BANK:    Household Bank (SB), N.A.            MERCHANTS:     Levitz Furniture Corporation
         1111 Town Center Drive                              Levitz Furniture Company of the
         Las Vegas, NV 89134                                 Midwest, Inc.
                                                             Levitz Furniture Company of
                                                               the Pacific, Inc.
                                                             Levitz Furniture Company of
                                                               Washington, Inc.
                                                             7887 North Federal Highway
                                                             Boca Raton, FL 33487-1613
                                                             Facsimile Nos. (561) 994-5623
                                                                            (561) 994-5615

This Merchant Agreement ("AGREEMENT") is made and entered into as of the 4th day of September, 1998, by and between Household Bank (SB), N.A. (herein "HOUSEHOLD") and Levitz Furniture Corporation, a Florida corporation (herein "PARENT"), its operating subsidiaries, Levitz Furniture Company of the Midwest, Inc., a Colorado corporation, Levitz Furniture Company of the Pacific, Inc., a California corporation, and Levitz Furniture Company of Washington, Inc., a Washington corporation (collectively, the "OPERATING SUBSIDIARIES" and, together with Parent, "MERCHANTS"), but shall be effective only as of the date (the "Effective Date") on which the U.S. Bankruptcy Court for the District of Delaware in the matter of IN RE: LEVITZ (Case Nos. 97-1842-97-1853) (the "Chapter 11 Case") has entered an order, in substantially the form attached hereto as Exhibit A (or otherwise acceptable to Household in its sole discretion), approving and authorizing Merchants to enter into and perform this Agreement (the "Approval Order") and, unless otherwise agreed by Household, such Approval Order has become final and nonappealable. In consideration of the mutual promises, covenants, and agreements set forth below and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Merchants, jointly and severally, and Household agree as follows:

SECTION 1. DEFINITIONS. In addition to the words and phrases defined above and elsewhere in this Agreement, the following words and phrases shall have the following meanings:

a. "ACCOUNT" means an account resulting from the issuance of a Card. An Account may have more than one Card issued for it. Each Account shall be owned by, and deemed to be the property of, Household. In addition, for all periods after the closing of Household's purchase of the Existing Portfolio (as defined below), "Account" shall also include those accounts included in the Existing Portfolio, whether or not Household has issued a Card with respect to such accounts.

b. "ACCOUNT BALANCES" means the amounts owed or shown as being outstanding receivables on each Account, including outstanding extensions of credit, accrued finance charges, whether billed or unbilled (including unbilled finance charges relating to Same-As-Cash promotions), and any other charges, fees and interest assessed on each Account reduced by the amount of credit balances, if any, on such Account.

c. "AFFILIATE" means any entity that is owned by, owns or is under common control with Household or its ultimate parent.

d. "APPLICABLE LAW" means collectively or individually any applicable law, rule, regulation or judicial, governmental or administrative order, decree, ruling, opinion or interpretation.

e. "APPLICATION APPROVAL RATE" means, for any Month, the number of credit applications (excluding duplicate applications or applications that have

been previously submitted) submitted during such Month that are accepted by Household, divided by the total number of applications submitted during such Month (excluding duplicate applications or applications that have been previously submitted).

f. "AUTHORIZATION" means permission from Household to make a Card Sale.

g. "AUTHORIZATION CENTER" means the facility designated by HOUSEHOLD as the facility at which Card Sales are authorized.

h. "AVERAGE ACCOUNT BALANCES" means, for any period, the sum of the daily Account Balances for such period divided by the number of days in such period.

i. "BUSINESS DAY" means any day except Saturday or Sunday or a day on which banks are closed in the State of Nevada.

j. "CARD" means the private label credit card bearing Merchants' Marks issued by Household for the Program.

k. "CARDHOLDER" means (i) the person in whose name an Account is opened, and (ii) any other authorized users of the Account and Card.

l. "CARDHOLDER LIST" means the compilation of the names, addresses, and telephone numbers consisting exclusively of Cardholders of and applicants for Cards to Merchants, regardless of whether such applicants were ultimately granted or denied credit.

m. "CARD SALE" means any sale of Goods that Merchants make to a Cardholder pursuant to this Agreement that is charged to an Account.

n. "CHARGEBACK" means the return to Merchants and reimbursement to Household of a Sales Slip for which Merchants were previously paid pursuant to SECTION 6 herein.

o. "CREDIT LOSSES" means, for any Month, the aggregate amounts charged off during such Month (net of aggregate recoveries during such Month) in accordance with Household's ten-month contractual charge-off policies, or such other policies agreed upon by Merchants and Household or required by Applicable Law.

p. "CREDIT SLIP" means evidence of credit in electronic or paper form for Goods purchased from Merchants.

q. "EXERCISE RATE" means expressed as a percentage, the amount of Account Balances generated pursuant to a SAC Promotion which is paid off by Cardholders prior to the expiration of the promotional period divided by the total volume of Card Sales generated pursuant to the SAC Promotion.

r. "EXISTING PORTFOLIO" means the existing portfolio of credit card accounts arising from the private label account purchase program established and maintained by General Electric Capital Corporation ("GE") for Merchants, which existing portfolio of credit card accounts Household has agreed to purchase pursuant to a Portfolio Purchase and Sale Agreement dated September 4, 1998 by and between Household and GE.

s. "GOODS" means the products described in SECTION 2 below, certain warranties expressly authorized by Household (which authorization shall not be unreasonably withheld), and related services sold by Merchants in the ordinary course of Merchants' business to consumers for individual, family, personal or household use.

t. "INTEREST COVERAGE RATIO" means the result of dividing (i) net income before income taxes, depreciation, amortization and interest expense by

(ii) interest expense, calculated at the end of each of Merchants' fiscal quarters using the previous twelve months' data from Merchants' financial statements prepared in accordance with generally accepted accounting principles.

u. "LIBOR" means, for each Month under this Agreement, the daily average of the end-of-business-day quotations of the one-month London Interbank Offered Rate as published by Bloomberg Financial Markets.

v. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, assets, operations, prospects, or financial condition of Parent and the Operating Subsidiaries taken as a whole or (b) the ability of Parent and the Operating Subsidiaries taken as a whole to pay the obligations under the terms hereof.

w. "MERCHANTS MARKS" means Merchants' names, logos, registered trademarks and service marks, if any, and other proprietary designations.

x. "MONTH" means a calendar month.

y. "OPERATING INSTRUCTIONS" means (i) the operating instructions and/or procedures agreed to by the parties from time to time concerning the Program and (ii) the Regulatory Guidelines provided by Household from time to time.

z. "PRIME RATE" means the rate of interest per annum appearing in the Wall Street Journal as the prime rate.

aa. "PROGRAM" means the private label revolving credit card program associated with Merchants whereby Accounts will be established and maintained by Household, Cards issued by Household to qualified consumers purchasing Merchants' Goods, and Card Sales funded all pursuant to the terms of this Agreement. Program shall also include Household's administration of the Existing Portfolio following its purchase by Household.

bb. "PROGRAM YEAR" means any consecutive twelve-month period beginning with the Effective Date or an anniversary thereof.

cc. "SAME AS CASH OR SAC CARD SALE" means any Card Sale or Sales Slip which is subject to a SAC Promotion.

dd. "SAC PROMOTION" means any credit promotion program with or without monthly payments whereby interest accrues but is not assessed if the Account Balance is paid off prior to the expiration of the promotional period.

ee. "SALES SLIP" means evidence of a Card Sale in electronic or paper form for Goods purchased from Merchants.

ff. "STIPULATED JUDGMENT" means that certain Stipulated Final Judgment ordered and filed on August 18, 1997 in THE PEOPLE OF THE SATE OF CALIFORNIA V. LEVITZ, ET AL., Alameda Superior Court Case No. 787452-5.

gg. "TERM" means the time period set forth in Section 16.

hh. "TERMINAL" means an electronic terminal or computer capable of communicating by means of an on-line or dial-up electronic link with an Authorization Center.

SECTION 2. SCOPE AND PURPOSE. Merchants engage in the sale of home furnishings and other related products and related services ("Goods"), and Merchants desire to make financing available to consumers purchasing Goods from Merchants. Household, a credit card bank in the business of providing

revolving credit financing pursuant to a credit card, has agreed to provide such financing under the program to individual qualified consumers purchasing Merchants' Goods pursuant to the terms and conditions set forth in this Agreement.

a. FORMS AND CARDS. Household will at its expense provide to Merchants standard Sales Slips, Credit Slips and other forms from time to time for use by Merchants in the Program, which documents may be changed from time to time by Household, provided that Merchants may use their standard forms of Sales Slips and Credit Slips subject to the review and approval of such forms by Household. Merchants agree to pay for Card application/agreements. The design of Cards shall be agreed upon by Household and Merchants, and Cards shall be produced at Household's expense. The design and content of billing statements and the terms and conditions of Accounts and Card application/agreements shall be determined by Household and are subject to change by Household from time to time. The expense of changes to Card application/agreements shall be borne by the party for whose benefit the change is made, with the parties dividing evenly the expense of changes that benefit both Household and Merchants except that Merchants shall bear the expense of any changes to Card application/agreements required by any change in Applicable Law.

b. CREDIT REVIEW, OWNERSHIP OF ACCOUNTS. All completed applications for Accounts submitted by Merchants to Household, whether mailed, telephoned or otherwise electronically transmitted, will be processed and approved or declined in accordance with Household's credit and other evaluation criteria and procedures from time to time established by Household after consultation with Parent, with Household having and retaining all rights to reject or accept such Card applications in accordance with such criteria and procedures. Household shall not materially change its credit criteria except in response to changes in economic conditions or credit loss experience. Household will only accept Card applications for revolving credit pursuant to the credit card it issues for individual, personal, family or household use. Household shall not be obligated to accept applications for a Card or to approve any Card Sale for consumers that do not have their principal residence and billing address in the Continental United Sates. Subject to the provisions of SECTION 4AI herein, Merchants may present any application declined by Household to any third party for financing. Household shall not be obligated to take any action under an Account, including making future advances or credit available to Cardholders who fail to meet, after the issuance of a Card to such Cardholder, Household's credit and other evaluation criteria. Household or its Affiliates shall own the Accounts and bear the credit risk for such Accounts except as otherwise provided in this Agreement. Merchants acknowledge and agree that they shall have no interest whatsoever in the Accounts; provided, however, that Merchants shall have the right to use the Cardholder List and Merchants' general customer information pursuant to SECTIONS 12 AND 21 hereof. ------------------

c. APPROVAL RATES. If the Application Approval Rate remains below 50% during any three or more consecutive Months, then at either Household's or Parent's request made in writing within the thirty days following the expiration of the third such Month (an "Approval Rate Notice"), Household and Parent will promptly meet and confer about the causes of such rate. The parties will thereafter work in good faith to achieve a higher Application Approval Rate. If the average Application Approval Rate does not exceed 50% during the ninety-day period following the date of the Approval Rate Notice ("Approval Rate Cure Period"), Merchants shall have the right, for ninety days following the expiration of the Approval Rate Cure Period, to notify Household of their intention to terminate this Agreement pursuant to Section 16.b.(iv)(b).

d. CARD PROMOTIONS, SERVICES AND ENHANCEMENTS. As part of the Program, Household shall provide certain marketing services to Merchants. These services shall include, but not be limited to, performing an initial marketing audit related to the Program, assisting Merchants in creating a credit marketing plan and with creative design and development of point of sale materials and other services as such become available or as Household offers to other customers. In addition, Household and Parent will confer quarterly, or on such other periodic basis as they may agree, at which time they may mutually agree to offer for the upcoming period to existing or potential Cardholders special credit promotions, including, but not limited to, one to twelve month SAC Promotions, and other additional services and/or enhancements. The terms of such promotions, services and enhancements shall be mutually agreed upon by Household and Parent.

e. CREDIT INSURANCE PROVIDER. Merchants may select a credit insurance provider for the Program, subject to Household's approval, which approval shall not be unreasonably withheld and subject to the credit insurance provider's providing to Household such representations, warranties, covenants, certifications and indemnifications as Household may reasonably request as to the credit insurance provider's compliance with Applicable Laws, including without limitation the Stipulated Judgment. Household may in its reasonable sole discretion terminate any such credit insurance provider for any material breach of such representations, warranties, covenants, certifications and indemnifications or as otherwise provided in the agreement between Household and the credit insurance provider. Household shall provide Merchants with sixty (60) days prior written notice of its termination of any such credit insurance provider.

SECTION 3. FEES, DISCOUNTS, CHARGES, RATES AND FUNDING.

a. CONSUMER RATE. The consumer rate to be charged on purchases with the Card for consumers whose accounts are in good standing initially shall be equal to the Prime Rate plus 14.4 percentage points (14.4%), except that, at Household's discretion, the consumer rate to be charged on purchases with the Card by Cardholders who are residents of the State of New York may be a fixed rate of 24%. The consumer rate shall be subject to change from time to time by Household with notice to Merchants and, except with respect to changes in the Prime Rate, after consultation with Parent to review any proposed change in the consumer rate.

b. ORIGINATION FEE. During the term of this Agreement and for ninety (90) days after the effective date of termination of the Agreement or up to the date of purchase of the Accounts pursuant to SECTION 16D. herein, whichever is earlier, Household shall pay Merchants a monthly fee ("Origination Fee") equal to 100% of the accrued finance charges, and accrued late fees, over-limit fees, and returned check charges, and in each case net of reversals, (each of such fees to be set initially at $25.00) with respect to all Accounts for such Month, less the following:

(i) an amount equal to the product of:

(A) the result of LIBOR divided by twelve, times (B) the Average Account Balances for such Month, minus the balance in the SAC Reserve at the end of the previous Month;

provided, however, that in the event that a plan of reorganization for Merchants under the United States Bankruptcy Code (11 U.S.C. Sections 101 et seq.) is confirmed by the Bankruptcy Court and becomes effective, the amount under this subsection (i) for each Month in which the cash balance of the Portfolio Reserve is no less than the greater of the Fully Funded Amount (as that term is used in Section 7.a(ii)) or eight percent (8%) of the Account Balances at the end of such Month, shall be:

(A) for each Month where the Interest Coverage Ratio at the end of the previous fiscal quarter was less than 1.5, the product of:

(1) the result of LIBOR divided by twelve, times
(2) the Average Account Balances for such Month, minus the balance in the SAC Reserve at the end of the previous Month; and

(B) for each Month where the Interest Coverage Ratio at the end of the previous fiscal quarter was equal to or greater than 1.5, the product of:

(1) the result of LIBOR divided by twelve, times
(2) the Average Account Balances for such Month, minus the balance in the SAC Reserve at the end of the previous Month, minus twenty-five percent (25%) of the average balance in the Portfolio Reserve for such Month; and

(ii) Subject to the limitations in Section 3b. (ii)(C) and (D) below, an amount equal to the Average Account Balance during such Month multiplied by the Origination Factor. As used herein, "Origination Factor" means a percentage determined as follows:

(A) For each of the first twelve (12) Months during the Term, the Origination Factor shall be the percentage that is equal to 88 basis points (.88%). Thereafter, the Origination Factor shall be adjusted upward or downward as of each anniversary of the Effective Date based on a review by Household of historical and projected Credit Losses.

(B) During any Month after the first twelve Months of the Term, if aggregate Credit Losses since the Effective Date have differed from aggregate amounts deducted by Household under this Section 3b. (ii) by more than one million ($1,000,000) dollars ("Credit Losses Difference"), the Origination Factor shall be immediately adjusted upward or downward, as the case may be, to the extent necessary to compensate Household or Merchant, as the case may be, for the amount by which aggregate Credit Losses since the Effective Date have differed from aggregate amounts deducted by Household under this Section 3b. (ii) and to reflect projected Credit Losses during the next twelve
(12) months.

(C) In no event shall the amount deducted in any Program Year under this Section 3b. (ii) exceed the sum of (x) the product of the Average Account Balances for the Program Year multiplied by fifteen percent (15%) (the "Cap Amount"), plus (y) fifty percent (50%) of the amount by which the Credit Losses for the Program Year exceed the Cap Amount provided, however, any Credit Losses Difference at the beginning of the Program Year shall not be included in determining the amounts which may be payable pursuant to this provision (C).

(D) In no event shall the amount deducted in any Program Year under this Section 3b. (ii) be less than the result of the following calculation: (x) the product of the Average Account Balances for the Program Year multiplied by eight percent (8%) (the "Floor Amount"), minus (y) fifty percent (50%) of the amount by which the Floor Amount exceeds the Credit Losses for the Program Year provided, however, any Credit Losses Difference at the beginning of the Program

Year shall not be included in determining the amounts which may be payable pursuant to this provision (D).

(iii) An amount equal to the following: For each Month beginning during the first year of the Term, an amount equal to $3.55 multiplied by the number of Accounts with debit or credit balances ("Active Accounts") for which Household processes statements during such Month. For each Month beginning during the second year of the Term, an amount equal to $3.42 multiplied by the number of Active Accounts for which Household processes statements during such Month. For each Month beginning during the third, fourth and fifth year of the Term, an amount equal to $3.31 multiplied by the number of Active Accounts for which Household processes statements during such Month. For each Renewal Term, this amount will increase above the amount in effect at the end of the expiring term by fifty percent (50%) of the cumulative increase in the Consumer Price Index for the previous calendar year. During each Month in which Household Life Insurance Company is Merchants' credit insurance provider, the fee specified in this
Section 3b. (iii) will be reduced by $0.04 per Account.

(iv) Household's good faith estimate of the amount of finance charges accrued during the Month for SAC Card Sales that will be credited back to the Cardholder's Account as a result of the Cardholder paying off all or any portion of the Account Balance prior to the expiration of the promotional period (the "SAC Reversal Estimate"); provided, however, that Household shall satisfy this deduction first from the SAC Reserve to the extent it contains funds and shall deduct only the deficiency, if any, from the Origination Fee. Initially, Household shall use fifty-two percent (52%) as the SAC Reversal Estimate, and quarterly, the parties shall review actual experiences of finance charges reversed due to SAC Promotions and compare them to withdrawals from the SAC Reserve and deductions from the Origination Fee under this
Section 3b. (iv), and (A) shall make such payments or issue such credits as are necessary to eliminate any discrepancy, and (B) adjust the SAC Reversal Estimate for the following quarter based on such comparison and Exercise Rates for the quarter and the relative ratios expressed as percentages of SAC Promotions of a given duration then in effect, divided by the total SAC Card Sales for the quarter. Exhibit C illustrates Household's good faith estimate of the initial SAC Reversal Estimate and the methodology for determining the SAC Reversal Estimate as provided above.

(v) An amount equal to the product of (A) the Average Account Balances for the Month minus the amount in the SAC Reserve at the end of the previous Month, multiplied by either (B) 0.205% for each Month in which the balance of the Portfolio Reserve is less than the Fully Funded Amount (as that term is used in Section 7a.
(ii)), or (C) 0.1867% for each Month in which the balance of the Portfolio Reserve is equal to or greater than, the Fully Funded Amount (as that term is used in Section 7a. (ii)) or Merchant's Interest Rate Coverage Ratio meets the requirements of Section 7a
(iv) (A) or (C) hereof.

In any Month in which the deductions specified in this Section 3(b) (excluding any deduction from the SAC Reserve) exceed 100% of the accrued finance charges and accrued late fees, over limit fees and returned check fees, in each case net of reversals, with respect to all Accounts for such Month, Merchants shall pay the difference ("Origination Fee Shortfall") to Household in accordance with Section 3c.

c. ACCEPTANCE & OFFSET. Subject to the terms, conditions, warranties and representations in this Agreement, including Household's rights to offset and to establish reserves, during the Term of this Agreement, Household agrees to pay to Merchants (i) in accordance with Section 3d, and provided that Merchants have satisfied all of the conditions set forth in this Agreement with respect to a given Sales Slip, including, without limitation, SECTIONS 4A, 5A, AND 8, the amount of such Sales Slip presented to Household during the Term of this Agreement, less all amounts due for Sales Slips subject to Chargeback under Section 6 hereof, reimbursements, refunds or customer credits and (ii) within fifteen days after the end of each Month (unless otherwise provided herein) and provided that Merchants have satisfied in all material respects all of the conditions set forth in this Agreement, including, without limitation, SECTIONS 4A, 5A, AND 8, the amount of the Origination Fee (if any), less any amounts deducted by Household under
Section 3b of this Agreement. In the event that, for any Month, the amounts deductible by Household under this Section 3c exceed the Origination Fee payable for the Month, Household shall bill Merchants for the difference and for the Origination Fee Shortfall, if any, within fifteen days after the end of such Month and Merchants shall pay Household within fifteen (15) days after the date of such invoice. In the event that such amounts are not paid by Merchants within 30 days after the date due, Household may offset and/or recoup said amounts from payments to Merchants for valid and authorized Sales Slips or from other amounts owed to Merchants under this Agreement, and, in the event such offset is insufficient. Household may deduct such amounts from the Portfolio Reserve (as defined in Section 7(a)(i)). Any payment made by Household to Merchants in connection with any Sales Slip shall be subject to subsequent review and verification by Household within 90 days after the date of such payment. Household's liability to Merchants with respect to the funding or processing of any Card Sale, Sales Slip or Credit Slip shall not exceed the amount on the Card Sale, Sales Slip or Credit Slip in connection with such transaction. In no event shall Household or Merchants be liable for any incidental or consequential damages.

d. PAYMENTS. Subject to Section 3c, payments for Card Sales and Sales Slips and other amounts payable by Household to Merchants shall be made by deposit by wire transfer to Parent's account for itself and the Operating Subsidiaries.

Household will use its best efforts to make payments for Sales Slips on the Business Day of receipt, verification and processing by Household of the transmission of the transaction data, if such transmission is received by 7:30 a.m. Central Standard time; if received later than 7:30
a.m. Central Standard time, then on the first Business Day after said transmission, but in no event shall such payments be made later than the second Business Day after receipt of said transmission by Household.

SECTION 4A. MERCHANTS RESPONSIBILITIES CONCERNING CONSUMER TRANSACTIONS. Merchants covenant and agree that Merchants shall:

a. Honor all valid Cards without discrimination, when properly presented by Cardholders for payment of Goods.

b. Not require, through an increase in price or otherwise, any Cardholder to pay any surcharge at the time of sale or pay any part of any charge imposed by Household on Merchants.

c. Prominently display at each of its locations, advertising and promotional materials relating to the Card, including without limitation applications for the Card and use or display such materials in accordance with any reasonable specifications provided by Household. Such materials shall be used only for the purpose of soliciting Accounts

for the Program. Any solicitation, written material, advertising or the like relating to the Program or the products offered by Household pursuant to the Program shall be prepared or furnished by Household or shall receive Household's prior written approval. Merchants agree to pay for mutually agreed upon promotional materials; provided, however, that Merchants shall retain the right to use third-party vendors to produce the materials. Any such materials shall not be used by Merchants following termination of this Agreement.

d. Use only the form of, or modes of transmission for, Card applications, Sales Slips and Credit Slips as are provided by Household, and not use any Card application/agreements, Sales Slips, and Credit Slips provided by Household other than in connection with a Card transaction.

e. With respect to applications for a Card:

(i) Make sure all information requested on the Card application is complete and legible;

(ii) obtain the signature on the Card application of all persons whose name(s) will appear on the Account or will be responsible for the Account;

(iii) give the applicant the initial disclosures at the time of signing the Card application/agreement prior to the first transaction under the Account;

(iv) verify the identification of the individual(s) applying for the Account, which verification may include obtaining driver's license and social security numbers;

(v) provide all information reasonably required by Household from time to time for approval of Card applications by telephone or other electronic transmission and legibly insert the Account number and Approval number on the Card application in the designated area; and

(vi) send the actual original approved signed Card application to Household at Household's address on PAGE ONE above or such other address designated by Household in writing within five (5) Business Days of approval of the Card application by Household.

f. With respect to Sales Slips:

(i) Enter legibly on a single Sales Slip prior to obtaining the Cardholder's signature (1) a description of all Goods purchased in the same transaction in detail sufficient to identify the transaction; (2) the date of the transaction; (3) the Authorization number; and (4) the entire amount due for the transaction (including any applicable taxes);

(ii) REQUEST AUTHORIZATION FROM HOUSEHOLD'S AUTHORIZATION CENTER UNDER ALL CIRCUMSTANCES. Household may refuse to accept or fund any Sales Slip that is presented to Household for payment more than one hundred eighty (180) days after the date of Authorization of the Card Sale. Merchants agree not to divide a single item between a Household Sales Slip and a sales slip for another credit provider. If Authorization is granted, Merchants will legibly enter the Authorization number in the designated area on the Sales Slip. If Authorization is denied, or if Merchants have reasonable grounds to believe that the Card is counterfeit, fraudulent, or stolen, Merchants will not complete the transaction and will follow any instructions from the Authorization Center;

(iii) if the transaction is to be completed electronically or otherwise without a Card imprint, then enter on the Sales Slip sufficient information to identify the Cardholder and Merchants, including at least Merchants' name and the Cardholder's name and Account number;

(iv) obtain the signature of the Cardholder on the Sales Slip, and compare the signature on the Sales Slip with the signature panel of the Card and if identification is uncertain or if Merchants otherwise question the validity of the Card, contact Household's Authorization Center for instructions. For telephone orders (TO) or mail orders (MO) only, the Sales Slip may be completed without the Cardholder's signature and a Card imprint, but Merchants shall, in addition to all other requirements under this SECTION 4A, enter legibly on the signature line of the Sales Slip the letters "TO" or "MO", as appropriate, and not deliver Goods or perform services after being advised that the "TO" or "MO" has been canceled or that the Card is not to be honored;

(v) IDENTIFICATION OF THE CARDHOLDER IS THE RESPONSIBILITY OF MERCHANTS;

(vi) not present the Sales Slip to Household for funding until all Goods are delivered and all the services are performed to the Cardholder's satisfaction. If the Card Sale is canceled or the Goods or services canceled or returned the Sales Slip is subject to Chargeback;

(vii) enter the Card Sale into the Terminal; and

(viii) deliver a true and completed copy of the Sales Slip to the Cardholder at the time of purchase or delivery of the Goods.

g. CREDIT SLIPS. If Goods are returned, any Card Sale or services are terminated or canceled, or Merchants allow any price adjustment, then Merchants shall not make any cash refund, but shall complete and deliver promptly to Household a Credit Slip evidencing the refund or adjustment and deliver to the Cardholder a true and complete copy of the Credit Slip at the time the refund or adjustment is made. Merchants shall sign and date each Credit Slip and include thereon a brief description of the Goods returned, services terminated or canceled, refund or adjustment made, the date of the original Card Sale, Authorization number, Cardholder's name, address and Account number, and the date and amount of the credit, all in sufficient detail to identify the transaction. Merchants shall legibly reproduce on each Credit Slip the embossed legends from the Card. The amount of the Credit Slip cannot exceed the amount of the original transaction as reflected on the Sales Slip. Merchants shall issue Credit Slips only in connection with previous bona fide Card Sales and only as permitted hereunder.

h. CARDHOLDER COMPLAINTS. Merchants shall within three (3) Business Days of receipt provide Household with a copy of any written complaint from any Cardholder concerning his/her Account.

i. RIGHT OF FIRST REFUSAL; DISPLAY OF THIRD-PARTY MATERIALS. Merchants shall actively promote the Program. Merchants agree to give Household right of first refusal in presenting consumer credit applications and/or Sales Slips. During the term of this Agreement, Merchants shall not issue, arrange to issue, or accept any private label credit card or account other than the Card, under any of Merchants' Marks, except with respect to consumer credit applications declined by Household. To the extent Merchants display other third party credit or charge card materials, they shall display the advertising and promotional materials

relating to the Card in a manner and with a frequency equal to or greater than that accorded any other third party credit or charge card.

j. Satisfy all other requirements designated in any Operating Instructions or as may be reasonably required from time to time by Household. In the event there is any inconsistency between any Operating Instructions and this Agreement, this Agreement shall govern unless otherwise expressly indicated by Household in any Operating Instructions.

k. Present each Sales Slip and Credit Slip to Household or such other person designated by Household in writing, for funding within five (5) Business Days after the date of the respective sale or credit transaction.

SECTION 4B. HOUSEHOLD'S SERVICE STANDARDS AND RESPONSIBILITIES CONCERNING CONSUMER TRANSACTIONS. During the term of this Agreement, Household covenants and agrees to provide the services and maintain the standards ("Service Standards") set forth below:

a. For debit balance Accounts serviced by Household, Household will maintain a customer service representative to statemented Account ratio of 1 to 14,500. To the extent that Household can maintain the standards set forth in PARAGRAPH B. below, then this PARAGRAPH A. will not apply.

b. The Service Standard for customer service calls to Household from Cardholders shall be either an average abandonment rate of 5.0% or an average speed of answer ("ASA") of thirty (30) seconds, whichever is better.

c. The average systems "up time" for any Month will not be less than 98.5%.

d. The average speed of automated credit decisions for any Month will not exceed 30 seconds from the receipt of transmission by Household from Merchants to the transmission to Merchants by Household.

e. For Accounts collected by Household, and not referred to a collection agency, Household will maintain an overall collector to delinquent Account ratio of 1 to 1600 delinquent Accounts. With respect to Accounts which are 4 or more payments past due Household will maintain a collector to delinquent Account ratio of 1 to 525 delinquent accounts. To the extent that Household can increase the number of delinquent accounts handled by a collector and remain in compliance with PARAGRAPH F. below, then this PARAGRAPH E. will not apply.

f. For Accounts collected by Household, and not referred to a collection agency, the average number of payment promises obtained as a percent of contacts made will be 43% and the average number promises kept as a percent of promises made will be 59%.

g. Household will use its best efforts to collect or cause to be collected the indebtedness due on delinquent Accounts and in connection therewith shall conduct, or cause to be conducted collection activities in such a manner and use or cause to be used, such technology as is generally consistent with the consumer debt collection industry and Household's standard debt collection policies, procedures, resources and its existing or future technology and in accordance with Applicable Law.

h. Household shall advise Merchants of any governmental investigation or legal action, which Household determines in its reasonable sole discretion impairs Household's ability to fulfill its responsibilities under the Agreement or which may have a material effect on the Program or for which Merchants may be subject to joint or several liability with Household as a result thereof.

i. Household shall provide Merchants with copies of any proposed change in terms notices within a reasonable period prior to mailing for Merchants' to review provided that in the event any such change in terms notices affects accrued finance charges, accrued late fees, over-limit fees, returned check fees, the Origination Fee payable to Merchants herein, grace periods, minimum payments, or calculation of Account Balances, Merchants shall be afforded the opportunity to review and approve such notices. The foregoing notwithstanding change in terms notices required by changes in Applicable Law shall not require Merchants' prior approval.

If Household fails to maintain any two or more of the Service Standards set forth in paragraphs, a. through f., to the extent any such Service Standards are then applicable, and the failure to maintain those Service Standards continue for two consecutive Months, Household will reduce its account servicing fee set forth in Section 3b(iii) above by $1.00 per Active Account (annualized) until such time that Household has again achieved all of the above Service Standards for two consecutive Months; provided, however, that such reduction in the account servicing fee shall not take effect (x) with respect to paragraph a.,
b., or e. unless Household's actual performance measure varies negatively from such Service Standard by more than 20%, and (y) with respect to paragraph f. unless Household's actual performance measure varies negatively from such Service Standard by more than 10%. If Household fails at any time to maintain any two or more of the above Service Standards subject to the provision in the preceding sentence and the failure to maintain any two or more of the Service Standards continues for three consecutive Months, Household will reduce the account servicing fee set forth in Section 3b(iii) above by an additional $1.00 per Active Account (annualized) until Household has performed all of the above Service Standards for two consecutive Months. If Household fails to maintain any two or more of the Service Standards for four (4) consecutive Months and fails to cure such failure within 60 days, Merchants shall have the right to terminate this Agreement under Section 16b(iv)(c) hereof.

SECTION 5. REPRESENTATIONS AND WARRANTIES.

a. Merchants represent and warrant to Household as of the Effective Date and throughout the term of this Agreement the following:

(i) That each Card Sale will arise out of a bona fide sale of Goods by Merchants and will not involve the use of the Card for any other purpose.

(ii) That each Card Sale will be to a consumer for personal, family, or household purposes.

(iii) That Card applications/agreements will be available to the public
(a) without regard to race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to enter into a binding contract) and (b) not in any manner which would discriminate against an applicant or discourage an applicant from applying for the Card.

(iv) That, subject to entry of the Approval Order, (a) they have full corporate power and authority to enter into this Agreement; (b) all corporate action required under any organization documents to make this Agreement binding and valid upon Merchants according to its terms has been taken; and (c) this Agreement is and will be binding, valid and enforceable upon Merchants according to its terms.

(v) That, subject to entry of the Approval Order, neither (a) the execution, delivery and performance of this Agreement, nor (b) the consummation of the transactions contemplated hereby will

constitute a violation of law or a violation or default by Merchants under their respective articles of incorporation, bylaws or any organization documents, or any material agreement or contract and no authorization of any governmental authority is required in connection with the performance by Merchants of their obligations hereunder.

(vi) That they have or will acquire and retain all required licenses to perform their obligations under this Agreement and to conduct their business, including without limitation, all licenses required in connection with the sale of credit insurance or other insurance policies.

(vii) That dates after December 31, 1999 will be properly recognized, and date-related calculations will be correctly made, in the operation of computer systems and functions material to the operation of the Program.

(viii) That they are and will remain in compliance in all material respects with Applicable Law, and are and will remain in compliance with all respects of the Stipulated Judgment applicable to Merchants. Parent shall deliver to Household a quarterly certification of Merchants' compliance with the Stipulated Judgment.

b. Household represents and warrants to Merchant as of the Effective Date and throughout the term of this Agreement the following:

(i) That Accounts will be available to applicants without regard to race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to enter into a binding contract).

(ii) That (a) it has full corporate power and authority to enter into this Agreement; (b) all corporate action required under any organization documents to make this Agreement binding and valid upon Household according to its terms has been taken; and (c) this Agreement is and will be binding, valid and enforceable upon Household according to its terms.

(iii) Neither (a) the execution, delivery and performance of this Agreement, nor (b) the consummation of the transactions contemplated hereby will constitute a violation of law or a violation or default by Household under its articles of incorporation, bylaws or any organization documents, or any material agreement or contract and no authorization of any governmental authority is required in connection with the performance by Household of its obligations hereunder.

(iv) That it has and will acquire and retain all required licenses to perform its obligations under this Agreement and to conduct its business.

(v) That dates after December 31, 1999 will be properly recognized, and date-related calculations will be correctly made, in the operation of computer systems and functions material to the operation of the Program.

(vi) That it is and will remain in compliance in all material respects with Applicable Law.

SECTION 6. CHARGEBACKS TO MERCHANTS. Merchants agree as follows:

a. CHARGEBACKS. Any Sales Slip or Card Sale is subject to Chargeback under any one or more of the following circumstances, and thereupon the provisions of SECTION 6.B. below shall apply:

(i) The Card application or any information on the Card application or the Sales Slip or any required information on the Sales Slip (such as the account number, description of Goods purchased, transaction amount or date) is illegible or materially incomplete, or the Sales Slip or Card application is not executed by the Cardholder; or Authorization is not obtained from Household's Authorization Center, or a valid Authorization number is not correctly and legibly entered on the Sales Slip; or the Sales Slip is a duplicate of an item previously paid, or the price of the Goods or services shown on the Sales Slip differs from the amount shown on the Cardholder's copy of the Sales Slip;

(ii) Household determines that (1) any of Merchants has breached or failed to satisfy in any material respect, any term, condition, covenant, warranty, or other provision of this Agreement, including, without limitation, SECTIONS 4A AND 5A above, or of the Operating Instructions, in connection with a Sales Slip or the transaction to which it relates, or an application for a Card or the opening of an Account; or (2) the Sales Slip, Card application or Card Sale is fraudulent or is subject to any claim of illegality, cancellation, rescission, avoidance or offset for any reason whatsoever, including, without limitation, negligence, fraud, misrepresentation, or dishonesty on the part of the customer or Merchants or their agents, employees, licensees, or franchisees, or that the related transaction is not a bona fide transaction in Merchants' ordinary course of business;

(iii) the Cardholder disputes or denies the Card Sale or other Card transaction, the execution of the Sales Slip or Card application, or the delivery, quality, or performance of the Goods, services or warranties purchased, or the Cardholder has not authorized the Card Sale, or alleges that a credit adjustment was requested and refused or that a credit adjustment was issued by Merchants but not posted to the Account; or

(iv) Merchants fail to deliver to Household the Sales Slip, Credit Slip, Card application or other records of the Card transaction within the times required in this Agreement.

b. RESOLUTION AND PAYMENT. Merchants are required to resolve any dispute or other of the circumstances described above in (a) of this SECTION 6 to Household's reasonable satisfaction within twenty-one (21) days of notice of Chargeback or Merchants shall pay to Household the full amount of each such Sales Slip subject to Chargeback or the portion thereof designated by Household, as the case may be, plus the finance charges thereon, any attorney fees incurred by Household, and other fees and charges provided for in the Cardholder agreement; provided, however, that payment by Merchants under this Section 6.b. shall not be required with respect to any Cardholder dispute relating to the delivery, quality or performance of the Goods, services or warranties purchased where (A) Merchants have attempted in good faith to resolve the dispute, but reasonably determine, and certify to Household, that the delivery, quality, and performance of the Goods, services or warranties purchased are not defective or where (B) Merchants are unable to schedule an appointment within 21 days of notice of charge back or establish contact with the Cardholder to resolve the dispute despite Merchants' good faith efforts, and Merchants' so certify to Household; and provided, further, however, that payment by Merchants under this Section 6.b. with respect to any Sales Slips subject to Chargeback under Section 6.a.(i) (except Chargebacks related to a duplicate Sales Slip of an item previously

paid, or the price of the Goods or services shown on the Sales Slip differs from the amount shown on the Cardholders copy of the Sales Slip) shall be required only when the Cardholder's payment on such Sales Slip has become ninety days delinquent. Upon chargeback to Merchants of a Sales Slip, Merchants shall bear all liability and risk of loss associated with such Sales Slip or Card Sale, or the applicable portion thereof, without warranty by, or recourse or liability to, Household. Household may deduct amounts owed to Household under this Section from any amounts owed to Merchants under this Agreement.

c. The terms and provisions of this SECTION 6 shall survive the termination of this Agreement.

SECTION 7. RESERVES.

a. PORTFOLIO RESERVE.

(i) As soon as is commercially practicable after Household's acquisition of the Existing Portfolio, Household and Merchants shall establish a portfolio reserve (the "Portfolio Reserve") for the sole benefit of Household. The purpose of the Portfolio Reserve is to provide for payment of any amounts due Household at the end of the Term or upon earlier termination of this Agreement. Household may also deduct from the Portfolio Reserve during the Term any amounts not paid by Merchants under Section 3 of this Agreement. In order to secure the performance of Merchants' obligations hereunder, Merchants hereby grant Household a first priority security interest in and lien upon the Portfolio Reserve, and agree to execute such documents and take such other actions as Household reasonably determines are necessary in order to perfect such security interest and lien.

(ii) The Portfolio Reserve shall first be considered fully funded for the Month when the balance of the Portfolio Reserve is no less than eight percent (8.00%) of the Account Balances at the end of such Month (the "Fully Funded Amount"). Notwithstanding the foregoing, Household may, in its reasonable sole discretion, elect to increase the Fully Funded Amount (and such increased amount shall thereupon become the Fully Funded Amount);

(A) in accordance with the following chart and based on Household's good faith estimate of Credit Losses, in the event that Credit Losses for the previous twelve months have exceeded twelve percent (12%) of Average Account Balances on an annualized basis:

---------------------------------- ---------------------------------------
  CREDIT LOSSES AS A PERCENT OF       CUMULATIVE RESULTING INCREASE IN
    AVERAGE ACCOUNT BALANCES          FULLY FUNDED AMOUNT OF PORTFOLIO
                                                  RESERVE
---------------------------------- ---------------------------------------
         12.1% to 12.9%                    1% of Account Balances
---------------------------------- ---------------------------------------
         13.0% to 13.9%                    2% of Account Balances
---------------------------------- ---------------------------------------
         14.0% to 14.9%                    3% of Account Balances
---------------------------------- ---------------------------------------
         15.0% to 15.9%                    4% of Account Balances
---------------------------------- ---------------------------------------
         16.0% to 16.9%                    5% of Account Balances
---------------------------------- ---------------------------------------
         17.0% to 17.9%                    6% of Account Balances
---------------------------------- ---------------------------------------

, or

(B) in accordance with the following chart in the event that the amount of credit volume generated in any Program Year through SAC Promotions greater than six months ("Long-Term

Promotions") is fifty percent (50%) or more of the total credit volume for the Program Year:

PERCENT OF LONG-TERM PROMOTIONS               CUMULATIVE RESULTING INCREASE IN FULLY
     TO TOTAL CREDIT VOLUME                     FUNDED AMOUNT OF PORTFOLIO RESERVE
         Less than 50%                                         -0-
            50%-59%                                 1.00% of Account Balances
            60%-69%                                 2.00% of Account Balances
            70%-79%                                 3.00% of Account Balances
            80%-89%                                 4.00% of Account Balances
            90%-100%                                5.00% of Account Balances

However, the Fully Funded Amount shall not be increased until after the first time that the balance in the Portfolio Reserve equals or is greater than 8%. Except as otherwise provided herein, if the Portfolio Reserve contains an amount of funds in excess of the Fully Funded Amount at the end of any Month, Household shall pay such excess amounts to Merchants in accordance with the payment procedures provided in Section 3.d. of this Agreement.

(iii) The Portfolio Reserve shall be funded as follows: (A) When Household purchases the Existing Portfolio, Household shall deposit in the Portfolio Reserve an amount equal to the difference between (x) 99% of the Account Balances that are outstanding on Accounts contained in the Existing Portfolio at the time of such purchase and (y) the sum of the actual purchase price paid by Household for the Existing Portfolio plus the amount of funds contained in the SAC Reserve; and (B) for any Month in which the amount in the Portfolio Reserve is less than the Fully Funded Amount, Household shall deduct from payments to Merchants (x) during such Month commencing during the first year of the Term, an amount equal to two and one-half percent (2.5%) of each valid and authorized Sales Slip presented to Household during such Month, and (y) during such Month commencing after the first year of the Term, an amount equal to three and one-half percent (3.5%) of each valid and authorized Sales Slip presented to Household during such Month.

(iv) In the event a plan of reorganization for Merchants under the United States Bankruptcy Code (11 U.S.C. Sections 101 et seq.) has been confirmed by the Bankruptcy Court and becomes effective, then:

(A) The first time that the Merchants' Interest Coverage Ratio equals or exceeds 1.75 at the end of a fiscal quarter, Household (A) shall pay to Parent an amount sufficient to reduce the balance in the Portfolio Reserve to fifty percent (50%) of the Fully Funded Amount (the "Portfolio Reserve Payment"), and (B) provided that the Merchants' Interest Coverage Ratio has not fallen below 1.75 at the end of two consecutive fiscal quarters, shall restrict further funding of the Portfolio Reserve to amounts necessary to maintain the Portfolio Reserve at fifty percent (50%) of the Fully Funded Amount.

(B) The first time after the Portfolio Reserve Payment has been made that the Merchants' Interest Coverage Ratio is (A) less than 1.75 at the end of two consecutive fiscal quarters or (B) less than 1.50 at the end of any fiscal quarter. Household will resume building the Portfolio Reserve to the Fully Funded Amount, by thereafter deducting from payments to Merchants an amount equal to eight percent (8%) of each

valid and authorized Sales Slip presented to Household until the balance in the Portfolio Reserve has reached the Fully Funded Amount.

(C) Each time thereafter that the Merchants' Interest Coverage Ratio equals or exceeds 1.75 at the end of two consecutive fiscal quarters after having dropped below 1.75 for two or more consecutive fiscal quarters, Household shall (A) pay to Parent the Portfolio Reserve Payment and (B) provided that the Merchants' Interest Coverage Ratio does not fall below 1.75 at the end of two consecutive fiscal quarters, restrict further funding of the Portfolio Reserve to amounts necessary to maintain the Portfolio Reserve at fifty percent (50%) of the Fully Funded Amount; and each time thereafter that the Merchants' Interest Coverage Ratio is (x) less than 1.75 at the end of two consecutive fiscal quarters or (y) less than 1.50 at the end of any fiscal quarter. Household will resume building the Portfolio Reserve to the Fully Funded Amount, by thereafter deducting from payments to Merchants an amount equal to eight percent (8%) of each valid and authorized Sales Slip presented to Household until the balance in the Portfolio Reserve has reached the Fully Funded Amount.

b. SAC RESERVE. After Household's acquisition of the Existing Portfolio, Household will establish a SAC reserve (the "SAC Reserve") for its sole benefit to cover the promotional finance charges subject to reversal. Household shall fund the SAC Reserve upon receipt and in the amount of any funds that Household receives from GE that represent GE's unamortized promotional discount amounts related to the Existing Portfolio. In order to secure the performance of Merchants' obligations hereunder, Merchants hereby grant Household a first priority security interest in and lien upon the SAC Reserve, and agree to execute such documents and take such other actions as Household reasonably determines are necessary in order to perfect such security interest and lien.

c. LETTER OF CREDIT SUBSTITUTE. At any time that Merchants are not in default under this Agreement, Merchants may obtain the release of the amounts held in the Portfolio Reserve by delivering to Household an irrevocable revolving standby letter of credit in form and substance satisfactory to Household, and issued by a commercial bank acceptable to Household in its reasonable sole discretion (the "Letter of Credit"). The face amount of the Letter of Credit or the combination of a Letter of Credit and cash shall be no less than the Fully Funded Amount of the Portfolio Reserve provided, however, if the amount of funds required to be held in the Portfolio Reserve is increased or decreased pursuant to the provisions of Section 7a(iv) above the face amount of the Letter of Credit shall be adjusted accordingly. Upon delivery of the Letter of Credit to Household, funds in the Portfolio Reserve shall be transferred to Parent to the extent of the amount of such Letter of Credit. The Letter of Credit shall remain in place for not less than twelve (12) months from the date of issuance. Merchants shall renew or replace the Letter of Credit not less than thirty (30) days prior to its expiration. The Letter of Credit may be drawn upon by Household upon presentation to the issuing bank of a statement issued by a duly authorized officer of Household, (i) to recover amounts as and when due under this Agreement that it would otherwise be entitled to deduct from the Portfolio Reserve or (ii) to fund the Fully Funded Amount of the Portfolio Reserve if (A) Merchants have not delivered to Household a new letter of credit at least thirty (30) days prior to the expiration of the then existing Letter of Credit, (B) Household is entitled under this Agreement to withdraw amounts from the Portfolio Reserve, or (C) this Agreement terminates and Merchants owe Household any amounts that are subject to payment from the Portfolio Reserve.

d. CAPITALIZATION OF HOUSEHOLD. Household shall deliver to Parent an annual certification that its capital measures meet the "Well capitalized" category as that term is used and defined by the Office of the Comptroller of the Currency.

SECTION 8. TAPE OR ELECTRONIC TRANSMISSION & RECORDS. Data, records and information shall be transmitted and maintained as described below.

a. TRANSMISSION OF DATA. In lieu of forwarding paper Sales Slips and Credit Slips to Household, Merchants shall transmit to Household, by electronic transmission or other form of transmission reasonably designated by Household all data required by this Agreement to appear on Sales Slips and Credit Slips. Household shall provide at its expense a telecommunication link between Merchants' computer system and Household's computer system. All data transmitted shall be in a medium, form and format reasonably designated by Household and shall be presorted according to Household's instructions. Any errors in data originated by Merchants or in Merchants' transmission of such data shall, as between Household and Merchants, be the sole responsibility of Merchants. The means of transmission indicated above in this Section shall be the exclusive means of electronic transmission utilized by Merchants for the transmission of Sales Slip or Credit Slip transaction data to Household. Merchants shall use a leased line, supplied by Household, for communicating with Household pursuant to the guidelines set forth in SECTION 4A. Household's voice Authorization Center will be available for use for times when the leased line authorization system is not in operation. In the event the Authorization processing line is not in operation as a result of a technical failure from Household, and as a result the authorizations for Cardholder purchases cannot be obtained, Merchants shall have a $750.00 floor release per transaction and/or Cardholder. In the event that the system is not in operation as a result of a problem from Merchants, and as a result the authorizations for Cardholder purchases cannot be obtained, Merchants shall have a $750.00 floor release per transaction and/or Cardholder; provided, however, if Household has closed or placed a hold on the Cardholder's Account to any further sales transactions, Household shall be under no obligation to purchase such Sales Slip. Merchants must obtain Authorization for any sales amount exceeding $750.00. If either party finds that this floor limit is not acceptable, this may by changed by mutual agreement of the parties.

b. RECEIPT OF TRANSMISSION. Upon successful receipt of any transmission, Household shall accept such transmission and pay Merchants in accordance with this Agreement, subject to subsequent review and verification by Household as provided in Section 3.c. and to all other rights of Household and obligations of Merchants as set forth in this Agreement. If data transmission is by tape, Merchants agree to deliver upon demand by Household a duplicate tape of any prior tape transmission, if such demand is made within forty-five (45) calendar days of the original transmission and, with respect to any closed location, within ninety
(90) calendar days.

c. RECORDS. Merchants shall maintain the actual paper Sales Slips, Credit Slips, and other records pertaining to any transaction covered by this Agreement for such time and in such manner as Household or any law or regulation may require, but in no event less than two (2) years after the date Merchants presents each transaction data to Household, and Merchants shall make and retain for at least seven (7) years legible copies of such actual paper Sales Slips, Credit Slips or other transaction records. Consistent with the foregoing record retention requirements, within fifteen (15) days (thirty (30) in the case of a closed Merchant store location), or such earlier time as may be reasonably required by Household, or receipt of Household's request,

Merchants shall provide to Household the actual paper Sales Slips, Credit Slips or other transaction records, and any other documentary evidence available to Merchants and reasonably requested by Household to meet its obligations under law (including its obligations under the Fair Credit Billing Act) or otherwise to respond to questions, complaints, lawsuits, counterclaims or claims concerning Accounts or requests from Cardholders, or to enforce any rights Household may have against a Cardholder, including, without limitation, litigation by or against Household, collection efforts and bankruptcy proceedings, or for any other reason. In the event Merchants fail to comply in any respect with the provisions of this Section, Household may process a Chargeback for each Card Sale involved pursuant to SECTION 6 above.

d. Promptly upon termination of this Agreement or upon the request of Household, Merchants will provide Household with all original and microfilm copies of documents required to be retained under this Agreement.

e. Subject to Section 20, Parent, by its officers, employees or other professionals who agree to be bound by the provisions of Section 20, shall have the right, at its own expense, to conduct reasonable audits of Household's calculation and collection of the fees and charges payable by or to Merchants hereunder and of Household's credit approval and collection efforts, such audits to be conducted in a manner which will minimize interference with Household's normal business operations.

f. Household will provide such reports to Merchants as are agreed to from time to time.

g. The terms and provisions of SECTION 8C AND D shall survive the termination of this Agreement and the provisions of SECTION E shall remain in effect for ninety (90) days from the effective date of termination of this Agreement.

SECTION 9. PAYMENTS BY CARDHOLDER AND ENDORSEMENT. Merchants agree that Household has the sole right to payments on any Sales Slip funded by Household. Unless specifically authorized in writing by Household, Merchants agree not to make any collections on any such Sales Slip. Merchants may accept Cardholder payments at Merchants' store locations in trust for Household, and agree to deliver the same to Household within two (2) Business Days of Merchants' receipt, together with the Cardholder's name, Account number, and any correspondence accompanying the payment. Merchants agree that Merchants shall be deemed to have endorsed any Sales Slip, Credit Slip, or Cardholder payments by check, money order, or other instrument made payable to Merchants that a Cardholder presents to Household in Household's favor, and Merchants hereby authorize Household to supply such necessary endorsements on behalf of Merchants.

SECTION 10. MERCHANTS CREDIT INFORMATION. Household may periodically review Merchants' financial stability. To assist Household in doing this, Merchants shall deliver to Household (i) an unaudited, condensed, consolidated financial statement, including, without limitation, the Interest Coverage Ration, no later than forty-five (45) days after the end of each quarter and (ii) an audited consolidated financial statement no later than ninety (90) days after the end of each fiscal year, including, without limitation, the all footnotes, and supporting materials with sufficient detail to accurately portray the financial condition of Merchants. Merchants warrant and represent that its credit application and financial statements submitted to Household by or on behalf of Merchants are true and accurate and Merchants agree to supply such additional credit information as Household may reasonably request from time to time. Merchants understand that Household, at its own expense, may verify the information on any financial statement or other information provided by Merchants and, from time to time, may seek credit and other information concerning Merchants from others and may provide financial and other

information to its affiliates or others for purposes of its asset securitizations and sales.

SECTION 11. MERCHANTS' BUSINESS PRACTICES. Merchants agree to provide adequate services in connection with each Card Sale pursuant to standard customs and trade practices and any applicable Merchants' warranties, and to provide such repairs, service and replacements and take such other correction action as may be required by law.

SECTION 12. CARDHOLDER ACCOUNT INFORMATION. Merchants shall not sell, provide, or exchange Account information in the form of imprinted Sales Slips, carbon copies of imprinted Sales Slips, or other media obtained by reason of a Card transaction to any third party other than to Merchants' agents for the purpose of assisting Merchants in their business with Household or pursuant to a government request; provided, however, that the foregoing shall not limit Merchants' rights to maintain and use information as to its customers generally, regardless of whether or not such information is also Account information.

SECTION 13. CHANGE IN OWNERSHIP. Merchants agree to send Household at least thirty (30) days prior written notice of any change in Merchants' names or locations, any material change in ownership of Merchants' business or any change in Sales Slip or Credit Slip information concerning Merchants.

SECTION 14. INDEMNIFICATION.

a. INDEMNIFICATION BY MERCHANTS. Merchants shall be liable to and shall indemnify and hold harmless Household and its Affiliates and their respective officers, employees, agents and directors from any losses, damages, claims, judgments, penalties, counterclaims, offsets costs, expenses (including reasonable attorneys' fees) against Household or any Affiliate of Household or their respective officers, employees, agents and directors arising out of: (i) Merchants' failure to comply with this Agreement or any of the Operating Instructions; (ii) any claim, dispute, complaint or setoff made by a Cardholder with respect to anything done or not done by Merchants in connection with Card Sales or credits; (iii) anything done or not done by Merchants in connection with the furnishing of any Goods, warranties or services purchased by Cardholders; (iv) the death or injury to any person or the loss, destruction or damage to any property arising out of the design, manufacture or furnishing by Merchants of any Goods, warranties or services purchased by Cardholders;
(v) any claim or complaint of a third party in connection with Merchants' advertisements and promotions relating to the Card which were prepared by Merchants or at Merchants' direction (other than those that are prepared by Household); (vi) any illegal or improper conduct of Merchants or their employees or agents; and (vii) any claim or complaint by a consumer that Merchants have violated the Equal Credit Opportunity Act, Truth in Lending Act, or any other act and related Applicable Laws and (viii) as provided in Section 19 (b) hereof, any claim of infringement by virtue of Household's use of the Merchants Marks in accordance with Section 19 hereof. Household may deduct any amounts incurred by Household under this Section from amounts owed Merchants under this Agreement pursuant to Section 14.d. below.

b. INDEMNIFICATION BY HOUSEHOLD. Household shall be liable to and shall indemnify and hold harmless Merchants and its subsidiaries and affiliates and their respective officers, employees, agents and directors from any losses, damages, claims, judgments, penalties, counterclaims, offsets, costs, expenses (including reasonable attorneys' fees) against Merchants or their respective officers, employees, agents and directors arising out of (i) Household's failure to comply with this Agreement or any of the Operating Instructions; (ii) any claim, dispute, complaint or set off by a Cardholder resulting from anything done or not done by Household in connection with such Cardholder's Account; (iii)

any illegal or improper conduct of Household, or its employees or agents with respect to the Card, a Card Sale, an Account or any other matters relating to the Program, including but not limited to matters relating to collection and servicing the Accounts and repossession of Goods; (iv) any claim, dispute, complaint or setoff by a consumer resulting from a violation by Household, with respect to those portions of the application/agreement, billing statement and other materials provided by Household that are prepared by Household or at Household's direction (other than those that are prepared by Merchant), of the Equal Credit Opportunity Act, Truth in Lending Act or any other act and related Applicable Laws and regulations; (v) any claim, dispute or complaint of any third party in connection with advertisements and promotions prepared or furnished by Household or at Household's direction relating to the Program; (vi) Household's breach of Section 5.b.; and (vii) GE's or any GE subcontractor's use of Merchant's Marks, pursuant to Section 19 below, or any illegal or improper conduct of GE or any GE subcontractor under the Interim Servicing Agreement in connection with the servicing of the Accounts. Notwithstanding the foregoing, the indemnification by Household shall not apply to any claim or complaint relating to (x) materials, including insurance election forms to be included on the application/agreement form, that are provided to Household by the credit insurance provider selected by merchant pursuant to Section 2.e. or (y) the failure of Merchants to resolve a billing inquiry or dispute with where such failure was not caused by Household.

c. NOTICE OF CLAIM & SURVIVAL. In the event that Household or Merchants shall receive any claim or demand or be subject to any suit or proceeding of which a claim may be made against the other under this Section, the indemnified party shall give prompt written notice thereof to the indemnifying party and the indemnifying party will be entitled to participate in the settlement or defense thereof with counsel satisfactory to indemnified party at the indemnifying party's expense. In any case, the indemnifying party and the indemnified party shall cooperate (at no cost to the indemnified party) in the settlement or defense of any such claim, demand, suit, or proceeding. The terms of this SECTION shall survive the termination of this ------- Agreement.

d. When an event giving rise to indemnification reaches final resolution the party seeking indemnification under this Section shall forward to the indemnifying party written notice of any amounts due and owing by it along with any supporting documentation for such amount for which indemnification is being sought and the indemnifying party shall within thirty (30) days of receipt of such notice pay such amount to the indemnified party or notify such party in writing why such amounts are not due and owing to the indemnified party. The parties shall use their best efforts to reach agreement on the amounts due and owing for indemnification.

SECTION 15. NONWAIVER. Merchants' liability under this Agreement, including, without limitation, their liability under SECTION 6 above, shall not be affected by any settlement, extension, forbearance, or variation in terms that Household may grant in connection with any Sales Slip or Account or by the discharge or release of the obligations of the Cardholder(s) or any other person by operation of law or otherwise.

SECTION 16. TERM AND TERMINATION.

a. TERM. This Agreement shall be effective as of the Effective Date; provided, however, that if the Effective Date has not occurred by September 30, 1998, or such later date agreed to by Household and Merchants, this Agreement shall not become effective and shall be null and void. If this Agreement becomes effective, it shall remain in effect until the fifth (5th) anniversary of the Effective Date ("INITIAL

TERM"), and shall be automatically renewed for successive two year terms (the "RENEWAL TERM(S)") unless and until terminated as provided herein. The Initial Term and any Renewal Terms are referred to collectively as the "TERM". The termination of this Agreement shall not affect the rights and obligations of the parties with respect to transactions and occurrences which take place prior to the effective date of termination, except as otherwise provided herein.

b. TERMINATION. This Agreement may be terminated:

(i) effective at the end of the Initial Term or any Renewal Term, by Household or Merchants upon not less than three hundred and sixty
(360) days written notice prior to the end of such term;

(ii) by Household or Merchants upon written notice to the other in the event the other party shall elect to wind up or dissolve its operation or is wound up and dissolved; becomes insolvent or generally fails to pay its debts as they become due (other than debts incurred by Merchants prior to the commencement of the Chapter 11 Case); makes an assignment for the benefit of creditors; files a voluntary petition in bankruptcy, or for reorganization or is adjudicated as bankrupt or insolvent (other than the continuation of Merchants as debtors in the Chapter 11 Case); or has a liquidator or trustee appointed over all or substantially all of its affairs;

(iii) by Household upon not less than ninety (90) days written notice
(a) if a change occurs in Merchants' financial condition taken as a whole and such change has a Material Adverse Effect, (b) if there occurs any material change in the ownership (other than a change in ownership as a result of the Chapter 11 Case) of any of Merchants or of their business (regardless of the form of the transaction) and such change has a Material Adverse Effect except if the Material Adverse Effect is caused by any action or inaction of Household, (c) in the event any of Merchants materially breaches its obligations or any warranty or representation under this Agreement and such breach has not been cured within ninety (90) days after receipt of such notice, or (d) if any law, rule or regulation by any federal, state or local authority takes effect that materially impairs or restricts Merchants' or Household's ability to perform their respective obligations hereunder or that would, in Merchants' and Household's reasonable judgment, reduce by more than ten percent (10%) the then current ratio of (A) collected finance charges, late fees, overlimit fees and returned check charges over (B) Average Account Balances;

(iv) by Merchants upon not less than ninety (90) days written notice in the event that (a) Household materially breaches its obligations or any warranty or representation under this Agreement including, without limitation, SECTION 5B, and such breach has not been cured within ninety (90) days after receipt of such notice; (b) Household fails to maintain the Approval Rates in accordance with the provisions of SECTION 2C; (c) Household materially breaches its responsibilities under SECTION 4B of this Agreement; (d) there occurs a material change in the ownership of Merchants or of the Merchants' business (regardless of the form of the transaction) and the new owner has a private label credit card program with receivables in excess of $100 million that has been in existence for 2 years, and in such event termination shall be effective six months after Household's receipt of such written notice; or (e) if any law, rule or regulation by any federal, state or local authority takes effect that materially impairs or restricts Merchants' or Household's ability to perform their respective obligations hereunder or that would, in Merchants' and Household's reasonable judgment, reduce by more than ten percent (10%) the

then current ratio of (A) collected finance charges, late fees, overlimit fees and returned check charges over (B) Average Account Balances.

c. DUTIES AND RIGHTS UPON TERMINATION. Upon termination of this Agreement, Merchants will promptly submit to Household all Card Sales, Sales Slips, credit and other data made through the date of termination. Household is not liable to Merchants for any incidental or consequential damages that Merchants may suffer as a result of Household's termination of this Agreement. Commencing on the ninety-first day following the effective date of termination of this Agreement, Merchants shall pay to Household, monthly, within ten (10) days of Household's request, a liquidation fee in the amount of $5.00 per Month for each Account for which Household processes a statement during such Month, until such time as the outstanding Account Balances are liquidated and paid in full. In the event this Agreement is terminated for any reason or notice of termination is given by either party, Household may deduct amounts owed to it by Merchants from the Portfolio Reserve and take such other reasonable actions including but not limited to establishing and maintaining additional reserves from payments otherwise payable to Merchants to protect Household's rights under this Agreement and to cover chargeback amounts and other amounts owing to Household. In the event that this Agreement is terminated by Merchants under Section 16.b(iv)(d), then Merchants shall pay Household a termination fee (the "Termination Fee") equal to a percentage of the Account Balances on the effective date of the Termination. The percentage used to determine the Termination Fee shall depend upon when this Agreement is terminated by Merchants due a material change in the ownership of Merchants or of the Merchants' business. Exhibit B hereto provides a listing of Termination Fees applicable to termination during each year of the Agreement. The provisions of this subsection shall survive the termination of this Agreement.

d. PURCHASE OPTION.

(i) Upon termination of this Agreement pursuant to this Section 16, Merchants shall have the option to purchase (or assign its option to purchase to a third party), or to arrange for the purchase of, the Accounts without recourse to Household and without representation or warranty, express or implied, at a price equal to the full amount of the Account Balances, less an amount equal to the then current balance of the Portfolio Reserve and the then current balance, if any, of the SAC Reserve; provided, however, in the event that this Agreement is terminated by Merchants pursuant to Section 16b(iv)(d) due to a material change in the ownership of Merchants or of the Merchants' business, the price shall be equal to the full amount of the Account Balances, plus the Termination Fee, less an amount equal to the then current balance of the Portfolio Reserve and the then current balance, if any, of the SAC Reserve at the time such sale is consummated. The percentage used to determine the Termination Fee shall depend on when this Agreement is terminated by Merchants due to a material change in the ownership of Merchants or of the Merchants' business. Exhibit B hereto provides a listing of Termination Fees applicable to such sale during each year of the Agreement.

(ii) The purchase shall occur not later than ninety (90) days after the effective date of termination of this Agreement and shall be under such terms and conditions as are reasonably acceptable to Household.

(iii) Household shall cooperate with Merchants to take, or cause to be taken, such reasonable actions as are necessary to effect the purchase of the Accounts.

SECTION 17. STATUS OF THE PARTIES. In performing their responsibilities pursuant to this Agreement, Household and Merchants are in the position of independent contractors, and in no circumstances shall either Household or Merchants be deemed to be the agent or employee of the other. This Agreement is not intended to create, nor does it create and shall not be construed to create, a relationship of partner or joint venturer or an association for profit between Household and Merchants. Any amounts ever owing by Merchants pursuant to this Agreement represent contractual obligations only and are not a loan or debt.

SECTION 18. FORCE MAJEURE. No party to this Agreement shall be liable to the other by reason of any failure in performance of this Agreement in accordance with its terms if such failure arises out of a cause beyond the control and without the fault or negligence of such party. Such causes may include but are not limited to acts of God, of the public enemy or of civil or military authority, unavailability of energy resources, system or communication failure, delay in transportation, fires, strikes, riots or war. In the event of any force majeure occurrence, the disabled party shall use its best efforts to meet its obligations as set forth in this Agreement.

SECTION 19. LIMITED LICENSE.

(a) Merchants hereby grant to Household and Household accepts a non-exclusive, non-transferable license for purposes of this Agreement to use Merchants' Marks on the Cards, Card application/agreements, periodic statements, billing statements, collection letters or documents, promotional or advertising materials and otherwise in connection with the Program provided, however, Household may grant to GE or any GE subcontractor the right to use Merchants Marks in connection with the foregoing solely during its interim servicing of the Accounts and the Existing Portfolio under the terms of the Interim Servicing Agreement dated September 4, 1998 by and between Household and GE which agreement shall contain provision to protect Merchants rights, title and interests in Merchants' Marks. All displays of the Merchants' Marks shall conform to the prototypes provided by Merchants, shall include such notices and trademark legends as Merchants shall reasonably require, and shall be subject to Merchants' periodic reasonable review of such use and to such reasonable specifications of Merchants. Merchants may not use any name or service mark of Household or any of its Affiliates in any manner without the prior written consent of Household, except as in the reasonable determination by Merchants to be required by Applicable Law.

(b) Merchants represent and warrant that they own appropriate federal or state trademark registrations or enforceable common law rights to protect their interest in the use and ownership of the Merchants' Marks, and have the right to license the Merchants' Marks to Household as contemplated by this Agreement. Merchants shall indemnify, defend and hold Household harmless from any loss, damage, expense or liability arising from any claims of alleged infringement of the Merchants' Marks (including reasonable attorneys' fees and costs). Merchants shall, at its expense, defend and/or settle any action that may be commenced against Household alleging that the use of the Merchants' Marks infringes upon any rights of others. In such event, Household shall, at the reasonable direction of Merchant and at Merchants' expense, promptly discontinue its use of the Merchants' Marks alleged to infringe.

(c) Household acknowledges Merchants' exclusive ownership interest in and to the Merchants' Marks. Any and all goodwill arising from use of the Merchants' Marks under this Agreement shall inure to the benefit of

Merchants. Household agrees that it will not directly or indirectly contest the validity of Merchants/ ownership of the Merchants/ Marks or the license granted herein. Merchants are familiar with the manner in which Household conducts similar programs. Household agrees that it will use Merchants' Marks substantially in accordance with standards of quality not less than those it is employing as of the date hereof in connection with comparable programs. Merchants' shall have the right to periodically inspect the use of the Merchants' Marks.

(d) Upon termination of this Agreement, all rights with respect to the Merchants' Marks shall revert to Merchants and Household shall discontinue use of the Merchants' Marks; provided, however, that Household shall have the continuing right to use the Merchants' Marks to service and collect upon indebtedness existing on the date of Termination, subject to the terms of this Section 19.

SECTION 20. CONFIDENTIALITY. Merchants will keep confidential and not disclose to any person or entity (except to employees, officers, partners, directors, attorneys, accountants and other agents or advisors of Merchants who are engaged in the implementation, execution, administration and enforcement of the Program) all information, software, systems and data, that Merchants receive from Household, or from any other source which is obligated to maintain the confidentiality of the information, relating to the Program and matters which are subject to the terms of this Agreement, including, but not limited to, the Cardholder List except as permitted herein or other Account information, and, except as otherwise permitted herein, shall use, or cause to be used, such information solely for the purposes of the performance of Merchants' obligations under the terms of this Agreement; provided, however, that Merchants may disclose such information, software, systems, data, and matters (i) to the extent that they become generally publicly available through no fault of Merchants, or Merchants receive such information from an independent third party not under any obligation of confidentiality directly or indirectly to Household, or disclose thereof is required by Applicable Law, governmental request, or any other legal process or authority having the force of law, (ii) to auditors of Merchants, (iii) to the statutory committee of unsecured creditors and its attorneys and financial advisors in Merchants' Chapter 11 cases, and (iv) to advisors and agents retained by Merchants in connection with audits conducted under Section 8.e. hereof, provided that any such information that is designated as highly confidential by Household shall not be disclosed unless such committee or such advisors specified in clauses (iii) and (iv) above in each case enter into a confidentiality agreement with Merchants. Household will keep confidential and not disclose to any person or entity (except employees, officers, agents or directors of Household or its Affiliates who are engaged in the implementation and execution of the Program) any information, software, systems, or data that Household receives from Merchants, or from any other source which is obligated to maintain the confidentiality of the information, or which relates to the operation of Merchants' business, its Goods or the Cardholder List except as permitted herein and, except as otherwise permitted herein, shall use, or cause to be used, such information solely for the purposes of the performance of Household's obligations under the terms of this Agreement; provided, however, that Household may disclose such information (i) to the extent that it becomes generally publicly available through no fault of Household, or Household receives such information from an independent third party not under any obligation of confidentiality directly or indirectly to Merchants, or disclosure thereof is required by Applicable Law, governmental request, or any other legal process or authority having the force of law, or
(ii) to auditors of Household. In the event Household sells or assigns the Accounts or any portion of the Accounts under the Program, Household may disclose any information under this provision reasonably necessary or required to effectuate such sale or assignment, provided that such assignee agrees in writing to maintain the confidentiality thereof to the same extent as Household. The provisions of this SECTION 20 shall survive the termination of this Agreement.

SECTION 21. ADDITIONAL PRODUCTS & SERVICES.

(a) Household and/or any of its Affiliates may at any time, whether during or after the term of this Agreement and whether or not the Accounts are owned by Household, solicit Cardholders for deposit accounts, credit cards or other types of loan accounts or other financial or insurance services or products offered by Household and/or any of its Affiliates; provided, however, that such solicitations shall not be targeted exclusively or substantially exclusively to Merchants' customers and Household shall not use any of Merchants' Marks in any such solicitation. Except as provided above, Household will not, during the term of this Agreement, or for ninety (90) days after the effective date of termination of this Agreement, in the event the Accounts are purchased pursuant to SECTION 16D. hereof, use, sell, license or rent the Cardholder List, except in connection with the administration of the program as provided in this Agreement.

(b) Merchants may at any time, whether during or after the term of this Agreement solicit Cardholders for products and services other than deposit accounts, credit cards or other types of loan accounts except that if Merchants purchase the Accounts pursuant to SECTION 16D. hereof, Merchants may also solicit such Cardholders for deposit accounts, credit cards, or other types of loan accounts, provided that Merchants shall not use Household's name in any such solicitation.

SECTION 22. NOTICES. All notices required or permitted by this Agreement shall be in writing and shall be sent to the respective parties: if to Household, to the Attention of President (with a copy to the Attention of General Counsel, HRS Law Department 2700 Sanders Road, Prospect Hights, IL 60070); and if to Merchants, to the Attention of Sheila C. Reinken, Vice President and Treasurer with a copy to Edward P. Zimmer, Vice President and General Counsel at Household's and Merchants' respective addresses set forth on page one of this Agreement or such other addresses as each party may designate to the other by notice hereunder. Said notices shall be deemed to be received when sent to the above addresses (i) upon five (5) Business Days after deposit in the U.S. first class mail with postage prepaid, (ii) upon personal delivery, or (iii) upon receipt by telex, facsimile, or overnight/express courier service or mail.

SECTION 23. AMENDMENTS AND SUPPLEMENTARY DOCUMENTS. Household may amend this Agreement with the consent of Merchants, which shall not be unreasonably withheld, upon ten (10) days prior notice to Merchants if such modification is reasonably determined by Household to be required by Applicable Law. Reference herein to "this Agreement" shall include any schedules, appendices, exhibits, and amendments hereto. Any amendment or modification to this Agreement must be in writing and signed by a duly authorized officer of Household and Merchants to be effective and binding; no oral amendments or modifications shall be binding upon the parties.

SECTION 24. ASSIGNMENT. This Agreement is binding upon the parties and their successors and assigns. Notwithstanding, Merchants may not assign this Agreement without the prior written consent of Household, and except as otherwise provided in the next sentence, Household may not assign this Agreement without the prior consent of Parent; any purported assignment without such consent shall be void. Notwithstanding the foregoing, Household may without Merchants' consent assign this Agreement or any of the rights or obligations hereunder to any Affiliate of Household at any time; provided, that Household shall not be released from any obligations under this Agreement upon such assignment. In the event of such assignment, the assignee shall have the same rights and remedies as Household under this Agreement.

SECTION 25. NONWAIVER AND EXTENSIONS. Neither Household nor Merchants shall, by any act, delay, omission, or otherwise, be deemed to have waived any rights

or remedies hereunder. Merchants agree that Household's failure to enforce any of its rights under this Agreement shall not affect any other right of Household or the same right in any other instance. Household agrees that Merchants' failure to enforce any of their rights under this Agreement shall not affect any other right of Merchants or the same right in any other instance.

SECTION 26. RIGHTS OF PERSONS NOT A PARTY. This Agreement shall not create any rights on the part of any person or entity not a party hereto, whether as a third party beneficiary or otherwise.

SECTION 27. SECTION HEADINGS. The headings of the sections of this Agreement are for reference only, are not a substantive part of this Agreement and are not to be used to affect the validity, construction or interpretation of this Agreement or any of its provisions.

SECTION 28. INTEGRATIONS. This Agreement contains the entire agreement between the parties. There are merged herein all prior oral or written agreements, amendments, representations, promises and conditions in connection with the subject matter hereof. Any representations, warranties, promises or conditions not expressly incorporated herein shall not be binding.

SECTION 29. GOVERNING LAW/SEVERABILITY. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. If any provision of this Agreement is contrary to Applicable Law, such provision shall be deemed ineffective without invalidating the remaining provisions hereof.

SECTION 30. JURISDICTION. ANY SUIT, COUNTERCLAIM, ACTION OR PROCEEDING BY THE PARTIES ARISING OUT OF OR RELATING TO THIS AGREEMENT MUST BE BROUGHT SOLELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS OR THE STATE OF FLORIDA OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA; AND THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND ANY APPELLATE COURTS THEREOF FOR THE PURPOSE OF ANY SUCH SUIT, COUNTERCLAIM, ACTION, PROCEEDING OR JUDGMENT (IT BEING UNDERSTOOD THAT SUCH CONSENT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS WAIVES ANY RIGHT TO SUBMIT ANY DISPUTES HEREUNDER TO ANY COURTS OTHER THAN THOSE ABOVE). NOTWITHSTANDING THE FOREGOING, SO LONG AS MERCHANTS' CHAPTER 11 CASES ARE PENDING, ANY SUIT, COUNTERCLAIM, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE BROUGHT IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE.

SECTION 31. WAIVER OF JURY TRIAL. HOUSEHOLD AND MERCHANTS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, ANY RELATED DOCUMENT OR UNDER ANY OTHER DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION, SUIT PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY; THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOUSEHOLD AND MERCHANTS ENTERING INTO THIS AGREEMENT.

[Signatures appear on next page]

IN WITNESS WHEREOF, Household and Merchants have caused their duly authorized representatives to execute this Agreement as of the date set forth above.

                                                      BANK:

WITNESS OR ATTEST:                                    HOUSEHOLD BANK (SB), N.A.

By:          /s/ Sharyn Murphy                        By:       /s/ Charles A. Calip
             -------------------------------                    ------------------------------
Name:        Sharyn Murphy                            Name:     Charles A. Calip
             -------------------------------                    ------------------------------
Title:       Executive Secretary                      Title:    Vice President
             -------------------------------                    ------------------------------

                                                      MERCHANTS:

                                                      LEVITZ FURNITURE CORPORATION
WITNESS OR ATTEST:                                    Federal Tax TD #23-1657490

By:          /s/ Michael E. McCreery                  By:       /s/ Sheila C. Reinken
             -------------------------------                    ------------------------------
Name:        Michael E. McCreery                      Name:     Sheila C. Reinken
             -------------------------------                    ------------------------------
Title:       Sr. V.P. / CFO                           Title:    Vice President
             -------------------------------                    ------------------------------

                                                      LEVITZ FURNITURE COMPANY OF THE
                                                      MIDWEST, INC.
WITNESS OR ATTEST:                                    Federal Tax TD #23-1731443

By:          /s/ Michael E. McCreery                  By:       /s/ Sheila C. Reinken
             -------------------------------                    ------------------------------
Name:        Michael E. McCreery                      Name:     Sheila C. Reinken
             -------------------------------                    ------------------------------
Title:       Sr. V.P. / CFO                           Title:    Vice President
             -------------------------------                    ------------------------------

                                                      LEVITZ FURNITURE COMPANY OF THE
                                                      PACIFIC, INC.
WITNESS OR ATTEST:                                    Federal Tax TD #23-1695763

By:          /s/ Michael E. McCreery                  By:       /s/ Sheila C. Reinken
             -------------------------------                    ------------------------------
Name:        Michael E. McCreery                      Name:     Sheila C. Reinken
             -------------------------------                    ------------------------------
Title:       Sr. V.P. / CFO                           Title:    Vice President
             -------------------------------                    ------------------------------

                                                      LEVITZ FURNITURE COMPANY OF
                                                      WASHINGTON, INC.
WITNESS OR ATTEST:                                    Federal Tax TD #23-1729443

By:          /s/ Michael E. McCreery                  By:       /s/ Sheila C. Reinken
             -------------------------------                    ------------------------------
Name:        Michael E. McCreery                      Name:     Sheila C. Reinken
             -------------------------------                    ------------------------------
Title:       Sr. V.P. / CFO                           Title:    Vice President
             -------------------------------                    ------------------------------

EXHIBIT A

FORM OF APPROVAL ORDER

[Form of Approval Order To Be Attached. The Approval Order must contain the following provisions and such other provisions as Household considers necessary: (i) a grant of authority allowing Merchants to enter into this Agreement; (ii) grant of an allowed administrative claim by Household for all amounts owing to Household under this Agreement not exceeding (a) eight percent (8.00%) of the Account Balances less any balances in the Portfolio Reserve and the SAC Reserve, plus (b) two and one-half percent (2.5%) of the Account Balances; (iii) grant of a right to Household to offset any amounts owed by Merchants to Household pursuant to this Agreement against the Portfolio Reserve and the SAC Reserve, and against any other reserve account established pursuant to this Agreement, without a requirement of any further order of the Bankruptcy Court or any other court in order to allow Household to offset such amounts;
(iv) grant to Household of a perfected security interest in the Portfolio Reserve and the SAC Reserve, and in any other reserve account established pursuant to this Agreement; and (v) modification of the automatic stay of 11 U.S.C., Section 362 to allow Household the right to take any other actions contemplated by this Agreement without further order of the Bankruptcy court or any other court.]

Household Gives Merchants
Notice of Termination due To
A Change of Control in Merchants
During Following Years of the
Term of this Agreement                                   Applicable Termination Fee
                  Year 1                                  1.00% x Account Balances

                  Year 2                                  0.85% x Account Balances

                  Year 3                                  0.65% x Account Balances

                  Year 4                                  0.45% x Account Balances

                  Year 5                                  0.25% x Account Balances

           All Years Thereafter                           0.20% x Account Balance
         During Term of Agreement

                  SAC REVERSAL ESTIMATE

------------------------------------ ---------------------------------
        SAME AS CASH CREDIT
          PROMOTION TERMS                EXERCISE RATE AS A % OF
             (MONTHS)                             VOLUME
------------------------------------ ---------------------------------
                 1                                 12%
------------------------------------ ---------------------------------
                 2                                 20%
------------------------------------ ---------------------------------
                 3                                 33%
------------------------------------ ---------------------------------
                 4                                 43%
------------------------------------ ---------------------------------
                 5                                 48%
------------------------------------ ---------------------------------
                 6                                 52%
------------------------------------ ---------------------------------
                 7                                 57%
------------------------------------ ---------------------------------
                 8                                 59%
------------------------------------ ---------------------------------
                 9                                 63%
------------------------------------ ---------------------------------
                10                                 67%
------------------------------------ ---------------------------------
                11                                 71%
------------------------------------ ---------------------------------
                12                                 71%
------------------------------------ ---------------------------------
                13                                 72%
------------------------------------ ---------------------------------

                          INITIAL SAC REVERSAL ESTIMATE

------------------------- ----------------------- ----------------------- -----------------------
        ASSUMED
      PROMOTIONAL              ASSUMED % OF
         VOLUME                TOTAL VOLUME           EXERCISE RATE           WEIGHTED RATE
------------------------- ----------------------- ----------------------- -----------------------
                                    A                       B                    (A x B)
------------------------- ----------------------- ----------------------- -----------------------
      3 month SAC                  40%                     33%                    13.2%
------------------------- ----------------------- ----------------------- -----------------------
      6 month SAC                  15%                     52%                     7.8%
------------------------- ----------------------- ----------------------- -----------------------
      12 month SAC                 45%                     71%                    31.9%
------------------------------------------------------------------------- -----------------------
                                                                                  52.9%
                                                                          -----------------------
                                                   SAC Reversal Estimate          52.0%
------------------------------------------------------------------------- -----------------------

EXHIBIT NO. 10.57

SEVENTH AMENDMENT AND CONSENT TO POSTPETITION
CREDIT AGREEMENT

THIS SEVENTH AMENDMENT AND CONSENT TO POSTPETITION CREDIT AGREEMENT,
dated as of September 4, 1998 (this "AMENDMENT"), is among LEVITZ FURNITURE INCORPORATED, a Delaware corporation and a debtor and debtor in possession, LEVITZ FURNITURE CORPORATION, a Florida corporation and a debtor and debtor in possession ("LFC"), LEVITZ FURNITURE REALTY CORPORATION, a Florida corporation and a debtor and debtor in possession, LEVITZ SHOPPING SERVICE, INC., a Florida corporation and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a Colorado corporation and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a Washington corporation and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a Colorado corporation and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a California corporation and a debtor and a debtor in possession, LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a Washington corporation and debtor and a debtor in possession, JOHN M. SMYTH COMPANY, an Illinois corporation and a debtor and debtor in possession, and JOHN M. SMYTH REALTY COMPANY an Illinois corporation and a debtor and debtor in possession (collectively, the "BORROWERS"), each Revolving Lender and Term Lender signatories hereto (collectively the "LENDERS"), and BT COMMERCIAL CORPORATION, a Delaware corporation, acting in its capacity as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT"). Capitalized terms used in this Amendment and not otherwise defined have the meanings assigned such terms in the Postpetition Credit Agreement dated as of September 5, 1997 (as amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrowers, the Lenders and the Agent.

PRELIMINARY STATEMENTS:

A. The Borrowers, the Lenders and the Agent are parties to the Credit Agreement.

B. The Lenders have extended credit to the Borrowers under the Credit Agreement by, among other things, the term loans (the "EXISTING TERM LOANS") evidenced by the Term Note dated as of September 5, 1997, made by the Borrowers in favor of the Term Lenders in the original principal amount of $36,356,250.

C. The Borrowers have requested that the Term Lenders and certain other financial institutions (together with the Term Lenders, the "SECOND TERM LENDERS") extend further credit by extending a new term loan (the "SECOND TERM LOAN") to the Borrowers in the original principal amount of at least $20,000,000 and up to $30,000,000, to be evidenced by a promissory note (the "SECOND TERM NOTE"), made by the Borrowers in favor of the Second Term Lenders, such extension of credit to be secured by an interest in the Collateral PARI PASSU and pro rata with the Existing Term Loans.

D. The Borrowers desire to establish a new private-label credit card program as evidenced by the Merchant Agreement dated as of September 4, 1998 (the "HOUSEHOLD MERCHANT AGREEMENT"), among Household Bank (SB), N.A. ("HOUSEHOLD") and certain of the Borrowers. In connection with the establishment of such a program, the Borrowers desire to terminate the GECC Account Purchase Agreement pursuant to the terms a letter to be sent to GECC (the "LETTER").

E. The Borrowers further desire to create a new wholly owned subsidiary of LFC to be incorporated under the laws of the Turks and Caicos Islands ("NEWCO"), which subsidiary will provide reinsurance services for credit insurance offered by the Borrowers to their customers in connection with the private-label credit card program established with Household.

F. The Borrowers, the Lenders and the Agent have agreed to amend the Credit Agreement to, among other things, (i) extend the Second Term Loan and
(ii) incorporate the Household Merchant Agreement, on the terms and subject to the conditions of this Amendment.

G. The Borrowers have requested that the Lenders and the Agent consent to (i) the extension of the Second Term Loan, (ii) the execution and delivery of the Household Merchant Agreement and the Termination of the GECC Account Purchase Agreement and (iii) the creation of Newco, on the terms and subject to the conditions of this Amendment.

H. It is the intention of the Borrowers, the Lenders and the Agent that this Amendment will become effective in whole or in part as provided in SECTION 5.

AGREEMENT:

In consideration of the premises and the mutual agreements contained in this Amendment, the Borrowers, the Lenders and the Agent agree as follows:

1. AMENDMENTS TO CREDIT AGREEMENT (SECOND TERM LOAN).

On the date each of the conditions set forth in SECTION 5.1 is satisfied by the Borrowers (the "SECOND TERM LOAN CLOSING DATE"), the Credit Agreement is amended as follows:

1.1 The Credit Agreement is amended by adding Article 2B to the Credit Agreement as follows:

ARTICLE 2B. SECOND TERM LOAN.

Subject to the terms and conditions set forth in this Credit Agreement, and in reliance on the representations and warranties of the Borrowers set forth herein, on September 4, 1998, the Second Term Lenders agree to extend a term loan to the Borrowers in the original principal amount of at least $20,000,000 and up to $30,000,000 (the "SECOND TERM LOAN"). The Second Term Loan shall be evidenced by a Term Note and shall be governed in all respects by the terms of this Credit Agreement and the other Credit Documents.

1.2 Section 1.1 of the Credit Agreement is amended by deleting the definition of "APPRAISED VALUE" in its entirety and replacing it as follows:

APPRAISED VALUE means (i) unless covered by an appraisal described under clause (ii) below, with respect to the various parcels of real property of the Borrowers for which a current appraisal dated August 29, 1997 or later prepared by Ernst & Young L.L.P. has been delivered to the Agent, the appraised liquidation value of each such property as reflected in the applicable appraisal, (ii) with respect to the Borrowers' leasehold interests in various parcels of real property for which a current appraisal dated November 12, 1997, or later prepared by Grubb & Ellis has been delivered to the Agent, the arithmetic mean of the appraised liquidation value and the appraised fair market value of each such property as reflected in the applicable appraisal, (iii) with respect to any other leasehold interest of any Borrower in any real property, the arithmetic mean of the appraised liquidation value and the

appraised fair market value of such leasehold interest (assuming the same to be freely assignable to the extent provided in section 365 of the Bankruptcy Code), as determined by a nationally recognized real estate appraisal firm retained by the Agent and reasonably acceptable to the Majority Term Lenders for purposes of making such determination and in an appraisal reasonably satisfactory to the Agent and the Majority Term Lenders, as of the earlier of the date of the sale, transfer or other disposition by any Borrower of such leasehold interest and any date after the Closing Date used in any such appraisal and (iv) with respect to any other fee interest of any Borrower in any real property, the appraised liquidation value of such fee interest, as determined by a nationally recognized real estate appraisal firm retained by the Agent and reasonably acceptable to the Majority Term Lenders for purposes of making such determination and in an appraisal reasonably satisfactory to the Agent and the Majority Term Lenders, as of the earlier of the date of the sale, transfer or other disposition by any Borrower of such fee interest and any date after the Closing Date used in any such appraisal; it being understood that, if any appraisal delivered to the Agent pursuant to clause (i), (ii), (iii) or (iv) sets forth a range of values for liquidation value or fair market value of the subject property, the "appraised liquidation value" of such property shall be the arithmetic mean of the high and low values of the liquidation value specified for such property and the "appraised market value" of such property shall be the arithmetic mean of the high and low values of the fair market value specified for such property and if the appraisal sets forth a range of values for the subject property, alone, the "Appraised Value" of such property shall be the arithmetic mean of the high and low values specified for such property, as determined by the Agent and (v) with respect to any other fixed assets of any Borrower, (including without limitation fixtures, furniture and equipment) the fair market value of such assets as determined by the Agent in the exercise of its Permitted Discretion.

1.3 Section 1.1 of the Credit Agreement is further amended by adding the following sentence to the end of the definition of "EXPENSES" as follows:

EXPENSES also means all reasonable costs and expenses of the Majority Term Lenders incurred in connection with the Credit Documents and the respective transactions contemplated therein, including, without limitation, (I) the costs of conducting record searches and examining collateral, (II) the reasonable fees and expenses of legal counsel and paralegals, accountants, appraisers and other consultants, experts or advisors retained by the Majority Term Lenders, including, without limitation, consultants, experts or advisors retained in connection with due diligence investigations and (III) the costs of reviewing and preparing waivers, amendments and consents.

1.4 Section 1.1 of the Credit Agreement is further amended by adding the following definition to such section as follows:

MAKE-WHOLE PREMIUM means, in connection with any payment of the principal amount of all or any portion of the principal amount of the Second Term Loan at any time prior to March 5, 1999, for any reason (whether upon voluntary prepayment, mandatory prepayment, acceleration or otherwise), an amount equal to the Present Value (as hereinafter defined) of the difference in the interest that would have been payable on each interest payment date on the amount of such principal being prepaid (assuming each payment of interest on the Second Term Loan would have been timely paid when due) and the interest that would be earned on the prepaid amount at 7.00%. For purposes of this definition, PRESENT VALUE shall be determined in accordance with generally accepted financial practice in the United States of America at a discount rate equal to 7.00% per annum applied on a monthly basis.

1.5 Section 1.1 of the Credit Agreement is further amended by adding the following definition to such section as follows:

ORIGINAL TERM LENDERS means each financial institution identified on ANNEX II as an "Original Term Lender".

1.6 Section 1.1 of the Credit Agreement is further amended by adding the following definition to such section as follows:

ORIGINAL TERM LOAN has the meaning set forth in Article 2A.

1.7 Section 1.1 of the Credit Agreement is further amended by adding the following definition to such section as follows:

SECOND TERM LENDERS means each financial institution identified on ANNEX II as a "Second Term Lender."

1.8 Section 1.1 of the Credit Agreement is further amended by adding the following definition to such section as follows:

SECOND TERM LOAN has the meaning set forth in Article 2B.

1.9 Section 1.1 of the Credit Agreement is further amended by deleting the definition of "TERM LENDER" in its entirety and replacing it as follows:

TERM LENDERS means the Original Term Lenders and the Second Term Lenders.

1.10 Section 1.1 of the Credit Agreement is further amended by deleting the definition of "TERM LOAN" in its entirety and replacing it as follows:

TERM LOAN means the Original Term Loan and the Second Term Loan.

1.11 Section 1.1 of the Credit Agreement is further amended by deleting the definition of "TERM NOTE" in its entirety and replacing it as follows:

TERM NOTE means, collectively, each promissory note of the Borrowers payable to the order of any Term Lender, including, without, limitation, the promissory note evidencing the Second Term Loan, substantially in the form of EXHIBIT C-2 as amended, restated, supplemented or otherwise modified from time to time, and including all notes issued in replacement of, or in substitution or exchange for, any of the foregoing.

1.12 Article 2A of the Credit Agreement is amended by deleting such article in its entirety and replacing it as follows:

ARTICLE 2A. ORIGINAL TERM LOAN.

On each Business Day that Collections are to be applied to repay the principal of the Prepetition Tranche A Term Loan pursuant to the Postpetition Collateral Agency Agreement, then, unless an Actionable Default has occurred and is continuing, each Original Term Lender shall be deemed to fund a term loan to the Borrowers in an amount equal to its Proportionate Share of the amount of the Collections so to be applied (all term loans made in such manner by each Original Term Lender herein collectively called the "Original Term Loan"). The Original Term Loan of each Original Term Lender shall be evidenced by a Term Note and shall be governed in all respects by the terms of this Credit Agreement and the other Credit Documents. All Collections that would otherwise be applied to repay the principal of the Prepetition Tranche A Term Loan

under the Postpetition Collateral Agency Agreement shall be remitted to the LFC Funds Administrator for the account of the Borrowers in accordance with the deemed funding of the Original Term Loan under this Article 2A so long as no Actionable Default has occurred and is continuing.

1.13 Section 4.7A of the Credit Agreement is amended by deleting such section in its entirety and replacing it as follows:

4.7A NO PERMITTED PREPAYMENT OF TERM LOANS.

Until payment in full of all Postpetition Obligations in respect of Revolving Loans and Letter of Credit Obligations and termination of the Revolving Commitments pursuant to the terms and provisions hereof, the Borrowers may not prepay the Term Loans at any time in whole or in part. After payment in full of all Postpetition Obligations in respect of Revolving Loans and Letter of Credit Obligations and termination of the Revolving Commitments pursuant to the terms and provisions hereof, the Borrowers may prepay the Term Loans at any time in whole or in part; PROVIDED, that any such prepayment shall be applied on a pro rata basis against the then outstanding balances of both the Original Term Loan and the Second Term Loan and must include all of the interest (including default rate interest, to the extent applicable) accrued on the principal amount of the Term Loans so repaid through and including the relevant date of repayment. Each time any principal amount of the Second Term Loan is paid in whole or in part at any time prior to March 5, 1999, for any reason (whether by a voluntary prepayment, a mandatory prepayment, upon acceleration or otherwise), the Borrowers shall pay the Make-Whole Premium to the Second Term Lenders.

1.14 Article 8 of the Credit Agreement is amended by adding a new
Section 8.19 to such article as follows:

8.19 LEASEHOLD COVENANTS. No Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly, fail to pay when due any postpetition obligation relating to, or arising in connection with, its leasehold interest in any real property, including, without limitation, rent or other payments due under the lease for such real property, any postpetition real estate taxes owing on such real property and payable by the Borrowers or any insurance premiums due in connection with such real property. Without obtaining the prior written consent of the Agent and the Majority Term Lenders, no Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly, (i) reject or apply to the Bankruptcy Court to reject any executory contract or unexpired lease or
(ii) assume or apply to the Bankruptcy Court to assume any executory contract or unexpired lease unless such assumption is pursuant to an order of the Bankruptcy Court, acceptable to the Agent and the Majority Term Lenders in their reasonable discretion, that specifically reserves for the Borrowers the right to subsequently assign such executory contract or unexpired lease under section 365(f) of the Bankruptcy Code without, among other things, the consent of the relevant counterparties to such executory contract or unexpired lease.

1.15 Section 9.2 of the Credit Agreement is amended by adding new subsections (e) and (f) to such section as follows:

(E) OTHER REMEDIES. If any Event of Default shall have occurred and be continuing, the Agent or the Majority Term Lenders may direct the Borrowers how and when to exercise all rights of the Borrowers under section 365 of the Bankruptcy Code and the Borrowers shall fully comply with such directions; PROVIDED, that notwithstanding the foregoing, the Majority Term Lenders may not exercise any of such rights until all Postpetition Obligations owing to the Revolving Lenders have been

indefeasibly paid in full and the Revolving Commitments have been terminated. Without in any manner limiting any right or remedy of the Agent or any Lender under any other section or provision of this Credit Agreement or any order related to or entered in connection therewith, and unless the Borrowers and the Committee agree otherwise, no such direction shall require any Borrower to assign any unexpired lease or executory contract earlier than the earlier of (i) the expiration of sixty days from the date of such direction and (ii) five Business Days prior to (a) the day upon which the relevant lease or contract may be deemed to be rejected under section 365 of the Bankruptcy Code (whether by expiration of any relevant time period for assumption or rejection or otherwise), (b) the scheduled hearing date on which the relevant executory contract or unexpired lease may be assumed or rejected or (c) the earliest day on which, in the good faith judgement of the Agent or the Majority Term Lenders, a default not subject to cure could occur with respect to that lease or contract. Unless the Borrowers and the Committee agree otherwise, any such assignment pursuant to a Lender direction described above shall be to the highest and best bidder at a public auction held before the Bankruptcy Court or as the Bankruptcy Court shall otherise direct. Notwithstanding anything to the contrary contained herein, if the Borrowers do not fully honor and take all actions requested in any such direction within three Business Days of the delivery of such direction, the Agent or the Majority Term Lenders may, on five days' notice to the Borrowers, the Committee and any landlord or other counterparty to the relevant lease or contract, move the Bankruptcy Court on behalf of the Borrowers for the relief specified in the direction and such notice shall be due and sufficient notice of such request under the circumstances.

(F) Without in any manner limiting any right or remedy of the Agent or any Lender under any other section or provision of this Credit Agreement or any order related to or entered in connection therewith, and notwithstanding that a Default or Event of Default may not have occurred and be continuing, the Agent or the Majority Term Lenders may direct, no earlier than fifteen days prior to the day that any of the events set forth in clause (i), (ii) or (iii) below could occur, the Borrowers how and when to exercise all rights of the Borrowers under section 365 of the Bankruptcy Code (and the Borrowers shall fully comply with such direction(s)) with respect to any lease or executory contract that (i) may be rejected or deemed to be rejected under section 365 of the Bankruptcy Code (whether by expiration of any relevant time period for assumption or rejection or otherwise), (ii) may be assumed or rejected at a scheduled hearing date or (iii) in the good faith judgment of the Agent or the Majority Term Lenders, a default not subject to cure could occur. Unless the Borrowers and the Committee agree otherwise, any such assignment pursuant to a Lender direction described above shall be to the highest and best bidder at a public auction held before the Bankruptcy Court or as the Bankruptcy Court shall otherwise direct. Notwithstanding anything to the contrary contained herein, if the Borrowers do not fully honor and take all actions requested in any such direction within three Business Days of the delivery of such direction, the Agent or the Majority Term Lenders may, on three days' notice to the Borrowers, the Committee any landlord or other counterparty to the relevant lease or contract, move the Bankruptcy Court on behalf of the Borrowers for the relief specified in the direction and such notice shall be due and sufficient notice of such request under the circumstances.

1.16 Section 9.2A of the Credit Agreement is amended by adding the following sentence to the end of the such section as follows:

Upon the acceleration of the Term Loans under this SECTION 9.2A, the Borrowers will be required to pay the Make-Whole Premium (in respect of

any principal amount of the Second Term Loans paid for any reason prior to March 5, 1999) to the Second Term Lenders.

1.17 Section 11.8(c) of the Credit Agreement is amended by deleting the first sentence from such section in its entirety and replacing it as follows:

Each Term Lender may assign to one or more Persons all or a portion of its rights and obligations under this Credit Agreement, the Term Notes and the other Credit Documents, with the consent of the Agent and the Borrowers, which consents shall not be unreasonably withheld or delayed (PROVIDED, that no consents shall be required (i) if an Event of Default has occurred and is continuing or (ii) if the assignment is to an Affiliate of a Term Lender or a fund or investment entity managed by a Term Lender or an Affiliate of a Term Lender); and upon execution and delivery to the Agent, for its acceptance and recording in the Register, of an agreement in substantially the form of EXHIBIT G-2 (a "TERM ASSIGNMENT AND ASSUMPTION AGREEMENT"), together with surrender of any Term Note or Term Notes subject to such assignment and a processing and recordation fee of $2,500, such assignment shall be effective, the Borrowers shall issue a replacement Term Note or Term Notes to such Person or Persons who thereupon shall be a Term Lender or Term Lenders for all purposes hereunder to the extent of the Term Note or Term Notes so issued and ANNEX II hereto shall be deemed to be modified accordingly.

1.18 Section 11.11(b) of the Credit Agreement is amended by deleting clause (iii) from such section in its entirety and replacing it as follows:

(iii) ARTICLE 2A or 2B and SECTION 2.7, 4.1A, 4.5, 4.7(D), 4.7A, 4.9(B),
4.11, 6.19 (AND ANY SIMILAR REPRESENTATION MADE IN ANY AMENDMENT TO THIS
CREDIT AGREEMENT), 6.7, 7.14., 8.6, 8.17(C), 8.19, 9.2A, 9.2(B) OR 11.8(C) or (E), of this Credit Agreement and

1.19 Annex II of the Credit Agreement is amended by replacing such annex with the ANNEX II attached to this Amendment as EXHIBIT A.

2. AMENDMENTS TO CREDIT AGREEMENT (HOUSEHOLD).

On the date each of the conditions set forth in SECTION 5.2 is satisfied by the Borrowers (the "HOUSEHOLD CLOSING DATE"), the Credit Agreement is amended as follows:

2.1 Section 1.1 of the Credit Agreement is amended by adding the following definition to such section as follows:

"HOUSEHOLD" means Household Bank (SB), N.A.

2.2 Section 1.1 of the Credit Agreement is further amended by adding the following definition to such section as follows:

"HOUSEHOLD MERCHANT AGREEMENT" means the Merchant Agreement dated as of September 4, 1998, among Household and certain of the Borrowers.

2.3 Section 8.1 of the Credit Agreement is amended by deleting such section in its entirety and replacing it as follows:

8.1 MINIMUM EBITDA. At the end of each period beginning on April 1, 1998, and ending on the last day of each month set forth below, EBITDA for such period shall be an amount not less than the following:

   PERIOD FROM APRIL
    1998 TO END OF                   AMOUNT
------------------------         ----------------
June 1998                           ($3,209,000)
September 1998                      ($8,000,000)
December 1998                       ($1,750,000)

2.4 Section 8.3(f) of the Credit Agreement is amended by deleting such subsection in its entirety and replacing it as follows:

(F) Indebtedness and other obligations under the GECC Account Purchase Agreement (including those under the letter dated September 4, 1998, sent to GECC by certain of the Borrowers) and the Household Merchant Agreement, without giving effect to any amendments or modifications or restatements thereof, or supplements thereto;

2.5 Section 8.4(b) of the Credit Agreement is amended by deleting such subsection in its entirety and replacing it as follows:

(B) Liens granted to GECC under the GECC Account Purchase Agreement and Liens granted to Household under the Household Merchant Agreement;

2.6 Section 8.12 of the Credit Agreement is amended by deleting cause
(b)(iii) from such section in its entirety and replacing it as follows:

(III) restrictions set forth in the GECC Account Purchase Agreement or the Household Merchant Agreement,

2.7 Section 8.14 of the Credit Agreement is amended by deleting clause
(i) from such section in its entirety and replacing it as follows:

(I) the GECC Account Purchase Agreement (other than the amendment dated October 7, 1997, and the letter dated September 4, 1998, sent to GECC by the Borrowers) or the Household Merchant Agreement and

2.8 Section 9.1(g) of the Credit Agreement is amended by deleting such subsection in its entirety and replacing it as follows:

(G) DEFAULT UNDER GECC ACCOUNT PURCHASE AGREEMENT OR HOUSEHOLD MERCHANT AGREEMENT. (i) Any default or breach by any Borrower shall occur and be continuing under the GECC Account Purchase Agreement or the Household Merchant Agreement or (ii) the GECC Account Purchase Agreement or the Household Merchant Agreement shall be terminated for any reason, in each case unless consented to by the Majority Lenders.

2.9 Schedule B, Part 6.9 of the Credit Agreement is amended by replacing such schedule in its entirety with the information on EXHIBIT E.

2.A. AMENDMENT TO CREDIT AGREEMENT (LOCATION).

2A.1 Schedule B, Part 6.9(a) of the Credit Agreement is amended by replacing such schedule with Schedule B, Part 6.9(a) attached to this Amendment as Schedule I.

2A.2 Schedule B, Part 6.9(b) of the Credit Agreement is amended by replacing such schedule with Schedule B, Part 6.9(b) attached to this Amendment as Schedule II.

3. CONSENT.

3.1 SECOND TERM LOAN. On the Second Term Loan Closing Date, the Agent and each Lender consents to the extension of the Second Term Loan by the

Second Term Lenders in accordance with the terms of the Credit Agreement, as amended by this Amendment. The Agent and each Lender acknowledge that the Second Term Loan shall be secured by an interest in the Collateral PARI PASSU and pro rata with the Existing Term Loan and the term "Secured Obligations" as used in the Postpetition Collateral Agency Agreement shall include the obligations of the Borrowers under the Credit Agreement with respect to the Second Term Loan. The obligations of the Borrowers under the Credit Agreement with respect to the Second Term Loan will be secured by the Collateral without having to amend the Collateral Documents. The Agent and each Lender agree that at any time and from time to time, at the cost and expense of the Borrowers, they will execute and deliver all further instruments and documents, and take such further actions, that may be reasonably necessary to so secure the Second Term Loan.

3.2 HOUSEHOLD TRANSACTION. On the Household Closing Date, the Agent and the Majority Lenders consent to the termination of the GECC Account Purchase Agreement and agree that such termination (or the filing of an application with the Bankruptcy Court for such termination) will not constitute a breach of
Section 8.14 or Section 8.17 of the Credit Agreement or an Event of Default under Section 9.1(g) the Credit Agreement. On the Household Closing Date, the Agent and the Majority Lenders further consent to the entry of certain Borrowers into the Household Merchant Agreement and agree that such entry will not constitute an Event of Default under the Credit Agreement.

3.3 NEWCO. On the date each of the conditions set forth in SECTION 5.3 is satisfied by the Borrowers (the "NEWCO CLOSING DATE"), the Agent and the Majority Lenders consent to the creation of Newco and agree that such creation will not constitute a breach of Section 8.13 of the Credit Agreement or an Event of Default under the Credit Agreement.

3.4 OTHER. Nothing in this Amendment should in any way be deemed (i) a waiver of any Event of Default (other than as specifically set forth above) or
(ii) an agreement to forbear from exercising any remedies with respect to any such Event of Default.

4. AGREEMENTS OF THE BORROWERS.

4.1 USE OF PROCEEDS. The proceeds from the Second Term Loan will be used only to prepay outstanding Revolving Loans under the Credit Agreement. The Borrowers acknowledge that the Revolving Line of Credit will be permanently reduced in an amount equal to the original principal amount of the Second Term Loan.

4.2 FURTHER ASSURANCES. The Borrowers acknowledge that the Second Term Loan shall be secured by an interest in the Collateral PARI PASSU and pro rata with the Existing Term Loan and the term "Secured Obligations" as used in the Postpetition Collateral Agency Agreement shall include the obligations of the Borrowers under the Credit Agreement with respect to the Second Term Loan. The obligations of the Borrowers under the Credit Agreement with respect to the Second Term Loan will be secured by the Collateral without having to amend the Collateral Documents. The Borrowers agree that at any time and from time to time, at their cost and expense, they will execute and deliver all further instruments and documents, and take such further actions, that may be reasonably necessary to so secure the Second Term Loan.

4.3 FAILURE TO COMPLY. The Borrowers agree that a breach of the agreements in this SECTION 3 will constitute an Event of Default under the Credit Agreement.

5. CONDITIONS PRECEDENT.

This Amendment becomes effective on the date set forth above other than with respect to SECTIONS 1, 2, 3.1, 3.2 AND 3.3 of this Amendment, which become effective as described below:

5.1 SECOND TERM LOAN. With respect to SECTIONS 1 AND 3.1 of this Amendment, this Amendment becomes effective upon satisfaction of the following conditions:

(A) The representations and warranties of the Borrowers contained in this Amendment are true and correct as of the Second Term Loan Closing Date.

(B) This Amendment has been approved by the Bankruptcy Court pursuant to an order (the "AMENDMENT APPROVAL ORDER") in form attached as EXHIBIT B, which order is in full force and effect and has not been reversed, modified, amended, appealed or stayed. The Agent and the Second Term Lenders shall have been reasonably satisfied with the form and timing or the notice of the motion for the entry of the Amendment Approval Order and such notice and motion shall have been properly served upon each lessor of property to any Borrower. Unless the Agent and the Second Term Lenders agree otherwise, the Amendment Approval Order shall have become final and non-appealable.

(C) The Borrowers have obtained an order of the Bankruptcy Court extending the Borrowers' time to assume or reject executory contracts and unexpired leases, pursuant to section 365(d)(4) of the Bankruptcy Code, through March 31, 1999.

(D) The Second Term Lenders have completed their due diligence review of the Borrowers and their properties and are satisfied, in their sole and absolute discretion, with the results of such investigation. Such due diligence investigation includes, without limitation, (i) review of the Borrowers' financial statements, (ii) review of leases for each of 32 properties selected by the Second Term Lenders, (iii) review of the terms and provisions of the Borrowers' real estate holdings
(including leasehold documentation relating to such holdings) and (iv)
receipt and review of a report prepared by Keen Realty Consultants, such report to be acceptable to the Second Term Lenders in their sole and absolute discretion.

(E) The Agent and the Second Term Lenders have been reimbursed for all fees and expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation of this Amendment and the Second Term Loan.

(F) The Agent has received all of the following, each duly executed and dated as of the Second Term Loan Closing Date (or such other date as is satisfactory to the Agent) in form and substance satisfactory to the Agent:

(1) SEVENTH AMENDMENT. Ten copies of this Amendment executed by the LFC Funds Administrator, the Borrowers, the Agent and all Lenders;

(2) SECOND TERM NOTES. Second Term Notes, substantially in the form of Exhibit C-2 to the Credit Agreement (dated as of the Second Term Loan Closing Date), made by the Borrowers in favor of the Second Term Lenders;

(3) AMENDMENT APPROVAL ORDER. A copy of the Amendment Approval Order; and

(4) OTHER. Such other documents as the Agent or the Second Term Lenders may reasonably request.

5.2 HOUSEHOLD. With respect to Sections 2 and 3.2, this Amendment becomes effective upon satisfaction of the following conditions:

(A) The representations and warranties of the Borrowers contained in SECTIONS 6.1 through and including 6.4 of this Amendment are true and correct as of the Household Closing Date.

(B) The Agent has received ten copies of this Amendment, duly executed by the LFC Funds Administrator, the Borrowers, the Agent and the Majority Lenders.

(C) The Agent has received an executed copy of an agreement among the Agent, Household and the Borrowers, in form and substance satisfactory to the Agent.

(D) The Household Merchant Agreement and the Letter have been approved by the Bankruptcy Court.

(E) (i) The Household Merchant Agreement has closed, (ii)
Household has purchased a substantial portion of the portfolio of the Borrowers' customer accounts held by GECC under the GECC Account Purchase Agreement and (iii) the GECC Account Purchase Agreement has been terminated.

(F) The Agent has received such other documents as it may reasonably request prior to the date of this Amendment.

5.3 NEWCO. With respect to SECTION 3.3, this Amendment becomes effective upon satisfaction of the following conditions:

(A) The representations and warranties of the Borrowers contained in SECTIONS 6.1 through and including 6.4 of this Amendment are true and correct as of the Newco Closing Date.

(B) The Agent has received ten copies of this Amendment, duly executed by the LFC Funds Administrator, the Borrowers, the Agent and the Majority Lenders.

(C) The Agent has received a secretary certificate of Newco, substantially in the form as the secretary certificates provided to the Agent in connection with the closing of the Credit Agreement, with all appropriate attachments thereto.

(D) The Agent has received an assumption agreement executed by Newco, substantially in the form of EXHIBIT C.

(E) The Agent has received an updated Schedule B, Part 8.10 to the Credit Agreement reflecting all accounts of Newco.

(F) The Agent has received a legal opinion from counsel to the Borrowers in a form and substance acceptable to the Agent.

(G) The Agent has received such other documents as it may reasonably request and such other conditions as the Agent may reasonably request have been satisfied and, upon the request of the Borrowers, the Agent will give the Borrowers written notice when this condition has been satisfied.

6. REPRESENTATIONS AND WARRANTIES.

Each of the Borrowers represents and warrants to the Agent and each Lender that, after giving effect to this Amendment or any part of this Amendment:

6.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on and as of the date of this Amendment, in each case as if then made, other than representations and warranties that expressly relate solely to an earlier date (in which case such representations and warranties were true and accurate on and as of such earlier date).

6.2 EVENTS OF DEFAULT. No Default or Event or Default has occurred which has not been waived (or, in the case of an Event of Default, cured) under the terms of the Credit Agreement.

6.3 ENFORCEABILITY. Upon approval by the Bankruptcy Court (as contemplated by Section 5.1(B)), this Amendment and the Credit Agreement, as amended by this Amendment, will constitute legal, valid and binding obligations of the LFC Funds Administrator and each of the Borrowers and will be enforceable against such Persons in accordance with their respective terms.

6.4 CONSENTS. The execution and delivery by the LFC Funds Administrator and each of the Borrowers of this Amendment does not require the consent or approval of any Person other than the Bankruptcy Court (as contemplated by
SECTION 5.1(B)), except such consents and approvals as have been obtained.

6.5 NO PREPETITION OBLIGATIONS OUTSTANDING. As of the Second Term Loan Closing Date, there are no Prepetition Obligations outstanding under the Credit Agreement.

6.6 MATERIAL CONTRACTS. SCHEDULE B, PART 6.19, as amended by the information contained on EXHIBIT D to this Amendment, contains a true, correct and complete list of all the Material Contracts in effect on the Second Term Loan Closing Date. Except as described on SCHEDULE B, PART 6.19, as amended by the information contained on EXHIBIT D to this Amendment, no Material Contract contains any burdensome restrictions on any Borrower or any Subsidiary of any Borrower or any of their respective properties that could prevent such Borrower or Subsidiary from conducting its business as conducted on the Second Term Loan Closing Date. As of the Second Term Loan Closing Date, all of the Material Contracts are in full force and effect and, except as described on SCHEDULE B, PART 6.19, as amended by the information contained on EXHIBIT D to this Amendment, no defaults currently exist thereunder by any Borrower or Subsidiary of a Borrower that is a party thereto (other than defaults that need not be cured under section 365(b)(2) of the Bankruptcy Code), or to the knowledge of the Borrowers, any other party thereto. The Borrowers agree that the representations and warranties set forth in this SECTION 5.7 will survive the Second Term Loan Closing Date and that if such representations and warranties are false or misleading in any material respect on the Second Term Closing Date, an Event of Default will have occurred under Section 9.1(c) of the Credit Agreement.

7. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS.

7.1 REFERENCES. Upon the effectiveness of this Amendment, or any part of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in each of the other Credit Documents to the "Credit Agreement" shall mean and be

a reference to the Credit Agreement as amended by this Amendment or any part of this Amendment.

7.2 RATIFICATION. Except as expressly set forth in this Amendment, all of the terms and conditions of the Credit Agreement and the other Credit Documents remain in full force and effect and are ratified and confirmed in all respects. The execution and delivery of this Amendment by the Agent and each of the Lenders in no way obligates the Agent or any of the Lenders at any time hereafter to consent to any other amendment or modification of any term or provision of the Credit Agreement or any of the other Credit Documents, whether of a similar or different nature.

8. GOVERNING LAW.

THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AMENDMENT IS GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND DECISIONS OF THE STATE OF NEW YORK.

9. HEADINGS: COUNTERPARTS.

Section headings in this Amendment are included for convenience of reference only and do not constitute a part of this Amendment for any other purpose. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.

[The remainder of this page is intentionally left blank]

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

LFC FUNDS ADMINISTRATOR

LEVITZ FURNITURE CORPORATION, a Florida corporation, in
its capacity as LFC Funds Administrator

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila C. Reinken
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

BORROWERS:

LEVITZ FURNITURE CORPORATION, a Florida corporation, in its individual capacity and it its capacity as the LFC Funds Administrator

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila C. Reinken
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE INCORPORATED, a Delaware corporation

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila C. Reinken
           ------------------------------------------
Title:     Treasurer
           ------------------------------------------

LEVITZ FURNITURE REALTY CORPORATION, a Florida
corporation

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila C. Reinken
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ SHOPPING SERVICE, a Florida corporation

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila C. Reinken
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a Colorado
corporation

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila Reinken
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a
California corporation

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila C. Reinken
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a Washington
corporation

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila C. Reinken
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a
Colorado corporation

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila C. Reinken
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila C. Reinken
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a
Washington corporation

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila C. Reinken
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

JOHN M. SMYTH COMPANY, an Illinois corporation

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila C. Reinken
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

JOHN M. SMYTH REALTY COMPANY, an Illinois corporation

By:        /s/ Sheila C. Reinken
           ------------------------------------------
Name:      Sheila C. Reinken
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

AGENT:

BT COMMERCIAL CORPORATION, in its capacity as Agent

By:        /s/ Wayne D. Hillock
           ------------------------------------------
Name:      Wayne D. Hillock
           ------------------------------------------
Title:     Sr. V.P.
           ------------------------------------------

REVOLVING LENDERS:

BT COMMERCIAL CORPORATION, a Delaware corporation in its respective capacities as Revolving Lender and Collateral Agent

WAYLAND INVESTMENT FUND, LLC, in its capacity as Revolving Lender

FINOVA CAPITAL CORPORATION, in its capacity as Revolving Lender

By:        /s/ Brian Rujawitz
           ------------------------------------------
Name:      Brian Rujawitz
           ------------------------------------------
Title:     AVP
           ------------------------------------------

HELLER FINANCIAL, INC., it its capacity as Revolving Lender

By:        /s/ Scott Ziemke
           ------------------------------------------
Name:      Scott Ziemke
           ------------------------------------------
Title:     AVP-Relationship Manager
           ------------------------------------------

LASALLE NATIONAL BANK, it its capacity as Revolving Lender

By:        /s/ Christopher G. Clifford
           ------------------------------------------
Name:      Christopher G. Clifford
           ------------------------------------------
Title:     Sr. VP
           ------------------------------------------

CONGRESS FINANCIAL CORPORATIONN (CENTRAL), it its capacity
as Revolving Lender

By:        /s/ Steven Linderman
           ------------------------------------------
Name:      Steven Linderman
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

TRANSAMERICA BUSINESS CREDIT CORPORATION, it its capacity
as Revolving Lender

By:        /s/ Robert Heinz
           ------------------------------------------
Name:      Robert Heinz
           ------------------------------------------
Title:     SVP
           ------------------------------------------

        c/o Angelo, Gordon & Company
        245 Park Avenue, 26th Floor
        New York, New York 10167

        Term Commitment Amount:                    $36,356,250

SECOND TERM LENDERS:

1.      SILVER OAK CAPITAL L.L.C.
        c/o Angelo, Gordon & Company
        245 Park Avenue, 26th Floor
        New York, New York 10167

        Term Commitment Amount:                    $___________

2. [OTHERS TO COME]

EXHIBIT B

FORM OF AMENDMENT APPROVAL ORDER

[ATTACHED]

EXHIBIT C

FORM OF ASSIGNMENT AGREEMENT

ASSUMPTION AGREEMENT

Reference is made to the Postpetition Credit Agreement dated as of September 5, 1997 (as amended, waived or otherwise modified from time to time, the "Credit Agreement"), among Levitz Furniture Incorporated and its affiliates, as borrowers (collectively, the "Borrowers"), the financial institutions party thereto, as lenders (collectively, the "Lenders"), and BT Commercial Corporation, as agent for the Lenders (in such capacity, the "Agent"). Capitalized terms used in this assumption agreement and not otherwise defined have the meanings assigned to such terms in the Credit Agreement.

The undersigned certifies to the Lenders and the Agent that it is a wholly owned Subsidiary of _________, a Borrower under the Credit Agreement. By its execution and delivery of this assumption agreement, the undersigned becomes a party to the Credit Agreement and the other Credit Documents as (i) a Borrower under the Credit Agreement, the Postpetition Collateral Agency Agreement and any Note and (ii) a Grantor under the Postpetition Security Agreement, and by this assumption agreement expressly and jointly and severally assumes all obligations and liabilities of a Borrower or Grantor under the Credit Agreement and the other Credit Documents. By its execution and delivery of this assumption agreement, the undersigned makes each of the representations and warranties of the Borrowers contained in the Loan Agreement on the date of this assumption agreement, after giving effect to this assumption agreement.

This assumption agreement is governed by and interpreted in accordance with the internal laws of the State of New York.

[NEWCO]

By:_________________________
Title:

Accepted:

BT COMMERCIAL CORPORATION, as Agent

By:_______________________________
Title:

EXHIBIT D

SCHEDULE B - PART 6.19

1. Indenture dated as of March 1, 1996 between Levitz Furniture Corporation, as Issuer, and American Bank National Association, as Trustee, concerning 13-3/8% Senior Notes due 1998.

2. Indenture dated as of July 12, 1993 between Levitz Furniture Corporation, as Issuer, and Norwest Bank Minnesota, National Association, as Trustee, concerning 9-5/8% Senior Subordinated Notes due 2003.

3. Account Purchase and Credit Card Program Agreement dated as of May 2, 1994 by and among Levitz Furniture Corporation, General Electric Capital Corporation et al.

4. Indenture dated as of December 1, 1992 between Levitz Furniture Incorporated (formerly known as LFC Holding Corporation), as Issuer, and First Bank National Association, as Trustee, concerning Senior Deferred Coupon Debentures due 2002.

5. Merchant Agreement, dated as of the 4th day of September, 1998, between Household Bank (SB), N.A., Levitz Furniture Corporation, Levitz Furniture Company of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., and Levitz Furniture Company of Washington, Inc.

EXHIBIT E

SCHEDULE B - PART 6.9(A)

Locations of Offices, Records and Inventory

(a) Principal place of business for all Borrowers:

7887 North Federal Highway
Boca Raton, Florida 33487

(Executive Office)

212 High Street
Pottstown, Pennsylvania 14624
(Accounting Office)

(b) (See attached list)

LEVITZ FURNITURE CORPORATION

OWNED REAL PROPERTY                                              WAREHOUSE
-------------------                                              ---------

CONNECTICUT

1. 55 Graham Place X Southington, Connecticut 06489-1594 Hartford County

FLORIDA

2. 10200 Quail Roost Drive X Cutler Ridge, Florida 33157-6814 Dade County

3. 4740 South Cleveland Avenue X Fort Myers, Florida 33907-1397
Lee County

4. 7795 SW 6th Street X Plantation, Florida 33324-3389
Broward County

5. 3939 Gandy Boulevard X Tampa, Florida 33611-3496
Hillsborough County

6. 3001 Okeechobee Boulevard X West Palm Beach, Florida 33409-4082 Palm Beach County

NEW JERSEY

7. 429 U.S. Route 1 South X Iselin, New Jersey 08830-3009
Middlesex County

8. 545 Route 17
Paramus, New Jersey 07652-3093
Bergen County

PENNSYLVANIA

9. 212 High Street
Pottstown, Pennsylvania 19464
Montgomery County

(ACTG)

TEXAS

10. 2901 East Pioneer Parkway X Arlington, Texas 76010-8499
Tarrant County

11. 18633 LBJ Freeway X Mesquite, Texas 75150-5697
Dallas County

LEASED REAL PROPERTY

CONNECTICUT

12. 136 Elm Street X Stateline Plaza, #200 Enfield, Connecticut 06082-3885 Hartford County

13. 1799 Boston Post Road
Milford, Connecticut 06460-2706
New Haven County

DELAWARE

14. 601 Naamans Road X Claymont, Delaware 19703-2395
Newcastle County

FLORIDA

15. 7887 North Federal Highway
Boca Raton, Florida 33487-1613
Palm Beach County

16. 18489 U.S. 19 North
Clearwater, Florida 34624-2709
Pinellas County

17. 6001 Powerline Road X Ft. Lauderdale, Florida 33309-2013 Broward County

18. 1400 N.W. 167 Street X Miami, Florida 33169-5700
Dade County

19. 5217 U.S. 19 South
New Port Richey, Florida 34652-3967 Pasco County

20. 3750 West Colonial Drive
Orlando, Florida 32808-7906
Orange County

21. 1540 Semoran Boulevard X Winter Park, Florida 32789-1502
Seminole County

GEORGIA

22. 2750 Sullivan Road X College Park, Georgia 30337-6292 Fulton County

INDIANA

23. 8301 East Washington Street
Indianapolis, Indiana 46219-6897 Marion County

24. 6250 West 38th Street
Indianapolis, Indiana 46254
Marion County

LOUISIANA

25. 1401 South Clearview Parkway X Jefferson, Louisiana 70121-1092
County of Jefferson Parish

MARYLAND

26. 6610 Baltimore National Pike
Baltimore, Maryland 21228-3986
Baltimore County

27. 7989 Rossville Boulevard X Baltimore, Maryland 21236
Baltimore County

28. 50 Orchard Road X Glen Burnie, Maryland 21061-6397 Anne Arundel County

29. 12011 Rockville Pk. X Rockville, Maryland 20852-1678
Montgomery County

30. 4949 Allentown Road X Suitland, Maryland 20746-3989
Prince George's County

MASSACHUSETTS

31. Liberty Tree Mall X Danvers, Massachusetts 01923-3696 Essex County

32. 160 Providence Highway X Dedham, Massachusetts 02026-1809 Norfolk County

33. 260 Turnpike Road X Westboro, Massachusetts 01581-2897 Worcester County

NEW HAMPSHIRE

34. 168 Daniel Webster Highway
Nashua, New Hampshire 03060-5502 Hillsborough County

NEW JERSEY

35. 1001 Church Road X Cherry Hill, New Jersey 08002-1299 Camden County

36. 531 Route #46 X Fairfield, New Jersey 07006-1907 Essex County

NEW YORK

37. 90 Price Parkway X Farmingdale, New York 11735-1394 Suffolk County

38. 1 Rentar Plaza X 6626 Metropolitan Avenue Middle Village, Queens, New York 11379 Queens County

39. 3050 Middle County Road
Nesconset, New York 11767-1005
Suffolk County

OHIO

40. 505 East Kemper Road X Springdale, Ohio 45246-3278
Hamilton County

PENNSYLVANIA

41. 201 Allendale Road
King of Prussia, Pennsylvania 19406-1634 Montgomery County

42. 1661 East Lincoln Highway X Langhorne, Pennsylvania 19047-3096 Bucks County

43. 2650 MacArthur Road X Whitehall, Pennsylvania 18052-3897 Lehigh County

44. 950 Woodland Road
Wyomissing, Pennsylvania 19610-1202 Berks County

TEXAS

45. 9012 Research Boulevard X Austin, Texas 78758-7086
Travis County

46. 1333 Stemmons Freeway X Dallas, Texas 75207-3798
Dallas County

47. 1411 Airway Boulevard X El Paso, Texas 79925-2294
El Paso County

48. 6913 Camp Bowie Boulevard X Fort Worth, Texas 76116-7187
Tarrant County

49. 5196 Rufe Snow Road
North Richland Hills, Texas 76180 Tarrant County

50. 6400 Avenue K X Plano, Texas 75074-2507
Collin County

51. 5430 Great Fare Drive X San Antonio, Texas 78218-5497
Bexar County

52. 6707 N.W. Loop #410
San Antonio, Texas 78238-4504
Bexar County

VIRGINIA

53. 2950 Gallows Road X Falls Church, Virginia 22042-1018 Fairfax County

GROUND LEASE

NEW YORK

54. 895 East Gate Boulevard X Garden City East, New York 11530-2199 Nassau County

LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC.

OWNED REAL PROPERTY

COLORADO

55. 5655 North Academy Blvd.

Colorado Springs, Colorado 80918-3658

El Paso County

56. 11111 West 6th Avenue X Lakewood, Colorado 80215-5538
Jefferson County

57. 7125 West 88th Avenue X Westminster, Colorado
Jefferson County

MINNESOTA

58. 3201 Country Drive X St. Paul, Minnesota 55117-1096
Ramsey County, Minnesota

MISSOURI

59. 3920 South Noland Road
Independence, Missouri 64055-3347 Jackson County

60. 9124 Pershall Road X Hazelwood, Missouri 63042-2896
St. Louis County

LEASED REAL PROPERTY

ARIZONA

61. 5870 West Bell Road
Glendale, Arizona 85308
Maricopa County

62. 225 South Dobson Road X Mesa, Arizona 85202-2009
Maricopa County

63. 2801 West Indian School Road
Phoenix, Arizona 85017-4299
Maricopa County

64. 4718 East Thunderbird Road
Phoenix, Arizona 85032-5541
Maricopa County

65. 7310 South Priest Drive
Tempe, Arizona 85283
Maricopa County

66. 2020 North 75th Avenue Phoenix, Arizona
Maricopa County

COLORADO

67. 4401 South Tamarac Parkway
Denver, Colorado 80237-2401
Denver County

KANSAS

68. 9325 Rose Hill Road X Lenexa, Kansas 66215-3790
Johnson County

MINNESOTA

69. 7007 Lakeland Avenue North
Brooklyn Park, Minnesota 55428-5612 Hennepin County

70. 12301 DuPont Avenue South X Burnsville, Minnesota 55337-1689 Dakota County

MISSOURI

71. 5420 Chouteau Traffic Way
North Kansas City, Missouri 64119-2511 Jackson County

72. 14250 East Manchester Road
Manchester, Missouri 63021
St. Louis County

LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC.

OWNED REAL PROPERTY

CALIFORNIA

73. 5375 San Fernando Road, West X Los Angeles, California 90039-1087 Los Angeles County

74. 1604 Sisk Road X Modesto, California 95353-2501
Stanislaus County

75. 2420 North Oxnard Boulevard X Oxnard, California 93030-2090
Ventura County

76. 729 Nordahl Road
San Marcos, California 92069-3513 San Diego County

OREGON

77. 13631 Southeast Johnson Road X Milwaukie, Oregon 97222-1295
Clackamas County

78. 9770 SW Scholls Ferry Road
Tigard, Oregon 97223-4303
Washington County

LEASED REAL PROPERTY

CALIFORNIA

79. 1000 Tustin Avenue
Anaheim, California 92807-1724
Orange County

80. 1450 West Branch Street
Arroyo Grande, California 93420
San Luis Obispo County

81. 4606 California Avenue
Bakersfield, California 93309-1106 Kern County

82. 31833 Date Palm Drive
Cathedral City, California 92234 Riverside county

83. 17970 Studebaker Road
Cerritos, California 90701-3646
Los Angeles County

84. 1138 Broadway
Chula Vista, California 91911-2707 San Diego County

85. 1695 Willow Pass Road X Concord, California 94520-0520
Contra Costa County

86. 470 McKinley Street
Corona, California 91719-1291
Riverside County

87. 40500 Albrae Street
Fremont, California 94538
Alameda County

88. 4525 West Shaw Avenue X Fresno, California 93722-6208
Fresno County

89. 7441 Edinger Avenue X Huntington Beach, California 92647-3598 Orange County

90. 23251 Avenida de la Carlota
Laguna Hills, California 92653-1532 Orange County

91. 4741 Watt Avenue X North Highlands, California 95660-5515 Sacramento County

92. 19350 Nordhoff Street X Northridge, California 91324-2492 Los Angeles County

93. 1460 Fitzgerald Drive
Pinole, California 94564-2227
Contra Costa County

94. 4299 Rosewood Drive, Unit 100
Pleasanton, California 94588
Alameda County

95. 1601 Kingsdale Avenue X Redondo Beach, California 90278-3928 Los Angeles County

96. 5195 Redwood Drive
Rohnert Park, California 94928
Sonoma County

97. 736 Inland Center Drive X San Bernardino, California 92408-1899 San Bernardino County

98. 1119 Industrial Road
San Carlos, California 94070-4125 San Mateo County

99. 1190 West Morena Boulevard X San Diego, California 92110-3881 San Diego County

100. 633 West Bonita Avenue X San Dimas, California 91773-2580 Los Angeles County

101. 3199 Alvarado Street X San Leandro, California 94577-5790 Alameda County

102. 2121 Laurelwood Road X Santa Clara, California 95054-2754 Santa Clara County

103. 900 Dubuque Avenue X S. San Francisco, California 94080-1890 San Mateo County

104. 1777 East Hammer Lane
Stockton, California 95210-4116
San Joaquin County

105. 15300 Palmdale Road
Victorville, California 92392
San Bernardino County

NEVADA

106. 91 South Martin L. King Boulevard X Las Vegas, Nevada 89106-4340
Clark County

GROUND LEASE

107. 17520 East Castleton Street
City of Industry, California 91744 (GROUND LEASE) Los Angeles County

LEVITZ FURNITURE COMPANY OF WASHINGTON, INC.

OWNED REAL PROPERTY

WASHINGTON

108. 20111 46th Avenue West X Lynnwood, Washington 98036-6694
Snohomish County

LEASED REAL PROPERTY

WASHINGTON

109. 2402 84th Street, South
Tacoma, Washington 98409-3781
Pierce County

110. 17601 South Center Parkway X Tukwila, Washington 98188-3794
King County

SCHEDULE B - PART 6.18

1. Relative to the Washington Business and Occupation Tax audit for the period January 1992 through June 1996, additional tax estimated at $10,620 is due on petitioned issues for which partial relief was granted. Thus audit is closed for all other purposes. The State of Washington has sent bills for the remainder of the tax, but the amounts computed were inconsistent with the settlement terms. As of September 4, 1998, the Borrowers are waiting for another revised billing statement.

2. The State of Connecticut delivered audit workpapers that propose additional sales and use tax of approximately $25,400. The Borrowers are seeking adjustments that could reduce the additional tax to approximately $22,000. A portion of this additional tax (approximately $3,000-$5,000) is attributable to construction contractors who were not registered for sales/use tax with the State. Levitz anticipates billing the contractors for their share of the additional tax.

3. The cities of Denver and New Orleans are currently auditing Levitz for sales and/or use tax. Of the two, the Denver audit is further progressed and an assessment is expected shortly; the amount thereof is currently unknown. New Orleans, which is auditing the Jefferson Parish store for sales into New Orleans, is still trying to decide on sample periods for the audit. Both of these audits are correspondence audits (being handled through the mail).

4. A sales/use tax audit by the State of California is scheduled to begin September 21, 1998. The audit will cover the period April 1995 through June 1998. No other audits are scheduled at this time.

5. Attached is a schedule prepared on September 3, 1998 concerning open tax years.

6. There are tax sharing agreements between Levitz Furniture Incorporated and Levitz Furniture Corporation and among Levitz Furniture Corporation and the remaining Borrower subsidiaries.

                                                                  DATE STATUTE IS
                                                                  EXTENDED TO THE
                                                                  EXTENT OF NOL/
FISCAL YEAR                       NORMAL STATUTE                  CREDIT CARRYBACKS
ENDING                            EXPIRES                         OR WAIVERS
------                            -------                         ----------
March 31, 1990                    December 15, 1993               June 15, 1999 (1) (7)
March 31, 1991                    December 15, 1994               October 31, 1998 (2) (7)
March 31, 1992                    December 15, 1995               June 15, 1999 (3) (7)
March 31, 1993                    December 15, 1996               June 15, 1999 (4) (7)
March 31, 1994                    July 22, 1997                   October 31, 1998 (6) (7)
March 31, 1995                    December 15, 1998               June 15, 1999 (5) (7)
March 31, 1996                    June 15, 1999                   (7)
March 31, 1997                    June 2, 2000                    (7)
March 31, 1998                    December 15, 2001

(1) Statute for March 31, 1990 remains open only to the extent of the refund generated from the carryback of the targeted jobs tax credit from March 31, 1993 (total exposure for carryback is $92,409). See Footnote (7).

(2) Statute for March 31, 1991 remains open only to the extent of the refund generated from the carryback of the net operating loss (NOL) from March 31, 1994 (total exposure for carryback is $5,500,739). See Footnote (6).

(3) Statute for March 31, 1992 remains open to the extent of the refunds generated from the carrybacks of the targeted jobs credit from March 31, 1995 (total exposure for carrybacks $186,220 = $137,349 and $48,871). See Footnote (7).

(4) Statute for March 31, 1993 remains open only to the extent of the NOL from March 31, 1996 (total exposure $4,875,054). See Footnote (7).

SCHEDULE B - PART 6.18 (CONT.)

(5) Statute for March 31, 1995 remains open to the extent of the NOL from March 31, 1996 (total exposure $64,258). Statute for March 31, 1997 remains open to the extent of the NOL from March 31, 1997 (total exposure $2,383,342). See Footnote (7).

(6) Waiver signed on January 16, 1997. On June 3, 1997, Levitz Furniture Inc. and Subsidiaries received notice of no exception from IRS Joint Committee on Taxation for its FYE March 31, 1994 and FYE March 31, 1991 income tax returns.

(7) On May 28, 1998, Levitz Furniture, Inc. and Subsidiaries received clearance from the Joint Committee on Taxation for its March 31 FYE for 1990, 1992, 1993, 1995, 1996 and 1997.

The extensions also extend to all applicable statuses of limitations for state income tax assessments for the Parent and its Operating Subsidiaries. The following Operating Subsidiaries have State Waivers extending the period of assessment or collection of taxes:

Levitz Furniture Co. of the Pacific, Inc.

TAX                       TAXING                  EXTENDED                WAIVER
TYPE                      AUTHORITY               PERIOD                  EXPIRES
----                      ---------               ------                  -------
Sales/Use                 California              4/1/95 - 9/30/95        1/31/99

Levitz Furniture Corporation

TAX                       TAXING                  EXTENDED                WAIVER
TYPE                      AUTHORITY               PERIOD                  EXPIRES
----                      ---------               ------                  -------
Sales/Use                 Connecticut             5/1/95 - 9/30/98        60 days after
                                                                          assessment sent by
                                                                          Connecticut
                                                                          Department of
                                                                          Revenue.  No such
                                                                          assessment has been
                                                                          prepared by the
                                                                          Department to date.

Parent and all operating subsidiaries with the exception of John M. Smyth Company have agreed or been requested to make adjustments under IRC
Section 481(a) by reason of a change in accounting method for the following:

Recognition of Income on Ordered and Undelivered Sales at the time of Delivery (John M. Smyth Company already employed this method of accounting, and therefore, did not require a change of accounting method under IRC Section 3115).

EXHIBIT NO. 10.58

EIGHTH AMENDMENT AND CONSENT TO POSTPETITION
CREDIT AGREEMENT

THIS EIGHTH AMENDMENT AND CONSENT TO POSTPETITION CREDIT AGREEMENT,
dated as of September 18, 1998 (this "AMENDMENT"), is among LEVITZ FURNITURE INCORPORATED, a Delaware corporation and a debtor and debtor in possession, LEVITZ FURNITURE CORPORATION, a Florida corporation and a debtor and debtor in possession ("LFC"), LEVITZ FURNITURE REALTY CORPORATION, a Florida corporation and a debtor and debtor in possession, LEVITZ SHOPPING SERVICE, INC., a Florida corporation and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a Colorado corporation and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a Washington corporation and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a Colorado corporation and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a California corporation and a debtor and a debtor in possession, LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a Washington corporation and debtor and a debtor in possession, JOHN M. SMYTH COMPANY, an Illinois corporation and a debtor and debtor in possession, and JOHN M. SMYTH REALTY COMPANY, an Illinois corporation and a debtor and debtor in possession (collectively, the "BORROWERS"), each Revolving Lender and Term Lender signatories hereto (collectively the "LENDERS"), AG CAPITAL FUNDING PARTNERS, L.P. (together with any successors and permitted assigns, the "TERM LENDERS") and BT COMMERCIAL CORPORATION, a Delaware corporation, acting in its capacity as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT"). Capitalized terms used in this Amendment and not otherwise defined have the meanings assigned to such terms in the Postpetition Credit Agreement dated as of September 5, 1997 (as amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrowers, the Lenders and the Agent.

PRELIMINARY STATEMENTS:

A. The Borrowers, the Lenders and the Agent are parties to the Credit Agreement.

B. The Lenders have extended credit to the Borrowers under the Credit Agreement by, among other things, the term loans (the "EXISTING TERM LOANS") evidenced by the Term Note dated as of September 5, 1997, made by the Borrowers in favor of the Term Lenders in the original principal amount of $36,356,250.

C. The Borrowers have requested that AG CAPITAL FUNDING PARTNERS, L.P.
(together with any successors and permitted assigns, the "SECOND TERM LENDERS")
extend further credit by extending a new term loan (the "SECOND TERM LOAN") to the Borrowers in the original principal amount of $22,000,000 to be evidenced by a promissory note (the "SECOND TERM Note"), made by the Borrowers in favor of the Second Term Lenders, such extension of credit to be secured by an interest in the Collateral PARI PASSU and pro rata with the Existing Term Loans.

D. The Borrowers, the Lenders and the Agent have agreed to amend the Credit Agreement to extend the Second Term Loan on the terms and subject to the conditions of this Amendment.

E. The Borrowers have requested that the Lenders and the Agent consent to the extension of the Second Term Loan on the terms and subject to the conditions of this Amendment.

AGREEMENT:

In consideration of the premises and the mutual agreements contained in this Amendment, the Borrowers, the Lenders and the Agent agree as follows:

1. AMENDMENTS TO CREDIT AGREEMENT.

On the date each of the conditions set forth in SECTION 4 is satisfied by the Borrowers (the "CLOSING DATE"), the Credit Agreement is amended as follows:

1.1 The Credit Agreement is amended by adding Article 2B to the Credit Agreement as follows:

ARTICLE 2B. SECOND TERM LOAN.

Subject to the terms and conditions set forth in this Credit Agreement, and in reliance on the representations and warranties of the Borrowers set forth herein, on September 24, 1998, the Second Term Lenders agree to extend a term loan to the Borrowers in the original principal amount of $22,000,000 (the "SECOND TERM LOAN"). The Second Term Loan shall be evidenced by a Term Note and shall be governed in all respects by the terms of this Credit Agreement and the other Credit Documents.

1.2 Section 1.1 of the Credit Agreement is amended by deleting the definition of "APPRAISED VALUE" in its entirety and replacing it as follows:

APPRAISED VALUE means (i) unless covered by an appraisal described under clause (ii) below, with respect to the various parcels of real property of the Borrowers for which a current appraisal dated September 1, 1997 prepared by Ernst & Young L.L.P. has been delivered to the Agent, the appraised liquidation value of each such property as reflected in the applicable appraisal, (ii) with respect to the Borrowers' leasehold interests in various parcels of real property for which a current appraisal dated November 12, 1997 prepared by Grubb & Ellis has been delivered to the Agent, the arithmetic mean of the appraised liquidation value and the appraised fair market value of each such property as reflected in the applicable appraisal, (iii) with respect to any other leasehold interest of any Borrower in any real property, the arithmetic mean of the appraised liquidation value and the appraised fair market value of such leasehold interest (assuming the same to be freely assignable to the extent provided in section 365 of the Bankruptcy Code), as determined by a nationally recognized real estate appraisal firm retained by the Agent and reasonably acceptable to the Majority Term Lenders for purposes of making such determination and in an appraisal reasonably satisfactory to the Agent and the Majority Term Lenders, as of the earlier of the date of the sale, transfer or other disposition by any Borrower of such leasehold interest and any date after the Closing Date used in any such appraisal and (iv) with respect to any other fee interest of any Borrower in any real property, the appraised liquidation value of such fee interest, as determined by a nationally recognized real estate appraisal firm retained by the Agent and reasonably acceptable to the Majority Term Lenders for purposes of making such determination and in an appraisal reasonably satisfactory to the Agent and the Majority Term Lenders, as of the earlier of the date of the sale, transfer or other disposition by any Borrower of such fee interest and any date after the Closing Date used in any such appraisal; it being understood that, if any appraisal delivered to the Agent

pursuant to clause (i), (ii), (iii) or (iv) sets forth a range of values for liquidation value or fair market value of the subject property, the "appraised liquidation value" of such property shall be the arithmetic mean of the high and low values of the liquidation value specified for such property and the "appraised market value" of such property shall be the arithmetic mean of the high and low values of the fair market value specified for such property and if the appraisal sets forth a range of values for the subject property, alone, the "Appraised Value" of such property shall be the arithmetic mean of the high and low values specified for such property, as determined by the Agent and (v) with respect to any other fixed assets of any Borrower, (including without limitation fixtures, furniture and equipment) the fair market value of such assets as determined by the Agent in the exercise of its Permitted Discretion; PROVIDED, that no Appraised Value shall be less than zero.

1.3 Section 1.1 of the Credit Agreement is further amended by adding the following terms after the term "exchange" and immediately preceding the term "liquidation" in the definition of "ASSET DISPOSITION":

lease, sublease, rejection under Section 365 of the Bankruptcy Code of any lease or sublease,

1.4 Section 1.1 of the Credit Agreement is further amended by adding the following parenthetical immediately after the term "Fixed Asset Sublimit" in clause (a) of the definition of "BORROWING BASE":

(which may be a negative number)

1.5 Section 1.1 of the Credit Agreement is further amended by adding the following sentence to the end of the definition of "EXPENSES" as follows:

EXPENSES also means all reasonable costs and expenses of the Majority Term Lenders incurred in connection with the Credit Documents and the respective transactions contemplated therein, including, without limitation, (i) the costs of conducting record searches and examining collateral, (ii) the reasonable fees and expenses of legal counsel and paralegals, accountants, appraisers and other consultants, experts or advisors retained by the Majority Term Lenders, including, without limitation, consultants, experts or advisors retained in connection with due diligence investigations and (iii) the costs of reviewing and preparing waivers, amendments and consents.

1.6 Section 1.1 of the Credit Agreement is further amended by deleting the definition of "FIXED ASSET SUBLIMIT" in its entirety and replacing it as follows:

FIXED ASSET SUBLIMIT means an amount equal to $90,000,000; provided, that such amount shall be automatically and permanently reduced (and may thereby become a negative number) on each date on which an Asset Disposition occurs with respect to any real property, other fixed assets or any leasehold interest in real property of any Borrower, in an amount equal to (i) in the case of any Asset Disposition of or with respect to any real property or any leasehold interest in real property, the Appraised Value thereof, and (ii) in the case of any Asset Disposition of or with respect to any other fixed assets (including without limitation fixtures, furniture and equipment), twenty-five percent (25%) of the Appraised Value thereof, provided that, no reduction of the Fixed Asset Sublimit pursuant to this clause (ii) shall occur as a result of the Borrowers' selling, transferring or otherwise disposing of obsolete or worn out fixed assets with an aggregate Appraised Value of up to $1,800,000.

1.7 Section 1.1 of the Credit Agreement is further amended by adding the term "sublease," after the term "lease" and immediately preceding the term "conditional sale" in the definition of "LIEN".

1.8 Section 1.1 of the Credit Agreement is further amended by adding the following definition to such section as follows:

MAKE-WHOLE PREMIUM means, in connection with any payment of the principal amount of all or any portion of the principal amount of the Second Term Loan at any time prior to March 5, 1999, for any reason (whether upon voluntary prepayment, mandatory prepayment, acceleration or otherwise), an amount equal to the Present Value (as hereinafter defined) of the difference in the interest that would have been payable on each interest payment date on the amount of such principal being prepaid (assuming each payment of interest on the Second Term Loan would have been timely paid when due) and the interest that would be earned on the prepaid amount at 7.00%. For purposes of this definition, PRESENT VALUE shall be determined in accordance with generally accepted financial practice in the United Sates of America at a discount rate equal to 7.00% per annum applied on a monthly basis.

1.9 Section 1.1 of the Credit Agreement is further amended by adding the following definition to such section as follows:

ORIGINAL TERM LENDERS means each financial institution identified on ANNEX II as an "Original Term Lender."

1.10 Section 1.1 of the Credit Agreement is further amended by adding the following definition to such section as follows:

ORIGINAL TERM LOAN has the meaning set forth in Article 2A.

1.11 Section 1.1 of the Credit Agreement is further amended by adding the following definition to such section as follows:

SECOND TERM LENDERS means each financial institution identified on ANNEX II as a "Second Term Lender."

1.12 Section 1.1 of the Credit Agreement is further amended by adding the following definition to such section as follows:

SECOND TERM LOAN has the meaning set forth in Article 2B.

1.13 Section 1.1 of the Credit Agreement is further amended by deleting the definition of "TERM LENDER" in its entirety and replacing it as follows:

TERM LENDERS means the Original Term Lenders and the Second Term Lenders.

1.14 Section 1.1 of the Credit Agreement is further amended by deleting the definition of "TERM LOAN" in its entirety and replacing it as follows:

TERM LOAN means the Original Term Loan and the Second Term Loan.

1.15 Section 1.1 of the Credit Agreement is further amended by deleting the definition of "TERM NOTE" in its entirety and replacing it as follows:

TERM NOTE means, collectively, each promissory note of the Borrowers payable to the order of any Term Lender, including, without, limitation, the promissory note evidencing the Second Term Loan, substantially in the form of EXHIBIT C-2 as amended, restated, supplemented or otherwise modified from time to time, and including all

notes issued in replacement of, or in substitution or exchange for, any of the foregoing.

1.16 Article 2A of the Credit Agreement is amended by deleting such article in its entirety and replacing it as follows:

ARTICLE 2A. ORIIGINAL TERM LOAN.

On each Business Day that Collections are to be applied to repay the principal of the Prepetition Tranche A Term Loan pursuant to the Postpetition Collateral Agency Agreement, then, unless an Actionable Default has occurred and is continuing, each Original Term Lender shall be deemed to fund a term loan to the Borrowers in an amount equal to its Proportionate Share of the amount of the Collections so to be applied (all term loans made in such manner by each Original Term Lender herein collectively called the "Original Term Loan"). The Original Term Loan of each Original Term Lender shall be evidenced by a Term Note and shall be governed in all respects by the terms of this Credit Agreement and the other Credit Documents. All Collections that would otherwise be applied to repay the principal of the Prepetition Tranche A Term Loan under the Postpetition Collateral Agency Agreement shall be remitted to the LFC Funds Administrator for the account of the Borrowers in accordance with the deemed funding of the Original Term Loan under this Article 2A so long as no Actionable Default has occurred and is continuing.

1.17 Section 4.7(d) of the Credit Agreement is amended by deleting such subsection in its entirety and replacing it as follows:

(d) Upon any Asset Disposition, the Fixed Asset Sublimit shall be reduced by the amount prescribed in the definition of "Fixed Asset Sublimit" set forth in Article 1 and may thereby be reduced below zero
(-0-) to a negative number. In addition, after the Fixed Asset Sublimit has been reduced to zero (-0-), the Revolving Commitment of each Revolving Lender shall be reduced upon any Asset Disposition by such Revolving Lender's Proportionate Share of the amount by which the Fixed Asset Sublimit has been reduced below zero (-0-) under the definition of "Fixed Asset Sublimit." After all the Revolving Commitments have been reduced to zero (-0-) and all Letter of Credit Obligations have been cash collateralized in the manner set forth in Section 9.2(c), the Net Disposition Proceeds of any Asset Disposition shall be applied to repay the outstanding Postpetition Obligations relating to the Term Loan.

1.18 Section 4.7A of the Credit Agreement is amended by deleting such section in its entirety and replacing it as follows:

4.7A NO PERMITTED PREPAYMENT OF TERM LOANS.

Until payment in full of all Postpetition Obligations in respect of Revolving Loans and Letter of Credit Obligations and termination of the Revolving Commitments pursuant to the terms and provisions hereof, the Borrowers may not prepay the Term Loans at any time in whole or in part. After payment in full of all Postpetition Obligations in respect of Revolving Loans and Letter of Credit Obligations and termination of the Revolving Commitments pursuant to the terms and provisions hereof, the Borrowers may prepay the Term Loans at any time in whole or in part; provided, that any such prepayment shall be applied on a pro rata basis against the then outstanding balances of both the Original Term Loan and the Second Term Loan and must include all of the interest (including default rate interest, to the extent applicable) accrued on the principal amount of the Term Loans so repaid through and including the relevant date of repayment. Each time any principal amount of the Second Term Loan is paid in whole or in part at any time prior to March 5, 1999, for any reason (whether by a voluntary prepayment, a mandatory

prepayment, upon acceleration or otherwise), the Borrowers shall pay the Make-Whole Premium to the Second Term Lenders.

1.19 Section 8.6 of the Credit Agreement is amended by (i) adding the term "sublease," after the term "lease" and immediately preceding the term "assign" and (ii) deleting the term "dispositions" in clause (iii) of such section and replacing such term with the term "assignments."

1.20 Section 8.18(a) of the Credit Agreement is amended by (i) deleting the term "of" after the term "Interim Financing Order" and replacing such term with "," and (ii) adding the terms "or the Bankruptcy Court order approving the amendment to this Credit Agreement incorporating the Second Term Loan" after the terms "Permanent Financing Order."

1.21 Article 8 of the Credit Agreement is amended by adding a new
Section 8.19 to such article as follows:

8.19 LEASEHOLD COVENANTS. No Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly, fail to pay when due any postpetition obligation relating to, or arising in connection with, its leasehold interest in any real property, including, without limitation, rent or other payments due under the lease for such real property, any postpetition real estate taxes owing on such real property and payable by the Borrowers or any insurance premiums due in connection with such real property. Without obtaining the prior written consent of the Agent and the Majority Term Lenders, no Borrower shall, or shall permit any of its Subsidiaries to, directly or indirectly, (i) reject or apply to the Bankruptcy Court to reject any executory contract or unexpired lease or
(ii) assume or apply to the Bankruptcy Court to assume any executory contract or unexpired lease (in each case, other than a lease that has an Appraised Value equal to zero or other than a contract whose assumption or rejection will not effect the value of any Collateral) unless such assumption is pursuant to an order of the Bankruptcy Court, acceptable to the Agent and the Majority Term Lenders in their reasonable discretion, that specifically reserves for the Borrowers the right to subsequently assign such executory contract or unexpired lease under section 365(f) of the Bankruptcy Code without, among other things, the consent of the relevant counterparties to such executory contract or unexpired lease.

1.22 Section 9.2 of the Credit Agreement is amended by adding new subsections (e) and (f) to such section as follows:

(E) OTHER REMEDIES. If any Event of Default shall have occurred and be continuing, the Agent or the Majority Term Lenders may direct the Borrowers how and when to exercise all rights of the Borrowers under section 365 of the Bankruptcy Code and the Borrowers shall fully comply with such directions; provided, that notwithstanding the foregoing, the Majority Term Lenders may not exercise any of such rights until all Postpetition Obligations owing to the Revolving Lenders have been indefeasibly paid in full and the Revolving Commitments have been terminated. Without in any manner limiting any right or remedy of the Agent or any Lender under any other section or provision of this Credit Agreement or any order related to or entered in connection therewith, and unless the Borrowers and the Committee agree otherwise, no such direction shall require any Borrower to assign any unexpired lease or executory contract earlier than the earlier of (i) the expiration of sixty days from the date of such direction and (ii) five Business Days prior to (a) the day upon which the relevant lease or contract may be deemed to be rejected under section 365 of the Bankruptcy Code (whether by expiration of any relevant time period for assumption or rejection or otherwise), (b) the scheduled hearing date on which the relevant executory contract or unexpired lease may be assumed or rejected or (c) the earliest day on which, in the good faith judgement of the Agent or

the Majority Term Lenders, a default not subject to cure could occur with respect to that lease or contract. Unless the Borrowers and the Committee agree otherwise, any such assignment pursuant to a Lender direction described above shall be to the highest and best bidder at a public auction held before the Bankruptcy Court or as the Bankruptcy Court shall otherwise direct. notwithstanding anything to the contrary contained herein, if the Borrowers do not fully honor and take all actions requested in any such direction within three Business Days of the delivery of such direction, the Agent or the Majority Term Lenders may, on five days' notice to the Borrowers, the Committee and any landlord or other counterparty to the relevant lease or contract, move the Bankruptcy Court on behalf of the Borrowers for the relief specified in the direction. Such notice shall be due and sufficient notice of such request under the circumstances unless the landlord agrees to extend the period for curing the default or assuming the lease for any longer period reasonably requested by the landlord to oppose the relief requested in the direction. Notwithstanding anything to the contrary contained herein, this Section 9.2(e) shall not apply to any lease that has an Appraised Value of zero or to any contract whose assumption or rejection will not effect the value of any Collateral.

(F) Without in any manner limiting any right or remedy of the Agent or any Lender under any other section or provision of this Credit Agreement or any order related to or entered in connection therewith, and notwithstanding that a Default or Event of Default may not have occurred and be continuing, the Agent or the Majority Term Lenders may direct, no earlier than fifteen days prior to the day that any of the events set forth in clause (i), (ii) or (iii) below could occur, the Borrowers how and when to exercise all rights of the Borrowers under section 365 of the Bankruptcy Code (and the Borrowers shall fully comply with such direction(s)) with respect to any lease or executory contract that (i) may be rejected or deemed to be rejected under section 365 of the Bankruptcy Code (whether by expiration of any relevant time period for assumption or rejection or otherwise), (ii) may be assumed or rejected at a scheduled hearing date or (iii) in the good faith judgment of the Agent or the Majority Term Lenders, a default not subject to cure could occur. Unless the Borrowers and the Committee agree otherwise, any such assignment pursuant to a Lender direction described above shall be to the highest and best bidder at a public auction held before the Bankruptcy Court or as the Bankruptcy Court shall otherwise direct. Notwithstanding anything to the contrary contained herein, if the Borrowers do not fully honor and take all actions requested in any such direction within three Business Days of the delivery of such direction, the Agent or the Majority Term Lenders may, on three days' notice to the Borrowers, the Committee and any landlord or other counterparty to the relevant lease or contract, move the Bankruptcy Court on behalf of the Borrowers for the relief specified in the direction. Such notice shall be due and sufficient notice of such request under the circumstances unless the landlord agrees to extend the period for curing the default or assuming the lease for any longer period reasonably requested by the landlord to oppose the relief requested in the direction.
Notwithstanding anything to the contrary contained herein, this Section 9.2(f) shall not apply to any lease that has an Appraised Value of zero or to any contract whose assumption or rejection will not effect the value of any Collateral.

1.23 Section 9.2A of the Credit Agreement is amended by adding the following sentence to the end of the such section as follows:

Upon the acceleration of the Term Loans under this Section 9.2A. the Borrowers will be required to pay the Make-Whole Premium (in respect of any principal amount of the Second Term Loans paid for any reason prior to March 5, 1999) to the Second Term Lenders.

1.24 Section 11.8(c)of the Credit Agreement is amended by deleting the first sentence from such section in its entirety and replacing it as follows:

Each Term Lender may assign to one or more Persons all or a portion of its rights and obligations under this Credit Agreement, the Term Notes and the other Credit Documents, with the consent of the Agent and the Borrowers, which consents shall not be unreasonably withheld or delayed (provided, that no consents shall be required (i) if an Event of Default has occurred and is continuing or (ii) if the assignment is to an Affiliate of a Term Lender or a fund or investment entity managed by a Term Lender or an Affiliate of a Term Lender); and upon execution and delivery to the Agent, for its acceptance and recording in the Register, of an agreement in substantially the form of EXHIBIT G-2 (a "TERM ASSIGNMENT AND ASSUMPTION AGREEMENT"), together with surrender of any Term Note or Term Notes subject to such assignment and a processing and recordation fee of $2,500, such assignment shall be effective, the Borrowers shall issue a replacement Term Note or Term Notes to such Person or Persons who thereupon shall be a Term Lender or Term Lenders for all purposes hereunder to the extent of the Term Note or Term Notes so issued and ANNEX II hereto shall be deemed to be modified accordingly.

1.25 Section 11.11(b) of the Credit Agreement is amended by deleting clause (iii) from such section in its entirety and replacing it as follows:

(III) ARTICLE 2A or 2B and SECTION 2.7, 4.1A, 4.5, 4.7(D), 4.7A, 4.9(B), 4.11, 6.19 (AND ANY SIMILAR REPRESENTATION MADE IN ANY AMENDMENT TO THIS
CREDIT AGREEMENT), 6.7, 7.14, 8.6, 8.17(C), 8.19, 9.2A, 9.2(B), (E) or (F) or 11.8(C) or (E), of this Credit Agreement and

1.26 Annex II of the Credit Agreement is amended by replacing such annex with the ANNEX II attached to this Amendment as EXHIBIT A.

2. CONSENT.

2.1 SECOND TERM LOAN. On the Closing Date, the Agent and each Lender consents to the extension of the Second Term Loan by the Second Term Lenders in accordance with the terms of the Credit Agreement, as amended by this Amendment. The Agent and each Lender acknowledge that the Second Term Loan shall be secured by an interest in the Collateral PARI PASSU and pro rata with the Existing Term Loan and the term "Secured Obligations" as used in the Postpetition Collateral Agency Agreement shall include the obligations of the Borrowers under the Credit Agreement with respect to the Second Term Loan. The obligations of the Borrowers under the Credit Agreement with respect to the Second Term Loan will be secured by the Collateral without having to amend the Collateral Documents. The Agent and each Lender agree that at any time and from time to time, at the cost and expense of the Borrowers, they will execute and deliver all further instruments and documents, and take such further actions, that may be reasonably necessary to so secure the Second Term Loan.

2.2 OTHER. Nothing in this Amendment should in any way be deemed (i) a waiver of any Event of Default (other than as specifically set forth above) or
(ii) an agreement to forbear from exercising any remedies with respect to any such Event of Default.

3. AGREEMENTS OF THE BORROWERS.

3.1 USE OF PROCEEDS. The proceeds from the Second Term Loan will be used only to prepay outstanding Revolving Loans under the Credit Agreement.

3.2 FURTHER ASSURANCES. The Borrowers acknowledge that the Second Term Loan shall be secured by an interest in the Collateral PARI PASSU and pro rata with the Existing Term Loan and the term "Secured Obligations" as used in the Postpetition Collateral Agency Agreement shall include the obligations of the Borrowers under the Credit Agreement with respect to the Second Term Loan. The obligations of the Borrowers under the Credit Agreement with respect to the Second Term Loan will be secured by the Collateral without having to amend the Collateral Documents. The Borrowers agree that at any time and from time to time, at their cost and expense, they will execute and deliver all further instruments and documents, and take such further actions, that may be reasonably necessary to so secure the Second Term Loan.

3.3 SEVENTH AMENDMENT. The Borrowers and the Lenders agree that Sections 1 and 2.1 of the Seventh Amendment and Consent to Postpetition Credit Agreement dated as of September 3, 1998, among the Borrowers, the Lenders and the Agent are superceded by this Amendment and will have no further force and effect.

3.4 FAILURE TO COMPLY. The Borrowers agree that a breach of the agreements in this SECTION 3 will constitute an Event of Default under the Credit Agreement.

4. CONDITIONS PRECEDENT.

This Amendment becomes effective upon satisfaction of the following conditions:

4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Borrowers contained in this Amendment are true and correct as of the Closing Date.

4.2 AMENDMENT APPROVAL ORDER. This Amendment has been approved by the Bankruptcy Court pursuant to an order (the "AMENDMENT APPROVAL ORDER") in form attached as EXHIBIT B, which order is in full force and effect and has not been reversed, modified, amended, appealed or stayed. The Agent and the Second Term Lenders shall have been reasonably satisfied with the form and timing or the notice of the motion for the entry of the Amendment Approval Order and such notice and motion shall have been properly served upon each lessor of property to any Borrower. Unless the Agent and the Second Term Lenders agree otherwise, the Amendment Approval Order shall have become final and non-appealable.

4.3 BANKRUPTCY COURT ORDER. The Borrowers have obtained an order of the Bankruptcy Court extending the Borrowers' time to assume or reject executory contracts and unexpired leases, pursuant to section 365(d)(4) of the Bankruptcy Code, through March 31, 1999.

4.4 DUE DILIGENCE. The Second Term Lenders have completed their due diligence review of the Borrowers and their properties and are satisfied, in their sole and absolute discretion, with the results of such investigation. Such due diligence investigation includes, without limitation, (i) review of the Borrowers' financial statements, (ii) review of leases for each of 32 properties selected by the Second Term Lenders, (iii) review of the terms and provisions of the Borrowers' real estate holdings (including leasehold documentation relating to such holdings) and (iv) receipt and review of a report prepared by Keen Realty Consultants, such report to be acceptable to the Second Term Lenders in their sole and absolute discretion.

4.5 FEES AND EXPENSES. The Agent and the Second Term Lenders have been reimbursed for all fees and expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation of this Amendment and the Second Term Loan.

4.6 DOCUMENTS. The Agent has received all of the following, each duly executed and dated as of the Closing Date (or such other date as is satisfactory to the Agent) in form and substance satisfactory to the Agent:

(A) EIGHTH AMENDMENT. Ten copies of this Amendment executed by the LFC Funds Administrator, the Borrowers, the Agent and all Lenders;

(B) SECOND TERM NOTES. Second Term Notes, substantially in the form of Exhibit C-2 to the Credit Agreement (dated as of the Closing Date), made by the Borrowers in favor of the Second Term Lenders;

(C) AMENDMENT APPROVAL ORDER. A copy of the Amendment Approval Order; and

(D) OTHER. Such other documents as the Agent or the Second Term Lenders may reasonably request.

5. REPRESENTATIONS AND WARRANTIES.

Each of the Borrowers represents and warrants to the Agent and each Lender that, after giving effect to this Amendment or any part of this Amendment:

5.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on and as of the date of this Amendment, in each case as if then made, other than representations and warranties that expressly relate solely to an earlier date (in which case such representations and warranties were true and accurate on and as of such earlier date).

5.2 EVENTS OF DEFAULT. No Default or Event or Default has occurred which has not been waived (or, in the case of an Event of Default, cured) under the terms of the Credit Agreement.

5.3 ENFORCEABILITY. Upon approval by the Bankruptcy Court (as contemplated by SECTION 4.1(B)), this Amendment and the Credit Agreement, as amended by this Amendment, will constitute legal, valid and binding obligations of the LFC Funds Administrator and each of the Borrowers and will be enforceable against such Persons in accordance with their respective terms.

5.4 CONSENTS. The execution and delivery by the LFC Funds Administrator and each of the Borrowers of this Amendment does not require the consent or approval of any Person other than the Bankruptcy Court (as contemplated by
SECTION 4.1(B)), except such consents and approvals as have been obtained.

5.5 NO PREPETITION OBLIGATIONS OUTSTANDING. As of the Closing Date, there are no Prepetition Obligations outstanding under the Credit Agreement.

5.6 MATERIAL CONTRACTS. SCHEDULE B, PART 6.19, as amended by the information contained on EXHIBIT C to this Amendment, contains a true, correct and complete list of all the Material Contracts in effect on the Closing Date. Except as described on SCHEDULE B, PART 6.19, as amended by the information contained on EXHIBIT C to this Amendment, no Material Contract contains any burdensome restrictions on any Borrower or any Subsidiary of any Borrower or any of their respective properties that could prevent such Borrower or Subsidiary from conducting its business as conducted on the Closing Date. As of the Closing Date, all of the Material Contracts are in full force and effect and, except as described on SCHEDULE B, PART 6.19, as amended by the information contained on EXHIBIT C to this Amendment, no defaults currently exist thereunder by any Borrower or Subsidiary of a Borrower that is a party

thereto (other than defaults that need not be cured under section 365(b)(2) of the Bankruptcy Code), or to the knowledge of the Borrowers, any other party thereto. The Borrowers agree that the representations and warranties set forth in this SECTION 5.6 will survive the Closing Date and that if such representations and warranties are false or misleading in any material respect on the Closing Date, an Event of Default will have occurred under Section 9.1(c) of the Credit Agreement.

6. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS.

6.1 REFERENCES. Upon the effectiveness of this Amendment, or any part of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in each of the other Credit Documents to the "Credit Agreement" shall mean and be a reference to the Credit Agreement as amended by this Amendment or any part of this Amendment.

6.2 RATIFICATION. Except as expressly set forth in this Amendment, all of the terms and conditions of the Credit Agreement and the other Credit Documents remain in full force and effect and are ratified and confirmed in all respects. The execution and delivery of this Amendment by the Agent and each of the Lenders in no way obligates the Agent or any of the Lenders at any time hereafter to consent to any other amendment or modification of any term or provision of the Credit Agreement or any of the other Credit Documents, whether of a similar or different nature.

7. GOVERNING LAW.

THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AMENDMENT IS GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND DECISIONS OF THE STATE OF NEW YORK.

8. HEADINGS: COUNTERPARTS.

Section headings in this Amendment are included for convenience of reference only and do not constitute a part of this Amendment for any other purpose. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.

[The remainder of this page is intentionally left blank]

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

LFC FUNDS ADMINISTRATOR

LEVITZ FURNITURE CORPORATION, a Florida corporation, in its
capacity as LFC Funds Administrator

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

BORROWERS:

LEVITZ FURNITURE CORPORATION, a Florida corporation, in its individual capacity and it its capacity as the LFC Funds Administrator

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE INCORPORATED, a Delaware corporation

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE REALTY CORPORATION, a Florida corporation

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     President
           ------------------------------------------

LEVITZ SHOPPING SERVICE, a Florida corporation

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a Colorado
corporation

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a California
corporation

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a Washington
corporation

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a
Colorado corporation

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     President
           ------------------------------------------

LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     President
           ------------------------------------------

LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a
Washington corporation

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     President
           ------------------------------------------

JOHN M. SMYTH COMPANY, an Illinois corporation

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

JOHN M. SMYTH REALTY COMPANY, an Illinois corporation

By:        /s/ Edward P. Zimmer
           ------------------------------------------
Name:      Edward P. Zimmer
           ------------------------------------------
Title:     President
           ------------------------------------------

AGENT:

BT COMMERCIAL CORPORATION, in its capacity as Agent

By:        /s/ Wayne D. Hillock
           ------------------------------------------
Name:      Wayne D. Hillock
           ------------------------------------------
Title:     Sr. V.P.
           ------------------------------------------

REVOLVING LENDERS:

BT COMMERCIAL CORPORATION, a Delaware corporation in its respective capacities as Revolving Lender and Collateral Agent

By:        /s/ Wayne D. Hillock
           ------------------------------------------
Name:      Wayne D. Hillock
           ------------------------------------------
Title:     Sr. V.P.
           ------------------------------------------

FINOVA CAPITAL CORPORATION, it its capacity as Revolving Lender

By:        /s/ Brian Rujawitz
           ------------------------------------------
Name:      Brian Rujawitz
           ------------------------------------------
Title:     AVP
           ------------------------------------------

HELLER FINANCIAL, INC., it its capacity as Revolving Lender

By:        /s/ Scott Ziemke
           ------------------------------------------
Name:      Scott Ziemke
           ------------------------------------------
Title:     AVP-Relationship Manager
           ------------------------------------------

LASALLE NATIONAL BANK, it its capacity as Revolving Lender

By:        /s/ Christopher G. Clifford
           ------------------------------------------
Name:      Christopher G. Clifford
           ------------------------------------------
Title:     Sr. VP
           ------------------------------------------

CONGRESS FINANCIAL CORPORATIONN (CENTRAL), it its capacity
as Revolving Lender

By:        /s/ Steven Linderman
           ------------------------------------------
Name:      Steven Linderman
           ------------------------------------------
Title:     Vice President
           ------------------------------------------

TRANSAMERICA BUSINESS CREDIT CORPORATION, it its capacity as
Revolving Lender

By:        /s/ Michael Kempel
           ------------------------------------------
Name:      Michael Kempel
           ------------------------------------------
Title:     VP
           ------------------------------------------

SILVER OAK CAPITAL L.L.C., it its capacity as Revolving Lender

By:        /s/ Jeffrey H. Aronson
           ------------------------------------------
Name:      Jeffrey H. Aronson
           ------------------------------------------
Title:     Authorized Signatory
           ------------------------------------------

AG CAPITAL FUNDING PARTNERS, L.P., it its capacity as Revolving Lender

By:        /s/ Jeffrey H. Aronson
           ------------------------------------------
Name:      Jeffrey H. Aronson
           ------------------------------------------
Title:     Authorized Signatory
           ------------------------------------------

NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION, it its capacity
as Revolving Lender

By:        /s/ Nancy A. Kagan
           ------------------------------------------
Name:      Nancy A. Kagan
           ------------------------------------------
Title:     Authorized Signatory
           ------------------------------------------

TERM LENDERS:

SILVER OAK CAPITAL L.L.C., it its capacity as Term Lender

By:        /s/ Jeffrey H. Aronson
           ------------------------------------------
Name:      Jeffrey H. Aronson
           ------------------------------------------
Title:     Authorized Signatory
           ------------------------------------------

AG CAPITAL FUNDING PARTNERS, L.P., in its capacity as Second Term Lender

By: Angelo, Gordon & Co., L.P., as Investment Advisor

By:        /s/ Jeffrey H. Aronson
           ------------------------------------------
Name:      Jeffrey H. Aronson
           ------------------------------------------
Title:     Authorized Signatory
           ------------------------------------------

        c/o Angelo, Gordon & Company
        245 Park Avenue, 26th Floor
        New York, New York 10167

        Term Commitment Amount:                           $36,356,250

SECOND TERM LENDERS:

2.      AG CAPITAL FUNDING PARTNERS, L.P.
        c/o Angelo, Gordon & Company
        245 Park Avenue, 26th Floor
        New York, New York 10167

        Term Commitment Amount:                           $22,000,000

EXHIBIT B

FORM OF AMENDMENT APPROVAL ORDER