borrower's  stores,  the  Collection
Account  maintained  by  Borrower  for deposit of  Collections  received at such
store.

      "Subsidiary"  of  a  Person  means  a  corporation,  partnership,  limited
liability  company,  or other entity in which that Person directly or indirectly
owns or controls  the shares of Stock  having  ordinary  voting power to elect a
majority of the board of directors  (or appoint  other  comparable  managers) of
such corporation, partnership, limited liability company, or other entity.

      "Swing  Lender"  means WFRF or any other  Lender  that,  at the request of
Borrower and with the consent of Agent agrees, in such Lender's sole discretion,
to become the Swing Lender under Section 2.3(d).

      "Swing Loan" has the meaning set forth in Section 2.3(d)(i).

      "Taxes" has the meaning set forth in Section 16.11.

                                      -30-
<PAGE>

      "Trademark  Security  Agreement"  means  a  trademark  security  agreement
executed and delivered by Borrower and Agent, the form and substance of which is
satisfactory to Agent in its Permitted Discretion.

      "Triggering  Period" means a period (a) commencing on the earlier to occur
of either (i) the occurrence and  continuation  of an Event of Default,  or (ii)
the first date on which Borrowing Base  Availability  shall fail to be in excess
of $20,000,000 for three (3)  consecutive  Business Days or fail to be in excess
of $15,000,000 at any time, and (b) continuing  until such time as, for a period
of sixty (60) consecutive days, both (x) Borrowing Base Availability shall be in
excess of  $20,000,000  and (y) there shall not have  occurred and be continuing
any Event of Default.

      "UCC Filing Authorization Letter" means a letter duly executed by Borrower
authorizing  Agent  to file  appropriate  financing  statements  on  Form  UCC-1
(without  the  signature  of  Borrower),  in such  office or  offices  as may be
necessary  or, in the  opinion  of Agent,  desirable  to  perfect  the  security
interests purported to be created by the Loan Documents.

      "United States" means the United States of America.

      "Underlying  Issuer" means a third Person which is the  beneficiary  of an
L/C  Undertaking  and which has issued a letter of credit at the  request of the
Issuing Lender for the benefit of Borrower.

      "Underlying  Letter of  Credit"  means a letter  of  credit  that has been
issued by an Underlying Issuer.

      "Voidable Transfer" has the meaning set forth in Section 17.7.

      "Wells  Fargo" means Wells Fargo Bank,  National  Association,  a national
banking association.

      "WFRF" means Wells Fargo Retail Finance, LLC, a Delaware limited liability
company.

    1.2 Accounting  Terms. All accounting terms not specifically  defined herein
shall be construed in accordance  with GAAP;  provided that, in the event of any
change to GAAP or the application  thereof  occurring after the Closing Date, at
the  request of Agent or  Borrower,  the  parties  shall in good faith  consider
appropriate amendments to adjust financial covenant levels herein to offsite the
effects  (if  any) of  such  change.  When  used  herein,  the  term  "financial
statements"  shall  include the notes and schedules  thereto.  Whenever the term
"Borrower" is used in respect of a financial  covenant or a related  definition,
it shall be understood to mean Borrower and its  Subsidiaries  on a consolidated
basis unless the context clearly requires otherwise.

    1.3 Code.  Any terms  used in this  Agreement  that are  defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.

                                      -31-
<PAGE>

    1.4  Construction.  Unless the context of this  Agreement  or any other Loan
Document  clearly  requires  otherwise,  references  to the plural  include  the
singular, references to the singular include the plural, the term "including" is
not  limiting,  and the term "or" has,  except where  otherwise  indicated,  the
inclusive  meaning  represented  by the  phrase  "and/or."  The words  "hereof,"
"herein,"  "hereby,"  "hereunder,"  and similar  terms in this  Agreement or any
other Loan Document refer to this Agreement or such other Loan Document,  as the
case may be, as a whole and not to any particular provision of this Agreement or
such other  Loan  Document,  as the case may be.  Section,  subsection,  clause,
schedule,  and exhibit  references herein are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the other Loan Documents to any
agreement,  instrument,  or document shall include all alterations,  amendments,
changes,  extensions,  modifications,  renewals,  replacements,   substitutions,
joinders,  and supplements,  thereto and thereof,  as applicable (subject to any
restrictions   on   such   alterations,    amendments,    changes,   extensions,
modifications, renewals, replacements,  substitutions, joinders, and supplements
set forth herein). Any reference herein to the repayment in full or satisfaction
in full  of the  Obligations  shall  mean  the  repayment  in  full in cash  (or
cash-collaterization  in accordance  with the terms  hereof) of all  Obligations
other  than  contingent  indemnification  Obligations  and  other  than any Bank
Product  Obligations  that,  at such time,  are allowed by the  applicable  Bank
Product Provider to remain outstanding and are not required to be repaid or cash
collateralized  pursuant to the  provisions  of this  Agreement.  Any  reference
herein to any Person shall be construed to include such Person's  successors and
assigns.  Any  requirement  of a writing  contained  herein or in the other Loan
Documents  shall be  satisfied  by the  transmission  of a Record and any Record
transmitted  shall constitute a  representation  and warranty as to the accuracy
and completeness of the information contained therein.

    1.5 Schedules and  Exhibits.  All of the schedules and exhibits  attached to
this Agreement shall be deemed incorporated herein by reference.

2.  LOAN AND TERMS OF PAYMENT.

    2.1 Revolver Advances.

      (a) Subject to the terms and conditions of this Agreement,  and during the
term of this Agreement,  each Lender agrees  (severally,  not jointly or jointly
and severally) to make advances ("Advances") to Borrower in an amount at any one
time  outstanding  not to exceed such Lender's Pro Rata Share of an amount equal
to (1) the lesser of (i) the Maximum  Revolver  Amount less the Letter of Credit
Usage, or (ii) the Borrowing Base less the Adjusted Letter of Credit Usage, less
(2) the then extant amount of outstanding Capital Expenditures Loans.

      (b) Anything to the contrary in this  Section 2.1  notwithstanding,  Agent
shall have the right to establish and modify  reserves  (including  all reserves
referenced  in the  definition  of  Borrowing  Base) in such  amounts,  and with
respect  to such  matters,  as  Agent in its  Permitted  Discretion  shall  deem
necessary or appropriate,  against the Borrowing Base,  including  reserves with
respect  to (i)  shrinkage  (so as to  bring  perpetual  records  in  line  with
historical  levels),  (ii) sums that Borrower is required to pay (such as taxes,
assessments,

                                      -32-
<PAGE>

insurance  premiums,  or, in the case of leased  assets,  rents or other amounts
payable  under  such  leases)  and has  failed to pay under any  Section of this
Agreement or any other Loan Document, and (iii) amounts owing by Borrower or its
Subsidiaries  to any Person to the extent  secured by a Lien on, or trust  over,
any of the  Collateral  (other  than any  existing  Permitted  Lien set forth on
Schedule  P-1 which is  specifically  identified  thereon  as  entitled  to have
priority  over  the  Agent's  Liens),  which  Lien or  trust,  in the  Permitted
Discretion  of Agent likely would have a priority  superior to the Agent's Liens
(such  as Liens  or  trusts  in  favor  of  landlords,  warehousemen,  carriers,
mechanics,  materialmen,  laborers,  or  suppliers,  or Liens or  trusts  for ad
valorem,  excise,  sales,  or other taxes where given priority under  applicable
law) in and to such item of the  Collateral.  In addition to the foregoing  (and
subject to Section 2.11 as to costs and expenses), Agent shall have the right to
have the  Borrower's  Inventory  reappraised  by a qualified  appraisal  company
selected  by Agent from time to time after the  Closing  Date for the purpose of
re-determining the Net Liquidation  Percentage of the Eligible Inventory and, as
a result, re-determining the Borrowing Base.

      (c) The  Lenders  shall have no  obligation  to make  additional  Advances
hereunder to the extent such additional  Advances would cause the Revolver Usage
to exceed the Maximum Revolver Amount.

      (d)  Amounts  borrowed  pursuant  to this  Section  2.1 may be repaid and,
subject to the terms and  conditions of this  Agreement,  reborrowed at any time
during the term of this Agreement.

    2.2 Capital Expenditures Loans.

      (a) Subject to the terms and conditions of this Agreement,  and during the
term of this Agreement,  each Lender agrees  (severally,  not jointly or jointly
and severally) to make loans to Borrower (each, a "Capital  Expenditures  Loan")
in an aggregate  amount at any one time  outstanding not to exceed such Lender's
Pro Rata Share of $10,000,000 (the "Capital  Expenditure  Sublimit");  provided,
however, that the aggregate outstanding amount of all Capital Expenditures Loans
shall not exceed an amount  equal to (1) the lesser of (i) the Maximum  Revolver
Amount  less the Letter of Credit  Usage,  or (ii) the  Borrowing  Base less the
Adjusted Letter of Credit Usage,  less (2) the then extant amount of outstanding
Advances.

      (b) The  Lenders  shall  have no  obligation  to make  additional  Capital
Expenditures Loans hereunder to the extent such additional Capital  Expenditures
Loans would cause (a) the Revolver Usage to exceed the Maximum  Revolver Amount,
or (b) the then  extant  amount of  Capital  Expenditures  Loans to  exceed  the
Capital Expenditures Sublimit.

      (c)  Amounts  borrowed  pursuant  to this  Section  2.2 may be repaid and,
subject to the terms of this  Agreement,  reborrowed at any time during the term
of this Agreement.

                                      -33-
<PAGE>

    2.3 Borrowing Procedures and Settlements.

      (a)  Procedure  for  Borrowing.   Each  Borrowing  shall  be  made  by  an
irrevocable  written request by an Authorized  Person  delivered to Agent (which
notice must be received by Agent no later than 10:00 a.m.  (California  time) on
the Business Day prior to the date that is the  requested  Funding Date (subject
to Section  2.13(b)(i)  in the case of any LIBOR Rate Loan)  specifying  (i) the
amount of such Borrowing,  and (ii) the requested Funding Date, which shall be a
Business Day; provided, however, that in the case of a request for Swing Loan in
an amount of $5,000,000,  or less,  such notice will be timely received if it is
received by Agent no later than 10:00 a.m. (California time) on the Business Day
that is the requested Funding Date) specifying (i) the amount of such Borrowing,
and (ii) the requested  Funding Date,  which shall be a Business Day. At Agent's
election,  in  lieu of  delivering  the  above-described  written  request,  any
Authorized  Person  may give  Agent  telephonic  notice of such  request  by the
required time. In such  circumstances,  Borrower agrees that any such telephonic
notice will be confirmed in writing within 24 hours of the giving of such notice
and the  failure  to  provide  such  written  confirmation  shall not affect the
validity of the request.

      (b) Agent's Election.  Promptly after receipt of a request for a Borrowing
pursuant to Section 2.3(a),  Agent shall elect,  in its discretion,  (i) to have
the terms of Section  2.3(c) apply to such requested  Borrowing,  or (ii) if the
Borrowing  is for an Advance  or Capital  Expenditures  Loan,  to request  Swing
Lender  to make a Swing  Loan  pursuant  to the terms of  Section  2.3(d) in the
amount of the requested Borrowing;  provided,  however, that (i) if Swing Lender
declines in its sole discretion to make a Swing Loan pursuant to Section 2.3(d),
Agent shall elect to have the terms of Section  2.3(c)  apply to such  requested
Borrowing,  and (ii) if a notice  requesting  a LIBOR Rate Loan has been  timely
delivered  per  Section  2.13(b)(i),  Agent shall not have the option to request
Swing Line Lender to make such Borrowing as a Swing Line Loan.

      (c) Making of Loans.

            (i) In the event  that Agent  shall  elect to have the terms of this
      Section  2.3(c)  apply to a requested  Borrowing  as  described in Section
      2.3(b),  then promptly after receipt of a request for a Borrowing pursuant
      to Section  2.3(a),  Agent shall notify the  Lenders,  not later than 1:00
      p.m.  (California  time) on the Business  Day  immediately  preceding  the
      Funding Date applicable thereto, by telecopy,  telephone, or other similar
      form of transmission,  of the requested Borrowing.  Each Lender shall make
      the  amount of such  Lender's  Pro Rata Share of the  requested  Borrowing
      available to Agent in immediately available funds, to Agent's Account, not
      later than 10:00 a.m.  (California  time) on the Funding  Date  applicable
      thereto.  After  Agent's  receipt of the  proceeds  of such  Advances  (or
      Capital  Expenditures Loan, as applicable),  Agent shall make the proceeds
      thereof   available  to  Borrower  on  the  applicable   Funding  Date  by
      transferring  immediately  available funds equal to such proceeds received
      by  Agent to  Borrower's  Designated  Account;  provided,  however,  that,
      subject to the provisions of Section  2.3(i),  Agent shall not

                                      -34-
<PAGE>

      request any Lender to make,  and no Lender  shall have the  obligation  to
      make,  any Advance (or its  portion of any Capital  Expenditures  Loan) if
      Agent shall have actual  knowledge  that (1) one or more of the applicable
      conditions  precedent  set forth in Section 3 will not be satisfied on the
      requested Funding Date for the applicable  Borrowing unless such condition
      has  been  waived,  or  (2)  the  requested  Borrowing  would  exceed  the
      Availability on such Funding Date.

            (ii) Unless Agent  receives  notice from a Lender on or prior to the
      Closing Date or, with  respect to any  Borrowing  after the Closing  Date,
      prior to 9:00 a.m.  (California time) on the date of such Borrowing,  that
      such Lender will not make  available  as and when  required  hereunder  to
      Agent for the account of  Borrower  the amount of that  Lender's  Pro Rata
      Share of the Borrowing, Agent may assume that each Lender has made or will
      make such amount available to Agent in immediately  available funds on the
      Funding  Date and Agent may (but shall not be so  required),  in  reliance
      upon  such  assumption,   make  available  to  Borrower  on  such  date  a
      corresponding  amount. If and to the extent any Lender shall not have made
      its full amount  available  to Agent in  immediately  available  funds and
      Agent in such  circumstances  has made  available to Borrower such amount,
      that Lender  shall on the Business  Day  following  such Funding Date make
      such amount  available to Agent,  together with interest at the Defaulting
      Lender Rate for each day during such period.  A notice  submitted by Agent
      to any Lender with respect to amounts owing under this subsection shall be
      conclusive,  absent  manifest  error. If such amount is so made available,
      such payment to Agent shall  constitute such Lender's  Advance (or portion
      of the applicable Capital Expenditures Loan, as applicable) on the date of
      Borrowing for all purposes of this  Agreement.  If such amount is not made
      available to Agent on the Business Day following  the Funding Date,  Agent
      will notify  Borrower of such  failure to fund and,  upon demand by Agent,
      Borrower shall pay such amount to Agent for Agent's account, together with
      interest thereon for each day elapsed since the date of such Borrowing, at
      a rate per annum equal to the interest rate  applicable at the time to the
      Advances (or the Capital Expenditures Loans, as applicable) composing such
      Borrowing.  The  failure of any Lender to make any  Advance (or portion of
      any Capital  Expenditures  Loan, as  applicable) on any Funding Date shall
      not  relieve  any other  Lender  of any  obligation  hereunder  to make an
      Advance (or portion of a Capital Expenditures Loan, as applicable) on such
      Funding Date,  but no Lender shall be  responsible  for the failure of any
      other  Lender to make the Advance (or portion of the Capital  Expenditures
      Loan, as applicable) to be made by such other Lender on any Funding Date.

            (iii) Agent  shall not be  obligated  to  transfer  to a  Defaulting
      Lender any payments made by Borrower to Agent for the Defaulting  Lender's
      benefit,  and, in the absence of such transfer to the  Defaulting  Lender,
      Agent shall transfer any such payments to each other non-Defaulting Lender
      member of the Lender Group  ratably in accordance  with their  Commitments
      (but only to

                                      -35-
<PAGE>

      the  extent  that such  Defaulting  Lender's  Advance  (or  portion of the
      Capital  Expenditures Loan, as applicable) was funded by the other members
      of the Lender  Group) or, if so directed by Borrower  and if no Default or
      Event of Default had  occurred and is  continuing  (and to the extent such
      Defaulting Lender's Advance (or portion of the Capital  Expenditures Loan,
      as  applicable)  was not funded by the Lender  Group),  retain  same to be
      re-advanced to Borrower as if such Defaulting Lender had made Advances (or
      portions  of Capital  Expenditures  Loans,  as  applicable)  to  Borrower.
      Subject to the foregoing, Agent may hold and, in its Permitted Discretion,
      re-lend to Borrower for the account of such  Defaulting  Lender the amount
      of all such  payments  received  and  retained by Agent for the account of
      such Defaulting Lender. Solely for the purposes of voting or consenting to
      matters with respect to the Loan Documents,  such Defaulting  Lender shall
      be deemed  not to be a  "Lender"  and such  Lender's  Commitment  shall be
      deemed to be zero.  This Section  shall remain  effective  with respect to
      such Lender until (x) the Obligations under this Agreement shall have been
      declared  or  shall  have  become  immediately  due and  payable,  (y) the
      non-Defaulting  Lenders,  Agent,  and  Borrower  shall  have  waived  such
      Defaulting Lender's default in writing, or (z) the Defaulting Lender makes
      its Pro Rata  Share  of the  applicable  Advance  (or  applicable  Capital
      Expenditures  Loan, as applicable)  and pays to Agent all amounts owing by
      Defaulting Lender in respect thereof.  The operation of this Section shall
      not be  construed to increase or otherwise  affect the  Commitment  of any
      Lender,  to relieve or excuse the performance by such Defaulting Lender or
      any other Lender of its duties and obligations hereunder, or to relieve or
      excuse the performance by Borrower of its duties and obligations hereunder
      to Agent or to the Lenders  other than such  Defaulting  Lender.  Any such
      failure  to fund by any  Defaulting  Lender  shall  constitute  a material
      breach by such  Defaulting  Lender  of this  Agreement  and shall  entitle
      Borrower at its option,  upon  written  notice to Agent,  to arrange for a
      substitute Lender to assume the Commitment of such Defaulting Lender, such
      substitute  Lender to be  acceptable  to  Agent.  In  connection  with the
      arrangement of such a substitute  Lender, the Defaulting Lender shall have
      no right to refuse to be  replaced  hereunder,  and agrees to execute  and
      deliver a completed  form of  Assignment  and  Acceptance  in favor of the
      substitute Lender (and agrees that it shall be deemed to have executed and
      delivered such document if it fails to do so) subject only to being repaid
      its  share  of  the  outstanding  Obligations  (other  than  Bank  Product
      Obligations, but including an assumption of its Pro Rata Share of the Risk
      Participation  Liability)  without  any  premium  or  penalty  of any kind
      whatsoever;  provided, however, that any such assumption of the Commitment
      of such  Defaulting  Lender shall not be deemed to  constitute a waiver of
      any of the Lender  Groups' or  Borrower's  rights or remedies  against any
      such  Defaulting  Lender  arising out of or in relation to such failure to
      fund.

                                      -36-
<PAGE>

      (d) Making of Swing Loans.

            (i) In the  event  Agent  shall  elect,  with the  consent  of Swing
      Lender,  as a Lender,  to have the terms of this Section 2.3(d) apply to a
      requested  Borrowing  as described  in Section  2.3(b),  Swing Lender as a
      Lender shall make such Advance or Capital  Expenditures Loan in the amount
      of such  Borrowing  (any such  Advance or Capital  Expenditures  Loan made
      solely by Swing Lender as a Lender  pursuant to this Section  2.3(d) being
      referred to as a "Swing Loan" and such  Advances and Capital  Expenditures
      Loans being  referred  to  collectively  as "Swing  Loans")  available  to
      Borrower  on  the  Funding  Date   applicable   thereto  by   transferring
      immediately  available funds to Borrower's  Designated Account. Each Swing
      Loan  shall be  deemed  to be an  Advance  or  Capital  Expenditures  Loan
      hereunder,  as  applicable,  and  shall be  subject  to all the  terms and
      conditions  applicable to other Advances or Capital Expenditures Loans, as
      applicable, except that no such Swing Loan shall be eligible to be a LIBOR
      Rate Loan and all  payments  on any Swing  Loan  shall be payable to Swing
      Lender as a Lender  solely for its own account (and for the account of the
      holder of any  participation  interest  with  respect to such Swing Loan).
      Subject to the provisions of Section 2.3(i), Agent shall not request Swing
      Lender as a Lender to make,  and Swing  Lender as a Lender shall not make,
      any Swing Loan if Agent has actual  knowledge  that (i) one or more of the
      applicable  conditions  precedent  set  forth  in  Section  3 will  not be
      satisfied  on the  requested  Funding  Date for the  applicable  Borrowing
      unless such  condition has been waived,  or (ii) the  requested  Borrowing
      would  exceed the  Availability  on such Funding  Date.  Swing Lender as a
      Lender shall not otherwise be required to determine whether the applicable
      conditions  precedent  set forth in Section 3 have been  satisfied  on the
      Funding Date applicable  thereto prior to making,  in its sole discretion,
      any Swing Loan.

            (ii)  The  Swing  Loans  shall  be  secured  by the  Agent's  Liens,
      constitute Obligations hereunder, and bear interest at the rate applicable
      from  time  to  time  to  Advances  or  Capital   Expenditures  Loans,  as
      applicable, that are Base Rate Loans.

      (e) Agent Advances.

            (i) Agent hereby is  authorized  by Borrower  and the Lenders,  from
      time to time in Agent's  sole  discretion,  (1) after the  occurrence  and
      during the continuance of a Default or an Event of Default,  or (2) at any
      time that any of the other  applicable  conditions  precedent set forth in
      Section 3 have not been satisfied,  to make Advances to Borrower on behalf
      of the Lenders that Agent, in its Permitted  Discretion deems necessary or
      desirable  (A) to  preserve  or protect  the  Collateral,  or any  portion
      thereof,  (B) to enhance the  likelihood  of repayment of the  Obligations
      (other than the Bank Product Obligations),  or (C) to pay any other amount
      chargeable to Borrower pursuant to the terms of this Agreement,  including
      Lender Group  Expenses  and the costs,  fees,  and

                                      -37-
<PAGE>

      expenses  described in Section 10 (any of the  Advances  described in this
      Section  2.3(e)  shall be  referred  to as "Agent  Advances").  Each Agent
      Advance  shall be deemed to be an Advance  hereunder,  except that no such
      Agent  Advance  shall be eligible to be a LIBOR Rate Loan and all payments
      thereon shall be payable to Agent solely for its own account.

            (ii) The Agent Advances shall be repayable on demand, secured by the
      Agent's  Liens  granted  to Agent  under  the Loan  Documents,  constitute
      Obligations hereunder,  and bear interest at the rate applicable from time
      to time to Advances that are Base Rate Loans.

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

            (i) Agent shall request settlement  ("Settlement")  with the Lenders
      on a weekly basis,  or on a more frequent basis if so determined by Agent,
      (1) on behalf of Swing  Lender,  with  respect to each  outstanding  Swing
      Loan,  (2) for itself,  with respect to each Agent  Advance,  and (3) with
      respect to Borrower's or its Subsidiaries'  Collections received by Agent,
      as to each by  notifying  the  Lenders by  telecopy,  telephone,  or other
      similar form of transmission,  of such requested Settlement, no later than
      2:00 p.m.  (California  time) on the Business Day immediately prior to the
      date of such requested  Settlement (the date of such requested  Settlement
      being the  "Settlement  Date").  Such  notice of a  Settlement  Date shall
      include a summary statement of the amount of outstanding Advances, Capital
      Expenditures  Loans,  Swing Loans, and Agent Advances for the period since
      the prior Settlement Date.  Subject to the terms and conditions  contained
      herein (including Section  2.3(c)(iii)):  (y) if a Lender's balance of the
      Advances and Capital  Expenditures  Loans (in each case,  including  Swing
      Loans and Agent  Advances)  exceeds  such  Lender's  Pro Rata Share of the
      Advances and Capital  Expenditures  Loans (in each case,  including  Swing
      Loans and Agent Advances) as of a Settlement Date, then Agent shall, by no
      later than 12:00 p.m.  (California time) on the Settlement Date,  transfer
      in  immediately  available  funds to a Deposit  Account of such Lender (as
      such Lender may  designate),  an amount such that each such Lender  shall,
      upon receipt of such amount,  have as of the Settlement Date, its Pro Rata
      Share of the  Advances  and  Capital  Expenditures  Loans  (in each  case,
      including Swing Loans and Agent  Advances),  and (z) if a Lender's balance
      of the Advances  (including  Swing Loans and Agent  Advances) is less than
      such  Lender's  Pro Rata Share

                                      -38-
<PAGE>

      of the Advances and Capital  Expenditures  Loans (in each case,  including
      Swing Loans and Agent Advances) as of a Settlement Date, such Lender shall
      no later than 12:00 p.m. (California time) on the Settlement Date transfer
      in immediately available funds to the Agent's Account, an amount such that
      each such  Lender  shall,  upon  transfer of such  amount,  have as of the
      Settlement   Date,  its  Pro  Rata  Share  of  the  Advances  and  Capital
      Expenditures  Loans  (in  each  case,  including  Swing  Loans  and  Agent
      Advances).  Such amounts  made  available to Agent under clause (z) of the
      immediately preceding sentence shall be applied against the amounts of the
      applicable Swing Loans or Agent Advances and, together with the portion of
      such Swing Loans or Agent  Advances  representing  Swing Lender's Pro Rata
      Share thereof, shall constitute Advances or Capital Expenditures Loans, as
      applicable,  of such Lenders.  If any such amount is not made available to
      Agent by any  Lender on the  Settlement  Date  applicable  thereto  to the
      extent  required by the terms  hereof,  Agent shall be entitled to recover
      for its  account  such amount on demand  from such  Lender  together  with
      interest thereon at the Defaulting Lender Rate.

            (ii) In  determining  whether a Lender's  balance  of the  Advances,
      Capital  Expenditures Loans, Swing Loans, and Agent Advances is less than,
      equal to, or greater than such  Lender's  Pro Rata Share of the  Advances,
      Capital  Expenditures  Loans,  Swing  Loans,  and Agent  Advances  as of a
      Settlement Date, Agent shall, as part of the relevant Settlement, apply to
      such  balance the portion of payments  actually  received in good funds by
      Agent with respect to  principal,  interest,  fees payable by Borrower and
      allocable to the Lenders  hereunder,  and proceeds of  Collateral.  To the
      extent  that  a  net  amount  is  owed  to  any  such  Lender  after  such
      application,  such net amount shall be distributed by Agent to that Lender
      as part of such next Settlement.

            (iii)  Between  Settlement  Dates,  Agent,  to the  extent  no Agent
      Advances or Swing Loans are outstanding,  may pay over to Swing Lender any
      payments  received  by Agent,  that in  accordance  with the terms of this
      Agreement  would be applied to the  reduction  of the  Advances or Capital
      Expenditures  Loans, as applicable,  for application to Swing Lender's Pro
      Rata Share of the Advances or Capital  Expenditures  Loans, as applicable.
      If, as of any Settlement Date, Collections of Borrower or its Subsidiaries
      received by Agent since the then  immediately  preceding  Settlement  Date
      have been  applied to Swing  Lender's  Pro Rata Share of the  Advances  or
      Capital  Expenditures  Loans other than to Swing Loans, as provided for in
      the previous sentence, Swing Lender shall pay to Agent for the accounts of
      the  Lenders,  and Agent  shall pay to the  Lenders,  to be applied to the
      outstanding Advances or Capital Expenditures Loans, as applicable, of such
      Lenders,  an amount  such that each  Lender  shall,  upon  receipt of such
      amount,  have,  as of such  Settlement  Date,  its Pro  Rata  Share of the
      Advances  and  Capital  Expenditures  Loans.  During  the  period  between
      Settlement  Dates,  Swing Lender with  respect to Swing Loans,  Agent with
      respect  to Agent  Advances,  and each  Lender  (subject  to the effect of
      letter  agreements  between Agent

                                      -39-
<PAGE>

      and   individual   Lenders)  with  respect  to  the  Advances  or  Capital
      Expenditures  Loans  other than Swing Loans and Agent  Advances,  shall be
      entitled to interest at the  applicable  rate or rates  payable under this
      Agreement on the daily amount of funds employed by Swing Lender, Agent, or
      the Lenders, as applicable.

      (g) Notation.  Agent shall record on its books the principal amount of the
Advances (or portion of the Capital  Expenditures Loans, as applicable) owing to
each Lender, including the Swing Loans owing to Swing Lender, and Agent Advances
owing to Agent, and the interests therein of each Lender,  from time to time and
such  records  shall,  absent  manifest  error,  conclusively  be presumed to be
correct and accurate. In addition,  each Lender is authorized,  at such Lender's
option,  to note the date and amount of each payment or  prepayment of principal
of such  Lender's  Advances  or  Capital  Expenditures  Loans in its  books  and
records, including computer records.

      (h) Lenders'  Failure to Perform.  All  Advances and Capital  Expenditures
Loans (in each case, other than Swing Loans and Agent Advances) shall be made by
the Lenders  contemporaneously  and in accordance with their Pro Rata Shares. It
is  understood  that (i) no Lender shall be  responsible  for any failure by any
other  Lender  to  perform  its  obligation  to  make  any  Advance  or  Capital
Expenditures  Loan (or  other  extension  of  credit)  hereunder,  nor shall any
Commitment of any Lender be increased or decreased as a result of any failure by
any other Lender to perform its  obligations  hereunder,  and (ii) no failure by
any Lender to perform its  obligations  hereunder  shall excuse any other Lender
from its obligations hereunder.

      (i)  Optional  Overadvances.  Any  contrary  provision  of this  Agreement
notwithstanding,  the  Lenders  hereby  authorize  Agent  or  Swing  Lender,  as
applicable, and Agent or Swing Lender, as applicable,  may, but is not obligated
to,  knowingly and  intentionally,  continue to make Advances  (including  Swing
Loans) to Borrower  notwithstanding  that an Overadvance exists or thereby would
be created, so long as (i) after giving effect to such Advances, the outstanding
Adjusted  Revolver  Usage  does  not  exceed  the  Borrowing  Base by more  than
$5,000,000,  (ii) after giving effect to such Advances, the outstanding Revolver
Usage  (except  for and  excluding  amounts  charged  to the  Loan  Account  for
interest,  fees, or Lender Group Expenses) does not exceed the Maximum  Revolver
Amount, and (iii) at the time of the making of any such Advance,  Agent does not
believe,  in good faith,  that the  Overadvance  created by such Advance will be
outstanding  for  more  than  90  days.  The  foregoing  provisions  are for the
exclusive benefit of Agent,  Swing Lender,  and the Lenders and are not intended
to benefit  Borrower in any way. The Advances  and Swing Loans,  as  applicable,
that are made pursuant to this Section 2.3(i) shall be subject to the same terms
and  conditions as any other Advance or Swing Loan, as  applicable,  except that
they  shall  not be  eligible  for the  LIBOR  Option  and the rate of  interest
applicable  thereto shall be the rate  applicable to Advances that are Base Rate
Loans under Section 2.6(c) hereof without regard to the presence or absence of a
Default or Event of Default.

                  (A) In the  event  Agent  obtains  actual  knowledge  that the
            Revolver  Usage  exceeds  the  amounts  permitted  by the  preceding

                                      -40-
<PAGE>

            paragraph,  regardless of the amount of, or reason for, such excess,
            Agent shall notify the Lenders as soon as practicable  (and prior to
            making any (or any additional) intentional  Overadvances (except for
            and  excluding  amounts  charged to the Loan  Account for  interest,
            fees, or Lender Group Expenses)  unless Agent  determines that prior
            notice  would  result  in  imminent  harm to the  Collateral  or its
            value), and the Lenders with Revolver  Commitments  thereupon shall,
            together with Agent,  jointly  determine  the terms of  arrangements
            that shall be implemented with Borrower intended to reduce, within a
            reasonable time, the outstanding principal amount of the Advances to
            Borrower to an amount permitted by the preceding  paragraph.  In the
            event Agent or any Lender  disagrees  over the terms of reduction or
            repayment  of any  Overadvance,  the terms of reduction or repayment
            thereof shall be implemented  according to the  determination of the
            Required Lenders.

                  (B) Each Lender with a Revolver  Commitment shall be obligated
            to settle with Agent as provided in Section 2.3(f) for the amount of
            such Lender's Pro Rata Share of any  unintentional  Overadvances  by
            Agent reported to such Lender, any intentional  Overadvances made as
            permitted under this Section 2.3(i), and any Overadvances  resulting
            from the charging to the Loan Account of interest,  fees,  or Lender
            Group Expenses.

    2.4      Payments.

      (a) Payments by Borrower.

            (i) Except as otherwise  expressly  provided herein, all payments by
      Borrower  shall be made to Agent's  Account  for the account of the Lender
      Group and shall be made in  immediately  available  funds,  no later  than
      11:00 a.m.  (California  time) on the date specified  herein.  Any payment
      received by Agent later than 11:00 a.m.  (California time) shall be deemed
      to have been  received on the  following  Business Day and any  applicable
      interest or fee shall  continue to accrue  until such  following  Business
      Day. If any payment by Borrower hereunder becomes due and payable on a day
      other than a  Business  Day,  except to the  extent the amount  thereof is
      charged to the Loan Account  pursuant to Section 2.10 on or as of such due
      date,  the  maturity  thereof  shall be  extended  to the next  succeeding
      Business Day and, with respect to payments of principal,  interest thereon
      shall be payable at the then applicable rate during such extension.

            (ii) Unless Agent receives notice from Borrower prior to the date on
      which any payment is due to the Lenders that  Borrower  will not make such
      payment in full as and when  required,  Agent may assume that Borrower has
      made  (or  will  make)  such  payment  in full to  Agent  on such  date in
      immediately  available funds and Agent may (but shall not be so required),

                                      -41-
<PAGE>

      in reliance  upon such  assumption,  distribute to each Lender on such due
      date an amount  equal to the amount  then due such  Lender.  If and to the
      extent  Borrower  does not make such  payment in full to Agent on the date
      when due, each Lender severally shall repay to Agent on demand such amount
      distributed  to  such  Lender,  together  with  interest  thereon  at  the
      Defaulting  Lender  Rate  for  each day  from  the  date  such  amount  is
      distributed to such Lender until the date repaid.

      (b) Apportionment and Application of Payments.

            (i) Except as otherwise  provided with respect to Defaulting Lenders
      and except as otherwise  provided in the Loan Documents  (including letter
      agreements between Agent and individual Lenders),  aggregate principal and
      interest   payments  shall  be  apportioned   ratably  among  the  Lenders
      (according to the unpaid  principal  balance of the  Obligations  to which
      such  payments  relate  held by each  Lender)  and  payments  of fees  and
      expenses  (other  than  fees or  expenses  that are for  Agent's  separate
      account,  after giving effect to any letter  agreements  between Agent and
      individual  Lenders) shall be apportioned ratably among the Lenders having
      a Pro Rata  Share  of the  type of  Commitment  or  Obligation  to which a
      particular  fee relates.  All payments  shall be remitted to Agent and all
      such payments,  and all proceeds of Collateral received by Agent, shall be
      applied as follows:

                  (A) first,  to pay any Lender Group Expenses then due to Agent
            under the Loan Documents, until paid in full,

                  (B) second,  to pay any Lender Group  Expenses then due to the
            Lenders under the Loan Documents,  on a ratable basis, until paid in
            full,

                  (C) third, to pay any fees then due to Agent (for its separate
            account,  after giving effect to any letter agreements between Agent
            and individual Lenders) under the Loan Documents until paid in full,

                  (D)  fourth,  to pay any  fees  then  due to any or all of the
            Lenders (after giving effect to any letter agreements  between Agent
            and  individual  Lenders)  under  the Loan  Documents,  on a ratable
            basis, until paid in full,

                  (E)  fifth,  to pay  interest  due  in  respect  of all  Agent
            Advances until paid in full,

                  (F)  sixth,  ratably  to pay  interest  due in  respect of the
            Advances  (other  than Agent  Advances),  the Swing  Loans,  and the
            Capital Expenditures Loans until paid in full,

                                      -42-
<PAGE>

                  (G) seventh,  to pay the principal of all Agent Advances until
            paid in full,

                  (H) eighth, to pay the principal of all Swing Loans until paid
            in full,

                  (I) ninth,  so long as no Event of Default has occurred and is
            continuing,  and at Agent's  election  (which  election Agent agrees
            will not be made if an Overadvance would be created thereby), to pay
            amounts  then  due and  owing by  Borrower  or its  Subsidiaries  in
            respect of Bank Products until paid in full,

                  (J) tenth,  so long as no Event of Default has occurred and is
            continuing, ratably to pay the principal of all Advances and Capital
            Expenditure Loans until paid in full,

                  (K)  eleventh,  if an Event of  Default  has  occurred  and is
            continuing, ratably (i) to ratably pay the principal of all Advances
            and Capital  Expenditure Loans until paid in full, (ii) to Agent, to
            be held by Agent,  for the  ratable  benefit of  Issuing  Lender and
            those Lenders having a Revolver Commitment, as cash collateral in an
            amount up to 105% of the then  extant  Letter of Credit  Usage until
            paid in full,  and  (iii) to  Agent,  to be held by  Agent,  for the
            benefit of the Bank  Product  Providers,  as cash  collateral  in an
            amount up to the  amount  of the Bank  Product  Reserve  established
            prior to the occurrence of, and not in contemplation of, the subject
            Event of Default until Borrower's and its Subsidiaries'  obligations
            in respect of the then extant Bank  Products  have been paid in full
            or the cash collateral amount has been exhausted,

                  (L)  twelfth,  if an  Event of  Default  has  occurred  and is
            continuing, to pay any other Obligations (including the provision of
            amounts to Agent,  to be held by Agent,  for the benefit of the Bank
            Product Providers,  as cash collateral in an amount up to the amount
            determined  by  Agent  in its  Permitted  Discretion  as the  amount
            necessary to secure Borrower's and its Subsidiaries'  obligations in
            respect of the then extant Bank Products), and

                  (M)  thirteenth,  to Borrower  (to be wired to the  Designated
            Account) or such other Person entitled thereto under applicable law.

            (ii) Agent promptly shall distribute to each Lender, pursuant to the
      applicable wire  instructions  received from each Lender in writing,  such
      funds as it may be entitled to receive,  subject to a Settlement  delay as
      provided in Section 2.3(f).

            (iii) In each instance,  so long as no Event of Default has occurred
      and is continuing, this Section 2.4(b) shall not be deemed to apply to any

                                      -43-
<PAGE>

      payment  by  Borrower  specified  by  Borrower  to be for the  payment  of
      specific  Obligations  then due and  payable  (or  prepayable)  under  any
      provision of this Agreement.

            (iv) For purposes of the foregoing,  "paid in full" means payment of
      all amounts owing under the Loan Documents according to the terms thereof,
      including  loan fees,  service  fees,  professional  fees,  interest  (and
      specifically  including  interest  accrued after the  commencement  of any
      Insolvency  Proceeding),  default  interest,  interest  on  interest,  and
      expense reimbursements, whether or not any of the foregoing would be or is
      allowed or disallowed in whole or in part in any Insolvency Proceeding.

            (v)  In  the  event  of  a  direct  conflict  between  the  priority
      provisions of this Section 2.4 and other provisions contained in any other
      Loan  Document,  it is the  intention  of the  parties  hereto  that  such
      priority   provisions  in  such  documents  shall  be  read  together  and
      construed,  to the fullest  extent  possible,  to be in concert  with each
      other. In the event of any actual,  irreconcilable conflict that cannot be
      resolved as aforesaid,  the terms and provisions of this Section 2.4 shall
      control and govern.

    2.5  Overadvances.  If,  at any  time  or for  any  reason,  the  amount  of
Obligations (other than Bank Product Obligations) owed by Borrower to the Lender
Group  pursuant  to Section  2.1,  Section 2.2 or Section  2.12 is greater  than
either the Dollar or percentage  limitations  set forth in Section 2.1,  Section
2.2 or Section 2.12,  as applicable  (an  "Overadvance"),  Borrower  immediately
shall pay to Agent,  in cash,  the amount of such excess,  which amount shall be
used by Agent to reduce the  Obligations  in accordance  with the priorities set
forth in Section  2.4(b).  In  addition,  Borrower  hereby  promises  to pay the
Obligations  (including  principal,  interest,  fees,  costs,  and  expenses) in
Dollars in full as and when due and  payable  under the terms of this  Agreement
and the other Loan Documents.

    2.6  Interest  Rates  and  Letter  of  Credit  Fee:  Rates,   Payments,  and
Calculations.

      (a)  Interest  Rates.   Except  as  provided  in  clause  (c)  below,  all
Obligations  (except for undrawn  Letters of Credit and except for Bank  Product
Obligations)  that have been charged to the Loan  Account  pursuant to the terms
hereof shall bear  interest on the Daily  Balance  thereof as follows (i) if the
relevant Obligation is a LIBOR Rate Loan, at a per annum rate equal to the LIBOR
Rate plus the LIBOR Rate Margin,  and (ii) otherwise,  at a per annum rate equal
to the Base Rate plus the Base Rate Margin.

      (b)  Letter of Credit  Fees.  Borrower  shall pay Agent  (for the  ratable
benefit of the  Lenders),  Letter of Credit fees (in  addition  to the  charges,
commissions,  fees, and costs set forth in Section  2.12(e)) (i) with respect to
standby  Underlying  Letters of Credit,  which  shall  accrue at a rate equal to
1.50%  per  annum  times the Daily  Balance  of the  undrawn  amount of all such
outstanding  Letters of Credit, and (ii) with respect to documentary  Underlying
Letters of Credit,  which shall  accrue at a rate equal to 0.80% per

                                      -44-
<PAGE>

      annum  times  the  Daily  Balance  of  the  undrawn  amount  of  all  such
      outstanding documentary Letters of Credit.

      (c) Default Rate.  Upon (x) the occurrence and during the  continuation of
an Event of Default (and at the election of Agent or the Required Lenders),  (y)
Agent having given Borrower  written notice of such Event of Default  (provided,
that no such  notice is  required if the Event of Default is an Event of Default
under  Section 8.4 or 8.5 hereof),  and (z) Borrower  having failed to cure such
Event of Default  within 15 days after  delivery  of such notice (no such period
being applicable in the case of an Event of Default under Section 8.4 or 8.5),

            (i) all Obligations (except for undrawn Letters of Credit and except
      for Bank Product  Obligations)  that have been charged to the Loan Account
      pursuant to the terms  hereof  shall bear  interest  on the Daily  Balance
      thereof  at a per annum rate equal to 2  percentage  points  above the per
      annum rate otherwise applicable hereunder, and

            (ii) the Letter of Credit fee  provided for above shall be increased
      to 2  percentage  points  above the per annum  rate  otherwise  applicable
      hereunder.

      (d)  Payment.  Except as  provided  to the  contrary  in Section  2.13(a),
interest,  Letter of Credit fees, and all other fees payable  hereunder shall be
due and  payable,  in  arrears,  on the first day of each month at any time that
Obligations or Commitments are outstanding.  Borrower hereby  authorizes  Agent,
from time to time without prior notice to Borrower,  to charge such interest and
fees,  all  Lender  Group  Expenses  (as  and  when   incurred),   the  charges,
commissions,  fees,  and costs  provided  for in  Section  2.12(e)  (as and when
accrued or  incurred),  the fees and costs  provided for in Section 2.11 (as and
when accrued or  incurred),  and all other  payments as and when due and payable
under any Loan  Document  (including  any  amounts  due and  payable to the Bank
Product  Providers  in  respect  of Bank  Products  up to the amount of the then
extant  Bank  Product  Reserve)  to  Borrower's  Loan  Account,   which  amounts
thereafter shall constitute  Advances hereunder and shall accrue interest at the
rate then applicable to Advances hereunder. Any interest not paid when due shall
be compounded by being charged to Borrower's  Loan Account and shall  thereafter
constitute  Advances  hereunder  and  shall  accrue  interest  at the rate  then
applicable to Advances that are Base Rate Loans hereunder.

      (e) Computation. All interest and fees chargeable under the Loan Documents
shall be computed  on the basis of a 360 day year for the actual  number of days
elapsed. In the event the Base Rate is changed from time to time hereafter,  the
rates  of  interest  hereunder  based  upon  the  Base  Rate  automatically  and
immediately shall be increased or decreased by an amount equal to such change in
the Base Rate.

      (f) Intent to Limit Charges to Maximum  Lawful Rate. In no event shall the
interest rate or rates payable under this Agreement, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under any law that a
court  of  competent   jurisdiction  shall,  in  a  final  determination,   deem
applicable.  Borrower and the

                                      -45-
<PAGE>

Lender Group,  in executing and  delivering  this  Agreement,  intend legally to
agree upon the rate or rates of interest and manner of payment stated within it;
provided,   however,   that,   anything   contained   herein  to  the   contrary
notwithstanding,  if said rate or rates of interest or manner of payment exceeds
the maximum  allowable under applicable law, then, ipso facto, as of the date of
this  Agreement,  Borrower  is and shall be liable  only for the payment of such
maximum as allowed by law, and payment  received from Borrower in excess of such
legal  maximum,  whenever  received,  shall be applied  to reduce the  principal
balance of the Obligations to the extent of such excess.

    2.7 Cash  Management.  In each case  subject to the timing  contemplated  in
Sections 3.1 and 3.2 with respect to the Cash Management  Agreements  referenced
in such Sections:

      (a) Borrower shall and shall cause each of its  Subsidiaries  to establish
and maintain cash  management  services of a type and on terms  satisfactory  to
Agent at one or more of the banks set forth on Schedule  2.7(a)  (each,  a "Cash
Management Bank"), and, in connection therewith,  establish and maintain at such
Cash  Management  Banks  pursuant to the terms  hereof (i) one or more  accounts
designated  (either  in  Schedule  2.7(a) or  pursuant  to  Section  2.7(e))  as
concentration  accounts  (the  "Concentration  Accounts")  and  (ii)  additional
accounts designated (either in Schedule 2.7(a) or pursuant to Section 2.7(e)) as
collection   accounts  (the  "Collection   Accounts",   and  together  with  the
Concentration Accounts, the "Cash Management Accounts").

      (b)  Borrower  shall,  and shall  cause each of its  Subsidiaries  to, (1)
request in writing and otherwise take such  reasonable  steps to ensure that all
of its and its Subsidiaries' Account Debtors forward payment of the amounts owed
by them  directly to a Cash  Management  Bank for deposit  into a  Concentration
Account,  (2)  deposit or cause to be  deposited  promptly,  and in any event no
later than the first Business Day after the date of receipt thereof (and subject
to Section  2.7(d) with respect to payments  from Credit Card  Processors),  all
such Collections  from Account Debtors  (including those sent directly to a Cash
Management Bank) into a Concentration  Account, or, with respect to checks, into
the Collection  Account  designated  (in Schedule  2.7(a) or pursuant to Section
2.7(e))  as  the  Check  Clearance  Collection  Account  (the  "Check  Clearance
Collection Account"),  or, with respect to receivables  denominated in a foreign
currency,  into the Collection  Account designated (either in Schedule 2.7(a) or
pursuant  to  Section  2.7(e))  as the  Multicurrency  Collection  Account  (the
"Multicurrency  Collection  Account"),  and (3) deposit or cause to be deposited
promptly,  and in any event no later than the first  Business Day after the date
of receipt thereof,  all other Collections  (including cash, checks,  drafts and
all other  forms of daily  store  receipts  or other  similar  items of payment)
received by or  otherwise  under its  control  into a Cash  Management  Account.
Borrower further agrees that with respect to each Collection  Account, it shall,
and  shall  cause  each  of its  Subsidiaries  to,  at all  times  require  each
applicable Cash Management Bank to forward,  by automatic periodic transfers not
less  frequently than once in any period of three (3) Business Days, all amounts
in each such Collection Account into a Concentration Account; provided, however,
that (w) with respect to the Check Clearance  Collection Account, so long as all
funds in such Check Clearance  Collection  Account  represent checks received by
Borrower or its Subsidiaries, such

                                      -46-
<PAGE>

automatic  transfers  of funds  therein  shall be required  only at any time the
balance  thereof should exceed  $400,000,  but in no event less  frequently than
once in any ten (10) day period,  (x)  immediately  after giving  effect to each
such transfer from such Check Clearance  Collection Account into a Concentration
Account,  Borrower may  maintain an amount not to exceed  $200,000 in such Check
Clearance  Collection Account,  (y) immediately after giving effect to each such
transfer from any Collection Account (other than the Check Clearance  Collection
Account) into a  Concentration  Account,  Borrower may maintain an amount not to
exceed $1,000 in any such Collection  Account,  and (z) so long as no Triggering
Event shall have occurred and be continuing, Agent shall permit all funds in any
Concentration  Account  to be  forwarded,  by daily  sweeps,  to the  Designated
Account.

      (c) With respect to each Cash  Management  Account,  each Cash  Management
Bank shall  establish and maintain  Cash  Management  Agreements  with Agent and
Borrower, in form and substance acceptable to Agent in its Permitted Discretion;
provided;  however,  that,  with  respect  to Store  Accounts  only,  Borrower's
obligations  hereunder  with respect to  establishing  any such Cash  Management
Agreement shall be limited to use of reasonable best efforts to deliver the form
of Cash  Management  Agreement  to each such  Cash  Management  Bank.  Each Cash
Management  Agreement shall provide,  among other things,  that (i) all items of
payment  deposited  in such Cash  Management  Account and  proceeds  thereof are
subject to the control of Agent,  (ii) the Cash Management Bank has no rights of
setoff or recoupment or any other claim against the applicable  Cash  Management
Account  other than for payment of its service fees and other  charges  directly
related to the  administration of such Cash Management  Account and for returned
checks or other  items of  payment,  and  (iii)  from and after the date that it
receives  written  notification  from Agent (a "Control  Exercise  Notice"),  it
immediately  will  forward by daily  sweep all  amounts in the  applicable  Cash
Management  Account to the Agent's  Account or as  otherwise  directed by Agent.
Anything contained herein into the contrary  notwithstanding,  Agent agrees that
it shall not  provide a Control  Exercise  Notice to the Cash  Management  Banks
except during a Triggering Period. At any time during a Triggering Period, Agent
shall be free to exercise its right to issue a Control  Exercise  Notice.  Agent
shall deliver to Borrower a copy of any such Control  Exercise  Notice  promptly
after delivery thereof to the applicable Cash Management Bank; provided, however
that a  non-willful  failure to so do shall not affect the  validity of any such
Control  Exercise  Notice or  otherwise  limit  Agent's  right to send any other
Control  Exercise  Notice.  Upon the subsequent  termination of such  Triggering
Period, Agent shall withdraw such Control Exercise Notice and permit funds to be
transferred  as set forth in Section  2.7(b)  above,  including  as to  Borrower
access to funds in any Concentration  Account (and daily sweeps thereof into the
Designated Account),  but subject in all events to the right of Agent to deliver
a Control Exercise Notice during any subsequent Triggering Period.

      (d) Borrower  shall  establish and maintain  Credit Card  Agreements  with
Agent and each Credit Card  Processor.  Each such  Credit Card  Agreement  shall
provide, among other things, that each such Credit Card Processor shall transfer
all  proceeds  of credit card  charges for sales by Borrower  received by it (or
other  amounts  payable  by  such  Credit  Card  Processor)  into  a  designated
Concentration Account on a daily basis or such other periodic basis as Agent may
otherwise  direct.  Borrower shall not change any direction or

                                      -47-
<PAGE>

designation set forth in the Credit Card Agreements regarding payment of charges
without the prior written consent of Agent.

      (e) So long  as no  Event  of  Default  has  occurred  and is  continuing,
Borrower may amend Schedule  2.7(a) to add or replace a Cash  Management Bank or
Cash Management  Account;  provided,  however,  that (i) such  prospective  Cash
Management  Bank shall be reasonably  satisfactory to Agent and Agent shall have
consented in writing in advance to the opening of such Cash  Management  Account
with the  prospective  Cash Management Bank (which consent shall not be required
with  respect to any  additional  Cash  Management  Account at an existing  Cash
Management  Bank and otherwise  shall not be  unreasonably  withheld),  and (ii)
subject  to  Section  2.7(c),  prior  to the  time of the  opening  of any  Cash
Management  Account,  Borrower  (or its  Subsidiary,  as  applicable)  and  such
prospective  Cash  Management  Bank shall have executed and delivered to Agent a
Cash Management Agreement.  Borrower (or its Subsidiaries,  as applicable) shall
close  any of its Cash  Management  Accounts  (and  establish  replacement  cash
management  accounts in accordance with the foregoing  sentence) promptly and in
any event within 45 days of notice from Agent (or such longer period as Borrower
and Agent may agree) that the creditworthiness of any Cash Management Bank is no
longer acceptable in Agent's reasonable judgment,  or as promptly as practicable
and in any event  within 60 days of notice from Agent (or such longer  period as
Borrower and Agent may agree) that the operating performance, funds transfer, or
availability  procedures or performance of the Cash Management Bank with respect
to Cash  Management  Accounts  or Agent's  liability  under any Cash  Management
Agreement  with such Cash  Management  Bank is no longer  acceptable  in Agent's
reasonable judgment.

      (f) The Cash Management Accounts shall be cash collateral  accounts,  with
all cash,  checks and similar items of payment in such accounts securing payment
of the Obligations, and in which Borrower hereby grants a Lien to Agent.

    2.8 Crediting  Payments.  The receipt of any payment item by Agent  (whether
from  transfers  to Agent  by the Cash  Management  Banks  pursuant  to the Cash
Management Agreements or otherwise) shall not be considered a payment on account
unless such payment item is a wire  transfer of  immediately  available  federal
funds made to the  Agent's  Account or unless  and until  such  payment  item is
honored when presented for payment.  Should any payment item not be honored when
presented  for  payment,  then  Borrower  shall be deemed  not to have made such
payment and interest shall be calculated  accordingly.  Anything to the contrary
contained herein  notwithstanding,  any payment item shall be deemed received by
Agent only if it is received  into the Agent's  Account on a Business  Day on or
before 11:00 a.m.  (California  time).  If any payment item is received into the
Agent's Account on a non-Business Day or after 11:00 a.m. (California time) on a
Business  Day,  it shall be  deemed  to have  been  received  by Agent as of the
opening of business on the immediately following Business Day.

    2.9  Designated  Account.  Agent is  authorized to make the Advances and the
Capital  Expenditures  Loans,  and  Issuing  Lender is  authorized  to issue the
Letters  of  Credit,  under  this  Agreement  based  upon  telephonic  or  other
instructions  received from anyone

                                      -48-
<PAGE>

purporting to be an Authorized Person or, without  instructions,  if pursuant to
Section 2.6(d). Borrower agrees to establish and maintain the Designated Account
with the  Designated  Account Bank for the purpose of receiving  the proceeds of
the Advances  requested by Borrower and made by Agent or the Lenders  hereunder.
Unless otherwise agreed by Agent and Borrower,  any Advance,  Agent Advance,  or
Swing Loan  requested  by Borrower  and made by Agent or the  Lenders  hereunder
shall be made to the Designated Account.

    2.10  Maintenance of Loan Account;  Statements of  Obligations.  Agent shall
maintain an account on its books in the name of Borrower (the "Loan Account") on
which Borrower will be charged with all Capital  Expenditures Loans and Advances
(including Agent Advances and Swing Loans) made by Agent,  Swing Lender,  or the
Lenders to Borrower or for Borrower's  account,  the Letters of Credit issued by
Issuing Lender for Borrower's  account,  and with all other payment  Obligations
hereunder  or  under  the  other  Loan   Documents   (except  for  Bank  Product
Obligations),  including,  accrued interest, fees and expenses, and Lender Group
Expenses. In accordance with Section 2.8, the Loan Account will be credited with
all  payments  received  by  Agent  from  Borrower  or for  Borrower's  account,
including all amounts  received in the Agent's  Account from any Cash Management
Bank.  Agent shall  render  statements  regarding  the Loan Account to Borrower,
including principal, interest, fees, and including an itemization of all charges
and expenses  constituting  Lender Group Expenses  owing,  and such  statements,
absent manifest error, shall be conclusively presumed to be correct and accurate
and constitute an account  stated between  Borrower and the Lender Group unless,
within 30 days after  receipt  thereof by Borrower,  Borrower  shall  deliver to
Agent written objection thereto  describing the error or errors contained in any
such statements.

    2.11 Fees. Borrower shall pay to Agent the following fees and charges, which
fees and charges shall be non-refundable when paid (irrespective of whether this
Agreement is terminated  thereafter) and shall be apportioned  among the Lenders
in accordance with the terms of letter  agreements  between Agent and individual
Lenders:

      (a) Unused  Line Fee.  On the first day of each  month  during the term of
this  Agreement,  an unused line fee in an amount equal to 0.25% per annum times
the  result of (i) the  Maximum  Revolver  Amount,  less (ii) the sum of (A) the
average Daily Balance of Advances that were  outstanding  during the immediately
preceding  month,  plus (B) the average  Daily  Balance of Capital  Expenditures
Loans that were outstanding during the immediately preceding month, plus (C) the
average  Daily  Balance of the  Letter of Credit  Usage  during the  immediately
preceding month,

      (b) Fee Letter  Fees.  As and when due and payable  under the terms of the
Fee Letter, the fees set forth in the Fee Letter, and

      (c)  Audit,  Appraisal,  and  Valuation  Charges.  Audit,  appraisal,  and
valuation  fees and charges as follows (i) a fee of $950 per day,  per  auditor,
plus out-of-pocket  transportation and lodging expenses for each financial audit
of Borrower performed by personnel employed by Agent, (ii) if implemented, a fee
of $950 per day, per applicable individual,  plus out-of-pocket expenses for the
one-time  establishment of electronic

                                      -49-
<PAGE>

collateral reporting systems, (iii) a fee of $1,500 per day per appraiser,  plus
out-of-pocket  expenses,  for each appraisal of the  Collateral,  or any portion
thereof,  performed by personnel employed by Agent, and (iv) a fee of $1,500 per
day  per  appraiser,  or $950  per  day per  auditor  or  other  individual,  as
applicable,  plus additional out-of-pocket  transportation and lodging expenses,
and such additional out-of-pocket non-personnel related expenses, as applicable,
if Agent elects to employ the  services of one or more third  Persons to perform
financial audits of Borrower or its Subsidiaries, to appraise the Collateral, or
any portion  thereof,  or to assess  Borrower's  or its  Subsidiaries'  business
valuation.  The  foregoing  notwithstanding,  from and after the  Closing  Date,
Borrower  shall not be required  to pay for more than 2  financial  audits and 1
inventory  appraisal during any 12 consecutive  month period so long as no Event
of Default has occurred and is  continuing,  it being  understood  that, for any
audit or appraisal  conducted (or  commenced) at a time when an Event of Default
shall have occurred and be continuing,  Borrower shall pay all fees as specified
above for  Agent's  employees  and all  expenses  and costs paid or  incurred by
Agent.

    2.12  Letters of Credit.

      (a) Subject to the terms and  conditions  of this  Agreement,  the Issuing
Lender agrees to issue letters of credit for the account of Borrower  (each,  an
"L/C") or to purchase  participations  or execute  indemnities or  reimbursement
obligations  (each  such  undertaking,  an "L/C  Undertaking")  with  respect to
letters of credit  issued by an Underlying  Issuer (as of the Closing Date,  the
prospective Underlying Issuer is to be Wells Fargo) for the account of Borrower.
To request  the  issuance  of an L/C or an L/C  Undertaking  (or the  amendment,
renewal, or extension of an outstanding L/C or L/C Undertaking),  Borrower shall
hand  deliver  or  telecopy  (or  transmit  by  electronic   communication,   if
arrangements  for doing so have been  approved  by the  Issuing  Lender)  to the
Issuing  Lender  and Agent  (reasonably  in  advance  of the  requested  date of
issuance,  amendment, renewal, or extension) a notice requesting the issuance of
an L/C or L/C  Undertaking,  or  identifying  the L/C or L/C  Undertaking  to be
amended,  renewed,  or extended,  specifying  the date of  issuance,  amendment,
renewal,  or extension  (which shall be a Business  Day), the date on which such
L/C or L/C Undertaking is to expire,  the amount of such L/C or L/C Undertaking,
the name and  address of the  beneficiary  thereof  (or the  beneficiary  of the
Underlying Letter of Credit, as applicable), and such other information as shall
be necessary to prepare, amend, renew, or extend such L/C or L/C Undertaking. If
requested by the Issuing  Lender,  Borrower also shall be an applicant under the
application  with respect to any  Underlying  Letter of Credit that is to be the
subject of an L/C  Undertaking.  The Issuing  Lender shall have no obligation to
issue a Letter of Credit  if any of the  following  would  result  after  giving
effect to the issuance of such requested Letter of Credit:

            (i) the Adjusted  Letter of Credit Usage would exceed the  Borrowing
      Base less the then  extant  amount of  outstanding  Advances  and  Capital
      Expenditures Loans, or

            (ii) the Letter of Credit Usage would exceed $35,000,000, or

                                      -50-
<PAGE>

            (iii) the Letter of Credit Usage would  exceed the Maximum  Revolver
      Amount less the then extant  amount of  outstanding  Advances  and Capital
      Expenditures Loans.

                  Borrower  and the  Lender  Group  acknowledge  and agree  that
certain  Underlying Letters of Credit may be issued to support letters of credit
that already are  outstanding as of the Closing Date. Each Letter of Credit (and
corresponding  Underlying  Letter  of  Credit)  shall be in form  and  substance
acceptable to the Issuing Lender (in the exercise of its Permitted  Discretion),
including the requirement that the amounts payable thereunder must be payable in
Dollars.  If Issuing  Lender is  obligated  to advance  funds  under a Letter of
Credit,  Borrower  immediately  shall reimburse such L/C Disbursement to Issuing
Lender by paying to Agent an  amount  equal to such L/C  Disbursement  not later
than 11:00 a.m., California time, on the date that such L/C Disbursement is made
or such other date as written or telephonic  notice thereof is first received by
Borrower,  if Borrower shall have received such written or telephonic  notice of
such L/C Disbursement prior to 9:00 a.m.,  California time, on such date, or, if
such notice has not been  received by Borrower  prior to such time on such date,
then not later than 11:00 a.m.,  California time, on the immediately  succeeding
Business Day, and, in the absence of such  reimbursement,  the L/C  Disbursement
immediately and  automatically  shall be deemed to be an Advance  hereunder and,
thereafter, shall bear interest at the rate then applicable to Advances that are
Base Rate Loans under Section 2.6. To the extent an L/C  Disbursement  is deemed
to  be an  Advance  hereunder,  Borrower's  obligation  to  reimburse  such  L/C
Disbursement shall be discharged and replaced by the resulting Advance. Promptly
following  receipt  by Agent  of any  payment  from  Borrower  pursuant  to this
paragraph,  Agent shall distribute such payment to the Issuing Lender or, to the
extent that Lenders have made payments  pursuant to Section 2.12(c) to reimburse
the  Issuing  Lender,  then to such  Lenders  and the  Issuing  Lender  as their
interests may appear.

      (b) Promptly following receipt of a notice of L/C Disbursement pursuant to
Section 2.12(a),  each Lender with a Revolver  Commitment agrees to fund its Pro
Rata Share of any Advance  deemed made pursuant to the  foregoing  subsection on
the same terms and  conditions  as if Borrower  had  requested  such Advance and
Agent shall  promptly  pay to Issuing  Lender the amounts so received by it from
the Lenders.  By the issuance of a Letter of Credit (or an amendment to a Letter
of Credit  increasing the amount  thereof) and without any further action on the
part of the Issuing Lender or the Lenders with Revolver Commitments, the Issuing
Lender  shall  be  deemed  to  have  granted  to  each  Lender  with a  Revolver
Commitment,  and each Lender with a Revolver  Commitment shall be deemed to have
purchased,  a participation in each Letter of Credit,  in an amount equal to its
Pro Rata Share of the Risk Participation Liability of such Letter of Credit, and
each such Lender agrees to pay to Agent,  for the account of the Issuing Lender,
such  Lender's Pro Rata Share of any payments  made by the Issuing  Lender under
such Letter of Credit.  In  consideration  and in  furtherance of the foregoing,
each Lender with a Revolver  Commitment  hereby  absolutely and  unconditionally
agrees to pay to Agent, for the account of the Issuing Lender, such Lender's Pro
Rata  Share  of  each  L/C  Disbursement  made  by the  Issuing  Lender  and not
reimbursed  by  Borrower  on the  date due as  provided  in  clause  (a) of this
Section, or of any reimbursement payment required to be refunded to Borrower for
any reason.

                                      -51-
<PAGE>

Each  Lender  with a  Revolver  Commitment  acknowledges  and  agrees  that  its
obligation to deliver to Agent, for the account of the Issuing Lender, an amount
equal to its  respective  Pro Rata  Share of each L/C  Disbursement  made by the
Issuing  Lender   pursuant  to  this  Section  2.12(b)  shall  be  absolute  and
unconditional and such remittance shall be made  notwithstanding  the occurrence
or  continuation of an Event of Default or Default or the failure to satisfy any
condition  set  forth in  Section  3 hereof.  If any such  Lender  fails to make
available  to Agent  the  amount  of such  Lender's  Pro Rata  Share of each L/C
Disbursement  made by the Issuing  Lender in respect of such Letter of Credit as
provided in this Section,  such Lender shall be deemed to be a Defaulting Lender
and Agent (for the account of the Issuing  Lender)  shall be entitled to recover
such amount on demand from such Lender  together  with  interest  thereon at the
Defaulting Lender Rate until paid in full.

      (c) Borrower hereby agrees to indemnify, save, defend, and hold the Lender
Group  harmless  from any loss,  cost,  expense,  or liability,  and  reasonable
attorneys fees incurred by the Lender Group arising out of or in connection with
any Letter of Credit;  provided,  however,  that Borrower shall not be obligated
hereunder to indemnify for any loss, cost,  expense,  or liability to the extent
that it is caused by the gross  negligence or willful  misconduct of the Issuing
Lender or any other member of the Lender Group.  Borrower  agrees to be bound by
the Underlying Issuer's regulations and interpretations of any Underlying Letter
of Credit or by Issuing  Lender's  interpretations  of any L/C issued by Issuing
Lender to or for  Borrower's  account,  even though this  interpretation  may be
different  from  Borrower's  own, and Borrower  understands  and agrees that the
Lender Group shall not be liable for any error, negligence,  or mistake, whether
of  omission  or  commission,  in  following  Borrower's  instructions  or those
contained  in  the  Letter  of  Credit  or  any  modifications,  amendments,  or
supplements thereto.  Borrower understands that the L/C Undertakings may require
Issuing  Lender  to  indemnify  the  Underlying  Issuer  for  certain  costs  or
liabilities  arising out of claims by Borrower  against such Underlying  Issuer.
Borrower  hereby agrees to indemnify,  save,  defend,  and hold the Lender Group
harmless with respect to any loss, cost, expense (including reasonable attorneys
fees), or liability  incurred by the Lender Group under any L/C Undertaking as a
result of the Lender Group's indemnification of any Underlying Issuer; provided,
however,  that  Borrower  shall not be obligated  hereunder to indemnify for any
loss, cost,  expense,  or liability to the extent that it is caused by the gross
negligence or willful  misconduct  of the Issuing  Lender or any other member of
the Lender Group.

      (d)  Borrower  hereby  authorizes  and  directs any  Underlying  Issuer to
deliver to the Issuing Lender all instruments, documents, and other writings and
property  received by such Underlying  Issuer pursuant to such Underlying Letter
of Credit and to accept and rely upon the  Issuing  Lender's  instructions  with
respect to all matters  arising in  connection  with such  Underlying  Letter of
Credit and the related application.

      (e) Any and all  charges,  commissions,  fees,  and costs  incurred by the
Issuing  Lender  relating to Underlying  Letters of Credit shall be Lender Group
Expenses for purposes of this Agreement and immediately shall be reimbursable by
Borrower to Agent for the account of the Issuing Lender.

                                      -52-
<PAGE>

      (f) If by  reason  of  (i)  any  change  after  the  Closing  Date  in any
applicable law, treaty,  rule, or regulation or any change in the interpretation
or application thereof by any Governmental  Authority, or (ii) compliance by the
Underlying  Issuer  or  the  Lender  Group  with  any  direction,   request,  or
requirement   (irrespective   of  whether  having  the  force  of  law)  of  any
Governmental  Authority  or monetary  authority  including,  Regulation D of the
Federal  Reserve  Board  as  from  time to time in  effect  (and  any  successor
thereto):

            (i) any  reserve,  deposit,  or similar  requirement  is or shall be
      imposed or modified in respect of any Letter of Credit  issued  hereunder,
      or

            (ii) there shall be imposed on the  Underlying  Issuer or the Lender
      Group any other condition regarding any Underlying Letter of Credit or any
      Letter of Credit issued pursuant hereto,

and the result of the foregoing is to increase, directly or indirectly, the cost
to the Lender Group of issuing, making, guaranteeing,  or maintaining any Letter
of Credit or to reduce the amount  receivable  in respect  thereof by the Lender
Group  (and,  as to any  Lender,  except (x) any costs  relating  to payments on
account of Taxes and  additional  amounts  required to be paid  pursuant  to, or
explicitly excluded from payment under,  Section 16.11, and (y) any such cost or
reduction as a result of a change of general  applicability in (1) taxes imposed
on or measured by the Lender's net income, or (2) franchise taxes imposed on the
Lender,  in lieu of net income  taxes,  by the  jurisdiction,  or any  political
subdivision  thereof,  under  the  laws of which it is  organized  or  otherwise
resides for tax purposes or maintains any lending office), then, and in any such
case,  Agent  may,  at any time  within 270 days  after the  additional  cost is
incurred or the amount received is reduced,  notify Borrower, and Borrower shall
pay on demand such amounts as Agent may specify to be  necessary  to  compensate
the Lender Group for such  additional  cost or reduced  receipt,  together  with
interest  on such  amount  from the date of such  demand  until  payment in full
thereof  at  the  rate  then  applicable  to  Base  Rate  Loans  hereunder.  The
determination by Agent of any amount due pursuant to this Section,  as set forth
in a certificate  setting forth the  calculation  thereof in reasonable  detail,
shall, in the absence of manifest or demonstrable error, be final and conclusive
and binding on all of the parties hereto.

      (g) Borrower  acknowledges and agrees that certain of the Qualified Import
Letters  of  Credit  may  provide  for the  presentation  of time  drafts to the
Underlying  Issuer.  If an Underlying  Issuer  accepts such a time draft that is
presented under an Underlying  Letter of Credit,  it is acknowledged  and agreed
that (i) the Letter of Credit will require the Issuing  Lender to reimburse  the
Underlying Issuer for amounts paid on account of such time draft on or after the
maturity date thereof,  (ii) the pricing  provisions hereof (including  Sections
2.6(b) and 2.12(e)) shall continue to apply, until payment of such time draft on
or after the maturity date thereof,  as if the Underlying  Letter of Credit were
still  outstanding,  and (iii) on the date on which Issuing Lender makes payment
to the  Underlying  Issuer of the  amounts  paid on account of such time  draft,
Borrower  immediately  shall  reimburse  such amount to Issuing  Lender and such
amount shall constitute an L/C Disbursement hereunder.

                                      -53-
<PAGE>

    2.13 LIBOR Option.

      (a)  Interest  and  Interest  Payment  Dates.  In lieu of having  interest
charged at the rate based  upon the Base  Rate,  Borrower  shall have the option
(the "LIBOR Option") to have interest on all or a portion of the Advances or the
Capital Expenditures Loans be charged at a rate of interest based upon the LIBOR
Rate.  Interest on LIBOR Rate Loans shall be payable on the  earliest of (i) the
last day of the  Interest  Period  applicable  thereto,  (ii) the date that is 3
months after the  commencement  of the  applicable  Interest  Period,  (iii) the
occurrence of an Event of Default in consequence  of which the Required  Lenders
or Agent on  behalf  thereof  elect to  accelerate  the  maturity  of all or any
portion of the Obligations,  or (iv)  termination of this Agreement  pursuant to
the terms hereof. On the last day of each applicable  Interest Period in respect
of a LIBOR Rate Loan,  unless  Borrower  properly has exercised the LIBOR Option
with respect  thereto,  the  interest  rate  applicable  to such LIBOR Rate Loan
automatically shall convert to the rate of interest then applicable to Base Rate
Loans of the same  type  hereunder.  At any time  that an Event of  Default  has
occurred and is  continuing,  upon written  notice from Agent to Borrower of its
election to deny access to the LIBOR  Option,  Borrower no longer shall have the
option to request that Advances or Capital Expenditures Loans bear interest at a
rate based upon the LIBOR Rate and, at the end of the Interest Period applicable
thereto,  Agent  shall  have  the  right to  convert  the  interest  rate on all
outstanding  LIBOR  Rate  Loans to the rate then  applicable  to Base Rate Loans
hereunder.

      (b) LIBOR Election.

            (i) Borrower  may, at any time and from time to time,  so long as no
      Event of Default has  occurred  and is  continuing,  elect to exercise the
      LIBOR Option by notifying Agent prior to 11:00 a.m.  (California  time) at
      least 3 Business Days prior to the  commencement of the proposed  Interest
      Period (the "LIBOR Deadline").  Notice of Borrower's election of the LIBOR
      Option for a permitted portion of the Advances or the Capital Expenditures
      Loans and an Interest  Period  pursuant to this  Section  shall be made by
      delivery to Agent of a LIBOR  Notice  received  by Agent  before the LIBOR
      Deadline,  or by  telephonic  notice  received  by Agent  before the LIBOR
      Deadline (to be confirmed by delivery to Agent of a LIBOR Notice  received
      by Agent prior to 5:00 p.m.  (California time) on the same day).  Promptly
      upon its receipt of each such LIBOR  Notice,  Agent  shall  provide a copy
      thereof to each of the Lenders having a Revolver Commitment.

            (ii) Each LIBOR Notice shall be irrevocable and binding on Borrower.
      In connection with each LIBOR Rate Loan, Borrower shall indemnify, defend,
      and hold Agent and the Lenders harmless against any loss, cost, or expense
      incurred  by Agent or any  Lender  as a result of (a) the  payment  of any
      principal of any LIBOR Rate Loan other than on the last day of an Interest
      Period applicable  thereto (including as a result of an Event of Default),
      (b) the  conversion  of any LIBOR  Rate Loan other than on the last day of
      the Interest Period applicable  thereto, or (c) the failure to borrow (for
      a reason

                                      -54-
<PAGE>

      other  than or a  result  of the  failure  of  such  Lender  to  make  the
      applicable  requested Advance or Capital Expenditures Loan notwithstanding
      the satisfaction of all conditions  precedent relating thereto),  convert,
      continue or prepay any LIBOR Rate Loan on the date  specified in any LIBOR
      Notice or other  notices of  prepayment  delivered  pursuant  hereto (such
      losses,  costs, and expenses,  collectively,  "Funding  Losses").  Funding
      Losses shall,  with respect to Agent or any Lender, be deemed to equal the
      amount determined by Agent or such Lender to be the excess, if any, of (i)
      the amount of interest that would have accrued on the principal  amount of
      such LIBOR Rate Loan had such event not  occurred,  at the LIBOR Rate that
      would have been applicable  thereto,  for the period from the date of such
      event to the last day of the then current Interest Period therefor (or, in
      the case of a failure to borrow, convert, or continue, for the period that
      would have been the Interest  Period  therefor),  minus (ii) the amount of
      interest that would accrue on such principal amount for such period at the
      interest  rate which Agent or such Lender  would be offered  were it to be
      offered,  at  the  commencement  of  such  period,  Dollar  deposits  of a
      comparable amount and period in the London interbank market. A certificate
      of Agent or a Lender  delivered  to Borrower  setting  forth any amount or
      amounts that Agent or such Lender is entitled to receive  pursuant to this
      Section 2.13 shall be conclusive absent manifest error.

            (iii) Borrower shall have not more than 5 LIBOR Rate Loans in effect
      at any given time.  Borrower  only may exercise the LIBOR Option for LIBOR
      Rate Loans of at least  $1,000,000  and integral  multiples of $500,000 in
      excess thereof.

      (c)  Prepayments.  Borrower  may  prepay  LIBOR  Rate  Loans at any  time;
provided,  however,  that in the event that LIBOR Rate Loans are  prepaid on any
date  that  is not the  last  day of the  Interest  Period  applicable  thereto,
including  as  a  result  of  any  automatic  prepayment  through  the  required
application by Agent of proceeds of Borrower's and its Subsidiaries' Collections
in  accordance  with Section  2.4(b) or for any other  reason,  including  early
termination of the term of this Agreement or  acceleration of all or any portion
of the  Obligations  pursuant to the terms  hereof,  Borrower  shall  indemnify,
defend, and hold Agent and the Lenders and their  Participants  harmless against
any and all Funding Losses in accordance with clause (b)(ii) above.

      (d) Special Provisions Applicable to LIBOR Rate.

            (i) The LIBOR Rate may be adjusted by Agent,  in  consultation  with
      Borrower,  with respect to any Lender on a prospective  basis to take into
      account any additional or increased costs to such Lender of maintaining or
      obtaining  any  eurodollar  deposits or increased  costs due to changes in
      applicable  law  occurring  subsequent  to the  commencement  of the  then
      applicable Interest Period, including changes in tax laws (except, for any
      Lender,  (x) any  costs  relating  to  payments  on  account  of Taxes and
      additional amounts required to be paid pursuant to, or explicitly excluded
      from  payment

                                      -55-
<PAGE>

      under,  Section  16.11,  and (y) changes of general  applicability  in (1)
      taxes imposed on or measured by the Lender's net income,  or (2) franchise
      taxes  imposed  on the  Lender,  in  lieu  of  net  income  taxes,  by the
      jurisdiction,  or any  political  subdivision  thereof,  under the laws of
      which it is organized  or otherwise  resides for tax purposes or maintains
      any lending office) and changes in the reserve requirements imposed by the
      Board of  Governors  of the  Federal  Reserve  System (or any  successor),
      excluding the Reserve  Percentage,  which  additional  or increased  costs
      would  increase the cost of funding  loans  bearing  interest at the LIBOR
      Rate. In any such event, the affected Lender shall give Borrower and Agent
      notice of such a  determination  and  adjustment  and Agent promptly shall
      transmit  the notice to each other  Lender  and,  upon its  receipt of the
      notice from the affected Lender,  Borrower may, by notice to such affected
      Lender (y) require such Lender to furnish to Borrower a statement  setting
      forth  the  basis  for  adjusting  such  LIBOR  Rate  and the  method  for
      determining  the  amount of such  adjustment,  or (z) repay the LIBOR Rate
      Loans with respect to which such  adjustment  is made  (together  with any
      amounts due under clause (b)(ii) above).

            (ii) In the event that any change in market  conditions  or any law,
      regulation,  treaty,  or  directive,  or  any  change  therein  or in  the
      interpretation  of application  thereof,  shall at any time after the date
      hereof,  in the  reasonable  opinion of any  Lender,  make it  unlawful or
      impractical  for such  Lender to fund or  maintain  LIBOR Rate Loans or to
      continue such funding or  maintaining,  or to determine or charge interest
      rates at the LIBOR Rate, such Lender shall (x) give notice of such changed
      circumstances  to Agent and Borrower and Agent promptly shall transmit the
      notice to each other Lender and (y) in the case of any LIBOR Rate Loans of
      such Lender that are  outstanding,  the date  specified  in such  Lender's
      notice shall be deemed to be the last day of the  Interest  Period of such
      LIBOR Rate Loans,  and  interest  upon the LIBOR Rate Loans of such Lender
      thereafter  shall accrue interest at the rate then applicable to Base Rate
      Loans,  and (z)  Borrower  shall not be entitled to elect the LIBOR Option
      until  such  Lender  determines  that it would no  longer be  unlawful  or
      impractical  to do so.  Each  Lender  at such time  having as its  lending
      office  an office  outside  the  United  States  agrees to use  reasonable
      efforts to designate a different  lending office if such  designation will
      avoid the need for such a notice of changed  circumstances  and would not,
      in the good faith judgment of such Lender, otherwise be disadvantageous to
      such Lender.

      (e) No Requirement of Matched Funding.  Anything to the contrary contained
herein  notwithstanding,  neither  Agent,  nor  any  Lender,  nor  any of  their
Participants,  is required  actually to acquire  eurodollar  deposits to fund or
otherwise  match fund any Obligation as to which  interest  accrues at the LIBOR
Rate.  The  provisions  of this  Section  shall  apply as if each  Lender or its
Participants had match funded any Obligation as to which interest is accruing at
the LIBOR Rate by acquiring  eurodollar deposits for each Interest Period in the
amount of the LIBOR Rate Loans.

                                      -56-
<PAGE>

    2.14 Capital Requirements.  If, after the date hereof, any Lender determines
that (i) the  adoption of or change in any law,  rule,  regulation  or guideline
regarding  capital  requirements  for banks or bank  holding  companies,  or any
change  in  the  interpretation  or  application  thereof  by  any  Governmental
Authority charged with the  administration  thereof,  or (ii) compliance by such
Lender or its parent  bank  holding  company  with any  guideline,  request,  or
directive of any such entity regarding  capital adequacy  (whether or not having
the force of law),  has the effect of  reducing  the return on such  Lender's or
such holding  company's  capital as a consequence  of such Lender's  Commitments
hereunder to a level below that which such Lender or such holding  company could
have  achieved  but for  such  adoption,  change,  or  compliance  (taking  into
consideration  such Lender's or such holding  company's  then existing  policies
with  respect to capital  adequacy and  assuming  the full  utilization  of such
entity's capital) by any amount deemed by such Lender to be material,  then such
Lender may notify Borrower and Agent thereof.  Following receipt of such notice,
Borrower  agrees to pay such  Lender on demand the amount of such  reduction  of
return of capital as and when such  reduction is  determined,  payable within 90
days after  presentation by such Lender of a statement in the amount and setting
forth in reasonable detail such Lender's calculation thereof and the assumptions
upon which such  calculation was based (which statement shall be deemed true and
correct absent manifest error). Notwithstanding anything to the contrary in this
Section, Borrower will not be required to compensate any Lender pursuant to this
Section  for any  reduction  incurred  more  than 270 days  before  such  Lender
notified  Borrower of the change in law (or other  circumstance)  giving rise to
such reduction.  In determining such amount,  such Lender may use any reasonable
averaging and attribution methods.

3.    CONDITIONS; TERM OF AGREEMENT.

    3.1 Conditions  Precedent to the Initial Extension of Credit. The obligation
of the Lender  Group (or any member  thereof)  to make the  initial  Advance (or
otherwise  to extend  any  credit  provided  for  hereunder),  is subject to the
fulfillment,  to the satisfaction of Agent, of each of the conditions  precedent
set forth below:

      (a) the Closing Date shall occur on or before November 7, 2003;

      (b) Agent  shall have  received a UCC Filing  Authorization  Letter,  duly
executed by Borrower,  together with  appropriate  financing  statements on Form
UCC-1 in form  appropriate  for  filing  in such  office  or  offices  as may be
necessary or, in the opinion of Agent, desirable to perfect the Agent's Liens in
and to the Collateral;

      (c) Agent shall have received each of the following documents, in form and
substance  satisfactory to Agent, duly executed, and each such document shall be
in full force and effect:

            (i) Cash  Management  Agreements with respect to the Check Clearance
      Collection Account and the Multicurrency Account,

            (ii) [Intentionally omitted],

                                      -57-
<PAGE>

            (iii) the Disbursement Letter,

            (iv) the Due Diligence Letter,

            (v) the Fee Letter,

            (vi) the Officers' Certificate,

            (vii) the Patent Security Agreement,

            (viii) the Pay-Off Letter,  together with UCC termination statements
      and other  documentation  evidencing the termination by Existing Lender of
      its  Liens  in and to the  properties  and  assets  of  Borrower  and  its
      Subsidiaries,

            (ix) the Trademark Security Agreement, and

            (x) [Intentionally Omitted];

      (d) Agent shall have received a certificate from the Secretary of Borrower
attesting to the  resolutions of Borrower's  Board of Directors  authorizing its
execution,  delivery,  and  performance  of this  Agreement  and the other  Loan
Documents  to which  Borrower is a party and  authorizing  specific  officers of
Borrower to execute the same;

      (e) Agent shall have received copies of Borrower's Governing Documents, as
amended,  modified,  or  supplemented  to the  Closing  Date,  certified  by the
Secretary of Borrower;

      (f) Agent shall have  received a  certificate  of status  with  respect to
Borrower,  dated  within 10 days of the Closing  Date,  such  certificate  to be
issued  by the  appropriate  officer  of the  jurisdiction  of  organization  of
Borrower,  which certificate shall indicate that Borrower is in good standing in
such jurisdiction;

      (g) Agent  shall have  received  certificates  of status  with  respect to
Borrower, each dated within 30 days of the Closing Date, such certificates to be
issued  by  the  appropriate  officer  of  the  jurisdictions  (other  than  the
jurisdiction  of  organization  of  Borrower)  in which its  failure  to be duly
qualified  or  licensed  would  constitute  a  Material  Adverse  Change,  which
certificates   shall  indicate  that  Borrower  is  in  good  standing  in  such
jurisdictions;

      (h) Agent shall have received satisfactory evidence as to the existence of
the insurance policies required pursuant to Section 6.8 hereof;

      (i) [Intentionally Omitted];

      (j) [Intentionally Omitted];

      (k) [Intentionally Omitted];

                                      -58-
<PAGE>

      (l) Agent shall have received an opinion of Borrower's counsel in form and
substance satisfactory to Agent;

      (m)  Agent  shall  have  received   satisfactory   evidence  (including  a
certificate  of the chief  financial  officer of Borrower) that all material tax
returns required to be filed by Borrower and its  Subsidiaries  have been timely
filed and all taxes upon  Borrower  and its  Subsidiaries  or their  properties,
assets,  income, and franchises (including Real Property taxes, sales taxes, and
payroll  taxes) shown to be due and payable on such returns have been paid prior
to  delinquency,  except  (i) to the extent  that such taxes are the  subject of
Permitted  Protests,  (ii) as to any sales taxes (but not use taxes) or state or
federal income taxes,  to the extent the aggregate  unpaid past due (taking into
account any applicable  extension)  amount  thereof is less than  $500,000,  and
(iii) as to any  taxes  (other  than  with  respect  to sales  taxes or state or
federal income taxes), to the extent that such failure to pay such taxes,  could
not,  individually  or in the  aggregate,  reasonably be expected to result in a
Material Adverse Change;

      (n) Borrower shall have the Borrowing Base  Availability  of not less than
$20,000,000  after giving effect to the initial  extensions of credit  hereunder
and the payment of all fees and expenses  required to be paid by Borrower on the
Closing Date under this Agreement or the other Loan Documents;

      (o) Agent shall have  completed its business,  legal,  and  collateral due
diligence,  including  (i) a commercial  finance  audit of  Borrower's  business
prepared  by Spain,  Price,  Reader &  Thompson,  the  results of which shall be
satisfactory to Agent,  (ii) a retail inventory  appraisal  (including as to the
Liquidation Percentage applicable to Borrower's and its Subsidiaries' Inventory)
conducted by Great American Appraisal & Valuation Services,  L.L.C., the results
of which shall be satisfactory to Agent, (iii) such additional  collateral audit
and review of Borrower's and its Subsidiaries books and records and verification
of Borrower's  representations  and warranties to the Lender Group, all as Agent
may deem  appropriate,  the results of which shall be satisfactory to Agent, and
(iv)  an  inspection  of  each  of  the  locations  where   Borrower's  and  its
Subsidiaries'  Inventory is located (to the extent Agent  determines in its sole
discretion that such inspection is  appropriate),  the results of which shall be
satisfactory to Agent;

      (p) Agent shall have received  completed  reference checks with respect to
Borrower's senior management,  the results of which are satisfactory to Agent in
its sole discretion;

      (q) Borrower  shall have paid all  documented  and  invoiced  Lender Group
Expenses  incurred  in  connection  with  the  transactions  evidenced  by  this
Agreement;

      (r) [Intentionally Omitted];

      (s)  Borrower  and  each  of its  Subsidiaries  shall  have  received  all
licenses,  approvals or evidence of other actions  required by any  Governmental
Authority  in  connection  with the  execution  and  delivery by Borrower or its
Subsidiaries of the Loan Documents or with the  consummation of the transactions
contemplated thereby;

                                      -59-
<PAGE>

      (t) [Intentionally Omitted]; and

      (u)  all  other  documents  and  legal  matters  in  connection  with  the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Agent.

    3.2 Conditions Subsequent to the Initial Extension of Credit. The obligation
of the Lender  Group (or any member  thereof) to  continue  to make  Advances or
Capital  Expenditures Loans (or otherwise extend credit hereunder) is subject to
the  fulfillment,  on or  before  the date  applicable  thereto,  of each of the
conditions  subsequent set forth below (the failure by Borrower to so perform or
cause to be performed constituting an Event of Default):

      (a) within 30 days of the Closing Date,  Agent shall have received each of
the following  documents,  in form and  substance  satisfactory  to Agent,  duly
executed, and each such document shall be in full force and effect:

            (i) Credit  Card  Agreements  with  respect  to all the Credit  Card
      Processors;

            (ii) Cash Management  Agreements with respect to each  Concentration
      Account and the Designated Account;

            (iii) the Control Agreements with respect to each Securities Account
      listed in Schedule 5.18, except as permitted under Section 7.12;

            (iv) a Customs Broker Agreement from each Customs Broker;

            (v) a Freight Forwarder Agreement from each Freight Forwarder;

      (b) within 60 days of the Closing Date, to the extent not delivered on the
Closing Date,  deliver to Agent  certified  copies of the policies of insurance,
together  with a certificate  of insurance  with respect to each such policy and
such endorsements thereto as are required by Section 6.8, the form and substance
of which shall be satisfactory to Agent and its counsel; and

      (c) use commercially  reasonable best efforts to deliver to Agent,  within
60 days of the  Closing  Date,  Collateral  Access  Agreements  with  respect to
Borrower's  chief  executive  office and each of  Borrower's  Non-Owned  Storage
Facilities in the United States.

    3.3 Conditions  Precedent to all Extensions of Credit. The obligation of the
Lender  Group  (or  any  member   thereof)  to  make  any  Advances  or  Capital
Expenditures  Loans  hereunder  at any  time  (or to  extend  any  other  credit
hereunder) shall be subject to the following conditions precedent:

      (a) the representations and warranties contained in this Agreement and the
other Loan Documents  shall be true and correct in all material  respects on and
as of the date

                                      -60-
<PAGE>

of such  extension  of credit,  as though made on and as of such date (except to
the extent that such  representations and warranties relate solely to an earlier
date);

      (b) no Default or Event of Default  shall have  occurred and be continuing
on the date of such extension of credit, nor shall either result from the making
thereof;

      (c) no injunction,  writ,  restraining order, or other order of any nature
restricting or prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any Governmental Authority against
Borrower, Agent, any Lender, or any of their Affiliates; and

      (d) no Material Adverse Change shall have occurred.

    3.4 Term.  This Agreement shall continue in full force and effect for a term
ending on October 31, 2006 (the "Maturity Date"). The foregoing notwithstanding,
the Lender  Group,  upon the  election of the Required  Lenders,  shall have the
right to terminate its obligations under this Agreement  immediately and without
notice upon the occurrence and during the continuation of an Event of Default in
accordance with Section 9.1.

    3.5 Effect of Termination. On the date of termination of this Agreement, all
Obligations  (including  contingent  reimbursement  obligations of Borrower with
respect  to  outstanding  Letters of Credit)  immediately  shall  become due and
payable without notice or demand (including either (i) providing cash collateral
to be held by Agent for the benefit of those Lenders with a Revolver  Commitment
in an amount equal to 105% of the then extant  Letter of Credit  Usage,  or (ii)
causing the  original  Letters of Credit to be returned to the Issuing  Lender).
Notwithstanding the foregoing,  Bank Product Obligations shall be subject to the
terms and conditions  (including as to termination)  set forth in the applicable
Bank  Product  Agreements,  and,  in  connection  with any  termination  of this
Agreement,  such  termination  and the release of any  applicable  Agent's Liens
shall be subject to the provision by Borrower of cash  collateral  (in an amount
determined  by Agent as sufficient to satisfy the  reasonably  estimated  credit
exposure) to be held by Agent for the benefit of the Bank Product Providers with
respect to the then extant Bank  Product  Obligations.  No  termination  of this
Agreement,  however,  shall relieve or discharge Borrower or its Subsidiaries of
their duties,  Obligations,  or covenants hereunder and the Agent's Liens in the
Collateral  shall remain in effect until all Obligations  have been paid in full
(including  by the  provision  of cash  collateral  as set forth  above) and the
Lender Group's  obligations  to provide  additional  credit  hereunder have been
terminated.  When this Agreement has been  terminated and all of the Obligations
have been paid in full  (including  by the  provision of cash  collateral as set
forth above) and the Lender  Group's  obligations to provide  additional  credit
under the Loan  Documents  have been  terminated  irrevocably,  Agent  will,  at
Borrower's  sole expense,  execute and deliver any UCC  termination  statements,
lien releases,  mortgage releases,  re-assignments of trademarks,  discharges of
security  interests,  and other similar  discharge or release documents (and, if
applicable,  in recordable form) as are reasonably  necessary to release,  as of
record,  the  Agent's  Liens and all  notices of  security  interests  and liens
previously filed by Agent with respect to the Obligations.

                                      -61-
<PAGE>

    3.6 Early Termination by Borrower. Borrower has the option, at any time upon
60 days prior written notice to Agent,  to terminate this Agreement by paying to
Agent,  in cash,  the  Obligations  (including  (a)  either (i)  providing  cash
collateral  to be held by Agent for the benefit of those Lenders with a Revolver
Commitment in an amount equal to 105% of the then extant Letter of Credit Usage,
or (ii)  causing  the  original  Letters of Credit to be returned to the Issuing
Lender,  and (b) providing cash collateral (in an amount  determined by Agent as
sufficient to satisfy the reasonably  estimated  credit  exposure) to be held by
Agent for the benefit of the Bank  Product  Providers  with  respect to the then
extant  Bank  Product  Obligations),  in  full,  together  with  the  Applicable
Prepayment  Premium (to be allocated based upon letter agreements  between Agent
and individual  Lenders).  If Borrower has sent a notice of termination pursuant
to the  provisions of this Section,  then the  Commitments  shall  terminate and
Borrower shall be obligated to repay the  Obligations  (including (a) either (i)
providing  cash  collateral to be held by Agent for the benefit of those Lenders
with a Revolver  Commitment in an amount equal to 105% of the then extant Letter
of Credit Usage,  or (ii) causing the original  Letters of Credit to be returned
to the  Issuing  Lender,  and  (b)  providing  cash  collateral  (in  an  amount
determined  by Agent as sufficient to satisfy the  reasonably  estimated  credit
exposure) to be held by Agent for the benefit of the Bank Product Providers with
respect to the then extant Bank Product Obligations), in full, together with the
Applicable  Prepayment Premium, on the date set forth as the date of termination
of this  Agreement  in such  notice.  In the  event of the  termination  of this
Agreement  and  repayment of the  Obligations  at any time prior to the Maturity
Date, for any other reason,  including (a) termination  upon the election of the
Required  Lenders to terminate after the occurrence and during the  continuation
of an Event of Default, (b) foreclosure and sale of Collateral,  (c) sale of the
Collateral in any Insolvency Proceeding, or (d) restructure,  reorganization, or
compromise of the Obligations by the confirmation of a plan of reorganization or
any other plan of  compromise,  restructure,  or  arrangement  in any Insolvency
Proceeding,  then,  in view of the  impracticability  and extreme  difficulty of
ascertaining the actual amount of damages to the Lender Group or profits lost by
the Lender Group as a result of such early termination,  and by mutual agreement
of the parties as to a reasonable estimation and calculation of the lost profits
or damages of the Lender Group,  Borrower  shall pay the  Applicable  Prepayment
Premium to Agent (to be allocated based upon letter agreements between Agent and
individual Lenders), measured as of the date of such termination.  The foregoing
(and the definition of "Applicable Prepayment Premium" set forth in Section 1.1)
to  the  contrary  notwithstanding,  in  the  event  that  Borrower  repays  the
Obligations in full and terminates this Agreement pursuant to the first sentence
of  this  Section  3.6 and if such  repayment  occurs  with  the  proceeds  of a
refinancing  provided  by  Wells  Fargo  or  any  Affiliate  thereof,  then  the
Applicable Prepayment Premium shall equal zero.

4.    CREATION OF SECURITY INTEREST.

    4.1 Grant of Security  Interest.  Borrower  hereby grants to Agent,  for the
benefit  of the  Lender  Group  and the Bank  Product  Providers,  a  continuing
security  interest in all of its right,  title,  and  interest in all  currently
existing  and  hereafter  acquired or arising  Borrower  Collateral  in order to
secure prompt repayment of any and all of the Obligations in accordance with the
terms  and  conditions  of the Loan  Documents  and in order  to  secure

                                      -62-
<PAGE>

prompt  performance  by Borrower of each of its  covenants  and duties under the
Loan Documents. The Agent's Liens in and to the Borrower Collateral shall attach
to all Borrower Collateral without further act on the part of Agent or Borrower.
Anything  contained in this Agreement or any other Loan Document to the contrary
notwithstanding,   except  for   Permitted   Dispositions,   Borrower   and  its
Subsidiaries  have no authority,  express or implied,  to dispose of any item or
portion  of the  Collateral  (it  being  understood,  with  respect  to any such
Permitted  Disposition  of  Borrower  Collateral,  Agent's  Liens in and to such
Borrower  Collateral shall be released  automatically  upon consummation of such
Permitted  Disposition,   and  the  proceeds  and  products  of  such  Permitted
Disposition shall be subject to Agent's Liens).

    4.2  Negotiable  Collateral.  In the  event  that any  Borrower  Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral, and if
and to the  extent  that  Agent  determines  in its  Permitted  Discretion  that
perfection or priority of Agent's security  interest is dependent on or enhanced
by possession,  Borrower, promptly following the request of Agent, shall endorse
and deliver physical possession of such Negotiable Collateral to Agent.

    4.3 Collection of Accounts, General Intangibles,  and Negotiable Collateral.
At any time after the  occurrence  and during  the  continuation  of an Event of
Default,  Agent or Agent's  designee may (a) notify Account  Debtors of Borrower
that  Borrower's  Accounts,  chattel  paper,  or General  Intangibles  have been
assigned to Agent or that Agent has a security interest therein,  or (b) collect
Borrower's  Accounts,  chattel paper, or General Intangibles directly and charge
the collection  costs and expenses to the Loan Account.  Borrower agrees that it
will hold in trust for the Lender Group, as the Lender Group's  trustee,  any of
its or its  Subsidiaries'  Collections  that it receives  and  immediately  will
deliver such  Collections to Agent or a Cash  Management  Bank in their original
form as received by Borrower or its Subsidiaries.

    4.4 Filing of Financing  Statements;  Commercial  Tort  Claims;  Delivery of
Additional Documentation Required.

      (a) Borrower authorizes Agent to file any financing statement necessary or
desirable to effectuate the transactions contemplated by the Loan Documents, and
any continuation statement or amendment with respect thereto, in any appropriate
filing office  without the signature of Borrower  where  permitted by applicable
law.

      (b) At any time when an Event of Default has  occurred  and has  continued
for at least 10 days, Borrower shall, upon request of Agent, promptly deliver to
Agent a  written  description  of each  commercial  tort  claim,  to the  extent
individually  or in the aggregate for an amount in excess of $50,000,  then held
by Borrower or any Subsidiary  thereof (and not yet subject to a Commercial Tort
Claim Assignment) and shall deliver a written  agreement,  in form and substance
satisfactory to Agent in its Permitted Discretion, pursuant to which Borrower or
its Subsidiary,  as applicable,  shall pledge and collaterally assign all of its
right, title and interest in and to each such commercial tort claim to Agent, as
security  for the  Obligations  (a  "Commercial  Tort  Claim  Assignment").  The
subsequent  cure

                                      -63-
<PAGE>

or waiver of the applicable Event of Default shall not affect the enforceability
of any executed and delivered Commercial Tort Claim Assignment.

      (c) At any time upon the  request  of Agent,  Borrower  shall  execute  or
deliver  to Agent,  and shall  cause its  Subsidiaries  to execute or deliver to
Agent, any and all financing  statements,  original financing statements in lieu
of continuation  statements,  fixture  filings,  security  agreements,  pledges,
assignments, Commercial Tort Claim Assignments,  endorsements of certificates of
title, and all other documents  (collectively,  the "Additional Documents") that
Agent  may  request  in  its  Permitted   Discretion,   in  form  and  substance
satisfactory  to Agent in its  Permitted  Discretion,  to create,  perfect,  and
continue  perfected  or to better  perfect  the  Agent's  Liens in the assets of
Borrower  and its  Subsidiaries  (whether  now  owned or  hereafter  arising  or
acquired,  tangible  or  intangible,  real or  personal)  (except  as  otherwise
expressly permitted under this Agreement),  to create and perfect Liens in favor
of Agent in any Real Property  owned on the Closing Date or in any Real Property
acquired  after the Closing Date,  and in order to fully  consummate  all of the
transactions  contemplated  hereby  and under the other Loan  Documents.  To the
maximum extent permitted by applicable law, Borrower authorizes Agent to execute
any such Additional  Documents in Borrower's  name and authorizes  Agent to file
such  executed  Additional  Documents  in  any  appropriate  filing  office.  In
addition,  on such  periodic  basis  as Agent  shall  require  in its  Permitted
Discretion (but no more frequently than  quarterly),  Borrower shall (i) provide
Agent  with  a  report  of  all  new  material  patentable,   copyrightable,  or
trademarkable  materials  acquired or generated by Borrower or its  Subsidiaries
during  the prior  period,  (ii) cause all  material  patents,  copyrights,  and
trademarks  acquired or generated by Borrower or its  Subsidiaries  that are not
already the subject of a registration with the appropriate  filing office (or an
application   therefor  diligently   prosecuted)  to  be  registered  with  such
appropriate filing office in a manner sufficient to impart  constructive  notice
of Borrower's or the applicable  Subsidiary's ownership thereof, and (iii) cause
to be prepared,  executed,  and delivered to Agent supplemental schedules to the
applicable Loan Documents to identify such patents,  copyrights,  and trademarks
as being subject to the security interests created thereunder.

    4.5 Power of Attorney.  Borrower hereby irrevocably makes, constitutes,  and
appoints Agent (and any of Agent's officers,  employees, or agents designated by
Agent) as Borrower's true and lawful attorney,  with power (in each case, to the
maximum extent  permitted by law) to (a) if Borrower refuses to, or fails timely
to execute and deliver any of the  documents  described in Section 4.4, sign the
name of Borrower on any of the  documents  described  in Section 4.4, (b) at any
time that an Event of Default has occurred and is  continuing,  sign  Borrower's
name on any  invoice  or bill of lading  relating  to the  Borrower  Collateral,
drafts against Account Debtors, or notices to Account Debtors, (c) send requests
for  verification  of  Borrower's  or its  Subsidiaries'  Accounts,  (d) endorse
Borrower's name on any of its payment items  (including all of its  Collections)
that may come into the Lender Group's possession,  (e) at any time that an Event
of Default has occurred and is continuing,  make,  settle, and adjust all claims
under Borrower's policies of insurance and make all determinations and decisions
with respect to such policies of insurance, and (f) at any time that an Event of
Default has occurred and is  continuing,  settle and adjust  disputes and claims
respecting Borrower's or its Subsidiaries'  Accounts,  chattel paper, or General
Intangibles directly with Account Debtors, for amounts and upon terms that Agent
determines  to be

                                      -64-
<PAGE>

reasonable,  and Agent may cause to be executed and  delivered any documents and
releases  that Agent  determines to be necessary.  The  appointment  of Agent as
Borrower's  attorney,  and each and every one of its  rights and  powers,  being
coupled with an interest,  is irrevocable until all of the Obligations have been
fully and finally  repaid and performed and the Lender  Group's  obligations  to
extend credit hereunder are terminated.

    4.6 Right to Inspect. Agent and each Lender (through any of their respective
officers,  employees,  or  agents)  shall  have  the  right,  from  time to time
hereafter  to inspect  the Books and make  copies or  abstracts  thereof  and to
check,  test, and appraise the Collateral,  or any portion thereof,  in order to
verify  Borrower's  and its  Subsidiaries'  financial  condition  or the amount,
quality, value, condition of, or any other matter relating to, the Collateral.

    4.7 Control Agreements.

      (a) Borrower agrees that it will not, and will not permit its Subsidiaries
to,  transfer  assets  out of any of  their  Deposit  Accounts  (other  than  as
specified in Section 2.7 with respect to Cash Management Accounts) or Securities
Accounts;  provided,  however,  that so long as no Event of Default has occurred
and is continuing or would result  therefrom,  Borrower and its Subsidiaries may
use such assets (and the proceeds  thereof) to the extent not prohibited by this
Agreement or the other Loan Documents and, if the transfer is to another bank or
securities intermediary, so long as Borrower (or its Subsidiary, as applicable),
Agent,  and the substitute bank or securities  intermediary  have entered into a
Control Agreement (subject to Section 7.12 hereof). No arrangement  contemplated
hereby or by any  Control  Agreement  in respect of any  Securities  Accounts or
other  Investment  Property  shall be  modified  by  Borrower  without the prior
written  consent of Agent.  Upon the occurrence and during the continuance of an
Event of  Default,  Agent may  notify  any bank or  securities  intermediary  to
liquidate the applicable Deposit Account  (including  pursuant to Section 2.7(c)
with respect to Cash Management  Accounts) or Securities  Account or any related
Investment Property maintained or held thereby and remit the proceeds thereof to
the Agent's Account or as otherwise directed by Agent.

      (b)  Borrower  agrees that,  subject to Section 2.7 (with  respect to Cash
Management Accounts) and Section 7.12 with respect to all other Deposit Accounts
and Securities Accounts,  it will and will cause its Subsidiaries to take any or
all reasonable steps that Agent requests in order for Agent to obtain control in
accordance with Sections 9-104, 9-105, 9-106, and 9-107 of the Code with respect
to any of (i) its or their Securities  Accounts,  Deposit  Accounts,  electronic
chattel paper,  Investment  Property,  and (ii) only during a Triggering Period,
pursuant to any such reasonable (in Agent's Permitted  Discretion)  request, its
or their letter-of-credit rights; provided,  however, that Borrower shall not be
so required to cause Agent to obtain such  control  with  respect to the Special
Account and Securities Investments.

5.    REPRESENTATIONS AND WARRANTIES.

      In order to induce the Lender Group to enter into this Agreement, Borrower
makes the  following  representations  and  warranties to the Lender Group which
shall be true,

                                      -65-
<PAGE>

correct,  and complete,  in all material  respects,  as of the date hereof,  and
shall be true,  correct,  and  complete,  in all  material  respects,  as of the
Closing Date, and at and as of the date of the making of each Advance or Capital
Expenditures Loan (or other extension of credit) made thereafter, as though made
on and as of the date of such  Advance  or Capital  Expenditures  Loan (or other
extension  of  credit)  (except  to the  extent  that such  representations  and
warranties  relate  solely  to an  earlier  date) and such  representations  and
warranties shall survive the execution and delivery of this Agreement:

    5.1  No  Encumbrances.   Borrower  and  its   Subsidiaries   have  good  and
indefeasible  title to their  personal  property  assets and good and marketable
title  to  their  Real  Property  (subject  to  exceptions  that do not,  in the
aggregate,  materially  impair the use, value or  marketability or any such Real
Property), in each case, free and clear of Liens except for Permitted Liens.

    5.2 Eligible Accounts.  The Eligible Accounts are bona fide existing payment
obligations of Account  Debtors created by the sale and delivery of Inventory or
the  rendition  of services to such Account  Debtors in the  ordinary  course of
Borrower's  business,  owed to Borrower  without any known  defenses,  disputes,
offsets,  counterclaims, or rights of return or cancellation. As to each Account
that is identified by Borrower as an Eligible Account in a borrowing base report
submitted to Agent,  such Account is not excluded as ineligible by virtue of one
or more of the  excluding  criteria  set  forth in the  definition  of  Eligible
Accounts.

    5.3 Eligible  Inventory.  All Eligible Inventory is of good and merchantable
quality,  free  from  known  defects.  As to  each  item  of  Inventory  that is
identified  by  Borrower  as  Eligible  Inventory  in a  borrowing  base  report
submitted to Agent,  such  Inventory is not excluded as  ineligible by virtue of
one or more of the  excluding  criteria set forth in the  definition of Eligible
Inventory.

    5.4 Equipment. All of the Equipment of Borrower and its Subsidiaries is used
or held for use in their business and is fit for such purposes.

    5.5 Location of Inventory  and  Equipment.  The  Inventory  and Equipment of
Borrower and its  Subsidiaries are located only at, or in-transit  between,  the
locations  identified on Schedule 5.5 (as such Schedule may be updated  pursuant
to Section 6.9).  Schedule 5.5 separately  identifies each Leased Store Location
and each  Non-Owned  Storage  Facility,  and sets forth the owners and operators
thereof.  Except as  permitted  in  Sections  6.9 and 7.17,  the  Inventory  and
Equipment  of  Borrower  and its  Subsidiaries  are not  stored  with a  bailee,
warehouseman,  or similar party, unless such party has entered into a Collateral
Access Agreement with Borrower and Lender.

    5.6 Inventory Records. Borrower keeps correct and accurate records itemizing
and  describing  the type,  quality,  and quantity of its and its  Subsidiaries'
Inventory and the book value thereof.

                                      -66-
<PAGE>

    5.7  State of  Incorporation;  Location  of Chief  Executive  Office;  FEIN;
Organizational ID Number; Commercial Tort Claims.

      (a) As of the Closing Date, the  jurisdiction  of organization of Borrower
and each of its Subsidiaries is set forth on Schedule 5.7(a).

      (b) The chief executive office of Borrower and each of its Subsidiaries is
located at the address  indicated  on Schedule  5.7(b) (as such  Schedule may be
updated pursuant to Section 6.9).

      (c)  Borrower's  and each of its  Subsidiaries'  FEIN  and  organizational
identification number, if any, are identified on Schedule 5.7(c).

      (d) As of the Closing Date,  Borrower and its Subsidiaries do not hold any
commercial tort claims  involving a claim for more than $500,000,  except as set
forth on Schedule 5.7(d).

    5.8   Due Organization and Qualification; Subsidiaries.

      (a) Borrower is duly organized and existing and in good standing under the
laws of the jurisdiction of its organization and qualified to do business in any
state where the failure to be so qualified  reasonably could be expected to have
a Material Adverse Change.

      (b) Set forth on Schedule 5.8(b),  is a complete and accurate  description
of the authorized  capital Stock of Borrower,  by class,  and, as of the Closing
Date, a  description  of the number of shares of each such class that are issued
and  outstanding.  Other than as  described  on  Schedule  5.8(b),  there are no
subscriptions,  options, warrants, or calls relating to any shares of Borrower's
capital  Stock,  including  any  right  of  conversion  or  exchange  under  any
outstanding  security  or  other  instrument.  Borrower  is not  subject  to any
obligation  (contingent  or otherwise)  to  repurchase  or otherwise  acquire or
retire any  shares of its  capital  Stock or any  security  convertible  into or
exchangeable for any of its capital Stock except as permitted in Section 7.10.

      (c) Set forth on  Schedule  5.8(c),  is a complete  and  accurate  list of
Borrower's direct and indirect  Subsidiaries,  showing:  (i) the jurisdiction of
their  organization,  (ii) the  number  of shares  of each  class of common  and
preferred Stock authorized for each of such  Subsidiaries,  and (iii) the number
and the percentage of the  outstanding  shares of each such class owned directly
or indirectly  by Borrower.  All of the  outstanding  capital Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.

      (d) Except as set forth on Schedule  5.8(c),  there are no  subscriptions,
options,  warrants, or calls relating to any shares of Borrower's  Subsidiaries'
capital  Stock,  including  any  right  of  conversion  or  exchange  under  any
outstanding  security  or  other  instrument.  Neither  Borrower  nor any of its
Subsidiaries  is  subject  to  any  obligation   (contingent  or  otherwise)  to
repurchase or otherwise acquire or retire any shares of

                                      -67-
<PAGE>

Borrower's  Subsidiaries'  capital  Stock or any  security  convertible  into or
exchangeable for any such capital Stock.

    5.9  Due Authorization; No Conflict.

      (a) The execution, delivery, and performance by Borrower of this Agreement
and the Loan  Documents to which it is a party have been duly  authorized by all
necessary action on the part of Borrower.

      (b) The execution, delivery, and performance by Borrower of this Agreement
and the  other  Loan  Documents  to  which it is a party do not and will not (i)
violate any provision of federal,  state, or local law or regulation  applicable
to Borrower,  the Governing Documents of Borrower,  or any order,  judgment,  or
decree of any court or other  Governmental  Authority binding on Borrower,  (ii)
conflict with, result in a breach of, or constitute (with due notice or lapse of
time or both) a default under any material  contractual  obligation of Borrower,
(iii) result in or require the creation or  imposition of any Lien of any nature
whatsoever  upon any  properties  or assets of  Borrower,  other than  Permitted
Liens,  or (iv)  require  any  approval  of  Borrower's  interestholders  or any
approval or consent of any Person under any material  contractual  obligation of
Borrower,  other than (x) consents or approvals that have been obtained and that
are still in force and effect,  or (y)  consents or  approvals  from  suppliers,
customers or other  contractual  counterparties  of Borrower or its Subsidiaries
required for any foreclosure or other exercise of remedies.

      (c)  Other  than  the  filing  of  financing  statements,  the  execution,
delivery,  and  performance  by  Borrower of this  Agreement  and the other Loan
Documents  to  which  Borrower  is a  party  do not and  will  not  require  any
registration with,  consent,  or approval of, or notice to, or other action with
or by, any  Governmental  Authority,  other than (x) consents or approvals  that
have been  obtained  and that are still in force and effect and (y)  consents or
approvals from any Governmental Authority required by Lender for any foreclosure
or other exercise of remedies.

      (d) This  Agreement  and the other Loan  Documents to which  Borrower is a
party, and all other documents  contemplated  hereby and thereby,  when executed
and delivered by Borrower will be the legally valid and binding  obligations  of
Borrower,  enforceable  against  Borrower in  accordance  with their  respective
terms,  except as  enforcement  may be limited  by  equitable  principles  or by
bankruptcy, insolvency, reorganization,  moratorium, or similar laws relating to
or limiting creditors' rights generally.

      (e) The Agent's Liens are validly created,  perfected  (except for Deposit
Accounts and  Securities  Accounts for which no Cash  Management  Agreement  nor
Control  Agreement is required under this Agreement),  and first priority Liens,
subject only to Permitted Liens.

    5.10 Litigation.  Other than those matters disclosed on Schedule 5.10, there
are no actions,  suits,  or  proceedings  pending or, to the best  knowledge  of
Borrower,   threatened  against  Borrower,  or  any  of  its  Subsidiaries,   as
applicable,  except for (a) matters that are fully covered by insurance (subject
to  customary  deductibles),  and (b)  matters  that,  to the

                                      -68-
<PAGE>

extent having a reasonable risk of being decided adversely to Borrower or any of
its Subsidiaries,  as applicable, if so decided adversely,  reasonably could not
be expected to result in a Material Adverse Change.

    5.11 No  Material  Adverse  Change.  All  financial  statements  relating to
Borrower and its Subsidiaries that have been delivered by Borrower to the Lender
Group  have  been  prepared  in  accordance  with GAAP  (except,  in the case of
unaudited financial  statements,  for the lack of footnotes and being subject to
year-end  audit  adjustments)  and  present  fairly  in all  material  respects,
Borrower's and its Subsidiaries'  financial condition as of the date thereof and
results of operations  for the period then ended.  There has not been a Material
Adverse Change with respect to Borrower and its  Subsidiaries  since the date of
the latest financial  statements  submitted to the Lender Group on or before the
Closing Date.

    5.12 Fraudulent Transfer.

      (a) Borrower is Solvent.

      (b) No transfer of property is being made by Borrower or its  Subsidiaries
and  no  obligation  is  being  incurred  by  Borrower  or its  Subsidiaries  in
connection  with the  transactions  contemplated  by this Agreement or the other
Loan  Documents with the intent to hinder,  delay,  or defraud either present or
future creditors of Borrower or its Subsidiaries.

    5.13 Employee Benefits. None of Borrower, any of its Subsidiaries, or any of
their ERISA Affiliates maintains or contributes to any Benefit Plan.

    5.14 Environmental Condition. Except as set forth on Schedule 5.14 or except
for  matters  that  could not  reasonably  be  expected  to result in a Material
Adverse  Change,  (a)  to  Borrower's  knowledge,  none  of  Borrower's  or  its
Subsidiaries'  assets has ever been used by Borrower,  its  Subsidiaries,  or by
previous owners or operators in the disposal of, or to produce,  store,  handle,
treat,  release, or transport,  any Hazardous Materials,  where such production,
storage,  handling,   treatment,  release  or  transport  was  in  violation  of
applicable Environmental Law, (b) to Borrower's knowledge, none of Borrower's or
its Subsidiaries' properties or assets has ever been designated or identified in
any manner  pursuant  to any  environmental  protection  statute as a  Hazardous
Materials  disposal site, (c) neither  Borrower nor any of its  Subsidiaries has
received notice that a Lien arising under any  Environmental Law has attached to
any  revenues  or to any Real  Property  owned or  operated  by  Borrower or its
Subsidiaries,  and (d) neither  Borrower  nor its  Subsidiaries  has  received a
summons,  citation,  notice, or directive from the U.S. Environmental Protection
Agency or any other federal or state  governmental  agency concerning any action
or omission  by  Borrower or its  Subsidiaries  resulting  in the  releasing  or
disposing of Hazardous Materials into the environment.

    5.15  Brokerage  Fees.  Neither  Borrower  nor any of its  Subsidiaries  has
utilized  the  services of any broker or finder in  connection  with  Borrower's
obtaining  financing from the Lender Group under this Agreement and no brokerage
commission  or  finders  fee is  payable  by  Borrower  or its  Subsidiaries  in
connection herewith.

                                      -69-
<PAGE>

    5.16  Intellectual  Property.  Borrower  and its  Subsidiaries  own, or hold
licenses in, all trademarks,  trade names,  copyrights,  patents, patent rights,
and  licenses  that are  necessary  to the conduct of its  business as currently
conducted.  Attached hereto as Schedule 5.16 (as updated from time to time) is a
true,   correct,   and  complete  listing  of  all  material   patents,   patent
applications,  trademarks,  trademark  applications,  copyrights,  and copyright
registrations as to which Borrower or one of its Subsidiaries is the owner or is
an exclusive licensee.

    5.17 Leases.  Borrower and its  Subsidiaries  enjoy peaceful and undisturbed
possession  under all leases  material to their  business  and to which they are
parties or under  which  they are  operating.  All of such  leases are valid and
subsisting and no material default by Borrower or its Subsidiaries  exists under
any of them.

    5.18 Deposit  Accounts and Securities  Accounts.  Set forth on Schedule 5.18
(including  by  reference  to  Section  2.7(a))  are all of  Borrower's  and its
Subsidiaries Deposit Accounts and Securities Accounts,  including,  with respect
to each bank or securities intermediary (i) the name and address of such Person,
and (ii) the account  numbers of the Deposit  Accounts  or  Securities  Accounts
maintained with such Person.  Schedule 2.7(a)  separately  identifies each Store
Account, setting forth, for such Store Account, the applicable store(s) relating
thereto.

    5.19  Complete  Disclosure.  All  factual  information  (taken  as a  whole)
furnished by or on behalf of Borrower or its Subsidiaries in writing to Agent or
any Lender  (including all information  contained in the Schedules  hereto or in
the other Loan  Documents) for purposes of or in connection with this Agreement,
the other Loan Documents, or any transaction  contemplated herein or therein is,
and all other such factual information (taken as a whole) hereafter furnished by
or on behalf of Borrower or its  Subsidiaries  in writing to Agent or any Lender
will be, true and accurate,  in all material  respects,  on the date as of which
such  information  is dated or certified and not incomplete by omitting to state
any fact necessary to make such information (taken as a whole) not misleading in
any material respect at such time in light of the circumstances under which such
information  was  provided.  On the Closing  Date,  with  respect to the Initial
Business  Plan, and as of the date on which any other  Projections  are prepared
for delivery to Agent, with respect to such additional Projections, the Borrower
represents and warrants that such  Projections were prepared in good faith based
on assumptions believed to be reasonable at the time of the preparation thereof,
it being  understood that (without  limiting  Borrower's  obligations  hereunder
relating  to or based on such  projections)  such  projections  are  subject  to
significant  uncertainties  and  contingencies,  many of which  are  beyond  the
Borrower's control, such that no warranty can be given that the projections will
be realized.

    5.20 Indebtedness. Set forth on Schedule 5.20 is a true and complete list of
all Indebtedness of Borrower and its Subsidiaries  outstanding immediately prior
to the Closing  Date that is to remain  outstanding  after the Closing  Date and
such  Schedule  accurately  reflects  the  aggregate  principal  amount  of such
Indebtedness and the principal terms thereof.

                                      -70-
<PAGE>

    5.21 Credit Card Receipts.  Schedule 5.21 sets forth Borrower's  Credit Card
Processors  and all  material  arrangements  to which  Borrower  is a party with
respect to the payment to Borrower  of the  proceeds of credit card  charges for
sales by Borrower.

    5.22 Margin  Stock.  Borrower is not  engaged in the  business of  extending
credit for the purpose of  purchasing  or carrying  margin  stock (as defined in
Regulation U of the Board of Governors of the Federal  Reserve  System),  and no
proceeds of any  Advance or drawings  under any Letter of Credit will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.

6.    AFFIRMATIVE COVENANTS.

      Borrower  covenants  and  agrees  that,  until  termination  of all of the
Commitments  and payment in full of the  Obligations,  Borrower  shall and shall
cause each of its Subsidiaries to do all of the following:

    6.1 Accounting System. Maintain a system of accounting that enables Borrower
to produce  financial  statements in accordance  with GAAP and maintain  records
pertaining  to the  Collateral  that  contain  information  as from time to time
reasonably  may be  requested  by Agent.  Borrower  also shall keep an inventory
reporting  system  that  shows  all  additions,   sales,  claims,  returns,  and
allowances with respect to its and its Subsidiaries' Inventory.

    6.2 Collateral Reporting.  Provide Agent (and if so requested by Agent, with
copies  for each  Lender)  with the  documents  set  forth  on  Schedule  6.2 in
accordance with the delivery schedule set forth thereon.  In addition,  Borrower
agrees to cooperate  fully with Agent to  facilitate  and  implement a system of
electronic collateral reporting in order to provide electronic reporting of each
of the items set forth on Schedule 6.2.

    6.3 Financial  Statements,  Reports,  Certificates.  Deliver to Agent,  with
copies to each Lender:

      (a) as soon as available,  but in any event within 30 days (45 days in the
case of a month that is the end of one of Borrower's  fiscal quarters) after the
end of each month during each of Borrower's fiscal years,

            (i) a company prepared consolidated balance sheet, income statement,
      and  statement  of cash flow  covering  Borrower's  and its  Subsidiaries'
      operations during such period,

            (ii) a Compliance  Certificate signed by the chief financial officer
      or VP of Finance of Borrower to the effect that:

                  (A) the financial  statements  delivered  hereunder  have been
            prepared in  accordance  with GAAP (except for the lack of footnotes
            and being subject to year-end audit  adjustments) and fairly present
            in all material respects the financial condition of Borrower and its
            Subsidiaries,

                                      -71-
<PAGE>

                  (B) the  representations  and warranties of Borrower contained
            in this  Agreement and the other Loan Documents are true and correct
            in all material  respects on and as of the date of such certificate,
            as though  made on and as of such date  (except to the  extent  that
            such  representations  and  warranties  relate  solely to an earlier
            date), and

                  (C)  there  does  not  exist  any   condition  or  event  that
            constitutes  a Default or Event of Default (or, to the extent of any
            non-compliance, describing such non-compliance as to which he or she
            may have knowledge and what action Borrower has taken, is taking, or
            proposes to take with respect thereto), and

            (iii) for each month that is the date on which a financial  covenant
      in Section 7.18 is to be tested, a Compliance  Certificate  demonstrating,
      in  reasonable  detail,  compliance  at the end of such  period  with  the
      applicable financial covenants contained in Section 7.18,

      (b) as soon as available, but in any event within 90 days after the end of
each of  Borrower's  fiscal  years,  financial  statements  of Borrower  and its
Subsidiaries for each such fiscal year, audited by independent  certified public
accountants  reasonably  acceptable  to Agent  and  certified,  with  only  such
qualifications  as may be satisfactory to Agent in its sole discretion,  by such
accountants  to have  been  prepared  in  accordance  with  GAAP  (such  audited
financial statements to include a balance sheet, income statement, and statement
of cash flow and, if prepared, such accountants' letter to management),

      (c) as soon as available,  but in any event within 10 days after the start
of each of Borrower's fiscal years,  copies of Borrower's  Projections,  in form
and substance (including as to scope and underlying assumptions) satisfactory to
Agent, in its sole discretion,  for the forthcoming fiscal year, month by month,
certified by the chief  financial  officer or VP of Finance of Borrower as being
prepared in good faith based on  assumptions  believed to be  reasonable  at the
time of preparation thereof,

      (d) if and when filed by Borrower (or promptly thereafter),

            (i) Form 10-Q quarterly reports,  Form 10-K annual reports, and Form
      8-K current reports,  and any other filings made by Borrower with the SEC,
      it being understood that, as to any such filings, Borrower may deliver the
      same by electronic mail (to such email  address(es) as may be provided for
      such purpose from time to time by Agent),  including  any such  electronic
      mail specifying the applicable filing,

            (ii)  copies of  Borrower's  federal  income  tax  returns,  and any
      amendments thereto, filed with the Internal Revenue Service, and

            (iii) any other  information  that is  provided  by  Borrower to its
      shareholders generally,

                                      -72-
<PAGE>

      (e) upon request by Agent, satisfactory evidence of payment, and extent of
nonpayment  (if  applicable),  by Borrower and its  Subsidiaries  of  applicable
excise  taxes in each  jurisdiction  in which (i)  Borrower or its  Subsidiaries
conducts  business  or is  required  to pay any  such  excise  tax,  (ii)  where
Borrower's or its  Subsidiaries'  failure to pay any such applicable  excise tax
would  result  in a  Lien  on  the  properties  or  assets  of  Borrower  or its
Subsidiaries,  or (iii) where Borrower's or its Subsidiaries' failure to pay any
such applicable  excise tax reasonably could be expected to result in a Material
Adverse Change,

      (f) with respect to any month for which Borrowing Base Availability at any
time  during such month is less than  $20,000,000,  a  certification,  on a best
knowledge  basis,  in the  applicable  Compliance  Certificate  for such  month,
indicating,  as to Borrower and its  Subsidiaries,  the  payment,  and extent of
nonpayment (if applicable),  of (i) all sales taxes (but not use taxes) required
to be paid during such month (and  describing any applicable  Permitted  Protest
relating  thereto),  and (ii) all lease payments required to be paid during such
month (and describing any applicable  Permitted  Protest relating  thereto),  in
each case whether or not constituting an Event of Default hereunder,

      (g) promptly  after  Borrower has knowledge of any event or condition that
constitutes a Default or an Event of Default,  notice thereof and a statement of
the curative action that Borrower proposes to take with respect thereto,

      (h) promptly  after the  commencement  thereof,  but in any event within 5
Business  Days after the service of process with respect  thereto on Borrower or
any of its Subsidiaries, notice of all actions, suits, or proceedings brought by
or against Borrower or any of its Subsidiaries before any Governmental Authority
which, if determined adversely to Borrower or such Subsidiary,  reasonably could
be expected to result in a Material Adverse Change, and

      (i) upon the  request  of Agent,  any other  report  reasonably  requested
relating to the financial condition of Borrower or its Subsidiaries.

      In addition to the financial statements referred to above, Borrower agrees
(if and when it has any Subsidiaries) to deliver financial  statements  prepared
on both a consolidated and consolidating  basis and agrees that no Subsidiary of
Borrower  will have a fiscal  year  different  from that of  Borrower.  Borrower
agrees to cooperate  with Agent to allow Agent to consult  with its  independent
certified  public  accountants if Agent  reasonably  requests the right to do so
(and Agent  shall  notify  Borrower as to the timing of such  consultations  and
permit Borrower an opportunity to be present thereat or to otherwise participate
therein)  and  that,  in  such  connection,  its  independent  certified  public
accountants  are  authorized to  communicate  with Agent and to release to Agent
whatever  financial  information  concerning  Borrower or its Subsidiaries Agent
reasonably may request.

    6.4 Guarantor  Reports.  Cause each Guarantor (if any) to deliver its annual
financial  statements at the time when Borrower  provides its audited  financial
statements  to  Agent,  but  only  to  the  extent  such  Guarantor's  financial
statements are not consolidated with Borrower's financial statements, and copies
of all federal  income tax returns as soon as the

                                      -73-
<PAGE>

same are  available  and in any event no later  than 30 days  after the same are
required to be filed by law.

    6.5  Returns.  Cause  returns and  allowances,  as between  Borrower and its
Subsidiaries  and  their  Account  Debtors,  to be on  the  same  basis  and  in
accordance with the usual customary practices of Borrower,  as they exist at the
time of the execution and delivery of this Agreement.

    6.6  Maintenance of Properties.  Maintain and preserve all of its properties
which are  necessary  or useful in the proper  conduct to its  business  in good
working order and condition,  ordinary wear and tear excepted, and comply at all
times with the  provisions  of all leases to which it is a party as lessee so as
to prevent any loss or  forfeiture  thereof or  thereunder,  except  (subject to
Section 6.11 with respect to leases) for any non-compliance therewith and/or any
loss or forfeiture  thereunder that could not, individually or in the aggregate,
reasonably be expected to result in a Lien (other than  Permitted  Liens) on all
or any portion of the  Borrower  Collateral  or  otherwise  result in a Material
Adverse Change.

    6.7 Taxes.  Cause all  assessments  and taxes,  whether real,  personal,  or
otherwise,  due or payable by, or imposed, levied, or assessed against Borrower,
its  Subsidiaries,  or any of their respective assets to be paid in full, before
delinquency or before the expiration of any extension period,  except (a) to the
extent  that the  validity of such  assessment  or tax shall be the subject of a
Permitted  Protest,  (b) as to any sales  taxes  (but not use taxes) or state or
federal income taxes,  to the extent the aggregate  unpaid past due (taking into
account any applicable  extension) amount of all such taxes at all times is less
than $500,000,  and (c) as to any  assessments or taxes (other than with respect
to sales  taxes or state or  federal  income  taxes),  to the  extent  that such
failure to pay such  assessments  or taxes,  could not,  individually  or in the
aggregate,  reasonably  be  expected  to result in a  Material  Adverse  Change.
Subject to the foregoing,  Borrower will and will cause its Subsidiaries to make
timely payment or deposit of all tax payments and withholding  taxes required of
it and them by  applicable  laws,  including  those  laws  concerning  F.I.C.A.,
F.U.T.A.,  state  disability,  and local,  state,  and federal income taxes, and
will, upon request,  furnish Agent with proof  reasonably  satisfactory to Agent
indicating  that  Borrower  and its  Subsidiaries  have  made such  payments  or
deposits.

    6.8 Insurance.

      (a) At  Borrower's  expense,  maintain  insurance  respecting  its and its
Subsidiaries'  assets wherever located,  covering loss or damage by fire, theft,
explosion,  and all other hazards and risks as ordinarily are insured against by
other  Persons  engaged in the same or similar  businesses.  Borrower also shall
maintain  business  interruption,   public  liability,   and  product  liability
insurance,  as well as insurance  against  larceny,  embezzlement,  and criminal
misappropriation.  All such  policies of insurance  shall be in such amounts and
with such insurance companies as are reasonably  satisfactory to Agent.  Subject
to Section 3.2 as to timing,  Borrower shall deliver copies of all such policies
to Agent with a  satisfactory  lender's  loss  payable  endorsement  (subject to
Section  6.8(d) with respect to Deferred  Compensation  Life  Insurance)  naming
Agent as sole loss payee (or, to the extent

                                      -74-
<PAGE>

required by the  applicable  insurer,  naming  Borrower as loss payee,  but with
irrevocable  instructions  (which may not be  changed  without  Agent's  written
consent) for payment of all amounts to Borrower, as such loss payee, directly to
the Concentration Account) or additional insured, as appropriate. Each policy of
insurance or  endorsement  shall contain a clause  requiring the insurer to give
not less than 30 days prior written notice to Agent in the event of cancellation
of the policy for any reason whatsoever.

      (b)  Borrower  shall  give  Agent  prompt  notice of any loss in excess of
$100,000  covered by such  insurance.  Agent shall have the  exclusive  right to
adjust any losses claimed under any such insurance  policies (subject to Section
6.8(d)  with  respect to  Deferred  Compensation  Life  Insurance)  in excess of
$1,000,000 (or in any amount after the occurrence and during the continuation of
an Event of Default), without any liability to Borrower whatsoever in respect of
such  adjustments.  Any  monies  received  as  payment  for any loss  under  any
insurance policy mentioned above (other than liability insurance  policies,  and
subject to Section 6.8(d) with respect to Deferred  Compensation Life Insurance)
or as payment of any award or compensation for condemnation or taking by eminent
domain, shall be made or forwarded, as applicable,  to the Concentration Account
(and Agent shall permit the applicable  insurer to make such payment directly to
the Concentration Account);  provided,  however that, any such payments relating
to (or based on any loss with respect to)  Inventory  and any such payments made
or received during a Triggering  Period shall, in each case at the option of the
Required  Lenders,  (i) be paid by the  applicable  insurer  directly  to  Agent
(pursuant to such instructions as Agent may deliver),  and/or (ii) upon any such
payment to the  Concentration  Account or directly to Agent, be applied directly
to the prepayment of the Obligations.

      (c) Borrower  will not and will not suffer or permit its  Subsidiaries  to
take out separate  insurance  concurrent in form or contributing in the event of
loss with that required to be maintained  under this Section 6.8, unless subject
to the standard set forth in Section  6.8(a) Agent is included  thereon as named
insured with the loss payable to Agent under a lender's loss payable endorsement
or its  equivalent  or, as applicable  with  payments made to the  Concentration
Account.  Borrower promptly shall notify Agent whenever such separate  insurance
is taken out,  specifying the insurer  thereunder and full particulars as to the
policies  evidencing  the same,  and copies of such policies  promptly  shall be
provided to Agent.

      (d)  Notwithstanding  the  foregoing,  solely  with  respect  to  Deferred
Compensation  Life  Insurance,  Borrower  shall not be required to name Agent as
sole loss payee or additional  insured (or to deliver an endorsement)  and shall
have the right to adjust claims and receive and distribute proceeds with respect
thereto;  provided,  however, that in no event shall Borrower (i) make aggregate
payments   with  respect  to  obtaining  and   maintaining   all  such  Deferred
Compensation  Life Insurance in excess of $5,000,000 in any fiscal year, or (ii)
cause or permit any such Deferred  Compensation  Life Insurance to be subject to
any Lien.

    6.9  Location  of  Inventory  and   Equipment.   Keep   Borrower's  and  its
Subsidiaries'  Inventory  and  Equipment  only at the  locations  identified  on
Schedule 5.5 and

                                      -75-
<PAGE>

their chief  executive  offices  only at the  locations  identified  on Schedule
5.7(b); provided, however, that Borrower may amend Schedule 5.5 and Schedule 5.7
so long as such  amendment  occurs by  written  notice to Agent not less than 30
days prior to the date on which such Inventory or Equipment is moved to such new
location or such chief  executive  office is relocated,  and (a) with respect to
any new chief  executive  office,  such new location is within the United States
and at the  time  of  such  written  notification,  Borrower  provides  Agent  a
Collateral  Access Agreement with respect  thereto,  and (b) except as expressly
permitted in Section 7.17 with respect to locations  outside the United  States,
(i)  with  respect  to  any  new  Non-Owned  Storage  Facility,   Borrower  uses
commercially reasonable best efforts to obtain and deliver to Agent a Collateral
Access Agreement with respect  thereto,  and (ii) with respect to any other such
new  location,  Borrower  uses  commercially  reasonable  efforts  to obtain and
deliver to Agent a Collateral Access Agreement with respect thereto.

    6.10  Compliance with Laws.  Comply with the  requirements of all applicable
laws, rules,  regulations,  and orders of any Governmental Authority,  including
the Fair Labor  Standards Act and the Americans With  Disabilities  Act,  except
where  failure  to  so  comply  individually  or in  the  aggregate,  could  not
reasonably be expected to result in a Material Adverse Change.

    6.11  Leases.  Pay when due all rents and other  amounts  payable  under any
leases  to  which  Borrower  or any of its  Subsidiaries  is a party or by which
Borrower's or any such Subsidiaries' properties and assets are bound, except (a)
to the extent such payments are the subject of a Permitted  Protest or (b) lease
payments  in an  aggregate  amount at all times  less than (i)  $8,000,000  with
respect to Leased Store Locations, and (ii) $1,000,000 with respect to all other
leased locations (including all Non-Owned Storage Facilities).

    6.12  Existence.  At all times  preserve  and keep in full  force and effect
Borrower's and its Subsidiaries valid existence and good standing and any rights
and franchises material to their businesses.

    6.13 Environmental. Except for such Environmental Liens, failures to comply,
releases,   Environmental   Actions,   notices,   citations  or  orders   which,
individually or in the aggregate,  could not reasonably be expected to result in
a Material  Adverse  Change,  (a) keep any property  either owned or operated by
Borrower or its Subsidiaries  free of any  Environmental  Liens or post bonds or
other  financial  assurances  sufficient to satisfy the obligations or liability
evidenced  by  such   Environmental   Liens,  (b)  comply  with  all  applicable
Environmental  Laws and provide to Agent  documentation of such compliance which
Agent  reasonably  requests,  (c)  promptly  notify  Agent of any  release  of a
Hazardous  Material in any  reportable  quantity from or onto property  owned or
operated by Borrower or its  Subsidiaries and take any Remedial Actions required
to abate said  release or  otherwise  to come into  compliance  with  applicable
Environmental  Law,  and (d)  promptly,  but in any event  within 10 days of its
receipt thereof,  provide Agent with written notice of any of the following: (i)
notice  that an  Environmental  Lien has been filed  against  any of the real or
personal  property of Borrower or its  Subsidiaries,  (ii)  commencement  of any
Environmental  Action,  or notice  that an  Environmental  Action will be filed,
against  Borrower or its

                                      -76-
<PAGE>

Subsidiaries,  and (iii) notice of any  environmental  violation,  citation,  or
other administrative order received by Borrower or its Subsidiaries.

    6.14 Disclosure Updates. Promptly and in no event later than 5 Business Days
after  obtaining  knowledge  thereof,  notify Agent if any written  information,
exhibit,  or report furnished to the Lender Group contained any untrue statement
of a  material  fact or,  when  taken  together  with all  written  information,
exhibits and reports so furnished,  omitted to state any material fact necessary
to make  the  statements  contained  therein  not  misleading  in  light  of the
circumstances in which made. The foregoing to the contrary notwithstanding,  any
notification  pursuant to the  foregoing  provision  will not cure or remedy the
effect of the prior  untrue  statement  of a material  fact or  omission  of any
material  fact nor shall any such  notification  have the affect of  amending or
modifying this Agreement or any of the Schedules hereto.

    6.15 Formation of  Subsidiaries.  At the time that Borrower or any Guarantor
forms any direct or  indirect  Subsidiary  or  acquires  any direct or  indirect
Subsidiary  after the Closing Date,  Borrower or such Guarantor  shall (a) cause
such new  Subsidiary  to provide to Agent a Guaranty  (or joinder to an existing
Guaranty)  and a  Guarantor  Security  Agreement  (or  joinder  to  an  existing
Guarantor Security Agreement),  together with such other security documents,  as
well as  appropriate  UCC-1  financing  statements,  all in form  and  substance
satisfactory  to  Agent  (including  being  sufficient  to  grant  Agent a first
priority  Lien  (subject to Permitted  Liens) in and to the assets of such newly
formed or  acquired  Subsidiary  (other  than any such  assets that would not be
required to be subject to Agent's  Liens if they were  assets of the  Borrower),
(b) provide to Agent a pledge agreement and appropriate  certificates and powers
or UCC-1  financing  statements,  hypothecating  all of the direct or beneficial
ownership interest in such new Subsidiary, in form and substance satisfactory to
Agent, and (c) provide to Agent all other  documentation,  including one or more
opinions of counsel  satisfactory to Agent,  which in its opinion is appropriate
with  respect to the  execution  and  delivery of the  applicable  documentation
referred to above.  Any document,  agreement,  or instrument  executed or issued
pursuant to this Section 6.15 shall be a Loan Document.

7.    NEGATIVE COVENANTS.

      Borrower  covenants  and  agrees  that,  until  termination  of all of the
Commitments and payment in full of the  Obligations,  Borrower will not and will
not permit any of its Subsidiaries to do any of the following:

    7.1 Indebtedness.  Create,  incur, assume,  suffer to exist,  guarantee,  or
otherwise become or remain,  directly or indirectly,  liable with respect to any
Indebtedness, except:

      (a) Indebtedness evidenced by this Agreement and the other Loan Documents,
together with Indebtedness owed to Underlying Issuers with respect to Underlying
Letters of Credit and any other Obligations that constitute Indebtedness,

      (b) Indebtedness set forth on Schedule 5.20,

                                      -77-
<PAGE>

      (c) Permitted Purchase Money Indebtedness, and any refinancings,  renewals
or  extensions  thereof  (and  continuance  or renewals of the  Permitted  Liens
associated  therewith)  that do not  result in an  increase  in the then  extant
principal amount of the Indebtedness so refinanced, renewed or extended.

      (d) unsecured Indebtedness not otherwise permitted under this Section 7.1,
in an aggregate amount not to exceed $5,000,000 at any time,

      (e)  Indebtedness  secured  exclusively  by Permitted  Liens  described in
clause (m) of the definition of Permitted  Liens, in an aggregate  amount not to
exceed $1,000,000 at any time,

      (f) endorsement of instruments or other payment items for deposit,

      (g) Indebtedness composing Permitted Investments, and

      (h) Indebtedness in connection with Hedge  Agreements  entered into in the
ordinary course of business and not for speculative purposes.

    7.2  Liens.  Create,   incur,  assume,  or  suffer  to  exist,  directly  or
indirectly,  any Lien on or with  respect  to any of its  assets,  of any  kind,
whether now owned or  hereafter  acquired,  or any income or profits  therefrom,
except for Permitted Liens  (including  Liens that are replacements of Permitted
Liens to the extent that the original  Indebtedness is refinanced,  renewed,  or
extended under Section 7.1(c) and so long as the replacement Liens only encumber
those assets that secured the refinanced, renewed, or extended Indebtedness).

    7.3 Restrictions on Fundamental Changes.

      (a) Enter into any  merger  (other  than in  connection  with a  Permitted
Investment   where   Borrower   is   the   surviving   entity),   consolidation,
reorganization, or recapitalization.

      (b) Liquidate,  wind up, or dissolve  itself (or suffer any liquidation or
dissolution).

      (c) Convey, sell, lease, license,  assign,  transfer, or otherwise dispose
of, in one transaction or a series of transactions,  all or any substantial part
of its assets.

    7.4 Disposal of Assets.  Other than Permitted  Dispositions,  convey,  sell,
lease, license,  assign,  transfer, or otherwise dispose of any of Borrower's or
its Subsidiaries assets.

    7.5 Change Name. Change Borrower's or any of its Subsidiaries' names, FEINs,
organizational  identification  number,  state of organization or organizational
identity; provided, however, that Borrower or any of its Subsidiaries may change
their names upon at least 30 days prior  written  notice to Agent of such change
and so long  as,  at the  time of such  written  notification,  Borrower  or its
Subsidiary provides any financing  statements  necessary to perfect and continue
perfected the Agent's Liens.

                                      -78-
<PAGE>

    7.6 Nature of Business.  Make any material change in the principal nature of
its or their business.

    7.7 [Intentionally Omitted].

    7.8 Change of Control. Cause, permit, or suffer, directly or indirectly, any
Change of Control.

    7.9  Consignments.  Consign any of its or their Inventory or sell any of its
or their Inventory on bill and hold, sale or return, sale on approval,  or other
conditional terms of sale.

    7.10  Distributions.  Make any  distribution or declare or pay any dividends
(in cash or other property,  other than common Stock) on, or purchase,  acquire,
redeem,  or  retire  any of  Borrower's  Stock,  of any  class,  whether  now or
hereafter outstanding, except:

      (a) the purchase or redemption of Borrower's  stock in connection with and
pursuant to the terms of employee benefit and stock option plans.

      (b) additional  purchases or  redemptions of Borrower's  stock approved by
Borrower's board of directors,  in an aggregate amount not to exceed  $5,000,000
in any fiscal  year,  so long as (i) no Default or Event of Default has occurred
or is continuing or would result  therefrom,  (ii) both  immediately  before and
immediately  after giving effect to any such purchase or  redemption,  Borrowing
Base Availability shall be in excess of $20,000,000.

    7.11 Accounting  Methods.  Modify or change its fiscal year or its method of
accounting (other than as may be required to conform to GAAP).

    7.12 Investments. Except for Permitted Investments,  directly or indirectly,
make or acquire any Investment or incur any  liabilities  (including  contingent
obligations) for or in connection with any Investment;  provided, however, that,
Borrower shall not and shall not permit its Subsidiaries to, except with respect
to Special Account and Securities  Investments and subject to Section 3.2 (as to
initial  delivery of Control  Agreements),  (a) have  Permitted  Investments  in
Deposit  Accounts (other than Cash Management  Accounts) or Securities  Accounts
unless Borrower or its Subsidiary, as applicable,  and the applicable securities
intermediary  or bank  have  entered  into  Control  Agreements  governing  such
Permitted  Investments  in order to perfect (and further  establish) the Agent's
Liens in such  Permitted  Investments,  or (b) establish or maintain any Deposit
Account  (other than a Cash  Management  Account) or Securities  Account  unless
Agent shall have received a Control Agreement in respect of such Deposit Account
or Securities Account.

    7.13  Transactions  with  Affiliates.  Directly or indirectly  enter into or
permit to exist any  transaction  with any  Affiliate  of  Borrower  except  for
transactions  (a) that are in the ordinary course of Borrower's  business,  upon
fair and reasonable terms, and that are no less favorable to Borrower than would
be  obtained  in an arm's  length  transaction  with a  non-Affiliate,  (b) that
consist of officer or director  compensation or employee  benefit  programs,  in
each case that are in the ordinary  course of Borrower's  business and upon fair
and

                                      -79-
<PAGE>

reasonable terms to Borrower,  or (c) that consist of repurchases or redemptions
permitted under Sections 7.10.

    7.14 Suspension.  Suspend or go out of a substantial portion of its or their
business.

    7.15 [Intentionally Omitted].

    7.16 Use of  Proceeds.  Use (a) the proceeds of the Advances for any purpose
other than (i) on the  Closing  Date (or such  other  date on which the  initial
Advance is made),  (A) to repay,  in full, the  outstanding  principal,  accrued
interest, and accrued fees and expenses owing to Existing Lender, and (B) to pay
transactional  fees,  costs,  and  expenses  incurred  in  connection  with this
Agreement,  the other Loan Documents,  and the transactions  contemplated hereby
and  thereby,  and (ii)  thereafter,  consistent  with the terms and  conditions
hereof,  for its lawful  and  permitted  purposes;  or (b) the  proceeds  of the
Capital  Expenditures Loans for any purpose other than for Capital  Expenditures
and costs  associated  with the opening or remodeling of stores or  distribution
centers.

    7.17  Inventory and Equipment  Storage.  Store the Inventory or Equipment of
Borrower  or its  Subsidiaries  at any  time  now or  hereafter  with a  bailee,
warehouseman,  or similar party without  Agent's prior written  consent,  unless
such storage arrangement is subject to a Collateral Access Agreement;  provided,
however,  that the  foregoing  shall not apply to (i)  Inventory at that certain
Vitesse  Warehousing  facility (in  Rotterdam,  The  Netherlands)  identified in
Schedule  5.5 so long as the  aggregate  value of the  Inventory  stored at such
location at all times is less than $2,500,000, (ii) Inventory at other locations
outside  the United  States,  so long as the  aggregate  value of the  Inventory
stored at such  other  locations  at all times is less  than  $1,000,000,  (iii)
Equipment at locations outside the United States, so long as the aggregate value
of all such  Equipment  stored  at such  locations  at all  times  is less  than
$5,000,000,  and (iv)  Inventory at a Non-Owned  Storage  Facility in the United
States  for  which  a  Collateral   Access   Agreement  has  not  been  obtained
notwithstanding  Borrower's compliance with its obligations with respect thereto
under Sections 3.2 and 6.9.

    7.18 Financial Covenants

      (a) For any month (x) during which a Triggering  Period shall be in effect
on any day during  such month or (y)  covered in a monthly  financial  statement
delivered  (pursuant to Section  6.3(a)) during any Triggering  Period,  fail to
maintain or achieve (or failed to have maintained or achieved):

            (i) Minimum  EBITDA.  EBITDA,  measured  on a  month-end  basis with
      respect to the 12-month period then ended, of at least $35,000,000.

      (b) For any month (x) during which a Triggering  Period shall be in effect
on any day during  such month or (y)  covered in a monthly  financial  statement
delivered  (pursuant to Section 6.3(a)) during any Triggering  Period,  make (or
failed to have made):

                                      -80-
<PAGE>

            (i)  Capital  Expenditures.  Capital  expenditures,  measured  on  a
      month-end  basis with respect to the 12 month period then ended, in excess
      of (A) for the 12 month period ending January 31, 2004,  $30,000,000,  and
      (B) for the 12 month period  ending on February 29, 2004 and each 12 month
      period ending on each month-end thereafter, 115% of the forecasted amounts
      for such period as set forth in the  applicable  Projections  received and
      approved by Agent pursuant to Section 6.3(c).

8     EVENTS OF DEFAULT.

      Any one or more of the  following  events  shall  constitute  an  event of
default (each, an "Event of Default") under this Agreement:

    8.1 If Borrower fails to pay when due and payable,  or when declared due and
payable, all or any portion of the Obligations  (whether of principal,  interest
(including any interest  which,  but for the provisions of the Bankruptcy  Code,
would have  accrued on such  amounts),  fees and charges  due the Lender  Group,
reimbursement   of  Lender  Group  Expenses,   or  other  amounts   constituting
Obligations) other than Bank Product Obligations;  provided, however that in the
case of  Overadvances  that are caused by the  charging of  interest,  fees,  or
Lender Expenses to the Loan Account, such event shall not constitute an Event of
Default if, within 3 Business  Days of its receipt of telephonic  notice of such
Overadvance, Borrower eliminates such Overadvance;

    8.2 If Borrower:

      (a) fails to perform,  keep,  or observe any term,  provision,  condition,
covenant,  or agreement contained in Sections 3.2, 4.6, 6.8(a),  6.11, 6.12, and
7.1 through 7.18 of this Agreement;

      (b) fails or neglects to perform,  keep,  or  otherwise  observe any term,
provision,  condition,  covenant,  or agreement  contained  in Sections  2.7(b),
2.7(c),  2.7(d),  2.7(e) or 4.7(a) of this Agreement and such failure  continues
for a period of 2 Business Days; or

      (c) fails or neglects to perform,  keep,  or observe any term,  provision,
condition,  covenant,  or agreement  contained  in Sections  6.2,  6.7,  6.8(b),
6.8(c),  6.9, 6.10, 6.14, and 6.15 of this Agreement and such failure  continues
for a period of 5 Business Days; or

      (d) fails or  neglects  to  perform,  keep,  or  observe  any other  term,
provision,  condition, covenant, or agreement contained in this Agreement, or in
any of the other  Loan  Documents  (giving  effect to any  grace  periods,  cure
periods,  or  required  notices,  if any,  expressly  provided  for in such Loan
Documents),  in each case,  other than any such term,  provision,  covenant,  or
agreement  that is the subject of another  provision of this Section 8 (in which
event such other  provision  of this Section 8 shall  govern),  and such failure
continues for a period of 10 Business Days;

                                      -81-
<PAGE>

provided  that,  during  any  period of time that any such  failure  or  neglect
referred to in this paragraph exists, even if such failure or neglect is not yet
an Event of Default,  the Lender  Group shall be relieved of its  obligation  to
extend credit hereunder;

    8.3 If any material portion of Borrower's or any of its Subsidiaries' assets
is attached,  seized,  subjected to a writ or distress warrant,  levied upon, or
comes into the  possession  of any third  Person and the same is not  discharged
before the earlier of 30 days after the date it first  arises or 5 days prior to
the date on which such property or asset is subject to forfeiture by Borrower or
such Subsidiary;

    8.4 If an  Insolvency  Proceeding  is  commenced  by  Borrower or any of its
Subsidiaries,  or Borrower  admits in writing its  inability to, or is generally
unable to, pay its debts as such debts become due;

    8.5 If an Insolvency Proceeding is commenced against Borrower, or any of its
Subsidiaries,  and any of the  following  events  occur:  (a)  Borrower  or such
Subsidiary consents to the institution of such Insolvency Proceeding against it,
(b)  the  petition   commencing   the   Insolvency   Proceeding  is  not  timely
controverted;  provided,  however, that, during the pendency of such period from
the   commencement   of   such   Insolvency    Proceeding   until   it   is   so
controverted/dismissed, each member of the Lender Group shall be relieved of its
obligations  to  extend  credit  hereunder,  (c)  the  petition  commencing  the
Insolvency  Proceeding is not  dismissed  within 45 calendar days of the date of
the filing thereof; provided,  however, that, during the pendency of such period
from  the   commencement   of  such  Insolvency   Proceeding   until  it  is  so
controverted/dismissed, each member of the Lender Group shall be relieved of its
obligations to extend credit  hereunder,  (d) an interim trustee is appointed to
take  possession of all or any  substantial  portion of the properties or assets
of, or to operate all or any substantial portion of the business of, Borrower or
any of its  Subsidiaries,  or (e) an order for relief  shall  have been  entered
therein;

    8.6 If Borrower or any of its  Subsidiaries is enjoined,  restrained,  or in
any way prevented by court order from  continuing to conduct all or any material
part of its business affairs;

    8.7 If one or more  judgments  or other  asserted  claims for the payment of
money  (including  pursuant  to any notice of Lien,  levy,  assessment  or other
asserted  claim with  respect to taxes or debts owing to United  States,  or any
department,  agency,  or  instrumentality  thereof,  or by  any  state,  county,
municipal, or governmental agency) involving an aggregate amount of $500,000, or
more (not including any amount thereof  covered by insurance or, with respect to
escheat or use taxes,  any amount to the extent the applicable  Lien is excluded
pursuant to the first proviso below to this subsection), becomes a Lien upon any
of Borrower's or any of its  Subsidiaries'  assets and the same is not released,
discharged,  bonded  against,  or stayed pending appeal before the earlier of 30
days  after the date it first  arises or 5 days  prior to the date on which such
asset is subject to being  forfeited by Borrower or such  Subsidiary;  provided,
however,  that, with respect to any such Lien for escheat or use taxes, the same
shall not be an Event of Default under this  subsection so long as (a) such Lien
does not have priority over Agent's Liens in the subject assets, (b) Borrower

                                      -82-
<PAGE>

or such  Subsidiary is diligently and in good faith  contesting  such escheat or
use taxes by applicable  proceedings  and has established a reserve on the Books
in such  amount  as is  required  under  GAAP,  and (c) such  Lien is  released,
discharged,  bonded against, or stayed pending appeal before 5 days prior to the
date on which  such  asset is subject to being  forfeited  by  Borrower  or such
Subsidiary;

    8.8 [Intentionally Omitted.]

    8.9 If there is a default in one or more agreements to which Borrower or any
of its  Subsidiaries  is a party  relative to  Borrower's  or such  Subsidiary's
Indebtedness  involving an aggregate  amount of  $1,000,000,  or more,  and such
default (i) occurs at the final  maturity  of  obligations  thereunder,  or (ii)
results  in a  right  by  the  other  party  thereto,  irrespective  of  whether
exercised,  to  accelerate  the  maturity  of  Borrower's  or its  Subsidiaries'
obligations thereunder; or

    8.10 If Borrower or any of its Subsidiaries  makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the  Obligations,  except to the extent such  payment is permitted by
the terms of the subordination provisions applicable to such Indebtedness;

    8.11  If  any  material  misstatement  or  misrepresentation  exists  now or
hereafter  in any  warranty,  representation,  statement,  or Record made to the
Lender Group by Borrower, its Subsidiaries,  or any officer, employee, agent, or
director of Borrower or any of its Subsidiaries;

    8.12 If the  obligation  of any  Guarantor  under any  Guaranty or Guarantor
Security Agreement is limited (other than as expressly  contemplated thereby) or
terminated by operation of law or by such Guarantor thereunder; or

    8.13 If this  Agreement or any other Loan Document that purports to create a
Lien, shall, for any reason,  fail or cease to create a valid and, except to the
extent  permitted by the terms hereof or thereof,  perfected first priority Lien
on or security interest in the Collateral covered hereby or thereby; or

    8.14 Any  provision  of any Loan  Document  shall at any time for any reason
(except as  expressly  permitted  hereby or  thereby) be declared to be null and
void, or the validity or  enforceability  thereof shall be contested by Borrower
or its  Subsidiaries,  or a  proceeding  shall be  commenced  by Borrower or its
Subsidiaries, or by any Governmental Authority having jurisdiction over Borrower
or its  Subsidiaries,  seeking to establish the  invalidity or  unenforceability
thereof,  or  Borrower  or its  Subsidiaries  shall  deny that  Borrower  or its
Subsidiaries  has any liability or obligation  purported to be created under any
Loan Document, or

    8.15  Richard  Thalheimer,  or any  successor  approved in writing by Agent,
shall cease to be the Chairman and Chief  Executive  Officer of Borrower,  and a
successor to such  position  approved in writing by Agent shall  thereafter  not
have assumed such position within 120 days.

                                      -83-
<PAGE>

9.  THE LENDER GROUP'S RIGHTS AND REMEDIES.

    9.1 Rights and Remedies.  Upon the occurrence,  and during the continuation,
of an Event of Default,  the  Required  Lenders (at their  election  but without
notice of their  election  and  without  demand  except as set forth  below) may
authorize and instruct Agent to do any one or more of the following on behalf of
the Lender  Group (and  Agent,  acting  upon the  instructions  of the  Required
Lenders,  shall do the same on behalf  of the  Lender  Group),  all of which are
authorized by Borrower:

      (a) Upon notice to Borrower  (except  with  respect to an Event of Default
under Sections 8.4 or 8.5, in which case no such notice shall be required, or in
the  event  Agent  determines,   in  its  Permitted  Discretion,   that  exigent
circumstances  (such as, without  limitation,  fraud,  concealment,  conversion,
waste, or abscondment) require immediate action prior to delivery of such notice
in  order to  preserve,  protect,  or  obtain  possession  or  control  over the
Collateral or any portion thereof, in which case Agent shall deliver such notice
as  soon  as  reasonably  practicable  under  the  circumstances),  declare  all
Obligations  (other than Bank Product  Obligations),  whether  evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;

      (b) Cease  advancing  money or  extending  credit to or for the benefit of
Borrower under this Agreement,  under any of the Loan Documents (other than Bank
Product  Agreements),  or under any other  agreement  between  Borrower  and the
Lender Group;

      (c) Upon notice to Borrower  (except  with  respect to an Event of Default
under  Sections  8.4 or 8.5,  in which case no such notice  shall be  required),
terminate this  Agreement and any of the other Loan  Documents  (other than Bank
Product  Agreements)  as to any future  liability  or  obligation  of the Lender
Group,  but without  affecting  any of the Agent's Liens in the  Collateral  and
without affecting the Obligations;

      (d) Settle or adjust disputes and claims directly with Borrower's  Account
Debtors for amounts and upon terms which Agent considers advisable,  and in such
cases,  Agent will  credit  Borrower's  Loan  Account  with only the net amounts
received  by Agent in payment of such  disputed  Accounts  after  deducting  all
Lender Group Expenses incurred or expended in connection therewith;

      (e) Cause Borrower to hold all of its returned  Inventory in trust for the
Lender Group and segregate all such  Inventory from all other assets of Borrower
or in Borrower's possession;

      (f) Without notice to or demand upon  Borrower,  make such payments and do
such acts as Agent  considers  necessary or  reasonable  to protect its security
interests in the Collateral. Borrower agrees to assemble the Collateral if Agent
so requires, and to make the Collateral available to Agent at a place that Agent
may  designate  which  is  reasonably  convenient  to  both  parties.   Borrower
authorizes Agent to enter the premises where the Collateral is located,  to take
and  maintain  possession  of the  Collateral,  or any  part of it,  and to pay,
purchase,  contest, or compromise any Lien that in Agent's determination appears
to  conflict  with the  Agent's  Liens in and to the  Collateral  and to pay all
expenses incurred in

                                      -84-
<PAGE>

connection  therewith  and to charge  Borrower's  Loan  Account  therefor.  With
respect to any of Borrower's  owned or leased  premises,  Borrower hereby grants
Agent a license  to enter into  possession  of such  premises  and to occupy the
same,  without charge,  in order to exercise any of the Lender Group's rights or
remedies provided herein, at law, in equity, or otherwise;

      (g) Without notice to Borrower (such notice being expressly  waived),  and
without  constituting  an  acceptance  of any  collateral  in  full  or  partial
satisfaction  of an  obligation  (within the  meaning of the Code),  set off and
apply to the  Obligations,  to the full extent permitted by law, any and all (i)
balances  and  deposits  of Borrower  held by the Lender  Group  (including  any
amounts received in the Cash Management  Accounts),  or (ii) Indebtedness at any
time owing to or for the credit or the  account of  Borrower  held by the Lender
Group;

      (h)  Hold,  as cash  collateral,  any and all  balances  and  deposits  of
Borrower  held  by the  Lender  Group,  and any  amounts  received  in the  Cash
Management  Accounts,  to  secure  the full and  final  repayment  of all of the
Obligations;

      (i) Ship, reclaim,  recover, store, finish, maintain,  repair, prepare for
sale,  advertise  for sale,  and sell (in the manner  provided  for  herein) the
Borrower Collateral. Borrower hereby grants to Agent a license or other right to
use, without charge,  Borrower's  labels,  patents,  copyrights,  trade secrets,
trade names, trademarks,  service marks, and advertising matter, or any property
of a similar nature,  as it pertains to the Borrower  Collateral,  in completing
production of,  advertising  for sale,  and selling any Borrower  Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
the Lender Group's benefit;

      (j) Sell the Borrower  Collateral  at either a public or private  sale, or
both, by way of one or more contracts or transactions,  for cash or on terms, in
such  manner  and at  such  places  (including  Borrower's  premises)  as  Agent
determines is  commercially  reasonable.  It is not necessary  that the Borrower
Collateral be present at any such sale;

      (k) Agent shall give notice of the disposition of the Borrower  Collateral
as follows:

            (i) Agent  shall  give  Borrower a notice in writing of the time and
      place of public  sale,  or, if the sale is a  private  sale or some  other
      disposition  other  than a  public  sale  is to be  made  of the  Borrower
      Collateral,  the  time  on or  after  which  the  private  sale  or  other
      disposition is to be made; and

            (ii) The notice shall be  personally  delivered  or mailed,  postage
      prepaid,  to  Borrower  as provided in Section 12, at least 10 days before
      the earliest time of disposition set forth in the notice;  no notice needs
      to be given  prior  to the  disposition  of any  portion  of the  Borrower
      Collateral that is perishable or threatens to decline speedily in value or
      that is of a type customarily sold on a recognized market;

                                      -85-
<PAGE>

      (l) Agent,  on behalf of the Lender Group,  may credit bid and purchase at
any public sale;

      (m)  Agent  may seek the  appointment  of a  receiver  or  keeper  to take
possession  of all or any portion of the Borrower  Collateral or to operate same
and, to the maximum extent  permitted by law, may seek the appointment of such a
receiver without the requirement of prior notice or a hearing; and

      (n) The Lender Group shall have all other rights and remedies available at
law or in equity or pursuant to any other Loan Document;

provided, however, that upon the occurrence of any Event of Default described in
Section 8.4 or Section 8.5, in addition to the remedies set forth above, without
any notice to Borrower or any other Person or any act by the Lender  Group,  the
Commitments shall  automatically  terminate and the Obligations (other than Bank
Product  Obligations)  then  outstanding,  together  with all accrued and unpaid
interest thereon and all fees and all other amounts due under this Agreement and
the other Loan Documents,  shall  automatically  and immediately  become due and
payable,  without  presentment,  demand,  protest, or notice of any kind, all of
which are expressly waived by Borrower.

    9.2 Remedies  Cumulative.  The rights and remedies of the Lender Group under
this Agreement,  the other Loan  Documents,  and all other  agreements  shall be
cumulative.  The Lender  Group  shall have all other  rights  and  remedies  not
inconsistent  herewith as  provided  under the Code,  by law,  or in equity.  No
exercise by the Lender Group of one right or remedy shall be deemed an election,
and no waiver by the  Lender  Group of any  Event of  Default  shall be deemed a
continuing  waiver.  No delay by the Lender  Group  shall  constitute  a waiver,
election, or acquiescence by it.

10.   TAXES AND EXPENSES.

      If Borrower fails to pay when due any monies (whether taxes,  assessments,
insurance  premiums,  or, in the case of leased  properties or assets,  rents or
other amounts payable under such leases) due to third Persons,  or fails to make
any  deposits  or furnish  any  required  proof of payment  or  deposit,  all as
required under the terms of this Agreement,  then, Agent, in its sole discretion
and without prior notice to Borrower,  may do any or all of the  following:  (a)
make payment of the same or any part  thereof  (except to the extent the same is
subject to a Permitted Protest expressly  permitted pursuant to this Agreement),
(b) set up such reserves in Borrower's  Loan Account as Agent deems necessary to
protect the Lender Group from the exposure  created by such  failure,  or (c) in
the case of the failure to comply with  Section 6.8 hereof,  obtain and maintain
insurance policies of the type described in Section 6.8 and take any action with
respect to such policies as Agent deems prudent.  Any such amounts paid by Agent
shall  constitute  Lender  Group  Expenses  and  any  such  payments  shall  not
constitute  an agreement  by the Lender  Group to make  similar  payments in the
future  or a waiver  by the  Lender  Group of any Event of  Default  under  this
Agreement.  Agent need not inquire as to, or contest the  validity  of, any such
expense,  tax,  or Lien and the

                                      -86-
<PAGE>

receipt of the usual official notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing.

11.   WAIVERS; INDEMNIFICATION.

    11.1 Demand;  Protest;  etc.  Borrower  waives  demand,  protest,  notice of
protest,  notice of  default or  dishonor,  notice of  payment  and  nonpayment,
nonpayment at maturity, release, compromise,  settlement,  extension, or renewal
of documents, instruments, chattel paper, and guarantees at any time held by the
Lender Group on which Borrower may in any way be liable.

    11.2 The Lender Group's Liability for Borrower  Collateral.  Borrower hereby
agrees that: (a) so long as Agent complies with its  obligations,  if any, under
the  Code,  the  Lender  Group  shall  not in any way or  manner  be  liable  or
responsible for: (i) the safekeeping of the Borrower  Collateral,  (ii) any loss
or damage thereto  occurring or arising in any manner or fashion from any cause,
(iii) any  diminution  in the value  thereof,  or (iv) any act or default of any
carrier,  warehouseman,  bailee,  forwarding agency, or other Person, except, in
each case, to the extent such liability arises from the Agent's gross negligence
or willful misconduct,  and (b) except as otherwise provided in (a), all risk of
loss,  damage,  or  destruction  of the  Borrower  Collateral  shall be borne by
Borrower.

    11.3  Indemnification.  Borrower shall pay, indemnify,  defend, and hold the
Agent-Related  Persons, the Lender-Related  Persons, and each Participant (each,
an "Indemnified  Person") harmless (to the fullest extent permitted by law) from
and  against  any and  all  claims,  demands,  suits,  actions,  investigations,
proceedings,  and damages,  and all reasonable  attorneys fees and disbursements
and other costs and expenses actually  incurred in connection  therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted  against,  imposed  upon,  or incurred by any of them (a) in connection
with or as a result  of or  related  to the  execution,  delivery,  enforcement,
performance,  or  administration  (including any  restructuring  or workout with
respect  hereto)  of this  Agreement,  any of the other Loan  Documents,  or the
transactions  contemplated hereby or thereby or the monitoring of Borrower's and
its Subsidiaries'  compliance with the terms of the Loan Documents, and (b) with
respect  to  any  investigation,  litigation,  or  proceeding  related  to  this
Agreement,  any other Loan  Document,  or the use of the  proceeds of the credit
provided  hereunder  (irrespective of whether any Indemnified  Person is a party
thereto),  or any act,  omission,  event,  or circumstance in any manner related
thereto (all the foregoing,  collectively,  the "Indemnified Liabilities").  The
foregoing to the contrary notwithstanding,  Borrower shall have no obligation to
any  Indemnified  Person under this Section 11.3 with respect to any Indemnified
Liability  that a court of competent  jurisdiction  finally  determines  to have
resulted  from the gross  negligence or willful  misconduct of such  Indemnified
Person.  This provision  shall survive the termination of this Agreement and the
repayment of the Obligations. If any Indemnified Person makes any payment to any
other  Indemnified  Person with respect to an Indemnified  Liability as to which
Borrower  was  required to  indemnify  the  Indemnified  Person  receiving  such
payment,   the  Indemnified  Person  making  such  payment  is  entitled  to  be
indemnified and reimbursed by Borrower with respect thereto. WITHOUT LIMITATION,
THE FOREGOING  INDEMNITY SHALL

                                      -87-
<PAGE>

APPLY TO EACH INDEMNIFIED  PERSON WITH RESPECT TO INDEMNIFIED  LIABILITIES WHICH
IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY  NEGLIGENT ACT OR OMISSION
OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

12.   NOTICES.

      Unless  otherwise  provided in this  Agreement,  all notices or demands by
Borrower  or Agent to the other  relating  to this  Agreement  or any other Loan
Document  shall be in writing  and (except for  financial  statements  and other
informational  documents which may be sent by first-class mail, postage prepaid)
shall be personally  delivered or sent by registered or certified  mail (postage
prepaid, return receipt requested),  overnight courier, electronic mail (at such
email addresses as Borrower or Agent, as applicable, may designate to each other
in accordance herewith),  or telefacsimile to Borrower or Agent, as the case may
be, at its address set forth below:

                  If to Borrower:   SHARPER IMAGE CORPORATION
                                    650 Davis Street
                                    San Francisco, California 94111
                                    Attn: Jeffrey P. Forgan
                                    Fax No. 415-445-1574

                  with copies to:   DAVIS POLK & WARDWELL
                                    450 Lexington Avenue
                                    New York, New York 10017
                                    Attn: Karin S. Day, Esq.
                                    Fax No. 212-450-3800

                  If to Agent:      WELLS FARGO RETAIL FINANCE, LLC
                                    One Boston Place, 18th floor
                                    Boston, Massachusetts 02108
                                    Attn: Patrick J. Norton
                                    Fax No. 617-523-1697

                  with copies to:   PAUL, HASTINGS, JANOFSKY & WALKER LLP
                                    515 S. Flower Street
                                    Twenty-fifth Floor
                                    Los Angeles, California 90071
                                    Attn:  John Francis Hilson, Esq.
                                    Fax No.  (213) 627-0705

      Agent and  Borrower  may change  the  address at which they are to receive
notices  hereunder,  by notice in writing in the  foregoing  manner given to the
other  party.  All notices or demands sent in  accordance  with this Section 12,
other than notices by Agent in connection  with  enforcement  rights against the
Borrower  Collateral  under the provisions of the Code, shall be deemed received
on the  earlier  of the date of actual  receipt  or 3  Business  Days  after the
deposit thereof in the mail. Borrower  acknowledges and agrees that notices

                                      -88-
<PAGE>

sent by the Lender Group in connection  with the exercise of enforcement  rights
against  Borrower  Collateral  under the  provisions of the Code shall be deemed
sent when deposited in the mail or personally delivered,  or, where permitted by
law, transmitted by telefacsimile or any other method set forth above.

13.    CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

      (a) THE VALIDITY OF THIS  AGREEMENT AND THE OTHER LOAN  DOCUMENTS  (UNLESS
EXPRESSLY  PROVIDED TO THE CONTRARY IN ANOTHER LOAN  DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION,  INTERPRETATION,  AND ENFORCEMENT HEREOF
AND  THEREOF,  AND THE RIGHTS OF THE PARTIES  HERETO AND THERETO WITH RESPECT TO
ALL MATTERS  ARISING  HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE DETERMINED  UNDER,  GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.

      (b)  THE  PARTIES  AGREE  THAT,  TO THE  FULLEST  EXTENT  PERMITTED  UNDER
APPLICABLE  LAW,  ALL ACTIONS OR  PROCEEDINGS  ARISING IN  CONNECTION  WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS  SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE  AND  FEDERAL  COURTS  LOCATED  IN NEW YORK  COUNTY,  STATE  OF NEW  YORK,
PROVIDED,  HOWEVER,  THAT ANY SUIT  SEEKING  ENFORCEMENT  AGAINST  ANY  BORROWER
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF
ANY JURISDICTION  WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH BORROWER
COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  BORROWER AND THE LENDER GROUP WAIVE,
TO THE EXTENT  PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE  DOCTRINE  OF FORUM NON  CONVENIENS  OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b).

      (c)  BORROWER AND THE LENDER GROUP  HEREBY  WAIVE,  TO THE FULLEST  EXTENT
PERMITTED BY LAW, THEIR RESPECTIVE  RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION  BASED UPON OR ARISING OUT OF ANY OF THE LOAN  DOCUMENTS OR ANY OF THE
TRANSACTIONS  CONTEMPLATED  THEREIN,  INCLUDING  CONTRACT  CLAIMS,  TORT CLAIMS,
BREACH OF DUTY CLAIMS,  AND ALL OTHER COMMON LAW OR STATUTORY  CLAIMS.  BORROWER
AND THE LENDER  GROUP  REPRESENT  THAT EACH HAS  REVIEWED  THIS  WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY  WAIVES ITS JURY TRIAL RIGHTS  FOLLOWING  CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,  A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

                                      -89-
<PAGE>

14.   ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

    14.1   Assignments and Participations.

      (a) Any Lender may assign and delegate to one or more  assignees  (each an
"Assignee")  that are Eligible  Transferees  all, or any ratable part of all, of
the  Obligations,  the  Commitments and the other rights and obligations of such
Lender, in each case hereunder and under the other Loan Documents,  in a minimum
amount of $5,000,000;  provided however that, so long as no Event of Default has
occurred  and  is  continuing,   Borrower  shall  have  approved  such  Eligible
Transferee  (which  approval  shall not be  unreasonably  withheld,  delayed  or
conditioned);  provided,  further,  that Borrower and Agent may continue to deal
solely and directly with such Lender in connection with the interest so assigned
to an  Assignee  until (i)  written  notice of such  assignment,  together  with
payment  instructions,  addresses,  and related  information with respect to the
Assignee, have been given to Borrower and Agent by such Lender and the Assignee,
(ii) such Lender and its Assignee  have  delivered to Borrower and Agent a fully
executed  Assignment and  Acceptance,  and (iii) the assignor Lender or Assignee
has paid to Agent for Agent's separate account a processing fee in the amount of
$5,000. Anything contained herein to the contrary  notwithstanding,  the payment
of any fees  shall not be  required  and the  Assignee  need not be an  Eligible
Transferee if such assignment is in connection  with any merger,  consolidation,
sale,  transfer,  or other disposition of all or any substantial  portion of the
business or loan portfolio of the assigning Lender.

      (b) From and after the date that Agent notifies the assignor  Lender (with
a copy to Borrower)  that it has received an executed  Assignment and Acceptance
and payment of the above-referenced  processing fee, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance,  shall have
the rights and  obligations of a Lender under the Loan  Documents,  and (ii) the
assignor Lender shall,  to the extent that rights and obligations  hereunder and
under  the other  Loan  Documents  have been  assigned  by it  pursuant  to such
Assignment and Acceptance, relinquish its rights (except with respect to Section
11.3 hereof) and be released from any future  obligations  under this  Agreement
(and in the case of an Assignment and  Acceptance  covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement and
the other Loan  Documents,  such  Lender  shall  cease to be a party  hereto and
thereto),  and such assignment  shall effect a novation between Borrower and the
Assignee;  provided,  however,  that nothing  contained herein shall release any
assigning   Lender  from  obligations  that  survive  the  termination  of  this
Agreement,  including such assigning  Lender's  obligations under Article 16 and
Section 17.8 of this Agreement.

      (c)  By  executing  and  delivering  an  Assignment  and  Acceptance,  the
assigning  Lender  thereunder and the Assignee  thereunder  confirm to and agree
with each  other and the other  parties  hereto as  follows:  (1) other  than as
provided in such  Assignment  and  Acceptance,  such  assigning  Lender makes no
representation  or warranty  and assumes no  responsibility  with respect to any
statements,  warranties or  representations  made in or in connection  with this
Agreement or the execution,  legality,  validity,  enforceability,

                                      -90-
<PAGE>

genuineness,  sufficiency  or value of this Agreement or any other Loan Document
furnished  pursuant hereto, (2) such assigning Lender makes no representation or
warranty and assumes no responsibility  with respect to the financial  condition
of  Borrower  or  the  performance  or  observance  by  Borrower  of  any of its
obligations under this Agreement or any other Loan Document  furnished  pursuant
hereto,  (3)  such  Assignee  confirms  that  it has  received  a copy  of  this
Agreement,  together with such other  documents and information as it has deemed
appropriate  to make its own credit  analysis  and  decision  to enter into such
Assignment and  Acceptance,  (4) such Assignee will,  independently  and without
reliance upon Agent,  such  assigning  Lender or any other Lender,  and based on
such  documents  and  information  as it shall  deem  appropriate  at the  time,
continue to make its own credit  decisions in taking or not taking  action under
this  Agreement,  (5) such Assignee  appoints and authorizes  Agent to take such
actions and to exercise  such powers under this  Agreement  as are  delegated to
Agent,  by the  terms  hereof,  together  with  such  powers  as are  reasonably
incidental thereto, and (6) such Assignee agrees that it will perform all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender.

      (d)  Immediately  upon  Agent's  receipt of the  required  processing  fee
payment and the fully executed  Assignment and Acceptance,  this Agreement shall
be deemed to be amended to the  extent,  but only to the  extent,  necessary  to
reflect  the  addition  of the  Assignee  and the  resulting  adjustment  of the
Commitments arising therefrom.  The Commitment  allocated to each Assignee shall
reduce such Commitments of the assigning Lender pro tanto.

      (e) Any Lender may at any time, with the written consent of Agent, sell to
one or more  commercial  banks,  financial  institutions,  or other  Persons not
Affiliates  of such  Lender (a  "Participant")  participating  interests  in its
Obligations,  the Commitment,  and the other rights and interests of that Lender
(the  "Originating  Lender")  hereunder  and  under  the  other  Loan  Documents
(provided that no written  consent of Agent shall be required in connection with
any  sale  of any  such  participating  interests  by a  Lender  to an  Eligible
Transferee);  provided,  however, that (i) the Originating Lender shall remain a
"Lender" for all purposes of this Agreement and the other Loan Documents and the
Participant  receiving  the  participating  interest  in  the  Obligations,  the
Commitments,  and the other  rights  and  interests  of the  Originating  Lender
hereunder  shall not  constitute  a "Lender"  hereunder  or under the other Loan
Documents and the Originating  Lender's  obligations  under this Agreement shall
remain unchanged,  (ii) the Originating  Lender shall remain solely  responsible
for the performance of such obligations,  (iii) Borrower, Agent, and the Lenders
shall  continue  to deal  solely and  directly  with the  Originating  Lender in
connection  with the  Originating  Lender's  rights and  obligations  under this
Agreement and the other Loan  Documents,  (iv) no Lender shall transfer or grant
any participating  interest under which the Participant has the right to approve
any  amendment  to, or any consent or waiver with respect to, this  Agreement or
any other Loan  Document,  except to the extent such amendment to, or consent or
waiver with respect to this  Agreement or of any other Loan  Document  would (A)
extend  the final  maturity  date of the  Obligations  hereunder  in which  such
Participant  is  participating,  (B) reduce the interest rate  applicable to the
Obligations  hereunder in which such Participant is  participating,  (C) release
all or substantially  all of the Collateral or guaranties  (except to the extent
expressly  provided  herein  or in any of the  Loan  Documents)

                                      -91-
<PAGE>

supporting the Obligations hereunder in which such Participant is participating,
(D)  postpone  the  payment  of, or reduce the amount of, the  interest  or fees
payable to such Participant through such Lender, or (E) change the amount or due
dates of scheduled principal repayments or prepayments or premiums,  and (v) all
amounts payable by Borrower  hereunder shall be determined as if such Lender had
not sold such  participation,  except that,  if amounts  outstanding  under this
Agreement  are due and unpaid,  or shall have been declared or shall have become
due and payable upon the  occurrence  of an Event of Default,  each  Participant
shall, to the extent permitted by law, be deemed to have the right of set-off in
respect of its  participating  interest in amounts owing under this Agreement to
the same  extent  as if the  amount of its  participating  interest  were  owing
directly to it as a Lender under this  Agreement.  The rights of any Participant
only  shall  be  derivative  through  the  Originating  Lender  with  whom  such
Participant  participates  and no  Participant  shall have any rights under this
Agreement  or the other  Loan  Documents  or any  direct  rights as to the other
Lenders,  Agent, Borrower, the Collections of Borrower or its Subsidiaries,  the
Collateral,  or otherwise in respect of the  Obligations.  No Participant  shall
have the right to participate directly in the making of decisions by the Lenders
among themselves.

      (f) In connection  with any such assignment or  participation  or proposed
assignment or participation,  a Lender may, subject to the provisions of Section
17.8,  disclose all documents and information which it now or hereafter may have
relating to Borrower and its Subsidiaries and their respective businesses.

      (g) Any other provision in this Agreement notwithstanding,  any Lender may
at any time create a security interest in, or pledge,  all or any portion of its
rights under and interest in this Agreement in favor of any Federal Reserve Bank
in accordance  with  Regulation A of the Federal  Reserve Bank or U.S.  Treasury
Regulation  31 CFR  ss.203.24,  and such  Federal  Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.

    14.2  Successors.  This Agreement shall bind and inure to the benefit of the
respective  successors  and assigns of each of the parties;  provided,  however,
that  Borrower may not assign this  Agreement or any rights or duties  hereunder
without the Lenders' prior written consent and any prohibited  assignment  shall
be  absolutely  void ab initio.  No consent to  assignment  by the Lenders shall
release  Borrower from its  Obligations.  A Lender may assign this Agreement and
the other Loan  Documents  and its rights and duties  hereunder  and  thereunder
pursuant to Section 14.1 hereof and,  except as expressly  required  pursuant to
Section  14.1  hereof,  no  consent or  approval  by  Borrower  is  required  in
connection with any such assignment.

15.   AMENDMENTS; WAIVERS.

    15.1 Amendments and Waivers. No amendment or waiver of any provision of this
Agreement  or any other  Loan  Document,  and no  consent  with  respect  to any
departure by Borrower therefrom,  shall be effective unless the same shall be in
writing and signed by the Required  Lenders (or by Agent at the written  request
of the Required  Lenders) and Borrower and then any such waiver or consent shall
be  effective  only in the specific  instance

                                      -92-
<PAGE>

and for the specific purpose for which given;  provided,  however,  that no such
waiver,  amendment, or consent shall, unless in writing and signed by all of the
Lenders affected thereby and Borrower, do any of the following:

      (a) increase or extend any Commitment of any Lender,

      (b)  postpone or delay any date fixed by this  Agreement or any other Loan
Document for any payment of  principal,  interest,  fees,  or other  amounts due
hereunder or under any other Loan Document,

      (c) reduce the principal of, or the rate of interest on, any loan or other
extension  of credit  hereunder,  or reduce  any fees or other  amounts  payable
hereunder or under any other Loan Document,

      (d) change the percentage of the Commitments  that is required to take any
action hereunder,

      (e)  amend or  modify  this  Section  or any  provision  of the  Agreement
providing for consent or other action by all Lenders,

      (f) release Collateral other than as permitted by Section 16.12,

      (g) change the definition of "Required Lenders" or "Pro Rata Share",

      (h) contractually subordinate any of the Agent's Liens,

      (i) release  Borrower or any Guarantor from any obligation for the payment
of money, or

      (j) change the definition of Borrowing Base or the definitions of Eligible
Accounts,  Eligible Inventory,  Eligible In-Transit  Inventory,  Eligible Landed
Inventory,  Eligible  Refurbished  Inventory,  Maximum Revolver Amount,  Capital
Expenditures Sublimit, in each case in any manner that would cause the Borrowing
Base to be increased, or change Section 2.1(b), or

      (k) amend any of the provisions of Section 16.

      and,  provided  further,  however,  that no  amendment,  waiver or consent
shall,  unless in writing and signed by Agent,  Issuing Lender, or Swing Lender,
as applicable,  affect the rights or duties of Agent,  Issuing Lender,  or Swing
Lender,  as applicable,  under this  Agreement or any other Loan  Document.  The
foregoing  notwithstanding,   any  amendment,   modification,  waiver,  consent,
termination,  or release of, or with respect to, any provision of this Agreement
or any other Loan Document that relates only to the  relationship  of the Lender
Group among  themselves,  and that does not affect the rights or  obligations of
Borrower, shall not require consent by or the agreement of Borrower.

                                      -93-
<PAGE>

    15.2  Replacement of Holdout Lender.

      (a) If any  action  to be taken  by the  Lender  Group or Agent  hereunder
requires the unanimous consent,  authorization, or agreement of all Lenders, and
a  Lender  ("Holdout  Lender")  fails  to give its  consent,  authorization,  or
agreement, then Agent, upon at least 5 Business Days prior irrevocable notice to
the Holdout Lender, may permanently  replace the Holdout Lender with one or more
substitute Lenders (each, a "Replacement  Lender"), and the Holdout Lender shall
have no right to refuse to be  replaced  hereunder.  Such  notice to replace the
Holdout Lender shall specify an effective date for such replacement,  which date
shall not be later than 15 Business Days after the date such notice is given.

      (b) Prior to the effective  date of such  replacement,  the Holdout Lender
and each  Replacement  Lender  shall  execute  and  deliver  an  Assignment  and
Acceptance,  subject  only to the Holdout  Lender  being repaid its share of the
outstanding  Obligations  (including  an assumption of its Pro Rata Share of the
Risk  Participation  Liability)  without  any  premium  or  penalty  of any kind
whatsoever.  If the Holdout  Lender  shall refuse or fail to execute and deliver
any  such  Assignment  and  Acceptance  prior  to the  effective  date  of  such
replacement,  the Holdout  Lender shall be deemed to have executed and delivered
such Assignment and  Acceptance.  The replacement of any Holdout Lender shall be
made in  accordance  with the  terms of  Section  14.1.  Until  such time as the
Replacement Lenders shall have acquired all of the Obligations, the Commitments,
and the other rights and  obligations of the Holdout Lender  hereunder and under
the other Loan Documents,  the Holdout Lender shall remain obligated to make the
Holdout Lender's Pro Rata Share of Advances and Capital  Expenditures  Loans and
to purchase a participation in each Letter of Credit,  in an amount equal to its
Pro Rata Share of the Risk Participation Liability of such Letter of Credit.

    15.3 No Waivers;  Cumulative Remedies.  No failure by Agent or any Lender to
exercise any right,  remedy,  or option  under this  Agreement or any other Loan
Document,  or delay by Agent or any Lender in exercising the same,  will operate
as a waiver thereof.  No waiver by Agent or any Lender will be effective  unless
it is in writing,  and then only to the extent specifically stated. No waiver by
Agent or any Lender on any occasion  shall  affect or diminish  Agent's and each
Lender's  rights  thereafter to require  strict  performance  by Borrower of any
provision  of this  Agreement.  Agent's  and each  Lender's  rights  under  this
Agreement and the other Loan  Documents  will be cumulative and not exclusive of
any other right or remedy that Agent or any Lender may have.

16.   AGENT; THE LENDER GROUP.

    16.1 Appointment and  Authorization of Agent.  Each Lender hereby designates
and appoints WFRF as its representative  under this Agreement and the other Loan
Documents and each Lender  hereby  irrevocably  authorizes  Agent to execute and
deliver  each of the other Loan  Documents  on its behalf and to take such other
action on its behalf under the  provisions of this Agreement and each other Loan
Document and to exercise  such powers and perform  such duties as are  expressly
delegated to Agent by the terms of this  Agreement  or any other Loan  Document,
together with such powers as are reasonably incidental thereto.

                                      -94-
<PAGE>

Agent agrees to act as such on the express conditions  contained in this Section
16. The  provisions of this Section 16 (other than Section 16.11) are solely for
the benefit of Agent, and the Lenders,  and Borrower and its Subsidiaries  shall
have no rights as a third party  beneficiary of any of the provisions  contained
herein. Any provision to the contrary  contained  elsewhere in this Agreement or
in any other Loan Document  notwithstanding,  Agent shall not have any duties or
responsibilities,  except those expressly set forth herein, nor shall Agent have
or be deemed to have any fiduciary  relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this  Agreement  or any other  Loan  Document  or  otherwise  exist
against Agent; it being expressly understood and agreed that the use of the word
"Agent" is for convenience  only, that WFRF is merely the  representative of the
Lenders,  and only has the  contractual  duties  set  forth  herein.  Except  as
expressly otherwise provided in this Agreement, Agent shall have and may use its
sole  discretion  with respect to exercising or refraining  from  exercising any
discretionary  rights or taking or refraining from taking any actions that Agent
expressly is entitled to take or assert under or pursuant to this  Agreement and
the other Loan Documents.  Without limiting the generality of the foregoing,  or
of any other  provision of the Loan Documents that provides  rights or powers to
Agent,  Lenders  agree that Agent shall have the right to exercise the following
powers as long as this Agreement remains in effect: (a) maintain,  in accordance
with its customary business practices, ledgers and records reflecting the status
of the  Obligations,  the  Collateral,  the  Collections  of  Borrower  and  its
Subsidiaries,  and related matters, (b) execute or file any and all financing or
similar statements or notices,  amendments,  renewals,  supplements,  documents,
instruments,  proofs of claim, notices and other written agreements with respect
to the Loan  Documents,  (c) make Advances or Capital  Expenditures  Loans,  for
itself  or on  behalf  of  Lenders  as  provided  in  the  Loan  Documents,  (d)
exclusively  receive,  apply, and distribute the Collections of Borrower and its
Subsidiaries as provided in the Loan Documents,  (e) open and maintain such bank
accounts  and  cash  management   arrangements  as  Agent  deems  necessary  and
appropriate  in accordance  with the Loan  Documents for the foregoing  purposes
with  respect  to the  Collateral  and  the  Collections  of  Borrower  and  its
Subsidiaries,  (f) perform,  exercise,  and enforce any and all other rights and
remedies of the Lender  Group with  respect to Borrower,  the  Obligations,  the
Collateral,  the  Collections  of Borrower  and its  Subsidiaries,  or otherwise
related to any of same as provided in the Loan Documents,  and (g) incur and pay
such Lender Group Expenses as Agent may deem  necessary or  appropriate  for the
performance  and  fulfillment  of its functions and powers  pursuant to the Loan
Documents.

    16.2  Delegation  of Duties.  Agent may execute any of its duties under this
Agreement  or any  other  Loan  Document  by or  through  agents,  employees  or
attorneys-in-fact  and shall be  entitled  to advice of counsel  concerning  all
matters  pertaining  to such  duties.  Agent  shall not be  responsible  for the
negligence  or misconduct  of any agent or  attorney-in-fact  that it selects as
long as such selection was made in good faith,  and without gross  negligence or
willful misconduct.

    16.3  Liability of Agent.  None of the  Agent-Related  Persons  shall (i) be
liable  for any  action  taken or omitted to be taken by any of them under or in
connection  with this  Agreement or any other Loan Document or the  transactions
contemplated hereby (except to the extent of its own gross negligence or willful
misconduct),  or (ii) be responsible in any

                                      -95-
<PAGE>

manner to any of the  Lenders  for any  recital,  statement,  representation  or
warranty  made by Borrower or any  Subsidiary  or Affiliate of Borrower,  or any
officer or director  thereof,  contained in this  Agreement or in any other Loan
Document, or in any certificate, report, statement or other document referred to
or  provided  for in, or received by Agent  under or in  connection  with,  this
Agreement  or  any  other  Loan  Document,   or  the  validity,   effectiveness,
genuineness,  enforceability  or sufficiency of this Agreement or any other Loan
Document, or for any failure of Borrower or any other party to any Loan Document
to perform its  obligations  hereunder or thereunder.  No  Agent-Related  Person
shall be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance  of any of the agreements  contained in, or conditions
of,  this  Agreement  or any other Loan  Document,  or to  inspect  the Books or
properties  of  Borrower  or  the  books  or  records  or  properties  of any of
Borrower's Subsidiaries or Affiliates.

    16.4 Reliance by Agent.  Agent shall be entitled to rely, and shall be fully
protected  in  relying,   upon  any  writing,   resolution,   notice,   consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement  or other  document or  conversation  believed by it to be genuine and
correct and to have been signed,  sent, or made by the proper Person or Persons,
and upon advice and statements of legal counsel  (including  counsel to Borrower
or counsel to any Lender), independent accountants and other experts selected by
Agent.  Agent shall be fully justified in failing or refusing to take any action
under this Agreement or any other Loan Document unless Agent shall first receive
such advice or concurrence of the Lenders as it deems appropriate and until such
instructions are received,  Agent shall act, or refrain from acting, as it deems
advisable. If Agent so requests, it shall first be indemnified to its reasonable
satisfaction  by the Lenders  against any and all liability and expense that may
be incurred  by it by reason of taking or  continuing  to take any such  action.
Agent shall in all cases be fully  protected in acting,  or in  refraining  from
acting,  under this  Agreement or any other Loan Document in  accordance  with a
request or consent of the  requisite  Lenders  and such  request  and any action
taken or  failure  to act  pursuant  thereto  shall be  binding  upon all of the
Lenders.

    16.5  Notice of Default or Event of  Default.  Agent  shall not be deemed to
have  knowledge or notice of the  occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest, fees, and
expenses required to be paid to Agent for the account of the Lenders and, except
with  respect to Events of Default of which Agent has actual  knowledge,  unless
Agent shall have received written notice from a Lender or Borrower  referring to
this Agreement,  describing  such Default or Event of Default,  and stating that
such notice is a "notice of default."  Agent promptly will notify the Lenders of
its  receipt of any such  notice or of any Event of  Default of which  Agent has
actual  knowledge.  If any  Lender  obtains  actual  knowledge  of any  Event of
Default,  such Lender  promptly shall notify the other Lenders and Agent of such
Event of Default. Each Lender shall be solely responsible for giving any notices
to its  Participants,  if any.  Subject to Section  16.4,  Agent shall take such
action with  respect to such  Default or Event of Default as may be requested by
the Required  Lenders in  accordance  with Section 9;  provided,  however,  that
unless and until Agent has received any such  request,  Agent may (but shall not
be  obligated  to) take such action,  or refrain  from taking such action,  with
respect to such Default or Event of Default as it shall deem advisable.

                                      -96-
<PAGE>

    16.6  Credit   Decision.   Each  Lender   acknowledges   that  none  of  the
Agent-Related Persons has made any representation or warranty to it, and that no
act by Agent hereinafter taken,  including any review of the affairs of Borrower
and  its  Subsidiaries  or  Affiliates,   shall  be  deemed  to  constitute  any
representation  or warranty  by any  Agent-Related  Person to any  Lender.  Each
Lender represents to Agent that it has,  independently and without reliance upon
any  Agent-Related  Person and based on such documents and information as it has
deemed  appropriate,  made  its own  appraisal  of and  investigation  into  the
business,  prospects,  operations,  property,  financial and other condition and
creditworthiness of Borrower and any other Person party to a Loan Document,  and
all applicable bank regulatory  laws relating to the  transactions  contemplated
hereby,  and made its own  decision to enter into this  Agreement  and to extend
credit to Borrower. Each Lender also represents that it will,  independently and
without reliance upon any  Agent-Related  Person and based on such documents and
information as it shall deem  appropriate at the time,  continue to make its own
credit  analysis,  appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents,  and to make such investigations as
it deems necessary to inform itself as to the business,  prospects,  operations,
property, financial and other condition and creditworthiness of Borrower and any
other Person party to a Loan Document.  Except for notices,  reports,  and other
documents  expressly  herein  required to be  furnished to the Lenders by Agent,
Agent shall not have any duty or  responsibility  to provide any Lender with any
credit or other  information  concerning  the business,  prospects,  operations,
property,  financial and other condition or creditworthiness of Borrower and any
other Person party to a Loan Document  that may come into the  possession of any
of the Agent-Related Persons.

    16.7  Costs and  Expenses;  Indemnification.  Agent may incur and pay Lender
Group Expenses to the extent Agent reasonably deems necessary or appropriate for
the  performance  and  fulfillment of its  functions,  powers,  and  obligations
pursuant  to the Loan  Documents,  including  court  costs,  attorneys  fees and
expenses, fees and expenses of financial accountants, advisors, consultants, and
appraisers, costs of collection by outside collection agencies,  auctioneer fees
and  expenses,  and costs of  security  guards  or  insurance  premiums  paid to
maintain the Collateral, whether or not Borrower is obligated to reimburse Agent
or Lenders for such expenses pursuant to the Loan Agreement or otherwise.  Agent
is  authorized  and  directed to deduct and retain  sufficient  amounts from the
Collections  of Borrower  and its  Subsidiaries  received by Agent to  reimburse
Agent for such out-of-pocket costs and expenses prior to the distribution of any
amounts to  Lenders.  In the event  Agent is not  reimbursed  for such costs and
expenses  from the  Collections  of Borrower  and its  Subsidiaries  received by
Agent,  each Lender hereby agrees that it is and shall be obligated to pay to or
reimburse Agent for the amount of such Lender's Pro Rata Share thereof.  Whether
or not the transactions  contemplated hereby are consummated,  the Lenders shall
indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by
or on behalf of Borrower and without  limiting the  obligation of Borrower to do
so),  according  to  their  Pro  Rata  Shares,  from  and  against  any  and all
Indemnified Liabilities;  provided,  however, that no Lender shall be liable for
the  payment to any  Agent-Related  Person of any  portion  of such  Indemnified
Liabilities  resulting  solely from such  Person's  gross  negligence or willful
misconduct nor shall any Lender be liable for the  obligations of any Defaulting
Lender  in  failing  to make an  Advance,  Capital  Expenditures  Loan or  other
extension of credit hereunder.  Without limitation of the foregoing, each Lender
shall  reimburse Agent upon

                                      -97-
<PAGE>

demand for such Lender's Pro Rata Share of any costs or  out-of-pocket  expenses
(including attorneys, accountants,  advisors, and consultants fees and expenses)
incurred  by Agent in  connection  with the  preparation,  execution,  delivery,
administration,   modification,   amendment,  or  enforcement  (whether  through
negotiations,  legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities  under, this Agreement,  any other Loan Document,  or
any document  contemplated by or referred to herein, to the extent that Agent is
not reimbursed for such expenses by or on behalf of Borrower. The undertaking in
this Section  shall  survive the payment of all  Obligations  hereunder  and the
resignation or replacement of Agent.

    16.8 Agent in Individual  Capacity.  WFRF and its  Affiliates may make loans
to, issue letters of credit for the account of, accept  deposits  from,  acquire
equity  interests  in,  and  generally  engage  in any kind of  banking,  trust,
financial  advisory,  underwriting,  or other  business  with  Borrower  and its
Subsidiaries  and Affiliates and any other Person party to any Loan Documents as
though WFRF were not Agent  hereunder,  and, in each case,  without notice to or
consent  of the other  members  of the Lender  Group.  The other  members of the
Lender  Group  acknowledge  that,  pursuant  to  such  activities,  WFRF  or its
Affiliates may receive information  regarding Borrower or its Affiliates and any
other  Person  party to any Loan  Documents  that is subject to  confidentiality
obligations  in favor of Borrower  or such other  Person and that  prohibit  the
disclosure of such information to the Lenders, and the Lenders acknowledge that,
in such  circumstances  (and in the absence of a waiver of such  confidentiality
obligations, which waiver Agent will use its reasonable best efforts to obtain),
Agent shall not be under any obligation to provide such information to them. The
terms "Lender" and "Lenders" include WFRF in its individual capacity.

    16.9 Successor  Agent.  Agent may resign as Agent upon 45 days notice to the
Lenders and the Borrower.  If Agent resigns under this  Agreement,  the Required
Lenders shall, in consultation with the Borrower,  appoint a successor Agent for
the Lenders.  If no successor  Agent is appointed  and shall have  accepted such
appointment  prior to the effective date of the resignation of Agent,  Agent may
appoint,  after consulting with the Lenders and the Borrower, a successor Agent.
If Agent has materially  breached or failed to perform any material provision of
this Agreement or of applicable  law, the Required  Lenders may agree in writing
to remove and  replace  Agent  with a  successor  Agent from among the  Lenders,
chosen  in  consultation  with the  Borrower.  In any  such  event  (whether  an
appointment  by  Agent  or  by  the  Required  Lenders)  described  in  the  two
immediately  preceding  sentences,  upon the  acceptance of its  appointment  as
successor Agent hereunder, such successor Agent shall succeed to all the rights,
powers,  and duties of the retiring  Agent and the term "Agent"  shall mean such
successor Agent and, upon such  acceptance,  the retiring  Agent's  appointment,
powers,  and duties as Agent shall be  terminated.  After any  retiring  Agent's
resignation hereunder as Agent, the provisions of this Section 16 shall inure to
its  benefit as to any  actions  taken or omitted to be taken by it while it was
Agent under this Agreement.  If no successor  Agent has accepted  appointment as
Agent by the date  which is 45 days  following  a  retiring  Agent's  notice  of
resignation,  the retiring  Agent's  resignation  shall  nevertheless  thereupon
become  effective  and the  Lenders  shall  perform  all of the  duties of Agent
hereunder  until such time, if any, as the Lenders  appoint a successor Agent as
provided for above.

                                      -98-
<PAGE>

    16.10  Lender  in  Individual  Capacity.   Any  Lender  and  its  respective
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from,  acquire equity  interests in and generally engage in any kind of
banking, trust, financial advisory, underwriting or other business with Borrower
and its  Subsidiaries  and  Affiliates  and any other  Person  party to any Loan
Documents as though such Lender were not a Lender hereunder without notice to or
consent  of the other  members  of the Lender  Group.  The other  members of the
Lender Group acknowledge that, pursuant to such activities,  such Lender and its
respective   Affiliates  may  receive  information  regarding  Borrower  or  its
Affiliates  and any other Person party to any Loan  Documents that is subject to
confidentiality  obligations  in favor of Borrower or such other Person and that
prohibit the  disclosure  of such  information  to the Lenders,  and the Lenders
acknowledge that, in such  circumstances (and in the absence of a waiver of such
confidentiality  obligations,  which waiver such Lender will use its  reasonable
best  efforts  to  obtain),  such  Lender not shall be under any  obligation  to
provide  such  information  to them.  With  respect to the Swing Loans and Agent
Advances,  Swing  Lender  shall  have the same  rights  and  powers  under  this
Agreement  as any other  Lender and may  exercise the same as though it were not
the sub-agent of Agent.

    16.11 Withholding Taxes.

      (a) If any Lender is a "foreign  person" within the meaning of the IRC and
such Lender is  eligible to claim an  exemption  from,  or a reduction  of, U.S.
withholding  tax under Sections 1441 or 1442 of the IRC, such Lender agrees with
and in favor of Agent and Borrower, to deliver to Agent and Borrower:

            (i) if such Lender claims an exemption from withholding tax pursuant
      to its portfolio interest exception, (A) a statement of the Lender, signed
      under  penalty of perjury,  that it is not a (I) a "bank" as  described in
      Section  881(c)(3)(A)  of the  IRC,  (II) a 10%  shareholder  of  Borrower
      (within  the  meaning  of  Section  871(h)(3)(B)  of the IRC),  or (III) a
      controlled foreign  corporation  related to Borrower within the meaning of
      Section  864(d)(4) of the IRC, and (B) a properly  completed  and executed
      IRS Form  W-8BEN,  before  the first  payment of any  interest  under this
      Agreement and at any other time reasonably requested by Agent or Borrower;

            (ii) if such Lender  claims an exemption  from,  or a reduction  of,
      withholding tax under a United States tax treaty,  properly  completed and
      executed IRS Form W-8BEN  before the first  payment of any interest  under
      this  Agreement  and at any other time  reasonably  requested  by Agent or
      Borrower;

            (iii) if such Lender claims that interest paid under this  Agreement
      is exempt from United  States  withholding  tax because it is  effectively
      connected  with a United  States  trade or  business of such  Lender,  two
      properly completed and executed copies of IRS Form W-8ECI before the first
      payment of any interest is due under this  Agreement and at any other time
      reasonably requested by Agent or Borrower;

                                      -99-
<PAGE>

            (iv) such  other form or forms as may be  required  under the IRC or
      other laws of the United  States as a  condition  to  exemption  from,  or
      reduction of, United States withholding tax.

Such  Lender  agrees  promptly  to notify  Agent and  Borrower  of any change in
circumstances  which would  modify or render  invalid any claimed  exemption  or
reduction.

      (b) If any Lender claims exemption from, or reduction of,  withholding tax
under a United  States tax treaty by  providing  IRS Form W-8BEN and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of
the  Obligations of Borrower owing to such Lender,  such Lender agrees to notify
Agent of the percentage  amount in which it is no longer the beneficial owner of
Obligations of Borrower to such Lender. To the extent of such percentage amount,
Agent will treat such Lender's IRS Form W-8BEN as no longer valid.  In addition,
in the case of  participations,  such  Lender  agrees to deliver to Agent an IRS
Form  W8-IMY of the  Lender  and an IRS Form W9 or  W8-BEN  of each  participant
entitling  the Borrower to make  payments in the same (or lesser)  amounts as if
such participation has not been granted.

      (c) If any Lender is entitled to a reduction in the applicable withholding
tax,  Agent may  withhold  from any  interest  payment to such  Lender an amount
equivalent  to the  applicable  withholding  tax after  taking into account such
reduction.  If the forms or other  documentation  required by subsection  (a) of
this  Section  are not  delivered  to Agent,  then Agent may  withhold  from any
interest payment to such Lender not providing such forms or other  documentation
an amount equivalent to the applicable withholding tax.

      (d) If the IRS or any other Governmental Authority of the United States or
other jurisdiction asserts a claim that Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (because the  appropriate  form
was not delivered,  was not properly executed,  or because such Lender failed to
notify Agent of a change in circumstances  which rendered the exemption from, or
reduction of, withholding tax ineffective,  or for any other reason) such Lender
shall  indemnify  and hold Agent  harmless  for all  amounts  paid,  directly or
indirectly, by Agent as tax or otherwise,  including penalties and interest, and
including any taxes imposed by any  jurisdiction on the amounts payable to Agent
under this Section,  together with all costs and expenses  (including  attorneys
fees and expenses).  The obligation of the Lenders under this  subsection  shall
survive the payment of all  Obligations  and the  resignation  or replacement of
Agent.

      (e) All payments made by Borrower hereunder or under any note will be made
without setoff, counterclaim, or other defense, except as required by applicable
law other than for Taxes (as defined below). All such payments will be made free
and clear of, and without  deduction or  withholding  for, any present or future
taxes, levies,  imposts,  duties, fees, assessments or other charges of whatever
nature now or  hereafter  imposed  by any  jurisdiction  (other  than the United
States) or by any political  subdivision or taxing authority  thereof or therein
(other than of the United States) with respect to such payments (but  excluding,
any tax imposed by any  jurisdiction  or by any political  subdivision or taxing
authority  thereof or therein (i)  measured by or based on the net income or net
profits of a

                                     -100-
<PAGE>

Lender,  or (ii) to the  extent  that  such tax  results  from a  change  in the
circumstances  of the  Lender,  including  a change in the  residence,  place of
organization,  or principal place of business of the Lender,  or a change in the
branch or lending office of the Lender  participating  in the  transactions  set
forth herein) and all interest,  penalties or similar  liabilities  with respect
thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments
or other charges being referred to collectively as "Taxes"). If any Taxes are so
levied or imposed,  Borrower  agrees to pay the full  amount of such Taxes,  and
such additional amounts as may be necessary so that every payment of all amounts
due under this  Agreement or under any note,  including any amount paid pursuant
to this Section 16.11(e) after withholding or deduction for or on account of any
Taxes, will not be less than the amount provided for herein; provided,  however,
that  Borrower  shall not be required to increase  any such  amounts  payable to
Agent or any  Lender  (i) that is not  organized  under  the laws of the  United
States,  if such  Person  fails to comply  with the other  requirements  of this
Section  16.11,  or (ii) if the  increase in such amount  payable  results  from
Agent's or such Lender's own willful  misconduct or gross  negligence.  Borrower
will furnish to Agent as promptly as possible  after the date the payment of any
Taxes is due  pursuant  to  applicable  law  certified  copies  of tax  receipts
evidencing such payment by Borrower.

      (f) Each Lender  shall,  at the request of the  Borrower,  use  reasonable
efforts to comply timely with any  certification,  identification,  information,
documentation or other reporting  requirements if such compliance is required by
law,  regulation,   administrative   practice  or  an  applicable  treaty  as  a
precondition  to  exemption  from,  or  reduction  in the rate of,  deduction or
withholding  of any  Taxes  for  which  such  Borrower  is  required  to pay any
additional amounts payable to or for the account of such Lender pursuant to this
Section  16.11;  provided that  complying  with such  requirements  would not be
materially  more  onerous  (in  form,  in  procedure  or  in  the  substance  of
information   disclosed)  to  a  Lender  than   complying  with  the  comparable
information  or  other  reporting  requirements  imposed  under  U.S.  tax  law,
regulations and administrative practice.

      (g) Notwithstanding  anything in this Section 16.11, the Borrower will not
be required to make payments under this Section 16.11 with respect to taxes that
are  imposed on amounts  payable to the Lender at the time the Lender  becomes a
party to this  Agreement (or  designates a new lending office outside the United
States),  except to the extent  that such Lender (or its  assignor,  if any) was
entitled, at the time of designation of a new lending office (or assignment), to
receive  additional  amounts from Borrower with respect to such  withholding tax
pursuant to Section 16.11.

      (h) If any  payment by the  Borrower  is made to or for the account of the
Lender after  deduction for or on account of any Taxes,  and increased  payments
are made by the Borrower  pursuant to this Section  16.11,  then,  if the Lender
reasonably  determines  that it has received or been granted a refund of, credit
against or remission of such Taxes,  such Lender shall reimburse to the Borrower
such amount as such Lender shall  determine to be  attributable  to the relevant
Taxes or deduction or withholding;  provided,  that (i) such Lender shall not be
obligated to disclose to the Borrower any information  regarding its tax affairs
and computations,  and (ii) nothing herein shall be construed so as to interfere
with  the  right  of  such  Lender  to  arrange  its  tax  affairs  as it  deems
appropriate.

                                     -101-
<PAGE>

      (i) If the  Borrower is required to pay  additional  amounts to or for the
account of any Lender  pursuant to this Section 16.11 as a result of a change of
law occurring after the date hereof,  then such Lender (but only if at such time
such  Lender's  lending  office is  outside  the  United  States)  agrees to use
reasonable  efforts to designate a different  lending office if such designation
will eliminate or reduce such additional payment which may thereafter accrue and
would  not,  in  the  good  faith   judgment  of  the   Lender,   otherwise   be
disadvantageous  to such  Lender;  provided  that  the mere  existence  of fees,
charges,  costs or expenses  that the  Borrower has offered and agreed to pay on
behalf of a Lender shall not be deemed to be materially  disadvantageous  to the
Lender.

    16.12   Collateral Matters.

      (a) The Lenders hereby  irrevocably  authorize Agent, at its option and in
its  sole  discretion,  to  release  any  Lien on any  Collateral  (i)  upon the
termination of the Commitments and payment and  satisfaction in full by Borrower
of all Obligations,  (ii)  constituting  property being sold or disposed of if a
release is  required  or  desirable  in  connection  therewith  and if  Borrower
certifies to Agent that the sale or disposition  is permitted  under Section 7.4
of this Agreement or the other Loan  Documents (and Agent may rely  conclusively
on any such certificate,  without further inquiry),  (iii) constituting property
in which Borrower or its Subsidiaries  owned no interest at the time the Agent's
Lien was  granted  nor at any time  thereafter,  or (iv)  constituting  property
leased to  Borrower  or its  Subsidiaries  under a lease that has  expired or is
terminated in a transaction  permitted under this Agreement.  Except as provided
above,  Agent  will  not  execute  and  deliver  a  release  of any  Lien on any
Collateral  without the prior written  authorization of (y) if the release is of
all or  substantially  all  of  the  Collateral,  all  of  the  Lenders,  or (z)
otherwise,  the Required Lenders. Upon request by Agent or Borrower at any time,
the Lenders will confirm in writing Agent's  authority to release any such Liens
on  particular  types or items of  Collateral  pursuant to this  Section  16.12;
provided,  however, that (1) Agent shall not be required to execute any document
necessary to evidence  such  release on terms that,  in Agent's  opinion,  would
expose  Agent to liability or create any  obligation  or entail any  consequence
other  than the  release  of such  Lien  without  recourse,  representation,  or
warranty,  and (2) such release shall not in any manner  discharge,  affect,  or
impair the  Obligations or any Liens (other than those expressly being released)
upon (or  obligations  of  Borrower  in respect  of) all  interests  retained by
Borrower,  including,  the proceeds of any sale,  all of which shall continue to
constitute part of the Collateral.

      (b) Agent  shall have no  obligation  whatsoever  to any of the Lenders to
assure  that the  Collateral  exists or is owned by  Borrower  or is cared  for,
protected,  or insured or has been  encumbered,  or that the Agent's  Liens have
been properly or  sufficiently or lawfully  created,  perfected,  protected,  or
enforced or are entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care,  disclosure or fidelity,  or to
continue  exercising,  any of the  rights,  authorities  and  powers  granted or
available to Agent pursuant to any of the Loan  Documents,  it being  understood
and agreed that in respect of the  Collateral,  or any act,  omission,  or event
related thereto, subject to the terms and conditions contained herein, Agent may
act in any manner it may deem appropriate,  in its sole discretion given Agent's
own  interest in the  Collateral  in its capacity as one of the

                                     -102-
<PAGE>

Lenders and that Agent shall have no other duty or liability  whatsoever  to any
Lender as to any of the foregoing, except as otherwise provided herein.

    16.13    Restrictions on Actions by Lenders; Sharing of Payments.

      (a) Each of the  Lenders  agrees  that it shall not,  without  the express
written  consent  of Agent,  and that it  shall,  to the  extent it is  lawfully
entitled  to do so,  upon the  written  request of Agent,  set off  against  the
Obligations,  any  amounts  owing by such  Lender  to  Borrower  or any  deposit
accounts of Borrower now or hereafter  maintained with such Lender.  Each of the
Lenders further agrees that it shall not, unless specifically requested to do so
in  writing  by Agent,  take or cause to be taken  any  action,  including,  the
commencement of any legal or equitable proceedings, to foreclose any Lien on, or
otherwise enforce any security interest in, any of the Collateral.

      (b) If, at any time or times any  Lender  shall  receive  (i) by  payment,
foreclosure,  setoff,  or otherwise,  any proceeds of Collateral or any payments
with  respect to the  Obligations,  except  for any such  proceeds  or  payments
received by such Lender from Agent pursuant to the terms of this  Agreement,  or
(ii) payments from Agent in excess of such Lender's  ratable portion of all such
distributions  by Agent,  such Lender  promptly  shall (1) turn the same over to
Agent,  in kind, and with such  endorsements as may be required to negotiate the
same to Agent, or in immediately available funds, as applicable, for the account
of all of the Lenders and for  application to the Obligations in accordance with
the applicable provisions of this Agreement,  or (2) purchase,  without recourse
or warranty,  an undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment  received shall be applied ratably
as among  the  Lenders  in  accordance  with  their Pro Rata  Shares;  provided,
however,  that to the extent that such excess payment received by the purchasing
party is thereafter  recovered from it, those purchases of participations  shall
be rescinded in whole or in part, as applicable,  and the applicable  portion of
the purchase price paid therefor shall be returned to such purchasing party, but
without  interest except to the extent that such purchasing party is required to
pay interest in connection with the recovery of the excess payment.

    16.14 Agency for Perfection.  Agent hereby appoints each other Lender as its
agent (and each  Lender  hereby  accepts  such  appointment)  for the purpose of
perfecting  the Agent's Liens in assets which,  in accordance  with Article 9 of
the Code can be  perfected  only by  possession  or  control.  Should any Lender
obtain  possession or control of any such  Collateral,  such Lender shall notify
Agent  thereof,  and,  promptly  upon Agent's  request  therefor  shall  deliver
possession or control of such  Collateral to Agent or in accordance with Agent's
instructions.

    16.15 Payments by Agent to the Lenders.  All payments to be made by Agent to
the Lenders shall be made by bank wire transfer of immediately  available  funds
pursuant to such wire  transfer  instructions  as each party may  designate  for
itself by written notice to Agent.  Concurrently  with each such payment,  Agent
shall  identify  whether  such  payment  (or  any  portion  thereof)  represents
principal, premium, or interest of the Obligations.

                                     -103-
<PAGE>

    16.16  Concerning the Collateral and Related Loan Documents.  Each member of
the Lender Group  authorizes  and directs Agent to enter into this Agreement and
the other Loan Documents. Each member of the Lender Group agrees that any action
taken by Agent in accordance  with the terms of this Agreement or the other Loan
Documents relating to the Collateral and the exercise by Agent of its powers set
forth  therein or herein,  together  with such other powers that are  reasonably
incidental thereto, shall be binding upon all of the Lenders.

    16.17 Field Audits and Examination Reports; Confidentiality;  Disclaimers by
Lenders;  Other Reports and Information.  By becoming a party to this Agreement,
each Lender:

      (a) is deemed to have requested  that Agent furnish such Lender,  promptly
after it becomes  available,  a copy of each field audit or  examination  report
(each a "Report" and collectively, "Reports") prepared by Agent, and Agent shall
so furnish each Lender with such Reports,

      (b)  expressly  agrees and  acknowledges  that Agent does not (i) make any
representation or warranty as to the accuracy of any Report,  and (ii) shall not
be liable for any information contained in any Report,

      (c)  expressly   agrees  and   acknowledges   that  the  Reports  are  not
comprehensive  audits or examinations,  that Agent or other party performing any
audit or examination will inspect only specific  information  regarding Borrower
and will rely  significantly  upon the Books, as well as on  representations  of
Borrower's personnel,

      (d) agrees to keep all Reports and other material,  non-public information
regarding  Borrower  and its  Subsidiaries  and their  operations,  assets,  and
existing and contemplated  business plans in a confidential manner in accordance
with Section 17.8, and

      (e) without limiting the generality of any other indemnification provision
contained  in this  Agreement,  agrees:  (i) to hold Agent and any other  Lender
preparing a Report harmless from any action the indemnifying  Lender may take or
fail to take or any  conclusion the  indemnifying  Lender may reach or draw from
any Report in connection with any loans or other credit  accommodations that the
indemnifying  Lender  has  made or may  make to  Borrower,  or the  indemnifying
Lender's  participation in, or the indemnifying  Lender's purchase of, a loan or
loans of Borrower,  and (ii) to pay and protect, and indemnify,  defend and hold
Agent,  and any such other Lender  preparing a Report harmless from and against,
the claims,  actions,  proceedings,  damages, costs, expenses, and other amounts
(including,  attorneys  fees and  costs)  incurred  by Agent and any such  other
Lender  preparing a Report as the direct or indirect result of any third parties
who might obtain all or part of any Report through the indemnifying Lender.

In addition to the  foregoing:  (x) any Lender may from time to time  request of
Agent in  writing  that  Agent  provide  to such  Lender a copy of any report or
document  provided  by  Borrower  to Agent  that has not been  contemporaneously
provided by Borrower to such Lender,  and, upon receipt of such  request,  Agent
promptly  shall  provide a copy of same to

                                     -104-
<PAGE>

such Lender,  (y) to the extent that Agent is entitled,  under any  provision of
the Loan Documents,  to request additional reports or information from Borrower,
any Lender may,  from time to time,  reasonably  request  Agent to exercise such
right as specified in such Lender's  notice to Agent,  whereupon  Agent promptly
shall  request of Borrower  the  additional  reports or  information  reasonably
specified  by such  Lender,  and,  upon receipt  thereof  from  Borrower,  Agent
promptly  shall  provide  a copy of same to such  Lender,  and (z) any time that
Agent renders to Borrower a statement  regarding  the Loan Account,  Agent shall
send a copy of such statement to each Lender.

    16.18 Several Obligations; No Liability. Notwithstanding that certain of the
Loan  Documents now or hereafter may have been or will be executed only by or in
favor of Agent in its  capacity as such,  and not by or in favor of the Lenders,
any and all  obligations  on the  part of  Agent  (if  any) to make  any  credit
available  hereunder shall constitute the several (and not joint) obligations of
the  respective  Lenders  on a  ratable  basis,  according  to their  respective
Commitments,  to make an amount  of such  credit  not to  exceed,  in  principal
amount, at any one time outstanding, the amount of their respective Commitments.
Nothing  contained  herein  shall  confer  upon any Lender any  interest  in, or
subject any Lender to any liability for, or in respect of, the business, assets,
profits, losses, or liabilities of any other Lender. Each Lender shall be solely
responsible for notifying its  Participants of any matters  relating to the Loan
Documents  to the extent any such notice may be  required,  and no Lender  shall
have any obligation,  duty, or liability to any Participant of any other Lender.
Except as provided in Section 16.7, no member of the Lender Group shall have any
liability for the acts of any other member of the Lender Group.  No Lender shall
be  responsible  to  Borrower  or any other  Person for any failure by any other
Lender to fulfill its  obligations to make credit  available  hereunder,  nor to
advance for it or on its behalf in connection with its  Commitment,  nor to take
any other action on its behalf  hereunder or in  connection  with the  financing
contemplated herein.

    16.19 Legal  Representation  of Agent. In connection  with the  negotiation,
drafting,  and execution of this Agreement and the other Loan  Documents,  or in
connection  with future legal  representation  relating to loan  administration,
amendments,  modifications, waivers, or enforcement of remedies, Paul, Hastings,
Janofsky & Walker  LLP ("Paul  Hastings")  only has  represented  and only shall
represent  WFRF in its  capacity  as Agent and as a Lender.  Each  other  Lender
hereby  acknowledges that Paul Hastings does not represent it in connection with
any such matters.

17.   GENERAL PROVISIONS.

    17.1  Effectiveness.  This Agreement  shall be binding and deemed  effective
when executed by Borrower,  Agent,  and each Lender whose  signature is provided
for on the signature pages hereof.

    17.2 Section  Headings.  Headings and numbers have been set forth herein for
convenience  only.  Unless the contrary is compelled by the context,  everything
contained in each Section applies equally to this entire Agreement.

                                     -105-
<PAGE>

    17.3 Interpretation. Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed  against the Lender Group or Borrower,  whether  under
any rule of construction or otherwise.  On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted  according to the
ordinary  meaning of the words used so as to accomplish  fairly the purposes and
intentions of all parties hereto.

    17.4  Severability of Provisions.  Each provision of this Agreement shall be
severable  from every  other  provision  of this  Agreement  for the  purpose of
determining the legal enforceability of any specific provision.

    17.5 Amendments in Writing.  This Agreement only can be amended by a writing
signed by Agent (on behalf of the  requisite  Lenders  pursuant to Section 15.1)
and Borrower.

    17.6 Counterparts;  Telefacsimile Execution.  This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which,  when executed and delivered,  shall be deemed to be an original,
and all of which,  when taken  together,  shall  constitute but one and the same
Agreement.   Delivery  of  an  executed   counterpart   of  this   Agreement  by
telefacsimile  shall be equally as effective as delivery of an original executed
counterpart of this Agreement.  Any party delivering an executed  counterpart of
this  Agreement  by  telefacsimile  also  shall  deliver  an  original  executed
counterpart  of this  Agreement but the failure to deliver an original  executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.  The foregoing  shall apply to each other Loan Document  mutatis
mutandis.

    17.7 Revival and Reinstatement of Obligations.  If the incurrence or payment
of the  Obligations  by Borrower or any  Guarantor or the transfer to the Lender
Group of any property should for any reason  subsequently be declared to be void
or  voidable  under any state or federal  law  relating  to  creditors'  rights,
including provisions of the Bankruptcy Code relating to fraudulent  conveyances,
preferences,  or other voidable or recoverable payments of money or transfers of
property  (collectively,  a  "Voidable  Transfer"),  and if the Lender  Group is
required to repay or restore,  in whole or in part, any such Voidable  Transfer,
or elects to do so upon the  reasonable  advice of its counsel,  then, as to any
such Voidable Transfer,  or the amount thereof that the Lender Group is required
or elects to repay or restore,  and as to all reasonable  costs,  expenses,  and
attorneys fees of the Lender Group related thereto, the liability of Borrower or
any such Guarantor automatically shall be revived,  reinstated, and restored and
shall exist as though such Voidable Transfer had never been made.

    17.8  Confidentiality.  The Agent and the Lenders each individually (and not
jointly or jointly and severally) agree to use commercially  reasonable  efforts
to maintain as confidential all Projections (including the Initial Business Plan
and the Fee Letter) and other non-public  information regarding Borrower and its
Subsidiaries,  their operations,  assets, and existing and contemplated business
plans  (collectively,  "Confidential  Information")  provided  to  Agent or such
Lender by Borrower, and specifically designated by Borrower in good faith at the
time of delivery thereof as being Confidential Information, except that Agent or
such Lender may disclose such information: (a) to attorneys for, and accountants
and  auditors  to, any member of the

                                     -106-
<PAGE>

Lender Group,  (b) to other advisors and consultants to any member of the Lender
Group, provided that any such advisor or consultant shall have agreed to receive
such information  hereunder subject to the terms of this Section 17.8 or similar
confidentiality  agreement,  (c) to Subsidiaries and Affiliates of any member of
the Lender Group (including the Bank Product Providers),  provided that any such
Subsidiary or Affiliate shall have agreed to receive such information  hereunder
subject to the terms of this Section 17.8 or similar confidentiality  agreement,
(d) as may be  required  by statute,  decision,  or  judicial or  administrative
order,  rule,  or  regulation  (with  prompt  notice to the Borrower so that the
Borrower may seek a protective  order or other  appropriate  remedy and/or waive
Agent's or any Lender's  compliance  with the  provisions of this Section 17.8),
(e) as may be  agreed  to in  advance  by  Borrower  or its  Subsidiaries  or as
requested or required by any Governmental  Authority pursuant to any subpoena or
other legal process (with prompt notice to the Borrower so that the Borrower may
seek a protective order or other appropriate  remedy and/or waive Agent's or any
Lender's  compliance  with the provisions of this Section  17.8),  (f) as to any
such  information  that is or becomes  generally  available to the public (other
than as a result of prohibited disclosure by Agent or Lender), (g) in connection
with  any  assignment,   prospective   assignment,   sale,   prospective   sale,
participation or prospective participations,  or pledge or prospective pledge of
any Lender's  interest  under this  Agreement,  provided that any such assignee,
prospective assignee, purchaser, prospective purchaser, participant, prospective
participant,  pledgee,  or  prospective  pledgee shall have agreed in writing to
receive such information  hereunder subject to the terms of this Section 17.8 or
similar confidentiality  agreement, and (h) in connection with any litigation or
other  adversary  proceeding  involving  parties hereto which such litigation or
adversary  proceeding  involves  claims  related to the rights or duties of such
parties under this Agreement or the other Loan Documents. The provisions of this
Section  17.8 shall  survive  the payment in full of the  Obligations.  Anything
contained herein or in any other Loan Document to the contrary  notwithstanding,
the obligations of confidentiality  contained herein and therein, as they relate
to the  transactions  contemplated  hereby,  shall not apply to the  federal tax
structure or federal tax treatment of such  transactions,  and each party hereto
(and any employee, representative, or agent of any party hereto) may disclose to
any and all Persons,  without  limitation of any kind, the federal tax structure
and federal tax treatment of such transactions  (including all materials related
to such tax structure and tax treatment).  The preceding sentence is intended to
cause the  transactions  contemplated  hereby to not be treated  as having  been
offered   under   conditions   of   confidentiality   for  purposes  of  Section
1.6011-4(b)(3)  (or  any  successor   provision)  of  the  Treasury  Regulations
promulgated  under  Section  6011 of the IRC, and shall be construed in a manner
consistent with such purpose.  In addition,  each party hereto acknowledges that
it  has  no  proprietary  or  exclusive  rights  to  the  tax  structure  of the
transactions contemplated hereby or any tax matter or tax idea related thereto.

    17.9  Integration.  This Agreement,  together with the other Loan Documents,
reflects  the  entire   understanding   of  the  parties  with  respect  to  the
transactions  contemplated  hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.

                          [Signature pages to follow.]

                                     -107-
<PAGE>

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

                         SHARPER IMAGE CORPORATION
                         a Delaware corporation

                         By: ____________________________
                         Title:

                         WELLS FARGO RETAIL FINANCE, LLC,
                         a Delaware limited liability company, as Agent and as a
                         Lender

                         By:_____________________________
                         Title:

                 [Signature Page to Loan and Security Agreement]<PAGE>
                                                                     Exhibit 4.3

                       [UNITED NATIONAL GROUP, LTD. LOGO]

NUMBER                                                                   SHARES

 UNG

                           UNITED NATIONAL GROUP, LTD.
                              CLASS A COMMON SHARES            CUSIP 91103X 10 2

INCORPORATED UNDER THE LAWS                                    SEE REVERSE FOR
   OF THE CAYMAN ISLANDS                                     CERTAIN DEFINITIONS

THIS CERTIFIES THAT

is the registered holder of

     FULLY PAID AND NON-ASSESSABLE CLASS A COMMON SHARES, PAR VALUE U.S.
$0.0001 PER SHARE, OF

                           United National Group, Ltd.

transferable on the books of the Company by the registered holder hereof in
person or by duly authorized Attorney in accordance with the Memorandum and
Articles of Association of the Company and upon surrender of this Certificate
properly endorsed.

         This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.

         WITNESS the facsimile seal of the Company and the facsimile
signatures of its duly authorized directors.

Dated:

                                     [SEAL]

   Vice Chairman/Director                       Chief Executive Officer/Director

                                  COUNTERSIGNED AND REGISTERED:

                                                    STOCKTRANS, INC.

                                               TRANSFER AGENT AND REGISTRAR

                                  BY
                                                            AUTHORIZED SIGNATURE
<PAGE>

     THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF SHARES OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.

     The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<Table>
<S>                 <C>                                          <C>
     TEN COM   --   as tenants in common                         UNIF GIFT MIN ACT-__________Custodian_________
     TEN ENT   --   as tenants by the entireties                                     (Cust)            (Minor)
     JT TEN    --   as joint tenants with right of                                 under Uniform Gifts to Minors
                    survivorship and not as tenants                                Act ________________________
                    in common                                                                 (State)
</Table>

     Additional abbreviations may also be used though not in the above list.

     FOR VALUE RECEIVED, __________________________ hereby sell, assign and
transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
       IDENTIFYING NUMBER OF ASSIGNEE

______________________________________________________

______________________________________________________

________________________________________________________________________________
 (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________

________________________________________________________________________________

_________________________________________________________________________ Shares
of the share capital represented by the within Certificate, and do hereby
irrevocably constitute and appoint

________________________________________________________________________Attorney
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises and consent that my name remains on the
register of the Company until such time as the Company enters the transferee's
name in the register of the Company.

Dated ________________________

NOTICE:      THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
             WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
             WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND
             MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE
             17Ad-15 UNDER THE SECURITIES EXCHANGE ACT OF 1934) WHICH MAY
             INCLUDE A COMMERCIAL BANK, TRUST COMPANY OR SAVINGS ASSOCIATION,
             CREDIT UNION OR MEMBER OF THE AMERICAN STOCK EXCHANGE, NEW YORK
             STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00059-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00059-of-00352.parquet"}]]