FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

(Mark One)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 1995

                                       OR

( )  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
EXCHANGE ACT OF 1934
For the transition period from          to
                               --------    --------

Commission File Number 0-13283

                             REX Stores Corporation
             (Exact name of registrant as specified in its charter)

                                                    
               Delaware                         31-1095548
    (State or other jurisdiction of          (I.R.S. Employer
     incorporation or organization)       Identification Number)

    2875 Needmore Road, Dayton, Ohio               45414
 (Address of principal executive offices)        (Zip Code)

                                  513-276-3931
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes (X) No ( )

At the close of business on September  13, 1995,  the  registrant  had 8,942,573
shares of Common Stock, par value $.01 per share, outstanding.

                    REX STORES CORPORATION AND SUBSIDIARIES

                                     INDEX

                                                                                                              Page

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

            Consolidated Condensed Balance Sheets.................                                              3
            Consolidated Statements of Income.....................                                              5
            Consolidated Statements of Shareholders'
              Equity..............................................                                              6
            Consolidated Statements of Cash Flows.................                                              7
            Notes to Consolidated Financial Statements............                                              8

Item 2.   Management's Discussion and Analysis of
            Financial Condition and Results of
            Operations............................................                                             10

PART II.  OTHER INFORMATION

Item 4.   Submission of Matters to a Vote of Security
             Holders..............................................                                             14

Item 6.   Exhibits and Reports on Form 8-K........................                                             14

                                       2

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                    REX STORES CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED CONDENSED BALANCE SHEETS

                                                            A S S E T S

                                                                  July 31               January 31                July 31
                                                                    1995                  1995                      1994
                                                                                     (In Thousands)
                                                                                                        
ASSETS:
      Cash and cash equivalents                                  $    2,583             $  12,663                $   9,958
      Short-term investments                                          1,555                 1,555                      630
      Accounts receivable, net                                          668                 1,077                      291
      Merchandise inventory                                         156,863               115,347                  109,914
      Prepaid expenses and other                                      2,610                 1,470                    2,659
      Prepaid income taxes and future
         income tax benefits                                          2,860                 2,860                    2,563
                                                                 ----------             ---------                ---------
           Total current assets                                     167,139               134,972                  126,015

NET LAND, BUILDINGS AND EQUIPMENT                                    56,676                50,025                   35,123
FUTURE INCOME TAX BENEFIT                                             7,619                 7,619                    6,709
                                                                 ----------             ---------                ---------
          Total assets                                           $  231,434             $ 192,616                $ 167,847
                                                                 ==========             =========                =========

                                                LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                                                        
CURRENT LIABILITIES:
      Notes payable                                               $ 15,098              $       0                $       0
      Current portion of long-term debt                              1,916                  1,680                      618
      Accounts payable, trade                                       50,274                 33,295                   39,530
      Accrued income taxes                                               0                  3,343                        0
      Current portion, deferred income
         and gain on sale and leaseback                              8,048                  7,376                    6,891
      Accrued payroll and related                                    5,931                  6,082                    4,351
      Other liabilities                                              5,559                  4,499                    4,633
                                                                 ---------              ---------                ---------
           Total current liabilities                                86,826                 56,275                   56,023
                                                                 ---------              ---------                ---------

                                       3

Liabilities and Shareholders' Equity (Continued)

LONG-TERM LIABILITIES:
                                                                                                              
      Long-term debt                                                31,147                 25,595                   12,840
      Deferred income                                               14,442                 13,573                   11,421
      Deferred gain on sale and
         leaseback                                                   7,577                  7,779                    7,982
                                                                 ---------              ---------                ---------
           Total long-term liabilities                              53,166                 46,947                   32,243
                                                                 ---------              ---------                ---------

SHAREHOLDERS' EQUITY:
      Common stock                                                      95                     94                       94
      Treasury stock                                                (3,882)                (1,618)                  (1,618)
      Paid-in capital                                               56,314                 56,090                   55,772
      Retained earnings                                             38,915                 34,828                   25,333
                                                                 ---------              ---------                ---------
          Total shareholders' equity                                91,442                 89,394                   79,581
                                                                 ---------              ---------                ---------
           Total liabilities and
             shareholders' equity                                $ 231,434              $ 192,616                $ 167,847
                                                                 =========              =========                =========

                 The accompanying notes are an integral part of
                    these unaudited consolidated statements.

                                       4

                    REX STORES CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME

                                                   Three Months Ended                   Six Months Ended
                                                       July 31                              July 31
                                                   1995              1994               1995             1994
                                                              (In Thousands, Except Per Share Amounts)

NET SALES                                          $ 96,459          $ 81,122           $183,885         $150,256

COSTS AND EXPENSES:
      Cost of merchandise sold                       71,484            59,944            137,086          110,712
      Selling, general and
        administrative expenses                      19,829            17,647             38,471           33,901
                                                   --------          --------           --------         --------
Total costs and expenses                             91,313            77,591            175,557          144,613
                                                   --------          --------           --------         --------

INCOME FROM OPERATIONS                                5,146             3,531              8,328            5,643

INVESTMENT INCOME                                        25                68                134              169
INTEREST EXPENSE                                      1,018               362              1,709              684
                                                   --------          --------           --------         --------

Income before income taxes                            4,153             3,237              6,753            5,128

PROVISION FOR INCOME TAXES                            1,640             1,279              2,666            2,027
                                                   --------          --------           --------         --------

NET INCOME                                         $  2,513          $  1,958           $  4,087         $  3,101
                                                   ========          ========           ========         ========

WEIGHTED AVERAGE NUMBER OF
  COMMON AND COMMON EQUIVA-
  LENT SHARES OUTSTANDING                             9,339             8,995              9,377            8,575
                                                   ========          ========           ========         ========

NET INCOME PER COMMON AND
  COMMON EQUIVALENT SHARE                          $   0.27          $   0.22           $   0.44         $   0.36
                                                   ========          ========           ========         ========

                 The accompanying notes are an integral part of
                    these unaudited consolidated statements.

                                       5

                    REX STORES CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                      Common Shares
                                    -------------------------------------------------
                                           Issued                    Treasury                 Paid-in          Retained
                                    Shares        Amount         Shares         Amount        Capital          Earnings
                                                                  (In Thousands)

Balance at
  July 31, 1994                     9,368         $   94         372            $1,618        $55,772          $25,333

Common stock
  issued                               52              0           0                 0            318                0

Net income                              0              0           0                 0              0            9,495
                                    -----         ------         ---            ------        -------          -------

Balance at
  January 31, 1995                  9,420         $   94         372            $1,618        $56,090          $34,828

Common stock
  issued                               52              1           0                 0            224                0

Treasury stock
  acquired                              0              0         162             2,264              0                0

Net income                              0              0           0                 0              0            4,087
                                    -----         ------         ---            ------        -------          -------
Balance at
  July 31, 1995                     9,472         $   95         534            $3,882        $56,314          $38,915
                                    =====         ======         ===            ======        =======          =======

                 The accompanying notes are an integral part of
                    these unaudited consolidated statements.

                                       6

                    REX STORES CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                          Six Months Ended
                                                                                              July 31
                                                                                       1995               1994
                                                                                           (In Thousands)
                                                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income                                                                     $  4,087          $  3,101
      Adjustments to reconcile net
      income to net cash provided
      by operating activities:
         Depreciation and amortization                                                  1,032               666
         Deferred income                                                                1,542               (70)
         Accounts receivable                                                              409               383
         Merchandise inventory                                                        (41,516)          (34,952)
         Other current assets                                                            (614)             (173)
         Accounts payable, trade                                                       16,979            11,506
         Other liabilities                                                             (2,964)           (3,110)
                                                                                     --------          --------
      NET CASH USED IN OPERATING ACTIVITIES                                           (21,045)          (22,649)
                                                                                     --------          --------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Capital expenditures                                                          (7,892)          (10,893)
         Capital disposals                                                                 10               109
                                                                                     --------          --------
      NET CASH USED IN INVESTING ACTIVITIES                                            (7,882)          (10,784)
                                                                                     --------          --------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Notes payable                                                                 15,098                 0
         Payments of long-term debt                                                      (891)             (278)
         Long-term debt borrowings                                                      6,679             2,366
         Common stock issued                                                              225            20,885
         Treasury stock acquired                                                       (2,264)                0
                                                                                     --------          --------
      NET CASH PROVIDED BY FINANCING
        ACTIVITIES                                                                     18,847            22,973
                                                                                     --------          --------
DECREASE IN CASH AND CASH
  EQUIVALENTS                                                                         (10,080)          (10,460)

CASH AND CASH EQUIVALENTS,
      beginning of period                                                              12,663            20,418
                                                                                     --------          --------
CASH AND CASH EQUIVALENTS,
      end of period                                                                  $  2,583          $  9,958
                                                                                     ========          ========

                 The accompanying notes are an integral part of
                    these unaudited consolidated statements.

                                       7

                    REX STORES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 July 31, 1995

Note 1.  Consolidated Financial Statements

         The consolidated financial statements included in this report have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the  Securities  and  Exchange   Commission  and  include,  in  the  opinion  of
management,  all adjustments necessary to state fairly the information set forth
therein.  Any  such  adjustments  were of a  normal  recurring  nature.  Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
omitted  pursuant to such rules and  regulations,  although the Company believes
that  the  disclosures  are  adequate  to make  the  information  presented  not
misleading.   It  is  suggested  that  these  unaudited  consolidated  financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto  included in the Company's  Annual Report on Form 10-K for the
year ended January 31, 1995.

Note 2.  Accounting Policies

         The interim  consolidated  financial  statements  have been prepared in
accordance  with  the  accounting   policies  described  in  the  notes  to  the
consolidated  financial  statements included in the Company's 1995 Annual Report
on Form 10-K.  While  management  believes that the  procedures  followed in the
preparation of interim  financial  information are  reasonable,  the accuracy of
some estimated  amounts is dependent upon facts that will exist or  calculations
that will be accomplished at fiscal year end. Examples of such estimates include
changes in the LIFO reserve (based upon the Company's best estimate of inflation
to date) and  management  bonuses.  Any  adjustments  pursuant to such estimates
during the quarter were of a normal recurring nature.

                                       8

Notes to Consolidated Financial Statements (Continued)

Note 3.  Equivalent Shares Outstanding

         The  Company  follows  the  treasury   method  of  calculating   common
equivalent  shares  outstanding.   The  following  summarizes  options  granted,
exercised and cancelled or expired at July 31, 1995:

                                                                                            Shares Under Stock
                                                                                                Option Plans
                                                                                              
     Outstanding at January 31, 1995
     ($3.25 to $18.975 per share)                                                                1,421,574
     Granted ($13.875 to $15.262 per share)                                                        167,845
     Exercised ($3.25 to $13.00 per share)                                                         (52,632)
     Expired or cancelled ($6.875 to $17.25
       per share)                                                                                   (2,800)
                                                                                                 ---------
     Outstanding at July 31, 1995
     ($3.25 to $18.975 per share)                                                                1,533,987
                                                                                                 ---------

     Effective  June 2, 1995, shareholders of  the Company approved an amendment
and restatement of the Company's 1994  Incentive Stock Option Plan, renamed  the
1995  Omnibus Stock Incentive Plan. Awards under the amended Plan may be made in
the  form  of  incentive  stock  options,  nonqualified  stock  options,   stock
appreciation  rights,  restricted  stock,  other  stock-based  awards  and  cash
incentive awards. The amended Plan also provides for automatic yearly grants  of
nonqualified  stock options to nonemployee directors of the Company. The maximum
number of shares issuable under the amended Plan was increased from 1,000,000 to
2,000,000 shares.

Note 4. Revolving Line of Credit

         Effective  July 31,  1995,  the  Company  entered  into an amended  and
restated revolving credit agreement with seven participating banks/lenders which
expires July 31, 2000.  Under the terms of the  agreement,  available  revolving
credit borrowings are equal to the lesser of: (i) $100 million for the months of
January through June and $150 million for the months of July through December or
(ii)  the sum of  specific  percentages  of  eligible  accounts  receivable  and
eligible  inventories.  Borrowings available are reduced by any letter of credit
commitments  outstanding (see Note 7 of the Company's 1995 Annual Report on Form
10-K). At July 31, 1995, there was  approximately  $15.1 million  outstanding on
the line of credit with additional availability of approximately $78.2 million.

         The interest  rate on  borrowings  is at prime or LIBOR plus 1.875% and
commitment  fees of 1/4% are  payable  on the  unused  portion.  Borrowings  are
secured by certain fixed assets, accounts receivable and inventories.

         The revolving credit  agreement  contains  restrictive  covenants which
require  the  Company  to  maintain  certain  financial  ratios,  limit  capital
expenditures and limit the incurrence of additional indebtedness. The Company is
also restricted on paying dividends. 

                                       9

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

         The Company is a leader in the consumer electronics/appliance retailing
industry,  operating  predominantly  in small to  medium  sized  markets  in the
Midwest and Southeast.

Results of Operations

         The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items bear to net sales:

                                                Three Months Ended                Six Months Ended
                                                    July 31                           July 31
                                                1995             1994             1995             1994

Net sales                                       100.0%           100.0%           100.0%           100.0%
Cost of merchandise sold                         74.1             73.9             74.6             73.7
                                                -----            -----            -----            -----
    Gross profit                                 25.9             26.1             25.4             26.3

Selling, general and
  administrative expense                         20.6             21.7             20.9             22.6
                                                -----            -----            -----            -----
    Income from operations                        5.3              4.4              4.5              3.7
Interest, net                                     1.0               .4               .9               .3
                                                -----            -----            -----            -----
    Income before income
      taxes                                       4.3              4.0              3.6              3.4

Provision for income taxes                        1.7              1.6              1.4              1.3
                                                -----            -----            -----            -----

Net income                                        2.6%             2.4%             2.2%             2.1%
                                                =====            =====            =====            =====

                                       10

Comparison of Six Months Ended July 31, 1995 and 1994

         Net sales in the second  quarter ended July 31, 1995 were $96.5 million
compared to $81.1 million in the prior year's comparable period, representing an
increase of $15.3  million or 18.9%.  This  increase is primarily a result of 34
additional  stores in the  current  year  second  quarter  compared to the prior
year's second quarter, offset by a decline in comparable store merchandise sales
of 6.4% for the quarter. Net sales for the first half of fiscal 1996 were $183.9
million   compared  to  $150.3  million  in  the  first  half  of  fiscal  1995,
representing an increase of $33.6 million or 22.4%. This increase is primarily a
result of 34 additional  store locations in the current year as comparable store
merchandise sales declined 3.1% on a year to date basis. The Company considers a
store to be comparable after it has been open six fiscal quarters.

         As of July 31, 1995, the Company had 168 stores  compared to 134 stores
one year  earlier.  There were three  stores  opened and none closed  during the
first half of fiscal 1996.  In the prior year's first half there were two stores
opened and none closed. The Company  anticipates  opening 30 to 35 new stores in
fiscal 1996. The Company evaluates the performance of its stores on a continuous
basis and, based on an assessment of factors it deems  relevant,  will close any
store which is not adequately contributing to Company profitability.

         Gross  profit of $25.0  million  in the second  quarter of fiscal  1996
(25.9% of net sales) was 17.9% higher than the $21.2 million gross profit (26.1%
of net sales)  recorded in the second  quarter of fiscal  1995.  The lower gross
profit  margin is primarily a result of a decline in extended  service  contract
revenues as a  percentage  of net sales,  which  generally  have a higher  gross
profit  margin.  In the first half of fiscal 1996 gross profit was $46.8 million
(25.4% of net sales),  an 18.3% increase over $39.5 million (26.3% of net sales)
for the first half of fiscal 1995.  The lower gross profit  margin for the first
half of fiscal 1996 is  primarily a result of increased  competition  in certain
markets,  the  introduction of personal  computers into 94 stores,  which have a
lower gross profit margin,  and a decline in extended service contract  revenues
as a percentage of net sales, which generally have a higher gross profit margin.

         Selling,  general and administrative expenses for the second quarter of
fiscal 1996 were $19.8 million  (20.6% of net sales),  a 12.4% increase over the
$17.6  million  (21.7% of net  sales) for the  second  quarter  of fiscal  1995.
Selling,  general and administrative  expenses for the first half of fiscal 1996
were $38.5 million (20.9% of net sales), a 13.5% increase over the $33.9 million
(22.6% of net sales) for the first half of fiscal 1995.  The 

                                       11

increase in expense was primarily  attributable  to higher payroll costs related
to the increased number of stores and increased  sales,  and higher  advertising
and  general  costs  associated  with more store  locations.  The  reduction  of
selling,  general  and  administrative  expense  as a  percent  of net sales was
primarily a result of more efficient  advertising  for existing stores and lower
occupancy cost as a result of the increased number of owned stores versus leased
stores  (39% of the store  locations  were owned at July 31,  1995 versus 31% at
July 31, 1994).

         Income  from  operations  was $5.1  million  (5.3% of net sales) in the
second  quarter of fiscal 1996, a 45.7%  increase over $3.5 million (4.4% of net
sales) for the second quarter of fiscal 1995.  Income from  operations  was $8.3
million (4.5% of net sales) for the first half of fiscal 1996, a 47.6%  increase
over $5.6 million  (3.7% of net sales) for the first half of fiscal  1995.  This
improvement  was  primarily  a  result  of  increased  sales  volume  and  lower
advertising and occupancy costs relative to sales.

         Interest expense  increased to $1.0 million (1.1% of net sales) for the
quarter  ended July 31, 1995 from  $362,000  (.4% of net sales) for the previous
year's  second  quarter.  Interest  expense  for the first  half of fiscal  1996
increased to $1.7 million  (.9% of net sales) from  $684,000  (.5% of net sales)
for the first  half of fiscal  1995.  This  increase  is  primarily  a result of
additional  mortgage  debt of $19.6  million  (at an  average  interest  rate of
approximately 9.5%) since July 31, 1994 associated with more Company owned store
locations and additional borrowings on the line of credit for the second quarter
of fiscal 1996.

         As a result of the  foregoing,  net income  for the  second  quarter of
fiscal 1996 was $2.5 million,  a 28.3% increase over $2.0 million for the second
quarter of fiscal  1995.  Net income for the first half of fiscal  1996 was $4.1
million, a 31.8% increase over $3.1 million for the first half of fiscal 1995.

Liquidity and Capital Resources

         Net cash used in  operating  activities  was $21.0  million for the six
months ended July 31, 1995. The primary use of cash was an increase in inventory
of $41.5  million due to  opportunistic  buying and  purchases for planned store
openings.  This increase was partially  offset by increased  accounts payable of
$17.0 million.

         At July 31, 1995,  working capital was $80.3 million  compared to $78.7
million at January 31, 1995. The ratio of current assets

                                       12

to current  liabilities  was 1.9 to 1 at July 31, 1995,  and 2.4 to 1 at January
31, 1995.

     Effective  July 31, 1995, the Company  entered into an amended and restated
revolving credit agreement with seven participating banks/lenders which  expires
July  31, 2000.  Under the  terms of  the agreement,  available revolving credit
borrowings are  equal to  the lesser  of: (i)  $100 million  for the  months  of
January through June and $150 million for the months of July through December or
(ii)  the  sum  of  specific percentages  of  eligible  accounts  receivable and
eligible inventories. The Company had outstanding borrowings of $15.1 million on
its revolving line of credit at July 31,  1995 at an interest rate of 8.75%.  At
July   31,  1995,  the   Company  had  approximately   $78.2  million  borrowing
availability on the  revolving line  of credit after  reduction for  outstanding
letters of credit.

         During fiscal 1996,  the Company plans to open 30 to 35 REX stores with
anticipated capital expenditures of $16 to $20 million. Capital expenditures for
the first half of fiscal 1996 were $7.9  million and were  primarily  in-process
store  construction  costs and the purchase of one existing  store  location for
$800,000.  The  Company  believes it will be able to obtain  long-term  mortgage
financing on a site-by-site  basis for Company built or Company  purchased store
locations as stores are completed.

                                       13

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders.

         The annual meeting of shareholders  of REX Stores  Corporation was held
on June 2, 1995, at which the following two matters were  submitted to a vote of
shareholders:

          1. Election of five directors. The vote on this matter was as follows:

                                                                                        Broker
         Nominee                            For                        Withheld        Nonvotes
                                                                               
         Stuart Rose                        7,200,409                  389,389            0
         Lawrence Tomchin                   7,199,910                  389,888            0
         Robert Davidoff                    7,199,910                  389,888            0
         Tibor Fabian                       7,199,910                  389,888            0
         Edward Kress                       7,200,409                  389,389            0

         2. Proposal to approve the amendment and  restatement of the REX Stores
Corporation  1994  Incentive  Stock Option Plan,  renamed the 1995 Omnibus Stock
Incentive Plan. The vote on this matter was as follows:

                                                                                        Broker
         For                                Against                    Abstain         Nonvotes
                                                                               
         3,884,530                          3,010,449                  9,184            685,635

Item 6. Exhibits and Reports on Form 8-K.

    (a) Exhibits.  The following exhibits are filed with this report:

        4(a)     Amended and Restated Loan Agreement dated
                 July 31, 1995 among Rex Radio and Television,
                 Inc., Kelly & Cohen Appliances, Inc., Stereo

                                       14

                 Town, Inc. and Rex Kansas, Inc. (the
                 'Borrowers'), the lenders named therein,
                 and Natwest Bank N.A. as agent 

        4(b)     Form of Amended and Restated Revolving
                 Credit Note

        4(c)     Guaranty of registrant dated July 31, 1995

        4(d)     Borrowers Pledge Agreement as amended and
                 restated through July 31, 1995

        4(e)     Borrowers General Security Agreement as
                 amended and restated through July 31, 1995

        4(f)     Parent Pledge Agreement as amended and
                 restated through July 31, 1995

        4(g)     Parent General Security Agreement as amended
                 and restated through July 31, 1995

        27       Financial Data Schedule

     (b)  Reports on Form 8-K.  No  reports  on Form 8-K were  filed  during the
quarter ended July 31, 1995.

                                       15

                                   SIGNATURES

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                                     REX STORES CORPORATION
                                                     Registrant

September 14, 1995                                   Stuart A. Rose
                                                     Stuart A. Rose
                                                     Chairman of the Board
                                                     (Chief Executive Officer)

September 14, 1995                                   Douglas L. Bruggeman
                                                     Douglas L. Bruggeman
                                                     Vice President, Finance and
                                                     Treasurer
                                                     (Principal Financial and
                                                     Chief Accounting Officer)

                                       16

                           STATEMENT OF DIFFERENCES

       The section symbol shall be expressed as ............ 'ss'

================================================================================

                              AMENDED AND RESTATED
                                 LOAN AGREEMENT

                           Dated as of July 31, 1995,

                                     Among

                        REX RADIO AND TELEVISION, INC.,
                        KELLY & COHEN APPLIANCES, INC.,
                               STEREO TOWN, INC.,
                               REX KANSAS, INC.,

                           THE LENDERS NAMED HEREIN,

                                      and

                          NATWEST BANK N.A., AS AGENT

================================================================================

                               TABLE OF CONTENTS

                                                                            Page

I.  DEFINITIONS  ............................................................  1

     SECTION 1.01. Definitions ..............................................  1
     SECTION 1.02. Accounting Terms and Determinations....................... 18
     SECTION 1.03. Other Definitional Terms............... .................. 18

II.  THE LOANS.  ............................................................ 18

     SECTION 2.01. Revolving Credit Commitments.............................. 18
     SECTION 2.02. Loans..................................................... 21
     SECTION 2.03. Notice of Loans........................................... 22
     SECTION 2.04. Notes..................................................... 23
     SECTION 2.05. Interest on Loans......................................... 23
     SECTION 2.06. Alternate Rate of Interest................................ 24
     SECTION 2.07. Reserve Requirements; Change in
                     Circumstances........................................... 24
     SECTION 2.08. Change in Legality; Indemnity............................. 27
     SECTION 2.09. Pro Rata Treatment........................................ 29
     SECTION 2.10. Sharing of Setoffs........................................ 29
     SECTION 2.11. Taxes..................................................... 29
     SECTION 2.12. Settlement Among Lenders.................................. 32
     SECTION 2.13. Making of Revolving Credit Loans.......................... 36
     SECTION 2.14. Joint and Several Borrowers............................... 37
     SECTION 2.15. Issuance of Letters of Credit............................. 37
     SECTION 2.16. Payment; Reimbursement.................................... 37
     SECTION 2.17. Agent's Actions........................................... 39
     SECTION 2.18. Letter of Credit Fees..................................... 39

III. PAYMENTS, PREPAYMENTS AND FEES ......................................... 40

     SECTION 3.01. Payments of Revolving Credit Loans........................ 40
     Section 3.02. Payment from Insurance Proceeds........................... 40
     Section 3.03. Prepayments............................................... 41
     SECTION 3.04. Payments, etc............................................. 42
     SECTION 3.05. Fee....................................................... 43

IV.  COLLATERAL SECURITY .................................................... 44

     SECTION 4.01. Security Documents........................................ 44
     SECTION 4.02. Filing and Recording...................................... 45

V.   CONDITIONS OF CREDIT EVENTS ............................................ 45

     SECTION 5.01. Conditions Precedent to First Credit
                     Events.................................................. 45
     SECTION 5.02. Conditions Precedent to All Credit
                     Events.................................................. 48

                                                       i

                                                                            Page
                                                                  
VI.  USE OF PROCEEDS. ....................................................... 49

VII.  REPRESENTATIONS AND WARRANTIES ........................................ 49

     SECTION 7.01. Status.................................................... 50 
     SECTION 7.02. Power and Authority....................................... 50
     SECTION 7.03. No Violation of Agreements................................ 50
     SECTION 7.04. No Burdensome Agreements.................................. 51
     SECTION 7.05. No Litigation............................................. 51
     SECTION 7.06. Good Title to Properties.................................. 51
     SECTION 7.07. Trademarks, Patents, etc.................................. 51
     SECTION 7.08. Tax Liability............................................. 52
     SECTION 7.09. Governmental Action....................................... 52
     SECTION 7.10. Disclosure................................................ 52
     SECTION 7.11. Regulations G and U....................................... 52
     SECTION 7.12. Employee Benefit Plans.................................... 52
     SECTION 7.13. Subsidiaries.............................................. 53
     SECTION 7.14. Permits, etc.............................................. 53
     SECTION 7.15. Financial Condition....................................... 53
     SECTION 7.16.  Compliance with Environmental Laws....................... 54

VIII.  AFFIRMATIVE COVENANTS ................................................ 55

     SECTION 8.01. Financial Statements and Other
                      Information............................................ 55
     SECTION 8.02. Corporate Existence, etc.................................. 58
     SECTION 8.03. Compliance with Laws, etc................................. 58
     SECTION 8.04. Payment of Taxes and Claims, etc.......................... 58
     SECTION 8.05. Keeping of Books; Visitation,
                     Inspection, etc......................................... 59
     SECTION 8.06. Insurance................................................. 59
     SECTION 8.07. Properties in Good Condition.............................. 60
     SECTION 8.08. Pay Obligations to Agent and Lenders and
                     Perform Other Covenants................................. 60
     SECTION 8.09. Notice of Default......................................... 60
     SECTION 8.10. Further Assurances........................................ 61
     SECTION 8.11. ERISA..................................................... 61
     SECTION 8.12. Use of Proceeds........................................... 61
     SECTION 8.13. Environmental Laws........................................ 61
     SECTION 8.14. Operating Accounts........................................ 63

IX.  NEGATIVE COVENANTS. .................................................... 63

     SECTION 9.01. Financial Covenants....................................... 63
     SECTION 9.02. Indebtedness.............................................. 64
     Section 9.03. Liens..................................................... 65
     SECTION 9.04. Mergers, Sales, Dissolution, etc.......................... 66
     SECTION 9.05. Dividends, etc............................................ 67
     SECTION 9.06. Investments, Loans, etc................................... 67
     SECTION 9.07. Capital Expenditures...................................... 68

                                       ii

                                                                            Page
                                                                  
     SECTION 9.08. Lease-Backs............................................... 68 
     SECTION 9.09. Compromise of Receivables................................. 69
     SECTION 9.10. Transactions with Affiliates.............................. 69 
     SECTION 9.11. Compliance with ERISA..................................... 69
     SECTION 9.12. Fiscal Year............................................... 69
     SECTION 9.13. Subsidiaries.............................................. 69
     SECTION 9.14. Management Fees, etc...................................... 70
     SECTION 9.15. Sales of Receivables...................................... 70

X. EVENTS OF DEFAULT ........................................................ 70

    SECTION 10.01. Events of Default......................................... 70
    SECTION 10.02. Suits for Enforcement..................................... 74
    SECTION 10.03. Rights and Remedies Cumulative............................ 74
    SECTION 10.04. Rights and Remedies Not Waived............................ 75

XI. AGENT.................................................................... 75

XII. MANAGEMENT, COLLECTION AND STATUS OF RECEIVABLES AND
     OTHER COLLATERAL........................................................ 78

    SECTION 12.01. Collection of Receivables; Management
                     of Collateral........................................... 78
    SECTION 12.02. Receivables Documentation................................. 80
    SECTION 12.03. Status of Receivables and Other
                     Collateral.............................................. 81
    SECTION 12.04. Monthly Statement of Account.............................. 82
    SECTION 12.05. Collateral Custodian...................................... 82

XIII. MISCELLANEOUS.......................................................... 82

    SECTION 13.01. Notices................................................... 82
    SECTION 13.02. Survival of Agreement..................................... 83
    SECTION 13.03. Successors and Assigns; Participations.................... 83
    SECTION 13.04. Expenses; Indemnity....................................... 87
    SECTION 13.05. Applicable Law............................................ 88
    SECTION 13.06. Right of Setoff........................................... 88
    SECTION 13.07. Payments on Business Days................................. 89
    SECTION 13.08. Waivers; Amendments....................................... 89
    SECTION 13.09. Severability.............................................. 91
    SECTION 13.10. Entire Agreement; Waiver of Jury Trial;
                     Judgment, etc........................................... 91
    SECTION 13.11. Confidentiality........................................... 92
    SECTION 13.12. Submission to Jurisdiction................................ 92
    SECTION 13.13. Counterparts; Facsimile Signature......................... 93
    SECTION 13.14. Headings.................................................. 93
    SECTION 13.15. References in Loan Documents and
                     Benefit of Collateral and Guaranties.................... 93
    SECTION 13.16. Defaulting Lender......................................... 93

                                      iii

                                  

EXHIBITS

EXHIBIT A                           Form of Amended and Restated
                                      Revolving Credit Note
EXHIBIT B                           Form of Assignment and Acceptance
EXHIBIT C                           Form of Borrowers Pledge Agreement
EXHIBIT D                           Form of Borrowers Security Agreement
EXHIBIT E                           Form of Security Agreement - Patents
                                      and Trademarks
EXHIBIT F                           Form of Parent Security Agreement
EXHIBIT G                           Form of Parent Pledge Agreement
EXHIBIT H                           Form of Parent Guaranty
EXHIBIT I                           Form of Settlement Report
EXHIBIT J                           Form of Opinion of Counsel
EXHIBIT K                           Form of Borrower's Certificate
EXHIBIT L                           Form of Borrowers Guaranty

SCHEDULES

SCHEDULE 2.01                       Revolving Credit Commitments
SCHEDULE 2.02                       Domestic Lending Office
SCHEDULE 2.03                       Eurodollar Lending Office
SCHEDULE 7.05                       Litigation
SCHEDULE 7.12                       ERISA Matters
SCHEDULE 7.13                       Subsidiaries
SCHEDULE 8.13                       Environmental Matters
SCHEDULE 9.02                       Existing Indebtedness
SCHEDULE 9.03                       Existing Liens

                                                       iv

     AMENDED AND RESTATED  LOAN  AGREEMENT  dated as of July 31, 1995,
     among REX RADIO AND TELEVISION,  INC., an Ohio corporation  ('Rex
     Radio'),  KELLY & COHEN  APPLIANCES,  INC.,  an Ohio  Corporation
     ('Kelly'),  STEREO  TOWN,  INC., a Georgia  corporation  ('Stereo
     Town'), REX KANSAS,  INC., a Kansas corporation ('Rex Kansas' and
     together with Rex Radio, Kelly and Stereo Town, each a 'Borrower'
     and, jointly and severally,  the 'Borrowers'),  the lenders named
     in Schedule 2.01 annexed hereto  (collectively,  the  'Lenders'),
     and  NATWEST  BANK  N.A.,  as  agent  for the  Lenders  (in  such
     capacity, the 'Agent').

     WHEREAS,  Rex Radio,  Kelly,  Stereo Town and NatWest USA Credit Corp.  (in
such capacity, the 'Original Lender') entered into several Loan Agreements, each
dated as of January 31,  1989,  and Rex Kansas and the Original  Lender  entered
into a Loan Agreement dated as of May 31, 1994 (collectively, the 'Original Loan
Agreements');

     WHEREAS,  the parties to the  Original  Loan  Agreements  wish to amend and
restate the Original  Loan  Agreements as set forth below to, among other things
(i) combine the Original Loan  Agreements in one loan  agreement;  (ii) increase
the total maximum amount of the facility to  $150,000,000;  and (iii) extend the
Expiration Date of the facility to July 31, 2000.

     NOW, THEREFORE,  the parties hereto agree that the Original Loan Agreements
shall hereby be combined and shall be amended and restated in their  entirety as
follows:

I.  DEFINITIONS

     SECTION 1.01.  Definitions.  As used herein, the following terms shall have
the meanings herein specified (to be equally applicable to both the singular and
plural forms of the terms defined):

     'ABR Loan' shall mean a Loan based on the Alternate Base Rate in accordance
with Article II hereof.

     'Acquisition  Standards'  shall  mean the  following  standards  which,  in
addition to the other terms and conditions set forth in Section 14 of the Parent
Guaranty,  shall be complied  with in order for a proposed  acquisition  to be a
Permitted Acquisition:

         (i) In the event that a proposed  acquisition  is to be on a  'hostile'
rather  than a  'friendly'  basis,  the  Parent  shall so state in the notice of
proposed  acquisition it sends to the Agent in accordance with Section 14 of the
Parent  Guaranty,

and the Agent or any Lender may disapprove such proposed hostile  acquisition if
the Agent or any Lender,  or any Person  related to the Agent or any Lender,  or
any participant of the Agent or any Lender in connection  with the  Obligations,
shall object to the proposed  acquisition  because the target business is, or is
affiliated with, a customer of the Agent or such Lender, a Person related to the
Agent or such Lender, or any participant of the Lender; and

         (ii) The nature of the target business shall not be illicit or illegal,
shall not subject the Agent or any Lender to embarrassment or adverse  publicity
and shall not subject the Agent or any Lender to any litigation,  claim or other
proceeding.

     'Adjusted LIBO Rate' shall mean,  with respect to any  Eurodollar  Loan for
any Interest Period, an interest rate per annum (rounded upwards,  if necessary,
to the next 1/16 of 1%) equal to the  product of (i) the LIBO Rate in effect for
such  Interest  Period  and  (ii)  Statutory  Reserves.   For  purposes  hereof,
'Statutory  Reserves'  shall  mean a  fraction  (expressed  as a  decimal),  the
numerator of which is the number one and the  denominator of which is the number
one minus the aggregate of the maximum reserve percentages  (including,  without
limitation,  any  marginal,   special,   emergency,  or  supplemental  reserves)
expressed as a decimal  established by the Board and any other banking authority
to which any  Lender is  subject  with  respect  to the  Adjusted  LIBO Rate for
Eurocurrency  Liabilities (as defined in Regulation D). Such reserve percentages
shall include, without limitation,  those imposed under Regulation D. Eurodollar
Loans shall be deemed to constitute  Eurocurrency  Liabilities and as such shall
be deemed to be  subject  to such  reserve  requirements  without  benefit of or
credit for proration,  exceptions or offsets which may be available from time to
time to any Lender under  Regulation  D.  Statutory  Reserves  shall be adjusted
automatically  on and as of the  effective  date of any  change  in any  reserve
percentage.

     'Affiliate'  of any Person shall mean any other Person  which,  directly or
indirectly,  controls or is controlled  by or is under common  control with such
Person and, without  limiting the generality of the foregoing,  includes (i) any
Person  which  beneficially  owns or  holds 5% or more of any  class  of  voting
securities  of such Person or 5% or more of the equity  interest in such Person,
(ii) any Person of which such Person  benefi- cially owns or holds 5% or more of
any class of voting  securities  or in which such  Person  beneficially  owns or
holds 5% or more of the  equity  interest  and (iii) any  director,  officer  or
employee of such Person. For the purposes of this definition, the term 'control'
(including,  with  correlative  meanings,  the terms  'controlled by' and 'under
common control with'), as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the

                                       2

management and policies of such Person,  whether through the ownership of voting
securities or by contract or otherwise.

     'Agent'  shall have the meaning  assigned  to such term in the  preamble to
this Agreement.

     'Alternate  Base Rate' shall mean,  for any day, a rate per annum  (rounded
upwards,  if necessary,  to the next 1/16 of 1%) equal to the greater of (a) the
Prime  Lending  Rate in effect on such day and (b) the Federal  Funds  Effective
Rate in  effect on such day plus 1/2 of 1%. If for any  reason  the Agent  shall
have determined (which  determination shall be conclusive absent manifest error)
that it is unable to ascertain the Federal Funds  Effective Rate for any reason,
including, the inability or failure of the Agent to obtain sufficient quotations
in accordance with the terms hereof, the Alternate Base Rate shall be determined
without regard to clause (b) of the first sentence of this definition  until the
circumstances  giving rise to such inability no longer exist.  Any change in the
Alternate  Base Rate due to a change in the Prime  Lending  Rate or the  Federal
Funds  Effective Rate shall be effective on the effective date of such change in
the Prime Lending Rate or the Federal Funds Effective Rate, respectively.

     'Applicable  Lending Office' shall mean, with respect to each Lender,  such
Lender's  Domestic  Lending  Office in the case of an ABR Loan and such Lender's
Eurodollar Lending Office in the case of a Eurodollar Loan.

     'Assignment and Acceptance' shall mean an assignment and acceptance entered
into by a Lender and an assignee and accepted by the Agent, in substantially the
form of Exhibit B annexed hereto.

     'Board' shall mean the Board of Governors of the Federal  Reserve System of
the United States.

     'Borrower' and 'Borrowers'  shall have the meanings  assigned to such terms
in the preamble to this Agreement.

     'Borrowers Guaranty' shall mean the Borrowers Guaranty substantially in the
form of Exhibit L hereto,  as  amended,  modified or  supplemented  from time to
time.

     'Borrower's  Certificate'  shall have the meaning  assigned to such term in
Section 8.01(l) of this Agreement.

     'Borrowers Pledge Agreement' shall mean the several Pledge Agreements, each
dated January 31, 1989, as amended,  between the pledgors  named therein and the
Original Lender, as amended and restated as of the Closing Date in substantially
the form of  Exhibit E annexed  hereto  to,  among  other  things,  combine  the
applicable Pledge Agreements into one Pledge Agreement and to

                                       3

substitute  the Agent (for the benefit of the Lenders) for the Original  Lender,
as amended, modified or supplemented from time to time.

     'Borrowers  Security  Agreement' shall mean the several Security Agreements
dated  January 31, 1989,  as amended,  between the debtors named therein and the
Original Lender, as amended and restated as of the Closing Date substantially in
the form of  Exhibit D annexed  hereto  to,  among  other  things,  combine  the
applicable Security  Agreements into one Security  Agreement,  and to substitute
the Agent (for the benefit of the Lenders) for the Original  Lender,  as further
amended, modified or supplemented from time to time.

     'Borrowing  Base'  shall  have the  meaning  assigned  such term in Section
2.01(a) hereto.

     'Business Day' shall mean any day,  other than a Saturday,  Sunday or legal
holiday in the State of New York, on which banks are open for  substantially all
their banking  business in New York City except that, if any  determination of a
'Business Day' shall relate to a Eurodollar  Loan, the term 'Business Day' shall
in addition  exclude any day on which banks are not open for  dealings in dollar
deposits in the London interbank market.

     'Capex Financing Proceeds' of any Person shall mean the proceeds of (i) the
issuance and sale of equity or (ii) the incurrence of Indebtedness in accordance
with Section 9.02(iii).

     'Capitalized  Lease  Obligation'  shall mean an  obligation  to pay rent or
other  amounts under any lease of (or other  arrangement  conveying the right to
use) real and/or Personal property which obligation is required to be classified
and accounted  for as a capital lease on a balance sheet  prepared in accordance
with GAAP  consistently  applied,  and for  purposes  hereof  the amount of such
obligation shall be the capitalized amount thereof determined in accordance with
such principles.

     'Cash  Flow'  of  any  Person  shall  mean,   for  any  fiscal   period  of
determination  thereof, the sum of (i) Net Income of such Person for such period
after the deduction of all applicable  income taxes,  plus (ii) the aggregate of
all noncash items deductible under GAAP in determining Net Income of such Person
for such period, including, without limitation, depreciation and amortization of
properties,  plus (iii) the change  (expressed as a positive number in the event
of an  increase  or a negative  number in the event of a  decrease)  in deferred
taxes and income of such  Person  during such  period,  plus (iv) all amounts of
financing  (to the extent  permitted  under  Sections  9.02(iii)  and  9.03(ii))
received by such  Person from  lenders  other than the Lenders  with  respect to
capital  expenditures,  minus (v) all capital  expenditures  made by such Person
during such period,  minus (vi) payments and prepayments  made in respect of any
long-term

                                       4

Indebtedness  of such Person  during  such period and minus (vii) all  dividends
paid in cash during such period.

     'Closing  Date' shall mean the date on which all of the  conditions  to the
occurrence of the first Credit Event hereunder have been satisfied.

     'Code' shall mean the Internal  Revenue Code of 1986,  as amended from time
to time.

     'Code Section 4975' shall mean, at any date, Section 4975 of the Code.

     'Collateral'  shall mean all  collateral  and  security as described in the
Security Documents.

     'Commitment Fee' shall have the meaning set forth in Section 3.05 hereof.

     'Consolidated'  shall  mean,  in respect of any  Person,  as applied to any
financial or accounting  term, such term  determined on a consolidated  basis in
accordance with GAAP (except as otherwise required herein)  consistently applied
for such Person and all consolidated Subsidiaries thereof.

     'Contaminant'  shall mean all Hazardous  Materials and all those substances
which are regulated by or form the basis of liability  under  Federal,  state or
local  environmental,  health  and safety  statutes  or  regulations  including,
without  limitation,   asbestos,   polychlorinated   biphenyls   ('PCBs'),   and
radioactive  substances,  or any other material or substance which constitutes a
material health, safety or environmental hazard to any Person or property.

     'Credit  Event' shall mean each  borrowing and each issuance of a Letter of
Credit hereunder.

     'Customer'  shall mean and  include  the  account  debtor or  obligor  with
respect to any of the Receivables, and/or the prospective purchaser with respect
to any  contract  right,  and/or any Person who enters into or proposes to enter
into any such contract or other similar arrangement with any Borrower.

     'Default'  shall mean any  condition,  act or event  which,  with notice or
lapse of time or both, would constitute an Event of Default.

     'dollars'  or the symbol '$' shall mean  dollars in lawful  currency of the
United States of America.

     'Domestic  Lending  Office'  shall mean,  with  respect to any Lender,  the
office of such Lender  specified as its 'Domestic  Lending Office'  opposite its
name on Schedule 2.02 annexed

                                       5

hereto, or such other office of such Lender as such Lender may from time to time
specify to the Borrowers and the Agent.

     'EBITDA' shall mean, with respect to any Person for any period,  the sum of
(i) Net Income, (ii) Interest Expense, (iii) depreciation of tangible assets and
amortization of intangible assets, (iv) taxes and (v) the change (expressed as a
positive number in the event of an increase or a negative number in the event of
a  decrease)  in deferred  taxes and  deferred  income,  in each for such Person
calculated on a Consolidated basis in accordance with GAAP.

     'Electronic  Inventory' of any Person shall mean Eligible Inventory of such
Person other than Non-Electronic Inventory of such Person.

     'Eligible  Accounts' shall mean Receivables created by the Borrowers in the
ordinary  course of business  arising out of the sale of goods or  rendition  of
services by the Borrowers (and not including finance charges),  which are and at
all times shall  continue to be  acceptable  to the Agent in all respects in the
Agent's reasonable exercise of its judgment,  and Receivables in which the Agent
for the benefit of the Lenders has a first priority perfected security interest.
Standards  of  eligibility  may be fixed and revised from time to time solely by
the  Agent in the  Agent's  exclusive  judgment,  exercised  in good  faith.  In
general,  without  limiting the  foregoing,  a  Receivable  shall in no event be
deemed to be an Eligible Account unless: (i) delivery of the merchandise covered
by the Receivable has been completed;  (ii) no return, rejection or repossession
has  occurred  with  respect  to such  merchandise;  (iii) such  merchandise  or
services or performance  has been accepted by the Customer with respect  thereto
and no  dispute,  offset,  defense or  counterclaim  has been  asserted  by such
Customer;  (iv) such  Receivable  continues  to be in full  conformity  with the
representations  and  warranties  made by the Borrowers to the Agent and Lenders
with  respect  thereto;  (v) no more than 30 days have  elapsed from the invoice
date of any such Receivable;  (vi) no payments for such  Receivables  shall have
been  returned  for  insufficient  funds and no such  payments  shall  have been
stopped;  (vii) the  Agent is and  continues  to be  satisfied  with the  credit
standing of the  Customer in relation to the amount of credit  extended;  (viii)
such  Receivable  does not constitute an obligation of the United States (unless
all steps required by the Agent in connection therewith, including notice to the
United States  Government under the Federal  Assignment of Claims Act, have been
duly taken); and (ix) the Customer with respect to such Receivable is located in
the United States.

     'Eligible  Inventory'  shall mean finished goods inventory of the Borrowers
which  (i) is  not,  in the  opinion  of the  Agent  (exercised  in the  Agent's
reasonable judgment), obsolete, defective or unmerchantable,  (ii) is and at all
times shall continue to be acceptable to the Agent in all respects,

                                       6

(iii) is  located in the United  States  and (iv) is not on  consignment  to any
third party and as to which the Agent for the benefit of the Lenders has a first
priority perfected security interest.  Standards of eligibility may be fixed and
revised from time to time solely by the Agent in the Agent's exclusive judgment,
exercised in good faith.  In  determining  eligibility,  the Agent may, but need
not, rely on reports and schedules  furnished by the Borrowers,  but reliance by
the Agent  thereon  from time to time  shall not be deemed to limit the right of
the Agent to revise  standards of eligibility at any time as to both present and
future inventory of the Borrowers.

     'Environmental  Claim' shall mean any written  notice of violation,  claim,
demand, abatement or other order by any governmental authority or any Person for
personal injury (including sickness,  disease or death),  tangible or intangible
property damage, damage to the environment,  nuisance, pollution,  contamination
or other adverse effects on the environment,  or for fines, penalties or deed or
use  restrictions,  resulting  from or  based  upon  (i) the  existence,  or the
continuation  of the existence,  of a Release  (including,  without  limitation,
sudden or non-sudden, accidental or nonaccidental Releases), of, or exposure to,
any substance, chemical, material, pollutant, contaminant, odor or audible noise
or other  release  or  emission  in,  into or onto the  environment  (including,
without  limitation,  the air, ground,  water or any surface) at, in, by or from
any  of  the  properties  of  any  Borrower  or  its   Subsidiaries,   (ii)  the
environmental aspects of the transportation,  storage,  treatment or disposal of
materials  in  connection  with the  operation of any of the  properties  of any
Borrower or its Subsidiaries or (iii) the violation, or alleged violation by any
Borrower or any of its Subsidiaries, of any statutes, ordinances, orders, rules,
regulations,  permits or licenses of or from any governmental authority,  agency
or court relating to environmental  matters connected with any of the properties
of any Borrower or its Subsidiaries, under any applicable Environmental Law.

     'Environmental Laws' shall mean the Comprehensive  Environmental  Response,
Compensation,  and  Liability Act (42 U.S.C.  'ss' 9601 et seq.),  the Hazardous
Material  Transportation  Act (49  U.S.C.  'ss'  1801  et  seq.),  the  Resource
Conservation  and Recovery Act (42 U.S.C.  'ss' 6901 et seq.), the Federal Water
Pollution  Control Act (33 U.S.C.  'ss' 1251 et seq.),  the Oil Pollution Act of
1990 (P.L.  101-380),  the Safe Drinking  Water Act (42 U.S.C.  'ss' 300(f),  et
seq.),  the Clear Air Act (42 U.S.C.  'ss' 7401 et seq.),  the Toxic  Substances
Control Act, as amended (15 U.S.C. 'ss' 2601 et seq.), the Federal  Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. 'ss' 136 et seq.), and the Occupational
Safety and  Health  Act (29 U.S.C.  'ss' 651 et seq.) as such laws have been and
hereafter may be amended or supplemented,  and any related or analogous  present
or future Federal, state or local,  statutes,  rules,  regulations,  ordinances,
licenses, permits and

                                       7

interpretations and orders of regulatory and administrative bodies.

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

     'ERISA  Affiliate'  shall  mean  each  trade or  business  (whether  or not
incorporated)  which  together with any Borrower or a Subsidiary of any Borrower
would be deemed to be a 'single  employer' within the meaning of Section 4001 of
ERISA.

     'ERISA  Termination Event' shall mean (i) a 'Reportable Event' described in
Section  4043 of ERISA  and the  regulations  issued  thereunder  (other  than a
'Reportable  Event' not subject to the  provision  for 30-day notice to the PBGC
under such  regulations),  or (ii) the  withdrawal of any Borrower or any of its
ERISA  Affiliates  from a Plan during a plan year in which it was a 'substantial
employer' as defined in Section  4001(a)(2)  of ERISA,  or (iii) the filing of a
notice of intent to terminate a Plan or the  treatment of a Plan  amendment as a
termination  under Section 4041 of ERISA, or (iv) the institution of proceedings
to terminate a Plan by the PBGC or (v) any other event or condition  which might
constitute  grounds under Section 4042 of ERISA for the  termination  of, or the
appointment of a trustee to administer, any Plan.

     'Eurodollar  Lending  Office' shall mean,  with respect to any Lender,  the
office of such Lender specified as its 'Eurodollar  Lending Office' opposite its
name in Schedule 2.03 annexed  hereto (or, if no such office is  specified,  its
Domestic Lending Office), or such other office of such Lender as such Lender may
from time to time specify to the Borrowers and the Agent.

     'Eurodollar  Loan'  shall  mean a Loan based on the  Adjusted  LIBO Rate in
accordance with Article II hereof.

     'Event of Default' shall have the meaning  assigned to such term in Article
X hereof.

     'Expiration Date' shall mean July 31, 2000.

     'Extension  Fee' shall have the  meaning  assigned  to such term in Section
3.05(b) hereof.

     'Federal  Funds  Effective  Rate' shall  mean,  for any day,  the  weighted
average of the rates on overnight Federal funds transactions with members of the
Federal  Reserve System  arranged by Federal funds brokers,  as published on the
next  succeeding  Business Day by the Federal  Reserve Bank of New York,  or, if
such rate is not so published  for any day which is a Business  Day, the average
of the quotations for the day of such transactions 

                                       8

received  by  the  Agent from three Federal funds brokers of recognized standing
selected by it.

     'Financial  Officer'  shall mean,  with  respect to any  Person,  the chief
financial officer of such Person.

     'Financial  Statements' shall have the meaning set forth in Section 7.15(a)
hereof.

     'Guarantee'  or  'Guaranty'  shall  mean  any  obligation,   contingent  or
otherwise,  of  any  Person  guaranteeing  or  having  the  economic  effect  of
guaranteeing  any  Indebtedness or obligation of any other Person in any manner,
whether  directly or indirectly,  and shall  include,  without  limitation,  any
obligation  of such  Person,  direct or  indirect,  to (i)  purchase  or pay (or
advance or supply  funds for the  purchase or payment of) such  Indebtedness  or
obligation  or to purchase  (or to advance or supply  funds for the purchase of)
any security for the payment of such  Indebtedness or obligation,  (ii) purchase
property,  securities  or services for the purpose of assuring the owner of such
Indebtedness or obligation of the payment of such Indebtedness or obligation, or
(iii)  maintain  working  capital,  equity  capital,  available  cash  or  other
financial  condition of the primary  obligor so as to enable the primary obligor
to pay  such  Indebtedness  or  obligation;  provided,  however,  that  the term
Guarantee  shall not include  endorsements  for  collection or  collections  for
deposit, in either case in the ordinary course of business.

     'Guarantor'  shall mean the  Parent  and each other  Person at any time and
from time to time issuing a Guarantee of the Obligations.

     'Hazardous Material' shall mean any pollutant,  contaminant,  chemical,  or
industrial  or  hazardous,  toxic or  dangerous  waste,  substance  or material,
defined or regulated as such in (or for purposes of) any  Environmental  Law and
any  other  toxic,   reactive,   or  flammable  chemicals,   including  (without
limitation) any asbestos,  any petroleum  (including crude oil or any fraction),
any radioactive  substance and any polychlorinated  biphenyls or any constituent
of any such substance or waste;  provided,  in the event that any  Environmental
Law is amended so as to broaden the meaning of any term  defined  thereby,  such
broader meaning shall apply  subsequent to the effective date of such amendment;
and  provided,  further,  to the extent  that the  applicable  laws of any state
establish a meaning for 'hazardous material,' 'hazardous  substance,' 'hazardous
waste,' 'solid waste' or 'toxic  substance' which is broader than that specified
in any Environmental Law, such broader meaning shall apply.

     'Holmer/Shidler Letter of Credit' shall mean the Letter of Credit issued by
NatWest  Bank N.A.  in favor of  Shidler/West  Finance  Partners  I, a  Delaware
limited  partnership,   or  their  assigns,  in  the  original  face  amount  of
$8,500,000.

                                       9

     'Indebtedness' of any Person shall mean without duplication:

     (i) all  obligations of such Person which in accordance  with GAAP would be
shown on the balance  sheet of such Person as a  liability  (including,  without
limitation,  obligations for borrowed money and for the deferred  purchase price
of property or services, and obligations evidenced by bonds,  debentures,  notes
or other similar instruments);

     (ii) all rental  obligations  under leases required to be capitalized under
GAAP;

     (iii) all guarantees  (direct or indirect),  all  contingent  reimbursement
obligations under undrawn letters of credit and other contingent  obligations of
such Person in respect of, or obligations to purchase or otherwise acquire or to
assure payment of, Indebtedness of others; and

     (iv) Indebtedness of others secured by any lien upon property owned by such
Person, whether or not assumed.

     'Indemnitees'  shall  have the  meaning  assigned  to such term in  Section
13.04(c) hereof.

     'Information' shall have the meaning assigned to such term in Section 13.11
hereof.

     'Interest  Expense' shall mean,  with respect to any Person for any period,
the  aggregate  amount of  interest  expense of such  Person  during such period
determined on a  Consolidated  basis in accordance  with GAAP,  and shall in any
event include,  without limitation,  (i) amortization of original issue discount
on any  Indebtedness,  (ii) the  portion  of any  Capitalized  Lease  Obligation
allocable to interest expense,  (iii) all fixed and calculable dividend payments
on preferred stock, (iv) the amortization of all fees payable in connection with
the incurrence of Indebtedness  to the extent  included in interest  expense and
(v) payments of interest-in-kind.

     'Interest  Payment Date' shall mean (i) in the case of a Prime Lending Rate
Loan, the last day of each month,  and (ii) with respect to any Eurodollar Loan,
the last day of the Interest Period  applicable  thereto,  and, in addition,  in
respect of any  Eurodollar  Loan of more than three (3) months'  duration,  each
earlier  day which is three  (3)  months  after  the first day of such  Interest
Period.

     'Interest  Period'  shall  mean,  as to any  Eurodollar  Loan,  the  period
commencing  on the date of such  Eurodollar  Loan and ending on the  numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day)  in the  calendar  month  that is one  (1),  three  (3) or six  (6)  months

                                       10

thereafter,  as the  Borrowers may elect with respect to its  Eurodollar  Loans;
provided, however, that (x) if an Interest Period would end on a day that is not
a Business Day, such  Interest  Period shall be extended to the next  succeeding
Business Day unless,  with respect to  Eurodollar  Loans,  such next  succeeding
Business Day would fall in the next calendar  month, in which case such Interest
Period shall end on the next  preceding  Business  Day,  (y) no Interest  Period
shall end later than the Expiration  Date and (z) interest shall accrue from and
including  the first day of an Interest  Period to but excluding the last day of
such Interest Period.

     'Kelly'  shall have the meaning  assigned  to such term in the  preamble to
this Agreement.

     'Lenders' shall have the meaning set forth in the preamble hereof.

     'Letter of Credit'  shall have the  meaning  assigned  such term in Section
2.15 hereof.

     'Letter of Credit Usage' shall mean at any time (i) the  aggregate  undrawn
amount of all outstanding Letters of Credit plus (ii) the unreimbursed  drawings
at such time under Letters of Credit.

     'LIBO  Rate'  shall  mean,  with  respect  to any  Eurodollar  Loan for any
Interest Period, an interest rate per annum (rounded upwards,  if necessary,  to
the next 1/16 of 1%) equal to the rate at which  dollar  deposits  approximately
equal in principal amount to the Eurodollar Loan and for a maturity equal to the
applicable Interest Period are offered in immediately available funds to NatWest
Bank N.A. by leading banks in the London  interbank  market for  Eurodollars  at
approximately  11:00 A.M., London time, two (2) Business Days prior to the first
day of such Interest Period.

     'Lien' shall mean any mortgage,  pledge,  security  interest,  encumbrance,
lien,  financing statement charge or deposit arrangement or other arrangement or
condition  having the  practical  effect of the  foregoing and shall include the
interest of a vendor or lessor under any conditional sale agreement, capitalized
lease or other title retention agreement.

     'Loan' shall mean any Revolving Credit Loan.

     'Loan Documents' shall mean this Agreement,  each Security  Document,  each
Guarantee  executed and  delivered at any time with respect to the  Obligations,
the Notes and each other  document,  instrument,  or agreement  now or hereafter
delivered to the Agent or any Lender in connection herewith or therewith.

     'Margin  Stock' shall have the meaning  provided in  Regulations G and U of
the Board.

                                       11

     'Material  Adverse Effect' shall mean a material  adverse effect on (i) the
business, assets,  operations,  prospects or financial or other condition of the
Parent  and its  Subsidiaries,  (ii) the  Borrowers'  ability  to timely pay the
Obligations in accordance  with the terms thereof,  (iii) a material  portion of
the  Collateral or (iv) Liens of the Agent for the benefit of the Lenders on the
Collateral or the priority of such Liens.

     'Multiemployer Plan' shall mean an employee pension benefit plan covered by
Title IV of ERISA and in respect of which the Parent or any  Subsidiary  thereof
is an  'employer'  as  described  in Section  4001(b) of ERISA,  which is also a
multiemployer plan as defined in Section 4001(a)(3) of ERISA.

     'NatWest' and 'NatWest Bank' shall each mean NatWest Bank N.A.

     'Net Amount of Eligible  Accounts'  for the  Borrowers  shall mean,  at any
time,  the  aggregate  gross  amount of  outstanding  Eligible  Accounts  of the
Borrowers  at such time less sales,  excise or similar  taxes,  if any, and less
returns,  discounts,  claims,  credits and  allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed.

     'Net Amount of Eligible  Inventory'  for the  Borrowers  shall mean, at any
time, the aggregate  value,  calculated at the lower of cost on a FIFO basis and
the current market value, of Eligible Inventory of the Borrowers.

     'Net Income' shall mean for any period an amount equal to the net income of
the Parent and its Subsidiaries determined on a Consolidated basis in accordance
with GAAP for such period.

     'Net Worth' shall mean the net worth of the Parent and its  Subsidiaries on
a Consolidated basis as determined in accordance with GAAP.

     'Non-Electronic  Inventory' of any Person shall mean Eligible  Inventory of
such Person comprised of air conditioners,  dehumidifiers,  white goods,  vacuum
cleaners,  microwave  ovens,  telephones  and  jewelry and such  additional  new
categories  of inventory as the Agent shall  determine  from time to time in its
reasonable discretion.

     'Non-Ratable Loan' shall have the meaning set forth in Section 2.12(c)(iii)
hereof.

     'Notes' shall mean the Revolving Credit Notes.

     'Notice of  Borrowing'  shall have the  meaning  set forth in Section  2.03
hereof.

                                       12

     'Obligations'  shall mean all obligations,  liabilities and Indebtedness of
any  Borrower  and/or any  Guarantor  to the Lenders and the Agent,  whether now
existing or hereafter created,  direct or indirect,  due or not, whether created
directly  or acquired  by  assignment,  participation  or  otherwise,  including
without limitation all obligations, liabilities and indebtedness of any Borrower
with respect to the Security  Documents and other Loan Documents,  the principal
of and interest on the Revolving  Credit Loans and the payment or performance of
all other  obligations,  liabilities,  and  Indebtedness  of any Borrower to the
Lenders and the Agent hereunder, under the Letters of Credit or under any one or
more of the other Loan Documents,  including without limitation all fees, costs,
expenses,  commitment fees, origination fees and indemnity obligations hereunder
and thereunder.

     'Original  Closing  Date' shall mean (i)  January 31, 1989 with  respect to
each of the Original Loan Agreements  between the Original Lender and Rex Radio,
Kelly and Stereo Town,  respectively,  and (ii) May 31, 1994 with respect to the
Original Loan Agreement between the Original Lender and Rex Kansas.

     'Original  Lender'  shall  have the  meaning  assigned  to such term in the
preamble to this Agreement.

     'Original Loan Agreements'  shall have the meaning assigned to such term in
the preamble to this Agreement.

     'Original Notes' shall mean (i) the Revolving Notes dated January 31, 1989,
as amended, made by Rex Radio, Kelly and Stereo Town, respectively, to the order
of the Original Lender,  and (ii) the Revolving Note dated May 31, 1994, made by
Rex Kansas to the order of the Original Lender.

     'Parent' shall mean REX Stores Corporation, a Delaware corporation.

     'Parent  Guaranty'  shall mean the  Guaranty,  dated  January 31, 1989,  as
amended,  by the Parent in favor of the Original Lender, as amended and restated
on the Closing  Date,  substantially  in the form of Exhibit H hereto to,  among
other  things,  substitute  the Agent (for the benefit of the  Lenders)  for the
Original  Lender and to confirm such Guaranty is a guarantee of the  Obligations
hereunder.

     'Parent  Pledge  Agreement'  shall mean the Parent Pledge  Agreement  dated
January  31,  1989,  as  amended,  made by the  Parent in favor of the  Original
Lender, as amended and restated as of the Closing Date substantially in the form
of  Exhibit G hereto  to,  among  other  things,  substitute  the Agent (for the
benefit of the  Lenders)  for the  Original  Lender,  as such  Agreement  may be
further amended,  modified or supplemented  from time to time in accordance with
its terms.

                                       13

     'Parent Security Agreement' shall mean the General Security Agreement dated
January  31,  1989,  as  amended,  made by the  Parent in favor of the  Original
Lender, as amended and restated as of the Closing Date substantially in the form
of  Exhibit F hereto  to,  among  other  things,  substitute  the Agent (for the
benefit of the  Lenders)  for the  Original  Lender,  as such  Agreement  may be
further amended,  modified or supplemented  from time to time in accordance with
its terms.

     'PBGC' shall mean the Pension Benefit Guaranty Corporation.

     'PCBs' shall mean polychlorinated biphenyls.

     'Pension  Plan' shall mean any Plan which is subject to the  provisions  of
Title IV of ERISA.

     'Permitted  Acquisition'  shall  have the  meaning  assigned  such  term in
Section 14 of the Parent Guaranty.

     'Permitted  Capital  Expenditure  Amount' for any fiscal year means the sum
of:

          (i) up to the sum of (x) $15,000,000  plus (y) Cash Flow of the Parent
     and its  Subsidiaries  on a  Consolidated  basis for the most recent fiscal
     year just ended, plus

          (ii) up to $25,000,000 of Capex Financing Proceeds; provided, however,
     that the amount of Capex  Financing  Proceeds  consisting  of  Indebtedness
     available  at any time shall be  subject  in any event to the  restrictions
     contained in Sections 9.02(iii) and 9.03(ii);  and provided,  further, that
     the amount of Capex Financing Proceeds consisting of the proceeds of equity
     offerings  received by the Parent  which may be used by the  Borrowers  for
     capital  expenditures  shall be equal to (x) proceeds remaining from equity
     offerings  prior  to  the  Closing  Date  and  not  yet  used  for  capital
     expenditures plus (y) all proceeds from equity offerings  subsequent to the
     Closing  Date  received  by  Parent  and not  otherwise  used by  Parent or
     Borrowers, subject in any event to the restrictions set forth herein, minus

          (iii) the aggregate of capital expenditures  actually made during such
     fiscal year by the Parent and its Subsidiaries on a Consolidated basis.

     'Person'  shall  mean any  natural  person,  corporation,  business  trust,
association,  company, joint venture, partnership or government or any agency or
political subdivision thereof.

     'Plan' shall mean any  employee  benefit plan within the meaning of Section
3(3) of ERISA and which is maintained (in

                                       14

whole or in part) for  employees of any  Borrower,  any  Subsidiary or any ERISA
Affiliate.

     'Prime Lending Rate' shall mean the rate which NatWest Bank N.A.  announces
from time to time as its prime lending rate, as in effect from time to time. The
Prime Lending Rate is a reference  rate and does not  necessarily  represent the
lowest or best rate actually  charged to any  customer.  The Lenders and NatWest
Bank N.A.  may make  commercial  loans or other loans at rates of  interest  at,
above or below the Prime Lending Rate.

     'Receivables'  shall  mean  and  include  all  accounts,  contract  rights,
instruments,   documents,   chattel  paper,   certificated  and   uncertificated
securities and general intangibles,  whether secured or unsecured,  now existing
or hereafter  created,  owned by the Borrowers  and whether or not  specifically
sold or assigned to the Agent or any Lender.

     'Register' shall have the meaning assigned to such term in Section 13.03(e)
hereof.

     'Regulation  D' shall mean  Regulation D of the Board,  as the same is from
time to time in effect, and all official rulings and interpretations  thereunder
or thereof.

     'Regulation  G' shall mean  Regulation G of the Board,  as the same is from
time to time in effect, and all official rulings and interpretations  thereunder
or thereof.

     'Regulation  U' shall mean  Regulation U of the Board,  as the same is from
time to time in effect, and all official rulings and interpretations  thereunder
or thereof.

     'Release' shall mean any releasing,  spilling,  leaking,  seepage, pumping,
pouring,  emitting,  emptying,   discharging,   injecting,  escaping,  leaching,
disposing or dumping,  in each case as defined in  Environmental  Law, and shall
include any 'Threatened Release,' as defined in Environmental Law.

     'Remedial Work' shall mean any investigation, site monitoring, containment,
cleanup, removal,  treatment,  restoration or other remedial work of any kind or
nature with respect to any property of any Borrower or its Subsidiaries (whether
such  property  is  owned,  leased,  subleased  or  used),  including,   without
limitation, with respect to Contaminants and the Release thereof.

     'Reportable  Event' shall mean a  'Reportable  Event' as defined in Section
4043(b) of ERISA.

     'Required Lenders' shall mean Lenders having 51% of the Total Commitment.

                                       15

     'Responsible   Officer'  shall  mean,  with  respect  to  any  Person,  the
President, any Vice President or the Financial Officer of such Person.

     'Revolving Credit  Commitment' shall mean, with respect to any Lender,  the
Revolving Credit Commitment of such Lender as set forth in Schedule 2.01 annexed
hereto,  as the same may be reduced  from time to time  pursuant  to Article III
hereof.

     'Revolving Credit Loan' shall mean a Revolving Credit Loan made pursuant to
Sections 2.01 and 2.02 hereof.

     'Revolving  Credit  Notes'  shall mean the  Revolving  Credit  Notes of the
Borrowers,  executed  and  delivered  as provided  in Section  2.04  hereof,  in
substantially  the form of Exhibit A annexed  hereto,  which are being issued on
the Closing Date in  substitution  for and replacement of the Original Notes, as
amended, modified or supplemented from time to time.

     'Revolving Credit  Termination Date' shall mean the earlier to occur of (i)
the  Expiration  Date  and  (ii)  such  date as  this  Agreement  and the  Total
Commitment  shall terminate or be cancelled in accordance with the terms of this
Agreement and the Revolving Credit Loans shall otherwise be payable in full.

     'Rex Kansas'  shall have the meaning  assigned to such term in the preamble
to this Agreement.

     'Rex Radio' shall have the meaning assigned to such term in the preamble to
this Agreement.

     'Security  Agreement  - Patents  and  Trademarks'  shall  mean the  several
Security  Agreements and Mortgages - Patents and  Trademarks,  dated January 31,
1989, as amended,  between the debtor(s) named therein and the Original  Lender,
as amended  and  restated as of the Closing  Date  substantially  in the form of
Exhibit  E annexed  hereto  to,  among  other  things,  combine  the  applicable
Agreements  into  one  Security  Agreement  -  Patents  and  Trademarks,  and to
substitute  the Agent (for the benefit of the Lenders) for the Original  Lender,
as further amended, modified or supplemented from time to time.

     'Security  Documents'  shall  mean  the  Borrowers  Pledge  Agreement,  the
Borrowers Security  Agreement,  the Security Agreement - Patents and Trademarks,
the Parent  Pledge  Agreement,  the  Parent  Security  Agreement  and each other
agreement now existing or hereafter  created by any Person providing  collateral
security for the payment or performance of any Obligations.

     'Settlement Date' shall mean each Business Day selected by the Agent in its
sole  discretion  subject to and in  accordance  with the  provisions of Section
2.12(c) as of which a  Settlement  Report is delivered by the Agent and on which
settlement is to be

                                       16

made among the Lenders in accordance with the provisions of Section 2.12 hereof.

     'Settlement  Report'  shall  mean each  report,  substantially  in the form
attached hereto as Exhibit I hereto, prepared by the Agent and delivered to each
Lender  and  setting  forth,  among  other  things,  as of the  Settlement  Date
indicated  thereon and as of the next preceding  Settlement  Date, the aggregate
principal  balance of all  Revolving  Credit Loans  outstanding,  each  Lender's
ratable  portion  thereof,   each  Lender's   Revolving  Credit  Loans  and  all
Non-Ratable Loans made, and all payments of principal received by the Agent from
any Borrower during the period beginning on such next preceding  Settlement Date
and ending on such Settlement Date.

     'Stereo Town' shall have the meaning  assigned to such term in the preamble
to this Agreement.

     'Stock  Repurchase' shall have the meaning assigned to such term in Section
14 of the Parent Guaranty.

     'Subsidiary'  shall mean,  with  respect to any Person,  the parent of such
Person  and any  corporation,  association  or other  business  entity  of which
securities  or  other  ownership  interests  representing  more  than 50% of the
ordinary  voting power are, at the time as of which any  determination  is being
made, owned or controlled,  directly or indirectly, by the parent or one or more
Subsidiaries of the parent.

     'Taxes'  shall have the meaning  assigned  to such term in Section  2.11(a)
hereof.

     'Total  Commitment'  shall mean the sum of the  Lenders'  Revolving  Credit
Commitments,  as the same may be reduced  from time to time  pursuant to Article
III hereof.

     'Total Liabilities' shall mean with respect to any Person, the total of all
items which  would  properly be  included  as  liabilities  on a balance  sheet,
determined in accordance with GAAP.

     'Transactions'  shall  mean  the  transactions  to be  entered  into on the
Closing Date in  connection  with this  Agreement  and the other Loan  Documents
(including  the  making of Loans,  the  issuance  of  Letters  of Credit and the
granting of collateral security and guarantees in connection therewith).

     'Undrawn  Availability'  shall  mean at any time (i) the  lesser of (x) the
Total  Commitment and (y) the Borrowing Base, minus (ii) the sum at such time of
(x) the unpaid  principal  balance  of, and  accrued  interest  and fees on, the
Revolving Credit Loans and (y) the Letter of Credit Usage.

                                       17

     'Uniform  Commercial  Code'  shall mean the Uniform  Commercial  Code as in
effect in the State of New York.

     SECTION 1.02. Accounting Terms and Determinations. Unless otherwise defined
or  specified  herein,  all  accounting  terms shall be  construed  herein,  all
accounting  determinations  hereunder  shall be made,  all financial  statements
required to be delivered  hereunder shall be prepared and all financial  records
shall be maintained in accordance with generally accepted accounting  principles
('GAAP') applied on a basis consistent with the Financial Statements.

     SECTION 1.03. Other  Definitional  Terms. (a) The words 'hereof,'  'herein'
and  'hereunder'  and words of similar import when used in this Agreement  shall
refer to this Agreement as a whole and not to any  particular  provision of this
Agreement, and article,  section,  schedule,  exhibit and like references are to
this Agreement unless otherwise specified.

     (b) Any defined term which relates to a document  shall include  within its
definition any amendments,  modifications,  renewals, restatements,  extensions,
supplements or substitutions  which may have been heretofore or may be hereafter
executed in accordance with the terms thereof.

II.  THE LOANS

     SECTION 2.01.  Revolving Credit  Commitments.  (a) Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
each Lender, severally and not jointly, agrees to make Revolving Credit Loans to
the  Borrowers,  at any time and from time to time from the Closing  Date to the
Revolving Credit Termination Date, in an aggregate  principal amount at any time
outstanding  not  to  exceed  the  amount  of  such  Lender's  Revolving  Credit
Commitment set forth opposite its name in Schedule 2.01 annexed hereto,  as such
Revolving Credit  Commitment may be reduced from time to time in accordance with
the provisions of this Agreement.

     Notwithstanding  the  foregoing,  but  subject  to  the  provisos  to  this
paragraph,  (A)  the  aggregate  principal  amount  of  Revolving  Credit  Loans
outstanding at any time to the Borrowers  shall not exceed (i) the lesser of (x)
the Total  Commitment  (as such amount may be reduced from time to time pursuant
to this  Agreement)  and (y) the Borrowing Base (as  hereinafter  defined) minus
(ii) the Letter of Credit Usage at such time,  and (B) the  aggregate  principal
amount of Revolving Credit Loans outstanding at any time to

         (i) Kelly shall not exceed an amount (the 'Kelly Borrowing Base') equal
     to the sum of (1) up to 85% of the

                                       18

     Net Amount of  Eligible  Accounts  of Kelly,  plus (2) up to 65% of the Net
     Amount of Eligible  Inventory of Kelly  comprised of Electronic  Inventory,
     plus (3) without  duplication,  with  respect to the Net Amount of Eligible
     Inventory of Kelly comprised of Non-Electronic  Inventory, (x) up to 65% of
     the value of that portion of such Non-Electronic  Inventory  comprising 25%
     or less of the  aggregate of all Eligible  Inventory of Kelly and (y) up to
     50% of the value of that portion of the Non- Electronic  Inventory of Kelly
     which, when added together with the Non-Electronic  Inventory referenced in
     clause  (x),  comprises  more  than 25% of the  aggregate  of all  Eligible
     Inventory of Kelly,

         (ii) Rex Kansas  shall not exceed an amount (the 'Rex Kansas  Borrowing
     Base')  equal  to the sum of (1) up to 85% of the Net  Amount  of  Eligible
     Accounts  of Rex  Kansas,  plus (2) up to 65% of the Net Amount of Eligible
     Inventory of Rex Kansas comprised of Electronic Inventory, plus (3) without
     duplication,  with  respect to the Net Amount of Eligible  Inventory of Rex
     Kansas comprised of Non-Electronic Inventory, (x) up to 65% of the value of
     that portion of such Non-Electronic Inventory comprising 25% or less of the
     aggregate of all Eligible  Inventory of Rex Kansas and (y) up to 50% of the
     value of that portion of the Non-Electronic  Inventory of Rex Kansas which,
     when added together with the Non-Electronic  Inventory referenced in clause
     (x),  comprises more than 25% of the aggregate of all Eligible Inventory of
     Rex Kansas,

         (iii) Rex Radio  shall not exceed an amount  (the 'Rex Radio  Borrowing
     Base')  equal  to the sum of (1) up to 85% of the Net  Amount  of  Eligible
     Accounts  of Rex Radio,  plus (2) up to 65% of the Net  Amount of  Eligible
     Inventory of Rex Radio comprised of Electronic Inventory,  plus (3) without
     duplication,  with  respect to the Net Amount of Eligible  Inventory of Rex
     Radio comprised of Non- Electronic Inventory, (x) up to 65% of the value of
     that portion of such Non-Electronic Inventory comprising 25% or less of the
     aggregate of all  Eligible  Inventory of Rex Radio and (y) up to 50% of the
     value of that portion of the  Non-Electronic  Inventory of Rex Radio which,
     when added together with the Non-Electronic  Inventory referenced in clause
     (x),  comprises more than 25% of the aggregate of all Eligible Inventory of
     Rex Radio, and

         (iv) Stereo Town shall not exceed an amount (the 'Stereo Town Borrowing
     Base' and,  together with the Kelly  Borrowing  Base, Rex Kansas  Borrowing
     Base and Rex Radio Borrowing  Base, the 'Borrowing  Base') equal to the sum
     of (1) up to 85% of the Net Amount of  Eligible  Accounts  of Stereo  Town,
     plus (2) up to 65% of the Net Amount of Eligible  Inventory  of Stereo Town
     comprised  of  Electronic  Inventory,  plus (3) without  duplication,  with
     respect to the

                                       19

     Net Amount of Eligible Inventory of Stereo Town comprised of Non-Electronic
     Inventory,   (x)  up  to  65%  of  the  value  of  that   portion  of  such
     Non-Electronic  Inventory  comprising  25% or less of the  aggregate of all
     Eligible  Inventory  of Stereo  Town and (y) up to 50% of the value of that
     portion of the  Non-Electronic  Inventory of Stereo Town which,  when added
     together  with the  Non-Electronic  Inventory  referenced  in  clause  (x),
     comprises  more than 25% of the  aggregate  of all  Eligible  Inventory  of
     Stereo Town; provided, however, that commencing with the date, if any, upon
     which the  Agent  becomes  aware  (whether  through  receipt  of  financial
     statements  in accordance  with Section 8.01 hereof or otherwise)  that the
     Parent and its Subsidiaries on a Consolidated basis have suffered a pre-tax
     loss of  $5,000,000  or more for the fiscal  year just ended (the amount of
     any such loss to be calculated in accordance  with GAAP as in effect on the
     date  hereof),  the advance rates set forth in clauses  (i)(2),  (i)(3)(x),
     (ii)(2), (ii)(3)(x),  (iii)(2),  (iii)(3)(x), and (iv)(2), (iv)(3)(x) above
     shall be reduced to not more than 55%; and, provided  further,  that in any
     event,  amounts  available under the Total  Commitment shall not exceed (i)
     $100,000,000  from  January  1  through  June  30 of  each  year  and  (ii)
     $150,000,000 from July 1 through December 31 of each year.

     Subject to the foregoing and within the foregoing limits, the Borrowers may
borrow, repay (or, subject to the provisions of Article III hereof,  prepay) and
reborrow  Revolving Credit Loans, on and after the Closing Date and prior to the
Revolving  Credit  Termination  Date,  subject  to  the  terms,  provisions  and
limitations set forth herein,  including,  without  limitation,  the requirement
that no Revolving  Credit Loan shall be made  hereunder  if after giving  effect
thereto the sum of the aggregate  principal amount of the Revolving Credit Loans
outstanding hereunder plus the Letter of Credit Usage would exceed the lesser of
(i) the  Total  Commitment  (as  such  amount  may be  reduced  pursuant  to the
provisions of this Agreement) and (ii) the Borrowing Base.

     (b) In accordance with Section 8.01(l) hereof,  each Borrower shall furnish
on each date required thereunder a separate Borrower's  Certificate with respect
to the assets of such Borrower.  Each Borrower agrees that, subject in any event
to the other terms and  provisions  of this  Article II, (i) each  request for a
Revolving Credit Loan shall be made by an individual Borrower and each repayment
of Revolving  Credit Loans shall be made by the applicable  Borrower and (ii) no
Borrower  shall be  authorized  to request a  Revolving  Credit Loan unless such
Borrower has sufficient Undrawn Availability based on the calculations set forth
in its Borrower's Certificate.

     (c) Upon the making of the Loans on the  Closing  Date in  accordance  with
Article V, the interest of the Original Lender

                                       20

in the 'Loans' made to the  Borrowers  under the Original  Loan  Agreements  and
outstanding  on the Closing Date shall  become and be for all purposes  Loans by
NatWest  Bank  N.A.  as a  Lender  hereunder  subject  to its  Revolving  Credit
Commitment and evidenced by the Notes payable to it.

     SECTION 2.02.  Loans. (a) The Revolving Credit Loans made by the Lenders on
any date  shall  be in an  aggregate  amount  of not less  than  $25,000  unless
otherwise agreed to by the Agent;  provided,  however, that the Eurodollar Loans
made on any date shall be in a minimum aggregate  principal amount of $5,000,000
or an integral multiple of $1,000,000 in excess thereof.

     (b) Subject to the provisions of Sections 2.12 and 2.13 hereof, Loans shall
be made ratably by the Lenders in  accordance  with their  respective  Revolving
Credit Commitments;  provided,  however,  that the failure of any Lender to make
any Loan shall not in itself  relieve any other Lender of its obligation to lend
hereunder.  The  initial  Revolving  Credit  Loans  shall be made by the Lenders
against delivery of Revolving Credit Notes, payable to the order of the Lenders,
as referred to in Section 2.04 hereof.

     (c) Subject to the  provisions  of paragraph  (e) below,  each Lender shall
make its  Revolving  Credit  Loans on the proposed  dates  thereof by paying the
amount  required  to the Agent in New York,  New York in  immediately  available
funds not later than 12:00 noon, New York City time, and the Agent shall as soon
as practicable, but in no event later than 3:00 p.m., New York City time, credit
the amounts so received to the general deposit account of the Borrowers with the
Agent in  immediately  available  funds  or, if Loans are not to be made on such
date because any condition precedent to a borrowing herein specified is not met,
return the amounts so received to the respective Lenders.

     (d) Each  Loan  shall be either an ABR Loan or a  Eurodollar  Loan,  as the
Borrowers may request  pursuant to Section 2.03 hereof.  Each Lender may fulfill
its obligations under this Agreement by causing its Applicable Lending Office to
make such requested Loan;  provided,  however,  that the exercise of such option
shall  not  affect  the  obligation  of the  Borrowers  to  repay  such  Loan in
accordance  with the terms of the applicable  Note. In any event,  not more than
three (3) Eurodollar Loans may be outstanding at any one time.

     (e) The Borrowers  shall have the right at any time upon prior  irrevocable
written,  telex or facsimile notice (promptly confirmed in writing) to the Agent
given in the manner and at the times  specified  in Section 2.03 with respect to
the Loans into which conversion or continuation is to be made, to convert all or
any portion of Eurodollar Loans into ABR Loans, to convert all or any portion of
ABR Loans into Eurodollar Loans (specifying the Interest Period to be applicable
thereto), and to

                                       21

continue  all or any portion of any Loans into a subsequent  Interest  Period of
the same  duration,  subject  to the  terms  and  conditions  of this  Agreement
(including the last sentence of Section 2.02(d) hereof) and to the following:

         (i) in the case of a conversion or  continuation  of fewer than all the
     Loans, the aggregate principal amount of Loans converted or continued shall
     not be less  than  $500,000  in the case of ABR Loans or  $5,000,000  or an
     integral multiple of $1,000,000 in excess thereof in the case of Eurodollar
     Loans;

         (ii) accrued interest on a Loan (or portion thereof) being converted or
     continued  shall  be paid by the  Borrowers  at the time of  conversion  or
     continuation;

         (iii) no Eurodollar Loan may be converted at any time other than at the
     end of the Interest Period applicable thereto;

         (iv) any  portion  of a  Revolving  Credit  Loan which is subject to an
     Interest  Period  ending on a date that is less than one (1) month prior to
     the  Revolving  Credit  Termination  Date  may not be  converted  into,  or
     continued as, a Eurodollar Loan and shall be automatically converted at the
     end of such Interest Period into an ABR Loan; and

         (v)  no  Default  or  Event  of  Default  shall  have  occurred  and be
     continuing.

     The Interest  Period  applicable to any  Eurodollar  Loan  resulting from a
conversion  shall be specified by the  Borrowers  in the  irrevocable  notice of
conversion  delivered pursuant to this Section;  provided,  however,  that if no
such Interest  Period shall be specified,  the Borrowers shall be deemed to have
selected an Interest Period of one (1) month's duration.  If the Borrowers shall
not have given timely notice to continue any  Eurodollar  Loan into a subsequent
Interest  Period  (and shall not  otherwise  have given  notice to convert  such
Loan),  such Loan (unless repaid or required to be repaid  pursuant to the terms
hereof)  shall,  subject to (iv) above,  automatically  be converted into an ABR
Loan. The Agent shall  promptly  advise the Lenders of any notice given pursuant
to this Section and of each Lender's  portion of the  continuation or conversion
hereunder.

     SECTION 2.03.  Notice of Loans. The Borrowers shall,  through a Responsible
Officer of the Borrowers, give the Agent irrevocable written, telex or facsimile
(or,  with  respect  only  to the  making  of an ABR  Loan,  telephonic)  notice
(promptly   confirmed  in  writing)  of  each  borrowing   (including,   without
limitation, a conversion as permitted by Section 2.02(e) hereof) not later than

                                       22

11:00 a.m.  New York City time,  (i) three (3)  Business  Days before a proposed
Eurodollar  Loan  borrowing  or  conversion  and  (ii) on the day of an ABR Loan
borrowing or conversion. Such notice (each such notice, a 'Notice of Borrowing')
shall specify (w) the Borrower  requesting such Loan for the purposes of Section
2.01(b) of this  Agreement,  (x) whether the Loan(s) then being requested are to
be ABR Loans or Eurodollar Loans, (y) the date of such borrowing (which shall be
a Business Day) and amount thereof (which amount if requesting  Eurodollar Loans
shall be in an aggregate  principal amount of $5,000,000 or an integral multiple
of  $1,000,000  in excess  thereof),  and (z) if such Loans are to be Eurodollar
Loans, the Interest Period with respect  thereto.  If no election as to the type
of Loan is specified in any such notice,  all such Loans shall be ABR Loans.  If
no Interest  Period with respect to any Eurodollar Loan is specified in any such
notice,  then an Interest Period of one (1) month's  duration shall be deemed to
have been selected.  The Agent shall  promptly  advise the Lenders of any notice
given  pursuant  to this  Section  2.03  and of  each  Lender's  portion  of the
requested borrowing.

     SECTION 2.04.  Notes. (a) All Revolving Credit Loans made by a Lender shall
be evidenced by a single  Revolving  Credit Note, duly executed on behalf of the
Borrowers,  dated as of the Closing Date, in substantially the form of Exhibit A
annexed hereto, delivered and payable to such Lender in a principal amount equal
to its Revolving Credit Commitment on such date. The outstanding balance of each
Revolving  Credit Loan, as evidenced by any such  Revolving  Credit Note,  shall
mature and be due and payable on the Revolving Credit Termination Date.

     (b) Each  Revolving  Credit Note shall bear  interest  from its date on the
outstanding principal balance thereof, as provided in Section 2.05 hereof.

     (c)  Each  Lender,  or  the  Agent  on its  behalf,  shall,  and is  hereby
authorized  by the  Borrowers  to,  endorse  on  the  schedule  attached  to the
Revolving  Credit Note of such  Lender (or on a  continuation  of such  schedule
attached  to  such  Note  and  made  a part  thereof)  an  appropriate  notation
evidencing the date and amount of each Loan, as applicable, to any Borrower from
such Lender,  as well as the date and amount of each payment and prepayment with
respect thereto; provided,  however, that the failure of any Person to make such
a notation on a Note shall not affect any  obligations  of the  Borrowers  under
such Note.  Any such notation shall be conclusive and binding as to the date and
amount of such Loan or portion thereof, or payment or prepayment of principal or
interest thereon, absent manifest error.

     SECTION 2.05.  Interest on Loans.  (a) Subject to the provisions of Section
2.05(b) and Section 2.06 hereof, (i) each ABR Loan shall bear interest at a rate
per annum equal to the Alternate Rate,  minus  one-quarter of one percent (1/4%)
and

                                       23

(ii) each  Eurodollar  Loan shall bear interest at a rate per annum equal to the
Adjusted LIBO Rate plus 1.625% per annum.

     (b)  Interest  on each Loan shall be  payable  in  arrears  in  immediately
available  funds on each  applicable  Interest  Payment  Date,  on the Revolving
Credit Termination Date and thereafter on demand. Interest on each Loan shall be
computed  based on the number of days  elapsed in a year of 360 days.  The Agent
shall  determine  each interest rate  applicable to the Loans and shall promptly
advise the Borrowers and the Lenders of the interest rate so determined.

     (c) The  Borrowers  shall pay to NatWest Bank N.A. for its own account,  in
arrears, on each Interest Payment Date, on the Revolving Credit Termination Date
and thereafter on demand, in immediately available funds, additional interest of
one-quarter  of one  percent  (1/4%)  per  annum on the  Loans,  which  shall be
computed based on the number of days elapsed in a year of 360 days.

     (d) During the continuance of any Default under Section 10.01(a),  10.01(e)
or  10.01(f)  hereof,  amounts of  principal  outstanding  hereunder  shall bear
interest,  payable upon  demand,  at a rate per annum which shall be two percent
(2%) in excess of the rates  otherwise  applicable  thereto and all  outstanding
Letters of Credit shall bear a fee equal to two percent (2%) per annum in excess
of the fee otherwise applicable thereto.

     SECTION  2.06.  Alternate  Rate  of  Interest.  In the  event,  and on each
occasion, that on the day two (2) Business Days prior to the commencement of any
Interest  Period for a  Eurodollar  Loan the Agent  shall have  determined  that
dollar  deposits  in the  amount  of each  Eurodollar  Loan  are  not  generally
available  in the  London  interbank  market,  or that the rate at which  dollar
deposits are being  offered will not reflect  adequately  and fairly the cost to
any Lender of making or maintaining  such  Eurodollar  Loan during such Interest
Period, or that reasonable means do not exist for ascertaining the Adjusted LIBO
Rate, the Agent shall as soon as practicable  thereafter give written notice (or
facsimile  notice promptly  confirmed in writing) of such  determination  to the
Borrowers and the Lenders,  and any request by the Borrowers for the making of a
Eurodollar Loan pursuant to Section 2.03 hereof or conversion or continuation of
any Loan into a Eurodollar Loan pursuant to Section 2.02 hereof shall, until the
circumstances  giving  rise to such  notice no longer  exist,  be deemed to be a
request for an ABR Loan. Each determination by the Agent made hereunder shall be
conclusive absent manifest error.

     SECTION  2.07.   Reserve   Requirements;   Change  in  Circumstances.   (a)
Notwithstanding  any other provision  herein, if after the Original Closing Date
any change in applicable law

                                       24

or  regulation  or in  the  interpretation  or  administration  thereof  by  any
governmental authority charged with the interpretation or administration thereof
(whether  or not having  the force of law) or any  change in GAAP or  regulatory
accounting  principles  applicable to the Agent or any Lender shall (i) subject,
or any change in GAAP or  regulatory  accounting  principles  applicable  to the
Agent or any Lender shall subject,  the Agent or any Lender (which shall for the
purpose of this Section 2.07 include any assignee or lending office of the Agent
or any Lender) to any tax, charge, fee deduction or withholding of any kind with
respect to any amount  paid or to be paid by either the Agent or any Lender with
respect  to any  Eurodollar  Loans  made by a Lender  to the  Borrowers  or with
respect to the obligations of any Lender under Sections 2.15 through 2.18 hereof
or under any Letter of Credit  (other than (x) taxes  imposed on the overall net
income of the Agent or such Lender and (y) franchise  taxes imposed on the Agent
or such Lender,  in either case by the  jurisdiction in which such Lender or the
Agent has its principal office or its Applicable  Lending Office with respect to
such Eurodollar Loan or any political  subdivision or taxing authority of either
thereof);  (ii)  change the basis of  taxation  of payments to any Lender or the
Agent of the principal of or interest on any  Eurodollar  Loan or any other fees
or amounts  payable with respect to any Letter of Credit or otherwise  hereunder
(other than taxes  imposed on the overall net income of such Lender or the Agent
by the  jurisdiction in which such Lender or the Agent has its principal  office
or by any political  subdivision  or taxing  authority  therein);  (iii) impose,
modify or deem applicable any reserve,  special  deposit or similar  requirement
against  assets  of,  deposits  with or for the  account  of,  or  loans or loan
commitments  extended by, or Letters of Credit  issued and  maintained  by, such
Lender;  or (iv) impose on any Lender or, with respect to Eurodollar  Loans, the
London interbank market, any other condition  affecting this Agreement,  Letters
of Credit issued and maintained by or Eurodollar Loans made by such Lender;  and
the result of any of the  foregoing  shall be to  increase  the cost to any such
Lender of making or maintaining any Eurodollar  Loan or Letter of Credit,  or to
reduce  the  amount  of  any  payment  (whether  of  principal,  interest,  fee,
compensation  or otherwise)  receivable by such Lender or to require such Lender
to make any payment in respect of any Eurodollar Loan or Letter of Credit,  then
the  Borrowers  shall pay to such Lender or the Agent,  as the case may be, upon
such Lender's or the Agent's demand,  such additional  amount or amounts as will
compensate such Lender or the Agent for such additional costs or reduction.  The
Agent and each Lender  agree to give notice to the  Borrowers of any such change
in law, regulation,  interpretation or administration with reasonable promptness
after becoming  actually aware thereof and of the  applicability  thereof to the
Transactions. Notwithstanding anything contained herein to the contrary, nothing
in clause (i) or (ii) of this Section  2.07(a) shall be deemed to (x) permit the
Agent or any  Lender  to  recover  any  amount  thereunder  which  would  not be
recoverable under Section 2.11

                                       25

hereof or (y)  require  the  Borrowers  to make any payment of any amount to the
extent that such  payment  would  duplicate  any payment  made by the  Borrowers
pursuant to Section 2.11 hereof.

     (b) If at any time and from time to time after the Original  Closing  Date,
any Lender  shall  determine  that the  adoption of any  applicable  law,  rule,
regulation  or  guideline   regarding  capital  adequacy,   including,   without
limitation,  the July 1988 report of the Basle Committee on Banking  Regulations
and  Supervisory  Practices  entitled  'International   Convergence  of  Capital
Measurement  and  Capital  Standards',  or any change in the  interpretation  or
administration  of any thereof by any  governmental  authority,  central bank or
comparable agency charged with the interpretation or administration  thereof, or
compliance  by such  Lender (or its  lending  office or an  affiliate)  with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority,  central bank or comparable  agency,  has or will
have  the  effect  of  reducing  the  rate of  return  on such  Lender's  or its
affiliate's capital, or on the capital of such Lender's holding company, if any,
as a consequence  of such Lender's  obligations  hereunder to a level below that
which such Lender or affiliate could have achieved but for such adoption, change
or  compliance  (taking into  consideration  such  Lender's and its  affiliate's
policies as well as the policies of such Lender's holding  company,  if any with
respect to capital adequacy),  then from time to time the Borrowers shall pay to
such Lender such additional  amount or amounts as will compensate such Lender or
its  affiliate  for such  reduction.  Each  Lender  agrees to give notice to the
Borrower  of any  adoption  of,  change  in,  or  change  in  interpretation  or
administration  of, any such law, rule,  regulation or guideline with reasonable
promptness after become actually aware thereof and of the applicability  thereof
to the Transactions.

     (c) A  statement  of any Lender or the Agent  setting  forth such amount or
amounts,  supported by calculations in reasonable  detail, as shall be necessary
to compensate  such Lender (or the Agent) as specified in paragraphs (a) and (b)
above  shall be  delivered  to the  Borrowers  and  shall be  conclusive  absent
manifest  error.  The  Borrowers  shall pay each  Lender or the Agent the amount
shown as due on any such  statement  within thirty (30) days after their receipt
of the same.

     (d)  Failure on the part of any Lender or the Agent to demand  compensation
for any  increased  costs,  reduction  in amounts  received or  receivable  with
respect to any  Interest  Period or Letter of Credit or reduction in the rate of
return earned on such Lender's  capital,  shall not  constitute a waiver of such
Lender's or the Agent's rights to demand compensation for any increased costs or
reduction in amounts  received or  receivable  or reduction in rate of return in
any other  Interest  Period  or with  respect  to such  Letter  of  Credit.  The
protection  under this  Section  2.07 shall be  available to each Lender and the
Agent

                                       26

regardless of any possible  contention of the invalidity or  inapplicability  of
any law,  regulation or other  condition which shall give rise to any good faith
demand by such Lender or the Agent for compensation.

     (e) Any Lender  claiming any additional  amounts  payable  pursuant to this
Section  2.07  agrees  to use  reasonable  efforts  (consistent  with  legal and
regulatory  restrictions) to designate a different  Applicable Lending Office if
the making of such a designation  would avoid the need for, or reduce the amount
of, any such  additional  amounts and would not, in the  reasonable  judgment of
such Lender, be otherwise disadvantageous to such Lender.

     SECTION 2.08. Change in Legality;  Indemnity.  (a) Notwithstanding anything
to the contrary herein  contained,  if any change in any law or regulation or in
the  interpretation  thereof  by any  governmental  authority  charged  with the
administration or  interpretation  thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar  Loan or to give effect to its obligations to
make  Eurodollar  Loans as contemplated  hereby,  then, by written notice to the
Borrowers and to the Agent, such Lender may:

         (i) declare that  Eurodollar  Loans will not thereafter be made by such
     Lender  hereunder,   whereupon  the  Borrowers  shall  be  prohibited  from
     requesting   Eurodollar  Loans  from  such  Lender  hereunder  unless  such
     declaration is subsequently withdrawn; and

         (ii) require that all outstanding Eurodollar Loans, as the case may be,
     made  by it be  converted  to ABR  Loans,  in  which  event  (A)  all  such
     Eurodollar  Loans shall be  automatically  converted to ABR Loans as of the
     effective  date of such notice as provided in  paragraph  (b) below and (B)
     all payments of principal  which would otherwise have been applied to repay
     the  converted  Eurodollar  Loans shall instead be applied to repay the ABR
     Loans resulting from the conversion of such Eurodollar Loans.

     (b) For purposes of Section  2.08(a)  hereof,  a notice to the Borrowers by
any Lender shall be  effective,  if lawful,  on the last day of the then current
Interest Period or, if there are then two or more current Interest  Periods,  on
the last day of each such Interest Period, respectively;  otherwise, such notice
shall be effective  with respect to the  Borrowers on the date of receipt by any
Borrower.

     (c) The Borrowers  shall  indemnify  the Agent and each Lender  against any
loss  or  reasonable  expense  (including,  but  not  limited  to,  any  loss or
reasonable  expense  sustained  or  incurred or to be  sustained  or incurred by
reason of or in connection with

                                       27

the  execution and delivery or assignment  of, or payment  under,  any Letter of
Credit or in  liquidating or employing  deposits from third parties  acquired to
affect or  maintain  any Loan or part  thereof as a  Eurodollar  Loan) which the
Agent or such  Lender may  sustain or incur as a  consequence  of the  following
events (regardless of whether such events occur as a result of the occurrence of
an Event of Default or the  exercise  of any right or remedy of the Agent or the
Lenders under this Agreement or any other agreement,  or at law): any failure of
any  Borrower  to fulfill on the date of any  borrowing  or other  Credit  Event
hereunder the applicable  conditions set forth in Article V hereof applicable to
it; any failure of any Borrower to borrow hereunder after irrevocable  notice of
borrowing  pursuant  to  Section  2.03  hereof  has  been  given;  any  payment,
prepayment or conversion of a Eurodollar  Loan on a date other than the last day
of the relevant  Interest  Period;  any default in payment or  prepayment of the
principal amount of any Loan or any part thereof or interest accrued thereon, or
with  respect to any Letter of Credit,  in each case as and when due and payable
(at the due date thereof, by irrevocable notice of prepayment or otherwise);  or
the  occurrence  of an Event of Default.  Without  limiting the  foregoing,  the
Borrowers further agree to indemnify and hold harmless the Agent, each Lender as
well as their  respective  officers and directors,  each Person who controls the
Agent or Lender within the meaning of Section 15 of the  Securities  Act of 1933
or any applicable state securities law and their respective successors, from and
against any and all claims,  damages,  losses,  liabilities,  costs or expenses,
joint or  several,  to which  they or any of them may become  subject  under any
Federal or state securities law, rule or regulation, at common law or otherwise,
insofar as such claims, damages,  losses,  liabilities,  costs or expenses arise
out of or are based upon the  execution  and delivery by the Agent or any Lender
of any Letter of Credit or the execution  and delivery of any other  document in
connection  therewith.  Such loss or reasonable  expense shall include,  without
limitation, an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the  principal  or other amount so paid,  prepaid or
converted  or not  borrowed  for the  period  from  the  date  of such  payment,
prepayment  or  conversion  or failure to borrow to, in the case of a Loan,  the
last day of the  Interest  Period for such Loan (or, in the case of a failure to
borrow, the Interest Period for such Loan which would have commenced on the date
of such  failure to borrow),  at the  applicable  rate of interest for such Loan
provided for herein over (ii) the amount of interest (as  reasonably  determined
by such Lender) that would be realized by such Lender in  reemploying  the funds
so paid,  prepaid  or  converted  or not  borrowed  in  United  States  Treasury
obligations with comparable  maturities for comparable periods.  Any such Lender
shall provide to the Borrowers a statement, signed by an officer of such Lender,
explaining any loss or expense and setting forth, if applicable, the computation
pursuant to the  preceding  sentence,  and such  statement  shall be  conclusive
absent manifest error. The Borrowers shall pay such

                                       28

Lender the amount shown as due on any such statement  within ten (10) days after
the receipt of the same.  The  indemnities  contained  herein shall  survive the
expiration or termination of this Agreement and the Letters of Credit.

     SECTION 2.09.  Pro Rata  Treatment.  Subject to the  provisions of Sections
2.12 and 2.13 hereof and except as otherwise  expressly  provided  herein,  each
payment or prepayment of principal of the Notes, each payment of interest on the
Notes,  each  payment  of any fee or other  amount  payable  hereunder  and each
reduction  of the Total  Commitment  shall be made pro rata among the Lenders in
the  proportions  that  their  Revolving  Credit  Commitments  bear to the Total
Commitment.

     SECTION  2.10.  Sharing of Setoffs.  Each  Lender  agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
any Borrower,  including,  but not limited to, a secured claim under Section 506
of Title 11 of the United  States Code or other  security  or  interest  arising
from,  or in lieu of, such  secured  claim,  received  by such Lender  under any
applicable  bankruptcy,  insolvency or other  similar law or  otherwise,  obtain
payment  (voluntary or  involuntary) in respect of a Note held by it as a result
of  which  the  unpaid  principal  portion  of the  Notes  held by it  shall  be
proportionately  less than the unpaid principal portion of the Notes held by any
other  Lender,  it shall be deemed to have  simultaneously  purchased  from such
other Lenders a participation  in the Notes held by such other Lenders,  so that
the aggregate unpaid principal amount of the Notes and  participations  in Notes
held by it shall be in the same  proportion  to the aggregate  unpaid  principal
amount of all Notes then  outstanding as the principal  amount of the Notes held
by it prior to such exercise of banker's lien, setoff or counterclaim was to the
principal  amount of all Notes  outstanding  prior to such  exercise of banker's
lien, setoff or counterclaim;  provided,  however,  that if any such purchase or
purchases  or  adjustments  shall be made  pursuant to this Section 2.10 and the
payment  giving rise thereto shall  thereafter  be  recovered,  such purchase or
purchases or  adjustments  shall be rescinded to the extent of such recovery and
the purchase  price or prices or  adjustments  restored  without  interest.  The
Borrowers  expressly  consent to the foregoing  arrangements  and agree that any
Lender  holding a  participation  in a Note deemed to have been so purchased may
exercise  any and all  rights of  banker's  lien,  setoff or  counterclaim  with
respect to any and all moneys owing by the  Borrowers to such Lender as fully as
if such Lender held a Note in the amount of such participation.

     SECTION 2.11.  Taxes.  (a) Any and all payments by the Borrowers  hereunder
shall be made,  in  accordance  with Section 3.04 hereof,  free and clear of and
without  deduction  for any and all present or future  taxes,  levies,  imposts,
deductions,

                                       29

charges or  withholdings  in any such case  imposed by the United  States or any
political subdivision thereof, excluding:

         (i) in the case of the Agent and each Lender, taxes imposed or based on
     its net income,  and  franchise or capital  taxes imposed on it, (A) if the
     Agent or such Lender is  organized  under the laws of the United  States or
     any  political  subdivision  thereof and (B) if the Agent or such Lender is
     not organized  under the laws of the United  States or any  political  sub-
     division thereof,  and its principal office or lending office is located in
     the United States,  and in the case of both (A) and (B),  withholding taxes
     payable  with  respect  to  payments  to the  Agent or such  Lender  at its
     principal  office  or  lending  office  under  laws   (including,   without
     limitation,  any treaty, ruling,  determination or regulation) in effect on
     the  Original  Closing  Date,  but  not any  increase  in  withholding  tax
     resulting from any subsequent  change in such laws (other than  withholding
     with respect to taxes imposed or based on its net income or with respect to
     franchise or capital taxes), and

         (ii)  taxes  (including  withholding  taxes)  imposed  by reason of the
     failure  of the  Agent or any  Lender,  in either  case  that is  organized
     outside the United  States,  to comply with Section  2.11(f) hereof (or the
     inaccuracy at any time of the  certificates,  documents and other  evidence
     delivered thereunder)

(all such nonexcluded taxes, levies, imposts, deductions,  charges, withholdings
and  liabilities  being  hereinafter  referred to as 'Taxes').  If the Borrowers
shall be  required  by law to deduct  any Taxes  from or in  respect  of any sum
payable  hereunder  to the Lenders or the Agent,  (x) the sum  payable  shall be
increased by the amount  necessary so that after making all required  deductions
(including without limitation  deductions  applicable to additional sums payable
under this Section  2.11) such Lender or the Agent (as the case may be) receives
an amount equal to the sum it would have  received had no such  deductions  been
made, (y) the Borrowers  shall make such  deductions and (z) the Borrowers shall
pay the full amount deducted to the relevant tax authority or other authority in
accordance with applicable law.

     (b) In addition,  the Borrowers agree to pay any present or future stamp or
documentary  taxes or any other  excise or  property  taxes,  charges or similar
levies  which  arise from any  payment  made  hereunder  or from the  execution,
delivery or  registration  of, or  otherwise  with  respect  to, this  Agreement
(hereinafter referred to as 'Other Taxes').

                                       30

     (c) The  Borrowers  will  indemnify  each Lender and the Agent for the full
amount of Taxes or Other  Taxes  (including,  without  limitation,  any Taxes or
Other Taxes imposed by any  jurisdiction  (except as specified in clauses (a)(i)
and (ii)) on amounts payable under this Section 2.11) paid by such Lender or the
Agent (as the case may be) with respect to the Loans,  the  Obligations  or this
Agreement and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto.  This indemnification shall be made within 30
days from the date such  Lender or the Agent (as the case may be) makes  written
demand  therefor.  If any  Lender  receives  a refund in respect of any Taxes or
Other  Taxes for which  such  Lender has  received  payment  from the  Borrowers
hereunder,  such Lender shall  promptly  notify the Borrowers of such refund and
such  Lender  shall,  within 30 days of receipt  of a request by the  Borrowers,
repay such refund to the Borrowers (or if there shall at such time be continuing
a Default  or an Event of  Default,  pay same to the Agent to be  applied to the
Obligations  in  such  order  and  manner  as  the  Agent  shall  choose  in its
discretion), provided that the Borrowers, upon the request of such Lender, agree
to return  such refund  (whether  returned  to the  Borrowers  or applied to the
Obligations)(plus  any  penalties,  interest or other charges) to such Lender in
the event such Lender is required to repay such refund.

     (d)  Within 30 days after the date of any  payment of Taxes or Other  Taxes
withheld by the Borrowers in respect of any payment to any Lender, the Borrowers
will furnish to the Agent,  at its address  referred to in Section 11.01 hereof,
such certificates, receipts and other documents as may be reasonably required to
evidence payment thereof.

     (e) Without prejudice to the survival of any other agreement hereunder, the
agreements  and  obligations  contained in this  Section 2.11 shall  survive the
payment in full of principal and interest hereunder.

     (f) Each  Lender  that is  organized  outside  of the United  States  shall
deliver to the  Borrowers  on the  Original  Closing Date (or, in the case of an
assignee,  on the date of the  assignment) and from time to time as required for
renewal under  applicable  law duly completed  copies of United States  Internal
Revenue  Service Form 1001 or 4224 (or any  successor or additional  forms),  as
appropriate,  indicating  in each case that such  Lender is  entitled to receive
payments under this Agreement without any deduction or withholding of any United
States  federal  income  taxes.  The Agent (if the Agent is an entity  organized
outside the United States) and each Lender that is organized  outside the United
States shall  promptly  notify the  Borrowers and the Agent of any change in its
applicable  lending office and upon written request of the Borrowers such Lender
shall,  prior  to the  immediately  following  due  date of any  payment  by any
Borrower or any Guarantor,  deliver to such Borrower or such  Guarantor,  as the

                                       31

case may be (with copies to the Agent),  such  certificates,  documents or other
evidence,  as  required  by the Code or  Treasury  Regulations  issued  pursuant
thereto,  including without limitation  Internal Revenue Service Form 4224, Form
1001 and any other  certificate  or statement of exemption  required by Treasury
Regulation Section  1.1441-4(a) or Section 1.1441-6(c) or any subsequent version
thereof,  properly completed and duly executed by such Lender  establishing that
such  payment is (i) not  subject to  withholding  under the Code  because  such
payment is  effectively  connected with the conduct by such Lender of a trade or
business in the United  States or (ii)  totally  exempt  from United  States tax
under a provision of an applicable tax treaty.  The Borrowers  shall be entitled
to rely on such  forms in their  possession  until  receipt  of any  revised  or
successor form pursuant to this Section 2.11(f).  If the Agent or a Lender fails
to provide a certificate,  document or other evidence  required pursuant to this
Section 2.11(f),  then (i) the Borrowers shall be entitled to deduct or withhold
from  payments  to the  Agent or such  Lender as a result  of such  failure,  as
required by law, and (ii) the  Borrowers  shall not be required to make payments
of additional amounts with respect to such withheld Taxes pursuant to clause (x)
of Section  2.11(a) to the extent such  withholding is required solely by reason
of the failure of the Agent or such Lender to provide the necessary certificate,
document or other evidence.

     (g) Each  Lender  and the Agent  shall use  reasonable  efforts to avoid or
minimize any amounts which might  otherwise be payable  pursuant to this Section
2.11 (including seeking refunds of any amounts that are reasonably  believed not
to have been  correctly  or  legally  asserted);  provided,  however,  that such
efforts  shall not include the taking of any actions by such Lender or the Agent
that would result in any tax, costs or other expense to such Lender or the Agent
(other  than a tax,  cost or other  expense  for which such  Lender or the Agent
shall have been  reimbursed or  indemnified  by the  Borrowers  pursuant to this
Agreement or  otherwise)  or any action  which would or might in the  reasonable
opinion of such Lender or the Agent have an adverse  effect  upon its  business,
operations or financial condition or otherwise be disadvantageous to such Lender
or the Agent.

     SECTION 2.12.  Settlement  Among  Lenders.  (a) The Agent shall pay to each
Lender not later than one (1) day after each Interest  Payment Date, its ratable
portion,  based on the principal  amount of the  Revolving  Credit Loan owing to
such Lender,  of all interest  payments and any other fees received by the Agent
hereunder in respect of the Revolving  Credit Loans,  net of any amounts payable
by such Lender to the Agent, by wire transfer.

     (b) It is agreed that each Lender's  Revolving Credit Loans are intended by
the  Lenders  to be equal at all  times to such  Lender's  ratable  portion  (as
determined in accordance with the percentage  amounts set forth in Schedule 2.01
hereto) of the

                                       32

aggregate   principal  amount  of  all  Revolving   Credit  Loans   outstanding.
Notwithstanding  such  agreement,  the Lenders agree that in order to facilitate
the  administration  of this Agreement and the other Loan Documents,  settlement
among them shall, subject to the provisions of clause (d) below, take place on a
periodic basis in accordance with the provisions of clause (c) below.

     (c)  (i) To the  extent  and in the  manner  hereinafter  provided  in this
Section 2.12,  settlement  among the Lenders as to Revolving  Credit Loans shall
occur  periodically  on  Settlement  Dates  determined  from time to time by the
Agent,  which may occur before or after the occurrence or during the continuance
of a Default or Event of Default and whether or not all of the conditions to the
making of Loans set forth  in  Section 5.01  have  been met. On each  Settlement
Date,  payments shall be made to the Agent for the account of the Lenders in the
manner  provided in this Section 2.12 in accordance  with the Settlement  Report
delivered  by the Agent  pursuant  to the  provisions  of this  Section  2.12 in
respect of such Settlement  Date so that as of each  Settlement  Date, and after
giving  effect  to the  transactions  on such  Settlement  Date,  each  Lender's
Revolving  Credit  Loans  shall  equal  such  Lender's  ratable  portion  of the
Revolving  Credit  Loans  outstanding  as  determined  in  accordance  with  the
percentage amounts set forth in Schedule 2.01 hereto.

     (ii) The Agent shall designate periodic Settlement Dates which may occur on
any Business Day after the Closing  Date;  provided,  however,  that  Settlement
Dates shall occur on the closest  Business  Day to the 10th and 25th day of each
month  or  more  frequently  as  determined  by  the  Agent  in  its  discretion
(including,  without  limitation,  under clause (d)(i) hereof).  The Agent shall
designate a Settlement Date by delivering to each Lender a Settlement Report not
later than 10:00 a.m.  (New York City  time) on the  proposed  Settlement  Date,
which  Settlement  Report shall be with  respect to the period  beginning on the
immediately  preceding Settlement Date and ending on such designated  Settlement
Date.

     (iii) Between  Settlement  Dates,  the Agent shall request and NatWest as a
Lender  shall,  subject to the  provisions  of clause (d) below,  advance to the
Borrowers  out of  NatWest's  own  funds,  the  entire  principal  amount of any
Revolving  Credit Loan  requested or deemed  requested  pursuant to Section 2.03
(any such Revolving Credit Loan being referred to as a 'Non-Ratable  Loan'). The
making of each  Non-Ratable  Loan by NatWest shall be deemed to be a purchase by
NatWest of a 100%  participation  in each other Lender's  ratable portion of the
amount of such  Non-Ratable  Loan.  All payments of principal,  interest and any
other  amount  with  respect  to such  Non-Ratable  Loan shall be payable to and
received by the Agent for the account of NatWest.  Any payments  received by the
Agent  between  Settlement  Dates  which in  accordance  with the  terms of this
Agreement are to be applied to

                                       33

the reduction of the outstanding  principal  balance of Revolving  Credit Loans,
shall be paid over to and  retained  by NatWest for such  application,  and such
payment to and retention by NatWest shall be deemed, to the extent of each other
Lender's  ratable  portion of such payment,  to be a purchase by each such other
Lender  of  a  participation  in  the  Revolving  Credit  Loans  (including  the
repurchase of participations in Non-Ratable  Loans) held by NatWest  immediately
prior to the receipt and application of such payment.

     (iv) If on any Settlement  Date the decrease,  if any, in the dollar amount
of any  Lender's  Revolving  Credit  Loans  which is required to comply with the
first sentence of Section 2.12(b) is more than such Lender's  ratable portion of
amounts  received  by the Agent and paid only to NatWest  since the  immediately
preceding  Settlement  Date,  such  Lender  and the Agent,  in their  respective
records,  shall  apply such  Lender's  ratable  portion  of such  amounts to the
decrease in such Lender's  Revolving  Credit Loans, and NatWest shall pay to the
Agent, for the account of such Lender, the excess.

     (v) If on any Settlement Date the increase, if any, in the dollar amount of
any Lender's  Revolving  Credit Loans which is required to comply with the first
sentence of Section  2.12(b)  exceeds such Lender's  ratable  portion of amounts
received by the Agent and paid only to NatWest since the  immediately  preceding
Settlement Date, such Lender and the Agent, in their respective  records,  shall
apply such  Lender's  ratable  portion of such  amounts to the  increase in such
Lender's Revolving Credit Loans, and such Lender shall pay to the Agent, for the
account of NatWest, the excess.

     (vi) If a Settlement  Report  indicates that no Revolving Credit Loans have
been made during the period since the  immediately  preceding  Settlement  Date,
then such Lender's ratable portion of any amounts received by the Agent but paid
only to NatWest  shall be paid by NatWest to the Agent,  for the account of such
Lender.  If a Settlement Report indicates that the increase in the dollar amount
of a Lender's  Revolving Credit Loans which is required to comply with the first
sentence of Section 2.12(b) is exactly equal to such Lender's ratable portion of
amounts  received  by the Agent but paid only to NatWest  since the  immediately
preceding  Settlement  Date,  such  Lender  and the Agent,  in their  respective
records,  shall  apply such  Lender's  ratable  portion  of such  amounts to the
increase in such Lender's Revolving Credit Loans.

     (vii) If any amounts  received by NatWest in respect of the Obligations are
later  required to be returned or repaid by NatWest to any Borrower or any other
obligor or their respective  representatives or successors in interest,  whether
by court order, settlement or otherwise, and such amounts repaid or returned by
NatWest are in excess of NatWest's  ratable portion of

                                       34

all such  amounts  required  to be returned by all  Lenders,  each other  Lender
shall, upon demand by NatWest with notice to the Agent, pay to the Agent for the
account  of  NatWest,  an amount  equal to the excess of such  Lender's  ratable
portion of all such  amounts  required to be  returned  by all Lenders  over the
amount, if any, returned directly by such Lender.

     (viii) (x)  Payment by any Lender to the Agent shall be made not later than
12:00  noon  (New York  City  time) on the  Business  Day such  payment  is due,
provided  that if such  payment  is due on  written  demand by  another  Lender,
including pursuant to clause (d) below, such written demand shall be made on the
paying  Lender not later than 10:00 a.m.  (New York City time) on such  Business
Day. Payment by the Agent to any Lender shall be made by wire transfer, promptly
following the Agent's receipt of funds for the account of such Lender and in the
type of funds  received by the Agent,  and the Agent shall  promptly  notify the
other Lenders of any such payment; provided, however, that if the Agent receives
such funds at or prior to 2:00 p.m.  (New York City  time),  the Agent shall pay
such funds to such  Lender by 5:00 p.m.  (New York City  time) on such  Business
Day. If a demand for payment is made after the applicable  time set forth above,
the  payment  due shall be made by 5:00 p.m.  (New York City  time) on the first
Business Day following the date of such demand.

     (y) If a Lender shall,  at any time,  fail to make any payment to the Agent
required hereunder, the Agent may, but shall not be required to, retain payments
that would otherwise be made to such Lender hereunder and apply such payments to
such Lender's defaulted obligations hereunder,  at such time, and in such order,
as the Agent may elect in its sole discretion.

     (z) With  respect to the payment of any funds under this  Section  2.12(c),
whether  from the  Agent to a Lender or from a Lender  to the  Agent,  the party
failing to make full payment when due pursuant to the terms hereof  shall,  upon
written  demand by the other party,  pay such amount  together  with interest on
such amount at the Federal Funds Effective Rate.

     (d) (i) The Agent shall have the right at any time to require, by notice to
each  Lender,  that all  settlements  in respect of advances and  repayments  of
Revolving  Credit Loans be made on a daily  basis.  From and after the giving of
such notice (and until such time,  if any, as the Agent  notifies the Lenders of
its determination to return to a periodic  settlement basis),  each Lender shall
pay to the Agent such Lender's  ratable  portion of the amount of each Revolving
Credit Loan on the date such Loan is made in accordance  with the  provisions of
clause  (c)(viii)  above and the Agent shall pay to each Lender by wire transfer
by 3:00 p.m.  (New York City time) funds  received  before  12:00 noon (New York
City time) on such  Business  Day by the Agent from the  Borrowers  and by 12:00
noon (New York City time) funds  received  after 12:00 noon (New York City time)
of the preceding Business

                                       35

Day by the Agent from the  Borrowers,  by wire transfer,  such Lender's  ratable
portion of the net amount of all  payments  received by the Agent  hereunder  in
respect of the  principal of the  Revolving  Credit Loans (after  deducting  the
principal  amount of  Revolving  Credit Loans made on such day) or in respect of
interest on the Revolving  Credit Loans, and the Agent shall promptly notify the
other Lenders of such payment.  Any amount payable  pursuant to this  subsection
which is not paid when due shall bear interest,  payable by the Agent,  for each
day until paid in full at the  Federal  Funds  Effective  Rate in effect on such
day.

     (ii) In addition to, and without limiting the right of the Agent to require
daily  settlement  pursuant to clause (i),  upon written  demand by NatWest with
notice thereof to the Agent,  each other Lender shall pay to the Agent,  for the
account of NatWest,  as the  repurchase of NatWest's  participation  interest in
such Lender's  Revolving  Credit Loans, an amount equal to 100% of such Lender's
ratable  portion  of the  unpaid  principal  amount  of all  Non-Ratable  Loans.
Payments  made  pursuant  to this  clause (ii) shall be made not later than 3:00
p.m.  (New York City time) on any  Business  Day if demand  for such  payment is
received by such  Lender not later than 11:00 a.m.  (New York City time) on such
Business Day; otherwise, any such payment shall be made on the next Business Day
after demand is received therefor.

     SECTION 2.13.  Making of Revolving  Credit Loans.  (a) The Agent may assume
that each  Lender  will make its  ratable  portion of any amount to be  borrowed
available to the Agent in accordance with Section 2.02(c),  and the Agent may in
its  discretion,  in  reliance  upon  such  assumption,  make  available  to the
Borrowers on such date a corresponding  amount. If and to the extent such Lender
shall not make such ratable portion  available to the Agent, such Lender and the
Borrowers  severally  agree to repay  to the  Agent  forthwith  on  demand  such
corresponding amount,  together with interest thereon for each day from the date
such amount is made  available  to the  Borrowers  until the date such amount is
repaid to the Agent, as to the Borrowers,  at the rate of interest applicable to
the relevant  Revolving Credit Loans hereunder,  and as to such other Lender, at
the Federal Funds Effective Rate and until so repaid such amount shall be deemed
to constitute a Revolving  Credit Loan by the Agent to the  Borrowers  hereunder
entitled  to the  benefits of the  Collateral  and the other  provisions  hereof
applicable  to the  Revolving  Credit  Loans.  If such Lender shall repay to the
Agent such  corresponding  amount,  the amount so repaid shall  constitute  such
Lender's  ratable  portion of the Revolving  Credit Loans made on such borrowing
date for  purposes of this  Agreement.  No Lender shall be  responsible  for the
failure of any other Lender to make its ratable portion of such Revolving Credit
Loans available on the borrowing date.

                                       36

     (b)  Without  limiting  the  generality  of  Article  XI,  (i) each  Lender
expressly authorizes the Agent to determine on behalf of such Lender (x) whether
to make Revolving Credit Loans requested or deemed requested by the Borrowers on
any  borrowing  date and (y) the creation of any reserves  against the Borrowing
Base and (ii) the Agent is authorized  with the consent of the Required  Lenders
to determine (x) the elimination of any reserves  against the Borrowing Base and
(y) whether  specific  items of inventory or  Receivables  constitute  'Eligible
Inventory'  or  'Eligible  Accounts,'  respectively,   in  accordance  with  the
definitions  of such terms set forth in Article I. The Agent  shall give  prompt
notice to the  Lenders of any  determinations  made  pursuant  to clause  (i)(y)
above.

     SECTION 2.14.  Joint and Several  Borrowers.  The parties  hereto agree and
confirm that the  obligations of the Borrowers  under and/or in connection  with
this Agreement and the other Loan Documents (including, without limitation, with
respect to payments of  principal,  interest,  fees and all other  amounts  with
respect to the Loans) are the joint and several undertaking of each Borrower.

     SECTION  2.15.  Issuance  of  Letters of  Credit.  Upon the  request of the
Borrowers,  and subject to the conditions set forth in Article V hereof and such
other  conditions  to the opening of Letters of Credit as the Agent  requires of
its customers generally,  the Agent shall from time to time open standby letters
of credit  (each,  a 'Letter  of  Credit')  for the  account  of the  Borrowers;
provided,  however, that the aggregate undrawn amount of all outstanding Letters
of Credit shall not at any time exceed  $9,000,000;  and provided further,  that
the Holmer/Shidler  Letter of Credit shall for all purposes under this Agreement
including, without limitation, Section 2.16 hereof, be deemed a Letter of Credit
issued by the Agent pursuant to, and  outstanding  under,  this  Agreement.  The
issuance of each Letter of Credit  shall be made on at least three (3)  Business
Days' prior written notice from the Borrowers to the Agent, which written notice
shall be an application  for a Letter of Credit on the Agent's  customary  form.
The  expiration  date of any  Letter of Credit  shall not be later than 365 days
from the date of issuance thereof;  provided,  however,  that any such Letter of
Credit may provide for  automatic  renewals of 180 or 365 days,  as  applicable,
but, in any event,  no Letter of Credit shall have an expiration date later than
the  Expiration  Date.  The Letters of Credit  shall be issued  with  respect of
transactions occurring in the ordinary course of business of the Borrowers.

     SECTION 2.16.  Payment;  Reimbursement.  Upon the issuance of any Letter of
Credit,  the Agent shall notify each Lender of the principal amount, the number,
and the  expiration  date thereof and the amount of such Lender's  participation
therein.  By the issuance of a Letter of Credit  hereunder  and without  further
action on the part of the Agent or the Lenders,

                                       37

each Lender hereby accepts from the Agent a participation  (which  participation
shall be  nonrecourse  to the  Agent) in such  Letter  of  Credit  equal to such
Lender's  pro rata  (based on its  Revolving  Credit  Commitment)  share of such
Letter of Credit,  effective  upon the  issuance of such Letter of Credit.  Each
Lender hereby absolutely and unconditionally assumes, as primary obligor and not
as a surety,  and agrees to pay and  discharge,  and to  indemnify  and hold the
Agent harmless from liability in respect of, such Lender's pro rata share of the
amount of any drawing  under a Letter of Credit.  Each Lender  acknowledges  and
agrees that its  obligation to acquire  participations  in each Letter of Credit
issued by the Agent and its  obligation to make the payments  specified  herein,
and the right of the Agent to receive the same, in the manner specified  herein,
are absolute  and  unconditional  and shall not be affected by any  circumstance
whatsoever,  including,  without limitation, the occurrence and continuance of a
Default or an Event of Default  hereunder,  and that each such payment  shall be
made without any offset,  abatement,  withholding or reduction  whatsoever.  The
Agent shall review,  on behalf of the Lenders,  each draft and any  accompanying
documents presented under a Letter of Credit and shall notify each Lender of any
such presentment.

     Promptly  after  it  shall  have   ascertained   that  any  draft  and  any
accompanying  documents  presented  under such Letter of Credit  appear on their
face to be in substantial conformity with the terms and conditions of the Letter
of Credit,  the Agent shall give  telephonic or facsimile  notice to the Lenders
and the  Borrowers of the receipt and amount of such draft and the date on which
payment  thereon will be made, and in accordance  with Section 2.12 hereof,  the
Agent shall charge the account of the Borrowers  with the Agent for such amounts
and shall, not later than 3:00 p.m. on such day, make the appropriate payment to
the beneficiary of such Letter of Credit. The Agent and the Lenders shall settle
amounts due and owing each other hereunder in accordance with the procedures set
forth in Section  2.12 hereof.  The  obligations  of the  Borrowers to repay the
Lenders and the Agent for all amounts paid in accordance  with this Section 2.16
under Letters of Credit shall be absolute,  unconditional  and  irrevocable  and
shall be satisfied strictly in accordance with their terms, irrespective of:

         (a) any lack of validity or enforceability of any Letter of Credit;

         (b) the  existence of any claim,  setoff,  defense or other right which
     any  Borrower  or any  other  Person  may  at any  time  have  against  the
     beneficiary under any Letter of Credit, the Agent or any Lender (other than
     the defense of payment in accordance  with the terms of this Agreement or a
     defense based on the gross negligence or willful misconduct of the Agent or
     any Lender) or any other Person in  connection  with this  Agreement or any
     other transaction;

                                       38

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

         (d)  payment  by the Agent or any  Lender  under  any  Letter of Credit
     against  presentation  of a draft or other  document  which does not comply
     with the terms of such Letter of Credit; and

         (e) any other circumstance or event whatsoever,  whether or not similar
     to any of the foregoing.

     It is understood  that in making any payment under any Letter of Credit (x)
the Agent's and any Lender's exclusive reliance on the documents presented to it
under  such  Letter  of  Credit as to any and all  matters  set  forth  therein,
including,  without  limitation,  reliance on the amount of any draft  presented
under such  Letter of Credit,  whether or not the amount due to the  beneficiary
equals  the  amount of such  draft and  whether  or not any  document  presented
pursuant to such Letter of Credit proves to be insufficient  in any respect,  if
such  document on its face appears to be in order,  and whether or not any other
statement  or any other  document  presented  pursuant  to such Letter of Credit
proves to be forged or invalid or any statement  therein proves to be inaccurate
or untrue in any respect  whatsoever and (y) any noncompliance in any immaterial
respect of the  documents  presented  under such Letter of Credit with the terms
thereof  shall,  in  each  case,  not be  deemed  willful  misconduct  or  gross
negligence of the Agent or any Lender.

     SECTION 2.17. Agent's Actions.  Any Letter of Credit may, in the discretion
of the Agent or its  correspondents,  be  interpreted by them (to the extent not
inconsistent  with such Letter of Credit) in accordance with the Uniform Customs
and Practice for Documentary  Credits of the International  Chamber of Commerce,
as adopted or amended  from time to time,  or any other rules,  regulations  and
customs  prevailing  at the place where any Letter of Credit is available or the
drafts are drawn or negotiated.  The Agent and its correspondents may accept and
act upon the name, signature, or act of any party purporting to be the executor,
administrator, receiver, trustee in bankruptcy, or other legal representative of
any  party  designated  in any  Letter  of  Credit  in the  place  of the  name,
signature, or act of such party.

     SECTION 2.18.  Letter of Credit Fees. (a) The Borrowers agree to pay to the
Agent for the  ratable  benefit of the  Lenders  with  respect to each Letter of
Credit,  a letter of credit  fee equal to one  percent  (1%) of the face  amount
thereof  per annum  payable  to the Agent  monthly  in  arrears  in  immediately
available funds, on the Revolving Credit  Termination Date and, in any event, on
demand after the occurrence of an Event of Default.

                                       39

The  Borrower  shall  also pay on demand to the  Agent for its own  account  the
standard charges of the issuing bank with respect to each Letter of Credit.  The
Borrowers  shall pay to the Agent with  respect to any  amendment to a Letter of
Credit a fee charged by the Agent for  transactions  of this  nature.  The Agent
shall disburse to each Lender such Lender's pro rata share of any payment of the
standby Letter of Credit fees (but not issuance  fees) in immediately  available
funds within two (2) Business Days of the Agent's receipt of such payment.

     (b) The  Borrowers  shall pay to the Agent for its own account,  monthly in
arrears in immediately available funds, on the Revolving Credit Termination Date
and, in any event,  on demand after the  occurrence  of an Event of Default,  an
additional  letter of credit fee of one-quarter of one percent (1/4%) per annum,
which  shall be  computed  based on the number of days  elapsed in a year of 360
days.

III.  PAYMENTS, PREPAYMENTS AND FEES

     SECTION 3.01.  Payments of Revolving  Credit Loans. (a) The Borrowers shall
prepay from time to time on demand such amount of Revolving  Credit Loans as may
be necessary so that after such prepayment the outstanding  principal balance of
Revolving  Credit  Loans  plus the  Letter of Credit  Usage  does not exceed the
lesser of (i) the Total  Commitment and (ii) the Borrowing Base. Any prepayments
required by this paragraph (a) shall be applied as set forth in Section  3.04(g)
hereof.

     (b) The  Borrowers  shall  pay in full the  Revolving  Credit  Loans on the
Revolving Credit Termination Date.

     (c) The Borrowers  shall upon receipt apply the proceeds of Receivables and
Inventory as set forth in Section 3.04(g) hereof.

     (d) Prior to the  Revolving  Credit  Termination  Date,  the  Borrowers may
re-borrow  amounts paid and prepaid  under this  Section 3.01 and under  Section
3.03 with respect to the  Revolving  Credit Loans,  subject to the  requirements
hereof,  including,  without  limitation,  the  requirements of Section 5.02 and
Section 2.01 hereof.

     Section 3.02.  Payment from Insurance  Proceeds.  The Borrowers shall, from
time to  time  until  payment  in full of the  Revolving  Credit  Loans  and the
termination  of this  Agreement,  within 10 days  following  the  receipt by any
Borrower of the payment of proceeds of any  insurance  required to be maintained
pursuant to Section  8.06  hereof on account of each  separate  loss,  damage or
injury to any tangible  property subject to a lien or security interest in favor
of the Agent on  behalf of the  Lenders  under  any  provision  of, or under any
instrument or document given

                                       40

as security  pursuant to, this Agreement,  apply, or, to the extent the Agent on
behalf of the  Lenders is loss payee  under any  insurance  policy,  irrevocably
direct the Agent to apply, without premium or penalty,  such proceeds (i) in the
case of proceeds on account of Inventory to the Revolving  Credit Loans and (ii)
otherwise to the Obligations in such order as the Agent shall choose in its sole
discretion;  provided,  however,  that,  so long as (a) no  Default  or Event of
Default has occurred and is continuing and (b) the loss, damage or injury to any
fixed  asset  and the  insurance  proceeds  in  respect  thereof  are less  than
$200,000,  the Borrowers shall be entitled to retain insurance proceeds relating
to the  loss  of or  damage  to  fixed  assets  for the  purpose  of  repair  or
replacement  of the damaged  property.  Notwithstanding  anything  herein to the
contrary,  upon  the  repair  or  replacement  of  such  fixed  assets,  and the
submission of evidence thereof satisfactory to the Agent, the Borrowers shall be
entitled to the maximum value of the Revolving Credit Loans otherwise  available
in accordance with Article II hereof.

     Section 3.03. Prepayments. (a) The Borrowers shall have the right from time
to time to prepay the Revolving Credit Loans in whole or in part (in the case of
a Eurodollar  Loan, only on the last day of an Interest  Period),  ratably among
the  Lenders  in  accordance  with  the  amounts  of  their   Revolving   Credit
Commitments,  in the  minimum  amount of $75,000 and in  integral  multiples  of
$25,000  thereof,  without  premium or penalty except as provided  below. In the
event that the Borrowers desire to prepay the Revolving Credit Loans in full and
terminate the Total  Commitment,  (i) the Borrower shall give at least three (3)
Business Days' prior  irrevocable  written notice (or facsimile  notice promptly
confirmed  in writing)  to the Agent in the manner  specified  in Section  13.01
hereof, (ii) concurrently with the repayment of all outstanding Revolving Credit
Loans the  Borrower  shall pay to the Agent on behalf of the Lenders all accrued
interest  on the  Revolving  Credit  Loans  and  all  fees  (including,  without
limitation,  the applicable  amount of the Commitment Fee) and other Obligations
payable  pursuant to this  Agreement,  and (iii) the Borrowers  shall pay to the
Agent on behalf of the Lenders a fee equal to (x)  three-quarters of one percent
(3/4%) of the amount of such  prepayment if such  prepayment is made on or prior
to July 31, 1996,  and (y) one-half of one percent  (1/2%) of the amount of such
prepayment  if such  prepayment  is made after July 31,  1996 and on or prior to
July 31, 1997.

     (b) On the date of any partial permanent  reduction of the Total Commitment
pursuant to this  Agreement,  the  Borrowers  shall pay or prepay so much of the
Revolving  Credit  Loans as  shall be  necessary  in  order  that the  aggregate
principal  amount of the Revolving  Credit Loans  outstanding plus the Letter of
Credit  Usage will not exceed the lesser of (i) the Total  Commitment  following
such  reduction and (ii) the Borrowing  Base. Any  prepayments  required by this
paragraph (b) shall be applied as set forth in Section 3.04(g) hereof.

                                       41

     SECTION 3.04. Payments, etc. (a) All payments under this Agreement shall be
made by the Borrowers  without defense,  set-off or counterclaim to the Agent or
Lenders  on the date when due and shall be made in  lawful  money of the  United
States of America in  immediately  available  funds at the Payment Office of the
Agent.

     (b) No payment or prepayment pursuant to any subsection of this Article III
of less than the entire unpaid principal amount of any Loan shall be credited to
or relieve the  Borrowers to any extent from their  obligation to make any other
payment or prepayment required by any other Section of this Article III.

     (c) Whenever any payment to be made hereunder or under the Revolving  Notes
shall be  stated to be due on a day which is not a  Business  Day,  the due date
thereof shall be extended to the next succeeding  Business Day and, with respect
to payments of principal,  interest  thereon shall be payable at the  applicable
rate during such extension.

     (d) All  computations  of interest and fees shall be made on the basis of a
year of 360 days for the actual number of days occurring in the period for which
such  interest  or fees  are  payable.  Each  determination  by the  Agent of an
interest  rate  or  fee  hereunder  shall,  absent  manifest  error,  be  final,
conclusive and binding for all purposes.

     (e) All  amounts  paid by the  Borrowers  to the  Agent on  account  of the
Revolving  Credit Loans shall be credited by the Agent (i) on the date  received
if received in  immediately  available  funds prior to 1:00 p.m. (New York time)
and  (ii) on the  Business  Day  following  the date  received  if  received  in
immediately available funds at or after 1:00 p.m. (New York time).

     (f) The  Borrowers  hereby  irrevocably  authorize  and direct the Agent to
charge the account of the Borrowers with the Agent for all amounts which may now
or  hereafter  be due and  payable  by the  Borrowers  to the Agent and  Lenders
including, without limitation,  amounts of principal,  interest and fees due and
payable on account of the Revolving Credit Loans.

     (g) Unless otherwise  specifically stated herein, when making a prepayment,
whether  mandatory or  otherwise,  pursuant to this  Article III, the  Borrowers
shall furnish to the Agent,  not later than 11:00 a.m. (New York City time) five
(5)  Business  Days  prior  to the  date of such  prepayment  written,  telex or
facsimile  notice  (promptly  confirmed  in writing) of  prepayment  which shall
specify the  prepayment  date and the principal  amount of each Loan (or portion
thereof) to be prepaid,  which notice shall be irrevocable  and shall commit the
Borrowers  to prepay such Loan by the amount  stated  therein on the date stated
therein. All

                                       42

prepayments  shall be  accompanied by accrued  interest on the principal  amount
being  prepaid to the date of  prepayment.  Prepayments  made  pursuant  to this
Article III shall be applied as follows:  (A) first, to outstanding ABR Loans up
to the full amount  thereof and then to  Eurodollar  Loans up to the full amount
thereof;  and (B) if at the time of the making of any  prepayment  in accordance
with  clause  (A),  there are undrawn  Letters of Credit  outstanding,  then the
remainder shall be deposited by the Borrowers in a cash collateral account to be
held by the Agent for the benefit of the Lenders for application by the Agent to
the  payment of any  drawing  made under any such  Letters of Credit;  provided,
however,  that the Borrowers shall not be required to make any prepayment of any
Eurodollar  Loan until the last day of the Interest  Period with respect thereto
so long as an amount equal to such prepayment is deposited by the Borrowers into
a cash collateral  account with the Agent to be held in such account pursuant to
terms satisfactory to the Agent.

     (h) All  prepayments  under  this  Article  III shall be subject to Section
2.08(c)  hereof.  Except as  otherwise  expressly  provided in this Article III,
payments  with  respect to any  paragraph of this Article III are in addition to
payments  made or required to be made under any other  paragraph of this Article
III.

     SECTION  3.05.  Fees.  (a) The  Borrowers  shall  pay to the  Agent for the
ratable  benefit  of the  Lenders  in  arrears  on the last  day of each  month,
commencing with the month in which the Closing Date occurs,  and on the date the
Obligations  shall be paid in full and this  Agreement  shall be  terminated,  a
commitment  fee (the  'Commitment  Fee')  for the month  (or  longer or  shorter
period) just ended  computed at a rate of  one-quarter of one percent (1/4%) per
annum on the  amount  equal to the  Total  Commitment  minus  the sum of (i) the
average daily outstanding principal balance of the Revolving Credit Loans during
such month (or shorter period) and (ii) the average daily outstanding  amount of
Letter of Credit Usage during such month (or shorter period). The Commitment Fee
due to each  Lender  under this  Section  3.05 shall  commence  to accrue on the
Closing  Date and cease to accrue on the  earlier  of (i) the  Revolving  Credit
Termination Date and (ii) the termination of the Revolving Credit  Commitment of
such Lender  pursuant to Article III. The  Commitment Fee shall be calculated on
the basis of the actual number of days elapsed in a year of 360 days.

     (b) The  Borrowers  shall pay to the Agent for the  ratable  benefit of the
Lenders on the Closing  Date an  extension  fee in the amount of  $187,500  (the
'Extension Fee').

     SECTION  3.06.  Application  of  Proceeds  of  Collateral.  Notwithstanding
anything to the contrary set forth in any Security Document, the proceeds of any
collection or sale of

                                       43

Collateral,  as well as any Collateral  consisting of cash,  shall be applied by
the Agent as follows:

     FIRST,  to the  Agent  to  reimburse  the  Agent  for that  portion  of the
payments,  if any,  made by it with  respect  to  Letters  of Credit for which a
Lender,  as a  participant  in such Letter of Credit  pursuant  to Section  2.16
hereof,  failed to pay its pro rata share  thereof as required  pursuant to such
Section 2.16;

     SECOND, to the payment of all reasonable costs and expenses incurred by the
Agent in connection with such collection or sale or otherwise in connection with
this Agreement, the Security Documents or any of the Obligations, including, but
not  limited  to, all court costs and the  reasonable  fees and  expenses of its
agents and legal  counsel,  the  repayment of all advances  made by the Agent on
behalf of the Parent or any of its  Subsidiaries  and any other reasonable costs
or expenses  incurred  in  connection  with the  exercise of any right or remedy
hereunder or under any Security Document;

     THIRD,  to the  Agent to be held as cash  collateral  to the  extent of the
undrawn amounts, if any, of outstanding Letters of Credit;ferred to

     FOURTH,  pro rata to the  payment  in full of  principal  and  interest  in
respect of any Loans  outstanding  (pro rata as among the Lenders in  accordance
with the amounts of the Loans made by them pursuant to this Agreement);

     FIFTH, pro rata to the payment in full of all Obligations (other than those
referred  to  above)  owed to the  Lenders  (pro rata as among  the  Lenders  in
accordance with their respective Revolving Credit Commitments); and

     SIXTH,  to the Borrowers,  their  successors and assigns,  or as a court of
competent jurisdiction may otherwise direct.

IV.  COLLATERAL SECURITY

     SECTION 4.01. Security  Documents.  The Obligations shall be secured by the
Collateral described in the Security Documents and the Agent and the Lenders are
entitled to the benefits  thereof.  The Borrowers shall duly execute and deliver
the Security  Documents,  all consents of third parties  necessary to permit the
effective granting of the Liens created in such agreements, financing statements
pursuant to the Uniform  Commercial  Code and other  documents,  all in form and
substance  satisfactory to the Agent, as may be reasonably required by the Agent
to  grant  to the  Agent  on  behalf  of the  Lenders  a  valid,  perfected  and
enforceable first priority Lien on and security

                                       44

interest in (subject only to the Liens  permitted under Section 7.03 hereof) the
Collateral.

     SECTION 4.02. Filing and Recording. The Borrowers shall, at their sole cost
and expense,  cause all  instruments and documents given as evidence of security
pursuant  to this  Agreement  to be duly  recorded  and/or  filed  or  otherwise
perfected in all places  necessary,  in the opinion of the Agent,  and take such
other  actions as the Agent may  reasonably  request,  in order to  perfect  and
protect the Liens of the Agent and Lenders in the Collateral.  The Borrowers, to
the extent  permitted by law,  hereby  authorize the Agent to file any financing
statement  in respect of any Lien  created  pursuant to the  Security  Documents
which may at any time be required or which, in the opinion of the Agent,  may at
any time be desirable although the same may have been executed only by the Agent
or, at the option of the Agent,  to sign such  financing  statement on behalf of
any Borrower and file the same, and the Borrowers hereby  irrevocably  designate
the  Agent,  its  agents,   representatives  and  designees  as  its  agent  and
attorney-in-fact  for  this  purpose.  In the  event  that any  re-recording  or
refiling  thereof (or the filing of any statements of continuation or assignment
of any financing  statement) is required to protect and preserve such Lien,  the
Borrowers  shall,  at the  Borrowers'  cost and  expense,  cause  the same to be
recorded and/or refiled at the time and in the manner requested by the Agent.

V.  CONDITIONS OF CREDIT EVENTS

     SECTION 5.01.  Conditions Precedent to First Credit Events. The obligations
of the Lenders in respect of the first Credit Event hereunder are subject to the
following conditions precedent:

         (a) The Agent shall have  received the  favorable  written  opinions of
     counsel for the Parent and each of the Borrowers, substantially in the form
     of Exhibit I hereto, dated the Closing Date, addressed to the Agent and the
     Lenders and satisfactory to the Agent.

         (b) The Agent  shall have  received  (i) a copy of the  certificate  or
     articles  of  incorporation  or  constitutive  documents,  in each  case as
     amended to date,  of each of the Parent and  Borrowers,  certified  as of a
     recent date by the Secretary of State or other appropriate  official of the
     state of its  organization,  and a  certificate  as to the good standing of
     each from such Secretary of State or other official,  in each case dated as
     of a recent date; (ii) a certificate of the Secretary of each of the Parent
     and  Borrowers,  dated the Amendment  Date and certifying (A) that attached
     thereto is a true and complete copy of such  Person's  By-laws as in effect
     on the date of such

                                       45

     certificate  and  at all  times  since  a date  prior  to the  date  of the
     resolution described in item (B) below, (B) that attached thereto is a true
     and  complete  copy of a  resolution  adopted  by such  Person's  Board  of
     Directors  authorizing  the  execution,  delivery and  performance  of this
     Agreement,  the Security Documents, the Notes, the other Loan Documents and
     the Credit Events  hereunder,  as applicable,  and that such resolution has
     not been  modified,  rescinded  or amended and is in full force and effect,
     (C)  that  such  Person's  certificate  or  articles  of  incorporation  or
     constitutive  documents  has not been  amended  since  the date of the last
     amendment  thereto  shown on the  certificate  of good  standing  furnished
     pursuant to (i) above, and (D) as to the incumbency and specimen  signature
     of each of such Person's officers executing this Agreement, the Notes, each
     Security  Document  or any other  Loan  Document  delivered  in  connection
     herewith or therewith, as applicable; (ii) a certificate of another of such
     Person's  officers as to  incumbency  and signature of its  Secretary;  and
     (iii)  such  other  documents  as the Agent or any  Lender  may  reasonably
     request.

         (c) The Agent shall have received a certificate, dated the Closing Date
     and signed by the Financial Officer of each Borrower, confirming compliance
     with  the  conditions  precedent  set  forth in  paragraphs  (a) and (b) of
     Section  5.02 hereof and the  conditions  set forth in this  Section  5.01,
     together with a Notice of Borrowing as required under Section 2.03 hereof.

         (d) Each Lender  shall have  received  its  Revolving  Credit Note duly
     executed by the  Borrowers,  payable to its order and  otherwise  complying
     with the provisions of Section 2.04 hereof.

         (e) The Agent shall have  received  the Security  Documents,  Borrowers
     Guaranty and Parent Guaranty each duly executed by the applicable parties.

         (f) The Agent shall have  received  certified  copies of  requests  for
     copies or information on Form UCC-11 or  certificates  satisfactory  to the
     Agent of a UCC Reporter Service, listing all effective financing statements
     which  name as debtor  the  Borrowers  or Parent and which are filed in the
     appropriate  offices in the States in which are located the chief executive
     office and other operating offices of such Person,  together with copies of
     such financing statements. With respect to any Liens not permitted pursuant
     to  Section  9.03  hereof,  the  Agent  shall  have  received   termination
     statements in form and substance satisfactory to it.

         (g)  Each  document  (including,   without  limitation,   each  Uniform
     Commercial Code financing statements, assignments

                                       46

     and  amendments)  required  by law or  requested  by the Agent to be filed,
     registered  or  recorded  in order to  create in favor of the Agent for the
     benefit of the Lenders a first priority  perfected security interest in the
     Collateral  shall have been properly filed,  registered or recorded in each
     jurisdiction in which the filing, registration or recordation thereof is so
     required  or  requested.  The Agent shall have  received an  acknowledgment
     copy,  or  other  evidence   satisfactory  to  it,  of  each  such  filing,
     registration  or  recordation,  including  the payment of all recording and
     other fees  payable in  connection  with such  filings,  registrations  and
     recordings.

         (h) The  Agent and the  Lenders  shall  have  received  and  reasonably
     determined to be satisfactory in form and substance:

            (i) the  most  recent  (dated  within  forty-five  (45)  days of the
       Closing Date) schedule of inventory of the Borrowers;

            (ii) evidence of the  compliance by the Borrowers  with Section 8.06
       hereof;

            (iii) the Financial Statements;

            (iv)  evidence  that the  Transactions  are in  compliance  with all
       applicable laws and regulations;

            (v)  evidence  of  payment  of all fees  owed to the  Agent  and the
       Lenders by the Borrowers  under this  Agreement or otherwise  (including,
       without limitation, the Extension Fee);

            (vi) evidence that all requisite  third party  consents  (including,
       without limitation,  consents with respect to the Borrowers and Parent to
       the Transactions have been received;

            (vii) evidence that there has been no material adverse change in the
       business, assets, operations or financial condition of the Parent and its
       Subsidiaries since January 31, 1995;

            (viii) a blocked  account letter  agreement from the Provident Bank;
       and

            (ix) evidence that there are no actions, suits or proceedings at law
       or in equity or by or before any  governmental  instrumentality  or other
       agency or  regulatory  authority  now  pending or  threatened  against or
       affecting the Parent or any of its Subsidiaries or

                                       47

       any of their respective businesses, assets or rights which involve any of
       the Transactions.

         (i) The Agent and the Lenders shall have had the  opportunity,  if they
     so choose,  to examine the books of account and other  records and files of
     the Parent and  Borrowers  and their  respective  Subsidiaries  and to make
     copies  thereof,  and to conduct a pre-closing  audit which shall  include,
     without limitation,  verification of Eligible Accounts,  payment of payroll
     taxes and accounts  payable and  formulation of an opening  Borrowing Base,
     and the results of such examination and audit shall have been  satisfactory
     to the Agent and Lenders in all respects.

         (j) The Agent shall have had the opportunity to review and determine to
     be in form and substance satisfactory to it:

               (i) copies of all lease agreements entered into whether as lessor
          or as lessee by the Borrowers and their Subsidiaries; and

               (ii) copies of all loan agreements, notes and other documentation
          evidencing   Indebtedness  for  borrowed  money  of  the  Parent,  the
          Borrowers and their respective Subsidiaries.

         (k) Messrs.  Kaye,  Scholer,  Fierman,  Hays & Handler,  counsel to the
     Agent, shall have received payment in full for all legal fees charged,  and
     all costs and expenses  incurred,  by such counsel through the Closing Date
     in connection with the transactions  contemplated under this Agreement, the
     Security  Documents  and  the  other  Loan  Documents  and  instruments  in
     connection herewith and therewith.

         (l) The Agent shall have received  such other  documents as the Lenders
     or the Agent or Agent's counsel shall reasonably deem necessary.

     SECTION 5.02.  Conditions Precedent to All Credit Events. The obligation of
the Lenders to make each  Revolving  Credit Loan and cause each Letter of Credit
to be issued after the Closing Date shall be subject to the following conditions
precedent being met to the satisfaction of the Agent in each instance:

     (a) Correctness of Representations and Warranties.  All representations and
warranties  contained herein or otherwise made in any other Loan Document or any
Borrower's  Certificate and all other representations and warranties made by the
Parent or Borrowers in any agreement, instrument, certificate, document or other
writing delivered to the Agent or any Lender in connection

                                       48

herewith or therewith,  shall be true and correct in all material  respects with
the same effect as though such  representations  and warranties had been made on
and as of the date of such Revolving  Credit Loans or issuance of such Letter of
Credit;   provided,   however,   that   subsequent   to  the  Closing  Date  the
representations  and warranties set forth in Section 7.15 hereof shall be deemed
made  with  reference  to the date of the then  most  recent  audited  financial
statements of the Parent.

     (b) No Default or Event of  Default.  There shall exist no Default or Event
of Default.

     (c)  Proceedings;   Receipt  of  Documents.   All  requisite   actions  and
proceedings in connection with such Revolving Credit Loans shall be satisfactory
in form and  substance to the Agent and the Agent's  counsel shall have received
all  information  and copies of all documents,  including,  without  limitation,
records of requisite  action and proceedings  which the Agent or its counsel may
have requested in connection  therewith,  such documents  where requested by the
Agent or its counsel to be  certified  by  appropriate  persons or  governmental
authorities. All conditions to the effectiveness of any documents required to be
executed or delivered pursuant to this Article V, including, without limitation,
the delivery of documents required in connection  therewith,  shall be completed
to the satisfaction of the Agent at or prior to such execution or delivery.

     (d) The Agent shall have received a Notice of Borrowing in accordance  with
Section 2.03 hereof.

     (e) The Agent  shall  have  received a  certificate,  dated the date of the
Credit Event and signed by the Financial  Officer of each  Borrower,  confirming
compliance with the conditions  precedent set forth in paragraphs (a) and (b) of
this Section 5.02.

VI.  USE OF PROCEEDS

     The Borrowers  agree that the proceeds of the Revolving  Credit Loans shall
be used for working capital and general corporate purposes.

VII.  REPRESENTATIONS AND WARRANTIES

     In order to induce the Agent and the  Lenders to enter into this  Agreement
and to make the  Revolving  Credit  Loans and cause the  issuance  of Letters of
Credit as herein  provided for, the Borrowers,  jointly and severally,  make the
following  representations  and  warranties,  all of  which  shall  survive  the
execution  and  delivery  of the  Agreement  and the making of the Loans and the
issuance of the Letters of Credit and shall be

                                       49

deemed to be incorporated in each Borrower's  Certificate,  and,  subject to the
proviso  contained  in Section  5.02(a)  hereof,  shall be deemed  repeated  and
confirmed  as true and correct in all  material  respects  with  respect to each
borrowing hereunder as of the time of such borrowing:

     SECTION  7.01.  Status.  Each  Borrower  is and  shall  continue  to be,  a
corporation duly organized, validly existing and in good standing under the laws
of the  jurisdiction of its  organization and has the power and authority to own
its  properties and to transact the business in which it is engaged or presently
proposes to engage.  Each Borrower is duly  registered as a foreign  corporation
and is in good standing in all states where the failure to so qualify would have
a Material  Adverse Effect.  All shares of capital stock of the  Subsidiaries of
the  Borrowers  are and shall  continue to be owned by the  Borrowers  and their
respective Subsidiaries,  free and clear of all Liens (other than Liens in favor
of the Agent on behalf of the  Lenders),  and all such shares have been duly and
validly issued, and are fully paid and nonassessable.

     SECTION 7.02.  Power and Authority.  Each Borrower has the corporate  power
and  authority  to borrow and to  execute,  deliver  and carry out the terms and
provisions of this Agreement,  the Revolving Notes, the other Loan Documents and
all instruments and documents  executed and delivered by it pursuant thereto and
hereto and each Borrower has taken or caused to be taken all necessary requisite
corporate action (including, without limitation, the obtaining of any consent of
shareholders  required by law or its certificate of  incorporation  to authorize
the  execution,  delivery and  performance  of this  Agreement,  the  borrowings
hereunder,  the making and delivery of the  Revolving  Notes and the  execution,
delivery and  performance of the other Loan  Documents,  and the instruments and
documents  executed and delivered by it pursuant to this Agreement and the other
Loan Documents).  This Agreement,  the Revolving Notes, the other Loan Documents
and each of the other  instruments and documents  executed and delivered by each
Borrower  pursuant  hereto and thereto  constitute the legal,  valid and binding
obligations  of each  Borrower  and are  enforceable  in  accordance  with their
respective terms.

     SECTION 7.03. No Violation of  Agreements.  Neither any Borrower nor any of
its  Subsidiaries  is in default under any indenture,  mortgage,  deed of trust,
agreement  or other  instrument  to which it is a party or by which it or any of
its property may be bound, except for any default which (either  individually or
collectively  with other defaults arising out of the same event or events) would
not have a Material  Adverse Effect.  Neither the execution and delivery of this
Agreement,  the Revolving  Notes,  any of the other Loan Documents or any of the
instruments  and  documents  to be executed  and/or  delivered  pursuant to this
Agreement or the other Loan Documents, nor the consummation of

                                       50

the  transactions  herein and  therein  contemplated,  nor  compliance  with the
provisions  hereof or thereof will violate any provision of the  certificate  of
incorporation or by-laws of any Borrower, any law, statute or regulation, or any
order or decree of any court or governmental  instrumentality,  or will conflict
with,  or result in the breach of, or constitute a default  under,  any material
indenture,  mortgage,  deed of trust,  material agreement or other instrument to
which any Borrower or any of its  Subsidiaries  is a party or by which it or any
of its property may be bound,  or, except as contemplated  under this Agreement,
result  in the  creation  or  imposition  of any Lien upon any  property  of any
Borrower or any of its Subsidiaries thereunder.

     SECTION 7.04. No Burdensome Agreements. Neither any Borrower nor any of its
Subsidiaries  is a party  to any  agreement  or  instrument  or  subject  to any
restriction   (including  any  restriction  set  forth  in  the  certificate  of
incorporation or by-laws of any Borrower) materially and adversely affecting its
operations, business, properties, prospects or financial condition.

     SECTION 7.05. No  Litigation.  Except as set forth in Schedule 7.05 annexed
hereto,  there are no  actions,  suits or  proceedings  pending,  or to the best
knowledge of the Borrowers threatened,  against or affecting any Borrower or any
of its Subsidiaries or the Parent or any of its  Subsidiaries  before any court,
arbitrator or governmental or administrative  body or agency which challenge the
validity or propriety of the transactions contemplated under this Agreement, the
Revolving  Notes,  the other Loan  Documents or the documents,  instruments  and
agreements  executed or delivered in connection  herewith,  therewith or related
hereto or  thereto,  or which  could  reasonably  be  expected  to result in any
material  adverse  change in the  business,  operations,  properties,  assets or
financial  condition of the Parent and its  Subsidiaries or the Borrowers or any
of their respective  Subsidiaries.  Except as set forth in Schedule 7.05 hereto,
neither  the  Parent and its  Subsidiaries  nor the  Borrowers  and any of their
Subsidiaries is in default under any applicable statute,  rule, order, decree or
regulation  of any  court,  arbitrator  or  governmental  body or agency  having
jurisdiction  over the Parent or any of its Subsidiaries or such Borrower or any
of its Subsidiaries.

     SECTION 7.06. Good Title to Properties.  Each Borrower and its Subsidiaries
has good and indefeasible title to its properties and assets, including, without
limitation, the Collateral,  subject to no Liens of any kind, except such as are
permitted under Section 9.03 hereof.

     SECTION 7.07. Trademarks,  Patents, etc. Each Borrower and its Subsidiaries
possess all the  trademarks,  trade names,  copyrights,  patents,  licenses,  or
rights in any thereof, adequate for the conduct of its business as now conducted
and presently

                                       51

proposed to be conducted,  without conflict with the rights or claimed rights of
others.

     SECTION 7.08. Tax Liability.  Each Borrower and its Subsidiaries have filed
all tax  returns  which are  required  to be  filed,  and,  except as  otherwise
permitted  by Section  8.04  hereof,  has paid all taxes  which have  become due
pursuant to such returns or pursuant to any assessment received by it.

     SECTION  7.09.  Governmental  Action.  No action  of, or filing  with,  any
governmental  or  public  body  or  authority   (other  than  normal   reporting
requirements  or filing  under the  provisions  of Article  IV) is  required  to
authorize, or is otherwise required in connection with, the execution,  delivery
and  performance  of  this  Agreement,  the  Revolving  Notes,  the  other  Loan
Documents,  or any of the  instruments  or documents  to be  delivered  pursuant
hereto or thereto.

     SECTION 7.10. Disclosure. To the best of the Borrowers' knowledge,  neither
the Schedules  hereto nor any certificate,  statement,  report or other document
furnished  to the Agent or any Lender by or on behalf of the Parent or Borrowers
in  connection  herewith  or in  connection  with any  transaction  contemplated
hereby, nor this Agreement,  nor any other Loan Document, at the time furnished,
contains any untrue  statement of a material fact or omits to state any material
fact necessary in order to make the statements contained therein not misleading.

     SECTION  7.11.  Regulations  G and U.  Neither any  Borrower nor any of its
Subsidiaries  owns any 'margin  stock' as such term is defined in  Regulations G
and U, as amended, of the Board. The proceeds of the borrowings made pursuant to
Article  II will be used by the  Borrowers  only for the  purposes  set forth in
Article VI hereof.  None of such proceeds will be used,  directly or indirectly,
for the purpose of purchasing or carrying any margin stock or for the purpose of
reducing or retiring any Indebtedness which was originally  incurred to purchase
or  carry  margin  stock or for any  other  purpose  which  might  constitute  a
violation of Regulations G or U. Neither the Parent nor any of the Borrowers has
taken or will take any action  which  might cause this  Agreement  or any of the
other Loan  Documents to violate any  regulation  of the Board or to violate the
Securities Exchange Act of 1934 or any state securities laws.

     SECTION 7.12. Employee Benefit Plans.

     (1)  None  of the  Plans  maintained  at any  time by any  Borrower  or any
Guarantor  or  the  trusts  created  thereunder  has  engaged  in  a  prohibited
transaction  which  could  subject  any such Plan or trust to a material  tax or
penalty on prohibited transactions imposed under Code Section 4975 or ERISA;

                                       52

     (2)  None  of the  Plans  maintained  at any  time by any  Borrower  or any
Guarantor  which are Pension  Plans or the trusts  created  thereunder  has been
terminated;  nor has any such Plan of any Borrower or any Guarantor incurred any
liability  to the PBGC  established  pursuant to ERISA,  other than for required
insurance  premiums which have been paid when due;  neither any Borrower nor any
Guarantor  has  withdrawn  from or caused a  partial  withdrawal  to occur  with
respect to any  Multiemployer  Plan within the meaning of Sections 4203 and 4204
of  ERISA;  each  Borrower  and  each  Guarantor  has made or  provided  for all
contributions to all Pension Plans which they maintain and which are required as
of the most recent  fiscal year under each such Plan;  neither any  Borrower nor
any Guarantor has incurred any accumulated  funding  deficiency,  whether or not
waived;  nor has there been any Reportable  Event,  or other event or condition,
which presents a material risk of termination of any such Plan by the PBGC;

     (3) The present value of all accrued  benefits  under the Pension Plans did
not, as of the most recent  valuation  date for each such Plan,  exceed the then
current value of the assets of such Plan allocable to such accrued benefits;

     (4) The  consummation of the Revolving Credit Loans provided for in Article
II will not involve  any  prohibited  transaction,  as defined in Section 406 of
ERISA;

     (5) Each Plan of each Borrower and each Guarantor has been  administered in
accordance with its terms and is in compliance in all material respects with all
applicable  requirements  of ERISA and other  applicable  laws,  regulations and
rulings  where  failure  to  comply  would  result  in  material   liability  or
obligation; and

     (6) There has been no  withdrawal  liability  incurred  with respect to any
Multiemployer  Plan  by any  Borrower  or any of its  ERISA  Affiliates,  or any
Guarantor.

     SECTION 7.13.  Subsidiaries.  The  Borrowers  have no  Subsidiaries  on the
Closing Date, except as set forth on Schedule 7.13 hereto.

     SECTION 7.14.  Permits,  etc.  Each of the  Borrowers and its  Subsidiaries
possesses all material  licenses,  approvals and consents of Federal,  state and
local governments and regulatory authorities as required to conduct properly its
business.

     SECTION 7.15.  Financial  Condition.  The unaudited,  Consolidated  balance
sheet of the Parent and its  Subsidiaries as of April 30, 1995 and the unaudited
statement of operations,  shareholder's equity and changes in financial position
for the three (3) month period ended on such date (the 'Financial  Statements'),
copies of which have heretofore been furnished to the Agent,  present fairly the
financial condition of the Parent

                                       53

and its  Subsidiaries on a Consolidated  basis as at such dates, and the results
of its  operations  and change in  financial  position  for such three (3) month
period. All such financial statements, including the related schedules and notes
thereto,  have  been  prepared  in  accordance  with GAAP  applied  consistently
throughout the periods involved.

     SECTION 7.16. Compliance with Environmental Laws. (i) The operations of the
Borrowers  and their  Subsidiaries  comply  in all  material  respects  with all
applicable Environmental Laws; (ii) neither the Borrowers nor their Subsidiaries
or any of their  present  facilities or  operations,  or to the knowledge of the
Borrowers  and their  Subsidiaries,  their past  facilities or  operations,  are
subject  to  any  judicial  proceeding  or  administrative   proceeding  or  any
outstanding  written  order or  agreement  with any  governmental  authority  or
private party  respecting (a) any  Environmental  Law, (b) any Remedial Work, or
(c) any Environmental  Claims arising from the Release of a Contaminant into the
environment;  (iii) to the best of the  knowledge  of the  Borrowers  and  their
Subsidiaries,  none of their  operations  is the subject of any Federal or state
investigation  evaluating  whether any  Remedial  Work is needed to respond to a
Release of any Contaminant into the environment;  (iv) neither the Borrowers nor
any of their Subsidiaries nor, to the best of the knowledge of the Borrowers and
their   Subsidiaries,   any  predecessor  of  the  Borrowers  or  any  of  their
Subsidiaries,  has filed any notice under any  Environmental Law indicating past
or present treatment,  storage, or disposal of a Hazardous Material or reporting
a spill or Release of a Contaminant into the environment; (v) to the best of the
knowledge of the Borrowers and their Subsidiaries, neither the Borrowers nor any
of their  Subsidiaries  has any  contingent  liability  in  connection  with any
Release of any Contaminant into the environment;  (vi) none of the operations of
the   Borrowers  or  any  of  their   Subsidiaries   involves  the   generation,
transportation, treatment, storage or disposal of Hazardous Materials that would
require a permit or interim  status under  Environmental  Law; (vii) neither the
Borrowers  nor any of their  Subsidiaries  has  disposed of any  Contaminant  by
placing it in or on the ground or waters of any premises  owned,  leased or used
by any of them and to the  knowledge of the  Borrowers  and their  Subsidiaries,
neither has any lessee,  prior owner,  or other  Person;  (viii) no  underground
storage tanks or surface  impoundments  are on any property of the Borrowers and
their Subsidiaries;  and (ix) no Lien in favor of any governmental authority for
(A) any liability  under any  Environmental  Law or  regulation,  or (B) damages
arising from or costs incurred by such  governmental  authority in response to a
Release of a Contaminant into the environment, has been filed or attached to the
property of the Borrowers and their Subsidiaries.

                                       54

VIII.  AFFIRMATIVE COVENANTS

     Each Borrower,  jointly and severally,  covenants and agrees with the Agent
and each Lender that, so long as this Agreement  shall remain in effect,  or any
Obligation  shall  remain  outstanding  or unpaid or any Letter of Credit  shall
remain outstanding, it will, and will cause each of its Subsidiaries to:

     SECTION 8.01.  Financial  Statements and Other Information.  Furnish to the
Agent:

     (a) as soon as practicable  and in any event within 45 days after the close
of each of the  first  three  quarters  of each  fiscal  year of the  Parent,  a
Consolidated and consolidating balance sheet of the Parent and its Subsidiaries,
a  Consolidated  and  consolidating  statement  of income of the  Parent and its
Subsidiaries,  a Consolidated and  consolidating  statement of cash flows of the
Parent and its  Subsidiaries,  as at the end of and for the period commencing at
the end of the previous fiscal year and ending with such quarter,  setting forth
for each such  period in  comparative  form the  corresponding  figures  for the
appropriate  period of the  preceding  fiscal  year,  all in  reasonable  detail
together with a certificate of the Financial  Officer of the Parent stating that
such financial statements are true and correct in all material respects, subject
to normal  recurring  year-end  audit  adjustments,  and have been  prepared  in
accordance with GAAP;

     (b) as soon as practicable  and in any event within 90 days after the close
of each fiscal year of the Parent,  a  Consolidated  and  consolidating  balance
sheet of the Parent  and its  Subsidiaries,  a  Consolidated  and  consolidating
statement of income of the Parent and its  Subsidiaries,  and a Consolidated and
consolidating statement of cash flows of the Parent and its Subsidiaries,  as at
the end of and for the fiscal year just closed,  setting forth the corresponding
figures  of the  previous  fiscal  year in  comparative  form all in  reasonable
detail, and, with respect to the consolidating  statements, a certificate signed
by the Financial  Officer of the Parent stating that such  financial  statements
are true and  correct  in all  material  respects,  and have  been  prepared  in
accordance  with  GAAP,  and,  with  respect  to  the  Consolidated  statements,
certified,  without any qualification  deemed material by the Agent and Required
Lenders, by Arthur Andersen LLP or other independent public accountants selected
by the Parent and reasonably  satisfactory to the Agent; and  concurrently  with
such  Consolidated  financial  statements,  a written  statement  signed by such
independent  public  accountants  to the effect that, in making the  examination
necessary for their certification of such financial statements, nothing has come
to their attention which would indicate the existence of any Event of Default or
Default,  or, if such independent  public  accountants  shall have obtained from
such

                                       55

examination  any such knowledge,  they shall disclose in such written  statement
the Event of Default or Default and the nature thereof;

     (c) as soon as practicable  and in any event within 30 days after the close
of each calendar  month, an unaudited  Consolidated  and  consolidating  balance
sheet  of the  Parent  and  its  Subsidiaries,  an  unaudited  Consolidated  and
consolidating  statement  of income of the Parent and its  Subsidiaries,  and an
unaudited  consolidated and consolidating  statement of cash flows of the Parent
and its  Subsidiaries as at the end of and for the period  commencing at the end
of the previous fiscal year and ending with such month just closed, in each case
prepared by the management of the Parent,  setting forth in comparative form the
corresponding  figures for the appropriate  period of the preceding fiscal year,
all in reasonable  detail  together  with a certificate  signed by the Financial
Officer  of the  Parent  stating  that such  financial  statements  are true and
correct,  subject to normal recurring year-end audit adjustments,  and have been
prepared in accordance with GAAP;

     (d)  promptly  upon  receipt  thereof,  copies  of  all  financial  reports
(including,  without limitation,  management letters),  if any, submitted to the
Parent or any Borrower or any of their respective  Subsidiaries by its auditors,
in  connection  with each annual or interim audit or review of its books by such
auditors;

     (e) promptly upon the issuance thereof,  copies of all reports,  if any, to
the  Securities  and Exchange  Commission or any  securities  exchange,  and all
reports, notices or statements sent by any Borrower or the Parent to the holders
of any  Indebtedness  of the  Borrowers  or Parent or to the  trustee  under any
indenture under which the same is issued;

     (f) (i) concurrently with the delivery of the financial statements required
to be furnished by Sections  8.01(a),  8.01(b) and 8.01(c) hereof, a certificate
signed by a Responsible  Officer of the Parent, (x) stating that a review of the
activities  of the Parent and its  Subsidiaries  during  such  quarter or fiscal
year, as the case may be, has been made under his or her  immediate  supervision
with a view to determining  whether the Borrowers  have observed,  performed and
fulfilled all of their obligations under this Agreement,  (y) stating that there
existed during such quarter or fiscal year no Event of Default and no Default or
if any such  Event of  Default  or  Default  did  exist,  specifying  the nature
thereof,  the period of  existence  thereof  and what  action the Parent and the
Borrowers  propose to take, or have taken,  with respect thereto and (z) setting
forth computations in reasonable detail  satisfactory to the Agent demonstrating
compliance with the covenants  contained in Sections 9.01,  9.02, 9.05, 9.06 and
9.07 hereof, and with Section 14 of the Parent Guaranty,  and (ii) promptly upon
the  occurrence of any

                                       56

Default or Event of Default,  a certificate  signed by a Responsible  Officer of
the Parent  specifying the nature thereof and the action the Parent  proposes to
take or has taken with respect thereto;

     (g)  promptly  upon  the  commencement  thereof,   written  notice  of  any
litigation,   including   arbitrations,   and  of  any  proceedings  before  any
governmental agency which would, if successful,  materially affect the Parent or
any of its Subsidiaries or where the amount involved exceeds $250,000;

     (h) with  reasonable  promptness,  such other  information  respecting  the
business,  operations  and  financial  condition  of  the  Parent  or any of its
Subsidiaries as the Agent may from time to time reasonably request;

     (i) as soon as practicable  and in any event within 30 days after the close
of each calendar  month a report with respect to inventory in such detail as the
Agent shall require;

     (j) immediately upon becoming aware of any development or other information
which could  reasonably  be  expected to  materially  and  adversely  affect the
properties,  business,  prospects, profits or condition (financial or otherwise)
of the Parent or any of its  Subsidiaries  or the  ability of the  Borrowers  to
perform  or  comply  with  this  Agreement  or to pay  any  of the  Obligations,
telephonic or telegraphic  notice  specifying the nature of such  development or
information and such anticipated effect;

     (k)  within  30 days  prior to the  beginning  of each  fiscal  year of the
Parent,  a summary of business plans  (including,  without  limitation,  monthly
profit  and loss  statements,  balance  sheets  and cash  flows,  and  including
underlying assumptions) for the Parent and its Subsidiaries for such fiscal year
prepared and approved by the Parent's senior management and otherwise acceptable
in form, substance and detail to the Agent.

     (l) at the  time  of the  first  Credit  Event  hereunder  and as  soon  as
practicable  after the close of each calendar  month,  and at such other time or
times as the Agent shall request, a certificate (a 'Borrower's Certificate') for
each Borrower, dated such date or the date of such Credit Event, as the case may
be, calculating the Borrowing Base for such Borrower,  in a form satisfactory to
the  Agent,  such  certificate  to be signed by the  Financial  Officer  of each
applicable  Borrower,   together  with  documentation   supporting  the  figures
contained therein in form, detail and substance  reasonably  satisfactory to the
Agent; and

     (m) at the request of the Agent,  operating reports (and such other reports
as the Agent shall reasonably request)

                                       57

relating to the operation of each store operated by the Borrowers,  in each case
acceptable  in form,  substance  and  detail to the Agent  and  prepared  by the
Parent's  management,  setting forth the period of time the applicable  Borrower
has operated each such store (i.e., one year, two years,  three years or greater
than three years) as well as  comparative  figures as against actual results for
each such store for the comparable period during the prior year.

     The Agent is hereby authorized to deliver a copy of any financial statement
or any other  information  relating to the  business,  operations  or  financial
condition  of the Parent or any of its  Subsidiaries  which may be  furnished to
hereunder  or  otherwise,  to  any  court,  regulatory  body  or  agency  having
jurisdiction  over the Agent or any Lender or to any  Persons  which  shall,  or
shall have any right or obligation to, succeed to all or any part of the Agent's
or any Lender's  interest in the Revolving Credit Loans,  this Agreement and any
Collateral.

     The Borrowers  hereby agree to provide each Lender upon request with a copy
of any  statements,  reports  or  other  information  provided  to the  Agent in
accordance  with this Section 8.01 which the Agent has failed to provide to such
Lender.

     SECTION 8.02.  Corporate Existence,  etc. Preserve and maintain,  and cause
each of its  Subsidiaries  to preserve and maintain,  its  corporate  existence,
rights and franchises.

     SECTION 8.03.  Compliance with Laws, etc. Comply in all material  respects,
and cause each of its Subsidiaries to comply in all material respects,  with all
applicable laws, rules, regulations and orders, and duly observe in all material
respects,  and cause each of its  Subsidiaries  to duly  observe in all material
respects,  all  requirements of  governmental  authorities  (including,  without
limitation,  ERISA and the rules and regulations thereunder),  and all statutes,
rules and  regulations  relating to  environmental  pollution  and to public and
employee health and safety.

     SECTION 8.04. Payment of Taxes and Claims,  etc. Pay, and cause each of its
Subsidiaries to pay, in accordance with sound business practice,  (i) all taxes,
assessments and  governmental  charges imposed upon it or upon its property when
the same  becomes  due and  payable,  and (ii) all  material  claims  (including
without  limitation  claims for labor,  materials,  supplies or services)  which
might,  if unpaid,  become a Lien upon its property,  unless,  in each case, the
validity  or amount  thereof is being  contested  in good  faith by  appropriate
proceedings,  the applicable Borrower or such Subsidiary has maintained adequate
reserves with respect  thereto and no Liens have  attached to the  Collateral or
any  portion  thereof  (except  Liens which are  permitted  under  Section  9.03
thereof).

                                       58

     SECTION 8.05. Keeping of Books; Visitation,  Inspection, etc. (a) Keep, and
cause each of its  Subsidiaries  to keep,  proper  books of record and  account,
containing   complete  and  accurate  entries  of  all  financial  and  business
transactions of each Borrower and each of its Subsidiaries.

     (b) Permit any  representative of the Agent to visit and inspect any of its
property, to conduct appraisals of any of its property, to examine its books and
records  and to make  copies and take  extracts  therefrom,  and to discuss  its
affairs,  finances and accounts with its officers, and cause its Subsidiaries to
do the  foregoing,  all the foregoing to be at  Borrowers'  expense and to be at
such times during normal business hours and as often as the Agent may reasonably
request.  The Agent  shall give the  Lenders  reasonable  advance  notice of its
intent to do any of the acts set forth in the prior sentence and any such Lender
may, in the  discretion of the Agent,  send a  representative  (at such Lender's
expense) to accompany the Agent's representative.

     SECTION  8.06.  Insurance.  (a) (i) Keep all of its  properties  adequately
insured,  and cause each of its  Subsidiaries to keep its properties  adequately
insured,  at all times with  responsible  insurance  carriers,  in  amounts  and
pursuant to insurance policies  acceptable to the Agent,  against loss or damage
by fire and other hazards,  (ii) maintain adequate insurance,  and cause each of
its Subsidiaries to maintain adequate  insurance,  at all times with responsible
insurance carriers,  in amounts and pursuant to insurance policies acceptable to
the Agent  against  liability  on account of damage to Persons and  property and
under all applicable  workers'  compensation  laws and (iii)  maintain  adequate
insurance,  and cause each of its Subsidiaries to maintain  adequate  insurance,
covering  such other risks as the Agent may  reasonably  request.  All insurance
covering  tangible property subject to a Lien in favor of the Agent on behalf of
the Lenders granted  pursuant to this Agreement or under any other Loan Document
shall  provide  that,  in the case of each  separate  loss the  full  amount  of
insurance  proceeds  with  respect  thereto  shall be payable  to the Agent,  as
secured  party on behalf of the  Lenders,  or  otherwise  as its  interests  may
appear, to be applied in accordance with Section 3.02 hereof,  and shall further
(i)  provide  for at least 30 days'  prior  written  notice  to the Agent of the
cancellation or substantial  modification thereof, (ii) provide that, in respect
of the interests of the Agent and the applicable Borrower or such Subsidiary, as
the case may be,  such  insurance  shall  not be  invalidated  by any  action or
inaction of such Borrower or such  Subsidiary,  as the case may be, or any other
Person,  (iii) insure the  interests of the Agent and Lenders  regardless of any
breach of or violation by such Borrower or such Subsidiary,  as the case may be,
or any other Person of any warranties,  declarations, or conditions contained in
such insurance and (iv) provide that the Agent shall have the right (but not the
obligation) to cure any default by such Borrower or such  Subsidiary  under such
insurance. Each liability policy

                                       59

required  pursuant  to this  Section  8.06 shall name the Agent on behalf of the
Lenders  as an  additional  insured  and  shall  be  primary  without  right  of
contribution  from any  other  insurance  which is  carried  by the Agent or any
Lender to the  extent  that such other  insurance  provides  it with  contingent
and/or excess  liability  insurance  with respect to its interest as such in the
Collateral  and shall  expressly  provide  that all of the  provisions  thereof,
except the limits of liability  (which shall be  applicable to all insureds as a
group) and except  liability for premiums  (which shall be solely a liability of
the Borrowers or applicable Subsidiary),  shall operate in the same manner as if
there were a separate policy covering each insured.

     (b) The  Borrowers  shall,  from time to time upon  request  of the  Agent,
promptly  furnish or cause to be  furnished to the Agent  evidence,  in form and
substance  satisfactory  to the  Agent,  of  the  maintenance  of all  insurance
required to be maintained by Section 8.06(a) hereof,  including, but not limited
to, such originals or copies as the Agent may request of policies,  certificates
of insurance,  riders and  endorsements  relating to such insurance and proof of
premium payments.

     SECTION 8.07. Properties in Good Condition. Keep its properties,  and cause
each of its Subsidiaries to keep its properties,  in good repair,  working order
and condition  (reasonable  wear and tear excepted) and, from time to time, make
all  needful  and  proper  repairs,   renewals,   replacements,   additions  and
improvements  thereto,  so that the business  carried on may be conducted at all
times in accordance with prudent business management.

     SECTION  8.08.  Pay  Obligations  to Agent and Lenders  and  Perform  Other
Covenants.  (a) Make  full and  timely  payment  of the  Obligations,  including
without limitation the Revolving Credit Loans, whether now existing or hereafter
arising,  (b) duly comply with all the terms and covenants  contained in each of
the  instruments  and documents given to or in favor of the Agent and/or Lenders
in connection with or pursuant to this Agreement or any other Loan Document, all
at the times (giving effect to applicable grace periods,  if any) and places and
in the manner set forth therein,  and (c) except for the filing of  continuation
statements and the making of other filings by the Agent on behalf of the Lenders
as secured  party or  assignee,  at all times take all action  requested  by the
Agent which is reasonably necessary to maintain the Liens and security interests
provided for under or pursuant to this  Agreement as valid and  perfected  first
priority liens on the property  intended to be covered thereby  (subject only to
Liens  expressly  permitted  hereunder) and supply all  information to the Agent
necessary for such maintenance.

     SECTION 8.09.  Notice of Default.  Promptly  notify the Agent in writing of
any default,  or event,  condition or  occurrence  which with notice or lapse of
time, or both, would

                                       60

constitute a default under any agreement for borrowed money to which the Parent,
any Borrower or any Subsidiary of any is a party.

     SECTION 8.10. Further Assurances.  At its cost and expense, upon request of
the Agent, duly execute and deliver, or cause to be duly executed and delivered,
to the Agent such further  instruments  and do and cause to be done such further
acts as may be  necessary  or proper in the  reasonable  opinion of the Agent to
carry out more effectually the provisions and purposes of this Agreement.

     SECTION 8.11. ERISA. Deliver to the Agent,  promptly after (i) any Borrower
or ERISA Affiliate knows or has reason to know of the occurrence thereof, notice
that an ERISA Termination  Event or a 'prohibited  transaction,' as such term is
defined in Code  Section  4975 (other than a  prohibited  transaction  for which
there exists a statutory or administrative exemption),  with respect to any Plan
has  occurred,  which such  notice  shall  specify  the nature  thereof  and the
Borrowers' proposed response thereto, and (ii) actual knowledge thereof,  copies
of any  notice  of the  PBGC's  intention  to  terminate,  or to have a  trustee
appointed to administer, any Plan.

     SECTION 8.12.  Use of Proceeds.  Use the proceeds of the Credit Events only
for the purposes set forth in Article VI hereof.

     SECTION  8.13.  Environmental  Laws.  (a)  Comply,  and  cause  each of its
Subsidiaries  to comply,  in all material  respects  with the  provisions of all
Environmental  Laws,  and shall keep its  properties  and the  properties of its
Subsidiaries  free of any Lien  imposed  pursuant to any  Environmental  Law. No
Borrower  shall cause or suffer or permit,  or shall suffer or permit any of its
Subsidiaries  to cause or suffer or permit,  the  property of the  Borrowers  or
their  Subsidiaries  to be used  for  the  generation,  production,  processing,
handling,  storage,  transporting or disposal of any Hazardous Material,  except
for Hazardous Materials used in the ordinary course of business of the Borrowers
and disclosed in Schedule 8.13 hereto,  in which case such  Hazardous  Materials
shall be used,  stored,  generated,  treated and disposed of only in  compliance
with Environmental Law.

     (b) Supply to the Agent copies of all submissions by any Borrower or any of
its  Subsidiaries  to  any  governmental  body  and  notify  the  Agent  of  the
preparation of any reports of  environmental  audits and of other  environmental
tests,  studies or assessments  (including the data derived from any sampling or
survey of asbestos,  soil, or subsurface or other materials or conditions)  that
may be  conducted  or  performed  (by or on behalf of any Borrower or any of its
Subsidiaries) on or regarding the properties owned, operated, leased or occupied
by any Borrower or

                                       61

any of its  Subsidiaries  or  regarding  any  conditions  that  might  have been
affected by Hazardous  Materials on or Released or removed from such properties,
and supply such to the Agent upon the Agent's request.  Each Borrower shall also
permit and authorize,  and shall cause its Subsidiaries to permit and authorize,
the  consultants,  attorneys or other Persons that prepare such  submissions  or
reports or perform such audits,  tests,  studies or  assessments to discuss such
submissions, reports or audits with the Agent and the Lenders, with prior notice
to the Borrowers.

     (c)  Promptly  (and in no event  more  than two  Business  Days  after  any
Borrower becomes aware or is otherwise  informed of such event) provide oral and
written notice to the Agent upon the happening of any of the following:

         (i) any Borrower,  any  Subsidiary  of any  Borrower,  or any tenant or
     other occupant of any property of any Borrower or such Subsidiary  receives
     notice  of any  claim,  complaint,  charge  or  notice  of a  violation  or
     potential violation of any Environmental Law;

         (ii)  there has been a spill or other  Release of  Hazardous  Materials
     upon,  under or about or affecting any of the properties  owned,  operated,
     leased or occupied by any Borrower or any of its Subsidiaries, or Hazardous
     Materials at levels or in amounts that may have to be reported, remedied or
     responded  to under  Environmental  Law are  detected  on or in the soil or
     groundwater;

         (iii) any Borrower or any of its  Subsidiaries  is or may be liable for
     any costs of cleaning up or otherwise  responding to a Release of Hazardous
     Materials;

         (iv) any part of the properties owned, operated,  leased or occupied by
     any  Borrower  or any of its  Subsidiaries  is or may be  subject to a Lien
     under any Environmental Law; or

         (v) any  Borrower or any of its  Subsidiaries  undertakes  any Remedial
     Work with respect to any Hazardous Materials.

     (d) Timely  undertake  and  complete  any  Remedial  Work  required  by any
Environmental Law.

     (e)  Without  in any way  limiting  the scope of  Section  13.04(c)  and in
addition to any obligations  thereunder,  each Borrower  hereby  indemnifies and
agrees  to hold  the  Agent  and the  Lenders  harmless  from  and  against  any
liability,  loss, damage, suit, action or proceeding arising out of its business
or the business of its Subsidiaries pertaining to Hazardous

                                       62

Materials, including, but not limited to, claims of any governmental body or any
third Person  arising  under any  Environmental  Law or under tort,  contract or
common law. To the extent laws of the United States or any  applicable  state or
local law in which property owned, operated,  leased or occupied by any Borrower
or any of its  Subsidiaries is located provide that a Lien upon such property of
such  Borrower or such  Subsidiary  may be obtained for the removal of Hazardous
Materials  which  have been or may be  Released,  no later than sixty days after
notice is given by the Agent to such Borrower or such Subsidiary,  such Borrower
or such  Subsidiary  shall  deliver to the Agent a report  issued by a qualified
third party engineer  certifying as to the existence of any Hazardous  Materials
located  upon or beneath the  specified  property.  To the extent any  Hazardous
Materials  located therein or thereunder  either subject the property to Lien or
require  removal to  safeguard  the health of any Persons,  the removal  thereof
shall be an affirmative covenant of the Borrowers hereunder.

     (f) In the event that any Remedial  Work is required to be performed by any
Borrower or any of its Subsidiaries under any applicable  Environmental Law, any
judicial order, or by any governmental  entity, such Borrower or such Subsidiary
shall commence all such Remedial Work at or prior to the time required  therefor
under such  Environmental  Law or  applicable  judicial  orders  and  thereafter
diligently prosecute to completion all such Remedial Work in accordance with and
within the time allowed  under such  applicable  Environmental  Laws or judicial
orders,  except  where the  necessity  of the conduct of Remedial  Work is being
contested in good faith in the manner provided by law.

     SECTION  8.14.  Operating  Accounts.  Maintain  at all times its  principal
operating  account(s)  with The Provident  Bank or such other bank as shall have
entered into a blocked account agreement satisfactory to the Agent.

IX.  NEGATIVE COVENANTS

     Each Borrower,  jointly and severally,  covenants and agrees with the Agent
and each Lender that, so long as this Agreement  shall remain in effect,  or any
Obligation  shall  remain  outstanding  or unpaid or any Letter of Credit  shall
remain outstanding, it will, and will cause each of its Subsidiaries to:

     SECTION 9.01. Financial Covenants.

     (a) Total  Liabilities/Net  Worth Ratio.  Permit or suffer the ratio of (i)
Total Liabilities of the Parent and its Subsidiaries on a Consolidated  basis to
(ii) Net Worth of the Parent and its  Subsidiaries  on a Consolidated  basis, at
any time to exceed 3.00:1.00.

                                       63

     (b) Fixed  Charge  Coverage  Ratio.  Permit or  suffer  the ratio  (the 'FC
Ratio') of (i) EBITDA to (ii) the sum of (w)  scheduled  principal  payments  on
Indebtedness,  (x)  capital  expenditures  made  or  committed  (less  any  such
expenditures  made with  Capex  Financing  Proceeds),  (y) tax  expense  and (z)
Interest  Expense,  each for the Parent and its  Subsidiaries  on a Consolidated
basis,  at any  time to be less  than  1.00:1.00;  provided,  however,  that the
Borrowers  shall not be  required to comply with the FC Ratio set forth above in
the  event  that:  (i)  Undrawn  Availability  at  all  times  is  greater  than
$25,000,000;  provided,  that if  Undrawn  Availability  at any  time  shall  be
$25,000,000 or less,  then compliance with the FC Ratio shall be required at all
times thereafter unless Undrawn Availability shall subsequently increase to more
than   $25,000,000  and  shall  remain  at  more  than  $25,000,000  for  twelve
consecutive  months,  in which event  compliance  with the FC Ratio shall not be
required  commencing  with the end of such twelve  consecutive  month period and
shall not be  required  again until such time,  if any, as Undrawn  Availability
shall  decrease  to  $25,000,000  or less;  or (ii) EBITDA of the Parent and its
Subsidiaries  on a  Consolidated  basis is not less than (x)  $7,981,000  in the
aggregate for the two fiscal  quarters  ending July 31, 1995, (y) $11,945,000 in
the aggregate for the three fiscal quarters ending October 31, 1995, and (z) the
aggregate  amounts  specified  below for the four fiscal  quarters ending on the
dates indicated:

                  Period                                      Amount
                  -------                                     ------

                  January 31, 1996                            $24,869,000
                  April 30, 1996                               25,490,000
                  July 31, 1996                                25,775,000
                  October 31, 1996                             25,825,000

                  January 31, 1997                             28,667,000
                  April 30, 1997                               29,325,000
                  July 31, 1997                                30,124,000
                  October 31, 1997                             30,728,000

                  January 31, 1998                             33,368,000
                  April 30, 1998                               33,906,000
                  July 31, 1998                                34,559,000
                  October 31, 1998                             35,097,000

                  January 31, 1999                             37,211,000
                  April 30, 1999                               37,796,000
                  July 31, 1999                                38,508,000
                  October 31, 1999                             39,094,000

                  January 31, 2000                             41,395,000

     SECTION  9.02.  Indebtedness.  Create,  incur,  assume  or suffer to exist,
contingently or otherwise,  or permit any of its

                                       64

Subsidiaries  to  create,  incur,  assume or suffer  to exist,  contingently  or
otherwise, any Indebtedness, other than:

         (i)  Indebtedness  to the Agent  and  Lenders  hereunder  and under the
     Revolving Notes;

         (ii)  unsecured  current  liabilities  (not the  results of  borrowing)
     incurred in the  ordinary  course of business  and not  represented  by any
     note, bond, debenture or other evidence of Indebtedness;

         (iii)  Indebtedness  incurred in any fiscal year of the  Borrowers  for
     capital  expenditures  secured by Liens  permitted  under Section  9.03(ii)
     hereof in an amount which in the aggregate, shall not exceed $25,000,000 in
     any fiscal year;  provided,  however,  that for purposes of compliance with
     this clause (iii),  Indebtedness shall be deemed to have been incurred in a
     fiscal  year if not later  than the  immediately  succeeding  July 31,  the
     Borrowers  shall have  incurred  such  Indebtedness  in order to  refinance
     capital expenditures made during such fiscal year just ended; and

         (iv)  Indebtedness  described  on  Schedule  9.02  hereof,  but not the
     extension, renewal or increase in amount thereof.

     Section 9.03. Liens.  Create,  incur,  assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on
any of its property now owned or hereafter acquired other than:

         (i) Liens  existing on the date hereof and  disclosed in Schedule  9.03
     hereto, but not any extension, renewal or increase in the amount thereof;

         (ii) purchase money mortgages or other purchase money Liens (including,
     without  limitation,  finance  leases)  upon any  fixed or  capital  assets
     hereafter  acquired,  or  Liens  (including,  without  limitation,  finance
     leases) on any such  assets  hereafter  acquired or existing at the time of
     acquisition of such assets, whether or not assumed, so long as (a) any such
     Lien does not extend to or cover any other asset of the Borrowers or any of
     their  Subsidiaries,  (b)  such  Lien  secures  the  obligation  to pay the
     purchase price of such asset (or the  obligation  under such finance lease)
     only and (c) the principal amount secured by each such Lien does not exceed
     the unpaid purchase price for such asset; provided,  however, that no Liens
     (except in favor of the Agent)  shall be  permitted  on any stock or assets
     acquired in a Permitted Acquisition;

         (iii)    carriers',    warehousemen's,    mechanics',    materialmen's,
     repairmen's, or other like Liens arising in

                                       65

     the ordinary  course of business  securing sums which are not overdue or as
     to which the validity or amount  thereof is being  diligently  contested in
     good faith by appropriate  proceedings and adequate  reserves to the extent
     required by GAAP have been established with respect thereto;

         (iv)  pledges  or  deposits  to  secure   obligations  under  workmen's
     compensation laws or similar legislation;

         (v) pledges or deposits to secure  performance in connection with bids,
     tenders,  contracts  (other  than  contracts  for the  payment of money) or
     leases made in the  ordinary  course of business to which the  Borrowers or
     any of their Subsidiaries are a party as lessee;

         (vi)  deposits  to  secure  public  or  statutory  obligations  of  the
     Borrowers or any of their Subsidiaries;

         (vii) deposits to secure surety, appeal or customs bonds in proceedings
     to which the Borrowers or any of their Subsidiaries are a party;

         (viii)  statutory  landlord's liens under leases to which the Borrowers
     or any of their Subsidiaries are a party;

         (ix) Liens  arising out of  judgments or awards in respect of which the
     Borrowers or any of their  Subsidiaries,  as the case may be, shall in good
     faith be  prosecuting  an appeal or proceeding for review and in respect of
     which the Borrowers or their  Subsidiaries,  as the case may be, shall have
     secured a subsisting  stay of execution  pending such appeal or proceedings
     for review,  provided adequate reserves shall have been created therefor in
     accordance  with GAAP,  and  provided  further that any such Lien shall not
     have a  priority  senior  to that in favor of the  Agent on  behalf  of the
     Lenders with respect to any Collateral;

         (x) licenses, easements, rights-of-way, restrictions on the use of real
     property or minor irregularities in title thereto and other similar charges
     or  encumbrances  not materially  adversely  interfering  with the ordinary
     conduct of the business of the Borrowers or any of their  Subsidiaries  and
     not materially adversely impairing the value of the affected property; and

         (xi) Liens in favor of the Agent on behalf of the Lenders.

     SECTION 9.04. Mergers,  Sales,  Dissolution,  etc. (a) Merge or consolidate
with, or permit any of its Subsidiaries to merge or consolidate  with, any other
Person, (b) assign, transfer, sell, lease or otherwise dispose of, or permit any
of

                                       66

its Subsidiaries to assign,  transfer,  sell, lease or otherwise dispose of, all
or any of its  property  or assets to any other  Person  other than (i) sales of
inventory  in the  ordinary  course  of  business,  (ii)  sales of  obsolete  or
unmerchantable  goods or equipment and fixtures or assets which the Borrowers or
any  Subsidiary  in the exercise of sound  business  judgment  determines  to be
obsolete or no longer useful in the  operation of its business,  (iii) leases of
any closed stores, and (iv) partial leases or subleases of any operating stores,
(c) change the nature of its business, or wind up, liquidate or dissolve, or (d)
agree to do any of the foregoing, or permit any of its Subsidiaries to do so.

     SECTION 9.05.  Dividends,  etc.  Declare or pay any  dividends,  whether in
cash,  property,  securities or a combination  thereof or directly or indirectly
redeem,  purchase,  retire or otherwise  acquire for value any shares of capital
stock or set  aside  any  amount  for any such  purpose,  or make any  principal
payment or prepayment or redemption  payment or defeasance payment on account of
Indebtedness for borrowed money (other than  prepayments and payments  permitted
or required hereunder with respect to the Loan and regularly  scheduled payments
(but not  prepayments)  on account of  purchase  money  financing  permitted  in
accordance with Sections 9.02(iii) hereof), or acquire any such Indebtedness for
borrowed money, or agree to do any of the foregoing, or permit any Subsidiary to
do or agree to do any of the  foregoing,  except  that so long as no  Default or
Event of Default shall have occurred and be continuing, or would occur under any
other  Section of this  Agreement  after  giving  effect to the  following,  the
Borrowers  shall be permitted to: (i) (x) dividend  monies to the Parent and (y)
make  payments  to the Parent  constituting  repayment  of loans from  Parent to
Borrowers listed on Schedule 9.02 hereto, in each case such monies to be used by
the Parent solely for Stock Repurchases and Permitted  Acquisitions  pursuant to
and in compliance with Section 14(g) of the Parent  Guaranty;  and (ii) dividend
to the  Parent in any  fiscal  year not more  than 50% of the Net  Income of the
Borrowers for the fiscal year just ended; provided,  however, that, for purposes
of clause (ii),  (x) no such  dividend  payment(s)  shall be made to Parent less
than 10 days after delivery to the Agent of the annual financial  statements for
the fiscal year just ended required  pursuant to Section  8.01(a) hereof and (y)
such  dividends  shall be used by Parent  within  three (3) days of  receipt  by
Parent or its agent  thereof  solely to pay  dividends  to holders  of  Parent's
common stock,  any such monies not so used by Parent to be immediately  returned
to the applicable Borrower.

     SECTION 9.06.  Investments,  Loans,  etc. Lend or advance money,  credit or
property  to any  Person,  or invest in (by  capital  contribution,  creation of
Subsidiaries or otherwise), or purchase or repurchase the stock or Indebtedness,
or all or a  substantial  part of the assets or  properties,  of any Person,  or
enter into any exchange of securities  with any Person,  or  guaran-

                                       67

tee, assume, endorse or otherwise become responsible for (directly or indirectly
or by any  instrument  having the effect of  assuring  any  Person's  payment or
performance or capability) the Indebtedness,  performance, obligations, stock or
dividends  of any  Person,  or agree to do any of the  foregoing,  or  permit or
suffer any Subsidiary to do so, except:

         (i) endorsement of negotiable  instruments for deposit or collection in
     the ordinary course of business;

         (ii)  investments  in the stock of any presently  existing  Subsidiary,
     provided that the Borrowers  may not make loans to or  investments  in such
     Subsidiaries after the Closing Date;

         (iii)  investments  representing  stock or  obligations  issued  to the
     Borrowers or any of their  Subsidiaries in settlement of claims against any
     other  Person by  reason  of a  composition  or  readjustment  of debt or a
     reorganization of any debtor of any Borrower or such Subsidiary;

         (iv)  investments  in readily  marketable,  direct  obligations  of the
     Government  of  the  United   States  of  America  or  readily   marketable
     obligations  guaranteed by the  Government of the United States of America,
     maturing not more than six months  after the date of the  purchase  thereof
     and pledged to the Agent;

         (v) investments in (x) certificates of deposit, issued by any Lender or
     any domestic  office of any commercial  lender  organized under the laws of
     the  United  States of America  or any State  thereof  which has a combined
     capital,  surplus and  undivided  profits of not less than  $2,500,000,000,
     maturing in six months or less after the date of  purchase  thereof and (y)
     open market commercial paper issued by any corporation  organized and doing
     business  under  the laws of the  United  States  of  America  or any state
     thereof  with a  maturity  not in  excess of six  months  after the date of
     purchase  thereof which has the highest credit rating by either  Standard &
     Poor's Rating Group and pledged to the Agent or Moody's Investors  Service,
     Inc. and pledged to the Agent;

         (vi) the  investments  described on Schedule  9.06 hereto,  but not any
     increase  or  renewal  or  reinvestment  thereof,  provided  that  within a
     reasonable  period of time the Borrower shall reinvest such  investments in
     the investments permitted under Section 9.06(ii)-(iv); and

         (vii) so long as no Default or Event of Default shall have occurred and
     be  continuing  or would  occur  after  giving  effect  thereto,  loans and
     advances  to the  Parent  in order  to  enable  the  Parent  to make  Stock
     Repurchases and

                                       68

Permitted Acquisitions  pursuant to, and subject to the conditions set forth in,
Section 14(g) of the Parent Guaranty.

     SECTION 9.07. Capital Expenditures. Make or be committed to make, or permit
any of its Subsidiaries to make or be committed to make, directly or indirectly,
any  expenditures  for  fixed  or  capital  assets,  or  make  or  permit  total
commitments  for all such  expenditures,  in  excess  of the  Permitted  Capital
Expenditures Amount.

     SECTION  9.08.  Lease-Backs.  Enter  into  any  arrangements,  directly  or
indirectly,  with any Person,  whereby any  Borrower or any of its  Subsidiaries
shall sell or transfer any  property,  whether now owned or hereafter  acquired,
used or useful in its business,  in  connection  with the rental or lease of the
property so sold or  transferred or of other property which the Borrower or such
Subsidiary  intends to use for substantially the same purpose or purposes as the
property so sold or transferred;  provided, however, that the Borrowers shall be
permitted in the ordinary  course of business  and not in  contravention  of any
other Section of this  Agreement or any other Loan Document to sell any property
not  constituting  Collateral for fair market value and lease such property back
on market terms.

     SECTION 9.09.  Compromise of  Receivables.  Compromise or adjust any of the
Receivables  (or extend the time for payment  thereof)  or grant any  discounts,
allowances or credits thereon, other than in the normal course of business.

     SECTION 9.10.  Transactions  with  Affiliates.  Directly or indirectly  (i)
purchase,  acquire or lease any material  property from, (ii) sell,  transfer or
lease any  material  property  to, or (iii)  except as  contemplated  by Section
9.06(vii), lend to or borrow any money from, any partner,  Affiliate,  director,
officer,  agent or employee of any  Borrower,  or any relative  thereof,  or any
Person in which any one or more of such  directors or officers  have directly or
indirectly in the  aggregate  more than a 5%  beneficial  interest,  except with
respect to activities  specified in clauses (i) and (ii), at prices and on terms
not less  favorable to the Borrowers than that which would have been obtained in
an arm's-length transaction with a non-affiliated third party.

     SECTION 9.11.  Compliance with ERISA.  With respect to all Plans maintained
by any Borrower or any of its ERISA  Affiliates,  (a) terminate any Pension Plan
so as to incur  any  liability  to the  PBGC,  (b)  allow or suffer to exist any
prohibited transaction involving any Plans or any trust created thereunder which
would  subject any Borrower or its ERISA  Affiliate to a material tax or penalty
or other liability on prohibited transactions imposed under Code Section 4975 or
ERISA, (c) fail to pay to any Plan any contribution which it is

                                       69

obligated to pay under the terms of such Plan,  (d) allow or suffer to exist any
accumulated funding deficiency, whether or not waived, with respect to any Plan,
(e) allow or suffer to exist any  occurrence of a Reportable  Event or any other
event or condition  which presents a material risk of termination by the PBGC of
any Plan that is a Single Employer Plan (as defined in ERISA), which termination
could result in any liability to the PBGC or (f) incur any withdrawal  liability
with respect to any Multiemployer Plan.

     SECTION 9.12.  Fiscal Year. Have a fiscal year ending other than on January
31 in any year.

     SECTION 9.13.  Subsidiaries.  Acquire or create any Subsidiaries other than
those set forth in Schedule 7.13 hereto.

     SECTION  9.14.  Management  Fees,  etc.  Make any payments to any Person in
respect of management fees or any other similar fees.

                  SECTION 9.15. Sales of Receivables.  Sell,  assign,  discount,
transfer,  or otherwise  dispose of any accounts  receivable,  promissory notes,
drafts or trade  acceptances or other rights to receive payment held by it, with
or without  recourse,  except for the purpose of collection or settlement in the
ordinary course of business.

X.  EVENTS OF DEFAULT

     SECTION  10.01.  Events  of  Default.  If any one or more of the  following
events (herein called 'Events of Default') shall occur for any reason whatsoever
(and whether such occurrence  shall be voluntary or involuntary or come about or
be  effected  by  operation  of law or  pursuant  to or in  compliance  with any
judgment,  decree or order of any court or any order,  rule or regulation of any
administrative  or  governmental  body),  and upon written  notice of such event
(other than the events set forth in paragraphs  (e) and (f) hereof) by the Agent
to the Parent, that is to say:

     (a) if  default  shall  be  made in the due  and  punctual  payment  of the
principal  of or  interest  on the  Revolving  Credit  Loans,  or in the due and
punctual  payment of any fees or other amounts payable  hereunder,  or under the
Notes or under any Letter of Credit  when and as the same  shall  become due and
payable (whether at maturity, by acceleration or otherwise); or

     (b) if a default  shall be made in the  performance  or  observance  of, or
shall occur  under,  any  covenant,  agreement  or  provision  contained in this
Agreement  (other  than as  described  in clause  (a)  above) or any other  Loan
Document  and  (except  with  respect to defaults  under  Sections  8.01,  8.04,
8.05(b), 8.06(a),

                                       70

8.09 and  Article  IX hereof as to which no lapse of time  shall be  applicable)
such  default  shall  continue  unremedied  for thirty or more days after notice
thereof  has been given by the  Agent,  or if this  Agreement  or any other Loan
Document  shall  terminate,  be  terminable  or be  terminated or become void or
unenforceable for any reason whatsoever without the prior written consent of the
Agent; or

     (c) if a default shall occur (i) in the payment of any principal,  interest
or premium with respect to any Indebtedness for borrowed money or any obligation
which is the substantive  equivalent  thereof  (including,  without  limitation,
obligations under  conditional sales contracts,  finance leases and the like) of
the  Borrowers  or the  Parent  or any of its  Subsidiaries  or (ii)  under  any
agreement  or  instrument  under or pursuant to which any such  Indebtedness  or
obligation may have been issued, created, assumed,  guaranteed or secured by the
Borrower or the Parent or any of its Subsidiaries, and such default shall permit
the acceleration of such  Indebtedness or obligation or if any such Indebtedness
or  obligation  shall be declared due and payable  prior to the stated  maturity
thereof or shall not be paid in full at the stated  maturity  thereof,  provided
that the aggregate  amount of all Indebtedness or obligations as to which such a
payment  default or such  other  default  permitting  acceleration  shall  occur
exceeds $250,000; or

     (d) if any representation, warranty or other statement of fact given by the
Parent  or  any  Borrower  herein  or in any  writing,  certificate,  report  or
statement  at any time  furnished  to the Agent or any Lender  pursuant to or in
connection with this Agreement or any other Loan Document or otherwise, shall be
false or misleading in any material respect when given; or

     (e) if any Borrower or any of its  Subsidiaries or the Parent or any of its
Subsidiaries shall be unable to pay its debts generally as they become due; file
a petition to take advantage of any  insolvency  act; make an assignment for the
benefit  of its  creditors;  commence  a  proceeding  for the  appointment  of a
receiver,  trustee,  liquidator or  conservator of itself or of the whole or any
substantial   part  of  its  property;   file  a  petition  or  answer   seeking
reorganization  or arrangement  or similar  relief under the federal  bankruptcy
laws or any other  applicable  law or statute of the United States of America or
any state; or

     (f) if a court of competent  jurisdiction shall enter an order, judgment or
decree appointing a custodian,  receiver,  trustee, liquidator or conservator of
any Borrower or any of its Subsidiaries or the Parent of any of its Subsidiaries
or of the whole or any substantial part of its or their properties, or approve a
petition filed against any Borrower or any of its  Subsidiaries or the Parent or
any of its Subsidiaries seeking  reorganization or arrangement or similar relief
under the federal

                                       71

bankruptcy  laws or any other  applicable law or statute of the United States of
America  or any  state;  or if,  under the  provisions  of any other law for the
relief or aid of debtors, a court of competent jurisdiction shall assume custody
or control of any  Borrower or any of its  Subsidiaries  or the Parent or any of
its  Subsidiaries  or of the  whole  or any  substantial  part  of its or  their
properties;  or if  there  is  commenced  against  any  Borrower  or  any of its
Subsidiaries or the Parent or any of its  Subsidiaries any proceeding for any of
the foregoing relief and such proceeding or petition  remains  undismissed for a
period of 60 days; or if any Borrower or any of its  Subsidiaries  or the Parent
or any of its Subsidiaries by an act indicates its consent to or approval of any
such proceeding or petition; or

     (g) if (i) any judgment,  remaining  unpaid,  unstayed or undismissed for a
period of 30 or more  consecutive  days is rendered  against any Borrower or the
Parent or any of its  Subsidiaries  which by itself or  together  with all other
such  judgments  rendered  against  any  Borrower  or the  Parent  or any of its
Subsidiaries  remaining  unpaid,  unstayed or undismissed  for a period of 30 or
more  consecutive  days,  is in  excess  of  $250,000,  or  (ii)  there  is  any
attachment,  injunction or execution  against any  Borrower's or the Parent's or
any of its  Subsidiaries'  properties  remaining  unstayed or undismissed  for a
period of 30 or more consecutive days which by itself or together with all other
attachments,   injunctions  and  executions  against  its  properties  remaining
unstayed or undismissed  for a period of 30 or more  consecutive  days is for an
amount in excess of $250,000; or

     (h) if (i) any  Borrower,  any  Subsidiary  of any  Borrower  or any  ERISA
Affiliate shall engage in any prohibited transaction (as defined in Section 8.11
hereof)  involving  any  Plan of any  Borrower,  (ii)  any  accumulated  funding
deficiency,  whether  or not  waived,  shall  exist  with  respect to any Single
Employer Plan, (iii) a Reportable Event (other than a reportable event for which
the  statutory  notice  requirement  to the PBGC has been waived by  regulation)
shall occur with  respect to, or  proceedings  shall  commence to have a trustee
appointed,  or a trustee shall be appointed to  administer or to terminate,  any
Single Employer Plan,  which  Reportable Event or institution of proceedings is,
in the reasonable  opinion of the Agent,  likely to result in the termination of
such  Single  Employer  Plan (as  defined in ERISA) for  purposes of Title IV of
ERISA,  and in the case of such a  Reportable  Event,  the  continuance  of such
Reportable  Event  shall  be  unremedied  for  ten  days  after  notice  of such
Reportable  Event pursuant to Section  4043(a),  (c) or (d) of ERISA is given or
the  continuance  of such  proceedings  shall  be ten  days  after  commencement
thereof,  as the case may be, (iv)any Single  Employer Plan shall  terminate for
purposes  of Title IV of ERISA  (other  than under a standard  plan  termination
under  Section  4041(b) of  ERISA),  (v) any  Borrower,  any  Subsidiary  of any
Borrower or any ERISA Affiliate shall withdraw from a

                                       72

Multiemployer Plan (as defined in ERISA) for purposes of Title IV of ERISA, and,
as a result  of any such  withdrawal,  such  Borrower,  any  Subsidiary  of such
Borrower  or any  ERISA  Affiliate  shall  incur  withdrawal  liability  to such
Multiemployer  Plan, or (vi) any other event or condition  shall occur or exist;
and in each case of clauses (i) through (vi) of this Section 8.01(h), such event
or condition,  together with all other such events or conditions,  if any, could
subject any Borrower,  any Subsidiary of any Borrower or any ERISA  Affiliate to
any tax, penalty or other liabilities that would have a Material Adverse Effect;
or

     (i) if any  Borrower  shall  (i)  fail to  perform  or  observe  any  term,
provision  or  condition  contained  in  any  Letter  of  Credit   documentation
including, without limitation, any 'form of application for irrevocable clean or
standby letter of credit,  continuing  agreement for irrevocable standby letters
of credit,  reimbursement agreement and security agreement' between NatWest Bank
N.A. and any Borrower or (ii) fail to collateralize, with cash or otherwise, any
Letter of Credit after a demand has been made therefor;

then,  and in any such  event and at any time  thereafter,  if such or any other
Event of Default shall then be continuing,

     (A) either or both of the  following  actions  may be taken:  (i) the Agent
may, and upon written request of the Required  Lenders shall,  declare the Total
Commitment  and any  obligation  to lend  hereunder  terminated,  whereupon  the
obligation  of the  Lenders  to make  further  Revolving  Credit  Loans  and the
obligation of the Agent and Lenders to issue further Letters of Credit hereunder
shall terminate immediately, and (ii) the Agent may, and upon written request of
the Required  Lenders shall,  declare any or all of the Obligations  (including,
without limitation, any amounts then owing to the Lenders on account of drawings
under any Letters of Credit) to be due and payable,  and the same,  all interest
accrued  thereon and all other  obligations  of the  Borrowers  to the Agent and
Lenders  hereunder  and under the other Loan  Documents  and  Letters of Credit,
shall forthwith become due and payable without presentment,  demand,  protest or
notice of any kind, all of which are hereby expressly waived, anything contained
herein  or  in  any  instrument  evidencing  the  Obligations  to  the  contrary
notwithstanding;  provided,  however,  that  notwithstanding the above, if there
shall  occur  an  Event of  Default  under  clause  (e) or (f)  above,  then the
obligation  of the  Agent  and  Lenders  to lend and  issue  Letters  of  Credit
hereunder shall automatically terminate and any and all of the Obligations shall
be  immediately  due and payable  without any necessary  action or notice by the
Agent;

     (B) the Agent and the Lenders  shall have all of the  following  rights and
remedies in addition to all of the rights and remedies of a secured  party under
the Uniform  Commercial  Code and otherwise:  the Agent may at any time and from
time to time,

                                       73

with or without judicial process or the aid and assistance of others, enter upon
any premises in which any Collateral may be located and,  without  resistance or
interference by the Borrowers, take possession of the Collateral, and/or dispose
of any Collateral on any such premises, and/or require the Borrowers to assemble
and make  available to the Agent at the expense of the Borrowers any  Collateral
at any place and time designated by the Agent which is reasonably  convenient to
both  parties,  and/or  remove any  Collateral  from any such  premises  for the
purpose of effecting sale or other  disposition  thereof,  and/or sell,  resell,
lease,  assign and deliver or otherwise  dispose of any  Collateral  in its then
condition or following any commercially reasonable preparation or processing, at
public or private sale or proceedings or otherwise, by one or more contracts, in
one or more parcels,  at the same or different times, with or without having the
Collateral at the place of sale or other  disposition,  for cash and/or  credit,
and upon any terms,  at such  place(s) and time(s) and to such  person(s) as the
Agent deems best, all without demand, notice or advertisement  whatsoever except
that where an applicable  statute  requires  reasonable  notice of sale or other
disposition  the Borrowers  hereby agree that the sending of five Business Days'
notice by  ordinary  mail,  postage  prepaid,  to the  address of the  Borrowers
provided  for in  Section  13.01 of this  Agreement  shall be deemed  reasonable
notice thereof; if any Collateral is sold by the Agent upon credit or for future
delivery,  the Agent shall not be liable for the failure of the purchaser to pay
for same and in such event the Agent may resell such  Collateral;  the Agent may
buy any  Collateral  at any  public  sale and,  if any  Collateral  is of a type
customarily sold in a recognized  market, or is of the type which is the subject
of  widely  distributed  standard  price  quotations,  the  Agent  may buy  such
Collateral  at  private  sale so long  as  such  sale is made in a  commercially
reasonable manner and in each case may make payment therefor by any means; and

     (C) the Agent may in its own discretion or as may be directed in writing by
the Required  Lenders (but not in any event,  in  contravention  of the terms of
Article XI hereof) determine which rights,  security,  Liens, security interests
or remedies at any time shall be pursued, relinquished,  subordinated,  modified
or what other shall be taken with respect thereto,  without in any way modifying
or affecting any of them or any of the Agent's rights hereunder; and any moneys,
deposits,  Receivables,  balances,  or other property of the Borrowers which may
come into the Agent's or any Lender's hands at any time or in any manner, may be
retained by the Agent or such Lender and  applied to any of the  Obligations  in
such order as the Agent shall determine.

     SECTION  10.02.  Suits for  Enforcement.  In case any one or more Events of
Default shall occur and be continuing, the Agent may in its own discretion or as
may be directed in writing by the  Required  Lenders  (but not in any event,  in
contravention

                                       74

of the terms of Article XI hereof)  proceed to protect and enforce its rights or
remedies and those of the Lenders  either by suit in equity or by action at law,
or both,  whether for the specific  performance  of any  covenant,  agreement or
other provision  contained herein or in any document or instrument  delivered in
connection with or pursuant to this Agreement,  or to enforce the payment of the
Obligations or any other legal or equitable right or remedy.

     SECTION 10.03.  Rights and Remedies  Cumulative.  No right or remedy herein
conferred  upon the Agent or any Lender is intended to be exclusive of any other
right or remedy contained  herein or if  anyinstrument or document  delivered in
connection  with or pursuant to this  Agreement,  and every such right or remedy
shall be cumulative and shall be in addition to every other such right or remedy
contained herein and therein or now or hereafter existing at law or in equity or
by statute, or otherwise.

     SECTION 10.04. Rights and Remedies Not Waived. No course of dealing between
the  Borrowers  and the Agent or Lenders or any  failure or delay on the part of
the Agent or  Lenders  in  exercising  any rights or  remedies  hereunder  shall
operate as a waiver of any  rights or  remedies  of the Agent or Lenders  and no
single or partial exercise of any rights or remedies  hereunder shall operate as
a waiver or preclude the  exercise of any other rights or remedies  hereunder or
of the same right or remedy on a future occasion.

XI.      AGENT

     In order to  expedite  the  transactions  contemplated  by this  Agreement,
NatWest Bank N.A. is hereby  appointed to act as Agent on behalf of the Lenders.
Each of the  Lenders  and each  subsequent  holder  of any Note or issuer of any
Letter of Credit by its acceptance thereof,  irrevocably authorizes the Agent to
take such action on its behalf and to exercise  such powers  hereunder and under
the Security Documents and other Loan Documents as are specifically delegated to
or required of the Agent by the terms hereof and the terms thereof together with
such powers as are reasonably  incidental thereto.  Neither the Agent nor any of
its  directors,  officers,  employees  or agents shall be liable as such for any
action taken or omitted to be taken by it or them  hereunder or under any of the
Security  Documents  and other  Loan  Documents  or in  connection  herewith  or
therewith  (a) at the request or with the approval of the Required  Lenders (or,
if otherwise  specifically required hereunder or thereunder,  the consent of all
the  Lenders)  or (b) in the  absence  of its or their own gross  negligence  or
willful misconduct.

                  The  Agent is  hereby  expressly  authorized  on behalf of the
Lenders, without hereby limiting any implied authority,

                                       75

(a) to receive on behalf of each of the Lenders any payment of  principal  of or
interest  on the  Notes  outstanding  hereunder  and all other  amounts  accrued
hereunder  paid to the Agent,  and  promptly  to  distribute  to each Lender its
proper  share of all  payments so  received,  (b) to  distribute  to each Lender
copies of all  notices,  agreements  and other  material as provided for in this
Agreement or in the Security  Documents and other Loan  Documents as received by
the Agent and (c) to take all actions  with  respect to this  Agreement  and the
Security Documents and other Loan Documents as are specifically delegated to the
Agent.

     In the event that (a) the  Borrowers  fail to pay when due the principal of
or interest on any Note,  any amount  payable  under any Letter of Credit or any
fee payable  hereunder  or (b) the Agent  receives  written  notice or otherwise
becomes aware of the  occurrence of a Default or an Event of Default,  the Agent
shall promptly give written  notice thereof to the Lenders,  and shall take such
action with  respect to such Event of Default or other  condition or event as it
shall be directed to take by the  Required  Lenders;  provided,  however,  that,
unless and until the Agent shall have  received such  directions,  the Agent may
take such  action or refrain  from taking  such  action  hereunder  or under the
Security Documents or other Loan Documents with respect to a Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.

     The Agent shall not be  responsible in any manner to any of the Lenders for
the effectiveness,  enforceability,  perfection, value, genuineness, validity or
due execution of this Agreement, the Notes or any of the other Loan Documents or
Collateral  or  any  other  agreements  or  certificates,   requests,  financial
statements,  notices or  opinions  of counsel or for any  recitals,  statements,
warranties or  representations  contained herein or in any such instrument or be
under any obligation to ascertain or inquire as to the performance or observance
of  any  of  the  terms,  provisions,   covenants,  conditions,   agreements  or
obligations  of this  Agreement or any of the other Loan  Documents or any other
agreements on the part of the Borrowers and,  without limiting the generality of
the foregoing,  the Agent shall, in the absence of knowledge to the contrary, be
entitled to accept any certificate  furnished  pursuant to this Agreement or any
of the other Loan  Documents as conclusive  evidence of the facts stated therein
and  shall  be  entitled  to rely on any  note,  notice,  consent,  certificate,
affidavit,  letter,  telegram,  teletype  message,  statement,  order  or  other
document  which it  believes in good faith to be genuine and correct and to have
been signed or sent by the proper Person or Persons.  It is nderstood and agreed
that the Agent may  exercise its rights and powers  under other  agreements  and
instruments to which it is or may be a party,  and engage in other  transactions
with the Borrowers, as though it were not Agent of the Lenders hereunder.

                                       76

     The Agent  shall  promptly  give  notice to the  Lenders of the  receipt or
sending of any notice,  schedule,  report,  projection,  financial  statement or
other  document or  information  pursuant to this  Agreement or any of the other
Loan Documents and shall promptly forward a copy thereof to each Lender.

     Neither the Agent nor any of its directors,  officers,  employees or agents
shall have any responsibility to any Borrower on account of the failure or delay
in  performance  or  breach  by any  Lender  other  than the Agent of any of its
obligations  hereunder or to any Lender on account of the failure of or delay in
performance  or  breach  by any other  Lender  or any  Borrower  of any of their
respective obligations hereunder or in connection herewith.

     The Agent may consult with legal counsel  selected by it in connection with
matters  arising under this Agreement or any of the other Loan Documents and any
action taken or suffered in good faith by it in accordance  with the  reasonable
opinion of such counsel shall be full  justification  and  protection to it. The
Agent may  exercise any of its powers and rights and perform any duty under this
Agreement or any of the other Loan Documents through agents or attorneys.

     The Agent and the Borrowers may deem and treat the payee of any Note as the
holder  thereof until written  notice of transfer  shall have been  delivered as
provided herein by such payee to the Agent and the Borrowers.

     With  respect to the Loans made  hereunder,  the Notes issued to it and any
other Credit Event  applicable to it, the Agent in its  individual  capacity and
not as an Agent  shall have the same  rights,  powers and duties  hereunder  and
under any other  Agreement  executed in connection  herewith as any other Lender
and may exercise the same as though it were not the Agent, and the Agent and its
affiliates may accept deposits from,  lend money to and generally  engage in any
kind of business with the Borrowers or other affiliate thereof as if it were not
the Agent.

     Each  Lender  agrees  (i) to  reimburse  the  Agent in the  amount  of such
Lender's  pro rata  share  (based on its  Revolving  Credit  Commitment)  of any
expenses incurred for the benefit of the Lenders by the Agent, including counsel
fees and  compensation  of agents and  employees  paid for services  rendered on
behalf of the Lenders, not reimbursed by the Borrowers and (ii) to indemnify and
hold harmless the Agent and any of its directors, officers, employees or agents,
on demand,  in the amount of its pro rata  share,  from and  against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses or disbursements of any kind or nature  whatsoever which may be
imposed on,  incurred by or asserted  against it in its capacity as the Agent or
any of them in any way  relating to or arising out of this  Agreement  or any of
the other

                                       77

Loan  Documents  or any action  taken or omitted by it or any of them under this
Agreement or any of the other Loan  Documents,  to the extent not  reimbursed by
the Borrowers;  provided,  however,  that no Lender shall be liable to the Agent
for any portion of such liabilities,  obligations,  losses, damages,  penalties,
actions,  judgment,  suits, costs, expenses or disbursements  resulting from the
bad faith or willful misconduct of the Agent or any of its directors,  officers,
employees or agents.

     Each Lender  acknowledges  that it has,  independently and without reliance
upon the Agent or any other Lender and based on such  documents and  information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this  Agreement  and any other Loan Document to which such Lender is party.
Each Lender also acknowledges  that it will,  independently and without reliance
upon the Agent or any other Lender and based on such  documents and  information
as it shall deem appropriate at the time,  continue to make its own decisions in
taking or not taking action under or based upon this  Agreement,  any other Loan
Document, any related agreement or any document furnished hereunder.

     Subject to the  appointment and acceptance of a successor Agent as provided
below,  the  Agent may  resign  at any time by  notifying  the  Lenders  and the
Borrowers.  Upon any such  resignation,  the  Lenders  shall  have the  right to
appoint a successor  Agent with the consent of the Borrowers (such consent shall
not be unreasonably  withheld or delayed). If no successor Agent shall have been
so appointed by such Lenders and shall have accepted such appointment  within 30
days after the retiring  Agent gives notice of its  resignation  (whether due to
the  failure of the  Borrowers  to consent  or for any other  reason),  then the
retiring  Agent may, on behalf of the Lenders,  appoint a successor  Agent which
shall be a bank  which is a  Lender  with an  office  (or an  affiliate  with an
office) in New York, New York, having a combined capital and surplus of at least
$1,000,000,000.  While the Agent agrees to consult with the Borrowers  regarding
such successor  Agent,  the decision made by the Agent shall be final.  Upon the
acceptance  of any  appointment  as Agent  hereunder by a successor  bank,  such
successor  shall  thereupon  succeed to and become  vested  with all the rights,
powers, privileges and duties of the retiring Agent and the retiring Agent shall
be discharged  from its duties and  obligations  hereunder and under each of the
other Loan Documents. After any Agent's resignation hereunder, the provisions of
this Article shall  continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as Agent.

     The  Lenders  hereby  acknowledge  that the Agent shall be under no duty to
take any discretionary action permitted to be taken by the Agent pursuant to the
provisions of this Agreement or any of the other Loan Documents  unless it shall
be requested in writing to do so by the Required Lenders.

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XII.  MANAGEMENT, COLLECTION AND STATUS OF RECEIVABLES AND
      OTHER COLLATERAL

     SECTION 12.01. Collection of Receivables;  Management of Collateral. (a) At
any time,  whether  or not a Default  or Event of Default  has  occurred  and is
continuing,  upon the request of the Agent, the Borrowers (i) will, at their own
cost and  expense,  collect and  otherwise  enforce as the Agent's and  Lenders'
property and in trust for the Agent on behalf of the Lenders all amounts payable
on or otherwise  receivable with respect to the Receivables and inventory of the
Borrowers;  (ii) shall not commingle such  collections  with the Parent's or any
Borrower's own funds or use the same for any purpose; and (iii) as to all moneys
so collected and all other proceeds of Receivables and inventory, the Parent and
Borrowers  shall  receive  in trust and shall  forward to the Agent on behalf of
itself  and the  Lenders  (or to the  depository  designated  by the  Agent)  in
original form and on the date of receipt  thereof,  all checks,  drafts,  notes,
money  orders,  acceptances,  cash  and  other  evidences  of  Indebtedness  for
application to the Revolving Credit Loans.

     At any time after such  request has been made by the Agent,  the  Borrowers
shall,  or upon the failure of Borrowers to do so, the Agent may,  send a notice
of  assignment  and/or  notice of the Agent's  security  interest to any and all
Customers  or any third party  holding or  otherwise  concerned  with any of the
Collateral,  and  thereafter  the Agent on behalf of the Lenders  shall have the
sole right to receive the  Receivables  and/or take possession of the Collateral
and the books and records  relating  thereto and the Parent and Borrowers  shall
not, without the Agent's prior written consent,  grant any extension of the time
of payment of any Receivable,  compromise or settle any Receivable for less than
the full amount  thereof,  release,  in whole or in part, any person or property
liable  for the  payment  thereof,  or allow any credit or  discount  whatsoever
thereon, except, prior to the occurrence of an Event of Default, as permitted by
Section 9.09 hereof.  Upon the occurrence and during the continuance of an Event
of Default  (and only upon such  occurrence  and during such  continuance),  the
Agent may send notices as provided in the preceding sentence.

     (b) (i) Each  Borrower  hereby  constitutes  the Agent or its  designee  on
behalf of the Agent as such  Borrower's  attorney-in-fact  with power to endorse
such Borrower's name upon any notes,  acceptances,  checks, drafts, money orders
or other  evidences of payment or Collateral  that may come into its possession,
to sign such Borrower's name on any invoice or bill of lading relating to any of
the  Receivables,  drafts against  Customers,  assignments and  verifications of
Receivables  and notices to Customers;  to send  verifications  of  Receivables;
after the occurrence and during the continuance of an Event of Default,

                                       79

to notify the Postal  Service  authorities to change the address for delivery of
mail addressed to such Borrower to such address as the Agent may designate;  and
to do all other acts and things  necessary  to carry out this  Article  XII. All
acts of said  attorney or designee are hereby  ratified and  approved,  and said
attorney or designee  shall not be liable for any acts of omission or commission
(other than acts or  omissions  constituting  willful  misconduct),  nor for any
error of judgment or mistake of fact or law;  this power being  coupled  with an
interest is irrevocable  until all of the  Obligations are paid in full and this
Agreement is terminated.

     (ii) The Agent,  without  notice to or consent of the  Borrowers,  (A) may,
after the occurrence and during the continuance of an Event of Default, sue upon
or otherwise collect, extend the time of payment of, or compromise or settle for
cash,  credit  or  otherwise  upon  any  terms,  any of the  Receivables  or any
securities,  instruments  or insurance  applicable  thereto  and/or  release the
obligor  thereon;  (B) is authorized  and  empowered,  after the  occurrence and
during the continuance of an Event of Default, to accept the return of the goods
represented by any of the Receivables;  and (C) shall have the right to receive,
endorse,  assign and/or  deliver in its name or the name of any Borrower any and
all checks,  drafts and other  instruments  for the payment of money relating to
the Receivables, and each Borrower hereby waives notice of presentment,  protest
and non-payment of any instrument so endorsed, all in a commercially  reasonable
manner and without discharging or in any way affecting any Borrower's  liability
hereunder.

     (c) Nothing herein  contained shall be construed to constitute any Borrower
as agent of the Agent or any Lender for any purpose whatsoever,  and neither the
Agent  nor  any  Lender  shall  be  responsible  or  liable  for  any  shortage,
discrepancy,  damage, loss or destruction of any part of the Collateral wherever
the same may be located and  regardless  of the cause  thereof  (other than from
acts or omissions of the Agent or any Lender constituting  willful  misconduct).
Neither the Agent nor any Lender shall,  under any circumstances or in any event
whatsoever,  have any  liability  for any error or omission or delay of any kind
occurring in the settlement,  collection or payment of any of the Receivables or
any instrument received in payment thereof or for any damage resulting therefrom
(other  than from acts or  omissions  of the  Agent or any  Lender  constituting
willful misconduct).  Neither the Agent nor any Lender, by anything herein or in
any assignment or otherwise, assumes any of any Borrower's obligations under any
contract or agreement assigned to the Agent or any Lender, and the Agent and the
Lenders shall not be responsible in any way for the  performance by any Borrower
of any of the terms and conditions thereof.

     (d) If any of the Receivables  includes a charge for any tax payable to any
governmental tax authority, the Agent is

                                       80

hereby  authorized  (but in no event  obligated)  in its  discretion  to pay the
amount  thereof to the proper  taxing  authority for the  applicable  Borrower's
account and to charge such  Borrower's  account  therefor.  The Borrowers  shall
notify  the  Agent if any  Receivables  include  any tax due to any such  taxing
authority and, in the absence of such notice,  the Agent on behalf of itself and
the Lenders shall have the right to retain the full proceeds of such Receivables
and shall not be liable  for any  taxes  that may be due from such  Borrower  by
reason of the sale and delivery creating such Receivables.

     SECTION 12.02.  Receivables  Documentation.  At such intervals as the Agent
may  reasonably  require,  each  Borrower  shall furnish such  schedules  and/or
information  as the Agent may  require  relating to the  Receivables,  including
without limitation sales invoices.  In addition,  each Borrower shall notify the
Agent of any  noncompliance  in respect of the  representations,  warranties and
covenants  contained in Section 12.03 below. The items to be provided under this
Section 12.02 are to be in form satisfactory to the Agent and are to be executed
and  delivered  to the Agent  from time to time  solely for its  convenience  in
maintaining  records of the Collateral;  the failure of any Borrower to give any
of such items to the Agent  shall not  affect,  terminate,  modify or  otherwise
limit the Agent's lien on or security interest in the Collateral.

     SECTION 12.03. Status of Receivables and Other Collateral.  With respect to
Collateral at the time the Collateral  becomes  subject to the Agent's  security
interests,  the Borrowers  covenant,  represent  and warrant:  (a) the Borrowers
shall be the sole  owners,  free and clear of all  Liens  except in favor of the
Agent on behalf of the Lenders or otherwise  permitted  hereunder,  of and fully
authorized to sell,  transfer,  pledge and/or grant a security  interest in each
and every item of said Collateral; (b) each Receivable shall be a good and valid
account  representing  an  undisputed  bona fide  indebtedness  incurred  by the
Customer  therein  named,  for a fixed sum as set forth in the invoice  relating
thereto with respect to an absolute sale and delivery  upon the specified  terms
of goods sold by the  Borrowers,  or work,  labor  and/or  services  theretofore
rendered  by the  Borrowers;  (c) no  Receivable  is or shall be  subject to any
defense,  offset,  counterclaim,  discount or allowance  known to the  Borrowers
except  as may be  stated in the  invoice  relating  thereto  or  discounts  and
allowances  as may be  customary  in the  Borrowers'  business;  (d) none of the
transactions  underlying  or giving  rise to any  Receivable  shall  violate any
applicable state or federal laws or regulations,  and all documents  relating to
any Receivable  shall be legally  sufficient  under such laws or regulations and
shall be legally  enforceable  in accordance  with their terms;  (e) to the best
knowledge of the Borrowers, each Customer,  guarantor or endorser is solvent and
will continue to be fully able to pay all  Receivables  on which it is obligated
in full when due; (f) no agreement under which any deduction or offset of any

                                       81

kind, other than normal trade discounts,  may be granted or shall have been made
by the  Borrowers,  at or before the time such  Receivable  is created;  (g) all
documents and agreements  relating to Receivables  shall be true and correct and
in all  respects  what they  purport  to be;  (h) to the best of the  Borrowers'
knowledge,  all  signatures  and  endorsements  that appear on all documents and
agreements  relating to  Receivables  shall be genuine and all  signatories  and
endorsers shall have full capacity to contract; (i) the Borrowers shall maintain
books and records pertaining to the Collateral in such detail, form and scope as
the Agent shall reasonably  require;  (j) the Borrowers will promptly notify the
Agent if any of their accounts exceeding $50,000 in the aggregate outstanding at
any time  arise out of  contracts  with the  United  States  or any  department,
agency, or  instrumentality  thereof,  and will execute any instruments and take
any steps  required  by the Agent in order  that all monies due or to become due
under any such contract  shall be assigned to the Agent and notice thereof given
to the United States Government under the Federal  Assignment of Claims Act; (k)
the Borrowers  will,  immediately  upon learning  thereof,  report to the Agent:
reclamation, return or repossession of goods in any fiscal year in the aggregate
in excess of $50,000 or claims or disputes  in any fiscal year in the  aggregate
in excess of  $50,000  asserted  by  Customers  or other  obligors,  any loss or
destruction of, or substantial  damage to, any of the Collateral,  and any other
matters  affecting the value,  enforceability  or collectibility of any material
portion of the Collateral; (l) if any amount payable under or in connection with
any Receivable is evidenced by a promissory  note or other  instrument,  as such
terms are  defined in the  Uniform  Commercial  Code,  such  promissory  note or
instrument shall be immediately pledged, endorsed, assigned and delivered to the
Agent as additional Collateral;  (m) the Borrowers shall not re-date any invoice
or sale or make sales on extended  dating beyond that customary in the industry;
(n) the  Borrowers  shall  conduct a physical  count of their  inventory at such
intervals as the Agent may request and promptly  supply the Agent with a copy of
such counts accompanied by a report of the value (based on the lower of cost (on
a FIFO basis) or market value) of such inventory;  and (o) the Borrowers are not
and shall not be entitled to pledge the  Agent's or any  Lender's  credit on any
purchases or for any purpose whatsoever.

     SECTION 12.04.  Monthly Statement of Account. The Agent shall render to the
Parent each month a statement of the Borrowers' account,  which shall constitute
an  account  stated  and shall be deemed to be correct  and  accepted  by and be
binding upon the Borrowers unless the Agent receives a written  statement of the
Borrowers'  exceptions  within 30 days after such  statement was rendered to the
Parent.

     SECTION 12.05.  Collateral  Custodian.  The Agent may at any time following
the  occurrence  and during the  continuance  of an Event of Default  employ and
maintain in the premises of the

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Borrowers a custodian  selected by the Agent after consultation with the Lenders
who shall have full  authority  to do all acts  necessary to protect the Agent's
and Lenders' interests and to report to the Agent thereon.  The Borrowers hereby
agree to  cooperate  with any such  custodian  and to do whatever  the Agent may
reasonably  request to preserve the Collateral.  All costs and expenses incurred
by the Agent and Lenders by reason of the  employment of the custodian  shall be
charged to the Borrowers' account and added to the Obligations.

XIII.  MISCELLANEOUS

     SECTION 13.01. Notices. Notices, consents and other communications provided
for herein  shall be in writing and shall be delivered or mailed (or in the case
of telex or  facsimile  communication,  delivered  by telex,  graphic  scanning,
telecopier  or  other  telecommunications  equipment,  with  receipt  confirmed)
addressed,

         (a) if to any  Borrower  or Parent,  c/o Rex Stores  Corporation,  2875
     Needmore Road,  Dayton,  Ohio 45414,  Attention:  Chief Financial  Officer,
     Telecopy No. (513) 276-2713, with a copy to Chernesky, Heymon & Kress, 1100
     Courthouse Plaza, S.W.,  Dayton,  Ohio 45402,  Attention:  Edward M. Kress,
     Esq., Telecopy No. (513) 449-2821;

         (b) if to the Agent, at NatWest Bank N.A., 175 Water Street,  New York,
     New York 10038,  Attention:  Mr. Thomas Maiale, Fax: (212) 602-3393, with a
     copy to Kaye,  Scholer,  et al.,  at 425 Park  Avenue,  New York,  New York
     10022, Attention: Albert M. Fenster, Esq., Fax: (212) 836- 8689; and

         (c) if to any  Lender,  at the  address  set  forth  below  its name in
     Schedule 2.01 annexed hereto.

All notices and other  communications  given to any party  hereto in  accordance
with the provisions of this Agreement  shall be deemed to have been given on the
date of receipt if hand  delivered or three days after being sent by  registered
or certified mail,  postage prepaid,  return receipt  requested,  if by mail, or
upon receipt if by any telex, facsimile or other  telecommunications  equipment,
in each case  addressed  to such party as provided in this  Section  13.01 or in
accordance with the latest unrevoked direction from such party.

     SECTION  13.02.   Survival  of  Agreement.   All   covenants,   agreements,
representations  and warranties made by any Borrower or any of its  Subsidiaries
herein and in the  certificates  or other  instruments  prepared or delivered in
connection  with this Agreement or any other Loan Document,  shall be considered
to have been relied upon by the Lenders and shall survive the making by

                                       83

the Lenders of the Loans and the  execution  and  delivery to the Lenders of the
Notes and  occurrence of any other Credit Event and shall continue in full force
and effect as long as the  principal of or any accrued  interest on the Notes or
any other fee or amount  payable under the Notes or this  Agreement or any other
Loan Document is outstanding and unpaid and so long as the Total  Commitment has
not been terminated.

     SECTION 13.03. Successors and Assigns; Participations. (a) Whenever in this
Agreement  any of the parties  hereto is referred  to, such  reference  shall be
deemed to include the successors  and assigns of such party;  and all covenants,
promises and  agreements by or on behalf of any  Borrower,  any  Guarantor,  any
ERISA Affiliate,  any Subsidiary of any thereof, the Agent or the Lenders,  that
are  contained  in this  Agreement  shall bind and inure to the benefit of their
respective  successors  and  assigns.  Without  limiting the  generality  of the
foregoing,  each Borrower  specifically confirms that any Lender may at any time
and from time to time pledge or otherwise grant a security  interest in any Loan
or any Note (or any part thereof) to any Federal Reserve Bank. The Borrowers may
not assign or transfer any of their rights or obligations  hereunder without the
written consent of all the Lenders.

     (b)  Each  Lender,   without  the  consent  of  the  Borrowers,   may  sell
participations to one or more banks or other entities in all or a portion of its
rights and obligations under this Agreement (including,  without limitation, all
or a portion of its Revolving  Credit  Commitment  and the Loans owing to it and
undrawn Letters of Credit and the Notes held by it); provided, however, that (i)
such Lender's obligations under this Agreement  (including,  without limitation,
its Revolving Credit Commitment) shall remain unchanged,  (ii) such Lender shall
remain solely  responsible  to the other parties  hereto for the  performance of
such obligations,  (iii) the banks or other entities buying participations shall
be entitled  to the cost  protection  provisions  contained  in Section  2.07(a)
(except to the extent that application of such Section 2.07(a) to such banks and
entities would cause the Borrowers to make duplicate payments  thereunder),  but
only to the extent any of such  Sections  would be available to the Lender which
sold such participation, and (iv) the Borrowers, the Agent and the other Lenders
shall  continue to deal solely and directly with such Lender in connection  with
such Lender's rights and obligations  under this Agreement;  provided,  further,
however,  that each Lender  shall  retain the sole right and  responsibility  to
enforce the obligations of the Parent, Borrowers, and the Guarantors relating to
the Loans,  including,  without limitation,  the right to approve any amendment,
modification  or  waiver  of  any  provision  of  this  Agreement,   other  than
amendments,  modifications or waivers with respect to any fees payable hereunder
or the amount of  principal  or the rate of  interest  payable  on, or the dates
fixed for any

                                       84

payment  of  principal  of or  interest  on,  the  Loans or the  release  of all
Collateral.

     (c) Each Lender may assign by  novation,  to any one or more banks or other
entities without the prior written consent of the Borrowers,  but with the prior
written consent of the Agent (which consent shall not be unreasonably withheld),
all or a portion of its interests,  rights and obligations  under this Agreement
and the other Loan Documents (including, without limitation, all or a portion of
its Revolving  Credit  Commitment  and the same portion of the Loans and undrawn
Letters  of  Credit at the time  owing to it and the Note or Notes  held by it);
provided, however, that (i) each such assignment shall be of a constant, and not
a varying,  percentage of all of the assigning  Lender's  rights and obligations
under this Agreement,  which shall include the same  percentage  interest in the
Loans,  Letters  of Credit and Notes,  (ii) the amount of the  Revolving  Credit
Commitment  of the  assigning  Lender  being  assigned  pursuant  to  each  such
assignment (determined as of the date the Assignment and Acceptance with respect
to such  assignment  is delivered to the Agent) shall be in a minimum  principal
amount of $5,000,000, subject in each instance to compliance by the assignor and
assignee with the  $10,000,000  Commitment  retention  requirement  after giving
effect to such  assignment  provided  in clause (ii)  below,  (ii) after  giving
effect to any such  assignment,  the assignor,  if it retains any portion of its
Revolving Credit Commitment, and the assignee shall each have a Revolving Credit
Commitment of not less than  $10,000,000,  (iii) NatWest Bank N.A.  shall at all
times retain not less than twenty-five percent (25%) of the Total Commitment and
(iv) the parties to each such assignment shall execute and deliver to the Agent,
for its  acceptance  and  recording  in the  Register  (as  defined  below),  an
Assignment and Acceptance, together with any Note subject to such assignment and
a processing  and  recordation  fee of $2,500.  Upon such  execution,  delivery,
acceptance and recording and after receipt of the written  consent of the Agent,
from and after the effective date specified in each  Assignment and  Acceptance,
which  effective  date  shall  be at least  five (5)  Business  Days  after  the
execution thereof,  (x) the assignee  thereunder shall be a party hereto and, to
the extent  provided  in such  Assignment  and  Acceptance,  have the rights and
obligations of a Lender hereunder and under the other Loan Documents and (y) the
Lender  which is  assignor  thereunder  shall,  to the extent  provided  in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance  covering all or the remaining
portion of an assigning  Lender's rights and  obligations  under this Agreement,
such Lender shall cease to be a party hereto).

     (d) By executing and  delivering an Assignment and  Acceptance,  the Lender
which is assignor  thereunder and the assignee  thereunder confirm to, and agree
with, each other and the other parties hereto as follows: (i) other than the

                                       85

representation  and warranty  that it is the legal and  beneficial  owner of the
interest being  assigned  thereunder  free and clear of any adverse claim,  such
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, perfection, genuineness, sufficiency or value of this Agreement,
the other Loan  Documents or any  Collateral  with respect  thereto or any other
instrument or document  furnished  pursuant hereto or thereto;  (ii) such Lender
makes no representation  or warranty and assumes no responsibility  with respect
to the financial  condition of any Borrower or any Guarantor or the  performance
or  observance  by  any  Borrower  or  Guarantor  of  any  of  their  respective
obligations  under  this  Agreement,  any  Guarantees  or any of the other  Loan
Documents  or any other  instrument  or document  furnished  pursuant  hereto or
thereto;  (iii)  such  assignee  confirms  that it has  received  a copy of this
Agreement, any Guarantees and of the other Loan Documents,  together with copies
of financial  statements  and 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;  (iv) such assignee will,  independently  and
without  reliance  upon the Agent,  such 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; (v) such assignee appoints and authorizes the Agent to take such
action as the  Agent on its  behalf  and to  exercise  such  powers  under  this
Agreement as are delegated to the Agent by the terms hereof,  together with such
powers as are reasonably  incidental thereto; and (vi) such assignee agrees that
it will perform in accordance with their terms all of the  obligations  which by
the terms of this Agreement are required to be performed by it as a Lender.

     (e) The Agent shall  maintain at its address  referred to in Section  13.01
hereof a copy of each  Assignment and Acceptance  delivered to it and a register
for the  recordation of the names and addresses of the Lenders and the Revolving
Credit  Commitment  of, and principal  amount of the Loans owing to, each Lender
from  time to time  (the  'Register').  The  entries  in the  Register  shall be
conclusive,  in the absence of manifest error, and the Borrowers,  the Agent and
the Lenders may treat each  Person  whose name is recorded in the  Register as a
Lender  hereunder  for all purposes of this  Agreement.  The  Register  shall be
available for inspection by the Borrowers or any Lender at any  reasonable  time
and from time to time upon reasonable prior notice.

     (f) Upon  its  receipt  of an  Assignment  and  Acceptance  executed  by an
assigning Lender and an assignee together with any Note or Notes subject to such
assignment and the written consent to such assignment,  the Agent shall, if such
Assignment and

                                       86

Acceptance  has been completed and is precisely in the form of Exhibit B annexed
hereto,  (i) accept such Assignment and Acceptance,  (ii) record the information
contained  therein in the Register and (iii) give prompt  notice  thereof to the
Lenders and the  Borrowers.  Within five (5) Business Days after receipt of such
notice,  the Borrowers,  at their own expense,  shall execute and deliver to the
Agent in exchange for each  surrendered Note or Notes a new Note or Notes to the
order of such assignee in an amount equal to its portion of the Revolving Credit
Commitment  assumed by it pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained any Revolving Credit Commitment  hereunder,  a new
Note or Notes to the order of the  assigning  Lender  in an amount  equal to the
Revolving  Credit  Commitment  retained by it hereunder.  Such new Note or Notes
shall be in an  aggregate  principal  amount  equal to the  aggregate  principal
amount of such surrendered  Note or Notes,  shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially  the form
of  Exhibit A. Notes  surrendered  to the  Borrowers  shall be  canceled  by the
Borrowers.

     (g)  Notwithstanding  any  other  provision  herein,  any  Lender  may,  in
connection  with any  assignment  or  participation  or proposed  assignment  or
participation  pursuant  to this  Section  13.03,  disclose  to the  assignee or
participant or proposed  assignee or participant,  any  information,  including,
without limitation, any Information, relating to the Borrowers furnished to such
Lender by or on behalf  of the  Borrowers  in  connection  with this  Agreement;
provided,  however,  that prior to any such  disclosure,  each such  assignee or
participant  or proposed  assignee or  participant  shall agree to preserve  the
confidentiality  of any  confidential  Information  relating  to  the  Borrowers
received from such Lender.

     SECTION 13.04.  Expenses;  Indemnity.  (a) Each Borrower  agrees to pay all
reasonable  out-of-pocket  expenses incurred by the Agent in connection with the
preparation  of this  Agreement  and  the  other  Loan  Documents  or  with  any
amendments,  modifications,  waivers,  extensions,  renewals,  renegotiations or
'work-outs'  of  the  provisions   hereof  or  thereof  (whether  or   not   the
transactions  hereby contemplated shall be consummated) or incurred by the Agent
or any of the Lenders in connection  with the  enforcement  or protection of its
rights in connection  with this  Agreement or any of the other Loan Documents or
with the Loans made or the Notes or Letters of Credit  issued  hereunder,  or in
connection with any pending or threatened action, proceeding,  or  investigation
relating to the foregoing,  including but not limited to the reasonable fees and
disburse- ments of counsel for the Agent, ongoing field examination expenses and
charges, and, in connection with such enforcement or protection,  the reasonable
fees and  disbursements  of  counsel  for each  Lender.  Each  Borrower  further
indemnifies  the  Lenders  from and  agrees to hold them  harmless  against  any
documentary taxes, assessments or charges

                                       87

made by any  governmental  authority by reason of the  execution and delivery of
this Agreement or the Notes.

     (b)  Each  Borrower  indemnifies  the  Agent  and  each  Lender  and  their
respective directors, officers, employees and agents against, and agrees to hold
the Agent,  each Lender and each such Person  harmless from, any and all losses,
claims, damages,  liabilities and related expenses, including reasonable counsel
fees and expenses, incurred by or asserted against the Lender or any such Person
arising out of, in any way connected  with, or as a result of (i) the use of any
of the proceeds of the Loans,  (ii) this Agreement,  the Guarantees,  any of the
Security Documents or the other documents  contemplated hereby or thereby, (iii)
the  performance  by  the  parties  hereto  and  thereto  of  their   respective
obligations hereunder and thereunder (including but not limited to the making of
the Total Commitment) and consummation of the transactions  contemplated  hereby
and thereby,  (iv) breach of any  representation or warranty,  or (v) any claim,
litigation,  investigation  or  proceedings  relating  to any of the  foregoing,
whether or not the  Agent,  any  Lender or any such  Person is a party  thereto;
provided, however, that such indemnity shall not, as to the Agent or any Lender,
apply to any such losses,  claims,  damages,  liabilities or related expenses to
the extent that they result from the gross  negligence or willful  misconduct of
the Agent or any Lender.

     (c) Each Borrower  indemnifies,  and agrees to defend and hold harmless the
Agent and the Lenders and their respective  officers,  directors,  shareholders,
agents and  employees  (collectively,  the  'Indemnities')  from and against any
loss,  cost,  damage,  liability,  lien,  deficiency,  fine,  penalty or expense
(including,  without  limitation,  reasonable  attorneys'  fees  and  reasonable
expenses for investigation, removal, cleanup and remedial costs and modification
costs incurred to permit,  continue or resume normal  operations of any property
or assets or business of any Borrower or any Subsidiary  thereof) arising from a
violation of, or failure to comply with any  Environmental Law and to remove any
Lien arising  therefrom  except to the extent caused by the bad faith or willful
misconduct of any  Indemnitee,  which any of the  Indemnities may incur or which
may be claimed or recorded against any of the Indemnities by any Person.

     (d) The provisions of this Section 13.04 shall remain operative and in full
force and effect  regardless of the expiration of the term of this Agreement and
the  termination  hereof and of the Total  Commitment,  the  consummation of the
transactions  contemplated  hereby,  the  repayment  of any of  the  Loans,  the
invalidity or unenforceability of any term or provision of this Agreement or the
Notes, or any investigation made by or on behalf of the Agent or any Lender. All
amounts  due under  this  Section  13.04  shall be  payable  on  written  demand
therefor.

                                       88

     (e) No claim may be made by any Borrower, any Guarantor or any other person
against  the  Agent  or any  Lender,  or the  affiliates,  directors,  officers,
employees,  attorneys  or agents of the Agent or any  Lender,  for any  special,
indirect or  consequential  damages or, to the fullest extent  permitted by law,
for any punitive  damages,  in respect of any claim or cause of action  (whether
based on contract,  tort,  statutory liability or any other grounds) based on or
arising out of or related to this  Agreement  or any other Loan  Document or the
Transactions or any act,  omission or event occurring in connection  herewith or
therewith,  and each Borrower  (for itself and on behalf of each other  Borrower
and each  Guarantor)  hereby  waives,  releases  and agrees never to sue upon or
bring any other action upon or with  respect to any claim for any such  damages,
whether such claim now exists or hereafter  arises and whether or not such claim
is now known or suspected to exist in its favor.

     SECTION  13.05.  Applicable  Law.  THIS  AGREEMENT  AND THE NOTES  SHALL BE
CONSTRUED  IN  ACCORDANCE  WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK
(OTHER THAN THE CONFLICTS OF LAWS PRINCIPLES THEREOF).

     SECTION 13.06.  Right of Setoff. If an Event of Default shall have occurred
and be  continuing,  upon the request of the Required  Lenders each Lender shall
and is  hereby  authorized  at any time and from  time to time,  to the  fullest
extent  permitted by law, to set off and apply any and all deposits  (general or
special,  time or  demand,  provisional  or  final)  at any time  held and other
indebtedness  at any  time  owing by such  Lender  to or for the  credit  or the
account of any Borrower  against any and all of the obligations of the Borrowers
now and/or  hereafter  existing  under this Agreement and the Notes held by such
Lender,  irrespective  of whether or not such Lender  shall have made any demand
under  this  Agreement  or  the  Notes  and  although  such  obligations  may be
unmatured.  Each Lender  agrees to notify  promptly the Agent and the  Borrowers
after any such setoff and  application  made by such Lender,  but the failure to
give such notice shall not affect the  validity of such setoff and  application.
The rights of each Lender under this Section are in addition to other rights and
remedies  (including,  without limitation,  other rights of setoff) which may be
available to such Lender.

     SECTION  13.07.  Payments on Business  Days. (a) Should the principal of or
interest on the Notes or any fee or other amount  payable  hereunder  become due
and payable on other than a Business Day, payment in respect thereof may be made
on the next  succeeding  Business  Day  (except as  otherwise  specified  in the
definition of 'Interest Period'),  and such extension of time shall in such case
be included in computing interest, if any, in connection with such payment.

                                       89

     (b) All  payments  by the  Borrowers  hereunder  and all Loans  made by the
Lenders  hereunder shall be made in lawful money of the United States of America
in immediately  available  funds at the office of the Agent set forth in Section
13.01 hereof.

     SECTION 13.08. Waivers;  Amendments.  (a) No failure or delay of any Lender
in exercising any power or right  hereunder  shall operate as a waiver  thereof,
nor shall any single or  partial  exercise  of any such  right or power,  or any
abandonment or discontinuance of steps to enforce such right or power,  preclude
any other or further  exercise  thereof or the  exercise  of any other  right or
power.  The rights and remedies of the Lenders  hereunder are cumulative and not
exclusive of any rights or remedies which they may otherwise  have. No waiver of
any provision of this Agreement or the Notes nor consent to any departure by any
Borrower  therefrom  shall  in any event be  effective  unless the same shall be
authorized as provided in paragraph  (b) below,  and then such waiver or consent
shall be effective  only in the specific  instance and for the purpose for which
given.  No notice to or demand on any  Borrower in any case shall  entitle it to
any other or further  notice or demand in similar or other  circumstances.  Each
holder of any of the Notes shall be bound by any amendment, modification, waiver
or consent  authorized as provided  herein,  whether or not such Note shall have
been marked to indicate such amendment, modification, waiver or consent.

     (b) Neither this Agreement nor any provision hereof may be waived,  amended
or modified  except  pursuant to an agreement or agreements  in writing  entered
into by the Borrowers and the Required Lenders; provided,  however, that no such
agreement shall without the consent of each holder  affected  thereby (i) change
the principal amount of, or extend the scheduled final maturity of, or extend or
advance the dates for the payment of interest on, any Note or reduce the rate of
interest on any Note (except in connection with a waiver of applicability of any
post-default  increase in interest rates), or reduce the amount of any fee, (ii)
change the Revolving Credit Commitment of any Lender (it being understood that a
waiver of any  Default or Event of Default or of a  mandatory  reduction  in any
Revolving  Credit  Commitment  shall not  constitute  a change in any  Revolving
Credit  Commitment) or amend or modify the  provisions of this Section,  Section
2.09, Section 3.05 or Article VI hereof or the definition of 'Required Lenders,'
(iii) amend or modify any other  provision  of this  Agreement  or of any of the
other  Loan   Documents   that  would  have  the  effect  of  releasing  all  or
substantially all of the Collateral under all of the Security  Documents (except
as  expressly  provided in the Loan  Documents),  (iv) change the advance  rates
applicable to the Borrowing  Base or (v) release any obligor under any Guaranty;
and provided,  further,  that no such agreement shall amend, modify or otherwise
affect the rights or duties of the Agent under this  Agreement or the other Loan
Documents  without the written  consent of the Agent.  Each Lender and holder of
any Note shall be bound by any modification or

                                       90

amendment  authorized  by this Section  regardless of whether its Notes shall be
marked to make reference  thereto,  and any consent by any Lender or holder of a
Note  pursuant to this Section  shall bind any Person  subsequently  acquiring a
Note from it, whether or not such Note shall be so marked.

     (c) In the event that the Borrowers request, with respect to this Agreement
or any other  Loan  Document,  an  amendment,  modification  or waiver  and such
amendment,  modification or waiver would require the unanimous consent of all of
the Lenders in  accordance  with Section  13.08(b)  above,  and such  amendment,
modification or waiver is agreed to in writing by the Borrowers and the Required
Lenders  but not by all of the  Lenders,  then  notwithstanding  anything to the
contrary in Section  13.08(b)  above,  with the written consent of the Borrowers
and such Required Lenders, the Borrowers and Required Lenders may, but shall not
be  obligated  to,  amend this  Agreement  without  the consent of the Lender or
Lenders who did not agree to the proposed amendment, modification or waiver (the
'Minority  Lenders')  solely to provide for (i) the termination of the Revolving
Credit  Commitment of each Minority  Lender,  (ii) the  assignment in accordance
with  Section  13.03  hereof to one or more  Persons of each  Minority  Lender's
interests,  rights and  obligations  under this  Agreement  (including,  without
limitation, all of such Minority Lender's Revolving Credit Commitment as well as
its portion of all outstanding Loans and the Note or Notes held by such Minority
Lender) and the other Loan Documents  and/or an increase in the Revolving Credit
Commitment  of one or more Required  Lenders,  in each case so that after giving
effect thereto the Total Commitment shall be in the same amounts as prior to the
events described in this paragraph,  (iii) the repayment to the Minority Lenders
in full of all Loans  outstanding and accrued  interest thereon and fees due and
owing with  respect  thereto at the time of the  assignment  and/or  increase in
Revolving Credit Commitments described in clause (ii) above with the proceeds of
Loans made by such Persons who are to become  Lenders by  assignment or with the
proceeds  of Loans made by Required  Lenders  who have agreed to increase  their
Revolving  Credit  Commitment,  (iv) the payment to the Minority  Lenders by the
Borrowers of all fees and other compensation due and owing such Minority Lenders
under the terms of this  Agreement  and the other  Loan  Documents  and (v) such
other  modifications  as the Required Lenders and Borrowers shall deem necessary
in order to effect to changes specified in clauses (i) through (iv) hereof.

     SECTION 13.09. Severability. In the event any one or more of the provisions
contained in this  Agreement or in the Notes should be held invalid,  illegal or
unenforceable in any respect,  the validity,  legality and enforceability of the
remaining  provisions  contained  herein  or  therein  shall  not in any  way be
affected or impaired thereby.

                                       91

     SECTION 13.10. Entire Agreement;  Waiver of Jury Trial; Judgment,  etc. (a)
This  Agreement,  the Notes and the other Loan  Documents  constitute the entire
contract  between the parties hereto relative to the subject matter hereof.  Any
previous  agreement among the parties hereto with respect to the Transactions is
superseded by this Agreement, the Notes and the other Loan Documents.  Except as
expressly  provided  herein or in the Notes or the other Loan  Documents  (other
than this Agreement),  nothing in this Agreement, the Notes or in the other Loan
Documents,  expressed  or implied,  is intended to confer upon any party,  other
than the parties hereto, any rights, remedies,  obligations or liabilities under
or by reason of this Agreement, the Notes or the other Loan Documents.

     (b) Except as  prohibited by law, each party hereto hereby waives any right
it may have to a trial by jury in respect of any litigation  involving the Agent
or any Lender directly or indirectly arising out of, under or in connection with
this Agreement, the Notes, any of the other Loan Documents or the Transactions.

     (c) Except as  prohibited by law, each party hereto hereby waives any right
it may have to claim or recover in any  litigation  referred to in paragraph (b)
of this Section 13.10 any special, exemplary,  punitive or consequential damages
or any damages other than, or in addition to, actual damages.

     (d) Each  party  hereto  (i)  certifies  that no  representative,  agent or
attorney of any Lender has represented, expressly or otherwise, that such Lender
would not, in the event of litigation, seek to enforce the foregoing waivers and
(ii)  acknowledges  that it has been induced to enter into this  Agreement,  the
Notes or the other Loan Documents,  as applicable,  by, among other things,  the
mutual waivers and certifications herein.

     SECTION  13.11.  Confidentiality.  The Agent and the Lenders  agree to keep
confidential  (and to cause their  respective  officers,  directors,  employees,
agents and representatives to keep confidential) all information,  materials and
documents   furnished   to  the  Agent  or  any  Lender   (the   'Information').
Notwithstanding  the foregoing,  the Agent and each Lender shall be permitted to
disclose Information (i) to such of its officers,  directors,  employees, agents
and  representatives  as need to know such  Information  in connection  with its
participation in any of the Transactions or the administration of this Agreement
or the other Loan Documents;  (ii) to the extent required by applicable laws and
regulations  or by any subpoena or similar  legal  process,  or requested by any
governmental  agency or  authority;  (iii) to the extent  such  Information  (A)
becomes publicly available other than as a result of a breach of this Agreement,
(B) becomes  available to the Agent or such Lender on a  non-confidential  basis
from a source other than any Borrower, any Guarantor or any of

                                       92

their  respective  Subsidiaries or (C) was available to the Agent or such Lender
on a non-confidential  basis prior to its disclosure to the Agent or such Lender
by any Borrower, any Guarantor or any of their respective Subsidiaries;  (iv) to
the extent any Borrower,  any Guarantor or any of their respective  Subsidiaries
shall have consented to such  disclosure in writing;  (v) in connection with the
sale of any  Collateral  pursuant  to the  provisions  of any of the other  Loan
Documents; or (vi) pursuant to Section 13.03(g) hereof.

     SECTION  13.12.  Submission  to  Jurisdiction.  (a)  Any  legal  action  or
proceeding  with  respect  to this  Agreement  or the  Notes or any  other  Loan
Document  may be brought in the courts of the State of New York or of the United
States of America for the Southern  District of New York,  and, by execution and
delivery  of this  Agreement,  each  Borrower  hereby  accepts for itself and in
respect of its property, generally and unconditionally,  the jurisdiction of the
aforesaid courts.

     (b) Each Borrower hereby  irrevocably  waives,  in connection with any such
action  or  proceeding,  any  objection,   including,  without  limitation,  any
objection  to the  laying  of  venue  or  based  on the  grounds  of  forum  non
conveniens,  which they may now or  hereafter  have to the  bringing of any such
action or proceeding in such respective jurisdictions.

     (c) Each Borrower hereby irrevocably  consents to the service of process of
any of the aforementioned courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to each such
Person, as the case may be, at its address set forth in Section 13.01 hereof.

     (d)  Nothing  herein  shall  affect the right of the Agent or any Lender to
serve  process  in any  other  manner  permitted  by law  or to  commence  legal
proceedings  or otherwise  proceed  against any Borrower or any Guarantor in any
other jurisdiction.

     SECTION 13.13.  Counterparts;  Facsimile  Signature.  This Agreement may be
executed in counterparts,  each of which shall constitute an original but all of
which when taken  together shall  constitute but one contract,  and shall become
effective when copies hereof which, when taken together,  bear the signatures of
each of the  parties  hereto  shall be  delivered  to the Agent.  Delivery of an
executed  counterpart of a signature page to this Agreement by telecopier  shall
be effective as delivery of a manually executed signature page hereto.

     SECTION  13.14.  Headings.  Article and Section  headings  and the Table of
Contents used herein are for convenience of reference only and are not to affect
the  construction of, or to be taken into  consideration  in interpreting,  this
Agreement.

                                       93

     SECTION  13.15.  References in Loan Documents and Benefit of Collateral and
Guaranties.  From and after the Amendment  Date,  (a) all references in the Loan
Documents to the 'Loan Agreement,' the 'Credit Agreement' or other references to
the Original Loan Agreement shall mean and refer to this Agreement,  as the same
is  now  in  effect  or  may  hereafter  be  amended,  restated,   modified  and
supplemented  from time to time and (b) all  references in the Loan Documents to
the terms  'Obligations'  and  'Borrower'  shall  refer to and include the terms
'Obligations',  'Borrower' and 'Borrowers' as defined in this Agreement,  as the
same is now in  effect or may  hereafter  be  amended,  restated,  modified  and
supplemented  from time to time. The parties  hereto agree that this  Agreement,
the Notes and the  Obligations  hereunder  shall be covered  fully by, and shall
benefit fully from, without  limitation,  all collateral security and guaranties
executed in connection with the Original Loan Agreements.

     SECTION  13.16.  Defaulting  Lender.  (a)  Notwithstanding  anything to the
contrary  contained  herein,  in the event that any Lender  (x)  refuses  (which
refusal  constitutes  a breach by such  Lender  of its  obligations  under  this
Agreement and which has not been retracted) to make available its portion of any
Loan or (y) notifies  the Agent  and/or any Borrower  that it does not intend to
make available its portion of any Loan (if the actual refusal would constitute a
breach by such Lender of its obligations  under this Agreement and which has not
been retracted) (each, a 'Lender Default'), all rights and obligations hereunder
of the Lender (a 'Defaulting  Lender') as to which a Lender Default is in effect
and of the other  parties  hereto  shall be  modified  to the  extent of express
provisions of this Section 13.16 while such Lender Default remains in effect.

     (b) Loans shall be incurred pro rata from the Lenders (the  'Non-Defaulting
Lenders') which are not Defaulting  Lenders based on their respective  Revolving
Credit Commitments,  and no Revolving Credit Commitment of any Lender or any pro
rata share of any Loans required to be advanced by any Lender shall be increased
as a result of such Lender Default.  Amounts received in respect of principal of
the Loans  shall be applied to reduce the Loans of each of the  Lenders pro rata
based on the  aggregate  of the  outstanding  Loans of all of the Lenders at the
time of such  application;  provided,  however,  that such  amount  shall not be
applied to any Loan of a Defaulting  Lender at any time when,  and to the extent
that, the aggregate  amount of Loans of any  Non-Defaulting  Lender exceeds such
Non-Defaulting Lenders' pro rata share of all Loans then outstanding.

     (c) The  Lenders  shall  participate  in  Letters of Credit on the basis of
their  respective  pro  rata  shares,  and  no  participation  or  reimbursement
obligation  of any  Lender  shall be  increased  as a result of a failure of any
Defaulting  Lender to  reimburse  the Agent on the  issuing  bank's  behalf with
respect to

                                       94

any amounts drawn on or otherwise  payable with respect to any Letters of Credit
(the  amount  that any  such  Defaulting  Lender  has  failed  to  reimburse  is
hereinafter  referred to as such  Defaulting  Lender's  'Unreimbursed  Amount').
Until such  Defaulting  Lender has  reimbursed  the Agent on the issuing  bank's
behalf for any  Unreimbursed  Amount owed by it, all payments and other  amounts
received from any source with respect to the  Obligations or otherwise  under or
in  connection  with the Agreement  (including  any letter of credit fees) which
would otherwise be payable to such Defaulting Lender will instead be paid to the
Agent for the benefit of the issuing bank for  application to such  Unreimbursed
Amount until such Unreimbursed Amount has been paid in full. A Defaulting Lender
shall not be entitled to receive any portion of the  Commitment  Fee, the letter
of credit fees or any other fees payable in connection with this  Agreement,  or
any indemnity  arising from its  commitment to make Loans and/or  participate in
Letters of Credit.

     (d) A Defaulting  Lender shall not be entitled to give  instructions to the
Agent or to approve,  disapprove,  consent to or vote on any matters relating to
this  Agreement  and the Loan  Documents.  All  amendments,  waivers  and  other
modifications  of this  Agreement  and the Loan  Documents  may be made  without
regard to a Defaulting  Lender and, for purposes of the  definition of 'Required
Lenders',  a Defaulting Lender shall be deemed not to be a Lender, not to have a
Revolving Credit Commitment and not to have Loans outstanding.

     (e) Other than as expressly set forth in this Section 13.16, the rights and
obligations  of a Defaulting  Lender  (including the obligation to indemnify the
Agent) and the other  parties  hereto  shall remain  unchanged.  Nothing in this
Section  13.16  shall be  deemed  to  release  any  Defaulting  Lender  from its
Revolving  Credit  Commitment  hereunder,  shall  alter  such  Revolving  Credit
Commitment,  shall operate as a waiver of any default by such Defaulting  Lender
hereunder,  or shall prejudice any rights which the Borrowers,  the Agent or any
Lender may have against any Defaulting Lender as a result of any default by such
Defaulting Lender hereunder.

     (f) In the event the Defaulting Lender is able to retroactively cure to the
satisfaction of the Agent and with the consent of the Borrowers (which shall not
be  unreasonably  withheld)  the  breach  which  caused  a  Lender  to  become a
Defaulting  Lender,  such Defaulting  Lender shall upon notice to Borrowers,  no
longer be a Defaulting Lender and shall be treated as a Lender hereunder.

                                       95

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

                                               REX RADIO AND TELEVISION, INC.

                                               By:______________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               KELLY & COHEN APPLIANCES, INC.

                                               By:______________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               STEREO TOWN, INC.

                                               By:______________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               REX KANSAS, INC.

                                               By:______________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               NATWEST BANK N.A., as Agent

                                               By:______________________________
                                                  Name: Thomas Maiale
                                                  Title: Vice President

                                                NATWEST BANK N.A., as a Lender

                                                By:_____________________________
                                                  Name: Thomas Maiale
                                                  Title: Vice President

                                       96

                                             BANK ONE, DAYTON, N.A., as a Lender

                                             By:________________________________
                                                Name: Paul A. Harris
                                                Title: Asst. Vice President

                                             HELLER FINANCIAL, INC., as a Lender

                                             By:________________________________
                                                Name: Dennis Baelis
                                                Title: Asst. Vice President

                                              NATIONAL CITY BANK, DAYTON, as a
                                               Lender

                                             By:________________________________
                                                Name: Ronald O. Smith
                                                Title: Asst. Vice President

                                              THE PROVIDENT BANK, as a Lender

                                             By:________________________________
                                                Name: Jerome J. Brunswick
                                                Title: Regional Vice President

                                             THE FIFTH THIRD BANK, as a Lender

                                             By:________________________________
                                                Name: D. Ward Allen
                                                Title: Vice President

                                             STAR BANK, N.A.. as a Lender

                                             By:________________________________
                                                Name: Thomas D. Gibbons
                                                Title: Vice President

                                       97

                                                                   SCHEDULE 2.01

                          Revolving Credit Commitments
                          ----------------------------
                                                                  Approximate
                                 Revolving                       Percentage of
                                  Credit                        Total Revolving
Lender                           Commitment                    Credit Commitment
------                          -----------                    -----------------

NatWest Bank N.A.               $45,000,000                          30%
175 Water Street
New York, New York  10038
Fax: (212) 602-3393

Bank One, Dayton, N.A.          $30,000,000                          20%
Kettering Tower
40 North Main Street
Dayton, Ohio  45423
Fax: (513) 449-4885

Heller Financial, Inc.          $25,000,000                          16.66%
101 Park Avenue
New York, New York  10178
Fax: (212) 880-7002

National City Bank, Dayton      $15,000,000                          10%
6 North Main Street
Dayton, Ohio  45412
Fax: (513) 226-2058

The Provident Bank              $15,000,000                          10%
Courthouse Plaza Northeast
10 West 2nd Street
Dayton, Ohio  45402
Fax: (513) 223-3522

The Fifth Third Bank            $10,000,000                           6.67%
One South Main Street
Dayton, Ohio  45402
Fax: (513) 227-6454

Star Bank, N.A.                 $10,000,000                           6.67%
425 Walnut Street
P.O. Box 1038
Cincinnati, Ohio  45201
Fax: (513) 632-2068

                                                                  SCHEDULE 2.02

                            Domestic Lending Office
                            -----------------------

Lender                                         Domestic Lending Office
------                                         -----------------------
NatWest Bank N.A.                              175 Water Street
                                               New York, New York  10038

Bank One, Dayton, N.A.                         Kettering Tower
                                               40 North Main Street
                                               Dayton, Ohio  45423

Heller Financial, Inc.                         101 Park Avenue
                                               New York, New York  10178

National City Bank, Dayton                     6 North Main Street
                                               Dayton, Ohio  45412

The Provident Bank                             Courthouse Plaza Northeast
                                               10 West 2nd Street
                                               Dayton, Ohio  45402

The Fifth Third Bank                           One South Main Street
                                               Dayton, Ohio  45402

Star Bank, N.A.                                425 Walnut Street
                                               P.O. Box 1038
                                               Cincinnati, Ohio  45201

                                                                  SCHEDULE 2.03

                           Eurodollar Lending Office
                           -------------------------

Lender                                         Eurodollar Lending Office
------                                         -------------------------
NatWest Bank N.A.                              175 Water Street
                                               New York, New York  10038

Bank One, Dayton, N.A.                         Kettering Tower
                                               40 North Main Street
                                               Dayton, Ohio  45423

Heller Financial, Inc.                         101 Park Avenue
                                               New York, New York  10178

National City Bank, Dayton                     6 North Main Street
                                               Dayton, Ohio  45412

The Provident Bank                             Courthouse Plaza Northeast
                                               10 West 2nd Street
                                               Dayton, Ohio  45402

The Fifth Third Bank                           One South Main Street
                                               Dayton, Ohio  45402

Star Bank, N.A.                                425 Walnut Street
                                               P.O. Box 1038
                                               Cincinnati, Ohio  45201

                   AMENDED AND RESTATED REVOLVING CREDIT NOTE

Up to $45,000,000                                             New York, New York
                                                                January 31, 1989

     FOR VALUE  RECEIVED,  REX RADIO AND TELEVISION,  INC., an Ohio  corporation
('Rex Radio'),  KELLY & COHEN APPLIANCES,  INC., an Ohio Corporation  ('Kelly'),
STEREO TOWN, INC., a Georgia corporation  ('Stereo Town'), and REX KANSAS, INC.,
a Kansas corporation ('Rex Kansas' and together with Rex Radio, Kelly and Stereo
Town, each a 'Borrower' and,  jointly and severally,  the  'Borrowers'),  hereby
jointly and  severally  promise to pay to the order of NATWEST  BANKr N.A.  (the
'Lender'),  at the  office of  NATWEST  BANK N.A.  (the  'Agent'),  at 175 Water
Street, New York, New York 10038 (or such other place as the Agent may from time
to time  designate),  in accordance with the Amended and Restated Loan Agreement
dated  as  of  July  31,  1995, among the Borrowers,  the Lender and the several
other banks and  financial  institutions  from time to time party  thereto  (the
'Lenders'),  and the Agent as agent for the  Lenders  (as  amended,  modified or
supplemented  from  time  to  time in  accordance  with  its  terms,  the  'Loan
Agreement')   the   principal   sum  of  up  to   FORTY-FIVE   MILLION   DOLLARS
($45,000,000.00  ) or such  lesser  amount  as may then  constitute  the  unpaid
principal  amount  of the  Revolving  Credit  Loans  made by the  Lender  to the
Borrowers,  in lawful  money of the United  States,  and to pay interest in like
money at such  office or place  from the date  hereof to the date of  payment in
full hereof  (whether by  acceleration  or  otherwise)  on the unpaid  principal
balance  hereof at the rates and at the times  specified in the Loan  Agreement.
The Lender's  computation  of amounts  outstanding  hereunder  from time to time
shall be, as between the Lender and the Borrowers, final, conclusive and binding
for all purposes, absent manifest error.

     This Note is one of the Revolving  Credit Notes  referred to in, and issued
pursuant to, the Loan  Agreement and is subject to and governed by the terms and
conditions thereof. Capitalized terms used but not defined herein shall have the
respective  meanings set forth in the Loan  Agreement.  Reference is made to the
Loan  Agreement for  provisions  regarding  mandatory and optional  payments and
prepayments  and  acceleration  of the maturity  hereof by the Agent and Lenders
upon the happening of certain stated events. This Revolving Credit Note is being
issued  on  July  31,  1995  in  replacement  of and in  substitution  for those
certain  promissory  notes dated January 31, 1989, as amended and restated as of
November 23, 1994, made by each of Rex Radio, Kelly and Stereo Town to the order
of NatWest USA Credit Corp. and the  promissory  note dated May 31, 1994 made by
Rex Kansas to the order of NatWest USA Credit Corp.

     This Note is secured by the Loan Agreement,  certain of the Loan Documents,
the Collateral and the other agreements and instruments  referred to in the Loan
Agreement,  all as more  particularly  described  and provided  therein,  and is
entitled to the benefits thereof.

     Each Borrower hereby waives  diligence,  demand,  presentment,  protest and
notice of any kind,  and assents to extensions of the time of payment,  release,
surrender or  substitution  of security,  or  forbearance  or other  indulgence,
without notice.  The Borrowers jointly and severally agree to pay all amounts of
principal,  interest and fees under this Revolving  Credit Note without  offset,
deduction,  claim,  counterclaim,  defense or recoupment,  all of which,  except
offsets,  recoupments  or  counterclaims  which  could  not,  by  reason  of any
applicable  federal or state procedural laws, be interposed,  pleaded or alleged
in any other action, are hereby waived by the Borrowers.

     This  Revolving  Credit  Note may not be changed,  modified  or  terminated
orally,  but only by an  agreement  in writing  signed by the  Borrowers  or any
successors  or assigns  of the  Borrowers,  and the  Lender or any other  holder
hereof.

     In the event the Lender or any other  holder  hereof shall retain or engage
an attorney to collect,  enforce or protect its  interests  with respect to this
Revolving

Credit Note, the Borrowers  shall be jointly and severally  obligated to pay all
of the  costs  and  expenses  of such  collection,  enforcement  or  protection,
including attorneys' fees, whether or not suit is instituted.

     THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK  (WITHOUT  GIVING EFFECT TO THE CONFLICTS
OF LAWS PRINCIPLES THEREOF) AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS
OF THE  BORROWERS  AND INURE TO THE  BENEFIT OF THE  LENDER AND ITS  SUCCESSORS,
ENDORSEES AND ASSIGNS.

                                      2

     If any  term or  provision  of this  Revolving  Credit  Note  shall be held
invalid,  illegal  or  unenforceable,  the  validity  of  all  other  terms  and
provisions hereof shall in no way be affected thereby.

                                               REX RADIO AND TELEVISION, INC.

                                               By:______________________________
                                                  Name:  Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               KELLY & COHEN APPLIANCES, INC.

                                               By:______________________________
                                                  Name:  Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               STEREO TOWN, INC.

                                               By:______________________________
                                                  Name:  Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               REX KANSAS, INC.

                                               By:______________________________
                                                  Name:  Douglas Bruggeman
                                                  Title: Vice President, Finance

                                       3

                                      GUARANTY

     GUARANTY by REX STORES CORPORATION,  a Delaware  corporation formerly known
as Audio/Video Affiliates,  Inc. (referred to herein as the 'Guarantor'),  dated
the date set forth next to its  signature  below,  in favor of NATWEST BANK N.A.
(referred to herein as the 'Secured  Party') in its capacity as agent for itself
and for the Lenders hereinafter referred to.

     WHEREAS, Rex Radio and Television, Inc., an Ohio corporation ('Rex Radio'),
Stereo Town,  Inc., a Georgia  corporation  ('Stereo  Town'),  and Kelly & Cohen
Appliances,  Inc., an Ohio corporation  ('Kelly'),  and NatWest USA Credit Corp.
(in such capacity,  the 'Original  Lender') entered into several loan agreements
each dated as of January 31, 1989,  and Rex Kansas,  Inc., a Kansas  corporation
('Rex  Kansas'  and  together  with Rex Radio,  Stereo  Town and  Kelly,  each a
'Borrower' and,  collectively,  the 'Borrowers') and the Original Lender entered
into a Loan  Agreement  dated as of May 31, 1994  (collectively,  as  heretofore
amended, modified,  restated or supplemented in accordance with their terms, the
'Original Loan Agreements');

     WHEREAS, in connection with the Original Loan Agreements, the Guarantor and
the Original  Lender  entered into a Guaranty  dated as of January 31, 1989 (the
'Original Guaranty');

     WHEREAS,  on the date hereof the Original Loan Agreements are being amended
and restated in their  entirety to,  among other  things,  combine them into one
loan agreement  among the  Borrowers,  the Agent and the several banks and other
financial  institutions  (the  'Lenders')  from time to time parties thereto (as
amended, supplemented or otherwise modified from time to time in accordance with
its terms,  the 'Loan  Agreement';  terms used and not otherwise  defined herein
shall have the meanings  attributed thereto in the Loan Agreement),  to increase
the facility provided thereunder and to extend the term thereof; and

     WHEREAS,  it is a  condition  precedent  to the  effectiveness  of the Loan
Agreement that the Original  Guaranty be amended and restated in its entirety as
set forth below (as so amended and restated,  the 'Guaranty') in order to, among
other  things,  confirm the Guaranty is a guaranty of all  'Obligations'  at any
time and from time to time outstanding.

     NOW,  THEREFORE,  the parties hereto agree that the Original Guaranty shall
hereby be amended and restated in its entirety as follows:

     1. The Guarantor  irrevocably and unconditionally  guarantees to the Agent,
on its own behalf and on behalf of the  Lenders,  payment  when due,  whether by
acceleration  or  otherwise,  of any  and all  Obligations,  together  with  all
interest  and fees  thereon,  and all  attorneys'  fees,  costs and  expenses of
collection  incurred  by  the  Agent  and  Lenders  in  enforcing  any  of  such
Obligations.

     2. The Guarantor waives notice of acceptance of this Guaranty and notice of
any  liability  or  other   Obligations  to  which  it  may  apply,  and  waives
presentment, demand of payment, protest, notice of dishonor or nonpayment of any
such  Obligations,  liabilities,  suit or  taking  other  action by the Agent or
Lenders  against,  and any other notice to, any party liable thereon  (including
the Guarantor).

     3. The Agent may at any time and from  time to time  (whether  or not after
revocation or termination  of this  Guaranty)  without the consent of, or notice
(except as shall be required by applicable statute and cannot be waived) to, the
Guarantor,  without incurring responsibility to the Guarantor, without impairing
or releasing the  obligations  of the Guarantor  hereunder,  upon or without any
terms or conditions and in whole or in part:

     (a) change the manner,  place or terms of payment,  and/or change or extend
the time of payment of,  renew or alter,  any of the  Obligations,  any security
therefor,  or any liability  incurred directly or indirectly in respect thereof,
and the  guaranty  herein  made shall  apply to the  Obligations  as so changed,
extended, renewed or altered;

     (b) sell, exchange, release, surrender, realize upon or otherwise deal with
in any manner and in any order any property by whomsoever at any time pledged or
mortgaged to secure, or howsoever  securing,  the Obligations or any liabilities
(including any of those  hereunder)  incurred  directly or indirectly in respect
thereof  or  hereof,  and/or any offset  thereagainst,  or fail to  perfect,  or
continue the perfection of, any lien or security  interest in any such property,
or delay in the perfection of any such lien or security interest;

     (c) exercise or refrain from exercising any rights against the Borrowers or
others (including the Guarantor) or otherwise act or refrain from acting;

     (d)  settle  or  compromise  any  Obligation  or  other  liability   hereby
guaranteed,  any  security  therefor or any  liability  (including  any of those
hereunder) incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any of the

                                       2

Obligations  (whether due or not)  to creditors of the Borrowers other than  the
Agent, the Lenders and the Guarantor; and

     (e) apply any sums by whomsoever  paid or howsoever  realized to any of the
Obligations regardless of what Obligations remain unpaid.

     4. No invalidity,  irregularity or  unenforceability  of all or any part of
the Obligations or of any security therefor shall affect, impair or be a defense
to this Guaranty, and this Guaranty is a primary obligation of the Guarantor.

     5.  This  Guaranty  is a  continuing  one and  all  Obligations  and  other
liabilities  to which it applies or may apply  under the terms  hereof  shall be
conclusively  presumed  to have  been  created  in  reliance  hereon.  As to the
Guarantor,  this Guaranty  shall  continue  until  written  notice of revocation
signed  by such  Guarantor  shall  have been  actually  received  by the  Agent,
notwithstanding  a revocation  by, or complete or partial  release for any cause
of,  any  one or  more  of the  remainder  of  the  Guarantor,  or of any of the
Borrowers  or of  anyone  liable  in any  manner  for the  Obligations  or other
liabilities hereby guaranteed or for the liabilities (including those hereunder)
incurred   directly   or   indirectly   in  respect   thereof  or  hereof,   and
notwithstanding  the dissolution of the Guarantor.  No revocation or termination
hereof  shall  affect in any manner  rights  arising  under this  Guaranty  with
respect to (a) liabilities which shall have been created, contracted, assumed or
incurred prior to receipt by the Agent of written  notice of such  revocation or
termination  or (b)  liabilities  which  shall  have been  created,  contracted,
assumed  or  incurred  after  receipt of such  written  notice  pursuant  to any
contract entered into by the Agent prior to receipt of such notice; and the sole
effect  of  revocation  or  termination  hereof  shall be to  exclude  from this
Guaranty  liabilities  thereafter arising which are unconnected with liabilities
theretofore arising or transactions theretofore entered into.

     6. All notices  provided to be given to the Agent  herein  shall be sent by
registered or certified mail, return receipt requested.

     7. Any and all rights and claims of the Guarantor  against the Borrowers or
any of their property,  arising by reason of any payment by the Guarantor to the
Agent  pursuant to the  provisions of this  Guaranty,  shall be  subrogated  and
subject in right of payment to the prior payment in full of all  Obligations  to
the Agent and Lenders.

     8. All property of the  Guarantor  shall be held by the Agent  subject to a
lien and a security  interest in favor of the Agent its own behalf and on behalf
of the Lenders, as security

                                       3

for the Obligations and  any  and  all other liabilities of the Guarantor to the
Agent  and  Lenders.  The term  'property of the Guarantor'  shall  include  all
property of every description, now or  hereafter  in the possession  or  custody
of or in transit to the Agent for any purpose, including safekeeping, collection
or pledge, for account of the Guarantor, or as to which the Guarantor  may  have
any  right or  power,  including,  without  limitation, pursuant to the Security
Documents. The balance of every account of the Guarantor with, and each claim of
the Guarantor against, the Agent or any Lender existing from time to time, shall
be subject to a lien and subject to be set off against the  Obligations, and the
Agent  may at any time or from time to time  at its option  and  without  notice
appropriate and apply toward the payment of any of such  liabilities the balance
of  each  such  account  of  the  Guarantor  with,  and each  such claim  of the
Guarantor against,  the Agent and Lenders.  The  Agent  may at any time and from
time to time, without notice, transfer into its own name or that of its  nominee
any of the property of the Guarantor.

     9. If a Default  or Event of  Default  shall  occur -- then and in any such
event,  and at any  time  thereafter,  the  Agent  may,  without  notice  to the
Borrowers, the Guarantor or any aforesaid person, make the Obligations,  whether
or not then due, immediately due and payable hereunder as to the Guarantor,  and
the  Agent  shall be  entitled  to  enforce  the  obligations  of the  Guarantor
hereunder.

     10. (a) Upon a Default or Event of Default,  the Agent shall have the right
from  time to time,  without  advertisement  or  demand  upon or  notice  to the
Borrowers or the Guarantor or right of redemption except as shall be required by
applicable statute and cannot be waived, to sell, re-sell,  assign, transfer and
deliver all or part of said property of the Guarantor,  at any brokers' board or
exchange  or at  public or  private  sale,  for cash or on credit or for  future
delivery,  and  in  connection  therewith  may  grant  options  and  may  impose
reasonable  conditions  such as requiring  any purchaser of any stock so sold to
represent that such stock is purchased for investment  purposes only.  Upon each
such sale the Agent,  unless  prohibited by provision of any applicable  statute
which  cannot be waived,  may purchase  all or any part of said  property  being
sold,  free from and discharged of all trusts,  claims,  right of redemption and
equities of the Guarantor.

     (b) In the case of each such sale, or of any  proceedings to collect any of
the  Obligations,  the Guarantor  shall pay all costs and expenses of every kind
for collection,  sale or delivery,  including  reasonable  attorneys'  fees, and
after deducting such costs and expenses from the proceeds of sale or collection,
the Agent may apply any residue to pay any of the

                                       4

Obligations,  and the Guarantor shall continue liable for any  deficiency,  with
interest.

     (c) If claim is ever made upon the Agent or any  Lender  for  repayment  or
recovery of any amount or amounts received by the Agent or any Lender in payment
or on account of any of the  Obligations  and the Agent or any Lender repays all
or part of said  amount by reason  of (i) any  judgment,  decree or order of any
court or administrative body having jurisdiction over the Agent or any Lender or
any of their  property,  or (ii) any  settlement or compromise of any such claim
effected  by the  Agent or any  Lender  with any such  claimant  (including  the
Borrowers),  then and in such event the Guarantor agrees that any such judgment,
decree,  order,  settlement or compromise  shall be binding upon the  Guarantor,
notwithstanding  any revocation  hereof or the cancellation of any note or other
instrument  evidencing  any  Obligation,  and the Guarantor  shall be and remain
liable to the Agent  hereunder for the amount so repaid or recovered to the same
extent as if such amount had never originally been received by the Agent.

     11. Any  acknowledgment or new promise,  whether by payment of principal or
interest or  otherwise  and whether by the  Borrowers or others  (including  the
Guarantor),  with  respect to any of the  Obligations  shall,  if the statute of
limitations in favor of the Guarantor against the Agent or any Lender shall have
commenced to run,  toll the running of such statute of  limitations  and, if the
period of such statute of limitations shall have expired,  prevent the operation
of such statute of limitations.

     12. The Agent  shall not be bound to take any steps  necessary  to preserve
any rights in any of the property of the Guarantor against prior parties who may
be liable in connection therewith,  and the Guarantor hereby agrees to take such
steps.  The Agent may  nevertheless  at any time (a) take any action it may deem
appropriate  for the care or  preservation  of such property or of any rights of
the Guarantor or the Agent therein,  (b) demand, sue for, collect or receive any
money or property  at any time due,  payable or  receivable  on account of or in
exchange for any property of the  Guarantor,  (c) compromise and settle with any
person liable on such  property,  or (d) extend the time of payment or otherwise
change the terms thereof as to any party liable thereon,  all without notice to,
without  incurring   responsibility   to,  and  without  affecting  any  of  the
liabilities  hereunder of, the Guarantor.  The Guarantor  shall pay to the Agent
all costs and expenses,  including filing fees and attorneys' fees,  incurred by
the Agent in connection  with the custody,  care,  preservation or collection of
any of the  property  of the  Guarantor  or in  seeking  to  enforce  any of the
liabilities or obligations of the Guarantor hereunder.

                                       5

     13. (a) The Agent  shall have the right,  at any time and from time to time
upon the occurrence and during the  continuance of an Event of Default,  without
notice,  to (i)  transfer  into its own name or that of its  nominee  any of the
property of the  Guarantor;  (ii) notify any obligor on any of such  property to
make payment to the Agent of any amounts due thereon;  and/or (iii) take control
of any proceeds of any of such property.

     (b) No delay on the part of the  Agent in  exercising  any of the  options,
powers or rights,  or partial or single  exercise  thereof,  shall  constitute a
waiver thereof. No waiver of any of its rights hereunder, and no modification or
amendment of this  Guaranty,  shall be deemed to be made by the Agent unless the
same shall be in  writing,  duly  signed on behalf of the  Agent,  and each such
waiver, if any, shall apply only with respect to the specific instance involved,
and shall in no way  impair the  rights of the Agent or the  obligations  of the
Guarantor to the Agent in any other respect at any other time.

     14. The Guarantor  hereby  represents,  warrants and covenants to the Agent
that:

          (a) The Guarantor has the corporate  power to execute and deliver this
     Guaranty and to incur and perform its obligations hereunde

          (b) The  Guarantor has duly taken all  necessary  corporate  action to
     authorize the execution,  delivery and  performance of this Guaranty and to
     incur and perform its obligations hereunder;

          (c) No consent,  approval,  authorization  or other  action by, and no
     notice to or of, or declaration or filing with, any  governmental  or other
     public body,  or any other Person,  is required for the due  authorization,
     execution,  delivery and  performance  by the Guarantor of this Guaranty or
     the consummation of the transactions contemplated hereby;

          (d) The execution,  delivery and  performance by the Guarantor of this
     Guaranty do not and will not violate or otherwise conflict with any term or
     provision of any material agreement, instrument, judgment, decree, order or
     any statute, rule or governmental regulation applicable to the Guarantor or
     result in the  creation  of any Lien upon any of its  properties  or assets
     pursuant thereto;

          (e) This Guaranty has been duly authorized,  executed and delivered by
     the Guarantor and  constitutes the legal,  valid and binding  obligation of
     the Guarantor,  and is enforceable against the Guarantor in accordance with
     its terms, except as enforcement thereof may be subject to the

                                       6

     effect of any applicable bankruptcy, insolvency, reorganization, moratorium
     or  similar  law  affecting   creditors'  rights  generally,   and  general
     principles of equity (regardless of whether such enforcement is sought in a
     proceeding in equity or at law);

          (f) No proceeding referred to in paragraph (e) or (f) of Section 10.01
     of the Loan  Agreement is pending  against the Guarantor and no other event
     referred to in such Section 10.01 has occurred and is  continuing,  and the
     property of the Guarantor is not subject to any  assignment for the benefit
     of creditors;

          (g)  Without  the  prior  written  consent  of the  Required  Lenders,
     Guarantor  shall not own or operate any assets or  properties  or engage in
     any business or other activity whatsoever  (including,  without limitation,
     the  incurring  of  Indebtedness  or the  granting  of  Liens),  except  as
     Guarantor  owns,  operates  or engages in on the  Closing  Date,  except as
     otherwise may be specifically  permitted by the other Loan  Documents,  and
     except that the Guarantor shall be permitted up to an aggregate  during the
     term of the  Loan  Agreement  of  $20,000,000  for any  combination  of the
     following:

               (I)  the  repurchase   from  time  to  time  of  its  issued  and
          outstanding  common stock (each, a 'Stock  Repurchase') so long as (A)
          no Default or Event of Default  shall have  occurred and be continuing
          on the date of any such Stock  Repurchase  or would occur after giving
          effect  thereto,  (B) at all times  during  the  twelve  month  period
          immediately  preceding  any such Stock  Repurchase,  and after  giving
          effect  thereto,  availability  under the Loan Agreement  (referred to
          herein as  'Availability'  and defined  herein as the remainder of (x)
          the  Borrowing  Base  minus (y) the sum at such time of (i) the unpaid
          principal  balance of, and accrued interest and fees on, the Revolving
          Credit Loans and (ii) the Letter of Credit  Usage),  shall be equal to
          or greater than  $25,000,000 and (C) each Stock Repurchase is financed
          with (i) unsecured Indebtedness incurred from any Borrower;  provided,
          however,  that any loan or advance by any  Borrower  to the  Guarantor
          shall be subject in any event to the terms and  conditions in the Loan
          Agreement, including, without limitation, Sections 2.01, 5.02 and 9.06
          thereof,  and any  such  loan  or  advance  shall  be  evidenced  by a
          promissory  note in the  amount of such loan or  advance,  made by the
          Guarantor  to  the  order  of the  applicable  Borrower(s),  and  such
          Borrower(s)  shall  pledge  such  note  to the  Agent  (on  terms  and
          conditions  acceptable to the Agent) to be held by the Agent on behalf
          of the Lenders as additional Collateral for the Obligations,

                                       7

          (ii) the proceeds of equity  offerings by the Parent,  (iii) dividends
          received from Borrowers in accordance  with Section 9.05 of the Credit
          Agreement  or (iv) monies paid by  Borrowers  to Parent in  accordance
          with Section 9.05 of the Credit  Agreement  constituting  repayment of
          loans from Parent to Borrowers  listed on Schedule  9.02 of the Credit
          Agreement; and

               (II) the purchase (each, a 'Permitted Acquisition') of (x) assets
          of any Person which  constitute an operating  unit or business of such
          Person  or  (y)  the  capital  stock  or  other  beneficial  ownership
          interests  in  another  Person,  so long as (A) no Default or Event of
          Default  shall have occurred and be continuing on the date of any such
          Permitted  Acquisition or would occur after giving effect thereto, (B)
          at all times during the 12-month period immediately preceding any such
          Permitted Acquisition,  and after giving effect thereto,  Availability
          shall be equal to or greater than $25,000,000, (C) the Guarantor shall
          have  notified  the Agent not less than 10 days prior to the  proposed
          closing  date for any  such  acquisition,  and the  Agent  shall  have
          confirmed  within 5 days after Agent's receipt of such notice from the
          Guarantor that the proposed  acquisition complies with the Acquisition
          Standards,  (D)  each  Permitted  Acquisition  is  financed  with  (i)
          unsecured Indebtedness incurred from any Borrower;  provided, however,
          that any loan or advance by any  Borrower  to the  Guarantor  shall be
          subject  in any  event  to  the  terms  and  conditions  in  the  Loan
          Agreement, including, without limitation, Sections 2.01, 5.02 and 9.06
          thereof,  and any  such  loan  or  advance  shall  be  evidenced  by a
          promissory  note in the  amount of such loan or  advance,  made by the
          Guarantor  to  the  order  of the  applicable  Borrower(s),  and  such
          Borrower(s)  shall  pledge  such  note  to the  Agent  (on  terms  and
          conditions  acceptable to the Agent) to be held by the Agent on behalf
          of the Lenders as additional Collateral for the Obligations,  (ii) the
          proceeds of equity offerings by the Parent,  (iii) dividends  received
          from  Borrowers  in  accordance   with  Section  9.05  of  the  Credit
          Agreement,  or (iv) monies paid by Borrowers  to Parent in  accordance
          with Section 9.05 of the Credit  Agreement  constituting  repayment of
          loans from Parent to Borrowers  listed on Schedule  9.02 of the Credit
          Agreement,  (E) if the  Permitted  Acquisition  is of the  assets of a
          Person,  the Guarantor  shall cause such assets to be purchased by, or
          concurrently  with the purchase of such assets shall cause such assets
          to be  transferred  to, a Subsidiary of the Guarantor  (other than any
          Borrower except with the prior written consent of the Agent),  (F) the
          Guarantor

                                       8

          may assume, for all Permitted Acquisitions in the aggregate,  not more
          than  $10,000,000  in  liabilities,  contingent and actual and, in any
          event, including,  without limitation,  lease obligations with respect
          to real property and (G) the Guarantor shall take or cause to be taken
          such actions as the Agent shall  reasonably  request in order that the
          Agent be  granted a first  priority  security  interest  in all assets
          purchased  including,  without  limitation,  the  pledge  of any stock
          purchased  or  of  any  Subsidiary  formed,  and  a  Guaranty  of  the
          Obligations shall be issued by an new Subsidiary.

               It is further  understood and agreed that it shall  constitute an
          Event of  Default  if at any  time  during  the  twelve  month  period
          immediately  subsequent  to any  Stock  Repurchase  or  any  Permitted
          Acquisition, Availability shall be less than $25,000,000.

          (h) Notwithstanding anything to the contrary set forth herein, so long
     as no Default or Event of Default  shall have occurred and be continuing or
     would  occur  after  giving  effect to the  following,  Guarantor  shall be
     permitted  to pay  dividends  to holders of its common  stock  solely  with
     monies received from the Borrowers in accordance  with Section  9.05(ii) of
     the Loan  Agreement,  any such monies not used by Parent for the payment of
     dividends  within three (3) days of receipt  thereof by Parent or its agent
     to be immediately returned to the applicable Borrower.

     15.  The  Guarantor  waives  the right of trial by jury in the event of any
litigation  between the parties  hereto in respect of any matter  arising  under
this Guaranty and agrees that,  should the Agent bring any judicial  proceedings
in  relation  to  any  such  matter,   the  Guarantor  will  not  interpose  any
counterclaim or setoff of any nature.

     16. THIS  GUARANTY AND THE RIGHTS AND  OBLIGATIONS  OF THE AGENT AND OF THE
GUARANTOR  HEREUNDER  SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAW
OF THE  STATE  OF NEW YORK  (WITHOUT  GIVING  EFFECT  TO THE  CONFLICTS  OF LAWS
PRINCIPLES  THEREOF);  and this  Guaranty is binding upon the  Guarantor and its
executors, administrators, successors or assigns, and shall inure to the benefit
of the Agent and its  successors or assigns.  In the event that the Agent brings
any  action  or suit in any court of  record  of New York  State or the  Federal
Government to enforce any or all liabilities of the Guarantor hereunder, service
of process  may be made upon the  Guarantor  by mailing a copy of the summons to
the Guarantor's  statutory agent,  Edward M. Kress, Esq, at Chernesky,  Heyman &
Kress,  10  Courthouse  Plaza,  SW,  Suite 1100,  P.O.  Box 3808,  Dayton,  Ohio
45401-3808.

                                       9

     Anyone signing this Guaranty  shall be bound hereby,  whether or not anyone
else signs this Guaranty at any time.

Dated:  January 31, 1989, as amended and restated on July 31, 1995

REX STORES CORPORATION

2875 Needmore Road
Dayton, Ohio  45414

By:
   ----------------------------------
   Name: Douglas Bruggeman
   Title: Vice President, Finance

                           BORROWERS PLEDGE AGREEMENT

     BORROWERS  PLEDGE  AGREEMENT,  dated as of January 31, 1989, as amended and
restated through July 31, 1995, made by REX RADIO AND TELEVISION,  INC., an Ohio
corporation ('Rex Radio'),  KELLY & COHEN APPLIANCES,  INC., an Ohio Corporation
('Kelly'),  STEREO TOWN, INC., a Georgia  corporation  ('Stereo Town'),  and REX
KANSAS,  INC., a Kansas  corporation  ('Rex Kansas' and together with Rex Radio,
Kelly and  Stereo  Town,  each a  'Pledgor'  and,  jointly  and  severally,  the
'Pledgors'),  and NATWEST  BANK N.A.  ('NatWest'),  as agent (in such  capacity,
referred to herein as 'Secured Party') for the several banks and other financial
institutions  (the  'Lenders')  from time to time  parties  to the  Amended  and
Restated  Loan  Agreement  dated  as  of  July  31,  1995 (as it may be  further
amended, modified or supplemented from time to time, the 'Loan Agreement'; terms
used herein and not otherwise  defined  herein shall have the meanings  assigned
thereto in the Loan Agreement).

     WHEREAS,  Rex Radio,  Kelly,  Stereo Town and NatWest USA Credit Corp.  (in
such capacity, the 'Original Lender') entered into several Loan Agreements, each
dated as of January 31,  1989,  and Rex Kansas and the Original  Lender  entered
into a Loan Agreement dated as of May 31, 1994 (collectively, the 'Original Loan
Agreements');

     WHEREAS, in connection with the Original Loan Agreements,  Rex Radio, Kelly
and Stereo Town entered into several Pledge Agreements with the Original Lender,
each dated as of January  31,  1989,  and Rex  Kansas  and the  Original  Lender
entered  into a Pledge  Agreement  dated as of May 31, 1994  (collectively,  the
'Original Pledge Agreements');

     WHEREAS,  the parties to the Original  Pledge  Agreements wish to amend and
restate  the  Original  Pledge  Agreements  as set forth  below to,  among other
things,  combine the Original Pledge  Agreements in one pledge  agreement in the
form hereof.

     NOW,  THEREFORE,   the  parties  hereto  agree  that  the  Original  Pledge
Agreements  shall  hereby be combined and shall be amended and restated in their
entirety as follows:

     1. Grant of Security  Interest.  As  collateral  security  for the payment,
performance and observance of all  Obligations,  the each Pledgor pledges to the
Secured Party and grants the Secured Party a security  interest in the following
property (collectively, the 'Pledged Securities'):

     (a) the shares of stock and/or  obligations  and the  certificates or other
instruments or documents evidencing same more particularly described in Schedule
A annexed hereto (the 'Initial Pledged Securities');

     (b) any additional shares of stock and/or obligations of the issuers of the
Initial  Pledged  Securities  which may at any time hereafter be acquired by any
Pledgor and the certificates or other instruments or documents evidencing same;

     (c) any additional shares of stock and/or  obligations and the certificates
or  other  instruments  or  documents  evidencing  same  which  may at any  time
hereafter be delivered by any Pledgor to the Secured  Party to be held  pursuant
to this Agreement; and

     (d) all dividends,  distributions and moneys paid or distributed in respect
of or in exchange for, and all other proceeds of, any or all of the foregoing.

     2. Delivery of Certificates and Instruments.  The Pledgors shall deliver to
the Secured Party: (a) other than such  certificates and instruments  evidencing
Initial Pledged Securities previously delivered to the Secured Party pursuant to
the Original Pledge Agreements,  the original  certificates or other instruments
or  documents  evidencing  any  other  shares or other  obligations  held by any
Pledgor,  and (b) the original  certificates  or other  instruments or documents
evidencing all other Pledged  Securities  (except for Pledged  Securities  which
this Agreement specifically permits the Pledgor to retain) within ten days after
the Pledgor's  receipt  thereof.  All Pledged  Securities which are certificated
securities shall be in bearer form or, if in registered form, shall be issued in
the name of the Secured Party or endorsed to the Secured Party or in blank.

     3.  Representations,  Warranties  and Covenants.  Each Pledgor  represents,
warrants and covenants that:

     (a) the Initial Pledged  Securities  are, and all other Pledged  Securities
hereafter delivered to the Secured Party will be, owned by such Pledgor free and
clear of all  claims,  mortgages,  pledges,  liens,  encumbrances  and  security
interests of every nature whatsoever, except in favor of the Secured Party;

     (b) such  Pledgor  will  not  sell,  transfer,  assign,  pledge  or grant a
security interest in the Pledged Securities to any person other than the Secured
Party;

     (c) the Pledged  Securities  consisting of shares of stock constitute,  and
during the term of the Loan Agreement  will continue to constitute,  100% of the
outstanding shares of the issuer thereof;

                                       2

     (d) the Pledged  Securities are all of the shares and/or obligations of the
issuer thereof owned by such Pledgor;

     (e) if the  Pledged  Securities  include  securities  which are of the same
class as  securities  which have been  registered  pursuant to Section 12 of the
Securities  Exchange  Act of 1934,  as  amended,  then  either (i) such  Pledged
Securities are not 'restricted securities' within the meaning of Rule 144 issued
pursuant to the Securities  Act of 1933, as amended,  and such Pledgor is not an
'affiliate' of the issuer of such Pledged  Securities within the meaning of such
Rule 144, or (ii) such Pledgor  shall have executed and delivered to the Secured
Party,  concurrently  with the execution and delivery of this Agreement,  a Rule
144  Supplementary  Agreement in form and substance  satisfactory to the Secured
Party;

     4.  Registration.  At any time and from time to time the Secured  Party may
cause all or any of the Pledged Securities to be transferred to or registered in
its name or the name of its nominee or nominees.

     5. Voting Rights and Certain  Payments  Prior to Default.  So long as there
shall  exist no  Default  or Event of  Default  under the Loan  Agreement,  each
Pledgor shall be entitled:

     (a) To exercise,  as it shall think fit, but in a manner in the judgment of
the  Secured  Party  not  inconsistent  with  the  terms  hereof  or of the Loan
Agreement, the voting power with respect to the Pledged Securities, and for that
purpose the Secured Party shall (if the Pledged  Securities  shall be registered
in the name of the Secured Party or its nominee) execute or cause to be executed
from  time to time,  at the  expense  of the  Pledgors,  such  proxies  or other
instruments  in favor of such Pledgor or its nominee,  in such form and for such
purposes as shall be reasonably  required by such Pledgor and shall be specified
in a written request therefor of its President or a Vice-President, to enable it
to exercise such voting power with respect to the Pledged Securities; and

     (b) to receive and retain for its own account any and all dividends  (other
than stock or  liquidating  dividends) and interest at any time and from time to
time declared or paid upon any of the Pledged Securities.

     6. Extraordinary Payments and Distributions.  In case, upon the dissolution
or  liquidation  (in  whole  or in  part) of the  issuer  of any of the  Pledged
Securities, any sum shall be paid as a liquidating dividend or otherwise upon or
with respect to any of the Pledged Securities, and in case any sum shall be paid
on account of the principal of any of the Pledged  Securities  which shall be an
obligation,  such sum shall be paid over to the Secured Party  promptly,  and in
any event within ten days after

                                       3

receipt  thereof,  to be held by the  Secured  Party  as  additional  collateral
hereunder.  In case any stock  dividend  shall be declared on any of the Pledged
Securities, or any shares of stock or fractions thereof shall be issued pursuant
to any stock split involving any of the Pledged Securities,  or any distribution
of  capital  shall  be made on any of the  Pledged  Securities,  or any  shares,
obligations or other  property shall be distributed  upon or with respect to the
Pledged Securities  pursuant to a recapitalization  or  reclassification  of the
capital of the issuer thereof,  or pursuant to the dissolution,  liquidation (in
whole or in part), bankruptcy or reorganization of such issuer, or to the merger
or  consolidation of such issuer with or into another  corporation,  the shares,
obligations or other  property so distributed  shall be delivered to the Secured
Party promptly,  and in any event within ten days after receipt  thereof,  to be
held by the Secured Party as  additional  collateral  hereunder,  and all of the
same (other than cash) shall  constitute  Pledged  Securities  for all  purposes
hereof.

     7. Voting Rights and Certain Payments After Default. So long as there shall
exist a Default or Event of Default under the Loan Agreement,  the Secured Party
shall be  entitled  to  exercise  all voting  power with  respect to the Pledged
Securities and to receive and retain, as additional  collateral  hereunder,  any
and all  dividends  and  interest at any time and from time to time  declared or
paid upon any of the Pledged Securities.

     8.  Application of Cash  Collateral.  Any cash received and retained by the
Secured  Party as  additional  collateral  hereunder  pursuant to the  foregoing
provisions  may at any time and from  time to time be  applied  (in  whole or in
part) by the Secured Party, at its option,  to the payment of interest on and/or
principal  of the  Obligations  (in such order of maturity as the Secured  Party
shall in its sole discretion determine).

     9. Remedies Upon Default.

     (a) If a Default or Event of Default shall occur under the Loan  Agreement,
the Secured Party,  without  obligation to resort to other security,  shall have
the right at any time and from time to time to sell, resell, assign and deliver,
in its discretion,  all or any of the Pledged Securities, in one or more parcels
at the same or different  times,  and all right,  title and interest,  claim and
demand therein and right of redemption  thereof,  on any securities  exchange on
which  the  Pledged  Securities  or any of them may be  listed,  or at public or
private sale, for cash,  upon credit or for future  delivery,  and in connection
therewith the Secured Party may grant  options,  each Pledgor hereby waiving and
releasing  any and all  equity  or right of  redemption.  If any of the  Pledged
Securities are sold by the Secured Party upon credit or for future delivery, the
Secured Party shall not be liable for the failure of the purchaser to

                                       4

purchase or pay for the same and, in the event of any such failure,  the Secured
Party may resell such  Pledged  Securities.  In no event  shall the  Pledgors be
credited with any part of the proceeds of sale of any Pledged  Securities  until
cash payment thereof has actually been received by the Secured Party.

     (b) No demand,  advertisement or notice,  all of which are hereby expressly
waived,  shall be required in connection  with any sale or other  disposition of
any part of the Pledged  Securities which threatens to decline speedily in value
or which is of a type  customarily  sold on a recognized  market;  otherwise the
Secured  Party shall give the  Pledgors  at least ten days' prior  notice of the
time and place of any public sale and of the time after  which any private  sale
or  other  disposition  is to be  made,  which  notice  the  Pledgors  agree  is
reasonable,  all other demands,  advertisements and notices being hereby waived.
The Secured Party shall not be obligated to make any sale of Pledged  Securities
if it shall  determine not to do so,  regardless of the fact that notice of sale
may have been  given.  The Secured  Party may,  without  notice or  publication,
adjourn any public or private sale or cause the same to be  adjourned  from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further  notice,  be made at the time and place to which the same was so
adjourned.  Upon each private sale of Pledged  Securities of a type  customarily
sold in a recognized  market and upon each public sale, the Secured Party or any
holder of the  Obligations  may  purchase  all or any of the Pledged  Securities
being sold, free from any equity or right of redemption,  which is hereby waived
and  released,  and may  make  payment  therefor  by  release  or  discharge  of
Obligations  in lieu of cash  payment.  In the  case  of all  sales  of  Pledged
Securities, public or private, the Secured Party may deduct from the proceeds of
sale all  costs  and  expenses  of every  kind for sale or  delivery,  including
brokers' and  attorneys'  fees, and the Secured Party shall apply any balance of
the  proceeds  of sale to the payment of the  Obligations.  The  Pledgors  shall
remain liable for any  deficiency.  If any proceeds of sale remain after payment
in full of such costs and  expenses  and all of the  Obligations,  they shall be
paid to the Pledgors, subject to any duty of the Secured Party imposed by law to
the holder of any subordinate  security interest in the Pledged Securities known
to the Secured Party.

     (c) The Pledgors recognize that the Secured Party may be unable to effect a
public  sale of all or a part of the  Pledged  Securities  by reason of  certain
prohibitions  contained in the  Securities  Act of 1933,  as amended,  as now or
hereafter in effect,  or in applicable Blue Sky or other state  securities laws,
as now or  hereafter  in effect,  but may be  compelled to resort to one or more
private sales to a restricted  group of purchasers who will be obliged to agree,
among other things,  to acquire such Pledged  Securities  for their own account,
for investment and not with a view to the  distribution or resale  thereof.  The
Pledgors

                                       5

agree  that  private  sales  so  made  may  be at  prices  and other  terms less
favorable  to the seller  than if such  Pledged  Securities  were sold at public
sales,  and that the Secured  Party has no  obligation to delay sale of any such
Pledged Securities for the period of time necessary to permit the issuer of such
Pledged  Securities,  even if such issuer would agree,  to register such Pledged
Securities for public sale under such applicable  securities  laws. The Pledgors
agree that private sales made under the foregoing  circumstances shall be deemed
to have been made in a commercially reasonable manner.

     (d) The remedies provided herein in favor of the Secured Party shall not be
deemed exclusive, but shall be cumulative, and shall be in addition to all other
remedies in favor of the Secured Party existing at law or in equity.

     10. Care of Pledged Securities.  The Secured Party shall have no duty as to
the collection or protection of the Pledged  Securities or any income thereon or
as to the preservation of any rights pertaining thereto, beyond the safe custody
of any  thereof  actually in its  possession.  With  respect to any  maturities,
calls, conversions,  exchanges,  redemptions, offers, tenders or similar matters
relating to any of the Pledged Securities (herein called 'events'),  the Secured
Party's  duty  shall be  fully  satisfied  if (i) the  Secured  Party  exercises
reasonable care to ascertain the occurrence and to give reasonable notice to the
Pledgors of any events applicable to any Pledged Securities which are registered
and held in the name of the Secured Party or its nominee, (ii) the Secured Party
gives the Pledgors  reasonable  notice of the occurrence of any events, of which
the Secured Party has received actual knowledge,  as to any securities which are
in bearer form or are not  registered  and held in the name of the Secured Party
or its nominee  (the  Pledgors  agreeing to give the  Secured  Party  reasonable
notice of the  occurrence  of any events  applicable  to any  securities  in the
possession of the Secured Party of which the Pledgors have received  knowledge),
and (iii) in the exercise of its sole discretion (a) the Secured Party endeavors
to take such  action  with  respect  to any of the  events as the  Pledgors  may
reasonably  and  specifically  request in writing  in  sufficient  time for such
action to be evaluated and taken or (b) if the Secured Party determines that the
action requested might adversely  affect the value of the Pledged  Securities as
collateral,  the  collection  of the  Obligations,  or otherwise  prejudice  the
interests of the Secured Party, the Secured Party gives reasonable notice to the
Pledgors  that any such  requested  action  will not be taken and if the Secured
Party  makes such  determination  or if the  Pledgors  fails to make such timely
request,  the Secured Party takes such other action as it deems advisable in the
circumstances.  Except as hereinabove  specifically set forth, the Secured Party
shall have no further  obligation to ascertain the  occurrence  of, or to notify
the Pledgors with respect to, any events and shall not be

                                       6

deemed to assume any such further obligation as a result of the establishment by
the Secured Party of any internal  procedures  with respect to any securities in
its possession.  Except for any claims,  causes of action or demands arising out
of the  Secured  Party's  failure to perform  its  agreements  set forth in this
Section,  each  Pledgor  releases the Secured  Party from any claims,  causes of
action and demands at any time arising out of or with respect to this Agreement,
the Pledged  Securities  and/or any actions  taken or omitted to be taken by the
Secured Party with respect  thereto,  and each Pledgor hereby agrees to hold the
Secured Party harmless from and with respect to any and all such claims,  causes
of action and demands.

     11. Power of Attorney.  Each Pledgor  hereby  appoints the Secured Party as
the Pledgor's attorney-in-fact for the purpose of carrying out the provisions of
this  Agreement  and taking any action and executing  any  instrument  which the
Secured Party may deem necessary or advisable to accomplish the purposes hereof.
Without  limiting the generality of the foregoing,  the Secured Party shall have
the right and power to (a)  receive,  endorse  and  collect all checks and other
orders for the  payment of money made  payable to any Pledgor  representing  any
interest  or dividend  or other  distribution  payable in respect of the Pledged
Securities or any part thereof and to give full  discharge for the same, and (b)
to execute  endorsements,  assignments  or other  instruments  of  conveyance or
transfer with respect to all or any of the Pledged Securities.

     12. No Waiver.  No delay on the part of the Secured  Party or of any holder
of the  Obligations  in  exercising  any of its  options,  powers or rights,  or
partial or single exercise thereof, shall constitute a waiver thereof.

     13. Return of Pledged  Securities.  Upon payment in full of all Obligations
and the termination of the Total  Commitment,  the Pledgors shall be entitled to
the  return  of all of the  Pledged  Securities  and  all  other  cash  held  as
additional  collateral  hereunder which have not been used or applied toward the
payment of the Obligations.  The assignment by the Secured Party to the Pledgors
of such Pledged Securities and other property shall be without representation or
warranty of any nature whatsoever and wholly without recourse.

     14. Amendments and Waivers. No amendment or waiver of any provision of this
Agreement  shall in any event be  effective  unless the same shall be in writing
and signed by the Secured Party and the Pledgor.

     15.  GOVERNING  LAW. THIS  AGREEMENT AND THE RIGHTS AND  OBLIGATIONS OF THE
SECURED PARTY AND THE PLEDGOR  HEREUNDER  SHALL BE CONSTRUED IN ACCORDANCE  WITH
AND GOVERNED BY THE LAW OF THE

                                       7

STATE OF NEW YORK  (WITHOUT  GIVING  EFFECT TO THE  CONFLICT  OF LAW  PRINCIPLES
THEREOF).

     16. Submission to Jurisdiction.

     (a) Any legal action or  proceeding  with respect to this  Agreement may be
brought  in the  courts  of the  State of New York or of the  United  States  of
America for the Southern District of New York, and, by execution and delivery of
this  Agreement,  the  Pledgor  hereby  accepts for itself and in respect of its
property,  generally  and  unconditionally,  the  jurisdiction  of the aforesaid
courts.  Each Pledgor hereby  irrevocably  waives,  in connection  with any such
action or proceeding, (i) trial by jury, (ii) any objection,  including, without
limitation,  any  objection  to the  laying of venue or based on the  grounds of
forum non conveniens,  which it may now or hereafter have to the bringing of any
such action or proceeding in such respective  jurisdictions  and (iii) the right
to interpose any setoff, counterclaim or cross-claim.

     (b) Each Pledgor  irrevocably  consents to the service of process of any of
the  aforementioned  courts in any such action or  proceeding  by the mailing of
copies  thereof by  certified  mail,  postage  prepaid,  to such  Pledgor at its
address determined pursuant to Section 13.01 of the Loan Agreement.

     (c) Nothing  herein  shall  affect the right of the Secured  Party to serve
process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against any Pledgor in any other jurisdiction.

     17. Benefit of Agreement. This Agreement shall be binding upon and inure to
the  benefit  of the  Pledgors  and  the  Secured  Party  and  their  respective
successors and assigns, and all subsequent holders of the Obligations.

     18.  Counterparts.  This  Agreement  may  be  executed  in  any  number  of
counterparts and by the different parties hereto on separate counterparts,  each
of which when so executed  and  delivered  shall be an original and all of which
shall together constitute one and the same agreement.

     19.  Captions.  The  captions of the sections of this  Agreement  have been
inserted  for  convenience  only and shall not in any way affect the  meaning or
construction of any provision of this Agreement.

                                       8

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

                                               REX RADIO AND TELEVISION. INC.

                                               By:______________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               KELLY & COHEN APPLIANCES, INC.

                                               By:______________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               STEREO TOWN, INC.

                                               By:______________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               REX KANSAS, INC.

                                               By:______________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               NATWEST BANK N.A., Agent, as
                                               Secured Party

                                               By:______________________________
                                                  Name: Thomas Maiale 
                                                  Title: Vice President

                                       9

                         Schedule A to Pledge Agreement

Description of Stock:

                                    Class of                  Certificate                        Number of
Stock Issuer                         Stock                      Number                            Shares
------------                        --------                  -----------                        ---------

Description of Obligations:

                                                                                                 Original
                                    Description of                     Maturity                  Principal
Obligation Issuer                     Obligation                         Date                     Amount
-----------------                   --------------                     --------                  ---------

                                       10

                      BORROWERS GENERAL SECURITY AGREEMENT

     BORROWERS SECURITY AGREEMENT,  dated as of January 31, 1989, as amended and
restated through July 31, 1995, made by REX RADIO AND TELEVISION,  INC., an Ohio
corporation ('Rex Radio'),  KELLY & COHEN APPLIANCES,  INC., an Ohio Corporation
('Kelly'),  STEREO TOWN, INC., a Georgia  corporation  ('Stereo Town'),  and REX
KANSAS,  INC., a Kansas  corporation  ('Rex Kansas' and together with Rex Radio,
Kelly  and  Stereo  Town,  each a  'Debtor'  and,  jointly  and  severally,  the
'Debtors'),  and  NATWEST  BANK N.A.  ('NatWest'),  as agent (in such  capacity,
referred to herein as 'Secured Party') for the several banks and other financial
institutions  (the  'Lenders')  from time to time  parties  to the  Amended  and
Restated  Loan  Agreement  dated  as  of  July  31,  1995 (as it may be  further
amended, modified or supplemented from time to time, the 'Loan Agreement'; terms
used herein and not otherwise  defined  herein shall have the meanings  assigned
thereto in the Loan Agreement).

     WHEREAS,  Rex Radio,  Kelly,  Stereo Town and NatWest USA Credit Corp.  (in
such capacity, the 'Original Lender') entered into several Loan Agreements, each
dated as of January 31,  1989,  and Rex Kansas and the Original  Lender  entered
into a Loan Agreement dated as of May 31, 1994 (collectively, the 'Original Loan
Agreements');

     WHEREAS, in connection with the Original Loan Agreements,  Rex Radio, Kelly
and Stereo Town  entered  into  several  General  Security  Agreements  with the
Original  Lender,  each dated as of  January  31,  1989,  and Rex Kansas and the
Original  Lender entered into a General  Security  Agreement dated as of May 31,
1994 (collectively, the 'Original Security Agreements');

     WHEREAS,  the parties to the Original Security Agreements wish to amend and
restate the  Original  Security  Agreements  as set forth below to,  among other
things,  combine the Original Security  Agreements in one security  agreement in
the form hereof.

     NOW,  THEREFORE,  the  parties  hereto  agree  that the  Original  Security
Agreements  shall  hereby be combined and shall be amended and restated in their
entirety as follows:

     1. In  consideration  of one or more loans,  advances,  or other  financial
accommodations  at any time before, at or after the date hereof made or extended
by Secured Party to or for the

account  of  Debtors,  directly  or  indirectly,  as  principals,  guarantors or
otherwise,  at the sole discretion  of  Secured  Party  in  each  instance, each
Debtor  hereby grants to Secured Party a continuing  security interest in  and a
right of setoff against,  and each Debtor hereby  assigns to Secured Party,  the
Collateral  described in Paragraph 2, to secure  the  payment,  performance  and
observance of all Obligations (as such term is defined in  the  Loan  Agreement,
and as used hereinafter, the 'Obligations').

     2. The  Collateral is described on Schedule A annexed hereto as part hereof
and on any separate  schedule(s)  at any time or from time to time  furnished by
Debtors to Secured  Party (all of which are hereby  deemed part of this Security
Agreement).

     3. Each Debtor  warrants,  represents  and  covenants  that:  (a) the chief
executive  office and other  places of  business of such  Debtor,  the books and
records  relating to the Collateral and the Collateral are, and have been during
the  four-month  period prior to the date hereof,  located at the  addresses set
forth below and no Debtor will change any of the same,  or merge or  consolidate
with any person or change its name,  without prior written notice to and consent
of  Secured  Party;  (b) the  Collateral  is and  will be used in each  Debtor's
business  and not for  personal,  family,  household  or  farming  use;  (c) the
Collateral  is now, and at all times will be, owned by Debtors free and clear of
all liens, security interests, claims and encumbrances,  except as set permitted
under  Section  7.03 of the Loan  Agreement;  (d) no Debtor will  assign,  sell,
lease,  transfer, or otherwise dispose of or abandon, nor will any Debtor suffer
or permit any of the same to occur with  respect  to,  any  Collateral,  without
prior  written  notice to and consent of Secured  Party,  except for the sale or
lease from time to time in the ordinary  course of business of such items of the
Collateral as may constitute  inventory,  and the inclusion of 'proceeds' of the
Collateral  under the  security  interest  granted  herein shall not be deemed a
consent  by Secured  Party to any sale or other  disposition  of any  Collateral
except as expressly  permitted herein or in the Loan Agreement;  (e) each Debtor
has made,  and will  continue to make,  payment or  deposit,  or  otherwise  has
provided and will provide for the payment,  when due, of all taxes,  assessments
or  contributions  or other public or private  charges which have been or may be
levied or assessed against such Debtor,  whether with respect to any Collateral,
to any wages or salaries paid by such Debtor, or otherwise,  and will deliver to
Secured Party, on demand, certificates or other evidence satisfactory to Secured
Party attesting thereto; (f) Debtors will use the Collateral for lawful purposes
only, with all reasonable care and caution and in conformity with all applicable
laws,  ordinances  and  regulations;  (g) Debtors  will keep the  Collateral  in
first-class order, repair,  running and marketable  condition,  at Debtors' sole
cost and expense;  (h) Secured  Party shall at all times have free access to and
right of inspection of the

                                        2

Collateral  and   any  records  pertaining  thereto  (and  the   right  to  make
extracts  from  and  to  receive  from  Debtors  originals  or  true  copies  of
such  records and any papers and  instruments  relating to any  Collateral  upon
request  therefor)  and each Debtor  hereby  grants to Secured  Party a security
interest in all such  records,  papers and  instruments  to secure the  payment,
performance  and  observance of the  Obligations;  (i) the Collateral is now and
shall remain  personal  property,  and no Debtor will permit any  Collateral  to
become a fixture  without prior  written  notice to and consent of Secured Party
and without  first making all  arrangements,  and  delivering,  or causing to be
delivered,  to Secured Party all instruments and documents,  including,  without
limitation, waivers and subordination agreements by any landlords or mortgagees,
requested  by and  satisfactory  to Secured  Party to  preserve  and protect the
primary security  interest granted herein against all persons;  (j) Debtors,  at
their sole cost and expense,  will insure the Collateral in the name of and with
loss or damage  payable  solely to Secured  Party,  as its  interest may appear,
against such risks, with such companies and in such amounts,  as may be required
by Secured Party from time to time (all such policies providing 30 days' minimum
written  notice of  cancellation  to Secured  Party) and Debtors will deliver to
Secured  Party the  original or duplicate  policies,  or  certificates  or other
evidence  satisfactory  to Secured  Party  attesting  thereto,  and Debtors will
promptly notify Secured Party of any loss or damage to any Collateral or arising
from its use; (k) at its option,  Secured Party may apply any  insurance  monies
received  at any  time  to the  cost  of  repairs  to or  replacements  for  the
Collateral  and/or to payment  of the  Obligations,  whether or not due,  in any
order Secured Party may deter- mine,  any surplus  (after  payment of all costs,
reasonable  attorneys' fees and  disbursements) to be remitted to the applicable
Debtor who shall remain liable for any deficiency;  (l) each Debtor will, at its
sole cost and expense,  perform all acts and execute all documents  requested by
Secured  Party  from time to time to  evidence,  perfect,  maintain  or  enforce
Secured  Party's  primary  security  interest  granted  herein or  otherwise  in
furtherance  of the provisions of this Security  Agreement;  (m) at any time and
from time to time,  Debtors shall,  at their own sole cost and expense,  execute
and deliver to Secured Party such financing  statements  pursuant to the Uniform
Commercial Code ('UCC'), applications for certificate of title and other papers,
documents or instruments as may be requested by Secured Party in connection with
this Security Agreement,  and Debtors hereby authorizes Secured Party to execute
and file at any time and from time to time one or more  financing  statements or
copies  thereof or of this  Security  Agreement  with respect to the  Collateral
signed only by Secured Party;  (n) in its discretion,  Secured Party may, at any
time and from time to time,  whether or not a Default (as  hereinafter  defined)
has occurred,  in its name or the applicable  Debtor's or otherwise,  notify any
account  debtor or  obligor  of any  account,  contract,  document,  instrument,
chattel paper or general

                                       3

intangible  included  in  the  Collateral  to  make  payment  to  Secured Party;
(o) in  its  discretion,  Secured  Party  may, at  any  time  and  from  time to
time,  whether  or  not a Default has occurred,  demand,  sue  for,  collect  or
receive any money or property at any time payable or receivable on account of or
in exchange  for, or make any  compromise  or  settlement  deemed  desirable  by
Secured  Party  with  respect  to,  any  Collateral,  and/or  extend the time of
payment,  arrange   for  payment  in  installments,  or  otherwise   modify  the
terms  of,  or  release,  any  Collateral  or  Obligations,  all  without notice
to  or  consent  by  Debtor  and  without  otherwise  discharging  or  affecting
the  Obligations,  the  Collateral  or the  security  interest  granted  herein;
(p)  in  its  discretion,  Secured  Party  may,  at  any  time  and   from  time
to  time,  for  the  account  of  Debtors,  pay   any  amount   or  do  any  act
required of any Debtor  hereunder  and which any Debtor  fails to do or pay, and
any such  payment  shall be deemed an advance by  Secured  Party to Debtors  for
which  Debtors  shall be,  jointly  and  severally,  obligated  to pay on demand
together  with  interest  at  the  highest  rate  then  payable  on  any  of the
Obligations;  (q)  Debtors  will pay  Secured  Party  for any sums,  costs,  and
expenses which Secured Party may pay or incur pursuant to the provisions of this
Security  Agreement  or in  negotiating,  executing,  per-  fecting,  defending,
protecting or enforcing this Security Agreement or the security interest granted
herein or in enforcing  payment of the  Obligations  or otherwise in  connection
with the provisions hereof, including but not limited to court costs, collection
charges, travel expenses, and reasonable attorneys' fees, all of which, together
with interest at the highest rate then payable on any of the Obligations,  shall
be part of the  Obligations  and be payable on  demand;  (r) in its  discretion,
Secured Party may, at any time and from time to time, transfer to or register in
the  name  of  Secured  Party  or  its  nominee  any  Collateral  consisting  of
securities,  and,  whether or not so transferred  or  registered,  Secured Party
shall be entitled to receive and retain all income,  dividends  (including stock
dividends and rights to subscribe)  and other  distributions  thereon as part of
the  Collateral  and to exchange any such  Collateral  upon the  reorganization,
recapitalization,  or  readjustment of any entity issuing such securities and to
exercise  all  rights  with  respect  thereto as if it were the  absolute  owner
thereof,  provided that until the occurrence of a Default and whether or not the
Collateral is  transferred  to or registered in the name of Secured Party or its
nominee, Debtors shall be entitled to exercise the right to vote such Collateral
and, if the Collateral  has been so  transferred  or  registered,  Secured Party
shall take such  action as Debtor may  reasonably  request to enable  Debtors to
exercise such right for any purpose which is not inconsistent  with the terms of
this Security  Agreement or the  Obligations and which would not have an adverse
effect  on the  value of the  Collateral;  (s) any  proceeds  of the  Collateral
received  by any Debtor  shall not be  commingled  with other  property  of such
Debtor, but shall be segregated, held by such Debtor in trust for Secured Party,
and immediately

                                      4

delivered  to  Secured  Party  in  the  form  received,  duly  endorsed in blank
where  appropriate  to  effectuate  the  provisions hereof, the same to  be held
by  Secured  Party  as  additional  Collateral  hereunder or, at Secured Party's
option,  to be applied to payment of the Obligations,  whether or not due and in
any order; (t) in its sole  discretion,  Secured Party may, at any time and from
time to time, assign,  transfer or deliver to any transferee of any Obligations,
any  Collateral,  whereupon  Secured  Party shall be fully  discharged  from all
responsibility  and the transferee shall be vested with all powers and rights of
Secured Party hereunder with respect thereto, but Secured Party shall retain all
rights and powers with respect to any  Collateral  not assigned,  transferred or
delivered;  (u) except for any tradenames set forth below,  no Debtor has during
the  five-year  period  prior  to the  date  hereof  been  known  by or used any
tradename,  fictitious  name or any corporate name other than such Debtor's name
as set forth next to its signature  below;  and (v) if the Collateral  hereunder
includes  any  'margin  stock' as defined in  Regulation  U or G of the  Federal
Reserve  Board,  none of the proceeds of any loans or advances which are part of
the  Obligations  will be used,  directly  or  indirectly,  for the  purpose  of
purchasing  or  carrying  any margin  stock or for the  purpose of  maintaining,
reducing  or  retiring  any  indebtedness  of any  Debtor  which was  originally
incurred to purchase any securities which are currently margin stock.

     4. For the purposes of this Security  Agreement,  an Event of Default under
and as defined in the Loan Agreement shall be referred to herein as a 'Default.'

     5. Upon the occurrence of any Default and at any time  thereafter,  Secured
Party may, without notice to or demand upon any Debtor,  declare any Obligations
immediately  due and payable and Secured Party shall have the  following  rights
and remedies  (to the extent  permitted  by  applicable  law) in addition to all
rights and remedies of a secured  party under the UCC or of Secured  Party under
the Obligations,  all such rights and remedies being  cumulative,  not exclusive
and enforceable alternatively, successively or concurrently:

     (a)  Secured  Party may at any time and from time to time,  with or without
judicial process or the aid and assistance of others, enter upon any premises in
which any Collateral may be located and,  without  resistance or interference by
Debtor,  take possession of the Collateral;  and/or dispose of any Collateral on
any such  premises;  and/or  require  Debtor to assemble  and make  available to
Secured Party at the joint and several  expense of Debtor any  Collateral at any
place and time  designated by Secured  Party which is  reasonably  convenient to
both  parties;  and/or  remove any  Collateral  from any such  premises  for the
purpose  of  effecting  sale or  other  disposition  thereof  (and if any of the
Collateral consists of motor vehicles, Secured Party may use the

                                       5

applicable  Debtor's  license   plates);  and/or  sell,  resell,  lease,  assign
and  deliver,   grant  options  for  or  otherwise  dispose  of  any  Collateral
in  its  then  condition   or  following any commercially reasonable preparation
or  processing,  at  public  or  private  sale  or  proceedings or otherwise, by
one  or  more  contracts,  in  one or  more  parcels,  at  the same or different
times,  with  or  without  having  the  Collateral  at  the  place  of  sale  or
other disposition,  for cash and/or credit, and upon any terms, at such place(s)
and  time(s) and to such  person(s)  as Secured  Party  deems best,  all without
demand,  notice or  advertisement  whatsoever  except  that where an  applicable
statute  requires  reasonable  notice of sale or other  disposition  each Debtor
hereby  agrees that the sending of five days' notice by ordinary  mail,  postage
prepaid, to any address of Debtors set forth in this Security Agreement shall be
deemed  reasonable  notice  thereof.  If any Collateral is sold by Secured Party
upon credit or for future  delivery,  Secured  Party shall not be liable for the
failure of the  purchaser  to pay for same and in such event  Secured  Party may
resell such Collateral.  Secured Party may buy any Collateral at any public sale
and, if any Collateral is of a type customarily  sold in a recognized  market or
is of the  type  which is the  subject  of  widely  distributed  standard  price
quotations,  Secured  Party may buy such  Collateral at private sale and in each
case may make payment  therefor by any means.  Secured  Party may apply the cash
proceeds  actually received from any sale or other disposition to the reasonable
expenses of retaking,  holding,  preparing  for sale,  selling,  leasing and the
like, to reasonable  attorneys'  fees and all legal,  travel and other  expenses
which may be incurred by Secured Party in attempting to collect the  Obligations
or enforce  this  Security  Agreement  or in the  prosecution  or defense of any
action or proceeding  related to the subject matter of this Security  Agreement;
and then to the  Obligations  in such order and as to  principal  or interest as
Secured Party may desire;  and Debtors shall remain jointly and severally liable
and will pay Secured  Party on demand any  deficiency  remaining,  together with
interest  thereon at the highest  rate then payable on the  Obligations  and the
balance of any expenses unpaid, with any surplus to be paid to Debtors,  subject
to any duty of Secured  Party  imposed  by law to the holder of any  subordinate
security  interest in the Collateral known to Secured Party.  Debtors  recognize
that  Secured  Party  may be  unable  to  effect  a  public  sale of  Collateral
consisting  of  securities  by reason of certain  prohibitions  contained in the
Securities  Act of 1933,  but may be  compelled to resort to one or more private
sales to a restricted  group of purchasers  who will be obliged to agree,  among
other things,  to acquire such securities for their own account,  for investment
and not with a view to the  distribution or resale  thereof.  Each Debtor agrees
that any such  Collateral  sold at any such  private sale may be sold at a price
and upon other  terms less  favorable  to the seller than if sold at public sale
and  that  each  such  private  sale  shall be  deemed  to have  been  made in a
commercially  reasonable manner. Secured Party shall have no obligation to

                                      6

delay sale of any such  securities  for the  period of time necessary  to permit
the issuer of such  securities,  even if such issuer  would  agree,  to register
such securities for public sale under the Securities Act of 1933.

     (b) Secured Party may appropriate,  set off and apply to the payment of the
Obligations, any Collateral in or coming into the possession of Secured Party or
its agents, without notice to Debtors and in such manner as Secured Party may in
its discretion determine.

     (c) Secured  Party may  exercise  all voting  rights and other  powers with
respect to Collateral  consisting of securities as if it were the absolute owner
thereof,  the exercise of which shall not adversely affect the security interest
granted herein or the Obligations.

     6. To  effectuate  the terms and  provisions  hereof,  each  Debtor  hereby
designates  and appoints  Secured  Party and each of its  designees or agents as
attorney-in-fact  of such Debtor,  irrevocably  and with power of  substitution,
with authority to: receive, open and dispose of all mail addressed to any Debtor
and notify the Post Office  authorities  to change the  address for  delivery of
mail  addressed to such Debtor to such address as Secured  Party may  designate;
endorse the name of such Debtor on any notes, acceptances, checks, drafts, money
orders,  instruments or other evidences of Collateral that may come into Secured
Party's  possession;  sign the name of such Debtor on any  invoices,  documents,
drafts  against  and  notices to account  debtors or  obligors  of such  Debtor,
assignments and requests for  verification of accounts;  execute proofs of claim
and loss; execute  endorsements,  assignments or other instruments of conveyance
or  transfer;  adjust and  compromise  any claims  under  insurance  policies or
otherwise;  execute  releases;  and do all other  acts and things  necessary  or
advisable in the sole  discretion of Secured Party to carry out and enforce this
Security  Agreement  or the  Obligations.  All acts  done  under  the  foregoing
authorization are hereby ratified and approved and neither Secured Party nor any
designee  or  agent  thereof  shall be  liable  for any  acts of  commission  or
omission,  for any error of  judgment  or for any  mistake of fact or law.  This
power of  attorney  being  coupled  with an interest  is  irrevocable  while any
Obligations shall remain unpaid.

     7.  Secured  Party shall have the duty to exercise  reasonable  care in the
custody and  preservation of any Collateral in its possession,  which duty shall
be fully satisfied if Secured Party  maintains safe custody of such  Collateral,
and, with respect to any maturities, calls, conversions, exchanges, redemptions,
offers, tenders or similar matters relating to any such Collateral  constituting
securities (herein called 'events'), (i) Secured Party exercises reasonable care
to ascertain the

                                       7

occurrence and to give  reasonable  notice to Debtors of any  events  applicable
to  any  securities  which  are  registered  and  held  in  the  name of Secured
Party  or  its  nominee,  (ii)  Secured  Party  gives  Debtors reasonable notice
of  the  occurrence  of  any  events,  of  which   Secured  Party  has  received
actual  knowledge,  as  to  any  securities  which  are  in  bearer  form or are
not registered and held in the name of Secured Party or its nominee (each Debtor
hereby agreeing to give Secured Party reasonable notice of the occurrence of any
events  applicable to any securities in the possession of Secured Party of which
any  Debtor  has  received  knowledge),  and (iii) in the  exercise  of its sole
discretion  (a) Secured Party  endeavors to take such action with respect to any
of the events as Debtors may reasonably and  specifically  request in writing in
sufficient  time for such  action to be  evaluated  and taken or (b) if  Secured
Party  determines that the action  requested might adversely affect the value of
the securities as  collateral,  the collection of the  Obligations  secured,  or
otherwise  prejudice  the  interest  of  Secured  Party,   Secured  Party  gives
reasonable  notice to Debtors that any such  requested  action will not be taken
and if Secured  Party makes such  determination  or if Debtors fail to make such
timely  request,  Secured Party takes such other action as it deems advisable in
the circumstances.  Except as hereinabove  specifically set forth, Secured Party
shall have no further  obligation to ascertain the  occurrence  of, or to notify
Debtors  with  respect to, any events and shall not be deemed to assume any such
further  obligation  as a result of the  establishment  by Secured  Party of any
internal procedures with respect to any securities in its possession,  nor shall
Secured Party be deemed to assume any other responsibility for, or obligation or
duty with respect to, any Collateral,  or its use, of any nature or kind, or any
matter or proceedings  arising out of or relating  thereto,  including,  without
limitation,  any  obligation or duty to take any action to collect,  preserve or
protect  its or any  Debtor's  rights in the  Collateral  or  against  any prior
parties thereto,  but the same shall be at Debtors' sole risk and responsibility
at all times. Each Debtor hereby releases Secured Party from any claims,  causes
of  action  and  demands  at any time  arising  out of or with  respect  to this
Security  Agreement,  the  Obligations,  the  Collateral  and its use and/or any
actions taken or omitted to be taken by Secured Party with respect thereto,  and
each Debtor hereby  agrees to hold Secured Party  harmless from and with respect
to any and all such claims, causes of action and demands.  Secured Party's prior
recourse to any Collateral shall not constitute a condition of any demand,  suit
or proceeding for payment or collection of the Obligations.  No act, omission or
delay by Secured  Party  shall  constitute  a waiver of its rights and  remedies
hereunder  or  otherwise.  No single or partial  waiver by Secured  Party of any
Default or right or remedy  which it may have  shall  operate as a waiver of any
other  Default,  right or  remedy or of the same  Default,  right or remedy on a
future occasion.  Each Debtor hereby waives presentment,  notice of

                                       8

dishonor  and  protest  of  all  instruments  included  in  or  evidencing   any
Obligations  or  Collateral,  and  all  other  notices  and  demands  whatsoever
(except as expressly provided  herein).  Any legal action or proceeding relating
to the Obligations, this  Security Agreement or the  Collateral, or any document
or instrument delivered with respect to any of the  Obligations,  may be brought
in the courts of the State of New York or of the  United  States of America  for
the Southern District of New  York,  and  by  execution  and  delivery  of  this
Security  Agreement, each Debtor hereby accepts for itself and in respect of its
property, generally  and  unconditionally,  the  jurisdiction  of  the aforesaid
courts.  Each Debtor hereby irrevocably waives,  in  connection  with  any  such
action or proceeding, (i) trial by jury, (ii) any objection,  including, without
limitation, any objection to the laying of venue  or  based  on  the  grounds of
forum non conveniens, which it  may now or hereafter have to the bringing of any
such action or proceeding in such respective jurisdictions and (iii)  the  right
to interpose any non-compulsory setoff, counterclaim or cross-claim. Each Debtor
irrevocably  consents  to  the  service of  process of any of the aforementioned
courts in any such  action or  proceeding  by the  mailing of copies  thereof by
registered or certified mail, postage prepaid,  to the Parent at its address set
forth in Section 13.01 of the Loan  Agreement.  Nothing  herein shall affect the
right of the Secured Party to serve process in any other manner permitted by law
or to commence legal  proceedings or otherwise proceed against any Debtor in any
other  jurisdiction,  subject in each  instance  to the  provisions  hereof with
respect to rights and  remedies.  Any Debtor so served shall appear or answer to
such process within thirty days after the mailing thereof. Should such Debtor so
served fail to appear or answer within said thirty-day period, such Debtor shall
be deemed in default and judgment may be entered by Secured  Party  against such
Debtor for the amount or such other  relief as may be demanded in any process so
served.  All terms herein shall have the meanings as defined in the UCC,  unless
the context otherwise requires.  No provision hereof shall be modified,  altered
or limited except by a written instrument  expressly  referring to this Security
Agreement and to such  provision,  and executed by the party to be charged.  The
execution  and delivery of this Security  Agreement  has been  authorized by the
Board of  Directors  of each  Debtor and by any  necessary  votes or consents of
stockholders of each Debtor.  This Security  Agreement and all Obligations shall
be binding upon the heirs, executors, administrators,  successors, or assigns of
each Debtor and shall,  together  with the rights and remedies of Secured  Party
hereunder, inure to the benefit of Secured Party, its successors,  endorsees and
assigns.  If any term of this  Security  Agreement  shall be held to be invalid,
illegal or unenforceable, the validity of all other terms hereof shall in no way
be affected  thereby.  Secured Party is authorized to annex hereto any schedules
referred to herein. Each Debtor acknowledges  receipt of a copy of this Security
Agreement.

                                       9

     IN WITNESS  WHEREOF,  the  undersigned has executed or caused this Security
Agreement to be executed in the State of New York as of the date first above set
forth.

                                               REX RADIO AND TELEVISION, INC.

                                               By:___________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               KELLY & COHEN APPLIANCES, INC.

                                               By:___________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               STEREO TOWN, INC.

                                               By:___________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               REX KANSAS, INC.

                                               By:___________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               NATWEST BANK N.A., Agent,
                                                 as Secured Party

                                               By:___________________________
                                                  Name: Thomas Maiale 
                                                  Title: Vice President

                                        10

            Trade Name(s) (if any):

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

Chief Executive Office:

         SEE EXHIBIT A

Other Place(s) of Business:

         SEE EXHIBIT A

Location of books and records relating to the Collateral:

         SEE EXHIBIT A

Designated agent for service of process (if applicable):

         SEE EXHIBIT A

Name of record owner(s) of real estate where any Collateral is or may be affixed
to realty:

         SEE EXHIBIT A

                                       11

                                  SCHEDULE A

     (a) All Debtors'  present and future  accounts,  contract  rights,  general
intangibles, chattel paper, documents and instruments, as such terms are defined
in the Uniform  Commercial Code,  including,  without  limitation,  all accounts
receivable  and other  receivables  of any  kind,  and all  obligations  for the
payment of money arising out of the sale of goods,  rendition of services or the
lease by the Debtors of their property ('Accounts'); (b) all of the right, title
and interest of the Debtors in and to the goods or other property represented by
or securing any of the Accounts or described in invoices relating  thereto;  (c)
all rights of the Debtors as unpaid  vendors or lienors,  including  stoppage in
transit, replevin and reclamation; (d) all additional amounts due to the Debtors
from any customer,  irrespective  of whether such  additional  amounts have been
specifically  assigned to the Secured Party;  (e) all  guaranties,  mortgages on
real or personal  property,  leases or other agreements on property  securing or
relating to any of the items referred to in subparagraph  (a) above, or acquired
for the purpose of securing  and  enforcing  any of such items;  (f) all moneys,
securities and other property and the proceeds thereof, now or hereafter held or
received by, or in transit to the Secured Party from or for the Debtors  whether
for safekeeping, pledge, custody, transmission, collection or otherwise, and all
claims of the Debtors against,  the Secured Party at any time existing;  (g) all
deposit  accounts,  as such term is defined in the Uniform  Commercial Code, and
all  claims  with  respect  thereto;  (h) all raw  materials,  work in  process,
finished  goods,  and all other  inventory of whatever  kind or nature,  and all
wrapping,  packaging,  advertising  and shipping  materials,  and any  documents
relating  thereto,  and all  labels,  logos  and other  devices,  names or marks
affixed or to be affixed  thereto for purposes of selling or of identifying  the
same or the seller or manufacturer  thereof and all right, title and interest of
the  Debtors  therein  and  thereto,  wherever  located,  whether  now  owned or
hereafter  acquired by the Debtors;  (i) all  equipment,  machinery,  furniture,
fixtures, dies, tools, vehicles,  trucks, cars, tractors,  trailers,  forklifts,
cranes,  hoists and tangible personal property of the Debtors,  wherever located
and whether now owned or hereafter acquired by the Debtors, all substitution and
replacements  therefor, and all accessions and attachments to or relating to any
of the foregoing;  (j) all of the Debtors' general intangibles of every kind and
description,  all  patents,  patent  applications,  tradenames,  copyrights  and
trademarks  and the goodwill of the business  symbolized  thereby,  and Federal,
State  and local  tax  refund  claims of all  kinds,  all  whether  now owned or
hereafter  acquired;  (k) all other  personal  property  and other assets of the
Debtors  now owned or  hereafter  acquired;  (1) all  books,  records  and other
property relating to or referring to any

                                       12

of the foregoing,  including,  without  limitation, all books, records, computer
programs,  ledger  cards and other property  and general intangibles at any time
evidencing  or relating  to  the  Accounts;  and  (m) all proceeds of any of the
foregoing  in  whatever  form, including, without limitation, any claims against
third  parties  for  loss  or  damage to or destruction of  any  or  all  of the
foregoing  and cash,  negotiable  instruments  and  other  instruments  for  the
payment of money,  chattel  paper, security agreements or other documents.

                                         13

Trade Name(s):

See Exhibit A

Chief Executive Office:                      All location(s) of Collateral:

2875 Needmore Road
Dayton, Ohio                                 See Exhibit A

Other Place(s) of Business:

See Exhibit A

Location of books and records
relating to the Collateral:                  Name of  record  owner(s)  of
                                             real  estate  where any  Collateral
2875 Needmore Road                           is or may be affixed to realty:
Dayton, Ohio

Designated agent for service                 See Exhibit B
of process (if applicable):

Ronald E. Durbin
2875 Needmore Road
Dayton, Ohio

                                        14

                            PARENT PLEDGE AGREEMENT

     PARENT  PLEDGE  AGREEMENT,  dated as of January  31,  1989,  as amended and
restated through  July 31,  1995,  made  by REX STORES  CORPORATION,  previously
known as Audio/Video  Affiliates,  Inc., a Delaware corporation (the 'Pledgor'),
with an address as appears with the  signature  below,  in favor of NatWest Bank
N.A., as agent for the Lenders hereinafter defined (the 'Secured Party').

     WHEREAS, Rex Radio and Television, Inc., an Ohio corporation ('Rex Radio'),
Stereo Town,  Inc., a Georgia  corporation  ('Stereo  Town'),  and Kelly & Cohen
Appliances,  Inc., an Ohio corporation  ('Kelly'),  and NatWest USA Credit Corp.
(in such capacity,  the 'Original  Lender') entered into several loan agreements
each dated as of January 31, 1989,  and Rex Kansas,  Inc., a Kansas  corporation
('Rex  Kansas'  and  together  with Rex Radio,  Stereo  Town and  Kelly,  each a
'Borrower' and,  collectively,  the 'Borrowers') and the Original Lender entered
into a Loan  Agreement  dated as of May 31, 1994  (collectively,  as  heretofore
amended, modified,  restated or supplemented in accordance with their terms, the
'Original Loan Agreements');

     WHEREAS,  on the date hereof the Original Loan Agreements are being amended
and restated in their  entirety to,  among other  things,  combine them into one
loan agreement (as further amended, supplemented or otherwise modified from time
to time in accordance with its terms, the 'Loan  Agreement';  terms used and not
otherwise defined herein shall have the meanings  attributed thereto in the Loan
Agreement) among the Borrowers, the Secured Party as agent for the several banks
and other  financial  institutions  (the  'Lenders')  from time to time  parties
thereto, and the Lenders;

     WHEREAS,  in connection with the Original Loan  Agreements,  Debtor and the
Original  Lender  entered  into a  Guaranty  dated as of January  31,  1989 (the
'Original Guaranty');

     WHEREAS,  in connection with the Loan Agreement,  the Original  Guaranty is
being amended and restated in its entirety to, among other  things,  confirm the
Guaranty  is a  guaranty  of all  obligations  at any time and from time to time
outstanding under the Loan Agreement (as amended,  modified or supplemented from
time to time, the 'Guaranty');

     WHEREAS,  in connection with the Original Loan  Agreements,  Debtor and the
Original Lender entered into a Pledge

                                       

Agreement dated as of January 31, 1989 (the 'Original Pledge Agreement'); and

     WHEREAS,  it is a  condition  precedent  to the  effectiveness  of the Loan
Agreement  that the  Original  Pledge  Agreement  be amended and restated in its
entirety as set forth below;

     NOW, THEREFORE, the parties hereto agree that the Original Pledge Agreement
shall hereby be amended and restated in its entirety as follows:

     1. Grant of Security  Interest.  As  collateral  security  for the payment,
performance  and observance of all  indebtedness,  obligations,  liabilities and
agreements  of any  kind  of the  Pledgor  to the  Secured  Party,  under  or in
connection  with the  Guaranty and the Loan  Agreement,  whether now existing or
hereafter  arising (as such term is defined in the Loan  Agreement,  and as used
hereinafter,  the  'Obligations'),  the Pledgor pledges to the Secured Party and
grants  the  Secured  Party  a  security  interest  in  the  following  property
(collectively, the 'Pledged Securities'):

     (a) the shares of stock and/or  obligations  and the  certificates or other
instruments or documents evidencing same more particularly described in Schedule
A annexed hereto (the 'Initial Pledged Securities');

     (b) any additional shares of stock and/or obligations of the issuers of the
Initial  Pledged  Securities  which may at any time hereafter be acquired by the
Pledgor and the certificates or other instruments or documents evidencing same;

     (c) any additional shares of stock and/or  obligations and the certificates
or  other  instruments  or  documents  evidencing  same  which  may at any  time
hereafter be delivered by the Pledgor to the Secured  Party to be held  pursuant
to this Agreement; and

     (d) all dividends,  distributions and moneys paid or distributed in respect
of or in exchange for, and all other proceeds of, any or all of the foregoing.

     2. Delivery of Certificates and  Instruments.  The Pledgor shall deliver to
the Secured Party: (a) other than the original certificates or other instruments
or documents  evidencing the Initial Pledged Securities  previously delivered to
the Secured  Party  pursuant to the  Original  Pledge  Agreement,  the  original
certificates  or other  instruments or documents  evidencing any other shares of
other  obligations held by Pledgor,  and (b) the original  certificates or other
instruments or documents evidencing all other Pledged Securities (except for

                                       2

Pledged  Securities  which this  Agreement  specifically  permits the Pledgor to
retain)  within  ten days  after the  Pledgor's  receipt  thereof.  All  Pledged
Securities which are  certificated  securities shall be in bearer form or, if in
registered form, shall be issued in the name of the Secured Party or endorsed to
the Secured Party or in blank.

     3.  Representations,  Warranties  and  Covenants.  The Pledgor  represents,
warrants and covenants that:

     (a) the Initial Pledged  Securities  are, and all other Pledged  Securities
hereafter  delivered to the Secured Party will be, owned by the Pledgor free and
clear of all  claims,  mortgages,  pledges,  liens,  encumbrances  and  security
interests of every nature whatsoever, except in favor of the Secured Party:

     (b) the Pledgor will not sell, transfer, assign, pledge or grant a security
interest in the Pledged Securities to any person other than the Secured Party;

     (c) the Pledged  Securities  consisting of shares of stock constitute,  and
until payment in full of the  Obligations  will continue to constitute,  100% of
the outstanding shares of the issuer thereof:

     (d) the Pledged  Securities are all of the shares and/or obligations of the
issuer thereof owned by the Pledgor;

     (e) if the  Pledged  Securities  include  securities  which are of the same
class as  securities  which have been  registered  pursuant to Section 12 of the
Securities  Exchange  Act of 1934,  as  amended,  then  either (i) such  Pledged
Securities are not 'restricted securities' within the meaning of Rule 144 issued
pursuant to the  Securities  Act of 1933, as amended,  and the Pledgor is not an
'affiliate' of the issuer of such Pledged  Securities within the meaning of such
Rule 144, or (ii) the Pledgor  shall have  executed and delivered to the Secured
Party,  concurrently  with the execution and delivery of this Agreement,  a Rule
144  Supplementary  Agreement in form and substance  satisfactory to the Secured
Party;

     (f) if the Pledged  Securities  include  any  'margin  stock' as defined in
Regulations  U or G of the Federal  Reserve  Board,  none of the proceeds of any
loans or advances which are part of the  Obligations  will be used,  directly or
indirectly,  for the purpose of  purchasing  or carrying any margin stock or for
the purpose of maintaining, reducing or retiring any indebtedness of the Pledgor
which was  originally  incurred to purchase any  securities  which are currently
margin stock;

     (g) the Pledgor is a corporation  duly organized,  validly  existing and in
good standing under the laws of the

                                       3

jurisdiction of its  incorporation  and has the corporate power and authority to
own its properties and to transact the business in which it is engaged;

     (h) the  Pledgor  has the  corporate  power and  authority  to execute  and
deliver, and to perform its obligations under, this Agreement, and has taken all
necessary corporate action to authorize the execution,  delivery and performance
of this Agreement;

     (i) this Agreement  constitutes the legal,  valid and binding obligation of
the Pledgor, enforceable in accordance with its terms;

     (j) the  execution,  delivery and  performance  of this  Agreement will not
violate  any  law or  regulation,  or any  order  or  decree  of  any  court  or
governmental instrumentality,  or any provision of the charter or by-laws of, or
any securities issued by, the Pledgor,  and will not conflict with, or result in
the breach of, or constitute a default under, any indenture,  mortgage,  deed of
trust, agreement or other instrument to which the Pledgor is a party or by which
it is bound,  and will not result in the  creation  or  imposition  of any lien,
charge or  encumbrance  upon any of the property of the Pledgor  pursuant to the
provisions of any of the foregoing; and

     (k)  no  consent  of  any  other  person  (including,  without  limitation,
stockholders  and  creditors of the Pledgor)  and no consent,  license,  permit,
approval  or   authorization   of,   exemption  by,  notice  or  report  to,  or
registration,  filing or declaration with, any governmental  instrumentality  is
required in connection with the execution,  delivery,  performance,  validity or
enforceability of this Agreement.

     4.  Registration.  At any time and from time to time the Secured  Party may
cause all or any of the Pledged Securities to be transferred to or registered in
its name or the name of its nominee or nominees.

     5. Voting Rights and Certain  Payments  Prior to Default.  So long as there
shall  exist no  condition,  event or act which  constitutes,  or with notice or
lapse of time or both would  constitute,  a default hereunder or a default or an
event of  default  under  any of the other  Obligations,  the  Pledgor  shall be
entitled:

     (a) To exercise,  as it shall think fit, but in a manner in the judgment of
the Secured Party not inconsistent  with the terms hereof or of the Obligations,
the voting  power with respect to the Pledged  Securities,  and for that purpose
the Secured  Party shall (if the Pledged  Securities  shall be registered in the
name of the Secured Party or its nominee)

                                       4

execute  or cause  to be  executed  from  time to time,  at the  expense  of the
Pledgor,  such  proxies  or other  instruments  in favor of the  Pledgor  or its
nominee,  in such form and for such purposes as shall be reasonably  required by
the  Pledgor  and  shall be  specified  in a  written  request  therefor  of its
President or a  Vice-President,  to enable it to exercise such voting power with
respect to the Pledged Securities; and

     (b) to receive and retain for its own account any and all dividends  (other
than stock or  liquidating  dividends) and interest at any time and from time to
time declared or paid upon any of the Pledged Securities.

     6. Extraordinary Payments and Distributions.  In case, upon the dissolution
or  liquidation  (in  whole  or in  part) of the  issuer  of any of the  Pledged
Securities, any sum shall be paid as a liquidating dividend or otherwise upon or
with respect to any of the Pledged Securities, and in case any sum shall be paid
on account of the principal of any of the Pledged  Securities  which shall be an
obligation,  such sum shall be paid over to the Secured Party  promptly,  and in
any event within ten days after receipt thereof, to be held by the Secured Party
as additional collateral hereunder. In case any stock dividend shall be declared
on any of the Pledged  Securities,  or any shares of stock or fractions  thereof
shall be  issued  pursuant  to any  stock  split  involving  any of the  Pledged
Securities,  or any  distribution of capital shall be made on any of the Pledged
Securities,  or any shares,  obligations  or other property shall be distributed
upon or with respect to the Pledged Securities pursuant to a recapitalization or
reclassification  of the  capital  of the issuer  thereof,  or  pursuant  to the
dissolution,  liquidation (in whole or in part), bankruptcy or reorganization of
such  issuer,  or to the merger or  consolidation  of such  issuer  with or into
another  corporation,  the shares,  obligations or other property so distributed
shall be delivered to the Secured  Party  promptly,  and in any event within ten
days  after  receipt  thereof,  to be held by the  Secured  Party as  additional
collateral  hereunder,  and all of the same (other  than cash) shall  constitute
Pledged Securities for all purposes hereof.

     7. Voting Rights and Certain Payments After Default. So long as there shall
exist a  Default  or  Event of  Default  (as such  term is  defined  in the Loan
Agreement),  the Secured  Party shall be entitled to exercise  all voting  power
with respect to the Pledged  Securities and to receive and retain, as additional
collateral  hereunder,  any and all  dividends and interest at any time and from
time to time declared or paid upon any of the Pledged Securities.

     8.  Application of Cash  Collateral.  Any cash received and retained by the
Secured  Party as  additional  collateral  hereunder  pursuant to the  foregoing
provisions may at any time

                                       5

and from time to time be applied (in whole or in part) by the Secured Party,  at
its option,  to the payment of interest on and/or  principal of the  Obligations
(in such order of  maturity as the  Secured  Party shall in its sole  discretion
determine).

     9. Remedies Upon Default.

     (a) If a Default or Event of  Default  (as such term is defined in the Loan
Agreement) shall occur, the Secured Party, without obligation to resort to other
security,  shall  have the  right  at any  time  and from  time to time to sell,
resell,  assign  and  deliver,  in its  discretion,  all  or any of the  Pledged
Securities,  in one or more  parcels  at the same or  different  times,  and all
right,  title and  interest,  claim and demand  therein and right of  redemption
thereof,  on any securities  exchange on which the Pledged  Securities or any of
them may be listed,  or at public or private sale, for cash,  upon credit or for
future  delivery,  and in  connection  therewith  the  Secured  Party  may grant
options, the Pledgor hereby waiving and releasing any and all equity or right of
redemption.  If any of the Pledged Securities are sold by the Secured Party upon
credit or for future  delivery,  the  Secured  Party shall not be liable for the
failure of the  purchaser  to  purchase or pay for the same and, in the event of
any such failure,  the Secured Party may resell such Pledged  Securities.  In no
event shall the Pledgor be credited with any part of the proceeds of sale of any
Pledged  Securities until cash payment thereof has actually been received by the
Secured Party.

     (b) No demand,  advertisement or notice,  all of which are hereby expressly
waived,  shall be required in connection  with any sale or other  disposition of
any part of the Pledged  Securities which threatens to decline speedily in value
or which is of a type  customarily  sold on a recognized  market;  otherwise the
Secured Party shall give the Pledgor at least ten days' prior notice of the time
and place of any public  sale and of the time after  which any  private  sale or
other  disposition is to be made, which notice the Pledgor agrees is reasonable,
all other demands,  advertisements  and notices being hereby waived. The Secured
Party shall not be obligated to make any sale of Pledged  Securities if it shall
determine not to do so, regardless of the fact that notice of sale may have been
given. The Secured Party may, without notice or publication,  adjourn any public
or  private  sale  or  cause  the  same  to be  adjourned  from  time to time by
announcement  at the time and place fixed for sale,  and such sale may,  without
further  notice,  be made at the  time  and  place  to  which  the  same  was so
adjourned.  Upon each private sale of Pledged  Securities of a type  customarily
sold in a recognized  market and upon each public sale, the Secured Party or any
holder of the  Obligations  may  purchase  all or any of the Pledged  Securities
being sold, free from any equity or right of redemption,  which is hereby waived
and released, and may make

                                       6

payment therefor by release or discharge of Obligations in lieu of cash payment.
In the case of all sales of Pledged Securities,  public or private,  the Secured
Party may deduct from the  proceeds of sale all costs and expenses of every kind
for sale or delivery,  including  brokers' and attorneys'  fees, and the Secured
Party  shall  apply any  balance of the  proceeds  of sale to the payment of the
Obligations. The Pledgor shall remain liable for any deficiency. If any proceeds
of sale remain  after  payment in full of such costs and expenses and all of the
Obligations,  they  shall  be paid to the  Pledgor,  subject  to any duty of the
Secured Party imposed by law to the holder of any subordinate  security interest
in the Pledged Securities known to the Secured Party.

     (c) The Pledgor recognizes that the Secured Party may be unable to effect a
public  sale of all or a part of the  Pledged  Securities  by reason of  certain
prohibitions  contained in the  Securities  Act of 1933,  as amended,  as now or
hereafter in effect,  or in applicable Blue Sky or other state  securities laws,
as now or  hereafter  in effect,  but may be  compelled to resort to one or more
private sales to a restricted  group of purchasers who will be obliged to agree,
among other things,  to acquire such Pledged  Securities  for their own account,
for investment and not with a view to the  distribution or resale  thereof.  The
Pledgor  agrees that private sales so made may be at prices and other terms less
favorable  to the seller  than if such  Pledged  Securities  were sold at public
sales,  and that the Secured  Party has no  obligation to delay sale of any such
Pledged Securities for the period of time necessary to permit the issuer of such
Pledged  Securities,  even if such issuer would agree,  to register such Pledged
Securities for public sale under such  applicable  securities  laws. The Pledgor
agrees that private sales made under the foregoing circumstances shall be deemed
to have been made in a commercially reasonable manner.

     (d) The remedies provided herein in favor of the Secured Party shall not be
deemed exclusive, but shall be cumulative, and shall be in addition to all other
remedies in favor of the Secured Party existing at law or in equity.

     10. Care of Pledged Securities.  The Secured Party shall have no duty as to
the collection or protection of the Pledged  Securities or any income thereon or
as to the preservation of any rights pertaining thereto, beyond the safe custody
of any  thereof  actually in its  possession.  With  respect to any  maturities,
calls, conversions,  exchanges,  redemptions, offers, tenders or similar matters
relating to any of the Pledged Securities (herein called 'events'),  the Secured
Party's  duty  shall be  fully  satisfied  if (i) the  Secured  Party  exercises
reasonable care to ascertain the occurrence and to give reasonable notice to the
Pledgor of any events applicable to any Pledged  Securities which are registered
and held in the name of the Secured Party or its nominee, (ii) the Secured Party
gives

                                       7

the Pledgor  reasonable  notice of the  occurrence  of any events,  of which the
Secured Party has received actual  knowledge,  as to any securities which are in
bearer form or are not  registered  and held in the name of the Secured Party or
its nominee (the Pledgor agreeing to give the Secured Party reasonable notice of
the  occurrence of any events  applicable to any securities in the possession of
the Secured Party of which the Pledgor has received knowledge), and (iii) in the
exercise of its sole  discretion  (a) the Secured  Party  endeavors to take such
action  with  respect to any of the events as the  Pledgor  may  reasonably  and
specifically  request  in  writing  in  sufficient  time for such  action  to be
evaluated  and taken or (b) if the  Secured  Party  determines  that the  action
requested  might  adversely  affect  the  value  of the  Pledged  Securities  as
collateral,  the  collection  of the  Obligations,  or otherwise  prejudice  the
interests of the Secured Party, the Secured Party gives reasonable notice to the
Pledgor  that any such  requested  action  will not be taken and if the  Secured
Party  makes such  determination  or if the  Pledgor  fails to make such  timely
request,  the Secured Party takes such other action as it deems advisable in the
circumstances.  Except as hereinabove  specifically set forth, the Secured Party
shall have no further  obligation to ascertain the  occurrence  of, or to notify
the  Pledgor  with  respect to, any events and shall not be deemed to assume any
such further obligation as a result of the establishment by the Secured Party of
any internal procedures with respect to any securities in its possession. Except
for any claims,  causes of action or demands  arising out of the Secured Party's
failure  to  perform  its  agreements  set forth in this  Section,  the  Pledgor
releases the Secured Party from any claims,  causes of action and demands at any
time arising out of or with respect to this  Agreement,  the Pledged  Securities
and/or  any  actions  taken or  omitted  to be taken by the  Secured  Party with
respect  thereto,  and the  Pledgor  hereby  agrees  to hold the  Secured  Party
harmless from and with respect to any and all such claims,  causes of action and
demands.

     11. Power of Attorney. The Pledgor hereby appoints the Secured Party as the
Pledgor's  attorney-in-fact  for the purpose of carrying out the  provisions  of
this  Agreement  and taking any action and executing  any  instrument  which the
Secured Party may deem necessary or advisable to accomplish the purposes hereof.
Without  limiting the generality of the foregoing,  the Secured Party shall have
the right and power to (a)  receive,  endorse  and  collect all checks and other
orders for the  payment of money made  payable to the Pledgor  representing  any
interest  or dividend  or other  distribution  payable in respect of the Pledged
Securities or any part thereof and to give full  discharge for the same, and (b)
to execute  endorsements,  assignments  or other  instruments  of  conveyance or
transfer with respect to all or any of the Pledged Securities.

                                       8

     12.  Further  Assurances.  The Pledgor  shall,  upon request of the Secured
Party, duly execute and deliver, or cause to be duly executed and delivered,  to
the Secured Party such further  instruments  and take and cause to be taken such
further  actions as may be necessary or proper in the reasonable  opinion of the
Secured Party to carry out more  effectually the provisions and purposes of this
Agreement.

     13. No Waiver.  No delay on the part of the Secured  Party or of any holder
of the  Obligations  in  exercising  any of its  options,  powers or rights,  or
partial or single exercise thereof, shall constitute a waiver thereof.

     14. Return of Pledged  Securities.  Upon payment in full of all Obligations
and  termination of the Total  Commitment,  the Pledgor shall be entitled to the
return of all of the Pledged  Securities  and all other cash held as  additional
collateral  hereunder  which have not been used or applied toward the payment of
the  Obligations.  The  assignment  by the Secured  Party to the Pledgor of such
Pledged  Securities  and  other  property  shall be  without  representation  or
warranty of any nature whatsoever and wholly without recourse.

     15. Notices.  All notices and other  communications  to any party hereunder
shall be in writing and shall be personally delivered or sent by certified mail,
postage prepaid,  return receipt  requested,  or by a reputable courier delivery
service or by prepaid  telex or  telecopy  and shall be given to the  address or
telex or telecopier number for such party set forth below such party's signature
to this  Agreement,  or to such other address or telex or  telecopier  number as
such party may hereafter  specify by notice to the other party. Each such notice
or other  communication  shall be effective (a) if given by telex or telecopier,
when such telex or telecopy is  transmitted  to the telex or  telecopier  number
specified by this Section and the  appropriate  answerback  or  confirmation  is
received,  (b) if given by certified mail, 72 hours after such  communication is
deposited  with the post  office,  addressed as aforesaid or (c) if given by any
other means (including,  without limitation,  by courier), when delivered at the
address specified by this Section.

     16. Amendments and Waivers. No amendment or waiver of any provision of this
Agreement  shall in any event be  effective  unless the same shall be in writing
and signed by the Secured Party and the Pledgor.

     17.  GOVERNING  LAW. THIS  AGREEMENT AND THE RIGHTS AND  OBLIGATIONS OF THE
SECURED PARTY AND THE PLEDGOR  HEREUNDER  SHALL BE CONSTRUED IN ACCORDANCE  WITH
AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK  (WITHOUT  GIVING EFFECT TO THE
CONFLICT OF LAW PRINCIPLES THEREOF).

                                       9

     18. Submission to Jurisdiction.

     (a) Any legal action or  proceeding  with respect to this  Agreement may be
brought  in the  courts  of the  State of New York or of the  United  States  of
America for the Southern District of New York, and, by execution and delivery of
this  Agreement,  the  Pledgor  hereby  accepts for itself and in respect of its
property,  generally  and  unconditionally,  the  jurisdiction  of the aforesaid
courts.  The Pledgor  hereby  irrevocably  waives,  in connection  with any such
action or proceeding, (i) trial by jury, (ii) any objection,  including, without
limitation,  any  objection  to the  laying of venue or based on the  grounds of
forum non conveniens,  which it may now or hereafter have to the bringing of any
such action or proceeding in such respective  jurisdictions  and (iii) the right
to interpose any setoff, counterclaim or cross-claim.

     (b) The  Pledgor  irrevocably  consents to the service of process of any of
the  aforementioned  courts in any such action or  proceeding  by the mailing of
copies thereof by certified mail, postage prepaid, to the Pledgor at its address
determined pursuant to Section 15 hereof.

     (c) Nothing  herein  shall  affect the right of the Secured  Party to serve
process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Pledgor in any other jurisdiction.

     19. Benefit of Agreement. This Agreement shall be binding upon and inure to
the benefit of the Pledgor and the Secured Party and their respective successors
and assigns, and all subsequent holders of the Obligations.

     20.  Counterparts.  This  Agreement  may  be  executed  in  any  number  of
counterparts and by the different parties hereto on separate counterparts,  each
of which when so executed  and  delivered  shall be an original and all of which
shall together constitute one and the same agreement.

     21.  Captions.  The  captions of the sections of this  Agreement  have been
inserted  for  convenience  only and shall not in any way affect the  meaning or
construction of any provision of this Agreement.

                                       10

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

                                                     REX STORES CORPORATION

                                               By:______________________________
                                                  Name: Douglas Bruggeman
                                                  Title: Vice President, Finance

                                               Address:  2875 Needmore Road
                                                         Dayton, Ohio  45414
                                                         Fax No. (513) 449-2921

                                               NATWEST BANK N.A., as Agent, as
                                               Secured Party

                                               By:______________________________
                                                  Name: Thomas Maiale 
                                                  Title: Vice President

                                               Address:  175 Water Street
                                                         New York, NY  10038
                                                         Fax No. (212) 602-2154

                                       11

                         Schedule A to Pledge Agreement

Description of Stock:

                                    Class of                  Certificate                        Number of
Stock Issuer                         Stock                      Number                            Shares
------------                         -----                      ------                            ------

Description of Obligations:

                                                                                                 Original
                                    Description of                     Maturity                  Principal
Obligation Issuer                     Obligation                         Date                     Amount
-----------------                     ----------                         ----                     ------

                                       12

                       PARENT GENERAL SECURITY AGREEMENT

     PARENT  SECURITY  AGREEMENT,  dated as of January 31, 1989,  as amended and
restated through  July 31,  1995,  made  by REX STORES  CORPORATION,  previously
known as Audio/Video Affiliates, Inc. (the 'Debtor'), with an address as appears
with the  signature  below,  in favor of  NatWest  Bank  N.A.,  as agent for the
Lenders hereinafter defined (the 'Secured Party').

     WHEREAS, Rex Radio and Television, Inc., an Ohio corporation ('Rex Radio'),
Stereo Town,  Inc., a Georgia  corporation  ('Stereo  Town'),  and Kelly & Cohen
Appliances,  Inc., an Ohio corporation  ('Kelly'),  and NatWest USA Credit Corp.
(in such capacity,  the 'Original  Lender') entered into several loan agreements
each dated as of January 31, 1989,  and Rex Kansas,  Inc., a Kansas  corporation
('Rex  Kansas'  and  together  with Rex Radio,  Stereo  Town and  Kelly,  each a
'Borrower' and,  collectively,  the 'Borrowers') and the Original Lender entered
into a Loan  Agreement  dated as of May 31, 1994  (collectively,  as  heretofore
amended, modified,  restated or supplemented in accordance with their terms, the
'Original Loan Agreements');

     WHEREAS,  on the date hereof the Original Loan Agreements are being amended
and restated in their  entirety to,  among other  things,  combine them into one
loan agreement (as further amended, supplemented or otherwise modified from time
to time in accordance with its terms, the 'Loan  Agreement';  terms used and not
otherwise defined herein shall have the meanings  attributed thereto in the Loan
Agreement) among the Borrowers, the Secured Party as agent for the several banks
and other  financial  institutions  (the  'Lenders')  from time to time  parties
thereto, and the Lenders;

     WHEREAS,  in connection with the Original Loan  Agreements,  Debtor and the
Original  Lender  entered  into a  Guaranty  dated as of January  31,  1989 (the
'Original Guaranty');

     WHEREAS,  in connection with the Loan Agreement,  the Original  Guaranty is
being amended and restated in its entirety to, among other  things,  confirm the
Guaranty  is a  guaranty  of all  obligations  at any time and from time to time
outstanding under the Loan Agreement (as amended,  modified or supplemented from
time to time, the 'Guaranty');

     WHEREAS,  in connection with the Original Loan  Agreements,  Debtor and the
Original  Lender entered into a General  Security  Agreement dated as of January
31, 1989 (the 'Original Security Agreement'); and

     WHEREAS,  it is a  condition  precedent  to the  effectiveness  of the Loan
Agreement  that the Original  Security  Agreement be amended and restated in its
entirety as set forth below;

     NOW,  THEREFORE,  the  parties  hereto  agree  that the  Original  Security
Agreement shall hereby be amended and restated in its entirety as follows:

     1. In  consideration  of one or more loans,  advances,  or other  financial
accommodations  at any time before, at or after the date hereof made or extended
by  Secured  Party  and the  Lenders  to or for the  account  of the  Borrowers,
directly or  indirectly,  as  principals,  guarantors or otherwise,  at the sole
discretion  of Secured Party in each  instance,  Debtor hereby grants to Secured
Party a  continuing  security  interest  in and a right of setoff  against,  and
Debtor hereby assigns to Secured Party, the Collateral described in Paragraph 2,
to secure the payment,  performance and observance of all Obligations including,
without  limitation,  all  obligations at any time and from time to time arising
under the Guaranty (as such term is defined in the Loan  Agreement,  and as used
hereinafter, the 'Obligations').

     2. The  Collateral is described on Schedule A annexed hereto as part hereof
and on any separate  schedule(s)  at any time or from time to time  furnished by
Debtor to Secured  Party (all of which are hereby  deemed part of this  Security
Agreement).

     3. Debtor warrants,  represents and covenants that: (a) the chief executive
office and other places of business of Debtor, the books and records relating to
the  Collateral  and the  Collateral  are,  and have been during the  four-month
period prior to the date hereof,  located at the  addresses  set forth below and
Debtor will not change any of the same, or merge or consolidate  with any person
or change  its name,  without  prior  written  notice to and  consent of Secured
Party;  (b) the Collateral is and will be used in Debtor's  business and not for
personal,  family,  household or farming use; (c) the  Collateral is now, and at
all  times  will be,  owned by  Debtor  free and  clear of all  liens,  security
interests,  claims and  encumbrances,  except as permitted under Section 7.03 of
the Loan  Agreement;  (d) Debtor  will not assign,  sell,  lease,  transfer,  or
otherwise  dispose of or abandon,  nor will  Debtor  suffer or permit any of the
same to occur with respect to, any Collateral,  without prior written no tice to
and consent of Secured Party,  except for the sale or lease from time to time in
the  ordinary  course  of  business  of  such  items  of the  Collateral  as may
constitute  inventory,  and the inclusion of 'proceeds' of the Collateral  under
the security  interest  granted  herein shall not be deemed a consent by Secured
Party to any sale or other disposition of any Collateral except

                                       2

as expressly  permitted herein;  (e) Debtor has made, and will continue to make,
payment or deposit,  or otherwise has provided and will provide for the payment,
when due, of all taxes,  assessments or contributions or other public or private
charges  which have been or may be levied or assessed  against  Debtor,  whether
with  respect to any  Collateral,  to any wages or salaries  paid by Debtor,  or
otherwise,  and will deliver to Secured Party, on demand,  certificates or other
evidence  satisfactory to Secured Party attesting  thereto;  (f) Debtor will use
the Collateral for lawful  purposes only,  with all reasonable  care and caution
and in conformity  with all applicable  laws,  ordinances and  regulations;  (g)
Debtor  will keep the  Collateral  in  first-class  order,  repair,  running and
marketable condition, at Debtor's sole cost and expense; (h) Secured Party shall
at all times have free access to and right of inspection of the  Collateral  and
any  records  pertaining  thereto  (and the right to make  extracts  from and to
receive from Debtor  originals or true copies of such records and any papers and
instruments  relating to any Collateral upon request therefor) and Debtor hereby
grants to Secured  Party a security  interest  in all such  records,  papers and
instruments   to  secure  the  payment,   performance   and  observance  of  the
Obligations;  (i) the Collateral is now and shall remain personal property,  and
Debtor will not permit any Collateral to become a fixture  without prior written
notice  to  and  consent  of  Secured   Party  and  without   first  making  all
arrangements,  and delivering,  or causing to be delivered, to Secured Party all
instruments  and  documents,   including,   without   limitation,   waivers  and
subordination  agreements  by any  landlords  or  mortgagees,  requested  by and
satisfactory  to Secured  Party to preserve  and  protect  the primary  security
interest  granted herein against all persons;  (j) Debtor,  at its sole cost and
expense,  will  insure  the  Collateral  in the name of and with  loss or damage
payable solely to Secured Party, as its interest may appear, against such risks,
with such  companies  and in such  amounts,  as may be required by Secured Party
from time to time (all such policies providing 30 days minimum written notice of
cancellation  to Secured  Party) and Debtor  will  deliver to Secured  Party the
original or duplicate policies,  or certificates or other evidence  satisfactory
to Secured Party  attesting  thereto,  and Debtor will promptly  notify  Secured
Party of any loss or damage to any  Collateral  or arising  from its use; (k) at
its option, Secured Party may apply any insurance monies received at any time to
the cost of repairs to or replacements  for the Collateral  and/or to payment of
the  Obligations,  whether or not due, in any order Secured Party may determine,
any  surplus  (after  payment  of all  costs,  reasonable  attorneys'  fees  and
disbursements)  to be  remitted  to  Debtor  who  shall  remain  liable  for any
deficiency;  (l) Debtor will, at its sole cost and expense, perform all acts and
execute all documents  requested by Secured Party from time to time to evidence,
perfect,  maintain or enforce Secured Party's primary security  interest granted
herein or otherwise in furtherance of the provisions of this Security Agreement;
(m) at any time  and  from  time to time,

                                       3

Debtor shall, at its sole cost and expense, execute and deliver to Secured Party
such financing  statements  pursuant to the Uni- form  Commercial  Code ('UCC'),
applications for certificate of title and other papers, documents or instruments
as may be requested by Secured Party in connection with this Security Agreement,
and Debtor hereby  authorizes  Secured Party to execute and file at any time and
from time to time one or more financing  statements or copies thereof or of this
Security  Agreement with respect to the Collateral signed only by Secured Party;
(n) in its  discretion,  Secured  Party may,  at any time and from time to time,
whether or not a Default (as hereinafter  defined) has occurred,  in its name or
Debtor's  or  otherwise,  notify any account  debtor or obligor of any  account,
contract, document,  instrument, chattel paper or general intangible included in
the Collateral to make payment to Secured Party; (o) in its discretion,  Secured
Party  may,  at any time and from time to time,  whether  or not a  Default  has
occurred,  demand, sue for, collect or receive any money or property at any time
payable or receivable  on account of or in exchange for, or make any  compromise
or settlement deemed desirable by Secured Party with respect to, any Collateral,
and/or  extend the time of  payment,  arrange for  payment in  installments,  or
otherwise  modify the terms of, or release,  any Collateral or Obligations,  all
without  notice to or consent by Debtor and  without  otherwise  discharging  or
affecting  the  Obligations,  the  Collateral or the security  interest  granted
herein;  (p) in its discretion,  Secured Party may, at any time and from time to
time, for the account of Debtor, pay any amount or do any act required of Debtor
hereunder  and which Debtor  fails to do or pay,  and any such payment  shall be
deemed an advance by Secured  Party to Debtor  payable on demand  together  with
interest at the highest rate then payable on any of the Obligations;  (q) Debtor
will pay Secured Party for any sums, costs, and expenses which Secured Party may
pay or  incur  pursuant  to the  provisions  of this  Security  Agreement  or in
negotiating,  executing,  perfecting,  defending,  protecting or enforcing  this
Security  Agreement  or the  security  interest  granted  herein or in enforcing
payment of the  Obligations  or  otherwise  in  connection  with the  provisions
hereof,  including but not limited to court costs,  collection  charges,  travel
expenses,  and reasonable  attorneys' fees, all of which, together with interest
at the highest rate then payable on any of the Obligations, shall be part of the
Obligations and be payable on demand; (r) in its discretion,  Secured Party may,
at any time  and  from  time to time,  transfer  to or  register  in the name of
Secured  Party or its nominee any  Collateral  consisting  of  securities,  and,
whether or not so transferred or registered,  Secured Party shall be entitled to
receive and retain all income,  dividends  (including stock dividends and rights
to subscribe) and other  distributions  thereon as part of the Collateral and to
exchange  any such  Collateral  upon the  reorganization,  recapitalization,  or
readjustment  of any entity  issuing such  securities and to exercise all rights
with respect  thereto as if it were the absolute  owner  thereof,

                                       4

provided  that  until  the  occurrence  of a  Default  and  whether  or not  the
Collateral is  transferred  to or registered in the name of Secured Party or its
nominee,  Debtor shall be entitled to exercise the right to vote such Collateral
and, if the Collateral  has been so  transferred  or  registered,  Secured Party
shall take such  action as Debtor  may  reasonably  request to enable  Debtor to
exercise such right for any purpose which is not inconsistent  with the terms of
this Security  Agreement or the  Obligations and which would not have an adverse
effect  on the  value of the  Collateral;  (s) any  proceeds  of the  Collateral
received by Debtor shall not be commingled  with other  property of Debtor,  but
shall be segregated,  held by Debtor in trust for Secured Party, and immediately
delivered to Secured  Party in the form  received,  duly endorsed in blank where
appropriate to effectuate the provisions  hereof, the same to be held by Secured
Party as additional  Collateral  hereunder or, at Secured Party's option,  to be
applied to payment of the Obligations,  whether or not due and in any order; (t)
in its sole  discretion,  Secured  Party may, at any time and from time to time,
assign,  transfer  or  deliver  to  any  transferee  of  any  Obligations,   any
Collateral,  whereupon  Secured  Party  shall be fully  discharged  from all re-
sponsibility  and the  transferee  shall be vested with all powers and rights of
Secured Party hereunder with respect thereto, but Secured Party shall retain all
rights and powers with respect to any  Collateral  not assigned,  transferred or
delivered;  (u) except for any tradenames set forth below, Debtor has not during
the  five-year  period  prior  to the  date  hereof  been  known  by or used any
tradename, fictitious name or any corporate name other than Debtor's name as set
forth next to its signature below; and (v) if the Collateral  hereunder includes
any  'margin  stock' as defined in  Regulations  U or G of the  Federal  Reserve
Board,  none of the  proceeds  of any  loans or  advances  which are part of the
Obligations will be used, directly or indirectly,  for the purpose of purchasing
or  carrying  any margin  stock or for the purpose of  maintaining,  reducing or
retiring any  indebtedness  of Debtor which was originally  incurred to purchase
any securities which are currently margin stock.

     4. For the purposes of this Security  Agreement,  an Event of Default under
and as defined in the Loan Agreement shall be referred to herein as a 'Default.'

     5. Upon the occurrence of any Default and at any time  thereafter,  Secured
Party may,  without  notice to or demand upon  Debtor,  declare any  Obligations
immediately  due and payable and Secured Party shall have the  following  rights
and remedies  (to the extent  permitted  by  applicable  law) in addition to all
rights and remedies of a secured  party under the UCC or of Secured  Party under
the Obligations,  all such rights and remedies being  cumulative,  not exclusive
and enforceable alternatively, successively or concurrently:

                                       5

     (a)  Secured  Party may at any time and from time to time,  with or without
judicial process or the aid and assistance of others, enter upon any premises in
which any Collateral may be located and,  without  resistance or interference by
Debtor,  take possession of the Collateral;  and/or dispose of any Collateral on
any such  premises;  and/or  require  Debtor to assemble  and make  available to
Secured  Party at the  expense  of Debtor any  Collateral  at any place and time
designated  by Secured  Party which is  reasonably  convenient  to both parties;
and/or remove any Collateral from any such premises for the purpose of effecting
sale or other  disposition  thereof  (and if any of the  Collateral  consists of
motor vehicles,  Secured Party may use Debtor's  license  plates);  and/or sell,
resell, lease, assign and deliver, grant options for or otherwise dispose of any
Collateral  in its then  condition  or  following  any  commercially  reasonable
preparation  or  processing,  at  public  or  private  sale  or  proceedings  or
otherwise,  by one or more  contracts,  in one or more  parcels,  at the same or
different  times,  with or without having the Collateral at the place of sale or
other disposition,  for cash and/or credit, and upon any terms, at such place(s)
and  time(s) and to such  person(s)  as Secured  Party  deems best,  all without
demand,  notice or  advertisement  whatsoever  except  that where an  applicable
statute requires  reasonable notice of sale or other  disposition  Debtor hereby
agrees that the sending of five days' notice by ordinary mail,  postage prepaid,
to any address of Debtor set forth in this  Security  Agreement  shall be deemed
reasonable  notice  thereof.  If any  Collateral  is sold by Secured  Party upon
credit or for future delivery, Secured Party shall not be liable for the failure
of the purchaser to pay for same and in such event Secured Party may resell such
Collateral.  Secured Party may buy any Collateral at any public sale and, if any
Collateral  is of a type  customarily  sold in a recognized  market or is of the
type  which is the  subject of widely  distributed  standard  price  quotations,
Secured Party may buy such  Collateral at private sale and in each case may make
payment  therefor  by any  means.  Secured  Party may  apply  the cash  proceeds
actually received from any sale or other disposition to the reasonable  expenses
of retaking,  holding,  preparing  for sale,  selling,  leasing and the like, to
reasonable attorneys' fees and all legal, travel and other expenses which may be
incurred by Se-cured  Party in attempting to collect the  Obligations or enforce
this  Security  Agreement  or in the  prosecution  or  defense  of any action or
proceeding related to the subject matter of this Security Agreement; and then to
the  Obligations  in such order and as to principal or interest as Secured Party
may desire;  and Debtor shall remain liable and will pay Secured Party on demand
any  deficiency  remaining,  together with interest  thereon at the highest rate
then payable on the Obligations and the balance of any expenses unpaid, with any
surplus to be paid to Debtor,  subject to any duty of Secured  Party  imposed by
law to the holder of any subordinate  security  interest in the Collateral known
to Secured Party. Debtor recognizes that Secured Party may be unable to

                                       6

effect a public sale of Collateral consisting of securities by reason of certain
prohibitions  contained in the  Securities  Act of 1933, but may be compelled to
resort to one or more private sales to a restricted group of purchasers who will
be obliged to agree,  among other things,  to acquire such  securities for their
own account,  for investment and not with a view to the  distribution  or resale
thereof.  Debtor agrees that any such  Collateral  sold at any such private sale
may be sold at a price and upon other terms less favorable to the seller than if
sold at public sale and that each such private sale shall be deemed to have been
made in a commercially reasonable manner. Secured Party shall have no obligation
to delay sale of any such  securities for the period of time necessary to permit
the issuer of such securities, even if such issuer would agree, to register such
securities for public sale under the Securities Act of 1933.

     (b) Secured Party may appropriate,  set off and apply to the payment of the
Obligations, any Collateral in or coming into the possession of Secured Party or
its agents,  without notice to Debtor and in such manner as Secured Party may in
its discretion determine.

     (c) Secured  Party may  exercise  all voting  rights and other  powers with
respect to Collateral  consisting of securities as if it were the absolute owner
thereof,  the exercise of which shall not adversely affect the security interest
granted herein or the Obligations.

     6. To effectuate the terms and provisions hereof,  Debtor hereby designates
and   appoints   Secured   Party  and  each  of  its   designees  or  agents  as
attorney-in-fact  of Debtor,  irrevocably and with power of  substitution,  with
authority  to:  receive,  open and dispose of all mail  addressed  to Debtor and
notify the Post Office  authorities  to change the address for  delivery of mail
addressed to Debtor to such address as Secured Party may designate;  endorse the
name  of  Debtor  on any  notes,  acceptances,  checks,  drafts,  money  orders,
instruments or other  evidences of Collateral that may come into Secured Party's
possession;  sign the name of Debtor on any invoices,  documents, drafts against
and notices to account  debtors or obligors of Debtor,  assignments and requests
for  verification  of  accounts;  execute  proofs  of claim  and  loss;  execute
endorsements, assignments or other instruments of conveyance or transfer; adjust
and  compromise  any claims  under  insurance  policies  or  otherwise;  execute
releases;  and do all other acts and things  necessary  or advisable in the sole
discretion of Secured Party to carry out and enforce this Security  Agreement or
the  Obligations.  All acts done under the  foregoing  authorization  are hereby
ratified  and  approved  and  neither  Secured  Party nor any  designee or agent
thereof shall be liable for any acts of commission or omission, for any error of
judgment or for any mistake of fact or law. This power of attorney

                                       7

being coupled with an interest is irrevocable while any Obligations shall remain
unpaid.

     7.  Secured  Party shall have the duty to exercise  reasonable  care in the
custody and  preservation of any Collateral in its possession,  which duty shall
be fully satisfied if Secured Party  maintains safe custody of such  Collateral,
and, with respect to any maturities, calls, conversions, exchanges, redemptions,
offers, tenders or similar matters relating to any such Collateral  constituting
securities (herein called 'events'), (i) Secured Party exercises reasonable care
to  ascertain  the  occurrence  and to give  reasonable  notice to Debtor of any
events applicable to any securities which are registered and held in the name of
Secured Party or its nominee,  (ii) Secured Party gives Debtor reasonable notice
of the  occurrence of any events,  of which  Secured  Party has received  actual
knowledge,  as to any securities  which are in bearer form or are not registered
and held in the name of Secured Party or its nominee  (Debtor hereby agreeing to
give Secured Party reasonable  notice of the occurrence of any events applicable
to any  securities  in the  possession  of  Secured  Party of which  Debtor  has
received  knowledge),  and  (iii) in the  exercise  of its sole  discretion  (a)
Secured Party endeavors to take such action with respect to any of the events as
Debtor may reasonably and specifically request in writing in sufficient time for
such action to be evaluated  and taken or (b) if Secured Party  determines  that
the action  requested  might  adversely  affect the value of the  securities  as
collateral,  the collection of the Obligations  secured,  or otherwise prejudice
the interest of Secured Party,  Secured Party gives reasonable  notice to Debtor
that any such requested action will not be taken and if Secured Party makes such
determination  or if Debtor  fails to make such timely  request,  Secured  Party
takes such other action as it deems  advisable in the  circumstances.  Except as
hereinabove  specifically  set  forth,  Secured  Party  shall  have  no  further
obligation to ascertain the  occurrence of, or to notify Debtor with respect to,
any events and shall not be deemed to assume any such  further  obligation  as a
result of the  establishment  by Secured Party of any internal  procedures  with
respect to any securities in its  possession,  nor shall Secured Party be deemed
to assume any other  responsibility  for, or obligation or duty with respect to,
any Collateral,  or its use, of any nature or kind, or any matter or proceedings
arising  out  of  or  relating  thereto,  including,   without  limitation,  any
obligation  or duty to take any action to  collect,  preserve  or protect its or
Debtor's rights in the Collateral or against any prior parties thereto,  but the
same shall be at  Debtor's  sole risk and  responsibility  at all times.  Debtor
hereby releases  Secured Party from any claims,  causes of action and demands at
any  time  arising  out of or with  respect  to  this  Security  Agreement,  the
Obligations,  the  Collateral and its use and/or any actions taken or omitted to
be taken by Secured Party with respect thereto, and Debtor hereby agrees to hold
Secured Party

                                       8

harmless from and with respect to any and all such claims,  causes of action and
demands. Secured Party's prior recourse to any Collateral shall not constitute a
condition of any demand,  suit or  proceeding  for payment or  collection of the
Obligations.  No act,  omission  or delay by Secured  Party shall  constitute  a
waiver of its rights and remedies  hereunder or otherwise.  No single or partial
waiver by  Secured  Party of any  Default  or right or remedy  which it may have
shall operate as a waiver of any other  Default,  right or remedy or of the same
Default, right or remedy on a future occasion. Debtor hereby waives presentment,
notice of dishonor and protest of all instruments  included in or evidencing any
Obligations or Collateral,  and all other notices and demands whatsoever (except
as expressly provided herein).  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE SECURED PARTY AND THE DEBTOR HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK  (WITHOUT  GIVING EFFECT TO THE
CONFLICT OF LAW PRINCIPLES THEREOF). Any legal action or proceeding relating the
Obligations,  this  Security  Agreement  or the  Collateral,  or any document or
instrument  delivered with respect to any of the Obligations,  may be brought in
the courts of the State of New York or of the United  States of America  for the
Southern  District of New York,  and by execution  and delivery of this Security
Agreement,  the Debtor hereby accepts for itself and in respect of its property,
generally and  unconditionally,  the jurisdiction of the aforesaid  courts.  The
Debtor  hereby  irrevocably  waives,  in  connection  with  any such  action  or
proceeding,  (i)  trial  by  jury,  (ii)  any  objection,   including,   without
limitation,  any  objection  to the  laying of venue or based on the  grounds of
forum non conveniens,  which it may now or hereafter have to the bringing of any
such action or proceeding in such respective  jurisdictions  and (iii) the right
to interpose any non-compulsory setoff, counterclaim or cross-claim.  The Debtor
irrevocably  consents  to the  service of  process of any of the  aforementioned
courts in any such  action or  proceeding  by the  mailing of copies  thereof by
registered or certified mail, postage prepaid,  to the Debtor at its address set
forth below. Nothing herein shall affect the right of the Secured Party to serve
process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Debtor in any other jurisdiction,  subject in each
instance to the provisions hereof with respect to rights and remedies. Debtor so
served  shall  appear or answer to such  process  within  thirty  days after the
mailing  thereof.  Should  Debtor so served fail to appear or answer within said
thirty-day period, Debtor shall be deemed in default and judgment may be entered
by Secured  Party  against  Debtor for the amount or such other relief as may be
demanded in any process so served.  All terms  herein shall have the meanings as
defined in the UCC, unless the context otherwise  requires.  No provision hereof
shall be modified,  altered or limited except by a written instrument  expressly
referring to this Security Agreement and to such provision,  and

                                       9

executed by the party to be charged. The execution and delivery of this Security
Agreement  has been  authorized  by the Board of  Directors of Debtor and by any
necessary votes or consents of stockholders of Debtor.  This Security  Agreement
and all Obligations shall be binding upon the heirs, executors,  administrators,
successors,  or  assigns  of Debtor  and  shall,  together  with the  rights and
remedies of Secured Party hereunder,  inure to the benefit of Secured Party, its
successors,  endorsees and assigns. If any term of this Security Agreement shall
be held to be invalid, illegal or unenforceable, the validity of all other terms
hereof shall in no way be affected thereby. Secured Party is authorized to annex
hereto any schedules referred to herein.  Debtor acknowledges  receipt of a copy
of this Security Agreement.

                                       10

     IN WITNESS  WHEREOF,  the  undersigned has executed or caused this Security
Agreement to be executed in the State of New York as of the date first above set
forth.

                                        REX STORES CORPORATION

                                        By
                                           ----------------------------------
                                        Name: Douglas Bruggeman
                                        Title: Vice President, Finance

                                        NATWEST BANK N.A., as Agent,
                                        as Secured Party

                                        By
                                           ----------------------------------
                                           Name: Thomas Maiale 
                                           Title: Vice President

                                       11

Chief Executive Office:                      All location(s) of Collateral:

2875 Needmore Road
Dayton, Ohio                                 See Exhibit A

Trade Name(s) (if any):

See Exhibit A

Other Place(s) of Business (if any):

See Exhibit A

Location of books and records                Name of record owner(s) of
relating to the Collateral:                  real estate where any Collateral
                                             is or may be affixed to realty:
2875 Needmore Road
Dayton, Ohio
                                             Exhibit B

Designated agent for service 
of process (if applicable):

Ronald E. Durbin
2875 Needmore Road
Dayton, Ohio

                                       12

                                   SCHEDULE A

     (a) All Debtor's  present and future  accounts,  contract  rights,  general
intangibles, chattel paper, documents and instruments, as such terms are defined
in the Uniform  Commercial Code,  including,  without  limitation,  all accounts
receivable  and other  receivables  of any  kind,  and all  obligations  for the
payment of money arising out of the sale of goods,  rendition of services or the
lease by the Debtor of its property  ('Accounts');  (b) all of the right,  title
and interest of the Debtor in and to the goods or other property  represented by
or securing any of the Accounts or described in invoices relating  thereto;  (c)
all rights of the Debtor as an unpaid  vendor or lienor,  including  stoppage in
transit, replevin and reclamation;  (d) all additional amounts due to the Debtor
from any customer,  irrespective  of whether such  additional  amounts have been
specifically  assigned to the Secured Party;  (e) all  guaranties,  mortgages on
real or personal  property,  leases or other agreements on property  securing or
relating to any of the items referred to in subparagraph  (a) above, or acquired
for the purpose of securing  and  enforcing  any of such items;  (f) all moneys,
securities and other property and the proceeds thereof, now or hereafter held or
received by, or in transit to the Secured  Party from or for the Debtor  whether
for safekeeping, pledge, custody, transmission, collection or otherwise, and all
claims of the Debtor  against,  the Secured Party at any time existing;  (g) all
deposit  accounts,  as such term is defined in the Uniform  Commercial Code, and
all  claims  with  respect  thereto;  (h) all raw  materials,  work in  process,
finished  goods,  and all other  inventory of whatever  kind or nature,  and all
wrapping,  packaging,  advertising  and shipping  materials,  and any  documents
relating  thereto,  and all  labels,  logos  and other  devices,  names or marks
affixed or to be affixed  thereto for purposes of selling or of identifying  the
same or the seller or manufacturer  thereof and all right, title and interest of
the Debtor therein and thereto, wherever located, whether now owned or hereafter
acquired by the Debtor; (i) all equipment, machinery, furniture, fixtures, dies,
tools, vehicles, trucks, cars, tractors, trailers, forklifts, cranes, hoists and
tangible personal property of the Debtor, wherever located and whether now owned
or hereafter acquired by the Debtor, all substitution and replacements therefor,
and all accessions and  attachments to or relating to any of the foregoing;  (j)
all of the  Debtor's  general  intangibles  of every kind and  description,  all
patents,  patent  applications,  tradenames,  copyrights  and trademarks and the
goodwill of the business  symbolized thereby,  and Federal,  State and local tax
refund claims of all kinds, all whether now owned or hereafter acquired; (k) all
other  personal  property  and other assets of the Debtor now owned or hereafter
acquired;  (l) all books, records and other property relating to or referring to
any of the foregoing, including, without limitation, all books,

records,  computer  programs,  ledger  cards  and  other  property  and  general
intangibles  at any time  evidencing  or relating to the  Accounts;  and (m) all
proceeds  of  any  of  the  foregoing  in  whatever  form,  including,   without
limitation,  any  claims  against  third  parties  for  loss  or  damage  to  or
destruction of any or all of the foregoing and cash, negotiable  instruments and
other instruments for the payment of money,  chattel paper,  security agreements
or other documents.

                                          2

  

   5
                         0000744187
                        REX STORES CORPORATION
                  1,000
                    U.S. DOLLARS

                 6-MOS
                         JAN-31-1996
                             FEB-1-1995
                              JUL-31-1995
                                     1
                                          2,583
                                    1,555
                                   1,356
                                      688
                                   156,863
                              167,139
                                         64,506
                                  7,830
                                231,434
                          86,826
                                        31,147
                                           95
                               0
                                         0
                                     91,347
                  231,434
                                       183,885
                              183,885
                                         137,086
                                 137,086
                                    0
                                    0
                              1,709
                                 6,753
                                    2,666
                             4,087
                                      0
                                     0
                                           0
                                    4,087
                                     .44
                                     .44