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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 1-11893

GUESS ?, INC.

(Exact name of registrant as specified in its charter)

DELAWARE                             95-3679695
(State or other jurisdiction     (I.R.S. Employer Identification Number)
of incorporation or organization)

1444 SOUTH ALAMEDA STREET
LOS ANGELES, CALIFORNIA 90021
(213) 765-3100

(Address, including zip code, and telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS              ON WHICH REGISTERED
---------------------------------------  -----------------------
Common Stock, par value $0.01 per share  New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

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

Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

As of the close of business on March 22, 2000, the aggregate market value of
the voting and non-voting common equity stock held by non-affiliates of the
registrant was $214,459,553.

As of the close of business on March 22, 2000, the registrant had 43,398,885
shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the registrant's 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III herein.

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TABLE OF CONTENTS

ITEM            DESCRIPTION                                                     PAGE
---------------------   -----------                                                   --------

PART I
1   Business....................................................         1
2   Properties..................................................        12
3   Legal Proceedings...........................................        13
4   Submission of Matters to a Vote of Security Holders.........        14

PART II
5   Market for Registrant's Common Equity and Related
Stockholder Matters.......................................        14
6   Selected Financial Data.....................................        15
7   Management's Discussion and Analysis of Financial Condition
and
Results of Operations.....................................        16
7A   Quantitative and Qualitative Disclosures About Market
Risks.....................................................        22
8   Financial Statements and Supplementary Data.................        23
9   Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure......................................        23

PART III
10   Directors and Executive Officers of the Registrant..........        23
11   Executive Compensation......................................        23
12   Security Ownership of Certain Beneficial Owners and
Management................................................        23
13   Certain Relationships and Related Transactions..............        23

PART IV
14   Exhibits, Consolidated Financial Statement Schedules and
Reports on Form 8-K.......................................        23

PART I

ITEM 1. BUSINESS

IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS

Various forward-looking statements have been made in this Form 10-K.
Forward-looking statements may also be in the Company's other reports filed
under the Securities Exchange Act of 1934, in its press releases and in other
documents. In addition, from time to time, the Company, through its management,
may make oral forward-looking statements.

Forward-looking statements are only expectations, and involve known and
unknown risks and uncertainties, which may cause actual results in future
periods and other future events to differ materially from what is currently
anticipated. Certain statements in this Form 10-K, including those relating to
the Company's expected results, the accuracy of data relating to, and
anticipated levels of, its future inventory and gross margins, its anticipated
cash requirements and sources, the relocation of its distribution center, its
cost containment efforts, its plans regarding store openings and closings and
its business seasonality, are forward-looking statements. Such statements
involve risks and uncertainties, which may cause results to differ materially
from those set forth in these statements. Factors which may cause actual results
in future periods to differ from its current expectations include, among other
things, the continued availability of sufficient working capital, the
availability of adequate sources of capital, the successful integration of new
stores into existing operations, the continued desirability and customer
acceptance of existing and future product lines, possible cancellations of
wholesale orders, the success of competitive products, the success of the
Company's programs to strengthen its inventory cost accounting controls and
procedures and the success of technology being used in the Company's new
distribution center. In addition to these factors, the economic and other
factors identified in this Form 10-K, including but not limited to the risk
factors discussed herein and in the Company's previously filed public documents
could affect the forward-looking statements contained in herein and therein.

Forward-looking statements generally refer to future plans and performance,
and are identified by the words "believe," "expect," "anticipate," "optimistic,"
"intend," "aim," "will" or the negative thereof and similar expressions. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of which they are made. The Company undertakes
no obligation to update publicly or revise any forward-looking statements.

For additional information regarding forward-looking statements, refer to
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained herein.

GENERAL

Unless the context indicates otherwise, when we refer to "we," "us" or the
"Company" in this Form 10-K, we are referring to Guess?, Inc. ("GUESS?") and its
subsidiaries on a consolidated basis.

We design, market, distribute and license one of the world's leading
lifestyle collections of casual apparel and accessories for men, women and
children that reflect the American lifestyle and European fashion sensibilities.
Our apparel is marketed under numerous trademarks including GUESS, GUESS?, GUESS
U.S.A., GUESS Jeans, GUESS? and Triangle Design, Question Mark and Triangle
Design, GUESS Kids, and GUESS Collection. The lines include full collections of
denim and cotton clothing, including jeans, pants, overalls, skirts, dresses,
shorts, blouses, shirts, jackets and knitwear. We also selectively grant
licenses to manufacture and distribute a broad range of products that complement
our apparel lines, including eyewear, watches, footwear, infant apparel and
other fashion accessories.

Our products are sold through three distribution channels: in our own
stores, to a network of wholesale accounts and through the Internet. GUESS?
branded products, some of which are produced under license, are also sold
internationally through a series of licensees and distributors. Our core
customer is a style-conscious consumer between the ages of 15 and 25. These
consumers are part of a highly desirable demographic group that we believe is
growing rapidly and has significant disposable

1

income. We also appeal to customers outside this group through specialty product
lines that include GUESS Collection, a more sophisticated fashion line targeted
to women, and GUESS Kids, targeted to boys and girls ages 6 through 12.

We were founded in 1981 by Maurice Marciano, Paul Marciano and Armand
Marciano and we currently operate as a Delaware corporation.

BUSINESS SEGMENTS

Our business consists of three reportable business segments: retail
operations, wholesale operations and licensing operations. Financial information
about each segment for the fiscal years ended December 31, 1997, 1998 and 1999
are included under Note 11 to the Consolidated Financial Statements contained
herein.

In 1999, 50.0% of our net revenue came from retail operations, 43.4% from
wholesale operations and 6.6% from licensing operations. Our total net revenue
in 1999 was $599.7 million and net earnings were $51.9 million.

BUSINESS STRENGTHS

We believe we possess a foundation of business strengths necessary for the
execution of our business strategies. These business strengths include:

BRAND EQUITY.  We believe that our name has become one of the most familiar
in fashion and is one of our most valuable assets. We believe the enduring
strength of the GUESS? brand name and image is due mainly to our consistent
emphasis on innovative and distinctive product designs that stand for
exceptional styling and quality. Our industry is highly competitive and subject
to rapidly changing consumer preferences and tastes. The success of our brand
depends on our ability to anticipate the fashion preferences of our customers.
We have a team of designers who, under the direction of Maurice Marciano, seek
to identify global fashion trends and interpret them for the style-conscious
consumer while retaining the distinctive GUESS? image. Through our award-winning
advertising, under the creative leadership and vision of Paul Marciano, we have
achieved worldwide recognition of the GUESS? brand name. By retaining control
over advertising and marketing activities from our headquarters in Los Angeles,
we maintain the integrity, consistency and direction of the GUESS? brand image
worldwide, while realizing substantial cost savings when compared to the use of
outside advertising agencies.

We have developed the "GUESS? signature image" and "GUESS? lifestyle
concept," through the use of our strong and distinctive images, merchandising
display themes, logos, and trademarks which are registered in over 170
countries.

ADVERTISING AND MARKETING.  All worldwide advertising, marketing activities
and promotional materials are controlled from our headquarters in Los Angeles.
GUESS Jeans, GUESS U.S.A. and Guess ?, Inc. images have been showcased in dozens
of major publications, and outdoor and broadcast media throughout the United
States and worldwide. Our advertising campaigns promote the GUESS? image with
our award winning advertising and a consistent emphasis on innovative and
distinctive designs.

We communicate this message through the use of our signature black and white
print advertisements, as well as color print advertisements, designed by our
in-house advertising department. Led by Paul Marciano, this team has won
numerous awards and contributed to making the GUESS? brand one of the most
recognizable fashion brands. We have maintained a high degree of consistency in
our advertisements, by using similar themes and images. We require our licensees
and distributors to invest a percentage of their net sales of licensed products
and net purchases of GUESS? products, respectively, in Company-approved
advertising, promotion and marketing.

RETAIL DISTRIBUTION.  At December 31, 1999, we operated 92 full-price retail
and 54 factory outlet stores in the United States and a retail store in
Florence, Italy that is an integral part of our European design activities. Our
60% owned subsidiary, GUESS? Canada Corporation ("GUESS Canada"), operates

2

13 retail stores in Canada. Our retail network creates an upscale and inviting
shopping environment and enhances our image. Distribution through our retail
stores allows us to influence the merchandising and presentation of our
products, increase consumer awareness and build brand equity. Our retail stores
carry a full assortment of men's and women's merchandise, including most of the
GUESS? licensed products. Our factory outlet stores are primarily located in
outlet malls, generally operating outside the shopping radius of our wholesale
customers and our own retail stores. They appeal to value-conscious customers
with a product line that is approximately 70% unique to that venue.

LICENSEE STORES.  Our licensees and distributors also operate 229
international GUESS? stores. These stores carry apparel and accessories that are
similar to those sold in the United States, including some that are tailored for
local fashion sensibilities. We work closely with international licensees and
distributors to ensure that their store designs and merchandise programs protect
the reputation of the GUESS? trademarks. Our international licenses and
distribution agreements also allow for the sale of GUESS? brand goods in better
department stores and upscale specialty retail stores.

WHOLESALE DISTRIBUTION.  We have both domestic and international wholesale
distribution channels. Domestic wholesale customers consist primarily of better
department stores and select specialty retailers and upscale boutiques, which
have the image and merchandising expertise that we require for the effective
presentation of our products. Leading domestic wholesale customers include
Federated Department Stores, Inc., The May Department Stores Company,
Dillard's, Inc. and Dayton Hudson Corporation. During 1999, our products were
sold directly to consumers from approximately 2,800 retail store locations in
the United States. These locations include approximately 1,200 shop-in-shops, an
exclusive selling area within a department store that offers a wide array of our
products and incorporates GUESS? signage and fixture designs. These
shop-in-shops allow us to reinforce our GUESS? brand image with our customers.
Many department stores have more than one shop-in-shop, with each one featuring
women's, men's or girls' apparel. Through our foreign subsidiaries and our
network of international distributors, our products are also found in major
cities throughout Asia, Europe, South America and the Middle East.

LICENSING OPERATIONS.  The desirability of the GUESS? brand name among
consumers has allowed us to selectively expand our product offerings and global
markets through trademark licensing arrangements, with minimal capital
investment or on-going operating expenses. We carefully select our trademark
licensees and approve in advance all product design, advertising and packaging
materials of all licensed products in order to maintain a consistent GUESS?
image. We currently have 28 licenses that include watches, eyewear, shoes,
handbags, leather apparel, jewelry and related accessories. We have granted
licenses for the manufacture and sale of GUESS? branded products in markets
which include Europe, Asia, South America, Australia and Africa.

BUSINESS GROWTH STRATEGIES

We regularly evaluate and implement initiatives that we believe will build
brand equity, grow our business and enhance profitability. Our key growth
strategies are as follows:

LEVERAGING THE GUESS? BRAND.  We believe the GUESS? brand is an integral
part of our business, a significant strategic asset and a primary source of
sustainable competitive advantage. It communicates a distinctive image that is
fun, fashionable and sexy. Brand loyalty, name awareness, perceived quality,
strong brand images, public relations, publicity, promotional events and
trademarks all contribute to brand equity. Our design teams visit the world's
premier fashion locations in order to identify important style trends and to
discover new fabrics. We will continue this practice while promoting our
innovative designs through stylish advertising campaigns that advance the GUESS?
image. Our marketing programs are designed to convey a uniform style image for
the brand, aimed at increasing the desire of the target group to join our GUESS?
customer group.

RETAIL STORE STRATEGY AND EXPANSION PLANS.  We plan that our retail division
will be our primary growth initiative over the next three to five years. We plan
to achieve this growth by adding a significant number of

3

new stores, increasing the average size of our new stores and further increasing
the sales productivity of all stores. During 1999, we opened 19 new stores in
the United States and improved our operating base by closing 5 under performing
stores. In 1999, we also increased our ownership in our Canadian licensee, GUESS
Canada, which operates 13 retail stores in Canada, to 60%. We have an option to
acquire the remaining 40% of our Canadian subsidiary commencing December 31,
2001.

We currently plan to more than double our retail square footage in the
United States and Canada during the next three years. We plan to open 25 new
retail stores and 10 new factory outlet stores in the United States in 2000. We
also plan to open 10 GUESS Kids stores in the United States, which will carry
girls', boys' and Baby GUESS apparel. We also expect that our Canadian licensee,
GUESS Canada, will open 15 new retail stores in Canada in 2000. It has been our
experience that our retail locations build brand awareness and contribute to the
growth of our wholesale operations.

In 1999, our retail stores open a minimum of one year realized comparable
store sales gains averaging 28% over 1998 and our factory outlet stores realized
net gains averaging 24%. We believe this growth reflects the re-emergence of the
GUESS? brand nationally, and among other things, the effect of several ongoing
initiatives, including:

- being a leader in new product development,

- producing a more fashion-focused product mix,

- improvements in merchandising and visual presentation,

- the remodeling of select stores to promote a consistent brand message and

- the development of a motivated team of sales professionals so that our
customers have a favorable shopping experience.

The look and feel of GUESS? retail and factory outlet stores play an
important role in building our brand equity. To enhance the quality of our
presentation, we remodeled 14 stores during 1999 and plan to remodel an
additional 25 stores during 2000.

EXPAND SHOP-IN-SHOP PROGRAMS.  We are continuing to selectively expand our
use of "shop-in-shops," which are exclusive selling areas within wholesale
customers' department stores that use GUESS? signage and fixture designs. The
GUESS? "shop-in-shop" concept is designed to enhance the presence and brand
awareness of GUESS? products in department stores. The strategic product
presentation, theme-based fixtures, displays, strong and distinctive images and
point-of-sale materials in these premium department store locations are designed
to reinforce and capitalize on the "GUESS? lifestyle" concept. These shops also
facilitate consumer shopping by featuring a comprehensive presentation of our
merchandise. In our wholesale business in 1998 and 1999, we focused on the
department stores with the greatest sales potential while increasing our
shop-in-shop presence in those stores. At the end of 1999, we had approximately
1,200 GUESS? shop-in-shops in the United States. We expect to continue to grow
our domestic wholesale operations in 2000, and plan to add or remodel up to 500
additional shop-in-shops this year. We also plan to selectively increase our
presence in department stores, specialty retail chains and upscale boutiques.

REPOSITION LICENSEE PORTFOLIO.  A primary objective as a company is to
maintain the quality and reputation of the GUESS? brand. In order to maintain
quality and control of the GUESS? brand, we will continue to strategically
reposition our licensing portfolio by bringing in-house apparel licenses, where
appropriate. To maintain brand integrity and image, we aggressively monitor the
performance of our licensees. If we determine that licensees are performing
inadequately, we sometimes discontinue the existing relationship and seek out a
stronger replacement licensee or if appropriate, produce the product line
in-house. Over the past few years, we have converted our women's knits and
girls' product lines from licenses to our own products, and we recently
reacquired our boys' line. Our girls' and boys' apparel lines will both be
prominently featured in our new GUESS Kids stores and a planned series of girls'
and boys' shop-in-shops. We terminated our licensee for Baby GUESS in 1999 and
have a new licensee producing the Baby GUESS line in 2000.

4

IMPROVED PRODUCT SOURCING.  We have refocused our product sourcing
strategies to increase efficiencies, reduce costs and improve quality. We
currently purchase approximately 75% of our finished products from international
vendors. This is a significant change from several years ago when we purchased
the majority of our goods from domestic sources. We have increased our
utilization of lower-cost, offshore "packaged purchases." in which we supply the
product design and fabric selection, and the vendor manufacturers and delivers
the finished product. We have strategically aligned ourselves with sourcing
vendors worldwide, who will take full responsibility for delivering a quality,
finished product in a timely manner. We have substantially reduced our average
cost per unit at the same time as we have lowered the price of many of our
items. We also retain a close relationship with a number of domestic vendors
located primarily in Los Angeles as it is important to react to last minute
trends, as well as respond to rush reorders. By continuing to use packaged
programs, we believe we can continue to achieve improved product gross margins,
reduce carry costs of raw materials and improve deliveries and quality.

RELOCATE DISTRIBUTION CENTER.  We have opened a new, automated distribution
center in Louisville, Kentucky, to replace our distribution center in Los
Angeles. Our new, 500,000 square-foot facility is near United Parcel Service's
national transit hub and, when fully operational in the second quarter of fiscal
year 2000, is expected to reduce our shipping time to the majority of our stores
and wholesale accounts that are east. We expect the new distribution center, in
addition to enabling us to get our products to market more rapidly, will allow
us to reduce distribution operating costs per unit, reduce our shipping costs
and provide better service to our customers.

E-COMMERCE.  We are pursuing both business-to-consumer and
business-to-business initiatives. Our web site, www.guess.com, a virtual
storefront that promotes the GUESS? brand, became fully operational in
April 1999. Designed as a customer center, the site showcases GUESS? products in
an easy-to-navigate format, allowing customers to see and purchase our
collections of casual apparel and accessories. This virtual store is designed to
develop an additional retail distribution channel, improve customer service
levels and create a fun and entertaining alternative-shopping environment. The
site also provides fashion information, provides a mechanism for customer
feedback, promotes customer loyalty and enhances our brand identity through
interactive content. This site generates net revenue consistent with an average
GUESS? retail store.

During 2000, we intend to introduce a business-to-business concept that will
facilitate our interaction with wholesale customers, licensees and suppliers.
The site, which will utilize Commerce One's MarketSite with PeopleSoft's
eProcurement software, is designed to permit the purchase of both indirect items
such as office and maintenance supplies and direct items such as trims, fabric,
and finished goods. Our site has the potential to become an electronic
marketplace that will facilitate various levels of interaction between buyers
and sellers in the textile and apparel industries, and to reduce our operating
costs, increase our sourcing efficiencies and improve customer service.

GUESS? PRODUCTS

We derive net revenue from three primary sources:

- the sale of GUESS? men's, women's, girls' and boys' apparel,

- the sale of our licensees' products through our network of retail and
factory outlet stores primarily in the United States and

- the sale of GUESS? men's, women's, girls' and boys' apparel worldwide to
wholesale customers and distributors and net royalties from worldwide
licensing activities.

5

The following table sets forth our net revenue from our channels of
distribution.

YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997                     1998                     1999
-------------------      -------------------      -------------------
(DOLLARS IN THOUSANDS)

Net Revenue:
Retail operations......................  $215,873     41.9%       $222,624     47.2%       $299,384     50.0%
Wholesale operations...................   250,040     48.5         212,504     45.0         260,628     43.4
--------    -----        --------    -----        --------    -----
Net revenue from product sales.......   465,913     90.4         435,128     92.2         560,012     93.4
Net royalties..........................    49,459      9.6          36,803      7.8          39,638      6.6
--------    -----        --------    -----        --------    -----
Total net revenue..................  $515,372      100%       $471,931      100%       $599,650      100%
========    =====        ========    =====        ========    =====

PRODUCTS.  Our product line is organized into four primary categories:
men's, women's, girls' and boys' apparel. In 1999, we reacquired our boys'
apparel line from a former licensee and now produce the line in-house. The
product assortment was refocused with a more narrow and deep buying strategy
using fewer stock keeping units ("SKUs") to be able to give our customers more
depth of the styles they want. New fashioned-oriented product is offered
monthly. To take advantage of the contemporary trends, we complement our core
basic styles with more fashion-oriented items. Within our basic denim
assortment, we have added new denim fabrics and washes. In addition, we have
also been successful in adding "immediates" to our merchandise assortment. These
are fashion forward styles that compliment our current product that continue to
keep GUESS? as the fashion leader and trend setter in the industry.

Our line of women's apparel also includes the GUESS Collection product line,
a better collection of women's skirts, dresses, tops, jackets, blazers and
blouses incorporating a sophisticated, high fashion combination of colors and
styles. These products are currently sold exclusively through our retail stores
and the Internet and our primarily designed to appeal to the contemporary
segment of the apparel market.

LICENSED PRODUCTS.  The high level of desirability of the GUESS? brand name
among consumers has allowed us to selectively expand our product offerings and
distribution channels worldwide through trademark licensing arrangements. We
currently have 28 trademark licenses. Worldwide sales of licensed products (as
reported to us by our licensees) were approximately $525 million in 1999. Our
net royalties from these sales, including fees from new licensees, were
$39.6 million in 1999. Approximately 40% of our net royalties were derived from
our top 3 licensed product lines in 1999.

DESIGN

Under the direction of Maurice Marciano, GUESS? apparel is designed by an
in-house staff of five design teams (men's, women's, girls', boys' and GUESS
Collection) located in Los Angeles, California. GUESS? design teams travel
throughout the world in order to monitor fashion trends and discover new
fabrics. Fabric shows in Europe, Asia and the United States provide additional
opportunities to discover and sample new fabrics. These fabrics, together with
the trends observed by our designers, serve as the primary source of inspiration
for our lines and collections. We also maintain a fashion library consisting of
antique and contemporary garments as an additional source of creative concepts.
In addition, design teams regularly meet with members of the sales,
merchandising and retail operations to further refine our products in order to
meet the particular needs of our markets.

DOMESTIC RETAIL OPERATIONS

At December 31, 1999, our domestic retail operations consisted of 92
full-price retail and 54 factory outlet stores in the United States that we
owned and operated directly, which sell GUESS?-label products. Since the
beginning of 1996 through December 31, 1999, we have opened a total of 39 retail
stores and 17 factory outlet stores and have closed or consolidated 9 retail and
10 factory outlet stores in the United

6

States. The percentage of net revenue generated by the retail network has
increased from 47.2% to 50.0% of our net revenue from product sales from the
beginning of 1996 through December 31, 1999.

RETAIL STORES.  Our 92 domestic retail stores occupy 494,000 square feet and
range in size from approximately 3,000 to 10,000 square feet. Our retail stores
carry a full assortment of men's and women's GUESS? merchandise, including most
of our licensed products. In 1999, our retail division introduced its own
fragrance line. During 1999, we opened 9 retail stores, remodeled another 10
retail stores and closed one retail store as a result of a store consolidation.
We plan to open 25 new retail stores in the United States during 2000. During
2000, we also plan to launch our first 10 GUESS Kids stores to sell our girls'
line and our boys' line as well as infant's clothing, which will be supplied by
one of our licensees.

In 1999, our domestic retail stores achieved a 28% comparable store increase
in net revenue. Every domestic retail store increased its sales over those in
1998. Our domestic retail stores open at the beginning of 1998 increased sales
per square foot from $346 in 1998 to $434 in 1999.

FACTORY OUTLET STORES.  Our 54 domestic factory outlet stores occupy
approximately 300,000 square feet and range in size from approximately 3,500 to
8,900 square feet. They are primarily located in outlet malls generally
operating outside the shopping radius of our wholesale customers and our retail
stores. These stores sell selected styles of GUESS? apparel and licensed
products at a discount to value-conscious customers. We also use the factory
outlet stores to assist us to distribute excess inventory effectively, thereby
protecting the GUESS? image. Approximately 70% of the products sold in our
factory outlet stores are unique to those stores. During 1999, we opened 10 new
factory stores and closed 4 under-performing stores. We plan to open another 10
factory outlet stores in 2000. In 1999, our domestic factory outlet stores
achieved a 24% comparable store sales increase in net revenue. Our domestic
factory outlet stores open at the beginning of 1998 increased sales per square
foot from $258 in 1998 to $335 in 1999.

DOMESTIC WHOLESALE CUSTOMERS

Our domestic wholesale customers consist primarily of better department
stores and select upscale specialty stores, which have the image and
merchandising expertise that we require for the effective presentation of our
products. Leading wholesale customers include Federated Department
Stores, Inc., The May Department Stores Company and Dillard's, Inc., among
others. During 1999, we sold our products directly to approximately 2,800 retail
doors in the United States.

A key element of our merchandising strategy is the shop-in-shop
merchandising format, an exclusive selling area within a department store that
presents a full array of GUESS? products using GUESS? signage and fixture
designs. At December 31, 1999, there were approximately 1,200 shop-in-shops
(excluding shop-in-shops installed by licensees and distributors) that feature
GUESS? products (other than the GUESS Collection). We added or remodeled
approximately 135 shop-in-shops in 1999 and intend to add or remodel up to 500
shop-in-shops by the end of 2000.

We have sales representatives in our showrooms in New York, Los Angeles,
Dallas, Chicago, Milan and Florence, Italy and Hong Kong. They coordinate with
customers to determine the inventory level and product mix that should be
carried in each store to maximize retail sell-through and enhance the customers'
profit margins. The inventory level and product mix are then used as the basis
for developing sales projections and product needs for each wholesale customer
and for scheduling production. Additionally, we use merchandise coordinators,
who work with the store to ensure that our products are appropriately displayed.

A few of our domestic wholesale customers, including some under common
ownership, have accounted for significant portions of our net revenue. During
1999, Bloomingdale's, Macy's and other affiliated stores owned by Federated
Department Stores, Inc. together accounted for approximately 12.4% of our net
revenue.

7

INTERNATIONAL BUSINESS

We derive net revenue and earnings outside the United States from two
principal sources:

- sales of GUESS? brand apparel directly to 5 foreign distributors who
distribute it to better department stores, upscale specialty retail stores
and GUESS? licensed retail stores operated by our international
distributors, and

- royalties from licensees who manufacture and distribute GUESS? brand
products outside the United States. We sell products through distributors
and licensees throughout Asia, South America, Europe, South Africa,
Australia and the Middle East.

At December 31, 1999, 229 GUESS? retail and outlet stores were owned and
operated internationally by licensees and distributors, including 13 retail
stores in Canada that our 60% owned subsidiary operates. We have an option to
acquire the remaining 40% of our Canadian subsidiary commencing December 31,
2001. Our retail store license agreements generally provide detailed guidelines
for store fixtures and merchandising programs. The appearance, merchandising and
service standards of these stores are closely monitored to ensure that our image
is maintained. We have been advised by our distributors and licensees that they
plan to open approximately 45 new stores, including 15 stores in Canada, in
2000. We also own and operate a flagship GUESS? retail store located in
Florence, Italy.

LICENSE AGREEMENTS AND TERMS

Our trademark license agreements customarily provide for a three- to
five-year initial term with a possible option to renew prior to expiration for
an additional multi-year period. In addition to licensing trademarks for
products which complement our apparel products, we have granted trademark
licenses for the manufacture and sale of GUESS? branded products similar to
ours, including men's and women's denim and knitwear, in markets such as the
Philippines, Canada, Mexico, Chile, South Africa, South Korea, Europe and Japan.
Licenses granted to certain licensees that have produced high-quality products
and otherwise have demonstrated solid operating performance, such as GUESS?
Watches and GUESS? Eyewear, have been renewed and in some cases expanded to
include new products or markets. In other cases, products that were formerly
licensed, such as our women's knits, girls' and boys' lines, are now being
produced in-house. The typical license agreement requires that the licensee pay
us the greater of a royalty based on a percentage of the licensee's net sales of
licensed products or a guaranteed annual minimum royalty that typically
increases over the term of the license agreement. Generally, licensees are
required to spend a percentage of the net sales of licensed products for
advertising and promotion of the licensed products. In addition, certain
licensees are required to contribute toward the protection of our trademarks
within the territories granted to such licensees, thereby assisting us in our
efforts to prevent counterfeiting and other trademark infringement in those
territories.

To protect the GUESS? trademark and brand, our Licensing Department meets
regularly with licensees to ensure consistency with our overall merchandising
and design strategies and to ensure uniformity and quality control. The
Licensing Department approves in advance all GUESS? brand products, advertising,
promotional and packaging materials.

ADVERTISING AND MARKETING

Our advertising, public relations and marketing strategy is to promote a
consistent high impact image which endures regardless of changing consumer
trends. Since our inception, Paul Marciano has had principal responsibility for
the GUESS? brand image and creative vision. All worldwide advertising and
promotional material is controlled through our Advertising Department based in
Los Angeles. GUESS Jeans, GUESS U.S.A. and Guess ?, Inc. images have been
showcased in dozens of major publications and outdoor and broadcast media
throughout the United States and the world.

8

Our advertising strategy promotes the GUESS? image and products, with an
emphasis on image. Our signature black and white print advertisements, as well
as color print advertisements, have garnered prestigious awards, including Clio,
Belding and Mobius awards for creativity and excellence. These awards, which we
have received on numerous occasions, are generally awarded based on the judgment
of prominent members of the advertising industry. We have maintained a high
degree of consistency in our advertisements, using similar themes and images. We
require our licensees and distributors to invest a percentage of their net sales
of licensed products and net purchases of GUESS? products in approved
advertising, promotion and marketing. We launched a new marketing campaign in
1999, which included Internet advertising sponsors and television commercials,
strong and consistent images used in all media forms, fresh merchandising
presentation themes and enhanced point-of-sale materials.

Our in-house advertising department is responsible for media placement of
all advertising worldwide, which includes approval of all advertising campaigns
from our licensees and distributors. We use a variety of media which emphasizes
print and outdoor advertising. We have focused advertisement placement in
national and international contemporary fashion/beauty and lifestyle magazines
including Vanity Fair, Harpers Bazaar, Elle, W and Details. By retaining control
over our advertising programs, we are able to maintain the integrity of the
GUESS? brand image while realizing substantial cost savings when compared to the
use of outside agencies.

We further strengthen communications with customers through our Web site
(www.guess.com). This global medium enables us to provide timely information in
an entertaining fashion to consumers about our history, GUESS? products and
store locations and allows us to receive and respond directly to customer
feedback.

SOURCING AND PRODUCT DEVELOPMENT

We source products through numerous suppliers, many of whom have established
relationships with us. We seek to achieve the most efficient means for timely
delivery of our high quality products. Our fabric specialists work with fabric
mills in the United States, Europe and Asia to develop woven and knitted fabrics
that enhance the products' comfort, design and appearance. For a substantial
portion of our apparel products, production planning takes place generally four
to five months prior to the corresponding selling season. Delivery of certain
basic products is accomplished through our Quick Response EDI (Electronic Data
Interchange) replenishment system which ensures shipment of such products
generally within 48 hours of receipt of customer orders.

We do not own any production equipment other than cutting machinery. To
remain competitive, in recent years we have increasingly been sourcing our
finished products globally. During 1999, we sourced approximately 80% of our
finished products from third-party suppliers located outside the United States.
Most of these finished products are acquired as package purchases where we
supply the design and fabric selection and the vendor supplies the finished
product. Although we have long-term relationships with many of our vendors, we
do not have long-term written agreements with them. The production and sourcing
staff in Los Angeles oversee aspects of apparel manufacturing, quality control
and production, as well as research and develop new sources of supply.

SOURCES AND AVAILABILITY OF RAW MATERIALS

Our products use a variety of raw materials, principally consisting of woven
denim, woven cotton and knitted fabrics and yarns. Historically, we have had to
make commitments for a significant portion of our fabric well in advance of
sales. By increasing the use of packaged purchases, we have been able to reduce
our raw materials inventory.

9

QUALITY CONTROL

Our quality control program is designed to ensure that products meet our
high quality standards. We monitor the quality of our fabrics prior to the
production of garments and inspect prototypes of each product before production
runs commence. We also perform random in-line quality control checks during and
after production before the garments leave the contractor. Final random
inspections occur when the garments are received in our distribution centers. We
believe that our policy of inspecting our products at our distribution centers
and at the vendors' facilities is important in maintaining the quality and
reputation of our products.

DISTRIBUTION CENTER

We utilize distribution centers at strategically located sites. During 1999,
distribution of our products in the United States was centralized in our Los
Angeles, California facility, which we lease from a related party and operate.
In January 2000, we opened a new, automated distribution center in Louisville,
Kentucky, to replace the distribution center in Los Angeles. We expect the new
facility, which we lease, to be fully operational in the second quarter of
fiscal year 2000. We also hold a ten percent ownership interest in a licensee
which operates a distribution center in Florence, Italy and services Europe.
Additionally, we utilize a contract warehouse in Hong Kong which services the
Pacific Rim.

At our distribution centers in the United States, we use fully integrated
and automated distribution systems. The bar code scanning of merchandise,
picking tickets and distribution cartons, together with radio frequency
communications, provide timely, controlled, accurate and instantaneous updates
to the distribution information systems.

COMPETITION

The apparel industry is highly competitive and fragmented, and is subject to
rapidly changing consumer demands and preferences. We believe that our success
depends in large part upon our ability to anticipate, gauge and respond to
changing consumer demands and fashion trends in a timely manner and upon the
continued appeal to consumers of the GUESS? image. We compete with numerous
apparel manufacturers and distributors and several well-known designers which
have recently entered or re-entered the designer denim market. Our retail and
factory outlet stores face competition from other retailers, including some of
our major wholesale customers. Our licensed apparel and accessories also compete
with a substantial number of designer and non-designer lines and various other
well-known brands. Many of our competitors have greater financial resources than
we do. Although the level and nature of competition differ among our product
categories, we believe that we compete on the basis of our brand image, quality
of design, workmanship and product assortment.

TRADEMARKS

We own numerous trademarks, including GUESS, GUESS?, GUESS U.S.A., GUESS
Jeans, GUESS? and Triangle Design, Question Mark and Triangle Design, GUESS
Kids, and GUESS Collection. At December 31, 1999, we had more than 2,100 U.S.
and international registered trademarks or trademark applications pending with
the trademark offices of the United States and in over 170 countries around the
world. From time to time, we adopt new trademarks in connection with the
marketing of new product lines. We consider our trademarks to have significant
value in the marketing of our products and act aggressively to register and
protect our trademarks worldwide.

Like many well-known brands, our trademarks are subject to infringement. We
have a staff devoted to the monitoring and aggressive protection of our
trademarks worldwide.

10

WHOLESALE BACKLOG

We maintain a model stock program in our basic denim products which allows
us generally to replenish a customer's inventory within 48 hours. We typically
receive orders for our fashion apparel 90 to 120 days prior to the time the
products are delivered to stores. At February 29, 2000, we had unfilled
wholesale orders, consisting primarily of orders for fashion apparel, of
approximately $167.7 million, compared to $93.9 million for such orders at
February 28, 1999. We expect to fill substantially all of these orders in 2000.
The backlog of wholesale orders at any given time is affected by various
factors, including seasonality and the scheduling of manufacturing and shipment
of products. Accordingly, a comparison of backlogs of wholesale orders from
period to period is not necessarily meaningful and may not be indicative of
eventual actual shipments.

EMPLOYEES

We believe that our employees ("associates") are one of our most valuable
resources. At December 31, 1999, there were approximately 3,600 associates.
Associates include approximately 1,100 in wholesale operations and 2,500 in
retail operations.

We are not a party to any labor agreements and none of our associates is
represented by a labor union. We consider our relationship with our associates
to be good. In addition, we were among the first in the apparel industry to
implement a program to monitor the compliance of subcontractors with Federal
minimum wage and overtime pay requirements.

ENVIRONMENTAL MATTERS

We are subject to federal, state and local laws, regulations and ordinances
that govern activities or operations that may have adverse environmental effects
(such as emissions to air, discharges to water, and the generation, handling,
storage and disposal of solid and hazardous wastes). We are also subject to
laws, regulations and ordinances that impose liability for the costs of clean up
or other remediation of contaminated property, including damages from spills,
disposals or other releases of hazardous substances or wastes, in certain
circumstances without regard to fault. Certain of our operations routinely
involve the handling of chemicals and wastes, some of which are or may become
regulated as hazardous substances. We have not incurred, and do not expect to
incur, any significant expenditures or liabilities for environmental matters. As
a result, we believe that our environmental obligations will not have a material
adverse effect on our financial condition or results of operations.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

See Note 11 to the Notes to the Consolidated Financial Statements for a
discussion regarding our domestic and foreign operations.

11

ITEM 2. PROPERTIES

Certain information concerning our principal facilities, all of which are
leased at December 31, 1999, is set forth below:

APPROXIMATE
AREA IN
LOCATION                                     USE                            SQUARE FEET
-------------------------   ------------------------------------------------------  -----------

1444 South Alameda Street   Principal executive and administrative offices, design    565,000
Los Angeles, California     facilities, sales offices, distribution and warehouse
facilities, production control, and sourcing

1610 Freeport Drive         Distribution and warehousing facility                     500,000
Louisville, Kentucky

1385 Broadway               Administrative offices, public relations, and              30,000
New York, New York          showrooms

Kowloon, Hong Kong          Distribution and licensing coordination control             3,000

Florence, Italy             Administrative office and retail store                      4,100

Our corporate, wholesale and retail headquarters and our production,
distribution and warehousing facilities are located in Los Angeles, California
and consist of seven adjacent buildings totaling approximately 565,000 square
feet. All of these properties are leased by us, and certain of these facilities
are leased from limited partnerships in which the sole partners are trusts
controlled by and for the benefit of Maurice Marciano, Paul Marciano and Armand
Marciano and their families (the "Principal Stockholders") pursuant to leases
that expire in July 2008. The total lease payments to these limited partnerships
are $225,000 per month with aggregate minimum lease commitments to these
partnerships at December 31, 1999 totaling approximately $23.4 million. See
"Item 13. Certain Relationships and Related Transactions."

During 1999, distribution of our products in the United States was
centralized in our Los Angeles, California facility. We have opened a new,
automated distribution center in Louisville, Kentucky, which is leased by us, to
replace the distribution center in Los Angeles. We also hold a ten-percent
ownership interest in a licensee, which leases and operates a distribution
center in Florence, Italy and services Europe. Additionally, we lease a contract
warehouse in Hong Kong which services the Pacific Rim.

We lease our showrooms, advertising, licensing, sales and merchandising
offices, remote distribution and warehousing facility and retail and factory
outlet store locations under non-cancelable operating lease agreements expiring
on various dates through May 2012. These facilities are located principally in
the United States, with aggregate minimum lease commitments, at December 31,
1999, totaling approximately $212.1 million.

The current terms of our store leases, excluding renewal options, expire as
follows:

YEARS LEASE TERMS EXPIRE                                      NUMBER OF STORES
------------------------                                      ----------------

2000-2002...................................................         29
2003-2005...................................................         61
2006-2008...................................................         44
2009-2011...................................................         11
Thereafter..................................................          2

We believe our existing facilities are well maintained, in good operating
condition and are adequate to support our present level of operations. See Notes
7 and 8 of the Notes to Consolidated Financial Statements for further
information regarding current lease obligations.

12

ITEM 3. LEGAL PROCEEDINGS

On August 7, 1996, a class action complaint naming the Company and certain
of its independent contractors was filed in the Superior Court of the State of
California for the County of Los Angeles, titled as Brenda Figueroa et al. v.
Guess ?, Inc. et al. The plaintiffs asserted claims for violation of state wage
and hour laws, wrongful discharge, and breach of contract arising out of the
Company's relationship with its independent contractors and actions taken by
them with respect to their employees. The plaintiffs also alleged that the
Company breached its agreement with the United States Department of Labor
regarding the monitoring of its independent contractors. The Court has held two
hearings on certifying the alleged class. The parties have agreed to settle the
case. On March 1, 2000, the Court gave final approval to the parties'
settlement. If no class member appeals within 60 days thereafter, the case will
be finally resolved.

On July 7, 1998, the Union of Needletrades Industrial and Textile Employees
("UNITE") filed with the National Labor Relations Board ("NLRB") charges against
the Company alleging that the Company violated the National Labor Relations Act
by failing to uphold certain obligations under a prior settlement agreement with
the NLRB, by denying pro-union employees access to the Company's facilities, by
conferring new benefits to employees, by making false accusations against UNITE,
by conducting video surveillance of UNITE's offices, and by assisting and
organizing an anti-union demonstration. These allegations were dismissed by the
NLRB. UNITE appealed, and, on October 15, 1999, the NLRB dismissed the appeal.

On February 24, 1998, the Company and Maurice Marciano, Paul Marciano and
Armand Marciano, as individuals, were named as defendants in a class action
entitled John N. Robinson v. Guess ?, Inc., Maurice Marciano, Paul Marciano and
Armand Marciano filed in the Los Angeles Superior Court. The complaint, as
amended, purported to state claims under Sections 11, 12(a)(2) and 15 of the
Securities Act of 1933 for alleged misrepresentations in connection with the
Company's initial public offering (the "IPO") in August 1996. Mr. Robinson
purported to represent a class of all purchasers of the Company's stock in the
IPO and sought unspecified damages. On January 10, 2000, the complaint was
dismissed in its entirety. However, Robinson has the right to appeal the
dismissal.

On October 26, 1998, Maurice Marciano, Paul Marciano and Armand Marciano, as
individuals (the "Marcianos"), as well as the Company, were named as defendants
in a stockholder's derivative complaint entitled John N. Robinson v. Maurice
Marciano, Paul Marciano and Armand Marciano and Guess ?, Inc. filed in the Los
Angeles Superior Court. The complaint (the "Derivative Complaint") purports to
state a claim for intentional breach of fiduciary duty, negligent breach of
fiduciary duty, constructive fraud and abuse of control in connection with the
Marcianos' management of the Company since its IPO. On July 26, 1999, the Court
entered an Order that allows the case to proceed past the pleadings stage. While
it is too soon to predict the outcome of the case with any certainty, the
defendants believe they have meritorious defenses to each of the claims asserted
and intend to vigorously defend themselves.

On May 21, 1999, the Company filed a demand for arbitration against Pour le
Bebe, Inc. and Pour la Maison, Inc. (collectively, "PLB") seeking damages and
injunctive relief in connection with four written license agreements between the
parties. The Company alleged that PLB defaulted under the license agreements,
that the license agreements properly were terminated and that PLB breached the
license agreements. On July 19, 1999, PLB filed a counterdemand for arbitration
against the Company. PLB sought damages and injunctive relief against the
Company alleging breach of contract, violation of the California Franchise
Relations Act, interference with prospective economic advantage, unlawful
business practices, statutory unfair competition and fraud. The arbitration was
conducted before the American Arbitration Association pursuant to arbitration
clauses in the license agreements.

On March 3, 2000, the Arbitrators issued an interim award in favor of the
Company and rejected each of PLB's counterclaims. The amount of the interim
award was in excess of $6 million. As the prevailing party, the Company is
entitled to, and has applied for, an award of its attorneys' fees, costs, and
expenses.

13

Because of the uncertainty of the ultimate realization of the award, no
recognition has been given to it in the accompanying consolidated financial
statements.

On June 9, 1999, the Company commenced a lawsuit in the Los Angeles County
Superior Court against Mr. Kyle Kirkland, Kirkland Messina LLC, and CKM
Securities (collectively "Kirkland") for tortious interference, unfair
competition, fraud and related claims. This action arises out of alleged
misrepresentations and omissions of material fact made by Kirkland in connection
with the operations and financial performance of PLB. Currently, there are
proceedings in the California Court of Appeal to determine if the action will
proceed in court or by way of arbitration. No trial or hearing date has been
set.

The Company cannot predict the outcome of these matters. The Company
believes the outcome of one or more of the above cases could have a material
adverse effect on the Company's financial condition and results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote during the fourth quarter of fiscal year
1999.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Since August 8, 1996, the Company's Common Stock has been listed on the New
York Stock Exchange under the symbol 'GES.' The following table sets forth, for
the periods indicated, the high and low sales prices of the Company's Common
Stock, as reported on the New York Stock Exchange Composite Tape.

HIGH           LOW
------------   ------------

Year ending December 31, 1998
First Quarter 1998..........................................  $          8   $     5 3/16
Second Quarter 1998.........................................        7 3/16              4
Third Quarter 1998..........................................             5          3 3/4
Fourth Quarter 1998.........................................         7 1/8          3 5/8

Year ending December 31, 1999
First Quarter 1999..........................................         8 1/2         5 1/16
Second Quarter 1999.........................................            14          6 1/8
Third Quarter 1999..........................................       16 1/16        10 9/16
Fourth Quarter 1999.........................................        21 7/8         11 1/2

On March 22, 2000, the closing sales price per share of the Company's Common
Stock, as reported on the New York Stock Exchange Composite Tape, was 27 5/16.
On March 22, 2000, there were 180 holders of record of the Company's Common
Stock.

DIVIDEND POLICY

We intend to use our cash flow from operations in 2000 principally to
finance the expansion and remodel of our retail stores, shop-in-shop programs
and operations. Any future determination as to the payment of dividends will be
at the discretion of the Company's Board of Directors and will depend upon our
results of operations, financial condition, contractual restrictions and other
factors deemed relevant by the Board of Directors. The agreement governing our
revolving credit facility and the indenture pursuant to which the Company's
Senior Subordinated Notes, due 2003, were issued restrict the payment of
dividends by the Company.

Since our IPO on August 8, 1996, we have not declared any dividends on our
Common Stock.

14

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below have been derived from the
audited consolidated financial statements of the Company and the related notes
thereto. The following selected financial data should be read in conjunction
with the Company's Consolidated Financial Statements and the related Notes
contained herein and with "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."

YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995       1996       1997       1998       1999
--------   --------   --------   --------   --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Statement of earnings data:
Net revenue......................................  $486,733   $551,162   $515,372   $471,931   $599,650
Earnings from operations.........................    82,928     98,095     70,646     57,046     93,776
Earnings before interest and income taxes........    82,771     97,106     68,605     56,183     96,485
Net earnings.....................................    63,919     66,741     37,511     25,111     51,900
Supplemental statements of earnings data: (1)
Earnings before income taxes and change in
accounting principle (2).......................    66,814     82,567     54,887     43,291     87,100
Income taxes.....................................    26,726     33,241     21,337     18,180     35,200
Net earnings.....................................    40,088     49,326     37,511     25,111     51,900
Earnings per share(3):
Basic............................................      0.96       1.18       0.87       0.59       1.21
Diluted..........................................      0.96       1.18       0.87       0.59       1.20
Weighted number of shares outstanding--basic (3)...    41,675     41,906     42,898     42,904     43,005
Weighted number of shares outstanding--diluted
(3)..............................................    41,675     41,908     42,902     42,919     43,366

DECEMBER 31,
----------------------------------------------------
1995       1996       1997       1998       1999
--------   --------   --------   --------   --------

Balance sheet data:
Working capital...........................  $ 57,572   $ 76,821   $106,670   $101,310   $ 97,944
Total assets..............................   202,635    239,306    287,814    263,772    369,036
Notes payable and long-term debt..........   123,335    127,316    141,517     99,000     83,363
Net stockholder's equity..................    10,997     34,928     75,330    100,409    167,355

(1) Reflects pro forma adjustments for Federal and state income taxes as if the
Company had been taxed as a C corporation rather than an S corporation.
Prior to the Company's IPO in August 1996, the Company had elected to be
taxed as an S corporation for Federal income tax purposes. In certain
states, the Company was taxed as an S corporation; in other states, the
Company was taxed as a C corporation. Effective January 1, 1991, the
Company elected to be treated as an S corporation for California tax
purposes. As a result of the Company's IPO, all S corporation elections
were terminated.

(2) Effective January 1, 1997, the Company changed its method of accounting for
product display fixtures located in its wholesale customers' retail stores,
whereby the costs for such fixtures are capitalized and amortized over five
years using the straight-line method. In prior years, these costs had been
expensed as incurred. The Company believes that this new method will more
closely match the long-term benefit that the product display fixtures
provide with the expected future revenue from such fixtures. The cumulative
effect of the change in accounting principle, recorded in the first quarter
of 1997, is calculated based upon the retroactive effect of applying the
new accounting method to prior year fixture acquisitions. The cumulative
effect of the change in accounting principle of $4.0 million ($0.09 per
share) (after reduction for income tax expense of $2.7 million) is included
in earnings for the year ended December 31, 1997. Excluding the cumulative
effect of the change in accounting principle, the

15

effect of the change during 1997 was to increase net earnings by
approximately $6.2 million or $0.14 per share.

(3) The weighted number of shares outstanding at December 31, 1996 reflects
(i) 32,681,819 shares of Common Stock outstanding prior to the IPO price
and the assumed issuance of 8,730,000 shares of Common Stock at the IPO
price ($18.00 per share) to generate sufficient cash to pay a distribution
of retained earnings to its then existing stockholders as part of the
termination of its S corporation status in an amount equal to retained
earnings as of the IPO date and (ii) an average of 42,682,000 shares
outstanding subsequent to the IPO, representing the actual shares
outstanding.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

GENERAL

We derive our net revenue from the sale of GUESS? men's, women's, boys and
girls' apparel and our licensees' products through our network of retail and
factory outlet stores primarily in the United States, from the sale of GUESS
men's, women's, boys' and girls' apparel worldwide to wholesale customers and
distributors, from net royalties from worldwide licensing activities, from the
sale of GUESS? apparel through the retail and wholesale channels of our 60%
owned Canadian subsidiary, GUESS? Canada Corporation ("GUESS Canada"), and from
the sale of GUESS? men's, women's, boys' and girls' apparel and our licensee
products through our on-line store at www.guess.com.

RESULTS OF OPERATIONS

The following table sets forth actual operating results for the 1997 and
1998 and 1999 periods as a percentage of net revenue.

YEAR ENDED DECEMBER 31,
------------------------------
1997       1998       1999
--------   --------   --------

Product sales...............................................    90.4%      92.2%      93.4%
Net royalties...............................................     9.6        7.8        6.6
-----      -----      -----
Total net revenue.........................................   100.0      100.0      100.0
Cost of sales...............................................    56.0       57.7       55.3
-----      -----      -----
Gross profit................................................    44.0       42.3       44.7
Selling, general and administrative expenses................    30.3       30.2       28.5
Severance costs related to distribution facility............      --         --        0.5
-----      -----      -----
Earnings from operations..................................    13.7       12.1       15.7
Other income/(expense):
Gain on disposition of property and equipment.............      --         --        0.6
Interest, net.............................................     2.7        2.7        1.6
Other (expense), net......................................     0.4        0.2        0.2
-----      -----      -----
3.1        2.9        1.2
Earnings before income taxes and cumulative effect of change
in accounting principle...................................    10.6        9.2       14.5
Income taxes................................................     4.1        3.9        5.9
-----      -----      -----
Earnings before cumulative effect of change in accounting
principle.................................................     6.5        5.3        8.6
Cumulative effect of change in accounting for product
display fixtures, net of income taxes of $2,707...........     0.8         --         --
-----      -----      -----
Net earnings................................................     7.3%       5.3%       8.6%
=====      =====      =====

16

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997.

NET REVENUE.  Net revenue decreased $43.5 million or 8.4% to $471.9 million
for the year ended December 31, 1998 from $515.4 million for the year ended
December 31, 1997. Net revenue from retail operations increased $6.7 million or
3.1% to $222.6 million for the year ended December 31, 1998 from $215.9 million
for the year ended December 31, 1997, as a result of the volume generated by our
new store openings, partially offset by a $10.7 million decrease or 5.6%
decrease in comparable store net revenue. The decrease in comparable store net
revenue was primarily due to product assortment changes in the our outlet stores
and softening Pacific Rim tourism, which significantly impacted West Coast
business during the first half of 1998. During the second half of 1998, our
full-priced stores experienced positive comparable store net revenue, primarily
due to our improved merchandising and store operational initiatives implemented
by a new retail management team. Net revenue from wholesale operations decreased
$37.5 million or 15.0% to $212.5 million for the year ended December 31, 1998
from $250.0 million for the year ended December 31, 1997. Domestic and
international wholesale operations net revenue for the year ended December 31,
1998 decreased by $18.2 million and $19.3 million, respectively. Our domestic
wholesale operations net revenue declined primarily as a result of increased
competition in branded basic denim apparel. International wholesale operations
net revenue decreased due primarily to the sale of the GUESS? Italia wholesale
operations in June 1997, which had contributed $13.5 million during the first
five months of 1997, as well as soft performance in the Asian and South American
markets. Net royalties decreased $12.7 million or 25.6% to $36.8 million for the
year ended December 31, 1998, from $49.5 million for the year ended
December 31, 1997. The decline in net royalties was primarily the result of us
terminating our various under-performing licenses, discontinuing certain
licenses which we brought back in-house, continuing economic turmoil and
currency devaluation in the Asian markets and the financial difficulty of one of
our domestic licensees. Net revenue from our international operations comprised
8.0% and 11.5% of our net product revenue during 1998 and 1997, respectively.

GROSS PROFIT.  Gross profit decreased 11.9% to $199.9 million for the year
ended December 31, 1998 from $227.0 million for the year ended December 31,
1997. The decline in gross profit resulted from lower net royalties, as well as
decreased net revenue from product sales. Gross profit from product sales
decreased 8.1% to $163.0 million for the year ended December 31, 1998 from
$177.5 million for the year ended December 31, 1997. Gross margin (gross profit
as a percentage of total net revenue) decreased to 42.3% for the year ended
December 31, 1998 as compared to 44.0% for the year ended December 31, 1997.
Gross margin from product sales decreased to 37.5% for the year ended
December 31, 1998 compared to 38.1% for the year ended December 31, 1997. The
decrease for gross margin from product sales was primarily the result of our
fixed store occupancy costs being spread over a lower comparable store revenue
base, partially offset by a favorable mix in retail net revenue, which generally
carries a higher gross margin rate, and lower wholesale markdowns and
allowances.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative ("SG&A") expenses decreased 8.6% to $142.8 million, or 30.3% of
net revenue for the year ended December 31, 1998, from $156.3 million, or 30.3%
of net revenue, for the year ended December 31, 1997. The decrease in SG&A
expenses was primarily due to our cost reduction initiatives implemented in the
fourth quarter of 1997.

EARNINGS FROM OPERATIONS.  Earnings from operations decreased 19.3% to
$57.0 million for the year ended December 31, 1998, from $70.6 million for the
year ended December 31, 1997. The decrease was primarily due to lower revenue.

INTEREST EXPENSE, NET.  Net interest expense decreased 6.0% to
$12.9 million for the year ended December 31, 1998 from $13.7 million for the
year ended December 31, 1997. This decrease resulted primarily from a lower
outstanding average debt, partially offset by a slightly higher average
effective interest rate. For the year ended December 31, 1998, the average debt
balance was $135.5 million, with an average effective interest rate of 9.0%. For
the year ended December 31, 1997, the average debt balance was $148.4 million,
with an average effective interest rate of 8.8%.

17

OTHER EXPENSES.  Other non-operating expenses were $0.9 for the year ended
December 1998 as compared to $2.0 million for the year ended December 31, 1997.
The decrease was primarily due to a $1.4 million write-down to the lower cost or
market of an equity investment during 1997.

INCOME TAXES.  The income tax provision for the year ended December 31, 1998
was $18.2 million, or a 42.0% effective tax rate. The income tax provision for
the year ended December 31, 1997 was $21.3 million, or a 38.9% effective tax
rate. The effective tax rate for 1998 was adversely impacted primarily by
Federal and state income taxes related to a dividend declared to us by one of
our foreign subsidiaries.

NET EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE.  Net earnings before cumulative effect of a change in accounting
principle decreased by 25.2% to $25.1 million, or 5.3% of net revenue, for the
year ended December 31, 1998 from $33.5 million, or 6.5% of net revenue, for the
year ended December 31, 1997.

NET EARNINGS.  Net earnings decreased to $25.1 million for the year ended
December 31, 1998, from $37.5 million for the year ended December 31, 1997.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

NET REVENUE.  Net revenue increased $127.7 million or 27.1% to
$599.7 million for the year ended December 31, 1999 from $471.9 million for the
year ended December 31, 1998. Net revenue from retail operations increased
$76.7 million or 34.5% to $299.4 million for the year ended December 31, 1999
from $222.6 million for the year ended December 31, 1998, from a 26.8% increase
in comparable store net revenue and from the volume generated by our new store
openings. The strong increase in comparable store net revenue was primarily
attributable to our improved merchandising and our fashioned-focused product
mix. The retail segment is benefiting from our improved customer service levels
resulting from our enhanced personnel training and incentive programs that have
been offered to our associates.

Net revenue from wholesale operations increased $48.1 million or 22.6% to
$260.6 million for the year ended December 31, 1999 from $212.5 million for the
year ended December 31, 1998. Domestic and international wholesale operations
net revenue increased, for the year ended December 31, 1999, by $40.6 million to
$228.7 million and by $7.4 million to $31.9 million, respectively. Our domestic
wholesale net revenue increased primarily as a result of the increased demand
for fashion products in both of our women's and men's lines. International
wholesale operations net revenue increased due primarily to increased sales from
the European market, partially offset by soft performance in the Asian and South
American markets. GUESS Canada contributed $12.1 million in international net
revenues during the second half for the year ended December 31, 1999. Net
royalties increased $2.8 million or 7.7%, to $39.6 million for the year ended
December 31, 1999 from $36.8 million for the year ended December 31, 1998. The
increase in net royalties was primarily due to settlements and adjustments
related to us terminating licensees, partially offset by us discontinuing
certain licenses that were brought back in-house, continuing economic turmoil
and currency devaluation in Asian markets. Net revenue from international
operations comprised 6.7% and 5.6% of net product revenue during 1999 and 1998,
respectively.

GROSS PROFIT.  Gross profit increased 34.1% to $268.0 million for the year
ended December 31, 1999 from $199.9 million for the year ended December 31,
1998. The increase in gross profit resulted from higher net revenue from product
sales. Gross profit from product sales increased 40.1% to $228.4 million for the
year ended December 31, 1999 from $163.0 million for the year ended
December 31, 1998. Gross margin (gross profit as a percentage of total net
revenue) increased to 44.7% for the year ended December 31, 1999 as compared to
42.3% for the year ended December 31, 1998. Gross margin from product sales
increased to 40.8% for the year ended December 31, 1999 compared to 37.5% for
the year ended December 31, 1998.

The increase in our gross margin from product sales was primarily the result
of fixed store occupancy costs being spread over a larger comparable store
revenue base, a favorable mix in retail net revenue,

18

which generally carries a higher gross margin rate, lower off-price sales and a
decrease in wholesale markdowns and allowances as a percentage of wholesale net
revenues.

Furthermore, during the fourth quarter of 1999, we enhanced our ability to
estimate reserves through improved processes and more current and accurate data.
As a result, we revised our estimate of certain reserves. This resulted in a
reduction of cost of sales of $2.3 million and increase of gross margin of
$2.3 million or 2.4%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative ("SG&A") expenses of $171.0 million for the year ended
December 31, 1999 decreased to 28.5% of net revenue, from 30.3% of net revenue
or $142.8 million, in the year ended December 31, 1998. The decrease in SG&A
expenses as a percentage of net revenue was due to our ability to leverage
certain expenses against a higher revenue base, as well as the success of our
ongoing cost containment programs.

GAIN ON DISPOSITION OF PROPERTY AND EQUIPMENT.  We realized a non-recurring
pre-tax gain of $3.8 million on the disposition of property and equipment.

SEVERANCE COSTS RELATED TO DISTRIBUTION FACILITY.  In accordance with the
requirements of EITF 94-3, "Liability for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)", we recorded a $3.2 million charge for future severance costs
related to the relocation of our distribution operations from Los Angeles,
California to Louisville, Kentucky. We anticipate the payment of these severance
costs to occur in the second quarter of fiscal year 2000.

EARNINGS FROM OPERATIONS.  Earnings from operations increased 64.4% to
$93.8 million for the year ended December 31, 1999 from $57.0 million for the
year ended December 31, 1998. The increase was primarily due to higher revenue.

INTEREST EXPENSE, NET.  Net interest expense decreased 27.1% to
$9.4 million for the year ended December 31, 1999 from $12.9 million for the
year ended December 31, 1998. This decrease resulted primarily from a lower
outstanding average debt. For the year ended December 31, 1999, the average debt
balance was $93.1 million, with an average effective interest rate of 9.5%. For
the year ended December 31, 1998, the average debt balance was $135.5 million,
with an average effective interest rate of 9.0%.

INCOME TAXES.  The income tax provision for the year ended December 31, 1999
was $35.2 million, or a 40.4% effective tax rate. The income tax provision for
the year ended December 31, 1998 was $18.2 million, or a 42.0% effective tax
rate. The effective tax for 1998 was adversely impacted by Federal and state
income taxes related to a dividend declared to us by one of our foreign
subsidiaries.

NET EARNINGS.  Net earnings increased to $51.9 million for the year ended
December 31, 1999, from $25.1 million for the year ended December 31, 1998.

LIQUIDITY AND CAPITAL RESOURCES

During 1999, we relied primarily on internally generated funds and trade
credit to finance our operations and expansion. At December 31, 1999, we had
working capital of $97.9 million compared to $101.3 million at December 31,
1998. The $3.4 million decrease in working capital is due primarily to a
$15.2 million increase in short-term investments, a $17.1 million increase in
inventories, a $3.2 million increase in prepaid expenses offset by a
$40.8 million increase in accounts payable and accrued expenses. With the
acquisition of the additional interest in GUESS Canada, our current portion of
notes payable and long-term debt increase $7.5 million

On December 3, 1999, we entered into a $125,000,000 Credit Agreement
("Credit Facility") with Chase Manhattan Bank that replaced our $100.0 million
revolving credit facility entered into in March 1997. The Credit Facility
provides us with a $125.0 million revolving credit facility including a

19

$50.0 million sub-limit for letters of credit. The Credit Facility expires on
October 31, 2000. At December 31, 1999, we had no outstanding borrowings under
the Credit Facility, $15.2 million in outstanding commercial letters of credit
and $32.0 million in standby letters of credit. At December 31, 1999, we had
$77.8 million available for future borrowings under the Credit Facility. The
Credit Facility contains restrictive covenants requiring among other things, the
maintenance of certain financial ratios. We were in compliance with all such
covenants as of December 31, 1999.

Capital expenditures, net of lease incentives granted, totaled
$63.5 million for 1999 and $13.7 million for 1998. The increase in capital
expenditures was due primarily to our increase in store openings, costs
associated with our new distribution facility in Louisville, Kentucky, the
launching of our on-line store in April 1999, and the retail expansion of GUESS
Canada. We estimate that our capital expenditures for 2000 will be approximately
$80.0 million, primarily for retail store expansion and remodeling and
shop-in-shop expansion and enhancements.

We anticipate we will be able to satisfy our ongoing cash requirements
through 2000, including retail expansion plans and interest payments on our
senior subordinated notes due 2003 (such interest payments paid by us during
1999 amounted to $9.2 million), primarily with cash flow from operations,
supplemented by borrowings under our Credit Facility.

IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS

Various forward-looking statements have been made in this Form 10-K.
Forward-looking statements may also be in our other reports filed under the
Securities Exchange Act of 1934, in our press releases and in other documents.
In addition, from time to time, we, through our management, may make oral
forward-looking statements.

Forward-looking statements are only expectations, and involve known and
unknown risks and uncertainties, which may cause actual results in future
periods and other future events to differ materially from what is currently
anticipated. Certain statements in this Form 10-K, including those relating to
our expected results, the accuracy of data relating to, and anticipated levels
of, our future inventory and gross margins, our anticipated cash requirements
and sources, the relocation of our distribution center, our cost containment
efforts, our plans regarding store openings and closings and our business
seasonality, are forward-looking statements. Such statements involve risks and
uncertainties, which may cause results to differ materially from those set forth
in these statements. In addition to the factors discussed below, the economic
and other factors identified elsewhere in this Form 10-K, as well as the risk
factors discussed in our previously filed public documents, could affect the
forward-looking statements contained herein and therein.

Forward-looking statements generally refer to future plans and performance,
and are identified by the words "believe," "expect," "anticipate," "optimistic,"
"intend," "aim," "will" or the negative thereof and similar expressions. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of which they are made. We undertake no
obligation to update publicly or revise any forward-looking statements.

Important factors that could cause actual results in future periods to
differ materially from our forward-looking statements, as well as affect our
ability to achieve our financial and other goals, include, but are not limited
to, the following:

- The continued availability of sufficient working capital, which could have
a material adverse effect on our financial condition and results of
operations.

- Our successful integration of new stores into existing operations, which
could have a material adverse effect on our financial condition and
results of operations.

20

- The continued desirability and customer acceptance of our existing and
future products, which could have a material adverse effect on our
financial condition and results of operations.

- Possible cancellation of wholesale orders, which could have a material
adverse effect on our financial condition and results of operations.

- The success of our competitive products, which could have a material
adverse effect on our financial condition and results of operations.

- The success of our programs to strengthen our inventory cost accounting
controls and procedures, which could have a material adverse effect on our
financial condition and results of operations.

- The success of technology to be used in our new distribution center, which
could have a material adverse effect on our financial condition and
results of operation.

- The availability of adequate sources of capital, which could have a
material adverse effect on our financial condition and results of
operations.

- Our inability to identify and respond appropriately to changing consumer
demands and fashion trends, which could have a material adverse effect on
consumer acceptance of GUESS? products.

- A decision by the controlling owner of a group of department stores or any
other significant customer to decrease the amount purchased from us or to
cease carrying GUESS? products, which could have a material adverse effect
on our financial condition and results of operations.

- Our inability to control the quality, focus, image, financial stability or
distribution of our licensed products, which could impact consumer
receptivity to our products generally and, therefore, could have a
material adverse effect on our financial condition and results of
operations.

- Our failure to continue to enhance operating control systems, which could
have a material adverse effect on our financial condition and results of
operations.

- Factors beyond our control, such as which could have a material adverse
effect on our ability to expand our network of retail stores. Our general
failure to maintain and control our existing distribution and licensing
arrangements or to procure additional distribution and licensing
relationships could have a material adverse effect on our growth strategy,
which could have a material adverse effect on our financial condition and
results of operations.

- The extended loss of the services of one or more of our principal
executive officers, which could have a material adverse effect on our
financial condition and results of operations.

- Political instability resulting in the disruption of trade with the
countries in which our contractors, suppliers or customers are located,
the imposition of additional regulations relating to imports, the
imposition of additional duties, taxes and other charges on imports,
significant fluctuations in the value of the dollar against foreign
currencies or restrictions on the transfer of funds, which could have a
material adverse effect on our financial condition and results of
operations. Also, a substantial increase in customs duties, which could
have an adverse effect on our financial condition or results of
operations. These factors may be exacerbated by our increasing use of
packaged purchase sourcing from non-United States vendors.

- The inability of a manufacturer to ship our products in a timely manner or
to meet our quality standards, which could have a material adverse effect
on our ability to deliver products to our customers in a timely manner.

- No assurance can be given that others will not assert rights in, or
ownership of, trademarks and other proprietary rights of GUESS?. In
addition, the laws of certain foreign countries do not protect proprietary
rights to the same extent as do the laws of the United States.

21

SEASONALITY

Our business is impacted by general seasonal trends characteristic of the
apparel and retail industries. Our retail operations are generally stronger in
the third and fourth quarters, while our wholesale operations generally
experience stronger performance in the first and third quarters. As the timing
of the shipment of products may vary from year to year, the result for any
particular quarter may not be indicative of results for the full year. We have
not had significant overhead and other costs generally associated with large
seasonal variations.

INFLATION

We do not believe the relatively moderate rates of inflation experienced in
the United States over the last three years have had a significant effect on our
net revenue or profitability. Although higher rates of inflation have been
experienced in a number of foreign countries in which our products are
manufactured, we do not believe they have had a material adverse effect on our
net revenue or profitability.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued. SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It is effective for fiscal years
beginning after June 15, 2000. We believe the adoption of SFAS 133 will not have
a material impact on our financial reporting.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We receive United States dollars for substantially all of our product sales
and our licensing revenues. Inventory purchases from offshore contract
manufacturers are primarily denominated in United States dollars; however,
purchase prices for the products may be impacted by fluctuations in the exchange
rate between the United States dollar and the local currencies of the contract
manufacturers, which may have the effect of increasing our cost of goods in the
future. In addition, royalties received from our international licensees are
subject to foreign currency translation fluctuations as a result of the net
sales of the licensee being denominated in local currency and royalties being
paid to us in United States dollars. During the last three fiscal years,
exchange rate fluctuations have not had a material impact on our inventory
costs.

We may enter into derivative financial instruments, including forward
exchange contracts, to manage foreign exchange risk on foreign currency
transactions. These financial instruments can be used to protect us from the
risk that the eventual net cash inflows from the foreign currency transactions
will be adversely affected by changes in exchange rates. Unrealized gains and
losses on outstanding foreign currency exchange contracts, used to hedge future
revenues and purchases, are not recorded in the financial statements but are
included in the measurement of the related hedged transaction when realized.

FORWARD EXCHANGE      U.S. DOLLAR                            FAIR VALUE IN U.S. $
CONTRACTS         EQUIVALENT         MATURITY DATE       AT DECEMBER 31, 1999
-----------------------  -----------   -----------------------  --------------------

Canadian dollars       $500,000     January 10 to 31, 2000          346,740
Canadian dollars        500,000     January 10 to 31, 2000          346,740
Canadian dollars        500,000     January 14, 2000                346,740
to February 15, 2000

Based upon the rates at December 31, 1999, the cost to buy the equivalent
U.S. dollars discussed above was approximately $2.2 million Canadian currency.

22

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is incorporated herein by reference to
the Consolidated Financial Statements and Supplementary Data listed in Item 14
of Part IV of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The information required by this item can be found under the caption
"Directors and Executive Officers" of the Company's Proxy Statement (the "Proxy
Statement") dated March 31, 2000, for the 2000 Annual Meeting of Stockholders to
be held on May 15, 2000. Such information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION

The information in the Proxy Statement set forth under the caption
"Executive Compensation" is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption "Security Ownership and Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated herein
by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement is incorporated herein by
reference.

PART IV

ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K

(a) Documents Filed with Report

(1) Consolidated Financial Statements

The financial statements listed on the accompanying Index to
Consolidated Financial Statements and Financial Statement Schedule is
filed as part of this report.

(2) Consolidated Financial Statement Schedule

The financial statement schedule listed on the accompanying Index to
Consolidated Financial Statements and Financial Statement Schedule are
filed as part of this report.

(3) Exhibits

The exhibits listed on the accompanying Index to Exhibits is filed as
part of this report.

(b) Reports on Form 8-K

No reports on Form 8-K were filed by us during the last fiscal year ended
December 31, 1999.

23

GUESS ?, INC.
FORM 10-K
ITEMS 8, AND 14(A) AND 14(D)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

1                       Consolidated Financial Statements

Independent Auditors' Report................................       F-2

Consolidated Balance Sheets at December 31, 1998 and 1999...       F-3

Consolidated Statements of Earnings for the Years Ended
December 31, 1997, 1998 and 1999............................       F-4

Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss) for the Years Ended
December 31, 1997, 1998 and 1999............................       F-5

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999............................       F-6

Notes to Consolidated Financial Statements..................       F-7

2                       Consolidated Financial Statement Schedule Valuation and
Qualifying Accounts.........................................      F-23

F-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Guess ?, Inc.:

We have audited the accompanying consolidated financial statements of Guess
?, Inc. and Subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedule, as listed in the accompanying index.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Guess ?,
Inc. and Subsidiaries at December 31, 1998 and 1999 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles. Also in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

As discussed in Note 13, the Company changed its method of accounting for
its product display fixtures in 1997.

KPMG LLP

Los Angeles, California
February 10, 2000, except
for note 15, which is as of
March 3, 2000

F-2

GUESS ?, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1998 AND 1999

(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS
1998        1999
---------   ---------

Current assets:
Cash......................................................  $   5,853   $   6,139
Investments (note 2)....................................     11,900      27,059
Receivables:
Trade receivables, less reserves aggregating $7,837 and
$8,863 at December 31, 1998 and 1999, respectively....     19,685      26,829
Royalties, less allowance for doubtful accounts of
$3,667 and $1,258 at December 31, 1998 and 1999,
respectively..........................................     10,780       8,528
Other...................................................      3,673       4,316
---------   ---------
34,138      39,673
Inventories (note 3)......................................     89,499     106,624
Prepaid expenses..........................................      5,640       8,861
Prepaid income taxes......................................      2,566       3,004
Deferred tax assets (note 6)..............................      6,496       9,619
---------   ---------
Total current assets..................................    156,092     200,979
Property and equipment, at cost, net of accumulated
depreciation and amortization
(note 4)..................................................     86,453     125,688
Investments (note 2)........................................      1,118      21,771
Deferred tax assets (note 6)................................      4,110          --
Other assets, at cost, net of accumulated amortization of
$2,293 and $3,589 at December 31, 1998 and 1999,
respectively (note 14)....................................     15,999      20,598
---------   ---------
$ 263,772   $ 369,036
=========   =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable and long-term debt
(note 5)................................................  $      --   $   7,475
Accounts payable..........................................     32,802      61,736
Accrued expenses..........................................     21,980      33,824
---------   ---------
Total current liabilities.............................     54,782     103,035
Notes payable and long-term debt, excluding current

installments (note 5).....................................     99,000      83,363
Deferred tax liabilities (note 6)...........................         --       4,562
Other liabilities...........................................      9,581       9,674
---------   ---------
163,363     200,634
Minority interest (note 7)..................................         --       1,047
Commitments and contingencies (notes 5 and 8)
Stockholders' equity (note 12):
Preferred stock, $0.01 par value. Authorized 10,000,000
shares; no shares issued and outstanding................         --          --
Common stock, $0.01 par value. Authorized 150,000,000
shares; issued 62,937,327 and 63,335,743 shares at 1998
and 1999, outstanding 42,906,535 and 43,304,951 shares,
respectively............................................        137         141
Paid-in capital...........................................    158,589     163,300
Retained earnings.........................................     92,543     144,443
Accumulated other comprehensive income (loss).............        (84)     10,247
Treasury stock, 20,030,792 shares repurchased.............   (150,776)   (150,776)
---------   ---------
Net stockholders' equity................................    100,409     167,355
---------   ---------
$ 263,772   $ 369,036
=========   =========

See accompanying notes to consolidated financial statements

F-3

GUESS ?, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

(IN THOUSANDS, EXCEPT PER SHARE DATA)

1997       1998       1999
--------   --------   --------

Net revenue (note 11)
Product sales.............................................  $465,913   $435,128   $560,012
Net royalties.............................................    49,459     36,803     39,638
--------   --------   --------
515,372    471,931    599,650
Cost of sales...............................................   288,408    272,079    331,660
--------   --------   --------
Gross profit................................................   226,964    199,852    267,990
Selling, general and administrative expenses................   156,318    142,806    171,014
Severance costs related to distribution facility (notes 10
and 14)...................................................        --         --      3,200
--------   --------   --------
Earnings from operations..................................    70,646     57,046     93,776

Other income/(expense):
Gain on disposition of property and equipment
(note 10)...............................................        --         --      3,849
Interest, net.............................................   (13,718)   (12,892)    (9,385)
Other, net................................................    (2,041)      (863)    (1,140)
--------   --------   --------
(15,759)   (13,755)    (6,676)
Earnings before income taxes and cumulative effect of
change in accounting principle..........................    54,887     43,291     87,100
Income taxes (note 6).......................................    21,337     18,180     35,200
--------   --------   --------
Earnings before cumulative effect of change in accounting
principle...............................................    33,550     25,111     51,900
Cumulative effect of change in accounting for product
display fixtures, net of income taxes of $2,707
(note 13).................................................     3,961         --         --
--------   --------   --------
Net earnings..............................................  $ 37,511   $ 25,111   $ 51,900
========   ========   ========
BASIC EARNINGS PER SHARE:
Earnings before cumulative effect of change in accounting
principle.................................................  $   0.78   $   0.59   $   1.21
Cumulative effect of change in accounting for product
display fixtures, net of income taxes of $2,707
(note 13).................................................      0.09         --         --
--------   --------   --------
Net earnings..............................................  $   0.87   $   0.59   $   1.21
========   ========   ========
DILUTED EARNINGS PER SHARE:
Earnings before cumulative effect of change in accounting
principle.................................................  $   0.78   $   0.59   $   1.20
Cumulative effect of change in accounting for product
display fixtures, net of income taxes of $2,707
(note 13).................................................      0.09         --         --
--------   --------   --------
Net earnings..............................................  $   0.87   $   0.59   $   1.20
========   ========   ========
Weighted number of shares outstanding--basic................    42,898     42,904     43,005
========   ========   ========
Weighted number of shares outstanding--diluted..............    42,902     42,919     43,366
========   ========   ========

See accompanying notes to consolidated financial statements

F-4

GUESS ?, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

AND COMPREHENSIVE INCOME (LOSS)

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

(IN THOUSANDS)

ACCUMULATED
OTHER
COMPREHENSIVE    COMMON    PAID-IN    RETAINED   COMPREHENSIVE   TREASURY
INCOME        STOCK     CAPITAL    EARNINGS   INCOME (LOSS)     STOCK      TOTAL
-------------   --------   --------   --------   -------------   ---------   --------

Balance at December 31,
1996....................                   $    135   $155,591   $ 29,921     $      57     $(150,776)  $ 34,928
Comprehensive income:
Net earnings............      $37,511            --         --     37,511            --            --     37,511
Foreign currency
translation
adjustment............         (109)           --         --         --          (109)           --       (109)
-------
Total comprehensive
income................      $37,402
=======
Issuance of common
stock.................                          2      2,998         --            --            --      3,000
--------   --------   --------     ---------     ---------   --------
Balance at December 31,
1997....................                        137    158,589     67,432           (52)     (150,776)    75,330
Comprehensive income:
Net earnings............      $25,111            --         --     25,111            --            --     25,111
Foreign currency
translation
adjustment............          (32)           --         --         --           (32)           --        (32)
-------
Total comprehensive
income................      $25,079
--------   --------   --------     ---------     ---------   --------
=======
Balance at December 31,
1998....................                        137    158,589     92,543           (84)     (150,776)   100,409
Comprehensive income:
Net earnings............      $51,900            --         --     51,900            --            --     51,900
Foreign currency
translation
adjustment............         (114)           --         --         --          (114)           --       (114)
Unrealized gain on
investment, net of tax
effect of $7,632......       10,445            --         --         --        10,445            --     10,445
-------
Total comprehensive
income................      $62,231
=======
Issuance of common stock
under stock option
plan....................                          4      4,711         --            --            --      4,715
--------   --------   --------     ---------     ---------   --------
Balance at December 31,
1999....................                   $    141   $163,300   $144,443     $  10,247     $(150,776)  $167,355
========   ========   ========     =========     =========   ========

See accompanying notes to consolidated financial statements

F-5

GUESS ?, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

(IN THOUSANDS)

1997        1998        1999
---------   ---------   --------

Cash flows from operating activities:
Net earnings..............................................  $  37,511   $  25,111   $ 51,900
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization of property and
equipment.............................................     20,071      22,571     25,589
Amortization of other assets............................        369         931      1,296
Deferred income taxes...................................      1,783        (834)    (2,150)
Amortization of deferred royalty income.................     (2,623)         --         --
Cumulative effect of change in accounting principle.....     (3,961)         --         --
Loss (gain) on disposition of property and equipment....        120       1,483     (5,037)
Minority interest.......................................         --          --      1,047
Foreign currency translation adjustment.................         91         (89)       (80)
Equity method losses....................................        603          87        (98)
(Increase) decrease in:
Receivables...........................................      8,988       3,637        558
Inventories...........................................    (12,591)      2,582     (9,155)
Prepaid expenses and other current assets.............     (4,972)      3,553     (9,340)
Prepaid income taxes..................................    (14,511)     12,141     (2,849)
Other assets..........................................      8,105        (324)     5,820
Increase (decrease) in:
Accounts payable......................................       (964)     (5,520)    19,393
Accrued expenses......................................       (993)       (241)    10,662
Income taxes payable..................................     (6,784)        112       (252)
---------   ---------   --------
Net cash provided by operating activities...........     30,242      65,200     87,304
Cash flows from investing activities:
Net (purchases of) proceeds from the sale of short-term
investments.............................................      4,401     (11,900)   (10,600)
Purchase of property and equipment........................    (48,836)    (13,738)   (63,501)
Proceeds from the disposition of property and equipment...      1,445          14      7,106
Lease incentives granted..................................      2,561         432      1,544
Acquisition of interest in Strandel Inc...................                            (2,027)
---         ---
Acquisition of license....................................     (2,975)       (741)    (1,443)
Purchase of investment securities available for sale......         --          --     (8,979)
Proceeds of investment securities available for sales.....         --          --      4,868
Increase of long-term investments.........................     (1,435)        842     (2,357)
---------   ---------   --------
Net cash used by investing activities...............    (44,839)    (25,091)   (75,389)
Cash flows from financing activities:
Repayment of senior subordinated notes....................         --      (6,000)   (19,400)
Proceeds from notes payable and long-term debt............     63,935     102,300      5,529
Repayment of notes payable and long-term debt.............   (149,734)   (138,817)    (1,258)
Proceeds from issuance of common stock....................         --          --      3,534
---------   ---------   --------
Net cash provided (used) by financing activities....     14,201     (42,517)   (11,595)
Effect of exchange rates on cash............................       (200)         57        (34)
Net increase (decrease) in cash.............................       (596)     (2,351)       286
Cash at beginning of year...................................      8,800       8,204      5,853
---------   ---------   --------
Cash at end of year.........................................  $   8,204   $   5,853   $  6,139
=========   =========   ========
Supplemental disclosures
Cash paid during the year for:
Interest..............................................  $  15,185   $  15,095   $ 10,358
Income taxes..........................................  $  39,558   $   3,704   $ 37,236
=========   =========   ========

On January 2, 1997, in connection with acquisition of a license, the Company
issued 216,216 shares of Common Stock aggregating $3.0 million.

See accompanying notes to consolidated financial statements

F-6

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Guess ?, Inc. (the "Company" or "GUESS?") designs, markets, distributes and
licenses leading lifestyle collections of casual apparel and accessories for
men, women and children that reflect the American lifestyle and European
fashions sensibilities. The Company designs are sold in GUESS? owned stores to a
network of wholesale accounts that include primarily better department stores,
selected specialty retailers and upscale boutiques and through the Internet.
GUESS? branded products, some of which are produced under license, are also sold
internationally through a series of licensees and distributors.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Guess ?, Inc.
and its wholly-owned foreign subsidiary, Guess Europe, B.V., a Netherlands
corporation ("GEBV"), and its majority-owned subsidiary GUESS? Canada
Corporation (formerly named Strandel Inc.), a Canadian corporation. GEBV holds
two wholly-owned subsidiaries: Ranche, Limited, a Hong Kong corporation
("Ranche"), and Guess Italia, S.r.l., an Italian corporation ("GUESS Italia").
The Company holds a 60% interest in GUESS Canada and the results of GUESS Canada
are included in the consolidated Financial Statements. Accordingly, all
references herein to "Guess ?, Inc." include the consolidated results of the
Company and its subsidiaries. All intercompany accounts and transactions are
eliminated during the consolidation process.

INVESTMENT SECURITIES

The Company accounts for its investment securities in accordance with
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). SFAS 115 requires investments to be classified
into one of three categories based on management's intent: held-to-maturity
securities, available-for-sale securities and trading securities.
Held-to-maturity securities are recorded at amortized cost. Available-for-sale
securities are recorded at fair value with unrealized gains and losses reported
as a separate component of stockholders' equity. Trading securities are recorded
at market value with unrealized gains and losses reported in operations. The
Company accounts for its short-term investment securities as available-for-sale.

EARNINGS PER SHARE

Basic earnings per share represents net earnings divided by the
weighted-average number of shares of common stock, par value $0.01 per share
(the "Common Stock"), outstanding for the period. Diluted earnings per share
represents net earnings divided by the weighted-average number of shares
outstanding, inclusive of the dilutive impact of Common Stock equivalents.

The reconciliation of basic to diluted weighted average shares is as follows
(in thousands):

1997       1998       1999
--------   --------   --------

Net earnings.....................................  $37,511    $25,111    $51,900
=======    =======    =======
Weighted average shares used in basic
computations...................................   42,898     42,904     43,005
Dilutive stock options...........................        4         15        361
-------    -------    -------
Weighted average shares used in diluted
computation....................................   42,902     42,919     43,366
=======    =======    =======

F-7

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Options to purchase 1,421,000, 1,036,000 and 467,000 shares of Common Stock
at prices ranging from $10.50 to $18.00, $5.50 to $11.00 and $10.88 to $16.38
were outstanding during 1997, 1998 and 1999, respectively, but were not included
in the computation of diluted earnings per share because the options exercise
prices were greater than the average market price of the shares of Common Stock.

CONCENTRATION OF CREDIT RISK

The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of accounts receivable. The Company maintains cash
with various major financial institutions and performs evaluations of the
relative credit standing of these financial institutions in order to limit the
amount of credit exposure with any institution. The Company extends credit to
corporate customers based upon an evaluation of the customer's financial
condition and credit history and generally requires no collateral. The Company's
customers are principally located throughout North America, and their ability to
pay amounts due to the Company may be dependent on the prevailing economic
conditions of their geographic region. However, such credit risk is considered
limited due to the Company's large customer base. Management performs regular
evaluations concerning the ability of its customers to satisfy their obligations
and records a provision for doubtful accounts based on these evaluations. The
Company's credit losses for the periods presented are insignificant and have not
exceeded management's estimates. A few of the Company's domestic wholesale
customers, including some under common ownership, have accounted for significant
portions of its net revenue. During 1999, Bloomingdale's, Macy's and other
affiliated stores owned by Federated Department Stores, Inc. together accounted
for approximately 12.4% of the Company's net revenue.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out and
weighted average) or market.

REVENUE RECOGNITION

The Company recognizes retail operations revenue at the point of sale, and
wholesale operations revenue from the sale of merchandise upon shipment. Royalty
income is based upon a percentage, as defined in the underlying agreement, of
the licensees' net revenue. The Company accrues for estimated sales returns and
allowances in the period in which the related revenue is recognized.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization of property and equipment are provided using
the straight-line and declining balance methods over the following useful lives:

Building and building improvements..........................  10 to 31 years
Land improvements...........................................         5 years
Machinery and equipment.....................................    3 to 5 years
Corporate aircraft..........................................        10 years
Corporate vehicles..........................................         3 years
Shop fixtures...............................................         5 years

Leasehold improvements are amortized over the lesser of the estimated useful
life of the asset or the term of the lease. Construction in progress is not
depreciated until the related asset is completed.

F-8

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 10 to 15 years.

FOREIGN CURRENCY TRANSLATION

In accordance with SFAS No. 52, "Foreign Currency Translation", balance
sheet accounts of the Company's foreign operations are translated from foreign
currencies into U.S. dollars at year-end or historical rates, while income and
expenses are translated at the weighted-average exchange rates for the year. The
related translation adjustments are reflected as a foreign currency translation
adjustment in the consolidated balance sheet.

HEDGING ACTIVITIES

At December 31, 1999, the Company had forward exchange contracts to purchase
$1.5 million U.S. currency for approximately $2.2 million Canadian currency.
Based on rates at December 31, 1999, the cost to buy the equivalent U.S. dollars
was approximately $2.2 million Canadian currency.

Unrealized gains and losses on outstanding foreign currency exchange
contracts, used to hedge future revenues and purchases, are not recorded in the
financial statements but are included in the measurement of the related hedged
transaction when realized.

INCOME TAXES

The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be applied to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.

COMPREHENSIVE INCOME

The Company reports comprehensive income under SFAS No. 130, "Reporting
Comprehensive Income". Comprehensive income consists of net earnings, unrealized
gains on investments and foreign currency translation adjustments and is
presented in the consolidated statements of stockholders' equity and
comprehensive income (loss).

BUSINESS SEGMENT REPORTING

The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"), effective in 1998. SFAS 131
establishes new standards for reporting information about business segments and
related disclosures about products and services, geographic areas and major
customers. The business segments of the Company are wholesale, retail and
licensing operations. Information regarding these segments is summarized in
Note 11.

F-9

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of the Company's financial instruments, which
principally include cash, short and long-term investments, trade receivables,
accounts payable and accrued expenses, approximates fair value due to the
relatively short maturity of such instruments.

The fair value of the Company's debt instruments are based on the amount of
future cash flows associated with each instrument discounted using the Company's
borrowing rate. At December 31, 1998 and 1999, the carrying value of all
financial instruments was not materially different from fair value.

USE OF ESTIMATES

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.

LONG-LIVED ASSETS

The Company reports long-lived assets, including intangibles, at amortized
cost. Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If this assessment indicates
that the intangibles will not be recoverable, as determined by a non-discounted
cash flow generated by the asset, the carrying value of the Company's long-lived
assets would be reduced to its estimated fair market value based on the
discounted cash flows.

ADVERTISING COSTS

The Company expenses the cost of advertising as incurred. Advertising
expenses charged to operations for the years ended December 31, 1997, 1998 and
1999 were $22.5 million, $18.0 million, and $24.5 million, respectively.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1997 and 1998 consolidated
financial statements to conform with the 1999 presentation.

(2) INVESTMENTS

Short-term investments consist mostly of overnight interest bearing deposit
accounts aggregating $11.9 million at December 31, 1998 and $27.1 million at
December 31, 1999.

Long-term investments consist of certain marketable equity securities
aggregating $1.1 million and $21.8 million at December 31, 1998 and 1999,
respectively. Unrealized gains related to marketable equity securities at
December 31, 1999 amounted to $11.2 million, net of deferred taxes of
$7.6 million and are included as a component of stockholders' equity. '

F-10

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

(3) INVENTORIES

Inventories are summarized as follows (in thousands):

1998       1999
--------   --------

Raw materials............................................  $ 9,400    $  8,514
Work in process..........................................    7,922       6,740
Finished goods--retail...................................   36,712      45,750
Finished goods--wholesale................................   35,465      45,620
-------    --------
$89,499    $106,624
=======    ========

(4) PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows (in thousands):

1998       1999
--------   --------

Land and land improvements..............................  $  5,729   $  5,734
Building and building improvements......................     8,462      8,462
Leasehold improvements..................................    59,218     67,821
Machinery and equipment.................................    71,975     86,790
Corporate aircraft......................................     5,973      6,601
Shop fixtures...........................................    28,895     31,347
Construction in progress................................     1,321     23,842
--------   --------
181,573    230,597
Less accumulated depreciation and amortization..........    95,120    104,909
--------   --------
$ 86,453   $125,688
========   ========

Construction in progress at December 31, 1998 and 1999 represents the costs
associated with the construction of buildings and improvements used in the
Company's operations and other capitalizable expenses in progress.

F-11

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1999

(5) NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt are summarized as follows (in thousands):

1998       1999
--------   --------
(IN THOUSANDS)

9 1/2% Senior Subordinated Notes due 2003...................  $99,000    $79,562
Revolving bank loan bearing interest at 1.75% above the
Canadian prime rate plus an amount equal to 0.5% per month
of the average outstanding balance, payable on demand, but
commencing January 1, 2001 by way of 24 equal consecutive
minimum payments..........................................       --      2,770
Advances under a demand line of credit of $15,926 with
advances thereon bearing interest at the Canadian prime
rate plus 1%..............................................       --      6,818
Other obligations, maturing in varying amounts through
2004......................................................       --      1,688
-------    -------
99,000     90,838
Less current installments...................................       --      7,475
-------    -------
Long-term debt, excluding current installments..............  $99,000    $83,363
=======    =======

In December 1999, the Company entered into a credit agreement with a bank
permitting borrowings up to $125 million (the "Credit Facility"). The Credit
Facility replaced the Company's $100 million revolving credit facility entered
into in March 1997. The Credit Facility provides for a $125 million revolving
credit facility including a $50 million sub-limit for letters of credit. The
Credit Facility expires on October 31, 2000. At December 31, 1999, the Company
had no outstanding borrowings under the Credit Facility, $15.2 million in
outstanding commercial letters of credit and $32.0 million in standby letters of
credit. The Credit Facility contains various restrictive covenants requiring,
among other things, the maintenance of certain financial ratios. The Company was
in compliance with all such covenants as of December 31, 1999. In addition, the
arrangements governing the Company's Credit Facility and the indenture pursuant
to which the Company's Senior Subordinated Notes due 2003 were issued restrict
the payments of dividends by the Company.

The Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part, at any time at various redemption prices. The Company
repurchased $6.0 million and $19.4 million in 1998 and 1999, respectively, of
its Senior Subordinated Notes.

F-12

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1999

(6) INCOME TAXES

Income taxes are summarized as follows (in thousands):

YEAR ENDED DECEMBER 31,
------------------------------
1997       1998       1999
--------   --------   --------

Federal:
Current........................................  $17,487    $14,477    $32,508
Deferred.......................................    2,995        793     (2,464)
State:
Current........................................    3,973      2,459      5,202
Deferred.......................................   (1,212)        41        314
Foreign:
Current........................................      801        410       (360)
-------    -------    -------
$24,044    $18,180    $35,200
=======    =======    =======

Actual income taxes differ from expected income taxes obtained by applying
the statutory Federal income tax rate to earnings before income taxes as follows
(in thousands):

YEAR ENDED DECEMBER 31,
------------------------------
1997       1998       1999
--------   --------   --------

Computed "expected" tax expense..................  $21,544    $15,152    $30,485
State taxes, net of Federal benefit..............    2,928      1,625      3,586
Foreign (benefit)................................     (157)       (14)      (273)
U.S. tax and foreign withholding tax on Foreign
distributions..................................       --        739         --
Other............................................     (271)       678      1,402
-------    -------    -------
$24,044    $18,180    $35,200
=======    =======    =======

Total income taxes were allocated as follows (in thousands):

YEAR ENDED DECEMBER 31,
------------------------------
1997       1998       1999
--------   --------   --------

Operations.......................................  $24,044    $18,180    $35,200
Stockholders' equity.............................       --         --      6,451
-------    -------    -------
Total income taxes...............................  $24,044    $18,180    $41,651
=======    =======    =======

The income tax expense for the year ended December 31, 1997 includes taxes
of $2.7 million related to a one-time change in accounting (see Note 13). The
Company's consolidated statement of earnings has presented the change in
accounting net of this income tax expense.

F-13

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1999

(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of current and non-current deferred tax assets and deferred tax
liabilities at December 31, 1998 and 1999 are presented below (in thousands):

1998       1999
--------   --------

Deferred Tax Assets:
Retail store closure reserves...........................  $   467    $   269
Deferred lease incentives...............................    1,648      1,718
Rent expense............................................    2,158      2,161
Uniform capitalization adjustment.......................    1,987      2,194
State income taxes......................................      870      1,471
Bad debt and other reserves.............................    1,810      2,904
Severance reserve.......................................       --      1,378
Other...................................................    2,066      2,602
-------    -------
Total deferred assets.................................   11,005     14,697
Deferred tax liabilities..............................      400      9,640
-------    -------
Net deferred tax assets...............................  $10,606    $ 5,057
=======    =======

Included above at December 31, 1998 and 1999 are $6.5 million and
$9.6 million for current deferred tax assets, respectively, and $4.1 million
non-current deferred tax assets and $4.5 million non-current deferred tax
liabilities.

Prepaid income taxes of $2.6 million and $3.4 million at December 31, 1998
and 1999, respectively, arise from the overpayment of estimated income taxes.

Based on the historical earnings of the Company, management believes it is
more likely than not that the results of operations will generate sufficient
taxable earnings to realize net deferred tax assets.

(7) RELATED PARTY TRANSACTIONS

The Company is engaged in various transactions with entities affiliated with
trusts for the respective benefit of Maurice, Paul and Armand Marciano (the
"Marciano Trusts"). The Company believes that the arrangements involving each of
the companies in which the Marciano Trusts have an investment, and related party
transactions discussed below were entered into on terms no less favorable to the
Company than could have been obtained from an unaffiliated third party.

LICENSE AGREEMENTS AND LICENSEE TRANSACTIONS

On September 28, 1990, the Company entered into a license agreement with
Charles David of California ("Charles David"). Charles David is controlled by
the father-in-law of Maurice Marciano. The Marciano Trusts and Nathalie Marciano
(the spouse of Maurice Marciano) together own 50% of Charles David, and the
remaining 50% is owned by the father-in-law of Maurice Marciano. The license
agreement grants Charles David the rights to manufacture worldwide and
distribute worldwide (except Japan and certain European countries) for men,
women and some children, leather and rubber footwear which bear the GUESS?
trademark. The license also includes related shoe care products and accessories.

F-14

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1999

(7) RELATED PARTY TRANSACTIONS (CONTINUED)
Gross royalties earned by the Company under such license agreement for the
fiscal years ended December 31, 1997, 1998 and 1999 were $1.2 million,
$1.4 million and $1.9 million, respectively. Additionally, the Company purchased
$6.1 million, $6.1 million and $8.4 million of products from Charles David for
resale in the Company's retail stores during the same periods.

In May 1997, the Company sold substantially all of the assets and
liabilities of GUESS Italia to Maco Apparel, S.p.a. ("Maco"). The effect of the
net asset disposal was immaterial to the Company's results of operations. In
connection with this sale, the Company also purchased a 10% ownership interest
in Maco and entered into an approximate 10-year license agreement with Maco
granting it the right to manufacture and distribute certain men's and women's
jeanswear apparel, which bear the GUESS? trademark, in certain parts of Europe.
In addition to royalty fees, the Company will also receive $14.1 million over a
four-year period in consideration of the grant of the license rights for men's
and women's jeanswear apparel. During 1998 and 1999, the Company recorded
$2.8 million and $2.8 million, respectively, in revenue in connection with the
grant of such license rights. Additionally, the Company also recorded
$2.3 million and $3.2 million in royalty fees related to product sales in 1998
and 1999, respectively. Effective as of March 1, 1998, the Company also entered
into an approximate nine-year license agreement with Maco granting it the right
to manufacture and distribute kid's jeanswear, which bear the GUESS? trademark,
in certain parts of Europe.

On August 4, 1999, the Company completed its purchase of an additional 40%
of GUESS Canada, whereby the Company's ownership has been increased to 60%. As
part of the transaction, the Company paid $2.2 million and will provide
long-term financing of up to $13.4 million to GUESS Canada to expand its
Canadian retail operations. The Company has an option to acquire the remaining
40% of GUESS Canada that becomes exercisable commencing December 31, 2001. The
acquisition was accounted for as a purchase and the results of GUESS Canada are
included in the Company's consolidated financial statements from the date of
acquisition. The excess of the purchase price over the fair value of net assets
acquired amounting to $1.1 million is allocated to goodwill and is being
amortized over 15 years. The operating results of GUESS Canada are immaterial to
the Company's consolidated financial statements.

AGENCY AGREEMENT

In February 1996, the Company entered into a buying agency agreement with
Newtimes Guess?, Ltd. ("Newtimes"). The Company owns 50% of Newtimes. Pursuant
to such agreement, the Company pays Newtimes a commission based on the cost of
finished garments purchased for the Company. Commissions earned by Newtimes from
the Company during the fiscal years ended December 31, 1997 and 1998 were $1.7,
and $1.0 million, respectively. Additionally, with respect to Newtimes, the
Company recorded $0.1 million in equity losses during the fiscal year ended
December 31, 1997. During 1998, Newtimes was dissolved after the Company
terminated its buying agency agreement with them, as well as severed its equity
interest. Accordingly, the Company has discontinued recording equity income
during 1998.

LEASES

The Company leases manufacturing, warehouse and administrative facilities
from partnerships affiliated with the Marciano Trusts and certain of its
affiliates. There are two leases in effect at December 31, 1999, both of which
expire in July 2008. The total lease payments to these limited partnerships are
currently $225,000 per month. Additionally, the Company is also on a month to
month lease for another

F-15

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1999

(7) RELATED PARTY TRANSACTIONS (CONTINUED)
storage facility. Aggregate lease payments under leases in effect for the fiscal
years ended December 31, 1997, 1998 and 1999 were $2.6 million, $2.7 million,
and $2.7 million, respectively.

(8) COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases its showrooms and retail store locations under operating
lease agreements expiring on various dates through 2016. Some of these leases
require the Company to make periodic payments for property taxes and common area
operating expenses. Certain leases include rent abatements and scheduled rent
escalations, for which the effects are being amortized and recorded over the
lease term. The Company also leases some of its equipment under operating lease
agreements expiring at various dates through 2003.

Future minimum rental payments under non-cancelable operating leases at
December 31, 1999 are as follows:

Year ending December 31, (in thousands):

NON
RELATED    RELATED
PARTIES    PARTIES     TOTAL
--------   --------   --------

2000...........................................  $ 30,251   $ 2,727    $ 32,978
2001...........................................    30,380     2,727      33,107
2002...........................................    28,975     2,727      31,702
2003...........................................    27,552     2,727      30,279
2004...........................................    23,727     2,727      26,454
Thereafter.....................................    71,245     9,771      81,016
--------   -------    --------
$212,130   $23,405    $235,536
========   =======    ========

Rental expense for all operating leases during the years ended December 31,
1997, 1998, and 1999 aggregated $30.8 million, $32.6 million, and
$41.2 million, respectively.

INCENTIVE BONUSES

Certain officers and key employees of the Company are entitled to incentive
bonuses, primarily based on the Company's profits.

LITIGATION

On August 7, 1996, a class action complaint naming the Company and certain
of its independent contractors was filed in the Superior Court of the State of
California for the County of Los Angeles, titled as Brenda Figueroa et al. v.
Guess ?, Inc. et al. The plaintiffs asserted claims for violation of state wage
and hour laws, wrongful discharge, and breach of contract arising out of the
Company's relationship with its independent contractors and actions taken by
them with respect to their employees. The plaintiffs also

F-16

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1999

(8) COMMITMENTS AND CONTINGENCIES (CONTINUED)

alleged that the Company breached its agreement with the United States
Department of Labor regarding the monitoring of its independent contractors. The
Court has held two hearings on certifying the alleged class. The parties have
agreed to settle the case. On March 1, 2000, the Court gave final approval to
the parties' settlement. If no class member appeals within 60 days thereafter,
the case will be finally resolved.

On July 7, 1998, the Union of Needletrades Industrial and Textile Employees
("UNITE") filed with the National Labor Relations Board ("NLRB") charges against
the Company alleging that the Company violated the National Labor Relations Act
by failing to uphold certain obligations under a prior settlement agreement with
the NLRB, by denying pro-union employees access to the Company's facilities, by
conferring new benefits to employees, by making false accusations against UNITE,
by conducting video surveillance of UNITE's offices, and by assisting and
organizing an anti-union demonstration. These allegations were dismissed by the
NLRB. UNITE appealed, and, on October 15, 1999, the NLRB dismissed the appeal.

On February 24, 1998, the Company and Maurice Marciano, Paul Marciano and
Armand Marciano, as individuals, were named as defendants in a class action
entitled John N. Robinson v. Guess ?, Inc., Maurice as amended, purported to
state claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933
for alleged misrepresentations in connection with the Company's initial public
offering (the "IPO") in August 1996. Mr. Robinson purported to represent a class
of all purchasers of the Company's stock in the IPO and sought unspecified
damages. On January 10, 2000, the complaint was dismissed in its entirety.
However, Robinson has the right to appeal the dismissal.

On October 26, 1998, Maurice Marciano, Paul Marciano and Armand Marciano, as
individuals (the "Marcianos"), as well as the Company, were named as defendants
in a shareholders' derivative complaint entitled John N. Robinson v. Maurice
Marciano, Paul Marciano and Armand Marciano and Guess ?, Inc., filed in the Los
Angeles Superior Court. The complaint (the "Derivative Complaint") purports to
state a claim for intentional breach of fiduciary duty, negligent breach of
fiduciary duty, constructive fraud and abuse of control in connection with the
Marcianos' management of the Company since its IPO. On July 26, 1999, the Court
entered an Order that allows the case to proceed past the pleadings stage. While
it is too soon to predict the outcome of the case with any certainty, the
defendants believe they have meritorious defenses to each of the claims asserted
and intend to vigorously defend themselves.

On May 21, 1999, the Company filed a demand for arbitration against Pour le
Bebe, Inc. and Pour la Maison, Inc. (collectively, "PLB") seeking damages and
injunctive relief in connection with four written license agreements between the
parties. The Company alleged that PLB defaulted under the license agreements,
that the license agreements properly were terminated and that PLB breached the
license agreements. On July 19, 1999, PLB filed a counterdemand for arbitration
against the Company. PLB sought damages and injunctive relief against the
Company alleging breach of contract, violation of the California Franchise
Relations Act, interference with prospective economic advantage, unlawful
business practices, statutory unfair competition and fraud. The arbitration was
conducted before the American Arbitration Association pursuant to arbitration
clauses in the license agreements. (See Note 15.)

On June 9, 1999, the Company commenced a lawsuit in the Los Angeles County
Superior Court against Mr. Kyle Kirkland, Kirkland Messina LLC, and CKM
Securities (collectively "Kirkland") for tortious interference, unfair
competition, fraud and related claims. This action arises out of alleged
misrepresentations and omissions of material fact made by Kirkland in connection
with the operations and

F-17

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1999

(8) COMMITMENTS AND CONTINGENCIES (CONTINUED)
financial performance of PLB. Currently, there are proceedings in the California
Court of Appeal to determine if the action will proceed in court or by way of
arbitration. No trial or hearing date has been set.

The Company cannot predict the outcome of these matters. The Company
believes the outcome of one or more of the above cases could have a material
adverse effect on the Company's financial condition and results of operations.

(9) SAVINGS PLAN

The Company established the Guess ?, Inc. Savings Plan (the "Savings Plan")
under Section 401(k) of the Internal Revenue Code. Under the Savings Plan,
employees ("associates") may contribute up to 15% of their compensation per year
subject to the elective limits as defined by IRS guidelines and the Company may
make matching contributions in amounts not to exceed 1.5% of the associates'
annual compensation. The Company's contributions to the Savings Plan for each of
the three years ended December 31, 1997, 1998 and 1999 aggregated $0.3 million.

(10) QUARTERLY INFORMATION (UNAUDITED)

The following is a summary of the unaudited quarterly financial information
for the years ended December 31, 1998 and 1999 (in thousands, except per share
data):

FIRST      SECOND     THIRD      FOURTH
YEAR ENDED DECEMBER 31, 1998                           QUARTER    QUARTER    QUARTER    QUARTER
----------------------------                           --------   --------   --------   --------

Net revenue..........................................  $110,768   $98,068    $130,138   $132,957
Gross profit.........................................    46,452    44,235      54,782     54,383
Net earnings.........................................     7,951     3,440       9,639      4,081
Basic and diluted earnings per share.................  $   0.19   $  0.08    $   0.22   $   0.10

FIRST      SECOND     THIRD      FOURTH
YEAR ENDED DECEMBER 31, 1999                          QUARTER    QUARTER    QUARTER    QUARTER
----------------------------                          --------   --------   --------   --------

Net revenue.........................................  $129,052   $119,557   $155,547   $195,494
Gross profit........................................    54,028     55,035     65,261     93,666
Net earnings........................................    11,486      7,017     14,235     19,162
Earnings per share:
Basic.............................................  $   0.27   $   0.16   $   0.33   $   0.45
Diluted...........................................  $   0.27   $   0.16   $   0.33   $   0.44

During the second quarter of 1999, in accordance with the requirements of
EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring"), the Company recorded a $3.2 million charge for future severance
costs related to the relocation of distribution operations to Louisville. In the
third quarter of 1999, the Company realized a non-recurring pretax gain of
$3.8 million on the disposition of property and equipment. During the fourth
quarter of 1999, the Company enhanced its ability to estimate reserves through
improved processes and more current and accurate data. As a result, the Company
revised its estimate of certain reserves. This resulted in a reduction of cost
of sales of $2.3 million.

F-18

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1999

(11) SEGMENT INFORMATION

In accordance with the requirements of SFAS 131, "Disclosures about Segments
of and Enterprise and Related Information", the Company's reportable business
segments and respective accounting policies, policies of the segments are the
same as those described in Note 1. Management evaluates segment performance
based primarily on revenue and earnings from operations. Interest income and
expense is evaluated on a consolidated basis and not allocated to the Company's
business segments.

Segment information is summarized as follows for the years ended
December 31, 1997, 1998 and 1999 (in thousands):

YEAR ENDED DECEMBER 31,
------------------------------
1997       1998       1999
--------   --------   --------

Net revenue:
Retail operations.........................................  $215,873   $222,624   $299,384
Wholesale operations......................................   250,040    212,504    260,628
Licensing operations......................................    49,459     36,803     39,638
--------   --------   --------
$515,372   $471,931   $599,650
========   ========   ========

Earnings from operations:
Retail operations.........................................  $  5,008   $ 12,034   $ 37,072
Wholesale operations......................................    16,179      8,209     25,101
Licensing operations......................................    49,459     36,803     31,603
--------   --------   --------
$ 70,646   $ 57,046   $ 93,776
========   ========   ========

Capital expenditures:
Retail operations.........................................             $  5,602   $ 28,030
Wholesale operations......................................                8,136     35,471
Licensing operations......................................                   --         --
--------   --------
$ 13,738   $ 63,501
========   ========

Total assets:
Retail operations.........................................             $ 93,140   $114,152
Wholesale operations......................................              159,069    245,162
Licensing operations......................................               11,563      9,722
--------   --------
$263,772   $369,036
========   ========

F-19

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1999

(11) SEGMENT INFORMATION (CONTINUED)
The table below presents information related to geographic areas in which
the Company operated in during 1997, 1998 and 1999 (in thousands):

YEAR ENDED DECEMBER 31,
------------------------------
1997       1998       1999
--------   --------   --------

Net sales:
United States.......................................  $455,969   $434,207   $548,179
Asia................................................    22,277     13,859     13,279
Europe..............................................    19,812     10,600     13,464
Canada..............................................     1,649      1,644     12,073
South America.......................................     7,965      5,066      3,973
Mexico..............................................     2,774      2,406      3,337
Other...............................................     4,926      4,149      5,345
--------   --------   --------
$515,372   $471,931   $599,650
========   ========   ========

(12) STOCK OPTION PLAN

On July 30, 1996, the Board of Directors adopted the Guess ?, Inc. 1996
Non-Employee Directors' Stock Option Plan pursuant to which the Board of
Directors may grant stock options to non-employee directors. This plan
authorizes grants of options to purchase up to 500,000 authorized but unissued
shares of Common Stock. At December 31, 1997, 1998 and 1999, there were 28,886,
70,451 and 109,082 options issued under this plan, respectively. Stock options
are granted with an exercise price equal to the stock's fair market value at the
date of grant. Stock options have ten-year terms and vest and become fully
exercisable in increments of one-fourth of the shares granted on each
anniversary from the date of grant.

On July 30, 1996, the Board of Directors adopted the Guess ?, Inc. 1996
Equity Incentive Plan (the "Plan") pursuant to which the Board of Directors may
grant stock options to officers, key associates and consultants. The Plan
authorizes grants of options to purchase up to 4,500,000 authorized but unissued
shares of Common Stock. Stock options are granted with an exercise price equal
to the stock's fair market value at the date of grant. Stock options have
ten-year terms (five years in the case of an incentive stock option granted to a
ten-percent stockholder) and vest and become fully exercisable after varying
time periods from the date of grant based on length of service or specified
performance goals.

At December 31, 1997, 1998 and 1999, there were 3,208,645, 2,841,825 and
2,763,397 additional shares available for grant under the Plan, respectively.
The per share weighted-average fair value of stock options granted during 1997,
1998 and 1999 was $9.75, $4.24, and $12.46, respectively, on the dates of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: 1997, 1998 and 1999 expected dividend yields of 0.0%, 0.0% and
0.0%, respectively; 1997, 1998 and 1999 risk-free interest rates of 6.50%, 4.87%
and 6.51%, respectively; 1997, 1998 and 1999 volatility factors of 30%, 63% and
65%, respectively; and 1997, 1998 and 1999 expected lives of four years.

F-20

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1998 AND 1999

(12) STOCK OPTION PLAN (CONTINUED)

The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the accompanying consolidated financial statements. Had the Company determined
compensation based on the fair value at the grant date for its stock options
under SFAS No. 123 ("SFAS 123"), the Company's pro forma net earnings and net
earnings per share for the years ended December 31, 1997, 1998 and 1999 would
have been reduced to the pro forma amounts indicated below (in thousands, except
per share data):

1997       1998       1999
--------   --------   --------

Pro forma net earnings...........................  $35,222    $24,574    $51,300
Pro forma earnings per share--basic..............  $  0.82    $  0.57    $  1.19
Pro forma earnings per share--diluted............  $  0.82    $  0.57    $  1.18

Pro forma net earnings reflect only options granted since the inception of
the Plan on July 30, 1996. The full impact of calculating compensation cost for
stock options under SFAS 123 is not reflected in the pro forma net earnings
amounts presented above because compensation cost is reflected over the options'
vesting period of four years.

Stock option activity during the period indicated is as follows:

NUMBER OF    WEIGHTED-AVERAGE
SHARE       EXERCISE PRICE
----------   ----------------

Balance at December 31, 1996......................   1,287,105        $17.74
Granted.........................................   1,406,105         10.78
Forfeited.......................................  (1,365,855)       (16.88)
----------        ------
Balance at December 31, 1997......................   1,291,355        $11.05
Granted.........................................   1,035,600          4.24
Forfeited.......................................    (668,780)       (10.92)
----------        ------
Balance at December 31, 1998......................   1,658,175        $ 6.86
Granted.........................................     343,650         12.46
Exercised.......................................    (373,090)        (8.56)
Forfeited.......................................    (265,222)        (7.68)
----------        ------
Balance at December 31, 1999......................   1,363,513        $ 7.64
==========        ======

At December 31, 1997, 1998 and 1999, the weighted-average exercise price was
$11.05, $6.86 and $7.64, respectively, and the weighted-average remaining
contractual lives of outstanding options were 8.85, 9.0 and 8.53 years,
respectively.

F-21

GUESS ?, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1999

(12) STOCK OPTION PLAN (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:

OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
-----------------------------------------------   ----------------------------
WEIGHTED       WEIGHTED                       WEIGHTED
NUMBER             AVERAGE        AVERAGE         NUMBER         AVERAGE
RANGE OF EXERCISE        OUTSTANDING         REMAINING       EXERCISE    EXERCISABLE AT     EXERCISE
PRICE           DECEMBER 31, 1999   CONTRACTUAL LIFE    PRICE     DECEMBER 31, 1999    PRICE
---------------------   -----------------   ----------------   --------   -----------------   --------

$ 3.94 to $ 5.50            750,463          8.81 years       $ 4.17         126,644         $ 4.26
$ 7.03 to $ 9.38            105,100          8.56 years         8.33          34,350           8.09
$10.50 to $13.13            391,350          7.60 years        11.16         177,290          10.93
$16.38 to $21.06            116,600          9.90 years        17.51              --             --
---------                           ------                         ------
1,363,513....          8.54 years       $ 7.64         338,284         $ 8.14
=========                                          =======

At December 31, 1998 and 1999, the number of options exercisable for each
year was 315,875 and 338,284, respectively. The weighted-average exercise price
of those options was $10.84 and $8.14, respectively.

(13) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR PRODUCT DISPLAY FIXTURES

Effective January 1, 1997, the Company changed its method of accounting for
product display fixtures located in its wholesale customers' retail stores,
whereby the costs for such fixtures are capitalized and amortized over five
years using the straight-line method. In prior years, these costs had been
expensed as incurred. The Company believes that this new method will more
closely match the long-term benefit that the product display fixtures provide
with the expected future revenue from such fixtures. The cumulative effect of
the change in accounting principle, recorded in the first quarter of 1997, is
calculated based upon the retroactive effect of applying the new accounting
method to prior year fixture acquisitions. The cumulative effect of the change
in accounting principle of $4.0 million (after reduction for income tax expense
of $2.7 million) is included in earnings for the year ended December 31, 1997.
Excluding the cumulative effect of the change in accounting principle, the
effect of the change during 1997 was to increase net earnings by approximately
$6.2 million, or $0.14 per share.

(14) SEVERANCE COSTS RELATED TO DISTRIBUTION FACILITY

In accordance with the requirements of EITF 94-3, "Liability for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)", the Company recorded a
$3.2 million charge for future severance costs related to the relocation of its
distribution operations from Los Angeles, California to Louisville, Kentucky.
The Company anticipates the payment of these severance costs to occur in the
second quarter of fiscal 2000.

(15) SUBSEQUENT EVENT

On March 3, 2000, the Arbitrators issued an interim award in favor of the
Company and rejected each of PLB's counterclaims (see Note 8). The amount of the
interim award was in excess of $6 million. As the prevailing party, the Company
is entitled to, and has applied for, an award of its attorneys' fees, costs and
expenses. Because of the uncertainty of the ultimate realization of the award,
no recognition has been given to it in the accompanying consolidated financial
statements.

F-22

SCHEDULE II

GUESS ?, INC. & SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999

(IN THOUSANDS)

BALANCE AT   CHARGED TO   DEDUCTIONS   BALANCE AT
BEGINNING    COSTS AND       AND          END
DESCRIPTION                                           OF PERIOD     EXPENSES    WRITE-OFFS   OF PERIOD
-----------                                           ----------   ----------   ----------   ----------

As of December 31, 1997
Allowance for obsolescence........................    $ 3,257      $ 3,764     $ (3,456)     $ 3,565
Accounts receivable...............................      9,720       12,746      (11,270)      11,196
Royalties.........................................         --           --           --           --

As of December 31, 1998
Allowance for obsolescence........................      3,565        3,512       (3,217)       3,860
Accounts receivable...............................     11,196        8,542      (11,901)       7,837
Royalties.........................................         --        3,667           --        3,667

As of December 31, 1999
Allowance for obsolescence........................      3,860          583       (2,079)       2,364
Accounts receivable...............................      7,837        1,398         (372)       8,863
Royalties.........................................      3,667        1,657       (4,066)       1,258

F-23

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on March 29, 2000.

GUESS ?, INC.

By:             /s/ MAURICE MARCIANO
-----------------------------------------
Maurice Marciano
CO-CHAIRMAN OF THE BOARD,
CO-CHIEF EXECUTIVE OFFICER AND DIRECTOR

Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

NAME                                      TITLE                    DATE
----                                      -----                    ----

Co-Chairman of the Board,
/s/ MAURICE MARCIANO                     Co-Chief Executive
-------------------------------------------         Officer and Director         March 29, 2000
Maurice Marciano                       (Principal Executive
Officer)

President, Co-Chairman of
/s/ PAUL MARCIANO                      the Board, Co-Chief
-------------------------------------------         Executive Officer and        March 29, 2000
Paul Marciano                        Director

/s/ ARMAND MARCIANO                   Senior Executive Vice
-------------------------------------------         President, Assistant         March 29, 2000
Armand Marciano                       Secretary and Director

Executive Vice President
/s/ BRIAN FLEMING                      and Chief Financial
-------------------------------------------         Officer (Principal           March 29, 2000
Brian Fleming                        Financial Officer and
Chief Accounting Officer)

/s/ ROBERT DAVIS
-------------------------------------------       Director                       March 29, 2000
Robert Davis

/s/ ALICE KANE
-------------------------------------------       Director                       March 29, 2000
Alice Kane

/s/ HOWARD SOCOL
-------------------------------------------       Director                       March 29, 2000
Howard Socol

/s/ BRYAN ISAACS
-------------------------------------------       Director                       March 29, 2000
Bryan Isaacs

EXHIBIT INDEX

EXHIBIT
NUMBER                                   DESCRIPTION
---------------------   ------------------------------------------------------------

3.1            Restated Certificate of Incorporation of the Registrant. (1)
3.2            Bylaws of the Registrant. (1)
4.3            Specimen stock certificate. (1)
10.1            Amended and Restated Stockholders' Agreement. (2)
10.20           Amended and Restated Revolving Credit Agreement, dated as of
March 28, 1997. (2)
10.22           1996 Equity Incentive Plan. (1)
10.23           1996 Non-Employee Directors' Stock Option Plan. (1)
10.24           Annual Incentive Plan. (1)
10.25           Employment Agreement between the Registrant and Maurice
Marciano. (2)
10.26           Employment Agreement between the Registrant and Paul
Marciano. (2)
10.27           Employment Agreement between the Registrant and Armand
Marciano. (2)
10.28           Registration Rights Agreement among the Registrant and
certain stockholders of the Registrant. (2)
10.29           Indemnification Agreement among the Registrant and certain
stockholders of the Registrant. (2)
10.30           Indemnification Agreements between the Registrant and
certain executives and directors. (2)
10.31           First Amendment to Amended and Restated Shareholders'
Agreement. (3)
10.32           First Amendment and Waiver to Amended and Restated Revolving
Credit Agreement by and between the Registrant and
BankBoston, NA, F/K/A The First National Bank of Boston,
Sanwa Bank California and the Financial Institutions Party
hereto. (4)
10.33           Amended and Restated 1996 Non-Employee Directors' Stock
Option Plan, as amended through March 3, 1997. (5)
10.34           Second Amendment and Consent to the Amended and Restated
Revolving Credit Agreement by and between Guess ?, Inc. And
BankBoston, N.A.,F/K/A The First National Bank of Boston,
Sanwa Bank California and the Financial Institutions Party
Hereto. (6)
10.35           Third Amendment and Consent to the Amended and Restated
Revolving Credit Agreement by and between Guess ?, Inc. And
BankBoston, N.A., F/K/A The First National Bank of Boston,
Sanwa Bank California and the Financial Institutions Party
Hereto. (6)
10.36           Amendment No. 1 to The Guess ?, Inc. Amended and Restated
1996 Non- Employee Directors' Stock Option Plan. (7)
10.37           Employment Agreement dated July 6, 1998 between Guess
?, Inc. and Brian L. Fleming. (7)
10.38           Fourth Amendment and Consent to the Amended and Restated
Revolving Credit Agreement by and between Guess ?, Inc. And
BankBoston, N.A., F/K/A The First National Bank of Boston,
Sanwa Bank California and the Financial Institutions Party
Hereto. (8)
*10.39           Credit Agreement by and between Guess?, Inc. and Sanwa Bank
of California, and the Chase Manhattan Bank.
*10.40           Lease Agreement between Guess?, Inc. and Robert Pattillo
Properties, Inc.
*10.41           Subscription Agreement between Freemark Entertainment
Corporation and Guess?, Inc.
18.0            Letter regarding change in accounting principles. (5)
*21.1            List of Subsidiaries.
*23.0            Independent Accountants' Consent.
*27.1            Financial Data Schedule.

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

*   Filed herewith

(b) Financial Statement Schedule:

Schedule II--Description Valuation and Qualifying Accounts

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

(1) Incorporated by reference from the Registration Statement on Form S-1
(Registration No. 333-4419) filed by the Company on June 24, 1996, as
amended.

(2) Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.

(3) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 30, 1997.

(4) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 29, 1997.

(5) Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.

(6) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1998.

(7) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 28, 1998.

(8) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 27, 1998.

EXECUTION COPY

$125,000,000

CREDIT AGREEMENT

among

GUESS?, INC.,
as Borrower,

The Several Lenders
from Time to Time Parties Hereto,

SANWA BANK CALIFORNIA, as Co-Agent,

and

THE CHASE MANHATTAN BANK,

as Administrative Agent

Dated as of December 3, 1999

CHASE SECURITIES INC., as Lead Arranger and Book Manager

TABLE OF CONTENTS

SECTION 1. DEFINITIONS .......................................1
1.1 Defined Terms .......................................1
1.2 Other Definitional Provisions ......................17

SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT 
COMMITMENTS ......................................18

2.1  Revolving Credit Commitments .......................18
2.2  Procedure for Revolving Loan Borrowing..............18
2.3  Swingline Commitment................................19
2.4  Procedure for Swingline Borrowing; Refunding 
of Swingline Loans..................................19
2.5  Commitment Fees, etc........ .......................20
2.6  Termination or Reduction of Revolving 
Credit Commitments..................................20
2.7  Optional Prepayments................................21
2.8  Mandatory Revolving Credit Commitment Reductions....21   
2.9  Conversion and Continuation Options.................21 
2.10 Limitations and Eurodollar Tranches.................22
2.11 Interest Rates and Payment Dates....................22   
2.12 Computation of Interest and Fees....................22     
2.13 Inability to Determine Interest Rate................23  
2.14 Pro Rata Treatment and Payments.....................23
2.15 Requirements of Law.................................24
2.16 Taxes...............................................25
2.17 Indemnity...........................................27
2.18 Change of Lending Office............................27
2.19 Replacement of Lenders..............................28

SECTION 3. LETTERS OF CREDIT ................................28
3.1 L/C Commitment.......................................28
3.2 Procedure for Issuance of Letter of Credit...........28
3.3 Fees and Other Charges...............................29
3.4 L/C Participations...................................29
3.5 Reimbursement Obligation of the Borrower.............30
3.6 Obligations Absolute.................................30
3.7 Letter of Credit Payments............................30   
3.8 Applications.........................................31

SECTION 4. REPRESENTATIONS AND WARRANTIES ...................31
4.1 Financial Condition..................................31
4.2 No Change............................................31
4.3 Corporate Existence; Compliance with Law.............31      
4.4 Corporate Power; Authorization; Enforceable 

Obligations..........................................31
4.5 No Legal Bar.........................................32
4.6 Litigation...........................................32
4.7 No Default...........................................32       
4.8 Ownership of Property; Liens.........................32      

Page

----
4.9 Intellectual Property...............................32
4.10 Taxes..............................................32
4.11 Federal Regulations................................33
4.12 Labor Matters......................................33
4.13 ERISA..............................................33
4.14 Investment Company Act; Other Regulations..........33
4.15 Subsidiaries.......................................33
4.16 Use of Proceeds....................................34
4.17 Environmental Matters..............................34
4.18 Accuracy of Information, etc.......................34
4.19 Collateral.........................................35
4.20 Solvency...........................................35
4.21 Senior Indebtedness................................35
4.22 Year 2000 Matters..................................35

SECTION 5 CONDITIONS PRECEDENT...............................36
5.1 Conditions to Initial Extension of Credit...........36
5.2 Conditions to Each Extension of Credit..............37

SECTION 6. AFFIRMATIVE COVENANTS.............................37
6.1  Financial Statements................................37
6.2  Certificates; Other Information.....................38
6.3  Payment of Obligations..............................39
6.4  Maintenance of Existence; Compliance................39
6.5  Maintenance of Property; Insurance..................39
6.6  Inspection of Property; Books and Records; 

Discussions.........................................39
6.7  Notices.............................................39
6.8  Environmental Laws..................................40
6.9  Additional Collateral, etc..........................40

SECTION 7. NEGATIVE COVENANTS................................41
7.1  Financial Condition Covenants.......................41
7.2  Indebtedness........................................41
7.3  Liens...............................................43
7.4  Fundamental Changes.................................44
7.5  Disposition of Property.............................45
7.6  Restricted Payments.................................46
7.7  Capital Expenditures................................46
7.8  Investments.........................................47
7.9  Payments and Modifications of Certain Debt 

Instruments.........................................48
7.10 Transactions with Affiliates........................48
7.11 Sales and Leasebacks................................48
7.12 Changes in Fiscal Periods...........................49
7.13 Negative Pledge Clauses.............................49
7.14 Clauses Restricting Subsidiary Distributions........49
7.15 Lines of Business...................................49

-ii-

SECTION 8. EVENTS OF DEFAULT .................................49

SECTION 9. THE AGENTS ........................................52
9.l Appointment...........................................52
9.2 Delegation of Duties..................................53
9.3 Exculpatory Provisions................................53
9.4 Reliance by Administrative Agent......................53
9.5 Notice of Default.....................................53
9.6 Non-Reliance on Agents and Other Lenders..............54
9.7 Indemnification.......................................54
9.8 Agent in Its Individual Capacity......................54
9.9 Successor Administrative Agent........................55
9.10 Co-Agent.............................................55

SECTION 10. MISCELLANEOUS ....................................55
10.1 Amendments and Waivers................................55
10.2 Notices...............................................56
10.3 No Waiver; Cumulative Remedies........................57
10.4 Survival of Representations and Warranties............57
10.5 Payment of Expenses and Taxes.........................57
10.6 Successors and Assigns; Participations an

Assignments...........................................58
10.7 Adjustments; Set-off..................................60
10.8 Counterparts..........................................60
10.9 Severability..........................................60
10.10 Integration..........................................60
10.11 GOVERNING LAW........................................61
10.12 Submission To Jurisdiction; Waivers..................61
10.13 Acknowledgements.....................................61
10.14 Releases of Guarantees and Liens.....................62
10.15 Confidentiality......................................62
10.16 WAIVERS OF JURY TRIAL................................62

- iii -

ANNEX:

A          Pricing Grid

SCHEDULES:

1.1        Revolving Credit Commitments

4.1        Material Guarantee Obligations; Material Dispositions
4.15       Subsidiaries
4.19       UCC Filing Jurisdictions
7.2(e)     Existing Indebtedness
7.3(f)     Existing Liens

EXHIBITS:

A          Form of Guarantee and Collateral Agreement
B          Form of Compliance Certificate
C          Form of Closing Certificate
D          Form of Assignment and Acceptance

E-1        Form of Legal Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
E-2        Form of Legal Opinion of Glenn A. Weinman
F          Form of Exemption Certificate

-iv-

CREDIT  AGREEMENT,  dated as of  December  3, 1999 among  GUESS ?, INC.,  a
Delaware  corporation  (the  "Borrower"),  the several banks and other financial
institutions  or  entities  from time to time  parties  to this  Agreement  (the
"Lenders"),   SANWA  BANK  CALIFORNIA,   as  co-agent  (in  such  capacity,  the
"Co-Agent"), and THE CHASE MANHATTAN BANK, as administrative agent.

The parties hereto hereby agree as follows:

SECTION 1. DEFINITIONS

1.1 Defined Terms.  As used in the Agreement,  the terms listed in this
Section 1.1 shall have the respective meanings set forth in this Section 1.1.

"ABR": for any day, a rate per annum (rounded  upwards,  if necessary,
to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on
such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal
Funds Effective Rate in effect an such day plus 1/2 of 1%. For purposes  hereof:
"Prime Rate" shall mean the rate of interest per annum  publicly  announced from
time to time by The  Chase  Manhattan  Bank as its  prime  rate in effect at its
principal  office in New York City (the Prime Rate not being  intended to be the
lowest rate of interest  charged by The Chase  Manhattan Bank in connection with
extensions  of credit to debtors):  "Base CD Rate" shall mean the sum of (a) the
product  of (i) the  Three-Month  Secondary  CD Rate  and (ii) a  fraction,  the
numerator  of which is one and the  denominator  of which is one  minus  the C/D
Reserve  Percentage and (b) the C/D Assessment Rate; and "Three-Month  Secondary
CD Rate" shall mean,  for any day,  the  secondary  market rate for  three-month
certificates of deposit reported as being in effect on such day (or, if such day
shall not be a  Business  Day,  the next  preceding  Business  Day) by the Board
through the public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be published in
Federal Reserve  Statistical  Release  H.15(519)  during the week following such
day),  or,  if such  rate  shall  not be so  reported  on such day or such  next
preceding  Business  Day, the average of the  secondary  market  quotations  for
three-month certificates of deposit of major money center banks in New York City
received at  approximately  10:00 A.M.,  New York City time, on such day (or, if
such day shall not be a Business Day, on the next preceding Business Day) by The
Chase Manhattan Bank from three New York City negotiable  certificate of deposit
dealers of  recognized  standing  selected by it. Any change in the ABR due to a
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Prime Rate, the  Three-Month  Secondary CD Rate or the
Federal Funds Effective Rate, respectively.

"ABR Loans":  Loans the rate of interest  applicable to which is based
upon the ABR.

"Adjustment Date": as defined in the Pricing Grid.

"Administrative  Agent":  The Chase Manhattan Bank,  together with its
affiliates,  as the  arranger of the  Revolving  Credit  Commitments  and as the
administrative  agent for the Lenders  under this  Agreement  and the other Loan
Documents, together with any of its successors.

"Affiliate":  as to any Person,  any other  Person  that,  directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person.  For purposes of this  definition,  "control" of a Person means the
power, directly or indirectly,  either to (a) vote 10% or more of the securities
having  ordinary  voting  power  for  the  election  of  directors  (or  persons
performing similar fuctions) of such Person or (b) direct or cause the direction
of the management and policies of such Person, whether by contract or otherwise.

2

"Agents":   the   collective   reference   to  the  Co-Agent  and  the
Administrative Agent.

"Aggregate  Exposure":  with respect to any Lender at any time, amount
equal to the amount of such Lender's  Revolving Credit Commitment then in effect
or, if the Revolving Credit Commitments have been terminated, the amount of such
Lender's Revolving Extentions of Credit then outstanding.

"Aggregate  Exposure  Percentage":  with  respect to any Lender at any
time, the ratio (expressed as a percentage) of such Lender's  Aggregate Exposure
at such time to the Aggregate Exposure of all Lenders at such time.

"Agreement": this Credit Agreement, as amended, restated, supplemented
or otherwise modified from time to time.

"Apparel   Business":   collectively,   (a)  the   businesses  of  the
manufacture,  wholesale  sale and/or retail sale of clothing  garments and other
wearing apparel or allied or complementary  products for men, women or children,
including accessories,  fragrances,  eyewear, watches, home products,  cosmetics
and  footwear,  or of any  component  materials  thereof,  (b) the  business  of
granting  licenses of the trademarks,  tradenames and other similar  property to
other Persons for the manufacture  and/or sale of such products of any nature by
such Persons and (c)  activities  related or ancillary to, or extensions of, the
businesses and activities described clauses (a) and (b) above.

"Applicable  Documentary L/C Fee Rate": 0.200%;  provided, that on and
after  the  date  that  is 90  days  after  the  Closing  Date,  the  Applicable
Documentary L/C Fee Rate will be determined pursuant to the Pricing Grid.

"Applicable  Margin": a per annum rate equal to (a) 1.25%, in the case
of Eurodollar Loans, and (b) 0.25%, in the case of ABR Loans; provided,  that on
and after the date that is 90 days after the Closing Date, the Applicable Margin
will be determined pursuant to the Pricing Grid.

"Application":  an application, in such form as the Issuing Lender may
specify  from time to time in  accordance  with its  customary  practice and the
terms of this Agreement, and which may be submitted  electronically,  requesting

the Issuing Lender to open a Letter of Credit.

"Asset  Sale":  any  Disposition  of  property  or series  of  related
Dispositions of property (excluding any issuance or sale of Capital Stock of the
Borrower or any such  Disposition  permitted by clause (a),  (b), (c), (d), (e),
(f),  (g),  (h),  (i),  (j),  (k) or (l) of  Section  7.5) that  yields Net Cash
Proceeds to the Borrower or any of its Subsidiaries in excess of $2,500,000.

"Assignee": as defined in Section 10.6(c).

"Assignment   and   Acceptance":   an   Assignment   and   Acceptance,
substantially in the form of Exhibit D.

"Assignor": as defined in Section 10.6(c).

"Attributable  Debt":  in respect of a sale and leaseback  transaction
entered  into  by  the  Borrower  or any of its  Subsidiaries,  at the  time  of
determination,  the present value of the obligation of the lessee for net rental
payments  during  the  remaining  term of the  lease  included  in such sale and
leaseback  transaction  including  any  period  for  which  such  lease has been
extended or may, at the sole option of the lessor,  be  extended.  Such  present
value shall be  calculated  using a discount  rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.

3

"Available Revolving Credit Commitment": as to any Lender at any time,
an amount equal to the excess,  if any, of (a) such  Lender's  Revolving  Credit
Commitment then in effect over (b) such Lender's Revolving  Extensions of Credit
then  outstanding;   provided,   that  in  calculating  any  Lender's  Revolving
Extensions  of Credit for the purpose of  determining  such  Lender's  Available
Revolving Credit Commitment  pursuant to Section 2.5(a), the aggregate principal
amount of Swinging Loans then outstanding shall be deemed to be zero.

"Basket  Amount":  an amount equal to $75,000,000 on the Closing Date,
permanently  reduced  thereafter by the amount of (a) any  expenditures  made to
repurchase  common stock of the  Borrower  pursuant to Section  7.6(b),  (b) the
Consideration  expended in connection with any Permitted Acquisition pursuant to
Section 7.8(f), and (c) any expenditures made to redeem the Senior  Subordinated
Notes pursuant to Section 7.9(a)(i).

"Benefitted Lender": as defined in Section 10.7(a).

"Board":  the Board of Governors of the Federal  Reserve System of the
United States (or any successor).

"Borrower": as defined in the preamble hereto.

"Borrowing Date": any Business Day specified by the Borrower as a date
on which the Borrower requests the Lender to make Loans hereunder.

"Business": as defined in Section 4.17(b).

"Business  Day":  a day other than a Saturday,  Sunday or other day on
which  commercial  banks in New York City are  authorized  or required by law to
close,  provided,  that with respect to notices and determinations in connection
with, and payments of principal and interest on,  Eurodollar  Loans, such day is
also a day for trading by and between banks in Dollar  deposits in the interbank
eurodollar market.

"Capital  Expenditures":  for any period,  with respect to any Person,
the aggregate of all  expenditures by such Person and its  Subsidiaries  for the
acquisition or leasing  (pursuant to a capital lease) of fixed or capital assets
or additions  to  equipment  (including  replacements,  capitalized  repairs and
improvements  during such  period)  that should be  capitalized  under GAAP on a
consolidated  balance  sheet  of such  Person  and its  Subsidiaries;  provided,
however,  that Capital  Expenditures  shall not include (a)  property  purchased
simultaneously  with the trade-in of existing  property  owned by such Person or
its  Subsidiaries  to the  extent of the  trade-in  credit  with  respect to the
property  being  traded in at such time,  (b)  expenditures  of  proceeds of any
Recovery Event, (c)  expenditures to replace property  Disposed of in accordance
with this Agreement to the extent of the sales price of such property and to the
extent  replaced  within 365 days of receipt of such sales  price,  (d) property
subject to Capital Lease Obligations or (e) capitalized fees and expenses.

"Capital Lease Obligations": as to any Person, the obligations of such
Person to pay rent or other  amounts  under  any lease of (or other  arrangement
conveying the right to use) real or personal property, or a combination thereof,
which  obligations  are required to be  classified  and accounted for as capital
leases on a balance  sheet of such Person  under GAAP and,  for the  purposes of
this  Agreement,  the  amount  of such  obligations  at any  time  shall  be the
capitalized amount thereof at such time determined in accordance with GAAP.

4

"Capital Stock": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants, rights or options to purchase any of the foregoing.

"Cash  Equivalents":  (a) marketable direct obligations issued
by, or unconditionally  guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each  case  maturing  within  one  year  from the  date of  acquisition;  (b)
certificates  of deposit,  time deposits,  eurodollar time deposits or overnight
bank deposits having maturities of one year or less from the date of acquisition
issued by any Lender or by any commercial  bank organized  under the laws of the
United States or any state thereof  having  combined  capital and surplus of not
less than $250,000,000;  (c) commercial paper of an issuer rated at least A-1 by
Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's Investors  Service,
Inc.  ("Moody's"),  or carrying an equivalent rating by a nationally  recognized
rating agency, if both of the two named rating agencies cease publishing ratings
of commercial  paper issuers  generally,  and maturing  within one year from the
date  of  acquisition;  (d)  repurchase  obligations  of  any  Lender  or of any
commercial  bank satisfying the  requirements of clause (b) of this  definition,
having a term of not more than 90 days,  with  respect to  securities  issued or
fully guaranteed or insured by the United States government; (e) securities with
maturities  of one year or less  from the date of  acquisition  issued  or fully
guaranteed by any state,  commonwealth or territory of the United States, by any
political  subdivision or taxing  authority of any such state,  commonwealth  or
territory  or  by  any  foreign  government,  the  securities  of  which  state,
commonwealth,  territory,  political  subdivision,  taxing  authority or foreign
government  (as the case may be) are rated at least A by S&P or A by  Moody's or
an  equivalent  rating  by  a  nationally  recognized  rating  agency,  if  such
securities  are  not  rated  by  either  S&P or  Moody's;  (f)  securities  with
maturities of six months or less from the date of acquisition  backed by standby
letters of credit issued by any Lender or any  commercial  bank  satisfying  the
requirements of clause (b) of this definition; (g) shares of money market mutual
or similar funds which invest  exclusively in assets satisfying the requirements
of clauses (a)  through  (f) of this  definition;  (h) demand  deposit  accounts
maintained  in the  ordinary  course  of  business;  and (i) in the  case of any
Foreign  Subsidiary,  (i) direct  obligations  of the  sovereign  nation (or any
agency  thereof) in which such Foreign  Subsidiary is organized or is conducting
business  or  obligations  guaranteed  by such  sovereign  nation (or any agency
thereof),  (ii)  investments  of the type and maturity  described in clauses (a)
through (g) above of foreign  obligors,  which  investments  or obligors (or the
direct or indirect  parents of such  obligors)  have  ratings  described in such
clauses or equivalent  ratings from comparable  foreign rating agencies or (iii)
investments of the type and maturity  described in clauses (a) through (g) above
of foreign  obligors (or the direct or indirect  parents of such  obligors) that
are not rated as provided in such clauses or in clause (ii) above but which are,
in  the  reasonable  judgment  of  the  Borrower  or  the  relevant  Subsidiary,
comparable in investment  quality to such investment and obligors (or the direct
or indirect parents of such obligors).

"C/D  Assessment  Rate":  applied to any ABR Loan,  the annual
assessment  rate in effect on such day that is  payable  by a member of the Bank
Insurance Fund  maintained by the Federal  Deposit  Insurance  Corporation  (the
"FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a
comparable successor  assessment risk  classification)  within the meaning of 12
C.F.R. ss: 327.4 (or any successor provision) to the FDIC (or any successor) for
the FDIC's  (or such  successor's)  insuring  time  deposits  at offices of such
institution in the United States.

5

"C/D Reserve Percentage": for any day as applied to any ABR Loan, that
percentage  (expressed  as a  decimal)  which  is in  effect  on  such  day,  as
prescribed by the Board,  for determining the maximum reserve  requirement for a
Depositary  Institution  (as defined in  Regulation  D of the Board as in effect
from time to time) in  respect  of new  non-personal  time  deposits  in Dollars
having a maturity of 30 days or more.

"Closing Date":  the date on which the conditions  precedent set forth
in Section 5.1 shall have been satisfied, which date is December 3, 1999.

"Co-Agent": as defined in the preamble hereto.

"Code":  the Internal  Revenue  Code of 1986,  as amended from time to
time.

"Collateral", all property of the Loan Parties, now owned or hereafter
acquired, upon which a Lien is purported to be created by any Security Document.

"Commitment  Fee Rate":  0.375% per annum;  provided that on and after
the date that is 90 days after the Closing Date, the Commitment Fee Rate will be

determined pursuant to the Pricing Grid.

"Commonly Controlled Entity": an entity,  whether or not incorporated,
that is under common  control  with the  Borrower  within the meaning of Section
4001 of ERISA  or is part of a group  that  includes  the  Borrower  and that is
treated as a single employer under Section 414 of the Code,

"Compliance Certificate": a certificate duly executed by a Responsible
Officer substantially in the form of Exhibit B.

"Confidential  Information  Memorandum":  the Confidential Information
Memorandum dated September 1999 and furnished to the Lenders.

"Consideraton": in connection with any "acquisition, the consideration
paid  by  the  Borrower  or  any of  its  Subsidiaries  in  connection therewith
(including  the  principal  amount of any  Indebtedness  assumed  in  connection

therewith).

"Consolidated  EBITDAR":  for any period,  Consolidated Net Income for
such period plus, without duplication and to the extent reflected as a charge in
this statement of such  Consolidated Net Income for such period,  the sum of (a)
income tax  expense,  (b)  interest  expense,  amortization  or writeoff of debt
discount and debt issuance costs and  commissions,  discounts and other fees and
charges associated with indebtedness (including the Loans), (c) depreciation and
amortization  expense,  (d)  amortization  of  intangibles  (including,  but not
limited to, goodwill) and organization  costs, (e) Consolidated  Operating Lease
Expense,  (f) any extraordinary,  unusual or non-recurring  non-cash expenses or
losses (including, whether or not otherwise includable as a separate item in the
statement of such  Consolidated  Net Income for such period,  non-cash losses on
sales of assets outside of the ordinary  course of business),  and (g) any other
non-cash  charges,  and minus,  to the extent  included in the statement of such
Consolidated  Net Income  for such  period,  the surn of (a) any  extraordinary,
unusual or non-recurring  income or gains  (including,  whether or not otherwise
includable as a separate item in the statement of such  Consolidated  Net Income
for such period,  gains on the sales of assets outside of the ordinary course of
business) and (b) any other  non-cash  income (other than income  accrued in the
ordinary course of business), all as determined on a consolidated basis. For the
purposes of calculating  Consolidated EBITDAR for any period of four consecutive
fiscal quarters (each, a "Reference  Period")  pursuant to any  determination of
the Consolidated Leverage Ratio, (i) if at any time during such Reference Period
the Borrower or any  Subsidiary  shall have made any Material  Disposition,  the
Consolidated  EBITDAR for such  Reference  Period  shall be reduced by an amount
equal to the  Consolidated  EBITDAR (if positive)  attributable  to the property
that is the subject of such Material  Disposition  for such Reference  Period or
increased  by  an  amount  equal  to  the  Consolidated  EBITDAR  (if  negative)
attributable  thereto  for  such  Performance  Period  and (ii) if  during  such
Reference  Period  the  Borrower  or any  Subsidiary  shall have made a Material
Acquisition,  Consolidated EBITDAR for such Reference Period shall be calculated
after giving pro forma effect thereto as if such Material  Acquisition  occurred
on the first day of such Reference Period. As used in this definition, "Material
Acquisition" means any acquisition of property or series of related acquisitions
of property that (a) constitutes  assets comprising all, or substantially all of
an operating unit of a business or constitutes all or  substantially  all of the
common stock of a Person and (b) involves  the payment of  consideration  by the
Borrower  and  its   Subsidiaries   in  excess  of  $2,500,000;   and  "Material
Disposition" means any Disposition of property or series of related Dispositions
of  property  that  yields  gross  proceeds  to  the  Borrower  or  any  of  its
Subsidiaries in excess of $2,500,000.

6

"Consolidated  Fixed Charge Coverage Ratio": for any period, the ratio
of (a) Consolidated  EBITDAR for such period minus Capital Expenditures for such
period to (b) Consolidated Fixed Charges for such period.

"Consolidated  Fixed  Charges":  for  any  period,  the  sum  (without
duplication)  of  (a)  Consolidated   Interest  Expense  for  such  period,  (b)
Consolidated  Operating Lease Expense for such period and (c) scheduled payments
made during such period on account of principal of  Indebtedness of the Borrower
or any of its Subsidiaries.

"Consolidated  Interest Expense":  for any period, total cash interest
expense  (including  that  attributable  to Capital  Lease  Obligations)  of the
Borrower and its  Subsidiaries  for such period with respect to all  outstanding
indebtedness of the Borrower and its  Subsidiaries  (including all  commissions,
discounts  and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs under Hedge Agreements in respect of
interest  rates to the extent  such net costs are  allocable  to such  period in
accordance with GAAP less all interest income and payments  received under Hedge
Agreements in respect of interest  rates  allocable to such period in accordance
with GAAP).

"Consolidated  Leverage Ratio": as at the last day of any period,  the
ratio of (a) the sum of (i) Consolidated Total Debt on such day and (ii) 800% of
Consolidated Operating Lease Expense for such period to (b) Consolidated EBITDAR

for such period.

"Consolidated Net Income": for any period, the consolidated net income
(or loss) of the Borrower and its  Subsidiaries,  determined  on a  consolidated
basis in accordance with GAAP;  provided that there shall be excluded (a) except
as otherwise  expressly  provided herein,  the income (or deficit) of any Person
accrued  prior to the date it becomes a Subsidiary  of the Borrower or is merged
into or  consolidated  with the  Borrower  or any of its  Subsidiaries,  (b) the
income (or deficit) of any Person  (other than a Subsidiary  of the Borrower) in
which the Borrower or any of its Subsidiaries has an ownership interest,  except
to the extent that any such income is actually  received by the Borrower or such
Subsidiary  in the  form  of  dividends  or  similar  distributions  and (c) the
undistributed  earnings of any Subsidiary of the Borrower  (other than Strandel,
Inc.  and its  Subsidiaries)  to the extent that the  declaration  or payment of
dividends  or  similar  distributions  by  such  Subsidiary  is not at the  time
permitted by the terms of any Contractual  Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary.

7

"Consolidated  Net Worth":  at any date,  all amounts  that would,  in
conformity  with  GAAP,  be  included  on a  consolidated  balance  sheet of the
Borrower and its Subsidiaries under net stockholders' equity at such date.

"Consolidated  Operating Lease Expense": for any period, the aggregate
amount  of  fixed  and  contingent  rentals  payable  by the  Borrower  and  its
Subsidiaries  for such  period  with  respect  to  leases  of real and  personal
property  (other than Capital Lease  Obligations),  determined on a consolidated
basis in accordance with GAAP.

"Consolidated Total Debt": at any date, the aggregate principal amount
of  all   Indebtedness   (other  than  contingent   obligations  in  respect  of
Indebtedness  of the type described in clause (f) of the definition  thereof) of
the Borrower and its  Subsidiaries  at such date,  determined on a  consolidated
basis in accordance with GAAP.

"Continuing  Directors":  the directors of the Borrower on the Closing
Date and each other director, if, in each case, such other director's nomination
for  election to the board of directors  of the  Borrower is  recommended  by at
least a  majority  of the  then  Continuing  Directors  or such  other  director
receives  the vote of the  Permitted  Investors  in his or her  election  by the
shareholders of the Borrower.

"Contractual  Obligation":  as to any  Person,  any  provision  of any
security  issued  by  such  Person  or of any  agreement,  instrument  or  other
undertaking  to  which  such  Person  is a party  or by  which  it or any of its

property is bound.

"Default":  any of the events  specified  in Section 8, whether or not
any requirement  for the giving of notice,  the lapse of time, or both, has been

satisfied.

"Disposition": with respect to any property, any sale, lease, sale and
leaseback,  assignment (other than for security),  conveyance, transfer or other
disposition  thereof.  The  terms  "Dispose"  and  "Disposed  of  "  shall  have

correlative meanings.

"Documentary Letter of Credit": any Letter of Credit that is issued in
support of trade obligations of the Borrower or any of its Subsidiaries incurred
in the ordinary course of business and that includes,  as a condition to drawing
thereunder,  the  presentation  to the  Issuing  Lender of  negotiable  bills of
lading,  invoices  and  related  documents  sufficient  to  create  a valid  and
perfected security interest in the goods covered thereby.

"Dollars" and "$": dollars in lawful currency of the United States.

"Domestic Subsidiary":  any Subsidiary of the Borrower organized under
the laws of any jurisdiction within the United States.

"Environmental  Laws": any and all foreign,  Federal,  state, local or
municipal  laws,  rules,  orders,  regulations,   statutes,  ordinances,  codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including  common  law)  regulating,  relating  to  or  imposing  liability  or
standards of conduct  concerning  protection of human health or the environment,
as now at may at any time hereafter be in effect.

"ERISA":  the Employee  Retirement  Income  Security  Act of 1974,  as
amended from time to time.

8

"Eurocurrency  Reserve  Requirements":  for  any day as  applied  to a
Eurodollar  Loan,  the  aggregate  (without  duplication)  of the maximum  rates
(expressed as a decimal fraction) of reserve  requirements in effect on such day
(including  basic,  supplemental,  marginal  and  emergency  reserves  under any
regulations of the Board or other  Governmental  Authority  having  jurisdiction
with  respect  thereto)  dealing  with  reserve   requirements   prescribed  for
eurocurrency  funding  (currently  referred to as "Eurocurrency  Liabilities" in
Regulation D of the Board)  maintained  by a member bank of the Federal  Reserve
System.

"Eurodollar Base Rate":  with respect to each day during each Interest
Period  pertaining to a Eurodollar  Loan,  the rate per annum  determined on the
basis of the rate for  deposits in Dollars for a period  equal to such  Interest
Period  commencing  on the first day of such Interest  Period  appearing on Page
3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business
Days prior to the beginning of such Interest Period. In the event that such rate
does not appear on Page 3750 of the Dow Jones  Markets  screen (or  otherwise on
such  screen),  the  "Eurodollar  Base Rate" shall be determined by reference to
such other comparable publicly available service for displaying eurodollar rates
as may be selected by the Administrative  Agent with the consent of the Borrower
(which consent shall not be unreasonably withheld or delayed) or, in the absence
of such  availability (or Borrower  consent),  by reference to the rate at which
the Administrative  Agent is offered Dollar deposits at or about 11:00 A.M., New
York City time, two Business Days prior to the beginning of such Interest Period
in the interbank eurodollar market where its eurodollar and foreign currency and
exchange  operations  are then being  conducted for delivery on the first day of
such Interest Period for the number of days comprised therein.

"Eurodollar Loans":  Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.

"Eurodollar  Rate":  with  respect  to each day during  each  Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for such day
in accordance with the following  formula (rounded upward to the nearest 1/100th
of 1%):

Eurodollar Base Rate

----------------------------------------
1.00 - Eurocurrency Reserve Requirements

"Eurodollar Tranche": the collective reference to Eurodollar Loans the
then  current  Interest  Periods  with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall  originally
have been made on the same day).

"Event of Default": any of the events specified in Section 8, provided
that any requirement  for the giving of notice,  the lapse of time, or both, has

been satisfied.

"Federal Funds Effective  Rate":  for any day, the weighted average of
the rates on overnight  federal funds  transactions  with members of the Federal
Reserve  System  arranged by federal  funds  brokers,  as  published on the next
succeeding  Business Day by the Federal  Reserve  Bank of New York,  or, if such
rate is not so published  for any day that is a Business Day, the average of the
quotations for the day of such transactions received by The Chase Manhattan Bank
from three federal funds brokers of recognized standing selected by it.

"Foreign  Subsidiary":  any  Subsidiary  of the Borrower that is not a
Domestic Subsidiary.

9

"Funding Office":  the office of the Administrative Agent specified in
Section 10.2 or such other  office as may be specified  from time to time by the
Administrative Agent as its funding office by written notice to the Borrower and

the Lenders.

"GAAP":  generally accepted accounting principles in the United States
as in effect from time to time,  except that for purposes of Section  7.1,  GAAP
shall be determined on the basis of such principles in effect on the date hereof
and consistent  with those used in the  preparation  of the  Borrower's  audited
financial  statements  referred  to in  Section  4.1 with  respect to the period
ending December 31, 1998. In the event that any "Accounting  Change" (as defined
below)  shall  occur  and such  change  results  in a change  in the  method  of
calculation of financial covenants,  standards or terms in this Agreement,  then
the Borrower and the  Administrative  Agent agree to enter into  negotiations in
order to amend such provisions of this Agreement so as to equitably reflect such
Accounting  Changes with the desired result that the criteria for evaluating the
Borrower's  financial  condition shall be the same after such Accounting Changes
as if such  Accounting  Changes  had not been  made.  Until such time as such an
amendment  shall  have  been  executed  and  delivered  by  the  Borrower,   the
Administrative   Agent  and  the  Required  Lenders,  all  financial  covenants,
standards  and  terms in this  Agreement  shall  continue  to be  calculated  or
construed as if such Accounting Changes had not occurred.  "Accounting  Changes"
refers to changes in accounting  principles  required by the promulgation of any
rule, regulation, pronouncement or opinion by the Financial Accounting Standards
Board  of  the  American  Institute  of  Certified  Public  Accountants  or,  if
applicable, the SEC.

"Governmental Authority": any nation or government, any state or other
political subdivision thereof, any agency, authority, insrumentality, regulatory
body,  court,  central bank or other entity exercising  executive,  legislative,
judicial,  taxing,  regulatory or  administrative  functions of or pertaining to
government,  any  securities  exchange  and  any  self-regulatory   organization
(including the National Association of Insurance Commissioners).

"Guarantee  and  Collateral  Agreement":  the Guarantee and Collateral
Agreement  to be executed and  delivered  by the  Borrower  and each  Subsidiary
Guarantor,  substantially  in the form of Exhibit A, as the same may be amended,

supplemented or otherwise modified from time to time.

"Guarantee Obligation":  as to any person (the "guaranteeing person"),
any obligation of (a) the guaranteeing  person or (b) another Person  (including
any bank  under  any  letter of  credit)  to induce  the  creation  of which the
guaranteeing  person has  issued a  reimbursement,  counterindemnity  or similar
obligation,   in  either  case  guaranteeing  or  in  effect   guaranteeing  any
Indebtedness (the "primary obligations") of any other third Person (the "primary
obligor")  in  any  manner,  whether  directly  or  indirectly,   including  any
obligation  of  the  guaranteeing  person,  whether  or not  contingent,  (i) to
purchase any such primary  obligation  or any  property  constituting  direct or
indirect security therefor, (ii) to advance or supply funds (1) for the purchase
or payment of any such primary  obligation or (2) to maintain working capital or
equity capital of the primary  obligor or otherwise to maintain the net worth or
solvency  of the primary  obligor,  (iii) to purchase  property,  securities  or
services  primarily  for the purpose of assuring  the owner of any such  primary
obligation of the ability of the primary obligor to make payment of such primary
obligation  or (iv)  otherwise to assure or hold  harmless the owner of any such
primary obligation against loss in respect thereof provided,  however,  that the
term Guarantee  Obligation  shall not include  endorsements  of instruments  for
deposit or  collection  in the ordinary  course of  business.  The amount of any
Guarantee  Obligation of any guaranteeing person shall be deemed to be the lower
of (a) an amount  equal to the  stated  or  determinable  amount of the  primary
obligation  in respect of which such  Guarantee  Obligation  is made and (b) the
maximum amount for which such guaranteeing  person may be liable pursuant to the
terms of the instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount which such  guaranteeing  person may be liable
are not  stated or  determinable,  in which  case the  amount of such  Guarantee
Obligation shall be such guaranteeing  person's maximum  reasonably  anticipated
liability in respect thereof as determined by the Borrower in good faith.

10

"Hedge Agreements": all interest rate swaps, caps or collar agreements
or similar  arrangements  dealing with interest rates or currency exchange rates
or the  exchange of nominal  interest  obligations,  either  generally  or under
specific contingencies.

"Indebtedness":  of any Person at any date, without  duplication,  (a)
all  indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the  deferred  purchase  price of property  or  services  (other than
current trade payables incurred in the ordinary course of such Person's business
and  contingent  payments,   earn-outs,   incentive   arrangements  and  similar
obligations  arising  in  connection  with  Permitted  Acquisitions),   (c)  all
obligations  of such  Person  evidenced  by notes,  bonds,  debentures  or other
similar  instruments,   (d)  all  indebtedness  created  or  arising  under  any
conditional  sale or other title  retention  agreement  with respect to property
acquired by such Person  (even  though the rights and  remedies of the seller or
lender under such agreement in the event of default are limited to  repossession
or sale of such property), (e) all Capital Lease Obligations of such Person, (f)
all  obligations  of such Person,  contingent or otherwise,  as an account party
under acceptances,  letters of credit, sure bonds or similar  arrangements,  (g)
the  liquidation  value of all  preferred  Capital  Stock of such Person that is
redeemable  at the  option of the holder  thereof  on or prior to the  Revolving
Termination  Date  (other  than in  connection  with  asset  sales or changes of
control),(h) all Guarantee  Obligations of such Person in respect of obligations
of the kind referred to in clauses (a) through (g) above, (i) all obligations of
the kind  referred to in clauses  (a)  through (h) above  secured by any Lien on
property  (including amounts and contract rights) owned by such Person,  whether
or not such  Person  has  assumed  or  become  liable  for the  payment  of such
obligation,  provided that the amount of such  obligations  deemed  Indebtedness
under this clause (i) shall equal the lesser of the outstanding principal amount
of such  obligations  and the value of the property of such Person securing such
obligations,  and (j) for the  purposes  of  Sections  7.2 and  8(e)  only,  all
obligations of such Person in respect of Hedge  Agreements.  The Indebtedness of
any Person shall include the  Indebtedness  of any other entity  (including  any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person's  ownership  interest in or other
relationship  with  such  entity,  except  to  the  extent  the  terms  of  such
Indebtedness expressly provide that such Person is not liable therefor.

"Insolvency":  with respect to any  Multiemployer  Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.

"Insolvent": pertaining to a condition of Insolvency.

"Intellectual  Property":  the  collective  reference  to all  rights,
priorities and privileges  relating to  intellectual  property,  whether arising
under  United  States,  multinational  or foreign laws or  otherwise,  including
copyrights,  copyright licenses, patents, patent licenses, trademarks, trademark
licenses, technology, know-how and processes, and all rights to sue at law or in
equity for any infringement or other impairment thereof,  including the right to
receive all proceeds and damages therefrom.

"Interest  Payment Date": (a) as to any ABR Loan, the last day of each
March, June,  September and December to occur while such Loan is outstanding and
the final maturity date of such Loan,  (b) as to any  Eurodollar  Loan having an
Interest  Period of three months or less, the last day of such Interest  Period,
(c) as to any  Eurodollar  Loan  having an  Interest  Period  longer  than three
months,  each day that is three months, or a whole multiple  thereof,  after the
first day of such Interest  Period and the last day of such Interest  Period and
(d) as to any Loan  (other than any  Revolving  Loan that is an ABR Loan and any
Swingline  Loan),  the  date of any  repayment  or  prepayment  made in  respect
thereof.

11

"Interest  Period":  as to any Eurodollar  Loan,  (a)  initially,  the
period  commencing on the borrowing or conversion date, as the case may be, with
respect  to such  Eurodollar  Loan and  ending  one,  two,  three or six  months
thereafter,  as selected by the Borrower in its notice of borrowing or notice of
conversion,  as the case may be, given with respect thereto; and (b) thereafter,
each period  commencing on the last day of the next  preceding  Interest  Period
applicable  to such  Eurodollar  Loan and ending one,  two,  three or six months
thereafter,   as  selected  by  the  Borrower  by  irrevocable   notice  to  the
Administrative  Agent not less than three Business Days prior to the last day of
the then current Interest Period with respect thereto; provided that, all of the
foregoing provisions relating to Interest Periods are subject to the following:

(i) if any Interest Period would otherwise end on a day that
is not a Business Day,  such Interest  Period shall be extended to the
next succeeding Business Day unless the result of such extension would
be to carry such Interest Period into another  calendar month in which
event such  Interest  Period  shall end on the  immediately  preceding
Business Day;

(ii) the  Borrower  may not select an  Interest  Period that
would extend beyond the Revolving Termination Date;

(iii) any Interest  Period that begins on the last  Business
Day of a calendar month (or on a day for which there is no numerically
corresponding  day in the calendar  month at the end of such  Interest
Period) shall end on the last Business Day of a calendar month; and

(iv) the Borrower shall select Interest Periods so as not to
require a payment  or  prepayment  of any  Eurodollar  Loan  during an
Interest Period for such Loan.

"Investments": as defined in Section 7.8.

"Issuing Lender":  The Chase Manhattan Bank, in its capacity as Issuer
of any  Letter of  Credit,  together  with any other  Lender  designated  by the
Administrative  Agent (with such Lender's consent) to serve as an Issuing Lender
hereunder.  Each reference  herein to "the Issuing Lender" shall, as the context
requires, refer to each Issuing Lender or relevant Issuing Lender.

"L/C Commitment": $50,000,000.

"L/C Obligations":  at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then  outstanding  Letters of
Credit and (b) the  aggregate  amount of drawings  under  Letters of Credit that
have not then been reimbursed pursuant to Section 3.5.

"L/C Participants":  the collective reference to all the Lenders other
than the Issuing Lender.

"Lenders": as defined in the preamble hereto.

"Letters of Credit": as defined in Section 3.1(a).

"Lien":  any  mortgage,  pledge,  hypothecation,  assignment,  deposit
arrangement,  encumbrance,  lien (statutory or other),  charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever  (including any conditional sale or
other title retention  agreement and any capital lease having  substantially the
same economic effect as any of the foregoing).

12

"Loan": any loan made by any Lander pursuant to this Agreement.

"Loan Documents": this Agreement and the Security Documents.

"Loan Parties":  the Borrower and each Subsidiary of the Borrower that
is a party to a Loan Document.

"Material  Adverse  Effect":  a  material  adverse  effect  on (a) the
business,  operations or condition  (financial or otherwise) of the Borrower and
its Subsidiaries  taken as a whole or (b) the validity or enforceability of this
Agreement  or any of the other Loan  Documents  or the rights or remedies of the
Administrative Agent or the Lenders hereunder or thereunder.

"Materials  of  Environmental  Concern":  any  gasoline  or  petroleum
(including  crude oil or any  fraction  thereof)  or  petroleum  products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including asbestos, polychlorinated biphenyls
and urea-formaldehyde insulation.

"Material  Subsidiary":  any  Subsidiary  of the  Borrower  whose  (a)
assets,  (b) revenues or (c) earnings before interest,  taxes,  depreciation and
amortization  (excluding  intercompany  receivables  and revenues  that would be
eliminated  upon  consolidation  in  accordance  with  GAAP),  at  the  time  of
determination (determined, in the case of clauses (b) and (c), in respect of the
most recent period of four consecutive fiscal quarters of the Borrower for which
the  relevant  financial  information  is  available),  in any such case  exceed
$2,500,000.

"Multiemployer  Plan': a Plan that is a multiemployer  plan as defined
in Section 4001(a)(3)of ERISA.

"Net Cash  Proceeds":  (a) in  connection  with any Asset  Sale or any
Recovery Event,  the proceeds  thereof in the form of cash and Cash  Equivalents
(including  any such proceeds  received by way of deferred  payment of principal
pursuant  to a note or  installment  receivable  or  purchase  price  adjustment
receivable or otherwise,  but only if, as and when  received) of such Asset Sale
or Recovery Event, net of attorneys' fees, accountants' fees, investment banking
fees, amounts required to be applied to the repayment of Indebtedness secured by
a Lien  expressly  permitted  hereunder on any asset that is the subject of such
Asset  Sale or  Recovery  Event  (other  than any Lien  pursuant  to a  Security
Document) and other customary fees and expenses  actually incurred in connection
therewith  and net of taxes  paid or  reasonably  estimated  to be  payable as a
result  thereof  (after  taking  into  account  any  available  tax  credits  or
deductions resulting directly from such Asset Sale or Recovery Event) and (b) in
connection with any incurrence of Indebtedness,  the cash proceeds received from
such incurrence,  net of attorneys' fees, investment banking fees,  accountants'
fees,  underwriting  discounts  and  commissions  and other  customary  fees and
expenses actually incurred in connection therewith.

"Non-Excluded Taxes", as definedin Section 2.16(a).

"Non-U.S. Lender: as defined In Section 2.16(d).

13

"Obligations":  the unpaid  principal  of and  interest on  (including
interest accruing after the maturity of the Loans and Reimbursement  Obligations
and interest  accruing  after the filing of any petition in  bankruptcy,  or the
commencement of any insolvency,  reorganization or like proceeding,  relating to
the Borrower,  whether or not a claim for post-filing or post-petition  interest
is  allowed  in such  proceeding)  the  Loans  and  all  other  obligations  and
liabilities or the Borrower to the Administrative Agent or to any Lender (or, in
the cast of Hedge  Agreements,  any affiliate of any Lender),  whether direct or
indirect,  absolute or  contingent,  due or to become  due,  or now  existing or
hereafter  incurred,  which may arise under, out of, or in connection with, this
Agreement,  any other Loan Document,  the Letters of Credit, any Hedge Agreement
entered  into  with any  Lender  or any  affiliate  of any  Lender  or any other
document made,  delivered or given in connection herewith or therewith,  whether
an account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including all fees, charges and disbursements of counsel to the
Administrative  Agent  or to any  Lender  that  are  required  to be paid by the
Borrower pursuant hereto) or otherwise.

"Other  Taxes":  any and all  present or future  stamp or  documentary
taxes or any other excise or property  taxes,  charges or similar levies arising
from any payment made hereunder or from the  execution,  delivery or enforcement
of, or otherwise with respect to, this Agreement or any other Loan Document.

"Participant": as defined in Section 10.6(b).

"PBGC": the Pension Benefit Guaranty Corporation  established pursuant
to Subtitle A of Title IV of ERISA (or any successor).

"Permitted Acquisition": any acquisition by the Borrower or any Wholly
Owned  Subsidiary  Guarantor  of  all  of  the  Capital  Stock  of,  or  all  or
substandatly  all of the assets of, or of a business,  unit or division  of, any
Person;  provided that (a) the Borrower shall be in  compliance,  on a pro forma
basis after giving effect to such acquisition,  with the covenants  contained in
Section  7.1, in each case  recomputed  as at the last day of the most  recently
ended  fiscal  quarter of the Borrower  for which the  relevant  information  is
available as if such acquisition, had occurred on the first day of each relevant
period for testing  such  compliance  (as  demonstrated  in a  certificate  of a
Reponsible  Officer  delivered to the  Administrative  Agent not less than three
Business  Days  prior to such  acquisition),  (b) no Default or Event of Default
shall have  occurred and be  continuing,  or would occur after giving  affect to
such acquisition, (c) substantially all of the assets being acquired (or, in the
case of  acquisitions of Capital Stock,  substantially  all of the assets of the
Person being acquired and its  Subsidiaries)  shall be located within the United
States,  (d) in the case of  acquisitions  of Capital  Stock,  the Person  being
acquired  and each of its  Subsidiaries  shall be  organized  in a  jurisdiction
within the United States, (e) the businesses  acquired as a result thereof shall
be Apparel Businesses, and (f) any such acquisition should have been approved by
the Board of Directors or comparable governing body of the relevant Person.

"Permitted  Investors":  the collective reference to Maurice Marciano,
Paul  Marciano  and  Armand  Marciano,  the  members  of their  families,  their
respective estates,  spouses, heirs, ancestors,  lineal descendants,  spouses of
lineal descendants,  legatees and legal  representatives of any of the foregoing
and any trust of which one or more of the foregoing are the beneficiaries.

"Person": an individual,  partnership,  corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.

14

"Plan":  at a  particular  time,  any  employee  benefit  plan that is
covered by ERISA and in respect of which the  Borrower or a Commonly  Controlled
Entity is (or, if such plan were  terminated  at such time,  would under Section
4069 of ERISA be deemed to be) an  "employee"  as  defined  in  Section  3(5) of
ERISA.

"Pricing Grid: the pricing grid attached hereto as Annex A.

"Projections": as defined in Section 6.2(c).

"Properties": as defined in Section 4.17(a).

"Recovery  Event":  any  settlement  of or  payment  in respect of any
property or casualty insurance claim or any condemnation  proceeding relating to

any asset of the Borrower or any of its Subsidiaries.

"Refunded Swingline Loans": as defined in Section 2.4.

"Refunding Date": as defined in Section 2.4.

"Register": as defined in Section 10.6(d).

"Regulation  U":  Regulation  U of the Board as in effect from time to
time.

"Reimbursement   Obligation":   the  obligation  of  the  Borrower  to
reimburse  the Issuing  Lender  pursuant to Section 3.5 for amounts  drawn under

Letters of Credit.

"Reinvestment Deferred Amount: with respect to any Reinvestment Event,
the  aggregate  Net  Cash  Proceeds  received  by  the  Borrower  or  any of its
Subsidiaries  in  connection  therewith  that  are not  applied  to  reduce  the
Revolving  Credit  Commitments  pursuant  to  Section  2.8(b) as a result of the
delivery of a Reinvestment Notice.

"Reinvestment  Event":  any Asset Sale or Recovery Event in respect of
which the Borrower has delivered a Reinvestment Notice.

"Reinvestment  Notice":  a written  notice  executed by a  Responsible
Officer stating that no Event of Default has occurred and is continuing and that
the Borrower (directly or indirectly  through a Subsidiary)  intends and expects
to use all or a specified  portion of the Net Cash  Proceeds of an Asset Sale or
Recovery Event to acquire assets useful in its business.

"Reinvestment  Prepayment  Amount":  with respect to any  Reinvestment
Event,  the  Reinvestment  Deferred  Amount  relating  thereto  less any  amount
expended prior to the relevant  Reinvestment  Prepayment  Date to acquire assets
useful in the business of the Borrower or any of its Subsidiaries,

"Reinvestment  Prepayment  Date":  with  respect  to any  Reinvestment
Event,  the earlier of (a) the date  occurring 365 days after such  Reinvestment
Event  and (b) the date on which  the  Borrower  shall  have  determined  not to
acquire assets useful in the business of the Borrower or any of its Subsidiaries
with all or any portion of the relevant Reinvestment Deferred Amount.

15

"Reorganization":   with  respect  to  any  Multiemployer   Plan,  the
condition that such plan is in reorganization within the meaning of Section 4241

of ERISA.

"Reportable  Event": any of the events set forth in Section 4043(b) of
ERISA,  other  than those  events as to which the  thirty  day notice  period is
waived under  subsections  .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg.

ss. 4043.

"Required  Lenders":  at any time, the holders of more than 50% of the
Total Revolving  Credit  Commitments  then in effect or, if the Revolving Credit
Commitments have been terminated,  tho Total Revolving Extentions of Credit then
outstanding.

"Requirement   of  Law":  as  to  any  Person,   the   Certificate  of
Incorporation and the By-Laws or other  organizational or governing documents of
such Person,  and any law, treaty,  rule or regulation or  deterrnination  of an
arbitrator or a court or other Govenmental Authority, in each case applicable to
or binding  upon such  Person or any of its  property or to which such Person or
any of its property is subject.

"Responsible Officer": the chief executive officer,  president,  chief
financial officer, treasurer,  assistant treasurer or secretary of the Borrower,
but in any  event,  with  respect  to  financial  matters,  the chief  financial
officer, treasurer or assistant treasurer of the Borrower.

"Restricted Payments": as defined in Section 7.6.

"Revolving  Credit  Commitment":  as to any Lender,  the obligation of
such Lender,  if any, to make Revolving Loans and participate in Swingline Loans
and Letters of credit in an aggregate principal and/or face amount not to exceed
the amount set forth under the heading  "Revolving Credit  Commitment"  opposite
such Lender's name on Schedule 1.1 or in the Assignment and Acceptance  pursuant
to which such Lender became a party hereto, as the same may be changed from time
to time pursuant to the terms hereof. The original amount of the Total Revolving
Credit Commitments is $125,000,000.

"Revolving  Credit Commitment  Period":  the period from and including
the Closing Date to the Revolving Termination Date.

"Revolving  Extensions  of  Credit":  as to any Leder at any time,  an
amount equal to the sum of (a) the aggregate  principal  amount of all Revolving
Loans  hold by  such  Lender  then  outstanding,  (b)  such  Lender's  Revolving
Percentage  of the  L/C  Obligations  then  outstanding  and (c)  such  Lender's
Revolving  Percentage of the aggregate  principal amount of Swingline Loans then
outstanding.

"Revolving Loans": as defined in Section 2.1(a).

"Revolving  Percentage":  as to any Lender at any time, the percentage
which such Lender's  Revolving  Credit  Commitment then constitutes of the Total
Revolving  Credit  Commitments  (or,  at any time  after  the  Revolving  Credit
Commitments shall have expired or terminated, the percentage which the aggregate
principal amount of such Lenders Revolving Loans then outstanding constitutes of
the aggregate principal amount of the Revolving Loans then outstanding).

"Revolving Termination Date": October 31, 2002.

"SEC": the Securities and Exchange  Commission,  any successor thereto
and any analogous Governmental Authority.

16

"Security  Documents":  the collective  reference to the Guarantee and
Collateral Agreement and any other security documents hereafter delivered to the
Administrative Agent granting a Lien on any property of any Person to secure the
obligations and liabilities of any Loan Party under any Loan Document.

"Senior Subordinated Note Indenture": the Indenture dated as of August
23, 1993, between the Borrower and First Trust National Association, as trustee,
together with all instruments and  supplemented or otherwise  modified from time
to time in accordance with Section 7.9, and any successor Indenture entered into
in  connection  with a  replacement,  refinancing  or  extension  of the  Senior
Subordinated  Notes (so long as the aggregate  outstanding  principal  amount of
Senior Subordinated Notes then outstanding is not increased as a result thereof,
as the same may be amended, supplemented or otherwise modified from time to time
in  accordance  with  Section  7.9,  provided  (i)  that  the  terms of any such
successor  Indenture  shall not be materially less favorable to the interests of
the Lenders than those  contained  in the  Indenture as in effect on the Closing
Date and (ii) the maturity of the  Indebtedness  issued under any such successor
Indenture shall be no earlier than August 15, 2003.

"Senior  Subordinated  Notes":  the senior  subordinated  notes of the
Borrower issued pursuant to the Senior Subordinated Note Indenture.

"Single Employer Plan": any Plan that is covered by Title IV of ERISA,
but that is not a Multiemployer Plan.

"Solvent": when used with respect to any Person, means that, as of any
date of  determination,  (a) the amount of the "present fair saleable  value" of
the  assets of such  Person  will,  as of such  date,  exceed  the amount of all
"liabilities of such Person,  contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing  determinations  of the  insolvency  of debtors,  (b) the present fair
saleable  value of the assets of such Person will,  as of such date,  be greater
than the amount  that will be  required to pay the  probable  liability  of such
Person on its debts as such debts become  absolute and matured,  (c) such Person
will not have,  as of such date,  an  unreasonably  small amount of capital with
which to conduct its business, and (d) such Person will be able to pay its debts
as they mature. For purposes of this definition, (i) "debt" means liability on a
"claim", and (ii) "claim" means any (x) right to payment,  whether or not such a
right is reduced  to  judgment,  liquidated,  unliquidated,  fixed,  contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured
or (y) right to an  equitable  remedy for breach of  performance  if such breach
gives rise to a right to  payment,  whether  or not such  right to an  equitable
remedy  is  reduced  to  judgment,  fixed,  contingent,  matured  or  unmatured,
disputed,  undisputed,  secured or  unsecured.  The amount of any claim shall be
computed as the amount which, in the light of the facts and circumstances at the
applicable time, represents the amount that can reasonably be expected to become
an actual or matured liability.

"Specified  Change Control":  a "Change in Control" (or any comparable
concept) as defined in the Senior  Subordinated Note Indenture during any period
when the Senior Subordinated Note Indenture is in effect.

"Standby  L/C Fee Payment  Date":  the last day of each  March,  June,
September  and  December  and the last day of the  Revolving  Credit  Commitment
Period.

"Standby  Letter  of  Credit":  any  Letter  of  Credit  other  than a
Documentary Letter of Credit.

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"Subsidiary":  as to any Person, a corporation,  partnership,  limited
liability  company or other entity of which  shares of stock or other  ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect  a  majority  of  the  board  of  directors  or  other  managers  of  such
corporation,  partnership  or other entity are at the time owned by such Person.
Unless   otherwise   qualified,   all  references  to  a   "Subsidiary"   or  to
"Subsidiaries"  in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Borrower.

"Subsidiary Guarantor"" each Subsidiary of the Borrower other than any
Foreign Subsidiary.

"Surviving Letters of Credit"" as defined in Section 5.1(b)

"Swingline Commitment": the obligation of the Swingline Lender to make
Swingline Loans pursuant to Section 2.3 in an aggregate  principal amount at any
one time outstanding not to exceed $10,000,000.

"Swingline  Lender":  The Chase Manhattan Bank, in its capacity as the
lender of Swingline Loans.

"Swingline Loans": as defined in Section 2.3.

"Swingline Participation Amount": as defined in Section 2.4.

"Total  Revolving  Credit  Commitments":  at any time,  the  aggregate
amount of the Revolving Credit Commitments then in effect.

"Total  Revolving  Extensions of Credit":  at any time,  the aggregate
amount of the Revolving  Extensions of Credit of the Lenders outstanding at such
time.

"Transferee": any Assignee or Participant.

"Type":  as to any Loan,  its  nature  as an ABR Loan or a  Eurodollar
Loan.

"United States": the United States of America.

"Wholly Owned  Subsidiary":  as to any Person, any other Person all of
the Capital Stock of which (other than directors'  qualifying shares required by
law) is  owned  by such  Person  directly  and/or  through  other  Wholly  Owned
Subsidiaries.

"Wholly Owned Subsidiary Guarantor":  any Subsidiary Guarantor that is
a Wholly Owned Subsidiary of the Borrower.

1.2 Other  Definitional  Provisions.  (a) Unless  otherwise  specified
therein,  all terms defined in this  Agreement  shall have the defined  meanings
when used in the other Loan Documents or any  certificate or other document made
or delivered pursuant hereto or thereto.

(b)  As  used  herein  and  in  the  other  Loan  Documents,  and  any
certificate or other document made or delivered pursuant hereto or thereto,  (i)
accounting  terms relating to the Borrower and its  Subsidiaries  not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent

18

not defined,  shall have the  respective  meanings given to them under
GAAP, (ii) the words "include", "includes" and "including" shall be deemed to be
followed by the phrase  "without  limitation",  (iii) the word "incur"  shall be
construed to mean incur, create,  issue, assume,  become liable in respect of or
suffer  to  exist  (and  the  words  "incurred"  and  "incurrence"   shall  have
correlative  meanings),  and (iv) the  words  "asset"  and  "property"  shall be
construed  to have  the  same  meaning  and  effect  and to refer to any and all
tangible and intangible  assets and properties,  including  cash,  Capital Sock,
securities, revenues, accounts, leasehold interests and contract rights.

(c) The words "hereof",  "herein" and "hereunder" and words of similar
import when used in this Agreement  shall refer to this Agreement as a whole and
not to any particular  provision of this  Agreement,  and Section,  Schedule and
Exhibit references are to this Agreement unless otherwise specified.

(d) The  meanings  given  to terms  defined  herein  shall be  equally
applicable to both the singular and plural forms of such terms. The captions and
headings of the various  Sections and Subsections of this Agreement are provided
for convenience only and shall not affect or modify the meaning thereof.

SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS

2.1  Revolving  Credit  Commitments.  (a)  Subject  to the  terms  and
conditions  hereof,  each Lender severally agrees to make revolving credit loans
("Revolving  Loans") to the  Borrower  from time to time  during  the  Revolving
Credit  Commitment  Period  in an  aggregate  principal  amount  at any one time
outstanding  which, when added to such Lender's  Revolving  Percentage of sum of
(i) the L/C Obligations then outstanding and (ii) the aggregate principal amount
of the  Swingline  Loans  then  outstanding,  does not exceed the amount of such
Lender's  Revolving Credit  Commitment.  During the Revolving Credit  Commitment
Period the Borrower  may use the  Revolving  Credit  Commitments  by  borrowing,
prepaying  The  Revolving  Loans in whole or in part,  and  reborrowing,  all in
accordance  with the terms and conditions  hereof.  The Revolving Loans may from
time to time be Eurodollar Loans or ABR Loans, as determined by the Borrower and
notified to the Administrative Agent in accordance with Sections 2.2 and 2.9.

(b) The Borrower shall repay all  outstanding  Revolving  Loans on the
Revolving Termination Date.

2.2 Procedure for Revolving  Loan  Borrowing.  The Borrower may borrow
under the Revolving Credit  Commitments  during the Revolving Credit  Commitment
Period  on  any  Business  Day,  provided  that  the  Borrower  shall  give  the
Administrative  Agent  irrevocable  notice (which notice must be received by the
Administrative  Agent (a) prior to 2:00 p.m., New York City time, three Business
Days prior to the requested  Borrowing Date, in the case of Eurodollar Loans, or
(b) prior to 12:00 Noon, New York City time, on the requested Borrowing Date, in
the case of ABR Loans), specifying (i) the amount and Type of Revolving Loans to
be  borrowed,  (ii)  the  requested  Borrowing  Date  and  (iii)  in the case of
Eurodollar  Loans,  the  respective  amounts  of each  such Type of Loan and the
respective lengths of the initial Interest Period therefor.  Any Revolving Loans
made on the Closing Date shall initially be ABR Loans. Each such borrowing shall
be in an amount  equal to (x) in the case of ABR Loans,  $2,5000,000  or a whole
multiple of $1,000,000 in excess  thereof (or, if the then  aggregate  Available
Revolving Credit  Commitments are less than $2,500,000,  such lesser amount) and
(y) in  the  case  of  Eurodollar  Loans,  $5,000,000  or a  whole  multiple  of
$1,000,000 in excess thereof:  provided,  that the Swingline Lender may request,
on behalf of the Borrower,  borrowings  under the Revolving  Credit  Commitments
that are ABR Loans in other amounts pursuant to Section 2.4. Upon receipt of any
such notice from the Borrower, the

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Administrative Agent shall promptly notify each Lender thereof. Each Lender will
make  the  amount  of its pro  rata  share of each  borrowing  available  to the
Administrative Agent for the account of the Borrower at the Funding Office prior
to 12:00  Noon,  New York City time,  on the  Borrowing  Date  requested  by the
Borrower  in funds  immediately  available  to the  Administrative  Agent.  Such
borrowing  will then be made  available  to the  Borrower by the  Administrative
Agent crediting the account of the Borrower on the books of such office with the
aggregate  of the amounts  made  available  to the  Administrative  Agent by the
Lenders and in like funds as received by the Administrative Agent.

2.3  Swingline  Commitment.  (a)  Subject  to the terms and  conditions
hereof,  the Swingline  Lender agrees to make a portion of the credit  otherwise
available to the Borrower under the Revolving  Credit  Commitments  from time to
time during the Revolving  Credit  Commitment  Period by making swing line loans
("Swingline  Loans") to the Borrower;  provided that (i) the aggregate principal
amount of Swingline Loans outstanding at any time shall not exceed the Swingline
Commitment then in effect  (notwithstanding that the Swingline Loans outstanding
at any time,  when  aggregated  with the Swingline  Lender's  other  outstanding
Revolving Loans hereunder,  may exceed the Swingline  Commitment then in effect)
and (ii) the Borrower  shall not  request,  and the  Swingline  Lender shall not
make, any Swingline Loan if, after giving effect to the making of such Swingline
Loan, the aggregate amount of the Available  Revolving Credit  Commitments would
be less than zero. During the Revolving Credit Commitment  Period,  the Borrower
may use the Swingline Commitment by borrowing,  repaying and reborrowing, all in
accordance  with the terms and conditions  hereof.  Swingline Loans shall be ABR
Loans only.

(b) The Borrower  shall repay all  outstanding  Swingline  Loans on the
Revolving Termination Date.

2.4 Procedure for Swingline  Borrowing:  Refunding of Swingline  Loans.
(a) Whenever the Borrower desires that the Swingline Lender make Swingline Loans
it shall give the  Swingline  Lender  irrevocable  telephonic  notice  confirmed
promptly in writing (which  telephonic  notice must be received by the Swingline
Lender not later than 3:00 P.M.,  New York City time, on the proposed  Borrowing
Date), specifying (i) the amount to be borrowed and (ii) the requested Borrowing
Date  (which  shall be a Business  Day during the  Revolving  Credit  Commitment
Period).  Each borrowing under the Swingline Commitment shall be in amount equal
to $500,000 or a whole  multiple of $100,000 in excess  thereof.  Not later than
4:00 P.M.,  New York City time, on the Borrowing  Date  specified in a notice in
respect of Swingline  Loans,  the Swingline  Lender shall make  available to the
Administrative  Agent at the Funding Office an amount in  immediately  available
funds  equal to the  amount of the  Swingline  Loan to be made by the  Swingline
Lender. The Administrative  Agent shall make the proceeds of such Swingline Loan
available to the Borrower on such Borrowing Date by depositing  such proceeds in
the account of the Borrower with the Administrative Agent on such Borrowing Date
in immediately available funds.

(b) The Swingline Lender, at any time and from time to time in its sole
and absolute discretion may, on behalf of the Borrower (which hereby irrevocably
directs the Swingline Lender to act on its behalf), on one Business Day's notice
given by the  Swingline  Lender no later  than 12:00  Noon,  New York City time,
request each Lender to make,  and each Lender hereby agrees to make, a Revolving
Loan, in an amount equal to such Lender's Revolving  Percentage of the aggregate
amount of the Swingline Loans (the "Refunded  Swingline  Loans")  outstanding on
the date of such notice, to repay the Swingline  Lender.  Each Lender shall make
the amount of such Revolving Loan available to the  Administrative  Agent at the
Funding Office in immediately  available  funds,  not later than 10:00 A.M., New
York City time, one Business Day after the date of such notice.  The proceeds of
such Revolving Loans shall be immediately  made available by the  Administrative
Agent to the Swingline  Lender for  application  by the Swingline  Lender to the
repayment of the Refunded Swingline Loans. The Borrower

20

unconditionally  agrees to pay to the Swingline Lender on demand any amount that
is not so received from the Lenders.

(c) If prior to the time a  Revolving  Loan would have  otherwise  been
made  pursuant to Section  2.4(b),  one of the events  described in Section 8(f)
shall have occurred and be continuing with respect to the Borrower or if for any
other reason,  as determined  by the  Swingline  Lender in its sole  discretion,
Revolving Loans may not be made as  contemplated by Section 2.4(b),  each Lender
shall on the date such  Revolving  Loan was to have been  made  pursuant  to the
notice referred to in Section 2.4(b) (the "Refunding  Date"),  purchase for cash
an undivided  participating  interest in the then outstanding Swingline Loans by
paying to the Swingline Lender an amount (the "Swingline  Participation Amount")
equal  to (i)  such  Lender's  Revolving  Percentage  times  (ii) the sum of the
aggregate principal amount of Swingline Loans then outstanding that were to have
been repaid with such Revolving Loans.

(d) Whenever,  at any time after the Swingline Lender has received from
any Lender such Lender's  Swingline  Participation  Amount, the Swingline Lender
receives any payment on account of the Swingline  Loans,  the  Swingline  Lender
will distribute to such Lender its Swingline Participation Amount (appropriately
adjusted, in the case of interest payments, to reflect the period of time during
which such Lender's  participating  interest was  outstanding and funded and, in
the case of principal and interest  payments,  to reflect such Lender's pro rata
portion of such payment if such payment is not  sufficient  to pay the principal
of and interest on all Swingline Loans then due); provided however,  that in the
event that such  payment  received  by the  Swingline  Lender is  required to be
returned,  such Lender will return to the Swingline  Lender any portion  thereof
previously distributed to it by the Swingline Lender.

(e) Each Lender's  obligation to make the Loans  referred to in Section
2.4(b) and to purchase participating  interests pursuant to Section 2.4(c) shall
be absolute  and  unconditional  and shall not be affected by any  circumstance,
including (i) any setoff, counterclaim,  recoupment, defense or other right that
such Lender or the Borrower may have against the Swingline Lender,  the Borrower
or  any  other  Person  for  any  reason  whatsoever;  (ii)  the  occurrence  or
continuance of a default or an Event of Default or the failure to satisfy any of
the other  conditions  specified  in Section 5; (iii) any adverse  change in the
condition  (financial or  otherwise)  of the  Borrower;  (iv) any breach of this
Agreement or any other Loan Document by the Borrower, any other Loan Party o any
other  Lender;  or (v) any other  circumstance,  happening or event  whatsoever,
whether or not similar to any of the foregoing.

2.5   Commitment   Fees  etc.  (a)  The  Borrower   agrees  to  pay  to
Administrative  Agent for the  account of each Lender a  commitment  fee for the
period  from and  including  the Closing  Date to the last day of the  Revolving
Credit  Commitment  Period,  computed at the  Commitment Fee Rate on the average
daily amount of the Available  Revolving Credit Commitment of such Lender during
the period for which payment is made,  payable  quarterly in arrears on the last
day of each March, June, September and December and on the Revolving Termination
Date, commencing on the first of such dates to occur after the date hereof.

(b) The  Borrower  agrees  to pay to the  Administrative  Agent and the
Issuing Lender the fees in the amounts and on the dates previously  agreed to in
writing by the Borrower, the Administrative Agent and the Issuing Lender.

2.6  Termination  or  Reduction of Revolving  Credit  Commitments.  The
Borrower shall have the right, upon not less than three Business Days' notice to
the Administrative Agent, to terminate the Revolving Credit Commitments or, form
time to , to reduce the amount of the  Revolving  Credit  Commitments;  provided
that no such termination or reduction of Revolving Credit  Commitments  shall be
permitted  if,  after  giving  effect  thereto  and  to any  prepayments  of the
Revolving Loans and Swingline

21

Loans made on the effective  date  thereof,  the Total  Revolving  Extensions of
Credit would exceed the Total Revolving Credit  Commitments.  Any such reduction
shall be in an amount equal to $5,000,000,  or a whole multiple of $1,000,000 in
excess thereof,  and shall reduce  permanently the Revolving Credit  Commitments
then in effect.

2.7 Optional Prepayments. The Borrower may at any time and from time to
time prepay the Loans,  in whole or in part,  without  premium or penalty,  upon
irrevocable notice delivered to the Administrative Agent at least Three Business
Days prior thereto in the case of Eurodollar Loans and at least one Business Day
prior  thereto in the case of ABR Loans which notice shall  specify the date and
amount of prepayment  and whether the  prepayment is of Eurodollar  Loans or ABR
Loans; provided,  that if a Eurodollar Loan is prepaid on any day other than the
last day of the Interest Period applicable thereto,  the Borrower shall also pay
any amounts owing pursuant to Section 2.17.  Upon receipt of any such notice the
Administrative  Agent shall promptly notify each relevant Lender thereof. If any
such  notice is given,  the amount  specified  in such  notice  shall be due and
payable  on the date  specified  therein,  together  with(except  in the case of
Revolving Loans that are ABR Loans and Swingline Loans) accrued interest to such
date on the amount prepaid.  Partial  prepayments of Revolving Loans shall be in
an aggregate principal amount of $2,500,000 or a whole multiple of $1,000,000 in
excess thereof.  Partial prepayments of Swingline Loans shall be in an aggregate
principal amount of $100,000 or a whole multiple thereof.

2.8  Mandatory  Revolving  Credit  Commitment  Reductions.  (a)  If any
Indebtedness  shall  be  incurred  by the  Borrower  or any of its  Subsidiaries
(excluding any Indebtedness  incurred in accordance with Section 7.2), an amount
equal to 100% of the Net Cash  Proceeds  thereof shall be applied on the date of
such incurrence toward the reduction of the Revolving Credit Commitments.

(b) If on any  date  the  Borrower  or  any of its  Subsidiaries  shall
receive Net Cash Proceeds from any Asset Sale or Recovery  Event then,  unless a
Reinvestment  Notice  shall  be  delivered  in  respect  thereof,  such Net Cash
Proceeds  shall be applied  within five Business Days after such date toward the
reduction of the Revolving Credit Commitments;  provided, that,  notwithstanding
the  foregoing,  (i) the  aggregate Net Cash Proceeds of Asset Sales that may be
excluded from the foregoing  requirement pursuant to a Reinvestment Notice shall
not  exceed  $5,000,000  in any  fiscal  year of the  Borrower  and (ii) on each
Reinvestment  Prepayment  Date, an amount equal to the  Reinvestment  Prepayment
Amount with respect to the relevant  Reinvestment  Event shall be applied toward
the reduction of the Revolving Credit Commitments.

(c) Any reduction of the Revolving Credit Commitments  pursuant to this
Section 2.8 shall be  accompanied  by prepayment  of the Revolving  Loans and/or
Swingline Loans to the extent,  if any, that the Total  Revolving  Extensions of
Credit  exceed  the  amount  of the Total  Revolving  Credit  Commitments  as so
reduced,  provided that if the aggregate principal amount of Revolving Loans and
Swingline Loans then outstanding is less than the amount of such excess (because
L/C Obligations constitute a portion thereof), the Borrower shall, to the extent
of the balance of such  excess,  replace  outstanding  Letters of Credit  and/or
deposit  an amount in cash in a cash  collateral  account  established  with the
Administrative  Agent for the  benefit of the  Lenders  on terms and  conditions
reasonably  satisfactory  to the  Administrative  Agent.  Amounts  in such  cash
collateral  account  shall be  refunded  to the  Borrower  at any time that such
amounts  exceed such  excess.  The  application  of any  prepayment  pursuant to
Section 2.8 shall be made, first, to ABR Loans and, second, to Eurodollar Loans.
Each prepayment of the Loans under Section 2.8 (except in the case of ABR Loans)
shall be accompanied by accrued  interest to the date of such  prepayment on the
amount prepaid.

2.9 Conversion  and  Continuation  Options.  (a) The Borrower may elect
from  time to time to  convert  Eurodollar  Loans  to ABR  Loans by  giving  the
Administrative  Agent at least two Business

22

Days'  prior  irrevocable  notice  of such  election,  provided  that  any  such
conversion of  Eurodollar  Loans may only be made on the last day of an Interest
Period with respect thereto. The Borrower may elect from time to time to convert
ABR Loans to Eurodollar Loans by giving the Administrative  Agent at least three
Business  Days' prior  irrevocable  notice of such election  (which notice shall
specify the length of the initial  Interest Period  therefor),  provided that no
ABR Loan may be converted  into a Eurodollar  Loan when any event of Default has
occurred and is continuing and the Administrative  Agent or the Required Lenders
have determined in its or their sole discretion not to permit such conversions.

(b) Any Eurodollar Loan may be continued as such upon the expiration of
the then current  Interest  Period with respect  thereto by the Borrower  giving
irrevocable  notice  to  the  Administrative   Agent,  in  accordance  with  the
applicable  provisions of the term "Interest Period" set forth in Section 1.1 of
the length of the next Interest Period to be applicable to such Loans,  provided
that no  Eurodollar  Loan may be continued as such when any Event of Default has
occurred  and is  continuing  and the  Administrative  Agent has or the Required
Lenders  have  determined  in its or their sole  discretion  not to permit  such
continuations,  and provided,  further,  that if the Borrower shall fail to give
any required notice as described above in this paragraph or if such continuation
is  not  permitted  pursuant  to the  preceding  proviso  such  Loans  shall  be
automatically  converted  to ABR  Loans on the last  day of such  then  expiring
Interest Period.

2.10 Limitations on Eurodollar  Tranches.  Notwithstanding  anything to
the contrary in this Agreement, all borrowings, conversions and continuations of
Eurodollar  Loans  hereunder and all  selections of Interest  Periods  hereunder
shall be in such amounts and be made  pursuant to such  elections  so that,  (a)
after giving effect thereto,  the aggregate  principal  amount of the Eurodollar
Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole
multiple of  $1,000,000 in excess  thereof and (b) no more than five  Eurodollar
Tranches shall be outstanding at any one time.

2.11 Interest Rates and Payment Dates.  (a) Each  Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the  Eurodollar  Rate  determined  for such day plus the
Applicable Margin.

(b) Each ABR Loan shall bear  interest at a rate per annum equal to the
ABR plus the Applicable Margin.

(c) (i) If all or a  portion  of the  principal  amount  of any Loan or
Reimbursement  Obligation  shall not be paid  when due  (whether  at the  stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum  equal to (x) in the case of the Loans,  the rate that would
otherwise be applicable  thereto  pursuant to the  foregoing  provisions of this
Section  plus  2% or (y) in the  case of  Reimbursement  Obligations,  the  rate
applicable  to ABR Loans plus 2%,  and (ii) if all or a portion of any  interest
payable on any Loan or  Reimbursement  Obligation or any commitment fee or other
amount  payable  hereunder  shall not be paid when due  (whether  at the  stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum equal to the rate then  applicable  to ABR Loans plus 2%, in
each case,  with  respect to clauses (i) and (ii)  above,  from the date of such
non-payment  until  such  amount  is paid in  full  (as  well  after  as  before
judgment).

(d) Interest shall be payable in arrears on each Interest Payment Date,
provided that interest  accruing pursuant to paragraph (c) of this Section shall
be payable from time to time on demand.

2.12  Computation  of  Interest  and Fees.  Interest  and fees  payable
pursuant  hereto  shall be  calculated  on the basis of a  360-day  year for the
actual days elapsed, except that, with respect to ABR Loans the rate of interest
on which is  calculated  on the basis of the Prime Rate,  the  interest  thereon
shall

23

be  calculated on the basis of a 365- (or 366-, as the case may be) day year for
the actual days elapsed.  The Administrative  Agent shall as soon as practicable
notify  the  Borrower  and  the  relevant  Lenders  of each  determination  of a
Eurodollar  Rate.  Any change in the interest  rate on a Loan  resulting  from a
change  in  the  ABR or  the  Eurocurrency  Reserve  Requirements  shall  become
effective as of the opening of business on the day on which such change  becomes
effective.  The  Administrative  Agent shall as soon as  practicable  notify the
Borrower  and the  Lenders  of the  effective  date and the  amount of each such
change  in  interest  rate.  Each  determination  of an  interest  rate  by  the
Administrative  Agent  pursuant  to any  provision  of this  Agreement  shall be
conclusive  and  binding  on the  Borrower  and the  lenders  in the  absence of
manifest error.

2.13  Inability to Determine  Interest Rate. If prior to the first day
of any Interest Period:

(a) the Administrative Agent shall have determined (which determination
shall  be  conclusive  and  binding  upon  the  Borrower)  that,  by  reason  of
circumstances  affecting the relevant  market,  adequate and reasonable means do
not exist for ascertaining the Eurodollar Rate for such Interest Period, or

(b) the  Administrative  Agent  shall  have  received  notice  from the
Required  Lenders that the  Eurodollar  Rate  determined or to be determined for
such Interest  Period will not  adequately  and fairly  reflect the cost to such
Lenders (as  conclusively  certified by such  Lenders) of making or  maintaining
their affected Loans during such Interest Period,

the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as  practicable  thereafter.  If such notice is
given (x) any  Eurodollar  Loans  requested  to be made on the first day of such
Interest Period shall be made as ABR Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar  Loans shall be
continued  as ABR  Loans  and (z) any  outstanding  Eurodollar  Loans  shall  be
converted,  on the last day of the then-current  Interest Period,  to ABR Loans.
Until such notice has been  withdrawn by the  Administrative  Agent,  no further
Eurodollar Loans shall be made or continued as such, nor shall the Borrower have
the right to convert Loans to Eurodollar Loans. The  Administrative  Agent shall
withdraw such notice when the circumstances  giving rise to such notice cease to
exist.

2.14  Pro Rata  Treatment  and  Payments.  (a)  Each  borrowing  by the
Borrower from the Lenders hereunder,  each payment by the Borrower on account of
any commitment fee and any reduction of the Revolving Credit  Commitments of the
Lenders shall be made pro rata according to the respective Revolving Percentages
of the Lenders.

(b) Each payment (including each prepayment) by the Borrower on account
of  principal  of and  interest  on the  Revolving  Loans shall be made pro rata
according to the respective outstanding principal amounts of the Revolving Loans
then held by the Lenders.

(c) All  payments  (including  prepayments)  to be made by the Borrower
hereunder,  whether on account of principal,  interest, fees or otherwise, shall
be made without  setoff or  counterclaim  and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders,  at the Funding  Office,  in Dollars and in  immediately
available funds. The Administrative  Agent shall distribute such payments to the
Lenders  promptly  upon  receipt  in like  funds  as  received.  If any  payment
hereunder (other than payments on the Eurodollar  Loans) becomes due and payable
on a day other than a Business  Day,  such payment shall be extended to the next
succeeding  Business  Day. If any payment on a  Eurodollar  Loan becomes due and
payable  on a day other than a  Business  Day,  the  maturity  thereof  shall be
extended to the next succeeding Business Day unless

24

the  result of such  extension  would be to extend  such  payment  into  another
calendar  month,  in which event such payment  shall be made on the  immediately
preceding Business Day. In the case of any extension of any payment of principal
pursuant to the preceding two  sentences,  interest  thereon shall be payable at
the then applicable rate during such extension.

(d) Unless the Administrative Agent shall have been notified in writing
by any Lender  prior to a  borrowing  that such  Lender will not make the amount
that  would   constitute   its  share  of  such   borrowing   available  to  the
Administrative  Agent, the  Administrative  Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such  assumption,  make  available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative  Agent, on demand,  such amount with interest thereon at a
rate equal to the daily  average  Federal  Funds  Effective  Rate for the period
until such Lender makes such amount immediately  available to the Administrative
Agent. A certificate of the  Administrative  Agent  submitted to any Lender with
respect to any amounts  owing under this  paragraph  shall be  conclusive in the
absence of manifest  error. If such Lender's share of such borrowing is not made
available to the Administrative  Agent by such Lender within three Business Days
of such  Borrowing  Date,  the  Administrative  Agent  shall also be entitled to
recover such amount with  interest  thereon at the rate per annum  applicable to
ABR Loans, on demand, from the Borrower.

(e) Unless the Administrative Agent shall have been notified in writing
by the Borrower  prior to the date of any payment being made  hereunder that the
Borrower  will  not  make  such  payment  to  the   Administrative   Agent,  the
Administrative  Agent may assume that the Borrower is making such  payment,  and
the  Administrative  Agent may, but shall not be required  to, in reliance  upon
such assumption,  make available to the Lenders their respective pro rata shares
of a  corresponding  amount.  If such payment is not made to the  Administrative
Agent by the Borrower  within three  Business  Days of such required  date,  the
Administrative  Agent shall be entitled to recover,  on demand, form each Lender
to which any amount which was made available pursuant to the preceding sentence,
such  amount  with  interest  thereon  at the rate per annum  equal to the daily
average Federal Funds  Effective  Rate.  Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.

2.15  Requirements  of Law. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive  (whether or not having the force of
law) from any central bank or other  Governmental  Authority made  subsequent to
the date hereof:

(i) shall  impose,  modify or hold  applicable  any  reserve,  special
deposit, compulsory loan or similar requirement against assets held by, deposits
or  other  liabilities  in or for the  account  of,  advances,  loans  or  other
extensions  of credit  by, or any other  acquisition  of funds by, any office of
such  Lender  that  is  not  otherwise  included  in  the  determination  of the
Eurodollar Rate hereunder; or

(ii) shall impose on such Lender any other condition;

and the result of any of the  foregoing  is to increase the cost to such Lender,
by an amount that such Lender deems to be material, of making,  converting into,
continuing  or  maintaining  Eurodollar  Loans or  issuing or  participating  in
Letters of  Credit,  or to reduce any  amount  receivable  hereunder  in respect
thereof,  then, in any such case,  the Borrower  shall promptly pay such Lender,
upon its demand,  any additional amounts necessary to compensate such Lender for
such increased cost or reduced amount receivable. If any Lender becomes entitled
to claim any additional  amounts  pursuant to this paragraph,  it shall promptly
notify the

25

Borrower  (with a copy to the  Administrative  Agent)  of the event by reason of
which it has become so entitled.

(b) If any Lender  shall have  determined  that the  adoption of or any
change  in  any  Requirement  of  Law  regarding  capital  adequacy  or  in  the
interpretation  or  application  thereof  or  compliance  by such  Lender or any
corporation  controlling  such Lender with any  request or  directive  regarding
capital adequacy  (whether or not having the force of law) from any Governmental
Authority  made  subsequent to the date hereof shall have the effect of reducing
the  rate  of  return  on  such  Lender's  or such  corporation's  capital  as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level  below that which such Lender or such  corporation  could have
achieved but for such adoption,  change or compliance (taking into consideration
such Lender's or such  corporation's  policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission  by such Lender to the  Borrower  (with a copy to the  Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional  amount or amounts as will compensate such Lender for such reduction;
provided that the Borrower shall not be required to compensate a Lender pursuant
to this  paragraph  for any amounts  incurred  more than six months prior to the
date that such Lender notifies the Borrower of such Lender's  intention to claim
compensation  therefor;  and provided further that, if the circumstances  giving
rise to such claim have a retroactive  effect,  then such six-month period shall
be extended to include the period of such retroactive effect.

(c) A certificate as to any additional amounts payable pursuant to this
Section   submitted  by  any  Lender  to  the  Borrower  (with  a  copy  to  the
Administrative  Agent) shall be conclusive in the absence of manifest error. The
obligations  of  the  Borrower  pursuant  to  this  Section  shall  survive  the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.

(d) Each  Lender  shall  be  entitled  to be  compensated  for  amounts
pursuant to this  Section  2.15 only to the extent  such  Lender  makes the same
demands  for  compensation  from all of its other  customers  facing the same or
similar circumstances.

2.16 Taxes.  (a) All payments made by the Borrower under this Agreement
shall be made free and clear of, and without  deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies, imposts,
duties,  charges,  fees,  deductions or withholdings,  nor or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority, excluding
(a) net income taxes and  franchise  taxes  (imposed on a net income basis or in
lieu of net income taxes) imposed by the United States or the jurisdiction under
the laws of which the  Administrative  Agent or any Lender is organized or doing
business or in which its principal  office is located or in which the applicable
lending office of such Lender is located, and (b) any branch profits tax imposed
by the United  States or any similar tax  imposed by any other  jurisdiction  in
which the Lender is located.  If any such non-excluded taxes,  levies,  imposts,
duties,  charges,  fees,  deductions or withholdings  ("Non-Excluded  Taxes") or
Other  Taxes  are  required  to be  withheld  from any  amounts  payable  to the
Administrative Agent or any Lender hereunder, the sum payable shall be increased
as may be  necessary  so  that  after  making  all  of the  required  deductions
(including  deductions  applicable to additional sums payable under this Section
2.16) such Administrative Agent or Lender receives an amount equal to the sum it
would have received had no such deductions been made,  provided,  however,  that
the Borrower  shall not be required to increase any such amounts  payable to any
Lender with respect to any Non-Excluded  Taxes pursuant to paragraph (a) of this
Section  or  make  any  indemnification  payment  related  thereto  pursuant  to
paragraph (c) of this Section (i) that are attributable to such Lender's failure
to comply with the  requirements  of paragraph  (d) of this Section or (ii) that
are United States withholding taxes imposed on amounts payable to such Lender at
the time the Lender becomes a party to this Agreement, except to the extent that
such Lender's  assignor (if 

26

any) was entitled, at the time of assignment, to receive additional amounts from
the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph.

(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.

(c) Whenever any  Non-Excluded  Taxes or Other Taxes are payable by the
Borrower,  as promptly as possible  thereafter  the  Borrower  shall send to the
Administrative  Agent for its own  account or for the  account  of the  relevant
Lender,  as the case may be, a certified  copy of an original  official  receipt
received  by  the  Borrower  showing  payment  thereof  or,  if  not  reasonably
available,  other evidence reasonably  satisfactory to the Administrative Agent.
If the Borrower fails to pay any  Non-Excluded  Taxes or Other Taxes when due to
the appropriate taxing authority or fails to remit to the  Administrative  Agent
the required receipts or other required documentary evidence, the Borrower shall
indemnify the  Administrative  Agent and the Lenders for any incremental  taxes,
interest or penalties that may become payable by the Administrative Agent or any
lender as a result of any such failure.

(d) Each Lender (or Transferee) that is not a U.S. person as defined in
Section  7701(a)(30)  of the Code (a  "Non-U.S.  Lender")  shall  deliver to the
Borrower and the Administrative Agent (or, in the case of a Participant,  to the
Lender  from which the  related  participation  shall have been  purchased)  two
copies of either  U.S.  Internal  revenue  Service  ("IRS")  Form W-8BEN or Form
W-8ECI,  or,  in the case of a  Non-U.S.  Lender  claiming  exemption  from U.S.
federal  withholding tax under Section 871(h) or 881(c) of the Code with respect
to payments of "portfolio  interest",  a statement  substantially in the form of
Exhibit F and a Form W-8BEN,  or any subsequent  versions  thereof or successors
thereto,  properly completed and duly executed by such Non-U.S.  Lender claiming
complete  exemption from, or a reduced rate of, U.S. federal  withholding tax on
all payments by the Borrower under this Agreement and the other Loan  Documents.
Such forms shall be delivered by each  Non-U.S.  Lender on or before the date it
becomes a party to this  Agreement  (or, in the case of any  Participant,  on or
before  the date such  Participant  purchases  the  related  participation).  In
addition,  each  Non-U.S.  Lender  shall  deliver such forms  promptly  upon the
reasonable request of the Borrower or the obsolescence or invalidity or any form
previously  delivered  by such  Non-U.S.  Lender.  Each  Non-U.S.  Lender  shall
promptly notify the Borrower at any time it determines that it is no longer in a
position to provide any previously delivered certificate to the Borrower (or any
other form of  certification  adopted by the U.S.  taxing  authorities  for such
purpose).  Notwithstanding  any other  provision of this  paragraph,  a Non-U.S.
Lender shall not be required to deliver any form pursuant to this paragraph that
such Non-U.S. Lender is not legally able to deliver.

(e) A Lender that is  entitled to an  exemption  from or  reduction  of
non-U.S. withholding tax under the law of the jurisdiction in which the Borrower
is located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement  shall deliver to the Borrower (with a copy to the
Administrative  Agent),  at the time or times  prescribed by  applicable  law or
reasonably  requested by the  Borrower,  such  properly  completed  and executed
documentation  prescribed by  applicable  law as will permit such payments to be
made without  withholding  or at a reduced  rate,  provided  that such Lender is
legally entitled to complete, execute and deliver such documentation and in such
Lender's judgment such completion,  execution or submission would not materially
prejudice the legal position of such Lender.

(f) The  agreements in this Section shall  survive the  termination  of
this  Agreement  and the  payment  of the Loans and all  other  amounts  payable
hereunder.

27

2.17  Indemnity.  The Borrower  agrees to indemnify  each Lender and to
hold each Lender  harmless from any loss or expense that such Lender may sustain
or incur as a  consequence  of (a) default by the Borrower in making a borrowing
of,  conversion into or continuation of Eurodollar  Loans after the Borrower has
given a notice  requesting  the same in accordance  with the  provisions of this
Agreement, (b) default by the Borrower in making any prepayment of or conversion
from  Eurodollar  Loans  after  the  Borrower  has  given a  notice  thereof  in
accordance  with  the  provisions  of  this  Agreement  or (c) the  making  of a
prepayment of Eurodollar  Loans on a day that is not the last day of an Interest
Period with respect thereto. Such indemnification may include an amount equal to
the excess, if any, of (i) the amount of interest that would have accrued on the
amount so prepaid,  or not so borrowed,  converted or continued,  for the period
from the date of such  prepayment  or of such  failure  to  borrow,  convert  or
continue to the last day of such  Interest  Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have commenced on
the date of such  failure) in each case at the  applicable  rate of interest for
such Loans  provided  for herein  (excluding,  however,  the  Applicable  Margin
included  therein,  if any) over  (ii) the  amount of  interest  (as  reasonably
determined by such Lender) that would have accrued to such Lender on such amount
by placing such amount on deposit for a comparable  period with leading banks in
the  interbank  eurodollar  market.  A  certificate  as to any  amounts  payable
pursuant  to this  Section  submitted  to the  Borrower  by any Lender  shall be
conclusive in the absence of manifest  error.  This  covenant  shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder. Notwithstanding the foregoing provisions of this Section 2.17
or of Section 2.8(c), so long as no Event of Default then exists, if at any time
the mandatory prepayment of Loans pursuant to Section 2.8(c) would result in the
Borrower incurring costs under this Section 2.17 as a result of Eurodollar Loans
being  prepaid  other  than on the last  day of an  Interest  Period  applicable
thereto (the  "Affected  Eurodollar  Loans"),  then the Borrower may in its sole
discretion  initially  deposit  a  portion  (up to  100%)  of the  amounts  that
otherwise would have been paid in respect of the Affected  Eurodollar Loans with
the Administrative  Agent (which deposit,  after giving effect to interest to be
earned on such deposit prior to the last day of the relevant  Interest  Periods,
must be  equal  in  amount  to the  amount  of  Affected  Eurodollar  Loans  not
immediately  prepaid) to be held as security for the obligations of the Borrower
hereunder pursuant to a cash collateral agreement to be entered into in form and
substance  reasonably  satisfactory to the Administrative  Agent, with such cash
collateral to be directly  applied upon the first  occurrence  (or  occurrences)
thereafter  of the last day of an Interest  Period  applicable  to the  relevant
Eurodollar  Loans (or such  earlier  date or dates as shall be  requested by the
Borrower)  to repay an  aggregate  principal  amount of such Loans  equal to the
Affected  Eurodollar  Loans not  initially  repaid  pursuant  to this  sentence.
Notwithstanding  anything to the contrary contained in the immediately preceding
sentence,  all amounts deposited as cash collateral  pursuant to the immediately
preceding sentence shall be held for the sole benefit of the Lenders whose Loans
would otherwise have been immediately repaid with the amounts deposited and upon
the  occurrence  of an Event of  Default,  any amounts  held as cash  collateral
pursuant to this Section 2.17, shall, if so directed by the Administrative Agent
or the Required Lenders, be immediately applied to the relevant Loans.

2.18  Change of Lending  Office.  Each  Lender  agrees  that,  upon the
occurrence  of any event giving rise to the operation of Section 2.15 or 2.16(a)
with  respect  to such  Lender,  it will,  if  requested  by the  Borrower,  use
reasonable efforts (subject to overall policy  considerations of such Lender) to
designate another lending office or assign its rights and obligations  hereunder
to another of its offices,  branches or  affiliates,  for any Loans  affected by
such event with the object of avoiding the consequences of such event; provided,
that such  designation or assignment is made on terms that, in the sole judgment
of such  Lender,  cause  such  Lender  and its  lending  office(s)  to suffer no
economic, legal or regulatory disadvantage,  and provided, further, that nothing
in this Section shall affect or postpone any of the  obligations of any Borrower
or the rights of any Lender pursuant to Section 2.15 or 2.16(a).

28

2.19 Replacement of Lenders. The Borrower shall be permitted to replace
any Lender that (a) requests reimbursement for amounts owing pursuant to Section
2.15 or 2.16(a) or (b) defaults in its obligation to make Loans hereunder,  with
a replacement financial institution; provided that (i) such replacement does not
conflict  with any  Requirement  of Law,  (ii) no Event of  Default  shall  have
occurred and be continuing at the time of such  replacement,  (iii) prior to any
such  replacement,  such Lender shall have taken no action under Section 2.18 so
as to eliminate  the  continued  need for payment of amounts  owing  pursuant to
Section  2.15 or  2.16(a),  (iv) the  replacement  financial  institution  shall
purchase,  at par, all Loans and other amounts owing to such replaced  Lender on
or prior to the date of  replacement,  (v) the Borrower  shall be liable to such
replaced Lender under Section 2.17 if any Eurodollar Loan owing to such replaced
Lender  shall be  purchased  other than on the last day of the  interest  Period
relating thereto, (vi) the replacement financial  institution,  if not already a
Lender, shall be reasonably  satisfactory to the Administrative Agent, (vii) the
replaced  Lender shall be obligated to make such  replacement in accordance with
the provisions of Section 10.6 (provided that the Borrower shall be obligated to
pay the registration and processing fee referred to therein),  (viii) until such
time as such  replacement  shall be  consummated,  the  Borrower  shall  pay all
additional amounts (if any) required pursuant to Section 2.15 or 2.16(a), as the
case may be, and (ix) any such replacement shall not be deemed to be a waiver of
any rights that the Borrower, the Administrative Agent or any other Lender shall
have against the replaced Lender.

SECTION 3. LETTERS OF CREDIT

3.1 L/C Commitment. (a) Subject to the terms and conditions hereof, the
Issuing  Lender,  in reliance on the agreement of the other Lenders set forth in
Section 3.4(a),  agrees to issue letters of credit ("Letters of Credit") for the
account  of the  Borrower  on any  Business  Day  during  the  Revolving  Credit
Commitment  Period  in such  form as may be  approved  from  time to time by the
Issuing Lender (which  approval shall not be  unreasonably  withheld);  provided
that the Issuing  Lender shall have no  obligation to issue any Letter of Credit
if, after giving effect to such issuance,  (i) the L/C Obligations  would exceed
the L/C  Commitment  or (ii) the  aggregate  amount of the  Available  Revolving
Credit  Commitments  would be less than zero. Each Letter of Credit shall (i) be
denominated  in Dollars  and (ii)  expire no later  than the  earlier of (x) the
first  anniversary  of its date of issuance  (in the case of Standby  Letters of
Credit)  or 180 days  after  its date of  issuance  (in the case of  Documentary
Letters  of  Credit)  and (y) the date that is five  Business  Days prior to the
Revolving  Termination  Date,  provided that any Standby Letter of Credit with a
one-year  term may  provide  for the renewal  thereof  for  additional  one-year
periods  (which shall in no event extend  beyond the date  referred to in clause
(y) above).

(B) The Issuing  Lender shall not at any time be obligated to issue any
Letter of Credit  hereunder if such issuance  would  conflict with, or cause the
Issuing  Lender or any L/C  Participant  to exceed  any limits  imposed  by, any
applicable Requirement of Law.

3.2 Procedure  for Issuance of Letter of Credit.  The Borrower may from
time to time  request  that the  Issuing  Lender  issue a Letter  of  Credit  by
delivering to the Issuing Lender at its address for notices specified herein (or
such other  location as may be designated by the Issuing  Lender) an Application
therefor,  completed to the  satisfaction of the Issuing Lender,  and such other
certificates,  documents and other papers and  information as the Issuing Lender
may reasonably request. Upon receipt of any Application, the Issuing Lender will
process such  Application and the  certificates,  documents and other papers and
information  delivered  to it in  connection  therewith in  accordance  with its
customary  procedures and shall  promptly  issue the Letter of Credit  requested
thereby  (but in no event  shall the  Issuing  Lender be  required  to issue any
Letter of Credit  earlier  than three  Business  Days  after its  receipt of the
Application therefor and all such other certificates, documents and other papers
and  information  relating  thereto) by issuing  the  original of such Letter of
Credit  to the  beneficiary  thereof  or as  otherwise 

29

may be agreed to by the Issuing  Lender and the  Borrower.  The  Issuing  Lender
shall make  available a copy of such Letter of Credit to the  Borrower  promptly
following the issuance thereof. The Issuing Lender shall promptly furnish to the
Administrative  Agent notice of the issuance of each Letter of Credit (including
the amount  thereof).  The  Administrative  Agent  shall  furnish to the Lenders
notice of the issuance of Letters of Credit (including the amounts thereof) on a
quarterly basis.

3.3 Fees and Other  Charges.  (a) The Borrower will pay fees in respect
of the  Letters  of Credit as  follows:  (i) in the case of  Standby  Letters of
Credit,  a fee,  calculated at a per annum rate equal to the  Applicable  Margin
then in effect with respect to Eurodollar  Loans (or, in the case of any Standby
Letter of Credit supporting  documentary  Surviving Letters of Credit, 0.80% per
annum), on the undrawn face amount thereof, payable quarterly in arrears on each
Standby L/C Fee  Payment  Date after the  issuance  date and (ii) in the case of
Documentary  Letters of Credit,  a drawing fee,  calculated  at an absolute rate
equal to the Applicable Documentary L/C Fee Rate, on the amount drawn in respect
of such Letter of Credit,  payable upon  drawing.  Each such fee shall be shared
ratably among the Lenders.  In addition,  the Borrower  shall pay to the Issuing
Lender for its own account a fronting fee in an amount  separately  agreed to by
the Borrower and the Issuing Lender.

(b) In  addition  to the  foregoing  fees,  the  Borrower  shall pay or
reimburse the Issuing Lender for such normal and customary  administrative costs
and  expenses  as are  incurred  or charged by the  Issuing  Lender in  issuing,
negotiating,  effecting payment under,  amending or otherwise  administering any
Letter of Credit.

3.4 L/C  Participations.  (a) The Issuing Lender  irrevocably agrees to
grant and  hereby  grants to each L/C  Participant,  and to induce  the  Issuing
Lender to issue Letters of Credit  hereunder,  each L/C Participant  irrevocably
agrees to accept and purchase and hereby  accepts and purchases from the Issuing
Lender,  on  the  terms  and  conditions   hereinafter   stated,  for  such  L/C
Participant's  own  account  and risk an  undivided  interest  equal to such L/C
Participant's  Revolving  Percentage  in the Issuing  Lender's  obligations  and
rights under each Letter of Credit issued hereunder and the amount of each draft
paid by the Issuing Lender thereunder.  Each L/C Participant unconditionally and
irrevocably  agrees with the Issuing  Lender that,  if a draft is paid under any
Letter of Credit for which the Issuing  Lender is not  reimbursed in full by the
Borrower in accordance  with the terms of this  Agreement,  such L/C Participant
shall pay to the Issuing Lender upon demand at the Issuing  Lender's address for
notices  specified  herein an amount equal to such L/C  Participant's  Revolving
Percentage  of the amount of such  draft,  or any part  thereof,  that is not so
reimbursed.

(b) If any amount  required  to be paid by any L/C  Participant  to the
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing  Lender under any Letter of Credit is paid to
the Issuing  Lender  within three  Business  Days after the date such payment is
due, such L/C  Participant  shall pay to the Issuing  Lender on demand an amount
equal to the product of (i) such amount,  times (ii) the daily  average  Federal
Funds  Effective Rate during the period from and including the date such payment
is required to the date on which such  payment is  immediately  available to the
Issuing  Lender,  time (iii) a fraction the  numerator of which is the number of
days that elapse during such period and the  denominator of which is 360. If any
such  amount  required  to be paid by any L/C  Participant  pursuant  to Section
3.4(a) is not made  available  to the  Issuing  Lender  by such L/C  Participant
within  three  Business  Days after the date such  payment is due,  the  Issuing
Lender shall be entitled to recover from such L/C Participant,  on demand,  such
amount with interest thereon calculated from such due date at the rate per annum
applicable to ABR Loans. A certificate  of the Issuing  Lender  submitted to any
L/C  Participant  with respect to any amounts  owing under this Section shall be
conclusive in the absence of manifest error.

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(c)  Whenever,  at any time after the Issuing  Lender has made  payment
under any Letter of Credit and has  received  from any L/C  Participant  its pro
rata share of such payment in accordance with Section 3.4(a), the Issuing Lender
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise,  including  proceeds of collateral applied thereto by the
Issuing  Lender),  or any payment of interest  on account  thereof,  the Issuing
Lender  will  distribute  to such L/C  Participant  its pro rata share  thereof;
provided,  however,  that in the event  that any such  payment  received  by the
Issuing Lender shall be required to be returned by the Issuing Lender,  such L/C
Participant  shall return to the Issuing Lender the portion  thereof  previously
distributed by the Issuing Lender to it.

3.5  Reimbursement  Obligation of the Borrower.  The Borrower agrees to
reimburse the Issuing Lender on each date on which the Issuing  Lender  notifies
the  Borrower  of the date and amount of a draft  presented  under any Letter of
Credit and paid by the  Issuing  Lender for the amount of (a) such draft so paid
and (b) any taxes,  fees,  charges or other  costs or  expenses  incurred by the
Issuing Lender in connection with such payment.  Each such payment shall be made
to the Issuing  Lender at its address  for  notices  specified  herein in lawful
money of the United States and in immediately available funds. Interest shall be
payable  on any and all  amounts  remaining  unpaid by the  Borrower  under this
Section from the date such amounts become payable  (whether at stated  maturity,
by acceleration or otherwise) until payment in full at the rate set forth in (i)
until the second  Business Day  following  the date of the  applicable  drawing,
Section 2.11(b) and (ii) thereafter, Section 2.11(c).

3.6 Obligations Absolute. The Borrower's obligations under this Section
3 shall be  absolute  and  unconditional  under  any and all  circumstances  and
irrespective of any setoff, counterclaim or defense to payment that the Borrower
may have or have had against the Issuing Lender,  any beneficiary of a Letter of
Credit or any other  Person.  The Borrower  also agrees with the Issuing  Lender
that the  Issuing  Lender  shall  not be  responsible  for,  and the  Borrower's
Reimbursement  Obligations  under  Section 3.5 shall not be affected  by,  among
other things,  the validity or genuineness  of documents or of any  endorsements
thereon,  even  though  such  documents  shall  in  fact  prove  to be  invalid,
fraudulent  or forged,  or any  dispute  between or among the  Borrower  and any
beneficiary  of any Letter of Credit or any other  party to which such Letter of
Credit may be transferred or any claims  whatsoever of the Borrower  against any
beneficiary of such Letter of Credit or any such transferee.  The Issuing Lender
shall  not  be  liable  for  any  error,  omission,  interruption  or  delay  in
transmission,   dispatch  or   delivery  of  any  message  or  advice,   however
transmitted,  in  connection  with any  Letter of  Credit,  except for errors or
omissions  found by a final and  nonappealable  decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the Issuing Lender.  The Borrower agrees that any action taken or omitted by the
Issuing  Lender under or in connection  with any Letter of Credit or the related
drafts or  documents,  if done in the  absence  of gross  negligence  or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial  Code of the State of New York,  shall be binding on the Borrower and
shall not result in any liability of the Issuing Lender to the Borrower.

3.7 Letter of Credit  Payments.  If any draft  shall be  presented  for
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower  of the date and amount  thereof.  The  responsibility  of the  Issuing
Lender to the Borrower in connection  with any draft presented for payment under
any Letter of Credit  shall,  in addition to any  payment  obligation  expressly
provided  for in such  Letter of  Credit,  be limited  to  determining  that the
documents  (including  each  draft)  delivered  under  such  Letter of Credit in
connection  with such  presentment  are  substantially  in conformity  with such
Letter of Credit.

31

3.8  Applications.  To the extent that any provision of any Application
related  to any Letter of Credit is  inconsistent  with the  provisions  of this
Section 3, the provisions of this Section 3 shall apply.

SECTION 4. REPRESENTATIONS AND WARRANTIES

To induce the  Administrative  Agent and the Lenders to enter into this
Agreement  and to make the Loans  and issue or  participate  in the  Letters  of
Credit, the Borrower hereby represents and warrants to the Administrative  Agent
and each Lender that:

4.1 Financial Condition. The audited consolidated balance sheets of the
Borrower as at December  31,  1996,  December 31, 1997 and December 31, 1998 and
the related  consolidated  statements of income and of cash flows for the fiscal
years ended on such  dates,  reported on by and  accompanied  by an  unqualified
report from KPMG LLP, present fairly the consolidated financial condition of the
Borrower as at such date, and the consolidated results of its operations and its
consolidated  cash  flows  for the  respective  fiscal  years  then  ended.  The
unaudited  consolidated  balance sheet of the Borrower as at September 25, 1999,
and the related unaudited  consolidated  statements of income and cash flows for
the  nine-month  period  ended on such date,  present  fairly  the  consolidated
financial  condition  of the  Borrower  as at such  date,  and the  consolidated
results of its  operations  and its  consolidated  cash flows for the nine-month
period then ended (subject to normal year-end audit  adjustments and the absence
of footnotes).  All such financial  statements,  including the related schedules
and  notes  thereto,   have  been  prepared  in  accordance  with  GAAP  applied
consistently  throughout  the  periods  involved  (except  as  approved  by  the
aforementioned firm of accountants and disclosed  therein).  Except as set forth
on Schedule 4.1, as of the date hereof, the Borrower and its Subsidiaries do not
have any material Guarantee Obligations,  contingent liabilities and liabilities
for taxes,  or any  material  long-term  leases or unusual  forward or long-term
commitments,  including any interest  rate or foreign  currency swap or exchange
transaction  or  other  obligation  in  respect  of  derivatives,  that  are not
reflected in the most recent financial statements referred to in this paragraph.
Except as set forth on Schedule 4.1, during the period from December 31, 1998 to
and including the date hereof there has been no  Disposition  by the Borrower of
any material part of its business or property.

4.2 No Change.  Since December 31, 1998,  there has been no development
or event that has had or could reasonably be expected to have a Material Adverse
Effect.

4.3 Corporate Existence;  Compliance with Law. Each of the Borrower and
its  Subsidiaries  (a) is duly organized,  validly existing and in good standing
under the laws of the  jurisdiction of its  organization,  (b) has the corporate
(or other  appropriate)  power and  authority,  and the legal right,  to own and
operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently  engaged,  except to the extent failure to
possess such power, authority or legal right could not reasonably be expected to
result  in a  Material  Adverse  Effect,  (c) is  duly  qualified  as a  foreign
corporation and in good standing under the laws of each  jurisdiction  where its
ownership,  lease or  operation  of  property  or the  conduct  of its  business
requires such qualification, except to the extent failure to be so qualified and
in good  standing  could not  reasonably  be  expected  to result in a  Material
Adverse Effect,  and (d) is in compliance with all Requirements of Law except to
the extent that the  failure to comply  therewith  could not, in the  aggregate,
reasonably be expected to have a Material Adverse Effect.

4.4 Corporate Power; Authorization;  Enforceable Obligations. Each Loan
Party has the  corporate (or other  appropriate)  power and  authority,  and the
legal right,  to make,  deliver and perform the Loan  Documents to which it is a
party and, in the case of the Borrower, to borrow hereunder. Each Loan

32

Party  has taken  all  necessary  corporate  (or  other  appropriate)  action to
authorize the execution, delivery and performance of the Loan Documents to which
it is a party and, in the case of the Borrower,  to authorize the  borrowings on
the terms and  conditions of this  Agreement.  No consent or  authorization  of,
filing  with,  notice  to or other act by or in  respect  of,  any  Governmental
Authority  or any other  Person is required in  connection  with the  borrowings
hereunder   or  with  the   execution,   delivery,   performance,   validity  or
enforceability  of this  Agreement  or any of the  Loan  Documents,  except  the
filings  referred to in Section 4.19.  Each Loan Document has been duly executed
and  delivered  on behalf of each  Loan  Party  party  thereto.  This  Agreement
constitutes,  and each other Loan Document upon  execution  will  constitute,  a
legal valid and binding obligation of each Loan Party party thereto, enforceable
against  each  such  Loan  Party  in  accordance  with  its  terms,   except  as
enforceability   may  be   limited   by   applicable   bankruptcy,   insolvency,
reorganization,   moratorium  or  similar  laws  affecting  the  enforcement  of
creditors'  rights  generally  and  by  general  equitable  principles  (whether
enforcement is sought by proceedings in equity or at law).

4.5 No Legal Bar.  The  execution,  delivery  and  performance  of this
Agreement and the other Loan Documents,  the issuance of Letters of Credit,  the
borrowings  hereunder  and the use of the proceeds  thereof will not violate any
Requirement of Law or any material Contractual Obligation of the Borrower or any
of its  Subsidiaries  and will not  result  in,  or  require,  the  creation  or
imposition  of any  Lien  on any of  their  respective  properties  or  revenues
pursuant to any Requirement of Law or any such material  Contractual  Obligation
(other than the Liens created by the Security Documents).

4.6 Litigation. No litigation, investigation or proceeding of or before
any arbitrator or Governmental  Authority is pending or, to the knowledge of the
Borrower,  threatened by or against the Borrower or any of its  Subsidiaries  or
against any of their  respective  properties or revenues (a) with respect to any
of the Loan Documents or any of the transactions contemplated hereby or thereby,
or (b) that could reasonably be expected to have a Material Adverse Effect.

4.7 No Default.  Neither the Borrower nor any of its Subsidiaries is in
default  under or with  respect  to any of its  Contractual  Obligations  in any
respect that could reasonably be expected to have a Material Adverse Effect.  No
Default or Event of has occurred and is continuing.

4.8  Ownership  of  Property;  Liens.  Each  of the  Borrower  and  its
Subsidiaries  has title in fee simple to, or a valid leasehold  interest in, all
its real property,  and good title to, or a valid leasehold interest or property
right or license in, all its other  property,  except when  failure to hold such
title, interest,  right or license could not reasonably be expected to result in
a Material  Adverse  Effect,  and none of such  property  is subject to any Lien
except as permitted by Section 7.3.

4.9  Intellectual  Property.  The Borrower and each of its Subsidiaries
owns, or is licensed to use, all Intellectual Property necessary for the conduct
of its  business as  currently  conducted.  No claim which could  reasonably  be
expected to result in a Material Adverse Effect has been asserted and is pending
by any Person challenging or questioning the use of any Intellectual Property or
the  validity  or  effectiveness  of any  Intellectual  Property,  nor  does the
Borrower  know of any valid  basis for any such claim.  The use of  Intellectual
Property  by the  Borrower  and  its  Subsidiaries  does  not to the  Borrower's
knowledge infringe on the rights of any Person in any material respect.

4,10 Taxes. Each of the Borrower and each of its Subsidiaries has filed
or caused to be filed all material Federal, state and other tax returns that are
required  to be filed and has paid all taxes shown to be due and payable on said
returns or on any written assessments made against it or any of its property and
all other  material  taxes,  fees or other  charges  imposed on it or any of its
property  by any

33

Governmental Authority (other than any taxes the amount or validity of which are
currently  being  contested in good faith by  appropriate  proceedings  and with
respect to which  reserves  in  conformity  with GAAP have been  provided on the
books of the Borrower or its Subsidiaries,  as the case may be); no material tax
Lien (other than any Lien that is permitted  pursuant to Section 7.3 hereof) has
been filed,  and, to the knowledge of the Borrower,  no claim is being asserted,
with respect to any such tax, fee or other charge.

4.11 Federal Regulations.  No part of the proceeds of any Loans will be
used for  "buying"  or  "carrying"  any  "margin  stock"  within the  respective
meanings of each of the quoted terms under  Regulation U as now and from time to
time  hereafter in effect or for any purpose that violates the provisions of the
Regulations  of the Board.  If  requested  by any  Lender or the  Administrative
Agent, the Borrower will furnish to the  Administrative  Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
G-3 or FR Form U-1, as applicable, referred to in Regulation U.

4.12 Labor Matters.  Except as, in the aggregate,  could not reasonably
be expected to have a Material Adverse Effect: (a) there are no strikes or other
labor disputes  against the Borrower or any of its  Subsidiaries  pending or, to
the knowledge of the Borrower,  threatened; (b) hours worked by and payment made
to employees of the Borrower and its Subsidiaries  have not been in violation of
the Fair Labor Standards Act or any other applicable  Requirement of Law dealing
with such  matters;  and (c) all  payments  due from the  Borrower or any of its
Subsidiaries on account of employee health and welfare  insurance have been paid
or  accrued  as a  liability  on the  books  of  the  Borrower  or the  relevant
Subsidiary.

4.13 ERISA.  Neither a  Reportable  Event nor an  "accumulated  funding
deficiency"  (within  the  meaning of Section  412 of the Code or Section 302 of
ERISA) has occurred during the five-year  period prior to the date on which this
representation  is made or deemed made with  respect to any Plan,  and each Plan
has complied in all material  respects with the  applicable  provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen,  during such  five-year  period.  The
present value of all accrued  benefits under each Single Employer Plan (based on
those  assumptions  used to fund  such  Plans)  did not,  as of the last  annual
valuation date prior to the date on which this  representation is made or deemed
made,  exceed the value of the  assets of such Plan  allocable  to such  accrued
benefits by a material amount.  Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan that
has resulted or could  reasonably be expected to result in a material  liability
under ERISA, and neither the Borrower nor any Commonly  Controlled  Entity would
become subject to any material liability under ERISA if the Borrower or any such
Commonly  Controlled  Entity were to withdraw  completely from all Multiemployer
Plans as of the  valuation  date most closely  preceding  the date on which this
representation  is  made  or  deemed  made.  No  such  Multiemployer  Plan is in
Reorganization or Insolvent.

4.14  Investment  Company Act; Other  Regulations.  No Loan Party is an
"investment  company",  or a company  "controlled"  by an "investment  company",
within the meaning of the  Investment  Company Act of 1940, as amended.  No Loan
Party is  subject  to  regulation  under  any  Requirement  of Law  (other  than
Regulation X of the Board) that limits its ability to incur Indebtedness.

4.15 Subsidiaries.  Except as disclosed to the Administrative  Agent by
the Borrower in writing from time to time after the Closing Date,  Schedule 4.15
sets forth the name and jurisdiction of incorporation of each Subsidiary and, as
to each such Subsidiary,  the percentage of each class of Capital Stock owned by
any Loan Party.

34

4.16 Use of  Proceeds.  The  proceeds  of the  Revolving  Loans and the
Swingline Loans, and the Letters of Credit,  shall be used for general corporate
purposes, including redemptions of the Senior Subordinated Notes, repurchases of
the  Borrower's  common stock and  Permitted  Acquisitions,  in each case to the
extent permitted hereby.

4.17  Environmental  Matters.  Except as, in the aggregate,  could not
reasonably be expected to have a material Adverse Effect:

(a) the  facilities  and  properties  owned,  leased or operated by the
Borrower or any of its Subsidiaries (the "Properties") do not contain,  and have
not previously  contained,  any Materials of Environmental Concern in amounts or
concentrations or under circumstances that constitute or constituted a violation
of, or could give rise to liability under, any Environmental Law;

(b) neither the Borrower nor any of its Subsidiaries has received or is
aware of any notice of violation, alleged violation,  non-compliance,  liability
or  potential  liability  regarding  environmental  matters or  compliance  with
Environmental Laws with regard to any of the Properties or the business operated
by the  Borrower  or any of its  Subsidiaries  (the  "Business"),  nor  does the
Borrower  have  knowledge  or reason to  believe  that any such  notice  will be
received or is being threatened;

(c) Materials of  Environmental  Concern have not been  transported  or
disposed of from the Properties in violation of, or in a manner or to a location
that could give rise to liability  under,  any  Environmental  Law, nor have any
materials of Environmental Concern been generated,  treated,  stored or disposed
of at, on or under any of the  Properties  in violation  of, or in a manner that
could give rise to liability under, any applicable Environmental Law;

(d) no judicial proceeding or governmental or administrative  action is
pending  or,  to  the   knowledge  of  the  Borrower,   threatened,   under  any
Environmental Law to which the Borrower or any Subsidiary is or will be named as
a party  with  respect  to the  Properties  or the  Business,  nor are there any
consent decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial  requirements  outstanding under any
Environmental Law with respect to the Properties or the Business;

(e) there has been no  release or threat of  release  of  Materials  of
Environmental  Concern at or from the Properties,  or arising from or related to
the  operations  of the  Borrower  or any  Subsidiary  in  connection  with  the
Properties or otherwise in connection  with the Business,  in violation of or in
amounts or in a manner  that could give rise to  liability  under  Environmental
Laws;

(f)  the  Properties  and  all  operations  at  the  Properties  are in
compliance,  and  have in the  last  five  years  been in  compliance,  with all
applicable  Environmental Laws, and there is no contamination at, under or about
the  Properties  or  violation  of any  Environmental  Law with  respect  to the
Properties or the Business; and

(g) neither the  Borrower nor any of its  Subsidiaries  has assumed any
liability  of any other  Person  (other than the  Borrower or its  Subsidiaries)
under Environmental Laws.

4.18  Accuracy  of  Information,   etc.  No  statement  or  information
contained  in  this  Agreement,   any  other  Loan  Document,  the  Confidential
Information memorandum or any other

35

document,  certificate or statement  furnished by or on behalf of any Loan Party
to  the  Administrative  Agent  or the  Lenders,  or any  of  them,  for  use in
connection  with the  transactions  contemplated  by this Agreement or the other
Loan Documents  (other than  projections and pro forma  financial  information),
contained as of the date such  statement,  information,  document or certificate
was so furnished (or, in the case of the Confidential Information Memorandum, as
of the date of this  Agreement),  any untrue  statement  of a  material  fact or
omitted to state a material  fact  necessary  to make the  statements  contained
herein or  therein  not  misleading.  The  projections  and pro forma  financial
information  contained  in the  materials  referenced  above are based upon good
faith  estimates  and  assumptions  believed by management of the Borrower to be
reasonable  at the time  made,  it being  recognized  by the  Lenders  that such
financial information as it related to future events is not to be viewed as fact
and that actual results  during the period or periods  covered by such financial
information  may  differ  form the  projected  results  set forth  therein  by a
material amount.  There is no fact known to any Loan Party that could reasonably
be  expected  to have a  Material  Adverse  Effect  that has not been  expressly
disclosed herein, in the other Loan Documents,.  In the Confidential Information
Memorandum or in any other documents,  certificates and statements  furnished to
the  Administrative  Agent  and the  Lenders  for  use in  connection  with  the
transactions contemplated hereby and by the other Loan Documents.

4.19 Collateral. The Guarantee and Collateral Agreement is effective to
create in favor of the  Administrative  Agent, for the benefit of the Lenders, a
legal,  valid and  enforceable  security  interest in the  Collateral  described
therein and proceeds thereof.  When financing statements in appropriate form are
filed in the offices  specified on Schedule  4.19,  the Guarantee and Collateral
Agreement shall constitute a fully perfected Lien on, and security  interest in,
all right,  title and  interest of the Loan Parties in such  Collateral  and the
proceeds  thereof,  as security for the Obligations (as defined in the Guarantee
and Collateral Agreement), in each case prior and superior in right to any other
Person (except Liens permitted by Section 7.3).

4.20  Solvency.  The Loan Parties,  taken as a whole,  and after giving
effect to the incurrence of all Indebtedness  and obligations  being incurred in
connection herewith will be and will continue to be, Solvent.

4.21  Senior   Indebtedness.   The   Obligations   constitute   "Senior
Indebtedness"  (or the comparable  concept) of the Borrower under and as defined
in the Senior Subordinated Note Indenture.

4.22 Year 2000 Matters. Any reprogramming required to permit the proper
functioning (but only to the extent that such proper functioning would otherwise
be impaired by the  occurrence  of the year 2000) in and following the year 2000
of computer  systems and other  equipment  containing  embedded  microchips,  in
either case owned or operated by the Borrower or any of its Subsidiaries or used
or relied upon in the conduct of their business  (including any such systems and
other  equipment  supplied by others or with which the  computer  systems of the
Borrower  or any of its  Subsidiaries  interface),  and the  testing of all such
systems and other equipment as so reprogrammed,  have been completed.  The costs
to the Borrower and its Subsidiaries for such  reprogramming and testing and for
the  other  reasonably   foreseeable   consequences  to  them  of  any  improper
functioning  of  other  computer  systems  and  equipment   containing  embedded
microchips  due to the  occurrence  of the year  2000  could not  reasonably  be
expected  to result  in a  Default  or Event of  Default  or to have a  Material
Adverse Effect.  The computer  systems of the Borrower and its  Subsidiaries are
and, with ordinary course upgrading and maintenance,  will continue for the term
of this  Agreement  to be,  sufficient  for the  conduct  of their  business  as
currently conducted.

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SECTION 5. CONDITIONS PRECEDENT

5.1  Conditions to Initial  Extension of Credit.  The agreement of each
Lender to make the initial  extension  of credit  requested  to be made by it is
subject to the  satisfaction,  prior to or concurrently  with the making of such
extension of credit on the Closing Date, of the following conditions precedent:

(a)  Credit  Agreement;   Guarantee  and  Collateral   Agreement.   The
Administrative  Agent  shall have  received  (i) this  Agreement,  executed  and
delivered by the  Administrative  Agent,  the Borrower and each Person listed on
Schedule  1.1 and (ii) the  Guarantee  and  Collateral  Agreement,  executed and
delivered by the Borrower and each Subsidiary Guarantor.

(b) Existing Credit  Agreement.  The  commitments  under the Borrower's
existing  credit  agreement and all Liens granted in connection  therewith shall
have been  terminated,  and all amounts owing thereunder shall have been paid in
full, it being understood that certain letters of credit ("Surviving  Letters of
Credit")  outstanding  under such credit  agreement  on the  Closing  Date shall
continue to remain outstanding.

(c) Approvals.  Any governmental and third party approvals necessary in
connection with the  transactions  contemplated  hereby shall have been obtained
and be in full force and effect.

(d) Lien  Searches.  The  Administrative  Agent shall have received the
results of a recent lien search in each of the jurisdictions where assets of the
Loan  Parties are  located,  and such search shall reveal no liens on any of the
assets of the Borrower or its Subsidiaries except for liens permitted by Section
7.3 or  discharged  on or prior to the Closing  Date  pursuant to  documentation
satisfactory to the Administrative Agent.

(e) Fees. The Lenders and the Administrative  Agent shall have received
all fees  required to be paid,  and all  expenses for which  invoices  have been
presented with appropriate  supporting  documentation  (including the reasonable
fees and expenses of legal counsel), on or before the Closing Date.

(f) Closing Certificate.  The Administrative Agent shall have received,
with a counterpart for each Lender, a certificate of each Loan Party,  dated the
Closing  Date,  substantially  in  the  form  of  Exhibit  C,  with  appropriate
insertions and attachments.

(g) Legal Opinions.  The  Administrative  Agent shall have received the
following executed legal opinions:

(i) the legal opinion of Skadden,  Arps, Slate, Meagher & Flom
LLP,  special New York counsel to the Borrower  and the  Subsidiary  Guarantors,
substantially in the form of Exhibit E-1; and

(ii) the legal opinion of Glenn A. Weinman, general counsel of
the Borrower and its Subsidiaries, substantially in the form of Exhibit E-2.

Each  such  legal  opinion  shall  cover  such  other  matters  incident  to the
transactions  contemplated  by this  Agreement as the  Administrative  Agent may
reasonably require.

37

(h) Filings,  etc. The Uniform  Commercial  Code  financing  statements
referred to in Section  4.19 shall have been  executed and be in proper form for
filing. In addition,  the Administrative Agent shall have received  satisfactory
executed  landlord lien waivers in respect of leased  warehouses  significant to
the businesses of the Borrower and the Subsidiary Guarantors  (determined by the
Borrower based on criteria acceptable to the Administrative Agent).

5.2  Conditions  to Each  Extension  of Credit.  The  agreement of each
Lender to make any  extension  of credit  requested to be made by it on any date
(including its initial  extension of credit) is subject to the  satisfaction  of
the following conditions precedent:

(a)  Representations  and Warranties.  Each of the  representations and
warranties  made by any Loan Party in or pursuant to the Loan Documents shall be
true and correct in all  material  respects on and as of such date as if made on
and as of such date  (except  for those  representations  and  warranties  which
expressly related to a specific earlier date).

(b) No Default.  No Default or Event of Default shall have occurred and
be continuing  on such date or after giving  effect to the  extensions of credit
requested to be made on such date.

Each  borrowing  by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a  representation  and warranty by the Borrower as of
the date of such  extension  of credit  that the  conditions  contained  in this
Section 5.2 have been satisfied.

SECTION 6. AFFIRMATIVE COVENANTS

The  Borrower  hereby  agrees  that,  so long as the  Revolving  Credit
Commitments  remain in effect,  any Letter of Credit remains  outstanding or any
Loan or  other  amount  is  owing  to any  Lender  or the  Administrative  Agent
hereunder, the Borrower shall and shall cause each of its Subsidiaries to:

6.1 Financial Statements.  Furnish to the Administrative Agent and each
Lender:

(a) as soon as available, but in any event within 90 days after the end
of each fiscal year of the  Borrower,  a copy of the  audited  consolidated  and
unaudited  consolidating  balance  sheet of the  Borrower  and its  consolidated
Subsidiaries as at the end of such year and the related audited consolidated and
unaudited  consolidating  statements  of income and of cash flows for such year,
setting  forth in each case in  comparative  form the figures  for the  previous
year, reported on, in the case of audited financial statements, without a "going
concern" or like qualification or exception, or qualification arising out of the
scope  of  the  audit,  by  KPMG  LLP  or  other  independent  certified  public
accountants of nationally recognized standing; and

(b) as soon as available, but in any event not later than 45 days after
the end of each of the first three quarterly  periods of each fiscal year of the
Borrower,  the  unaudited  consolidated  balance  sheet of the  Borrower and its
consolidated  Subsidiaries  as at the  end  of  such  quarter  and  the  related
unaudited  consolidated  statements of income and of cash flows for such quarter
and the portion of the fiscal  year  through  the end of such  quarter,  setting
forth in each  case in  comparative  form the  figures  for the  previous  year,
certified  by a  Responsible  Officer  as being  fairly  stated in all  material
respects  (subject  to normal  year-end  audit  adjustments  and the  absence of
footnotes).

All such  financial  statements  shall be complete  and correct in all  material
respects and shall be prepared in reasonable  detail and in accordance with GAAP
applied  consistently  throughout the periods  reflected

38

therein  and with prior  periods  (except as  approved  by such  accountants  or
officer, as the case may be, and disclosed therein).

6.2  Certificates;  Other  Information.  Furnish to the  Administrative
Agent and each Lender (or, in the case of clause (f), to the relevant Lender):

(a) concurrently with the delivery of any financial statements pursuant
to Section 6.1, (i) a certificate of a Responsible  Officer stating that, to the
best of each such Responsible  Officer's knowledge,  each Loan Party during such
period has observed or performed all of its covenants and other agreements,  and
satisfied  every  condition,  contained  in this  Agreement  and the other  Loan
Documents to which it is a party to be  observed,  performed or satisfied by it,
and that such  Responsible  Officer has  obtained no knowledge of any Default or
Event of Default except as specified in such certificate and (ii) in the case of
quarterly  or  annual  financial  statements,   (x)  a  Compliance   Certificate
containing all information and calculations necessary for determining compliance
by the Borrower  and its  Subsidiaries  with the  provisions  of this  Agreement
referred  to therein as of the last day of the fiscal  quarter or fiscal year of
the Borrower, as the case may be, and (y) to the extent not previously disclosed
to the Administrative  Agent, a listing of any county or state within the United
States where any Loan Party keeps inventory;

(b) as soon as available,  and in any event no later than 45 days after
the end of each fiscal year of the Borrower, a detailed  consolidated budget for
the following fiscal year (including (i) a projected  consolidated balance sheet
of the Borrower and its Subsidiaries as of the end of the following fiscal year,
the related consolidated statements of projected cash flow, projected changes in
financial  position and  projected  income and a description  of the  underlying
assumptions  applicable  thereto  and (ii) the  amount of Loans and  Letters  of
Credit projected to be outstanding hereunder on a month-by-month basis), and, as
soon as available, significant revisions, if any, of such budget and projections
with  respect to such  fiscal  year  (collectively,  the  "Projections"),  which
Projections  shall in each case be accompanied by a certificate of a Responsible
Officer  stating  that  such  Projections  are  based on  reasonable  estimates,
information and assumptions and that such  Responsible  Officer has no reason to
believe  that such  Projections  are  incorrect  or  misleading  in any material
respect;

(c) within 45 days after the end of each fiscal quarter of the Borrower
(or 90 days in the case of the last  fiscal  quarter of the  fiscal  year of the
Borrower),  a narrative  discussion and analysis of the financial  condition and
result of  operations  of the  Borrower  and its  Subsidiaries  for such  fiscal
quarter and for the period from the beginning of the then current fiscal year to
the end of such fiscal  quarter,  as compared to the  comparable  periods of the
previous  year  (which may  consist of a Form 10-Q or 10-K,  as the case may be,
filed with the SEC);

(d) no later than 10 Business Days prior to the effectiveness  thereof,
copies of  substantially  final  drafts of any proposed  amendment,  supplement,
waiver or other  modification  with  respect  to the  Senior  Subordinated  Note
Indenture;

(e) within five days after the same are sent,  copies of all  financial
statements  and reports that the  Borrower  sends to the holders of any class of
its debt securities or public equity  securities and, within five days after the
same are filed, copies of all financial statements and reports that the Borrower
may make to, or file with, the SEC,  excluding Form 4 and other filings relating
to shareholdings of directors or officers of the Borrower; and

39

(f) promptly,  such additional  financial and other  information as any
Lender may from time to time reasonably request.

6.3 Payment of Obligations.  Pay,  discharge or otherwise satisfy at or
before  maturity or before they become  delinquent,  as the case may be, all its
material  obligations  of whatever  nature,  except where the amount or validity
thereof is currently  being  contested in good faith by appropriate  proceedings
and reserves in conformity  with GAAP with respect thereto have been provided on
the books of the Borrower or its Subsidiaries, as the case may be.

6.4 Maintenance of Existence;  Compliance.  (a) (i) Preserve, renew and
keep in full  force  and  effect  its  corporate  existence  and  (ii)  take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable  in the  normal  conduct of its  business,  except,  in each case,  as
otherwise permitted by Section 7.4 and except, in the case of clause (ii) above,
to the extent that failure to do so could not  reasonably  be expected to have a
Material  Adverse Effect;  and (b) comply with all  Contractual  Obligations and
Requirements of Law except to the extent that failure to comply  therewith could
not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

6.5  Maintenance of Property;  Insurance.  (a) Keep all property useful
and necessary in its business in good working order and condition, ordinary wear
and  tear  excepted  and (b)  maintain  with  financially  sound  and  reputable
insurance  companies  insurance on all its property in at least such amounts and
against  at least  such  risks (but  including  in any event  public  liability,
product  liability and business  interruption) as are usually insured against in
the same general area by companies engaged in the same or a similar business.

6.6  Inspection  of Property;  Books and Records;  Discussions.  (a) Keep proper
books of  records  and  account  in which  full,  true and  correct  entries  in
conformity,  in all material  respects,  with GAAP and all  Requirements  of Law
shall be made of all dealings and  transactions  in relation to its business and
activities and (b) permit representatives of any Lender to visit and inspect any
of its  properties  and  examine  and make  abstracts  from any of its books and
records at any  reasonable  time (upon  reasonable  notice)  and as often as may
reasonably be desired (providing that, so long as no Default or Event of Default
has occurred and is  continuing,  such visits (other than by the  Administrative
Agent)  shall not occur more than once  annually)  and to discuss the  business,
operations, properties and financial and other condition of the Borrower and its
Subsidiaries  with officers and  employees of the Borrower and its  Subsidiaries
and, in the case of the  Administrative  Agent,  with its independent  certified
public accountants.

6.7 Notices.  Promptly give notice to the Administrative Agent and each
Lender of:

(a) the occurrence of any Default or Event of Default;

(b)  any  (i)  default  or  event  of  default  under  any  Contractual
Obligation  of the  Borrower  or any of its  Subsidiaries  or  (ii)  litigation,
investigation  or proceeding  that may exist at any time between the Borrower or
any of its  Subsidiaries and any  Governmental  Authority,  that in either case,
could reasonably be expected to have a Material Adverse Effect;

(c) any  litigation or proceeding  affecting the Borrower or any of its
Subsidiaries  in which the amount involved is $2,500,000 or more and not covered
by insurance or in which  injunctive  or similar  relief  imposing a cost to the
Borrower of $2,500,000 or more is sought;

40

(d) the following  events,  as soon as possible and in any event within
30 days  after  the  Borrower  knows  or has  reason  to know  thereof:  (i) the
occurrence of any  reportable  Event with respect to any Plan, a failure to make
any required  contribution  to a Plan,  the creation of any Lien in favor of the
PBGC or a Plan or any withdrawal  form, or the  termination,  Reorganization  or
Insolvency of, any Multiemployer  Plan or (ii) the institution of proceedings or
the  taking of any  other  action by the PBGC or the  Borrower  or any  Commonly
Controlled Entity or any Multiemployer Plan with respect to the withdrawal from,
or the termination, Reorganization or Insolvency of, any Plan; and

(e) any  development  or  event  that has had or  could  reasonably  be
expected to have a Material Adverse Effect.

Each notice  pursuant to this Section 6.7 shall be accompanied by a statement of
a responsible  Officer  setting  for6th  details of the  occurrence  referred to
therein and stating what action the Borrower or the relevant Subsidiary proposes
to take with respect thereto.

6.8  Environmental  Laws.  (a)  Comply  with,  and take all  reasonable
efforts to ensure  compliance by all tenants and subtenants,  if any, with , all
applicable Environmental Laws, and obtain and comply with and maintain, and take
all  reasonable  efforts to ensu5re that all tenants and  subtenants  obtain and
comply  with  and  maintain,  any and all  licenses,  approvals,  notifications,
registrations or permits required by applicable  Environmental Laws, except when
failure  to do so could not  reasonably  be  expected  to  result in a  Material
Adverse Effect.

(b) Conduct and  complete  all  investigations,  studies,  sampling and
testing,   and  all  remedial,   removal  and  other  actions   required   under
Environmental  Laws and promptly comply with all lawful orders and directives of
all Governmental  Authorities regarding  Environmental Laws, except when failure
to do so could not  reasonably  be  expected  to result  in a  Material  Adverse
Effect.

6.9  Additional  Collateral,  etc.  (a) With  respect  to any  property
acquired  after the  Closing  Date by the  Borrower  or any of its  Subsidiaries
(other  than  property   acquired  by  any  Foreign   Subsidiary)  of  the  type
contemplated by the Guarantee and Collateral Agreement to constitute  Collateral
and as to which the Administrative  Agent, for the benefit of the Lenders,  does
not have a perfected Lien,  promptly take all actions  necessary or advisable to
grant to the  Administrative  Agent, for the benefit of the Lenders, a perfected
first priority security interest in such property (subject to Liens permitted by
Section  7.3),  including  the  filing  of  Uniform  Commercial  Code  financing
statements  in  such  jurisdictions  as may be  required  by the  Guarantee  and
Collateral  Agreement  or by law or as may be  requested  by the  Administrative
Agent.

(b)  With  respect  to  any  new  Subsidiary   (other  than  a  Foreign
Subsidiary) created or acquired after the Closing Date by the Borrower or any of
its  Subsidiaries,  promptly  cause such new Subsidiary (i) to become a party to
the Guarantee and Collateral  Agreement,  (ii) to take such actions necessary or
advisable to grant to the Administrative  Agent for the benefit of the Lenders a
perfected first priority security  interest in the Collateral  (subject to Liens
permitted by Section 7.3)  described in the Guarantee and  Collateral  Agreement
with respect to such new Subsidiary,  including the filing of Uniform Commercial
Code  financing  statements  in such  jurisdictions  as may be  required  by the
Guarantee  and  Collateral  Agreement  or by law or as may be  requested  by the
Administrative  Agent  and  (iii)  to  deliver  to the  Administrative  Agent  a
certificate  of such  Subsidiary,  substantially  in the form of Exhibit C, with
appropriate insertions and attachments.

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SECTION 7. NEGATIVE COVENANTS

The Borrower  hereby  agrees  that,  so long as the  Revolving  Credit
Commitments  remain in effect,  any Letter of Credit remains  outstanding or any
Loan or  other  amount  is  owing  to any  Lender  or the  Administrative  Agent
hereunder,  the Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly:

7.1 Financial Condition Covenants.

(a)  Consolidated  Leverage Ratio.  Permit the  Consolidated  Leverage
Ratio as at the last day of any period of four  consecutive  fiscal  quarters of
the Borrower to be greater than 3.50 to 1.0.

(b) Consolidated Fixed Charge Coverage Ratio.  Permit the Consolidated
Fixed Charge Coverage Ratio for any period of four  consecutive  fiscal quarters
of the  Borrower  ending  during any period set forth  below to be less than the
ratio set forth below opposite such fiscal quarter:

Consolidated Fixed Charge 
Fiscal Quarter                                        Coverage Ratio

Closing Date to and including the last day of          1.25 to 1.0
the second fiscal quarter of fiscal year 2000
The first day of the third fiscal quarter of           1.50 to 1.0
fiscal year 2000 to and including the last day
of the third fiscal quarter of fiscal year 2000
The first day of the fourth fiscal quarter of          1.75 to 1.0
fiscal year 2000 to and including the last day
of the third fiscal quarter of fiscal year 2001
The first day of the fourth fiscal quarter of          2.00 to 1.0
fiscal year 2001 and thereafter

(c) Consolidated Net Worth.  Permit Consolidated Net Worth at any time
to be less than $100,000,000.

(d)  Consolidated Net Income.  Permit  Consolidated Net Income for any
period of four  consecutive  fiscal  quarters  of the  Borrower  to be less than
$1.00.

7.2  Indebtedness.  Create,  issue,  incur,  assume,  become liable in
respect of or suffer to exist any indebtedness, except:

(a) Indebtedness of any Loan Party pursuant to any Loan Document;

(b)  Indebtedness  of  the  Borrower  to  any  Subsidiary  and  of any
Subsidiary Guarantor to the Borrower or any other Subsidiary;

(c) (i)  Guarantee  Obligations  incurred  in the  ordinary  course of
business  by the  Borrower  or any of its  Subsidiaries  of  obligations  of any
Subsidiary Guarantor and (ii) Guarantee  Obligations,  in an aggregate principal
amount not to exceed  $2,000,000,  incurred by the Borrower in  connection  with
obligations of Strandel, Inc. under Indebtedness permitted by Section 7.2(i);

42

(d) Indebtedness of the Borrower in respect of the Senior Subordinated
Notes in an aggregate principal amount not to exceed $93,000,000;

(e) other  Indebtedness  outstanding  on the date hereof and listed on
Schedule 7.2(e) and any refinancings, refundings, renewals or extensions thereof
(without  increasing  the principal  amount  thereof or shortening  the maturity
thereof);

(f)  Indebtedness  (including,   without  limitation,   Capital  Lease
Obligations)  secured  by Liens  permitted  by  Section  7.3(g) in an  aggregate
principal  amount  not to exceed  $10,000,000  (including,  if  applicable,  any
Attributable  Debt  incurred  pursuant  to this  paragraph  (f) at any one  time
outstanding;

(g) Hedge  Agreements in respect of Indebtedness  otherwise  permitted
hereby,  so  long as  such  agreements  are not  entered  into  for  speculative
purposes;

(h) the Surviving Letters of Credit;

(i)  Indebtedness  of  Strandel,  Inc.  and its  Subsidiaries  under a
working  capital  facility  in an  aggregate  principal  amount  not  to  exceed
$22,000,000 at any one time outstanding;

(j) Indebtedness of any Subsidiary that is not a Subsidiary  Guarantor
to any other Subsidiary that is not a Subsidiary Guarantor;

(k)  Indebtedness  of  Strandel,  Inc.  and  its  Subsidiaries  to the
Borrower in an aggregate  principal amount not to exceed  $13,500,000 at any one
time outstanding;

(l)  Indebtedness  of the Borrower and its  Subsidiaries in respect of
tenders for  performance,  performance  bonds, bid bonds,  appeal bonds,  surety
bonds and similar  obligations,  in each case provided in the ordinary course of
business;

(m)  Indebtedness  arising  from  the  honoring  by a  bank  or  other
financial  institution  of a check,  draft or similar  instrument  drawn against
insufficient  funds in the  ordinary  course  of  business,  provided  that such
Indebtedness is extinguished within five Business Days of its incurrence;

(n)  Indebtedness  in  respect  of  taxes,  assessments,  governmental
charges or levies,  claims or customs authorities and claims for labor, worker's
compensation,  materials and supplies to the extent that payment  therefor shall
not at the time be  required to be made in  accordance  with the  provisions  of
Section 6.3;

(o)  Indebtedness  in respect of  judgments or awards to the extent an
Event of Default has not resulted therefrom;

(p) Guarantee  Obligations incurred in the ordinary course of business
by any Foreign  Subsidiary  with  respect to  obligations  of any other  Foreign
Subsidiary;

43

(q)  Indebtedness  of a Subsidiary  acquired after the date hereof and
Indebtedness of a Person merged or  consolidated  with or into the Borrower or a
Subsidiary  of the  Borrower  after the date  hereof in an  aggregate  principal
amount not to exceed $10,000,000 at any one time outstanding,  provided that (i)
such  Indebtedness   existed  at  the  time  of  such  acquisition,   merger  or
consolidation  and was not  created in  anticipation  of such  event,  (ii) such
acquisition,  merger  or  consolidation  is a  Permitted  Acquisition  and (iii)
immediately after giving effect to such acquisition, merger or consolidation, no
default or Event of Default shall have occurred and be continuing; and

(r) additional Indebtedness of the Borrower or any of its Subsidiaries
in an aggregate principal amount (for the Borrower and all Subsidiaries, without
duplication) not to exceed $10,000,000 at any one time outstanding.

7.3 Liens. Create,  incur, assume or suffer to exist any Lien upon any
of its property (including without limitation any trademark, trade name or other
intellectual  property, or any fixed assets),  whether or now owned or hereafter
acquired except for:

(a) Liens for  taxes not yet due or that are being  contested  in good
faith by appropriate  proceedings,  provided that adequate reserves with respect
thereto are maintained on the books of the Borrower or its Subsidiaries,  as the
case may be, in conformity with GAAP;

(b)    carriers',    warehousemen's,    merchanics',    materialmen's,
repairmen's,  landlord's or other like Liens  arising in the ordinary  course of
business  that are not  overdue  for a period  of more  than 60 days or that are
being contested in good faith by appropriate proceedings;

(c) pledges or  deposits in  connection  with  workers'  compensation,
unemployment insurance and other social security legislation;

(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases,  statutory obligations,  surety,  customer and
appeal bonds,  performance bonds and other obligations of a like nature incurred
in the ordinary course of business;

(e) easements,  rights-of-way,  restrictions,  title defects and other
similar  encumbrances  incurred in the ordinary  course of business that, in the
aggregate,  are not substantial in amount and that do not in any case materially
detract from the value of the property  subject thereto or materially  interfere
with  the  ordinary  conduct  of  the  business  of the  Borrower  or any of its
Subsidiaries;

(f) Liens in existence on the date hereof  listed on Schedule  7.3(f),
and  renewals,   extensions  or  replacements  thereof,   securing  Indebtedness
permitted by Section  7.2(e),  provided that no such Lien is spread to cover any
additional  property  after  the  Closing  Date  and  that  the  amount  of  the
indebtedness secured thereby is not increased;

(g) Liens  securing  Indebtedness  of the  Borrower or any  Subsidiary
incurred  pursuant  to Section  7.2(f) to finance  the  acquisition  of fixed or
capital assets or to refinance such  Indebtedness,  provided that (i) such Liens
shall be created substantially simultaneously with the acquisition of such fixed
or  capital  assets  or such  refinancing,  (ii)  such  Liens do not at any time
encumber any property other than the property  financed by such Indebtedness and
(iii) the amount of Indebtedness secured thereby is not increased;

44

(h) Liens created pursuant to the Security Documents;

(i) judgment Liens pursuant to judgments not  constituting an Event of
Default pursuant to Section 8(h); and

(j) any interest or title of a lessor, sublessor, licensee or licensor
under any lease,  sublease or license  entered into by the Borrower or any other
Subsidiary  in the ordinary  course of its business and covering only the assets
so leased, subleased or subject to such license;

(k)  Liens in favor of  customs  and  revenue  authorities  to  secure
payment of customs duties in connection with the importation of goods;

(l) Liens arising from  precautionary UCC financing  statement filings
regarding operating leases;

(m) rights reserved to or vested in any governmental  agency by law or
regulation  to  control  or  regulate,  or  obligations  or duties  under law or
regulation  to any  governmental  agency  with  respect  to, the use of any real
property  or with  respect to any right,  power,  franchise,  grant,  license or
permit;

(n)  present or future  zoning  laws or  regulations  or other laws or
regulations restricting the occupancy, use or enjoyment of real property;

(o)  Liens on the  property  or  assets  of a Person  which  becomes a
Subsidiary as a result of an  acquisition  after the date hereof or which merges
or consolidates  with or into the Borrower or a Subsidiary of the Borrower after
the date hereof,  securing  Indebtedness  permitted by Section 7.2(q),  provided
that  (i)  such  Liens  existed  at the  time  of  the  acquisition,  merger  or
consolidation  and were not created in anticipation of such event, (ii) any such
Lien does not by its  terms  cover any  property  or assets  after the time such
Person  becomes a Subsidiary or the  occurrence of such merger or  consolidation
which  were not  covered  immediately  prior to the time such  Person  becomes a
Subsidiary or the occurrence of such merger or consolidation;

(p)  Liens  on the  property  or  assets  of  Strandel,  Inc.  and its
Subsidiaries  existing  on the  date  hereof  listed  on  Schedule  7.3(f),  and
renewals,  extensions or  replacements  thereof which do not spread such Lien to
cover any  additional  property after the Closing Date and which do not increase
the amount of Indebtedness secured thereby; and

(q) Liens not  otherwise  permitted by this Section so long as neither
(i) the  aggregate  outstanding  principal  amount  of the  obligations  secured
thereby nor (ii) the aggregate fair market value (determined as of the date such
Lien is incurred) of the assets subject  thereto exceeds (as to the Borrower and
all   Subsidiaries),   when  added  to  the  aggregate   outstanding  amount  of
Attributable Debt (other than Attributable Debt secured by Liens permitted under
Section 7.3(g)), $10,000,000 at any one time.

7.4  Fundamental  Changes.  Enter into any  merger,  consolidation  or
amalgamation or liquidate, wind up or dissolve itself (or suffer any liquidation
or  dissolution),  or Dispose of, all or  substantially  all of its  property or
business, except that:

45

(a) any Subsidiary of the Borrower may be merged or consolidated  with
or into the Borrower  (provided  that the Borrower  shall be the  continuing  or
surviving  corporation) or with or into any Subsidiary Guarantor,  provided that
the  Subsidiary  Guarantor  shall be the  continuing  or  surviving  corporation
(which, in the case of any such merger or consolidation involving a Wholly Owned
Subsidiary Guarantor shall be a Wholly Owned Subsidiary Guarantor);

(b) any  Subsidiary  of the  Borrower any Dispose of any or all of its
assets  (upon  voluntary  liquidation  or  otherwise)  to  the  Borrower  or any
Subsidiary  Guarantor  (which,  in the case of a  Disposition  by a Wholly Owned
Subsidiary Guarantor, shall be a Wholly Owned Subsidiary Guarantor);

(c) any Foreign  Subsidiary may be merged or consolidated with or into
another Foreign Subsidiary;

(d) any  Foreign  Subsidiary  may  Dispose of any or all of its assets
(upon voluntary liquidation or otherwise) to another Foreign Subsidiary;

(e) any  Person  may be  merged  or  consolidated  with  to  into  the
Borrower, if the Borrower is the surviving or continuing  corporation,  pursuant
to a Permitted Acquisition; and

(f) any  Person  may be  merged  or  consolidated  with  or  into  any
Subsidiary of the Borrower, pursuant to a Permitted Acquisition.

7.5 Disposition or Property.  Dispose of any of its property,  whether
now owned or hereafter  acquired,  or, in the case of any  Subsidiary,  issue or
sell any shares of such Subsidiary's Capital Stock to any Person, except:

(a) the  Disposition of obsolete or worn out property,  or property no
longer  useful in the conduct of the  borrower's or its  Subsidiaries'  business
(and not material in amount), in each case in the ordinary course of business;

(b) the sale of the inventory in the ordinary course of business;

(c) Dispositions permitted by Section 7.4;

(d) the sale or  issuance  of any  Subsidiary's  Capital  Stock to the
Borrower or any Wholly Owned Subsidiary Guarantor;

(e) the Disposition of any aircraft or art held by the Borrower or its
Subsidiaries;

(f) the Disposition of manufacturing  equipment in connection with the
relocation  to foreign  countries of certain  operations of the Borrower and its
Domestic  Subsidiaries,  so long as the aggregate Net Cash Proceeds  received in
connection therewith does not exceed $2,500,000;

(g) the  Disposition  of warehouse  space and related real property of
the Borrower and its Subsidiaries in the ordinary course of business;

(h) the  Disposition or issuance of any Foreign  Subsidiary's  Capital
Stock to any other Foreign Subsidiary;

46

(i)  licenses  of  Intellectual  Property  in the  ordinary  course of
business of the Borrower or any of its Subsidiaries;

(j) the lease or sublease by the  Borrower or any of its  Subsidiaries
of any real property in the ordinary course of business;

(k) transfers of property or assets  subject to a Recovery Event to or
at  the  direction  of  a  governmental  agency  or  authority  or  insurer,  as
applicable;

(l) the Disposition of accounts  receivable arising in connection with
the compromise or collection thereof; and

(m) the  Disposition of other property  having a fair market value not
to exceed $10,000,000 in the aggregate for any fiscal year of the Borrower.

7.6  Restricted  Payments.  Declare or pay any  dividend  (other  than
dividends payable solely in common stock of the Person making such dividend) on,
or make any  payment on account  of, or set apart  assets for a sinking or other
analogous fund for, the purchase,  redemption,  defeasance,  retirement or other
acquisition of, any Capital Stock of the Borrower or any Subsidiary, whether now
or hereafter  outstanding,  or make any other  distribution in respect  thereof,
either directly or indirectly,  whether in cash or property or in obligations of
the Borrower or any Subsidiary  (collectively,  "Restricted  Payments"),  except
that:

(a) any Subsidiary may make Restricted Payments to the Borrower or any
Subsidiary Guarantor (which, in the case of Restricted Payments made by a Wholly
Owned Subsidiary Guarantor, shall be a Wholly Owned Subsidiary Guarantor);

(b) the Borrower may  repurchase its common stock so long as (i) after
giving  effect  thereto,  the Basket Amount shall not be less than zero and (ii)
the  aggregate  amount  expended  in  connection   therewith  shall  not  exceed
$10,000,000 in any fiscal year of the Borrower or $25,000,000 during the term of
this Agreement;

(c) the Borrower may  purchase the  Borrower's  common stock or common
stock  options from  present or former  officers or employees of the Borrower or
any Subsidiary  upon the death,  disability or termination of employment of such
officer or employee,  provided, that the aggregate amount of payments under this
paragraph (c) after the date hereof shall not exceed $5,000,000; and

(d) any Foreign  Subsidiary may make Restricted  Payments to any other
Foreign Subsidiary.

7.7  Capital  Expenditures.  Make any Capital  Expenditure  during any
fiscal year ending on or after December 31, 2000, except Capital expenditures of
the  Borrower  and its  Subsidiaries  in the  ordinary  course of  business  not
exceeding $80,000,000 in the 2000 fiscal year and $85,000,000 in any fiscal year
thereafter;  provided,  that (i) any such amount  referred  to above,  if not so
expended in the fiscal year for which it is permitted and if no Default or Event
of Default has occurred and is continuing at the end of such fiscal year, may be
carried over for expenditure in the next succeeding fiscal year and (ii) Capital
Expenditures  made  pursuant to this Section 7.7 during any fiscal year shall be
deemed  made,  first,  in respect of amounts  permitted  for such fiscal year as
provided above and,  second,  in respect of amounts  carried over form the prior
fiscal year pursuant to subclause (i) above.

47

7.8 Investments.  Make any advance,  loan, extension of credit (by way
of guaranty or otherwise) or capital contribution to, or purchase of any Capital
Stock,  bonds,  notes,  debentures  or other debt  securities  of, or any assets
constituting  a business  unit of, or make any other  investment  in, any Person
(all of the foregoing, "Investments"), except:

(a) extensions of trade credit in the ordinary course of business;

(b) investments in Cash Equivalents;

(c) Guarantee Obligations permitted by Section 7.2;

(d) loans and advances to employees of the Borrower or any  Subsidiary
of the  Borrower  in the  ordinary  course of  business  (including  for travel,
entertainment  and relocation  expenses) in an aggregate amount for the Borrower
or any  Subsidiary  of the  Borrower  not to exceed  $1,000,000  at any one time
outstanding;

(e)   intercompany   investments   by  the  Borrower  or  any  of  its
Subsidiaries in the Borrower or any Person that, prior to such investment,  is a
Subsidiary  Guarantor (or, in the case of any such  Investment by a Wholly Owned
Subsidiary  Guarantor,  in the  Borrower  or any  Person  that,  prior  to  such
investment, is a Wholly Owned Subsidiary Guarantor);

(f) Permitted  Acquisitions  so long as, after giving effect  thereto,
the Basket Amount shall not be less than zero;

(g) the  acquisition by the Borrower of the remaining  common stock of
Strandel,  Inc.  not  already  owned by it for a purchase  price which shall not
exceed that calculated in accordance with the Unanimous  Shareholders  Agreement
among the Borrower,  Freemark Entertainment Corporation and Strandel, Inc. dated
July 31, 1999, as in effect on the Closing Date,  provided that (i) the Borrower
shall be in  compliance,  on a pro  forma  basis  after  giving  effect  to such
acquisition,  with  the  covenants  contained  in  Section  7.1,  in  each  case
recomputed as at the last day of the most recently  ended fiscal  quarter of the
Borrower for which the relevant  information is available as if such acquisition
had  occurred  on the  first  day of  each  relevant  period  for  testing  such
compliance (as demonstrated in a certificate of a Responsible  Officer delivered
to the  Administrative  Agent not less than  three  Business  Days prior to such
acquisition)  and (ii) no Default or Event of Default shall have occurred and be
continuing, or would occur after giving effect to such acquisition;

(h) Investments in equity securities  regularly traded over recognized
national  exchanges in an aggregate amount not to exceed $10,000,000 (net of any
return of capital in respect thereof);

(i)  Investments  received in connection with  Dispositions  permitted
hereunder;

(j)  Investments   received  in  connection  with  the  bankruptcy  or
reorganization  of suppliers  and  customers  and in  settlement  of  delinquent
obligations of, and other disputes with,  customers and suppliers arising in the
ordinary course of business;

48

(k) Investments consisting of loans to vendors of the Borrower and its
Subsidiaries not to exceed  $1,000,000 in aggregate  principal amount at any one
time outstanding;

(l) deposits to secure payments in the ordinary course of business;

(m)  redemption  of  the  Senior  Subordinated  Notes  to  the  extent
permitted under Section 7.9;

(n)  repurchases by the Borrower of its common stock or options to the
extent permitted under Section 7.6;

(o)  intercompany  Investments  by a Foreign  Subsidiary  in any other
Foreign Subsidiary;

(p)  Investments  in Foreign  Subsidiaries  or joint  ventures  not to
exceed  $5,000,000  in any fiscal  year (net of any return of capital in respect
thereof);

(q) Investments permitted pursuant to Section 7.2(k); and

(r) In addition to Investments  otherwise  expressly permitted by this
Section,  Investments by the Borrower or any of its Subsidiaries in an aggregate
amount  (valued  at  cost)  not to  exceed  $5,000,000  during  the term of this
Agreement.

7.9 Payments and Modifications of Certain Debt  Instruments.  (a) Make
or  offer  to make any  payment,  prepayment,  repurchase  or  redemption  of or
otherwise defease or segregate funds with respect to the principal amount of the
Senior  Subordinated Notes, other than (i) redemption of the Senior Subordinated
Notes so long as, after giving  effect  thereto,  the Basket Amount shall not be
less than  zero and (ii) in  addition,  redemption's  of  $18,000,000  aggregate
principal amount of the Senior Subordinated Notes,  provided that, in each case,
no Default or Event of Default  shall have  occurred and be  continuing or would
occur after giving effect thereto, (b) amend, modify, waive or otherwise change,
or consent or agree to any amendment,  modification,  waiver or other change to,
any of  the  terms  of the  Senior  Subordinated  Notes  (other  than  any  such
amendment, modification, waiver or other change that (i) would not be materially
adverse to the interests of the Lenders and (ii) does not involve the payment of
a consent fee), or (c) designate any Indebtedness (other than obligations of the
Loan Parties pursuant to the Loan Documents) as "Designated Senior Indebtedness"
(or any  comparable  concept) for the purposes of the Senior  Subordinated  Note
Indenture.

7.10  Transactions  with  Affiliates.   Enter  into  any  transaction,
including any purchase,  sale,  lease or exchange of property,  the rendering of
any service or the payment of any management, advisory or similar fees, with any
Affiliate  (other  than   transactions  with  the  Borrower  or  any  Subsidiary
transactions  described in the notes to the Borrower's  financial statements for
the period ended  December 31, 1998 and  continuations,  renewals or  extensions
thereof,  and  payment  of  compensation,  fees,  expenses  and  indemnities  to
directors  and  officers  of the  Borrower  and its  Subsidiaries)  unless  such
transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary
course of business of the  Borrower or such  Subsidiary  as the case may be, and
(c) upon fair and  reasonable  terms no less  favorable  to the Borrower or such
Subsidiary,  as the case may be,  than it would  obtain  in a  comparable  arm's
length transaction with a Person that is not an Affiliate.

7.11 Sales and Leasebacks.  Enter into any arrangement with any Person
providing for the leasing by the Borrower or any  Subsidiary of real or personal
property that has been or is to be sold or  transferred  by the Borrower or such
Subsidiary  to such Person or to any other Person to whom funds have been or are
to be  advanced  by such  Person  on the  security  of such  property  or rental
obligations  of the Borrower or such  Subsidiary  unless,  after  giving  effect
thereto,  the  aggregate  outstanding  amount of  Attributable  Debt (other than
Attributable  Debt secured by Liens permitted under Section 7.3(g)),  when added
to the aggregate  amount utilized  pursuant to Section  7.3(q),  does not exceed
$10,000,000.

49

7.12 Changes in Fiscal Periods. Permit the fiscal year of the Borrower
to end on a day other  than  December  31 or  change  the  Borrower's  method of
determining  fiscal  quarters,  provided that the Borrower may change its fiscal
year to end on or about the last day of January and the  Borrower may change its
method of determining fiscal quarters  consistent with methods  customarily used
in the retail apparel business.

7.13 Negative Pledge Clauses.  Enter into or suffer to exist or become
effective any agreement  that prohibits or limits the ability of the Borrower or
any of the Subsidiary Guarantors to create, incur, assume or suffer to exist any
Lien upon any of its  property  or  revenues,  whether  now  owned or  hereafter
acquired, other than (a) this Agreement, the other Loan Documents and the Senior
Subordinated  Note  Indenture,  (b) any agreements  governing any purchase money
Liens or Capital Lease Obligations (or refinancings thereof) otherwise permitted
hereby (in which case, any  prohibition  or limitation,  shall only be effective
against the assets financed thereby) and (c) Hedge Agreements with any Lender or
any  Affiliate  of any  Lender  (so long as the  relevant  restrictions  are not
materially more  restrictive than the comparable  restrictions  contained in the
Loan Documents).

7.14  Clauses  Restricting  Subsidiary  Distributions.  Enter  into or
suffer to exist or become  effective any consensual  encumbrances or restriction
on the ability of any subsidiary of the Borrower to (a) make Restricted Payments
in  respect  of any  Capital  Stock  of  such  Subsidiary  held  by,  or pay any
Indebtedness owed to, the Borrower or any other Subsidiary of the Borrower,  (b)
make loans or advances  to, or other  Investments  in, the Borrower or any other
Subsidiary  of the Borrower or (c) transfer any of its assets to the Borrower or
any  other  Subsidiary  of  the  Borrower,   except  for  such  encumbrances  or
restrictions  existing under or by reason of (i) any restrictions existing under
the  Loan  Documents  and the  Senior  Subordinated  Note  Indenture,  (ii)  any
restrictions with respect to a Subsidiary  imposed pursuant to an agreement that
has been entered into in connection with the Disposition of all or substantially
all of  the  Capital  Stock  or  assets  of  such  Subsidiary,  (iii)  customary
restrictions  regarding  assignments of leases and licenses,  (iv) provisions in
Indebtedness  of  Foreign  Subsidiaries  permitted  hereunder  (so  long as such
provisions are applicable only to the relevant Foreign Subsidiaries) and (v) any
restrictions  contained in Hedge  Agreements with any Lender or any Affiliate of
any  Lender  that  are not  materially  more  restrictive  than  the  comparable
restrictions contained in the Loan Documents.

7.15 Lines of Business.  Enter into any business,  either  directly or
through any Subsidiary, except for the Apparel Businesses.

SECTION 8. EVENTS OF DEFAULT

If any of the following events shall occur and be continuing:

(a)  the  Borrower  shall  fail to pay any  principal  of any  Loan or
Reimbursement  Obligation when due in accordance  with the terms hereof;  or the
Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation,
or any other amount payable  hereunder or under any other Loan Document,  within
five days after any such interest or other amount becomes due in accordance with
the terms hereof; or

50

(b) any  representation  or  warranty  made or deemed made by any Loan
Party  herein  or in any  other  Loan  Document  or  that  is  contained  in any
certificate,  document or  financial or other  statement  furnished by it at any
time under or in connection  with this Agreement or any such other Loan Document
shall prove to have been inaccurate in any material respect on or as of the date
made or deemed made; or

(c) any Loan Party shall default in the  observance or  performance of
any agreement contained in clause (i) or (ii) of Section 6.4(a) (with respect to
the Borrower only), Section 6.7(a) or Section 7 of this Agreement or Section 5.5
of the Guarantee and Collateral Agreement; or

(d) any Loan Party shall default in the  observance or  performance of
any other  agreement  contained  in this  Agreement  or any other Loan  Document
(other than as provided in paragraphs (a) through (c) of this Section), and such
default shall  continue  unremedied  for a period of 30 days after notice to the
Borrower from the Administrative Agent or the Required Lenders; or

(e) the  Borrower  or any of its  Subsidiaries  shall (i)  default  in
making any payment of any principal of any Indebtedness (including any Guarantee
Obligation,  but excluding the Loans) on the scheduled or original due date with
respect  thereto,  or (ii)  default in making any payment of any interest on any
such Indebtedness beyond the period of grace, if any, provided in the instrument
or agreement under which such Indebtedness was created,  or (iii) default in the
observance or  performance of any other  agreement or condition  relating to any
such  Indebtedness  or contained  in any  instrument  or  agreement  evidencing,
securing or relating thereto, or any other event shall occur or condition exist,
the effect of which  default or other  event or  condition  (in the case of this
clause  (iii)  only) is to cause  such  Indebtedness  to become due prior to its
stated  maturity  or (in  the  case  of any  such  Indebtedness  constituting  a
Guarantee  Obligation) to become  payable;  provided,  that a default,  event or
condition  described in clause (i),  (ii), or (iii) of this  paragraph (e) shall
not at any time constitute an Event of Default unless, at such time, one or more
defaults,  events or conditions  of the type  described in clauses (i), (ii) and
(iii) of this  paragraph (e) shall have occurred and be continuing  with respect
to  Indebtedness  the  outstanding  principal  amount  of which  exceeds  in the
aggregate $2,500,000; or

(f)  (i)  the  Borrower  or  any of its  Material  Subsidiaries  shall
commence any case,  proceeding  or other action (A) under any existing or future
law  of  any  jurisdiction,   domestic  or  foreign,   relating  to  bankruptcy,
insolvency,  reorganization  or relief of debtors,  seeking to have an order for
relief  entered  with respect to it, or seeking to  adjudicate  it a bankrupt or
insolvent,  or  seeking  reorganization,  arrangement,  adjustment,  winding-up,
liquidation,  dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other  similar  official  for it or for all or any  substantial  party of its
assets, or the Borrower or any of its Material Subsidiaries shall make a general
assignment  for the benefit of its  creditors;  or (ii) there shall be commenced
against the Borrower or any of its Material Subsidiaries any case, proceeding or
other action of a nature referred to in clause (i) above that (A) results in the
entry of an order for  relief or any such  adjudication  or  appointment  or (B)
remains undismissed,  undischarged or unbonded for a period of 60 days; or (iii)
there  shall  be  commenced   against  the  Borrower  or  any  of  its  Material
Subsidiaries any case,  proceeding or other action seeking issuance of a warrant
of  attachment,  execution,  distraint  or similar  process  against  all or any
substantial  part of its  assets  that  results in the entry of an order for any
such relief  that shall not have been  vacated,  discharged  or stayed or bonded
pending  appeal within 60 days from the entry  thereof,  or (iv) the Borrower or
any of its Material  Subsidiaries  shall take any action in  furtherance  of, or
indicating its consent to, approval of, or acquiescence  in, any of the acts set
forth in clause (i),  (ii),  or (iii)  above;  or (v) the Borrower or any of its
Material Subsidiaries shall generally not, or shall be unable to, or shall admit
in writing its inability to, pay its debts as they become due; or

51

(g) (i) any Person shall engage in any  "prohibited  transaction"  (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated  funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any Lien in favor
of the PBGC or a Plan shall arise on the assets of the  Borrower or any Commonly
Controlled  Entity,  (iii) a  Reportable  Event shall occur with  respect to, or
proceedings  shall commence to have a trustee  appointed,  or a trustee shall be
appointed,  to administer  or to  terminate,  any Single  Employer  Plan,  which
Reportable  Event or commencement of proceedings or appointment of a trustee is,
in the  reasonable  opinion  of the  Required  Lenders,  likely to result in the
termination  of such Plan for  purposes  of Title IV of ERISA,  (iv) any  Single
Employer  Plan  shall  terminate  for  purposes  of Title IV of  ERISA,  (v) the
Borrower or any Commonly  Controlled Entity shall, or in the reasonable  opinion
of the Required  Lenders is likely to, incur any liability in connection  with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or
(vi) any other event or  condition  shall occur or exist with respect to a Plan;
and in each case in clauses (i) through  (vi)  above,  such event or  condition,
together with all other such events or conditions,  if any, could  reasonably be
expected to have a Material Adverse Effect; or

(h) one or more  judgements  or decrees  shall be entered  against the
Borrower or any of its Subsidiaries  involving in the aggregate a liability (not
paid or fully  covered by insurance as to which the relevant  insurance  company
has  acknowledged  coverage) of  $2,500,000 or more,  and all such  judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending appeal
within 60 days from the entry thereof, or

(i)  the  occurrence  of one or more of the  events  or  circumstances
described in Section 4.12 that, in the aggregate,  could  reasonably be expected
to have a Material Adverse Effect; or

(j)  the  occurrence  of one or more of the  events  or  circumstances
described in Section 4.17 that, in the aggregate,  could  reasonably be expected
to have a Material Adverse Effect; or

(k) any of the Security  Documents shall cease, for any reason,  to be
in full force and effect,  or any Loan Party or any  Affiliate of any Loan Party
shall so assert,  or any Lien  created by any of the  Security  Documents  shall
cease to be  enforceable  and of the same effect and  priority  purported  to be
created thereby (other than in connection with a transaction expressly permitted
hereunder); or

(l)  the  guarantee  contained  in  Section  2 of  the  Guarantee  and
Collateral Agreement shall cease, for any reason, to be in full force and effect
or any Loan Party or any Affiliate of any Loan Party shall so assert; or

(m) (i) any  "person"  or  "group"  (as such terms are used in Section
13(d)  and  14(d) of the  Securities  Exchange  Act of  1934,  as  amended  (the
"Exchange  Act")),  excluding the Permitted  Investor,  shall become,  or obtain
rights  (whether  by means or  warrants,  options  or  otherwise)  to become the
"beneficial  owner" (as defined in Rules  13(d)-3 and 13(d)-5 under the Exchange
Act),  directly or indirectly,  of more than 35% of the outstanding common stock
of the  Borrower;  (ii) the board of directors  of the  Borrower  shall cease to
consist of a majority of Continuing  Directors,  or (iii) a Specified  Change of
Control shall occur; or

52

(n) the Senior  Subordinated  Notes shall cease, for any reason, to be
validly subordinated to the Obligations,  as provided in the Senior Subordinated
Note  Indenture,  or any Loan Party or any  Affiliate of any Loan Party shall so
assert;

then, and in any such event, (A) if such event is an Event of Default  specified
in clause  (i) or (ii) of  paragraph  (f) above with  respect  to the  Borrower,
automatically the Revolving Credit  Commitments shall immediately  terminate and
the Loans hereunder (with accrued interest thereon) and all other amounts owning
under this Agreement and the other Loan Documents  (including all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) shall immediately
become due and  payable,  and (B) if such event is any other  Event of  Default,
either or both of the  following  actions may be taken:  (i) with the consent of
the Required Lenders,  the Administrative  Agent may, or upon the request of the
Required  Lenders,  the  Administrative  Agent shall,  by notice to the Borrower
declare the Revolving Credit Commitments to be terminated  forthwith,  whereupon
the Revolving Credit Commitments shall immediately terminate;  and (ii) with the
consent of the  Required  Lenders,  the  Administrative  Agent may,  or upon the
request of the Required Lenders,  the  Administrative  Agent shall, by notice to
the Borrower,  declare the Loans hereunder (with accrued  interest  thereon) and
all other  amounts  owing  under this  Agreement  and the other  Loan  Documents
(including all amounts of L/C Obligations,  whether or not the  beneficiaries of
the then  outstanding  Letters of Credit  shall  have  presented  the  documents
required  thereunder) to be due and payable forthwith,  whereupon the same shall
immediately  become due and payable.  With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time of an
acceleration  pursuant to this paragraph the Borrower shall at such time deposit
in a cash collateral account opened by the Administrative  Agent an amount equal
to the aggregate  then undrawn and  unexpired  amount of such Letters of Credit.
Amounts  held  in  such  cash  collateral   account  shall  be  applied  by  the
Administrative  Agent to the  payment  of drafts  drawn  under  such  Letters of
Credit,  and the unused  portion  thereof after all such Letters of Credit shall
have expired or been fully drawn upon,  if any,  shall be applied to repay other
obligations of the Borrower hereunder and under the other Loan Documents.  After
all such  Letters of Credit  shall have  expired or been fully drawn  upon,  all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrower  hereunder and under the other Loan Documents  shall have been paid
in full, the balance,  if any, in such cash collateral account shall be returned
to the  Borrower  (or such other  Person as may be lawfully  entitled  thereto).
Except as expressly provided above in this Section, presentment, demand, protest
and all other notices of any kind are hereby expressly waived by the Borrower.

SECTION 9. THE AGENTS

9.1  Appointment.   Each  Lender  hereby  irrevocably  designates  and
appoints  the  Administrative  Agent as the  agent  of such  Lender  under  this
Agreement  and the  other  Loan  Documents,  and each  such  Lender  irrevocably
authorizes the  Administrative  Agent, in such capacity,  to take such action on
its behalf under the  provisions of this  Agreement and other Loan Documents and
to exercise  such powers and perform such duties as are  expressly  delegated to
the  Administrative  Agent by the terms of this  Agreement  and the  other  Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding  any provision to the contrary elsewhere in this Agreement,  the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary  relationship with any Lender,  and
no  implied  covenants,  functions,  responsibilities,  duties,  obligations  or
liabilities  shall be read into this  Agreement  or any other Loan  Document  or
otherwise exist against the Administrative Agent.

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9.2 Delegation of Duties. The Administrative  Agent may execute any of
the duties  under this  Agreement  and the other  Loan  Documents  by or through
agents  or  attorneys-in-fact  and  shall  be  entitled  to  advice  of  counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not  be  responsible   for  the  negligence  or  misconduct  of  any  agents  or
attorneys-in-fact selected by it with reasonable care.

9.3  Exculpatory  Provisions.  Neither  any  Agent  nor  any of  their
respective  officers,   directors,   employees,  agents,   attorneys-in-fact  or
affiliates  shall be (i) liable for any action  lawfully  taken or omitted to be
taken by it or such Person  under or in  connection  with this  Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable  decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross  negligence or willful  misconduct)
or (ii)  responsible  in any  manner  to any of the  Lenders  for any  recitals,
statements,  representations or warranties made by the Loan Party or any officer
thereof  contained  in this  Agreement  or any  other  Loan  Document  or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agents under or in  connection  with,  this  Agreement or any
other Loan  Document  or for the value,  validity,  effectiveness,  genuineness,
enforceability  or  sufficiency  of this Agreement or any other Loan Document or
for any  failure of any Loan Party a party  thereto to perform  its  obligations
hereunder or  thereunder.  The Agents shall not be under any  obligation  to any
Lender to ascertain or to inquire as to the  observance or performance of any of
the agreements  contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.

9.4 Reliance by Administrative  Agent. The Administrative  Agent shall
be  entitled  to rely,  and  shall  be  fully  protected  in  relying,  upon any
instrument,  writing,  resolution,  notice,  consent,  certificate,   affidavit,
letter, telecopy, telex or teletype message,  statement, order or other document
or  conversation  believed  by it to be  genuine  and  correct  and to have been
signed,  sent or made by the  proper  Person  or  Persons  and upon  advice  and
statements of legal counsel  (including  counsel to the  Borrower),  independent
accountants  and  other  experts  selected  by  the  Administrative  Agent.  The
Administrative  Agent may deem and treat the payee of any note evidencing  Loans
as the owner  thereof for all purposes  unless a written  notice of  assignment,
negotiation  or transfer  thereof shall have been filed with the  Administrative
Agent. The Administrative  Agent shall be fully justified in failing or refusing
to take any action  under this  Agreement or any other Loan  Document  unless it
shall first receive such advice or concurrence  of the Required  Lenders (or, if
so specified by this Agreement, all Lenders) as it deems appropriate or it shall
first be  indemnified  to its  satisfaction  by the Lenders  against any and all
liability  and  expense  that may be  incurred  by it by  reason  of  taking  or
continuing to take any such action. The Administrative  Agent shall in all cases
be fully protected in acting, or in refraining from acting, under this Agreement
and the other  Loan  Documents  in  accordance  with a request  of the  Required
Lenders (or, if so specified by this Agreement,  all Lenders),  and such request
and any action  taken or failure to act pursuant  thereto  shall be binding upon
all the Lenders and all future holders of the Loans.

9.5 Notice of Default. The Administrative Agent shall not be deemed to
have  knowledge or notice of the  occurrence  of any Default or Event of Default
hereunder unless the  Administrative  Agent has received notice from a Lender or
the Borrower  referring to this  Agreement,  describing such Default or Event of
Default and stating that such notice is a "notice of  default".  In the event of
that the Administrative  Agent receives such a notice, the Administrative  Agent
shall give notice thereof to the Lenders.  The  Administrative  Agent shall take
such  action  with  respect  to such  Default  or Event of  Default  as shall be
reasonably  directed  by the  Required  Lenders  (or,  of so  specified  by this
Agreement, all Lenders); provided that unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be  obligated  to) take such action,  or refrain  from taking such action,  with
respect to such  Default or Event of Default as it shall deem  advisable  in the
best interests of the Lenders.

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9.6  Non-Reliance on Agents and Other Lenders.  Each Lender  expressly
acknowledges  that  neither  the  Agents nor any of their  respective  officers,
directors,  employees,  agents,  attorneys-in-fact  or affiliates  have made any
representations  or  warranties  to it and that no act by any Agent  hereinafter
taken, including any review of the affairs of a Loan Party or any affiliate of a
Loan Party,  shall be deemed to constitute any representation or warranty by any
Agent  to any  Lender.  Each  Lender  represents  to the  Agents  that  it  has,
independently and without reliance upon any Agent or any other Lender, and based
on such  documents and  information as it has deemed  appropriate,  made its own
appraisal  of  and  investigation  into  the  business,  operations,   property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Loans hereunder enter into this
Agreement.  Each Lender also represents that it will,  independently and without
reliance  upon any Agent or any other  Lender,  and based on such  documents and
information  as it  has  deemed  appropriate,  made  its  own  appraisal  of and
investigation  into the  business,  operations,  property,  financial  and other
condition and creditworthiness of the Loan Parties and their affiliates and made
its own decision to make its Loans hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon any
Agent or any other Lender,  and based on such  documents and  information  as it
shall deem  appropriate at the time,  continue to make its own credit  analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents,  and to make such  investigation as it deems necessary
to inform itself as to the business,  operations,  property, financial and other
condition and creditworthiness of the Loan Parties and their affiliates.  Except
for notices,  reports and other documents  expressly required to be furnished to
the Lenders by the  Administrative  Agent hereunder,  the  Administrative  Agent
shall not have any duty or  responsibility to provide any Lender with any credit
or other information concerning the business,  operations,  property,  condition
(financial or otherwise), prospects or creditworthiness of any Loan Party or any
affiliate  of  a  Loan  Party  that  may  come  into  the   possession   of  the
Administrative  Agent  or any of its  officers,  directors,  employees,  agents,
attorneys-in-fact or affiliates.

9.7 Indemnification.  The Lenders agree to indemnify each Agent in its
capacity  as such (to the extent not  reimbursed  by the  Borrower  and  without
limiting the  obligation of the Borrower to do so),  ratably  according to their
respective  Aggregate  Exposure  Percentages  in  effect  on the  date on  which
indemnification  is sought under this Section (or, if  indemnification is sought
after the date upon which the Revolving Credit Commitments shall have terminated
and the Loans  shall  have been paid in full,  ratably in  accordance  with such
Aggregate Exposure Percentages immediately prior to such date), from and against
any and all  liabilities,  obligations,  losses,  damages,  penalties,  actions,
judgments,  suits, costs,  expenses or disbursements of any kind whatsoever that
may at any time  (whether  before or after the  payment of the Loans) be imposed
on, incurred by or asserted against such Agent in any way relating to or arising
out of the Revolving Credit Commitments,  this Agreement,  any of the other Loan
Documents or any documents  contemplated  by or referred to herein or therein or
the transactions  contemplated  hereby or thereby or any action taken or omitted
by such Agent under or in connection with any of the foregoing; provided that no
Lender  shall be liable  for the  payment of any  portion  of such  liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses or disbursements  that are found by a final and nonappealable  decision
of a court of competent  jurisdiction  to have  resulted from such Agent's gross
negligence or willful  misconduct.  The agreements in this Section shall survive
the payment of the Loans and all other amounts payable hereunder.

9.8 Agent in Its  Individual  Capacity.  Each Agent and its affiliates
may make  loans to  accept  deposits  from and  generally  engage in any kind of
business with any Loan Party as though such Agent was not an Agent. With respect
to its Loans  made or  renewed  by it and with  respect  to any Letter of Credit
issued or  participated  in by it,  each Agent  shall  have the same  rights and
powers under this  Agreement and the other Loan  Documents as any Lender and may
exercise  the same as though it were not an Agent,  and the terms  "Lender"  and
"Lenders" shall include each Agent in its individual capacity.

55

9.9  Successor  Administrative  Agent.  The  Administrative  Agent may
resign as  Administrative  Agent  upon 30 days'  notice to the  Lenders  and the
Borrower. If the Administrative Agent shall resign as Administrative Agent under
this  Agreement and the other Loan  Documents,  then the Required  Lenders shall
appoint  from  among  the  Lenders a  successor  agent  for the  Lenders,  which
successor  agent shall (unless an Event of Default under Section 8(a) or Section
8(f) with respect to the Borrower  shall have  occurred and be  continuing)  the
subject to approval by the Borrower  (which  approval shall not be  unreasonably
withheld or  delayed),  whereupon  such  successor  agent  shall  succeed to the
rights,   powers  and  duties  of  the   Administrative   Agent,  and  the  term
"Administrative  Agent"  shall mean such  successor  agent  effective  upon such
appointment and approval,  and the former Administrative  Agent's rights, powers
and duties as Administrative  Agent shall be terminated,  without any or further
act or  deed  on the  part of such  former  Administrative  Agent  or any of the
parties to this Agreement or any holders of the Loans. If no successor agent has
accepted  appointment  as  Administrative  Agent  by the  date  that  is 30 days
following a retiring Administrative Agent's notice of resignation,  the retiring
Administrative Agent's resignation shall nevertheless thereupon become effective
and the Lenders shall assume and perform all of the duties of the Administrative
Agent  hereunder  until such time,  if any, as the  Required  Lenders  appoint a
successor agent as provided for above. After any retiring Administrative Agent's
resignation  as  Administrative  Agent,  the  provisions of this Section 9 shall
inure to its benefit as to any actions  taken or omitted to be taken by it while
it was Administrative Agent under this Agreement and the other Loan Documents.

9.10   Co-Agent.   The   Co-Agent   shall  not  have  any   duties  or
responsibilities hereunder in its capacity as such.

SECTION 10. MISCELLANEOUS

10.1 Amendments and Waivers.  Neither this  Agreement,  any other Loan
Documents,  nor any terms  hereof or thereof  may be  amended,  supplemented  or
modified  except in accordance  with the  provisions  of this Section 10.1.  The
Required  Lenders and each Loan Party party to the relevant  Loan  Document may,
or, with the written consent of the Required Lenders,  the Administrative  Agent
and each Loan Party party to the relevant  Loan Document may, from time to time,
(a) enter into written  amendments,  supplements or modifications  hereto and to
the other  Loan  Documents  for the  purpose of adding  any  provisions  to this
Agreement  or the other Loan  Documents  or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such
terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such  instrument,  any of the  requirements  of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences;  provided,  however,  that no such  waiver and no such  amendment,
supplement or modification  shall (i) forgive the principal amount or extend the
final  scheduled  date of  maturity  of any Loan,  reduce the stated rate of any
interest or fee payable  hereunder or extend the  scheduled  date of any payment
thereof,  or increase the amount or extend the  expiration  date of any Lender's
Revolving  Credit  Commitment,  in each case without the written consent of each
Lender directly affected thereby;  (ii) eliminate or reduce the voting rights of
any Lender under this  Section  10.1 with respect to any matter  covered by this
section  10.1  without  the written  consent of such  Lender,  (iii)  reduce any
percentage  specified  in the  definition  of Required  Lenders,  consent to the
assignment  or  transfer by the  Borrower  of any of its rights and  obligations
under this Agreement and the other Loan Documents,  release all or substantially
all of the  Collateral  or release all or  substantially  all of the  Subsidiary
Guarantors from their obligations under the Guarantee and Collateral  Agreement,
in each case without the written  consent of all Lenders;  (v) amend,  modify or
waive  any   provision  of  Section  9  without  the  written   consent  of  the
Administrative Agent; (v) amend, modify or waive any provision of Section 2.3 or
2.4 without the written consent of the Swingline Lender; or (v) amend, modify or
waive any  provision  of Section 3 without  the  written  consent of the Issuing
Lender. Any such waiver and any such amendment, supplement or modification shall
apply equally to each of the Lenders and shall be binding upon the Loan Parties,
the Lenders,  the  Administrative  Agent and all future holders of the Loans. In
the case of any waiver,  the Loan  Parties,  the Lenders and the  Administrative
Agent shall be restored to their former position and rights  hereunder and under
the other Loan  Documents,  and any Default or Event of Default  waived shall be
deemed to be cured and not  continuing;  but no such waiver  shall extend to any
subsequent or other Default or Event of Default,  or impair any right consequent
thereon.

56

For the avoidance of doubt,  this Agreement may be amended (or amended
and  restated)  with  the  written   consent  of  the  Required   Lenders,   the
Administrative  Agent and the Borrower (a) to add one or more additional  credit
facilities  to this  Agreement (it being  understood  that a Lender shall not be
required to provide any such additional credit facilities  without such Lender's
consent) and to permit the  extensions  of credit from time to time  outstanding
thereunder and the accrued interest and fees in respect thereof to share ratably
in the  benefits  of this  Agreement  and the  other  Loan  Documents  with  the
Revolving  Extensions  of Credit and the  accrued  interest  and fees in respect
thereof  and (b) to  include  appropriately  the  Lenders  holding  such  credit
facilities in any determination of the Required Lenders.

10.2  Notices.  All  notices,  requests  and  demands  to or upon  the
respective  parties  thereto to be effective  shall be in writing  (including by
telecopy),  and, unless otherwise  expressly  provided herein shall be deemed to
have been duly given or made when  delivered or three  Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received,   addressed   as  follows  in  the  case  of  the   Borrower  and  the
Administrative  Agent,  and  as set  forth  in an  administrative  questionnaire
delivered to the  Administrative  Agent in the case of the  Lenders,  or to such
other address as may be hereafter notified by the respective parties hereto:

The Borrower:       Guess?, Inc.
1444 South Alameda Street
Los Angeles, California  90021
Attention:     Maurice Marciano, Chairman
or Brian Fleming, Chief
Financial Officer
Telecopy:      213-744-7817
Telephone:     213-765-3100

The Administrative Agent:    The Chase Manhattan Bank
c/o The Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York  10081
Attention:     Jesus Sang
Telecopy:      212-552-5650
Telephone:     212-552-7916

with a copy to:              The Chase Manhattan Bank
270 Park Avenue
New York, New York  10018
Attention:     Paul Phalen
Telecopy:      212-827-4497
Telephone:     212-827-4421

provided  that any notice,  request or demand to the or upon the  Administrative
Agent or the Lenders shall not be effective until received.

10.3 No Waiver;  Cumulative  Remedies.  No failure to exercise  and no
delay in exercising,  on the part of the Administrative Agent or any Lender, any
right,  remedy,  power or privilege  hereunder or under the other Loan Documents
shall operate as a waiver thereof;  nor shall any single or partial  exercise of
any right,  remedy,  power or privilege  hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights,  remedies,  powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.

10.4 Survival of Representations  and Warranties.  All representations
and warranties made hereunder,  in the other Loan Documents and in any document,
certificate or statement  delivered  pursuant  hereto or in connection  herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans and other extensions of credit hereunder.

10.5 Payment of Expenses and Taxes.  The Borrower agrees (a) to pay or
reimburse the Administrative  Agent for all its reasonable  out-of-pocket  costs
and  expenses  incurred in  connection  with the  development,  preparation  and
execution of, and any amendment,  supplement or modification  to, this Agreement
and the other Loan  Documents  and any other  documents  prepared in  connection
herewith  or  therewith,   and  the  consummation  and   administration  of  the
transactions contemplated hereby and thereby,  including the reasonable fees and
disbursements  of counsel to the  Administrative  Agent and filing and recording
fees and expenses, with statements with respect to the foregoing to be submitted
to the Borrower  prior to the Closing Date (in the case of amounts to be paid on
the Closing Date) and from time to time  thereafter on a quarterly basis or such
other periodic basis as the Administrative Agent shall deem appropriate,  (b) to
pay or reimburse each Lender and the Administrative  Agent for all its costs and
expenses  incurred in connection  with the  enforcement or  preservation  of any
rights  under  this  Agreement,  the other  Loan  Documents  and any such  other
documents,  including the reasonable  fees and  disbursements  of counsel to the
Administrative  Agent (including any local or special counsel) and not more than
one additional form of counsel to the Lenders,  (c) to pay, indemnify,  and hold
each Lender and the  Administrative  Agent  harmless from, any and all recording
and filing fees and any and all  liabilities  with respect to, or resulting from
any delay in payment, stamp, excise and other taxes, if any, that may be payable
or determined to be payable in connection with the execution and delivery of, or
consummation or  administration  or any of the transactions  contemplated by, or
any amendment,  supplement or modification of, or any waiver or consent under or
in respect  of,  this  Agreement,  the other Loan  Documents  and any of, or any
waiver or  consent  under,  or in respect  of,  this  Agreement,  the other Loan
Documents and any such other documents, and (d) to pay, indemnify, and hold each
Lender and the Administrative  Agent and their respective  officers,  directors,
employees,  affiliates,  agents and controlling  persons (each an  "Indemnitee")
harmless from and against any and all other  liabilities,  obligations,  losses,
damages, penalties,  actions, judgments, suits, costs, expenses or disbursements
of any kind or  nature  whatsoever  with  respect  to the  execution,  delivery,
enforcement,  performance and  administration of this Agreement,  the other Loan
Documents and any such other documents,  including any of the foregoing relating
to the use of proceeds of the Loans or the violation of,  noncompliance  with or
liability  under,  any  Environmental  Law  applicable to the  operations of the
Borrower any of its  subsidiaries  or any of the  Properties  and the reasonable
fees and  expenses  of legal  counsel  in  connection  with  claims,  actions or
proceedings  by any  indemnitee  against any Loan Party under any Loan  Document
(all  the  foregoing  in  the  clause  (d),   collectively,   the   "Indemnified
Liabilities"), provided, that the Borrower shall have no obligation hereunder to
any  Indemnitee  with  respect to  Indemnified  Liabilities  to the extent  such
Indemnified  Liabilities  are found by a final and  nonappealable  decision of a
court of competent  jurisdiction  to have resulted from the gross  negligence or
willful  misconduct  of such  Indemnitee  or breach of any Loan  Document  by an
Indemnitee.  Without  limiting  the  foregoing,  and to the extent  permitted by
applicable law, the Borrower agrees not to assert and to cause its  Subsidiaries
not to assert,  and hereby  waives  and agrees to cause its  Subsidiaries  to so
waive,  all rights for contribution or any other rights of recovery with respect
to all claims, demands,  penalties,  fines, liabilities,  settlements,  damages,
costs and expenses of whatever kind or nature, under or related to Environmental
Laws,  that  any of  them  might  have  by  statute  or  otherwise  against  any
Indemnitee.  All amounts due under this  Section 10.5 shall be payable not later
than 10 days after written demand therefor,  accompanied by appropriate invoices
and supporting  documentation.  Statements  payable by the Borrower  pursuant to
this  Section  10.5  shall  be  submitted  to  Brian  Fleming   (Telephone   No.
213-765-3100)  (Telecopy No.  213-744-7817),  at the address of the Borrower set
forth in Section  10.2,  or to such other  Person or address as may be hereafter
designated by the Borrower in a written notice to the Administrative  Agent. The
agreement  in this  Section  10.5 shall  survive  repayment of the Loans and all
other amounts payable hereunder.

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10.6 Successors and Assigns;  Participations and Assignments. (a) This
Agreement  shall be binding upon and inure to the benefit of the  Borrower,  the
Lenders,  the  Administrative  Agent,  all future holders of the Loans and their
respective  successors  and assigns,  except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender.

(b) Any Lender may, without the consent of the Borrower, in accordance
with  applicable  law,  at  any  time  sell  to  one or  more  banks,  financial
institutions or other entities (each, a "Participant")  participating  interests
in any Loan owing to such Lender, any Revolving Credit Commitment of such Lender
or any other  interest  of such  Lender  hereunder  and  under  the  other  Loan
Documents. In the event of any such sale by a Lender of a participating interest
to a Participant,  such Lenders'  obligations  under this Agreement to the other
parties to this  Agreement  shall  remain  unchanged,  such Lender  shall remain
solely  responsible  for the performance  thereof,  such Lender shall remain the
holder of any such Loan for all purposes under this Agreement and the other Loan
Documents,  and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. In no event shall
any  Participant  under any such  participation  have any right to  approve  any
amendment or waiver of any provision of any Loan Document, or any consent to any
departure by any Loan Party therefrom, except to the extent that such amendment,
waiver or consent  would reduce the  principal  of, or interest on, the Loans or
any fees payable  hereunder,  or postpone the date of the final  maturity of the
Loans,  in each case to the extent subject to such  participation.  The Borrower
agrees that if amounts outstanding under this Agreement and the Loans are due or
unpaid,  or shall have been  declared or shall have become due and payable  upon
the occurrence of an Event of Default,  each  Participant  shall, to the maximum
extent  permitted  by  applicable  law, be deemed to have the right of setoff in
respect of its  participating  interest in amounts owing under this Agreement to
the same  extent  as if the  amount of its  participating  interest  were  owing
directly to it as a Lender under this  Agreement,  provided  that, in purchasing
such participating  interest, such Participant shall be deemed to have agreed to
share with the Lenders the  proceeds  thereof as provided in Section  10.7(a) as
fully as if it were a Lender  hereunder.  The  Borrower  also  agrees  that each
Participant  shall be entitled to the benefits of Sections  2.15,  2.16 and 2.17
with respect to its  participation in the Revolving  Credit  Commitments and the
Loans outstanding from time to time as if it was a Lender; provided that, in the
case of Section 2.16, such Participant shall have complied with the requirements
of said Section and provided,  further, that no Participant shall be entitled to
receive any greater  amount  pursuant to any such  Section  than the  transferor
Lender  would  have been  entitled  to  receive  in respect of the amount of the
participation  transferred by such transferor  Lender to such Participant had no
such transfer occurred.

59

(c) Any Lender (an "Assignor") may, in accordance with applicable law,
at any time and from time to time assign to any  Lender,  any  affiliate  of any
Lender or, with the consent of the Borrower and the Administrative Agent (which,
in each case, shall not be unreasonably  withheld or delayed),  to an additional
bank,  financial  institution or other entity (an "Assignee") all or any part of
its rights and  obligations  under this Agreement  pursuant to an Assignment and
Acceptance,  executed by such Assignee, such Assignor and any other Person whose
consent  is  required   pursuant  to  this   paragraph   and  delivered  to  the
Administrative Agent for its acceptance and recording in the Register,  provided
that no such assignment to an Assignee (other than any Lender,  any affiliate of
any Lender) shall be in an aggregate  principal  amount of less than $10,000,000
(other than in the case of an  assignment of all of a Lender's  interests  under
this Agreement),  unless otherwise agreed by the Borrower and the Administrative
Agent. Upon such execution,  delivery,  acceptance and recording, from and after
the effective date determined  pursuant to such  Assignment and Acceptance,  (x)
the Assignee  thereunder  shall be party  hereto and, to the extent  provided in
such  Assignment  and  Acceptance,  have the rights and  obligations of a Lender
hereunder with a Revolving Credit  Commitment and/or Loans as set forth therein,
and (y) the Assignor thereunder shall, to the extent provided in such Assignment
and Acceptance,  be released from its obligations  under this Agreement (and, in
the case of an Assignment  and Acceptance  covering all of an Assignor's  rights
and obligations  under this  Agreement,  such Assignor shall cease to be a party
hereto).  Notwithstanding any provision of this Section 10.6, the consent of the
Borrower shall not be required for any  assignment  that occurs when an Event of
Default  pursuant to Section  8(f) shall have  occurred and be  continuing  with
respect to the Borrower.

(d) The Administrative Agent shall, on behalf o the Borrower, maintain
at its  address  referred  to in  Section  10.2 a copy  of each  Assignment  and
Acceptance  delivered to it and a register (the  "Register") for the recordation
of the names and  addresses of the Lenders and the revolving  Credit  Commitment
of, and the  principal  amount of the Loans  owing to,  each Lender from time to
time.  The  entries  in the  Register  shall be  conclusive,  in the  absence of
manifest  error,  and the Borrower,  each other Loan Party,  the  Administrative
Agent and the  Lenders  shall  treat each  Person  whose name is recorded in the
Register as the owner of the Loans and any notes  evidencing  the Loans recorded
therein for all purposes of this Agreement.  Any assignment of any Loan, whether
or not evidenced by a note,  shall be effective  only upon  appropriate  entries
with  respect  thereto  being  made in the  Register  (and each such note  shall
expressly  so  provide).  Any  assignment  or  transfer of all or part of a Loan
evidenced by a note shall be registered on the Register only upon  surrender for
registration  of  assignment  or  transfer  of the note  evidencing  such  Loan,
accompanied by a duly executed Assignment and Acceptance,  and thereupon the old
notes will be returned to the  Borrower  marked  "canceled"  and one or more new
notes shall be issued to the designated Assignee.

(e) Upon its receipt of an Assignment  and  Acceptance  executed by an
Assignor,  an Assignee and any other Person whose consent is required by Section
10.6(c), together with payment to the Administrative Agent of a registration and
processing fee of $4,000,  the  Administrative  Agent shall (i) promptly  accept
such Assignment and Acceptance and (ii) record the information contained therein
in the Register on the effective date determined pursuant thereto.

60

(f) For avoidance of doubt, the parties to this Agreement  acknowledge
that the provisions of this Section 10.6 concerning  assignments  relate only to
absolute  assignments  and that  such  provisions  do not  prohibit  assignments
creating security interests,  including any pledge or assignments to any Federal
Reserve Bank in accordance with applicable law.

(g) The  Borrower,  upon  receipt of written  notice from the relevant
Lender,  agrees to issue a note to any  Lender  requiring  a note to  facilitate
transactions of the type described in paragraph (f) above.

10.7 Adjustments; Set-off. (a) Except to the extent that the Agreement
expressly  provides for payments to be allocated to a particular  Lender, if any
Lender (a  "Benefitted  Lender") shall receive any payment of all or part of the
Obligations  owing to it, or receive any collateral in respect thereof  (whether
voluntarily or involuntarily,  by set-off,  pursuant to events or proceedings of
the nature referred to in Section 8(f), or otherwise),  in a greater  proportion
than any such payment to or collateral  received by any other Lender, if any, in
respect of the Obligations  owing to such other Lender,  such Benefitted  Lender
shall purchase for cash from the other Lenders a participating  interest in such
portion of the  Obligations  owing to each such other  Lender,  or shall provide
such  other  Lenders  with  the  benefits  of any such  collateral,  as shall be
necessary  to cause  such  Benefitted  Lender to share  the  excess  payment  or
benefits of such collateral ratably with each of the Lenders; provided, however,
that if all or any  portion of such excess  payment or  benefits  is  thereafter
recovered from such Benefitted Lender, such purchase shall be rescinded, and the
purchase  price and  benefits  returned,  to the  extent of such  recovery,  but
without interest.

(b) In addition to any rights and remedies of the Lenders  provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being  expressly  waived by the Borrower to the extent  permitted by
applicable  law,  upon any  amount  becoming  due and  payable  by the  Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) and the
occurrence and  continuance of an Event of Default,  to set off and  appropriate
and apply against such amount any and all deposits (general or special,  time or
demand,  provisional  or  final),  in  any  currency,  and  any  other  credits,
indebtedness  or  claims,  in any  currency,  in each  case  whether  direct  or
indirect,  absolute or  contingent,  matured or  unmatured,  at any time held or
owing by such Lender or any branch or agency thereof to or for the credit or the
account of the Borrower.  Each Lender agrees promptly to notify the Borrower and
the  Administrative  Agent  after any such setoff and  application  made by such
Lender,  provided that the -------- failure to give such notice shall not affect
the validity of such setoff and application.

10.8  Counterparts.  This  Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts  taken together shall be deemed to constitute one and the same
instrument.  Delivery  of an  executed  signature  page  of  this  Agreement  by
facsimile  transmission  shall be effective  as delivery of a manually  executed
counterpart  hereof.  A set of the  copies of this  Agreement  signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.

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

10.10  Integration.  This  Agreement  and  the  other  Loan  Documents
represent  the  agreement  of the  Borrower,  the  Administrative  Agent and the
Lenders with respect to the subject  matter  hereof,  and there are no promises,
undertakings,  representations or warranties by the Administrative  Agent or any
Lender  relative to such matter  hereof not  expressly  set forth or referred to
herein or in the other Loan Documents.

61

10.11  GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE  PARTIES  UNDER THIS  AGREEMENT  SHALL BE  GOVERNED  BY, AND  CONSTRUED  AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

10.12  Submission  To  Jurisdiction;   Waivers.  The  Borrower  hereby
irrevocably and unconditionally:

(a)  submits  for  itself  and its  property  in any  legal  action or
proceeding  relating to this  Agreement and the other Loan Documents to which it
is a party,  or for  recognition  and  enforcement  of any  judgment  in respect
thereof, to the non-exclusive general jurisdiction of the courts of the State of
New York, the courts of the United States of the Southern  District of New York,
and appellate courts from any thereof;

(b) consents that any such action or proceeding may be brought in such
courts and waives any objection  that it may now or hereafter  have to the venue
of any such  action  or  proceeding  in any such  court or that  such  action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;

(c) agrees that  service of process in any such  action or  proceeding
may be effected by mailing a copy thereof by  registered  or certified  mail (or
any substantially similar form of mail), postage prepaid, to the Borrower at its
address  set  forth in  Section  10.2 or at such  other  address  of  which  the
Administrative Agent shall have been notified pursuant thereto;

(d)  agrees  that  nothing  herein  shall  affect  the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and

(e) waives,  to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal  action or  proceeding  referred to in
this Section any special, exemplary, punitive or consequential damages.

10.13 Acknowledgements. The Borrower hereby acknowledges that:

(a) it has been advised by counsel in the  negotiation,  execution and
delivery of this Agreement and the other Loan Documents;

(b) neither the Administrative  Agent nor any Lender has any fiduciary
relationship  with or duty to the Borrower  arising out of or in connection with
this Agreement or any of the other Loan Documents,  and the relationship between
Administrative  Agent and Lenders,  on one hand, and the Borrower,  on the other
hand, in connection herewith or therewith is solely that of debtor and creditor;
and

(c) no joint venture is created  hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions  contemplated hereby among the
Lenders or among the Borrower and the Lenders.

62

10.14 Releases of Guarantees and Liens. (a)  Notwithstanding  anything
to  the  contrary   contained  herein  or  in  any  other  Loan  Document,   the
Administrative  Agent is hereby  irrevocably  authorized by each Lender (without
requirement  of notice to or consent of any Lender except as expressly  required
by Section 10.1) to take any action  required by the Borrower  having the effect
of releasing any Collateral or guarantee obligations (i) to the extent necessary
to permit consummation of any transaction not prohibited by any Loan Document or
that has been  consented  to in  accordance  with Section 10.1 or (ii) under the
circumstances described in paragraph (b) below.

(b) At such time as the Loans,  the  Reimbursement  of Obligations and
the other  obligations under the Loan Documents (other than obligations under or
in respect of Hedge  Agreements)  shall  have been paid in full,  the  Revolving
Credit  Commitments  have been  terminated  and no  Letters  of Credit  shall be
outstanding (or any outstanding  Letters of Credit have been collateralized in a
manner acceptable to the Administrative Agent), the Collateral shall be released
from the Liens created by the Security Documents, and the Security Documents and
all obligations  (other than those expressly stated to survive such termination)
of the  Administrative  Agent and each Loan Party under the  Security  Documents
shall  terminate,  all without  delivery of any instrument or performance of any
act by any Person.

10.15  Confidentiality.  Each of the  Administrative  Agent  and  each
Lender agrees to keep confidential all non-public  information provided to it by
any Loan Party  pursuant to this  Agreement;  provided that nothing herein shall
prevent  the  Administrative  Agent  or any  Lender  from  disclosing  any  such
information  (a) to the  Administrative  Agent or any Lender from disclosing any
such  information  (a)  to the  Administrative  Agent,  any  other  Lender,  any
affiliate  of any  Lender  that  agrees to comply  with the  provisions  of this
Section,  (b) to any Transferee or prospective  Transferee that agrees to comply
with the provisions of this Section,  (c) to its employees,  directors,  agents,
attorneys,  accountants and other  professional  advisors or those of any of its
affiliates  solely in connection with the transactions  contemplated  hereunder,
(d) upon the request or demand of any Governmental Authority, (e) in response to
any order of any court or other  Governmental  Authority or as may  otherwise be
required to any  Requirement of Law, (f) if required to do so in connection with
any litigation or similar proceeding,  (g) that has been publicly disclosed, (h)
to  the  National   Association  of  Insurance   Commissioners  or  any  similar
organization or any nationally  recognized rating agency that requires access to
information  about a Lender's  investment  portfolio in connection  with ratings
issued with respect to such Lender,  or (i) in  connection  with the exercise of
any remedy hereunder or under any other Loan Document.

10.16 WAIVERS OF JURY TRIAL. THE BORROWER,  THE  ADMINISTRATIVE  AGENT
AND THE LENDERS HEREBY  IRREVOCABLY AND  UNCONDITIONALLY  WAIVE TRIAL BY JURY IN
ANY LEGAL  ACTION OR  PROCEEDING  RELATING TO THIS  AGREEMENT  OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

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

GUESS ?, INC.

By:_________________________________________________
Name:
Title:

THE CHASE MANHATTAN BANK,
as Administrative Agent, as Issuing Lender and as a
Lender

By:_________________________________________________
Name:
Title:

SANWA BANK CALIFORNIA,
as Co-Agent and as a Lender

By:_________________________________________________
Name:
Title:

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

GUESS ?, INC.

By:_________________________________________________
Name:
Title:

THE CHASE MANHATTAN BANK,
as Administrative Agent, as Issuing Lender and as a
Lender

By:_________________________________________________
Name:
Title:

SANWA BANK CALIFORNIA,
as Co-Agent and as a Lender

By:_________________________________________________
Name:
Title:

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

GUESS ?, INC.

By:_________________________________________________
Name:
Title:

THE CHASE MANHATTAN BANK,
as Administrative Agent, as Issuing Lender and as a
Lender

By:_________________________________________________
Name:
Title:

SANWA BANK CALIFORNIA,
as Co-Agent and as a Lender

By:  /s/ Nicole Earnier                      
--------------------------------------------------
Name:   Nicole Earnier
Title:  Vice President

GMAC COMMERCIAL CREDIT LLC

By:_________________________________________________
Name:
Title:

ISRAEL DISCOUNT BANK OF NEW YORK

By:_________________________________________________
Name:
Title:

MERCANTILE BANK NATIONAL ASSOCIATION

By:_________________________________________________
Name:   Stephen M. Reese
Title:  Vice President

BANK LEUMI USA

By:_________________________________________________
Name:
Title:

GMAC COMMERCIAL CREDIT LLC

By:_________________________________________________
Name:
Title:

ISRAEL DISCOUNT BANK OF NEW YORK

By:_________________________________________________
Name:  
Title:

MERCANTILE BANK NATIONAL ASSOCIATION

By:_________________________________________________
Name:
Title:

BANK LEUMI USA

By:_________________________________________________
Name:  Richard Silverstein
Title: SVP

By:_________________________________________________
Name:  Phyllis Rosenfeld
Title: Vice President

GMAC COMMERCIAL CREDIT LLC

By:_________________________________________________
Name:
Title:

ISRAEL DISCOUNT BANK OF NEW YORK

By:_________________________________________________
Name:  Howard Weinberg
Title: First Vie President

MERCANTILE BANK NATIONAL ASSOCIATION

By:_________________________________________________
Name:
Title:

BANK LEUMI USA

By:_________________________________________________
Name:
Title:

GMAC COMMERCIAL CREDIT LLC

By:_________________________________________________
Name:
Title:

ISRAEL DISCOUNT BANK OF NEW YORK

By:_________________________________________________
Name:  Howard W
Title:

MERCANTILE BANK NATIONAL ASSOCIATION

By:_________________________________________________
Name:
Title:

BANK LEUMI USA

By:_________________________________________________
Name:
Title:

GMAC COMMERCIAL CREDIT LLC

By:_________________________________________________
Name:
Title:

ISRAEL DISCOUNT BANK OF NEW YORK    ISRAEL DISCOUNT BANK OF NEW YORK

By: /s/R. David Kamgruera           By: /s/ Howard Welchberg
------------------------------      -----------------------------------------
Name:  R. David Kamruera            Name:  Howard Welchberg
Title: Vice President               Title:  First Vice President

MERCANTILE BANK NATIONAL ASSOCIATION

By:_________________________________________
Name:
Title:

BANK LEUMI USA

By:_________________________________________
Name:
Title:

STANDARD INDUSTRIAL LEASE AGREEMENT

THIS LEASE, made this 14th day of May, 1999, by and between ROBERT PATTILLO
PROPERTIES, INC., a Georgia corporation,  hereinafter referred to as "Landlord";
and GUESS?, INC., a Delaware corporation, hereinafter referred to as "Tenant":

W I T N E S S E T H:

Premises

1.  For and in  consideration  of the  rents,  covenants,  agreements,  and
stipulations  hereinafter  set forth,  to be paid, kept and performed by Tenant,
Landlord  hereby leases and rents to Tenant,  and Tenant hereby leases and takes
upon the terms and conditions  hereinafter set forth, an approximately  371, 440
square  foot  building   shell  (the   "Existing   Shell")  to  be  expanded  by
approximately  135,000  square feet  pursuant to the terms hereof (the  Existing
Shell as so  expanded is  hereinafter  referred  to as the "Building"), and that
certain  real  property  on which the  Existing  Shell is  located,  which  real
property  is located in  Jefferson  County,  Kentucky  and is more  particularly
described by the legal description attached hereto as Exhibit "A" (collectively,
the  "Premises").  Landlord shall acquire the  approximately  seven (7) acres of
real property  described as the "Expansion  Land" on the drawing attached hereto
as  Exhibit  "A-1".  Landlord  covenants  that  such  Expansion  Land  shall  be
sufficiently  large  to  accommodate  the  expansion  of the  Existing  Shell in
accordance with the terms of this Lease.  Upon such  acquisition,  the Expansion
Land shall be  included  within the  Premises  for all  purposes  of this Lease.
Landlord  and  Tenant  agree  to  enter  into  an  amendment  to this  Lease  to
incorporate  a legal  description  of such  Expansion  Land  to be  acquired  by
Landlord.  This Lease is subject to all encumbrances,  easements,  covenants and
restrictions  set forth on Exhibit "A-2" attached  hereto.  Landlord  represents
that the real  property  upon which the Premises is to be located is zoned so as
to permit office, warehouse and distribution center uses.

Landlord  covenants to file a subdivision  map or take such other necessary
actions as promptly as reasonably  practicable  in order to render the land upon
which the Existing Shell is located,  together with the Expansion  Land, a legal
lot for purposes of applicable law.

Term

2. To have and to hold for a term to commence on the Commencement  Date (as
defined in Paragraph 4 of the Rider  attached  hereto as Exhibit "C") and to end
at midnight on the last day of the one hundred  twentieth  (120th) full calendar
month after the  Commencement  Date. For purposes of this Lease, the term "Lease
Year" shall mean the period beginning on the Commencement Date and ending on the
date twelve (12) months from and after the Commencement  Date, and each 12-month
period  thereafter,  except  that the  final  Lease  Year  shall  expire  on the
expiration date of the Lease term. [See paragraph 1 of Exhibit "C".]

Rental

3. (a) Tenant shall pay to Landlord  monthly rental of  $113,949.00  during
Lease Years one (1) through five (5) and monthly  rental of  $128,720.16  during
the Lease Years six (6) through ten (10). Upon completion of Landlord's Work (as
defined in Exhibit  "C"),  Landlord  shall cause its  architects  to measure the
square  footage of the Building (as defined in Exhibit "C")  (measured  from the
exterior faces of all exterior  walls).  If the square footage as so measured is
not 506,440 square feet, the amount of monthly rental  provided for herein shall
be adjusted  based upon such measured  square  footage as follows:  During Lease
Years one (1) through five (5) the monthly  rental shall be  one-twelfth  (1/12)
times such measured  square footage times $2.70,  and during Lease Years six (6)
through (10), the monthly rental shall be one-twelfth (1/12) times such measured
square footage times $3.05. Landlord and Tenant shall enter into an amendment to
this Lease  memorializing  the square  footage of the Building and the resulting
installments of monthly rental. All monthly rental shall be due on the first day
of  each  month,  in  advance,  without  offset  or  demand,  commencing  on the
Commencement  Date.  All  payments  of rental  shall be sent to Robert  Pattillo
Properties,  Inc., P.O. Box 101923, Atlanta,  Georgia 30393-1923,  or such other
address provided to Tenant by Landlord.  Tenant has paid to Landlord $113,949.00
(the  "Prepaid  Rent"),  representing  the  first  month's  rent due  hereunder.
Landlord shall pay to Tenant interest on the Prepaid Rent, which shall accrue at
the rate of eleven  percent  (11%) per annum  beginning  on the date  hereof and
ending on the Commencement  Date. Such accrued interest shall be due and payable
by Landlord to Tenant on the Commencement  Date. If Landlord fails to pay Tenant
such  interest  within  ten (10) days  after  written  demand,  Tenant  shall be
entitled  to offset  against  rent and other sums which  become due from  Tenant
pursuant to the terms hereof an amount  equal to such due and payable  interest.
In the event  Tenant fails to pay rental or any other  payment  called for under
this Lease within ten (10) days of the due date,  Tenant shall pay a late charge
equal to two percent (2%) of the unpaid  amount.  Landlord and Tenant agree that
such  late  charge  is   intended  to   compensate   Landlord   for   additional
administrative charges and other damages incurred by Landlord on account of such
late  payment and not as a penalty.  Landlord  and Tenant  agree that the actual
damages to be suffered by  Landlord  in such event  shall be  difficult,  if not
impossible to ascertain,  and that such late charge is a reasonable  estimate of
such charges and damages.

(b) Tenant has deposited $113,949.00 (the "Security Deposit") with Landlord
to secure Tenant's performance of its obligations hereunder.  Landlord shall pay
to Tenant interest on the portion of the Security Deposit (as restored by Tenant
pursuant to the terms hereof) that is not applied against amounts owed by Tenant
to Landlord  pursuant to the terms hereof,  which  interest  shall accrue at the
rate of  eleven  percent  (11%)  per  annum  beginning  on the date  hereof  and
continuing until such time as Tenant shall have been returned the portion of the
Security  Deposit (as restored by Tenant  pursuant to the terms  hereof) that is
not applied  against  amounts  owed by Tenant to Landlord  pursuant to the terms
hereof.  Any interest which has accrued pursuant to the preceding sentence shall
be due and payable  annually on each  anniversary of the  Commencement  Date. If
Landlord  fails to pay any such  interest  within  ten (10) days  after  written
demand,  Tenant  shall be entitled to offset  against  rent and other sums which
become due from Tenant  pursuant to the terms hereof an amount equal to such due
and payable interest.  If Tenant defaults hereunder,  then Landlord may, without
prejudice  to  Landlord's  other  remedies,  apply  part or all of the  Security
Deposit  to cure  Tenant's  default.  If  Landlord  so  uses  part or all of the
Security Deposit,  Tenant shall,  within ten (10) days after written demand, pay
Landlord the amount  necessary  to restore the Security  Deposit to its original
amount.  Except as provided  herein,  Landlord  shall not be required to pay any
interest on said  Security  Deposit and  Landlord  may  commingle  the  Security
Deposit with other funds. If Landlord sells the Premises,  the Security  Deposit
shall be  transferred  to the  purchaser  and Landlord  shall be relieved of any
further liability in relation to the Security  Deposit.  Upon the termination of
this Lease, Landlord may use the Security Deposit to cure any defaults of Tenant
or to reimburse  Landlord for expenses of  repairing,  restoring or cleaning the
Premises.  In the event all or any portion of the Security Deposit remains after
paying  for such  items,  the  remaining  amount  shall be  returned  to Tenant.
Notwithstanding the foregoing, Landlord reserves the right to return at any time
after the date hereof the portion of the Security Deposit (as restored by Tenant
pursuant to the terms hereof) that has not been applied  against amounts owed by
Tenant to Landlord  pursuant to the terms  hereof and be relieved of any further
obligation to pay interest thereon.

Utility Bills

4. Tenant shall place utility bills of all types in its name.  Tenant shall
pay all such  bills,  along  with all  charges  and  assessments  pertaining  to
utilities serving the Premises,  including, but not limited to, water and sewer,
natural gas, electricity, fire protection (including sprinkler testing charges),
sanitary charges, drainage service fees or similar charges which are included in
any water or other  utility  bill. If Tenant does not pay such charges when due,
Landlord  may do so.  The  amount  paid by  Landlord  shall be paid by Tenant to
Landlord,  as additional  rental,  within thirty (30) days of demand therefor by
Landlord.

Mortgagee's Rights

5. Landlord  represents,  warrants and covenants to Tenant that the land on
which the Existing Shell is located is not encumbered by any mortgage or deed of
trust and that the Premises (including the Building and the Expansion Land) will
not be encumbered  by any mortgage,  deed to secure debt or deed of trust on the
Commencement  Date.  Tenant's  rights as to the  Premises  shall be subject  and
subordinate  to any mortgage,  deed of trust or deed to secure debt which may be
placed  upon  the  Premises  by  Landlord  after  the  Commencement  Date.  This
subordination  is intended to be  self-operative,  but only if the mortgagee and
trustee  under trust deeds or mortgages  and the ground  lessor under any ground
lease (herein collectively referred to as "Lender") shall execute and deliver to
Tenant a non-disturbance  agreement which shall be by its terms binding upon its
successors  and assigns  including  any purchaser or transferee at a foreclosure
sale or sale of transfer in lieu of foreclosure  and shall provide,  among other
things,  that Lender  consent to the Lease and that, in the event of foreclosure
of said mortgage or trust deed, as the case may be, or in the event Lender comes
into possession or acquires title to the Premises as a result of the enforcement
or foreclosure of the mortgage,  trust deed,  trust deed note or ground lease or
as a result of any other means,  Lender  agrees to recognize  Tenant and further
agrees that Tenant shall not be disturbed in its  possession of the Premises for
any reason  other than one which would  entitle the  Landlord to  terminate  the
Lease under its terms.  Said  agreement  shall  further  provide that Tenant and
Lender  shall be bound each to the other under all of the terms,  covenants  and
conditions  of the Lease for the balance of the term thereof  remaining  and any
extension or renewal thereof which may be effected in accordance with any option
therefor  in the  Lease,  with the same  force  and  effect  as if they were the
original  Landlord  and  Tenant,  respectively,  under  the  Lease,  subject  to
commercially  reasonable  exceptions of the type  customarily  contained in such
documents.  Without limiting the generality of the foregoing,  in no event shall
any said Lender or purchaser at a  foreclosure  sale or grantee  under a deed in
lieu of foreclosure be bound by the expansion option set forth in paragraph 5 of
the Rider.  Landlord shall apply any rental payments received from Tenant during
any month  pursuant to the terms  hereof to the payment of any  installments  of
indebtedness  which  shall be due and payable  from  Landlord to any such Lender
during such month; provided,  however, Landlord shall not be obligated to pay to
any such Lender the excess of (a) any rental received hereunder during any month
over (b) the  amounts  which  shall be due and  payable by  Landlord to any such
Lender during such month.  If Landlord  fails to pay any such rental  payment to
any such Lender as contemplated by the preceding  sentence,  without  obligating
Landlord to obtain any notice and cure rights from any Lender for the benefit of
Tenant,  Tenant  shall be  entitled  to pay  directly to such Lender any due but
unpaid  amount  which  Landlord  owes such  Lender.  Tenant shall be entitled to
offset  against  rent and any other sum which  shall next become due and payable
from Tenant to Landlord  under this Lease any amounts paid by Tenant to any such
Lender pursuant to the preceding sentence. Should the Lender or any purchaser or
transferee at a foreclosure  sale or sale or transfer in lieu of  foreclosure of
any  other  person  who may come  into  possession  of or  acquire  title to the
Premises as a result of the  enforcement or foreclosure of such mortgage,  trust
deed,  trust deed note or ground lease fail or refuse to  recognize  and assume
this Lease and recognize the rights of Tenant hereunder and agree not to disturb
Tenant as aforesaid,  this Lease (except for the terms of paragraph 5 of Exhibit
"C", which shall be subordinate  to any such  mortgage,  trust deed,  trust deed
note or ground lease) shall be deemed prior and superior to the lien of any such
trust  deed or  mortgage  or ground  lease.  In  addition,  Tenant  shall not be
obligated to attorn to the purchaser or transferee upon any foreclosure  sale or
sale or  transfer  in lieu of  foreclosure  unless and until such  purchaser  or
transferee acknowledges in writing the foregoing privity of contract between it,
as Landlord,  and Tenant.  If requested,  Tenant shall execute a  subordination,
nondisturbance  and attornment  agreement which meets the requirements set forth
in this paragraph.

Repairs by Tenant

6. Tenant,  at its sole cost,  shall keep and maintain the Premises (except
portions of the  Premises to be repaired by Landlord  under terms of Paragraph 7
below),   including  without  limitation,   all  paving,  lawn  maintenance  and
landscaping,  in good  order  and  repair.  Tenant  also  agrees to keep in good
repair,  and  replace  if  necessary,  all  systems  pertaining  to water,  fire
protection,  drainage, sewer, electrical, heating, ventilation, air conditioning
and  lighting.  Tenant  agrees to  return  such  systems  to  Landlord  upon the
expiration  or  earlier  termination  of the term of this  Lease in a  condition
comparable to that existing at the Commencement  Date,  reasonable wear and tear
and damage not  otherwise  required to be  repaired  by Tenant  under this Lease
excepted.  Tenant  shall  keep the  Premises  free from all  liens,  charges  or
encumbrances  whatsoever (or shall cause the same to be bonded over or otherwise
removed  within 30 days after  Tenant has  received  written  notice of filing).
Tenant shall have no authority,  express or implied,  to create any lien, charge
or encumbrance upon the interest of the Landlord in the Premises.  Tenant shall,
at its sole cost,  maintain a regularly  scheduled  preventive  maintenance  and
service contract with a maintenance contractor reasonably acceptable to Landlord
for the repair,  maintenance  and servicing of all heating and  air-conditioning
systems and equipment  within the Premises.  If Landlord fails to disapprove any
such  contractor  within two (2) business days after receipt of written  request
from  Tenant,  Landlord  shall  irrevocably  be  deemed  to have  approved  such
contractor  for the repair and  maintenance  work specified in such request from
Tenant.  Tenant shall have the right to contract  with  third-party  contractors
reasonably  acceptable  to Landlord to perform  any  maintenance  or repair work
required  to be  performed  by Tenant  hereunder;  provided,  however,  any such
contractor  shall not be  subject to  approval  by  Landlord  in the event of an
emergency or if such  contractor is to perform  repairs or  maintenance  (or any
series of related  repairs or maintenance)  which costs less than $5,000.00.  If
Landlord fails to disapprove  any contractor  within two (2) business days after
written  request  from  Tenant,  Landlord  shall  irrevocably  be deemed to have
approved such contractor for the repair and  maintenance  work specified in such
request from Tenant.  Upon request by Tenant and at Tenant's sole cost, Landlord
will  arrange for any repair  which is Tenant's  responsibility  pursuant to the
terms  of  this  Lease  to be  performed  by  Landlord's  employees,  agents  or
contractors.  Tenant  shall pay,  as  additional  rent,  the cost of such repair
within thirty (30) days of receipt of a bill therefor from Landlord.

Repairs by Landlord

7. Except for damage caused by Tenant,  its agent,  employees,  contractors
and invitees  which arises from a risk not generally  insurable by the insurance
carried (and issued by insurance  companies of recognized standing and financial
strength)  or required  to be carried by Landlord  pursuant to the terms of this
Lease or otherwise,  Landlord,  at its sole cost,  shall keep in good repair the
roof  (including  gutters  and  downspouts),   foundation  and  exterior  walls,
exclusive  of  painting,  glass and exterior  doors.  Landlord  shall repair any
damage to the Premises which is caused by Landlord, its agents, representatives,
employees or  contractors  and which would  otherwise be the  responsibility  of
Tenant  hereunder if such damage arises from a risk not  generally  insurable by
any insurance which is carried (and issued by insurance  companies of recognized
standing and financial  strength) by Tenant  pursuant to the terms of this Lease
or otherwise or required to be carried by Tenant  pursuant to the terms  hereof.
Tenant  shall  promptly  notify  Landlord of the need for any repairs  which are
Landlord's responsibility hereunder,  unless Landlord otherwise has knowledge of
the need therefor. Landlord shall be under no duty to make any repairs hereunder
unless Landlord  receives  notice of the need for such repairs,  unless Landlord
otherwise has knowledge of the need therefor.

Modifications and Alternations to the Premises

8. Tenant shall make no  modifications,  alterations or improvements to the
Premises,  cut any openings or penetrations in the roof or install any satellite
or communications antennas or other structures without the prior written consent
of Landlord,  which consent shall not be unreasonably  withheld,  conditioned or
delayed; provided,  however, Tenant shall have the right to make non-structural,
interior  modifications,  alterations or  improvements  to the Premises  without
Landlord's  consent.  All  modifications or alterations  shall be completed in a
good,  workmanlike and lien-free  manner in accordance with all applicable codes
and  regulations.  Tenant  shall  have the right to  contract  with  third-party
contractors  reasonably  acceptable  to Landlord  to perform any  modifications,
alterations or improvement  work which Tenant is otherwise  permitted to perform
pursuant to the terms hereof;  provided,  however, any such contractor shall not
be subject to  approval  by  Landlord  in the event of an  emergency  or if such
contractor is to perform any modifications,  alterations or improvements (or any
series of related  modifications,  alterations or improvements) which costs less
than $5,000.00.  If Landlord fails to disapprove any such contractor  within two
(2) business days after written request from Tenant,  Landlord shall irrevocably
be  deemed to have  approved  such  contractor  for the work  specified  in such
request from Tenant.  Upon request by Tenant and at Tenant's sole cost, Landlord
will arrange for any  modification,  alteration or  improvement  consented to by
Landlord be performed by Landlord's  employees,  agents or  contractors.  Tenant
shall pay, as  additional  rent,  the cost of such  modification,  alteration or
improvement within ten (10) days of receipt of a bill therefor from Landlord.

Return of Premises

9. Tenant  agrees to return the Premises to Landlord at the  expiration  or
prior  termination  of this  Lease  broom  clean and in a  condition  and repair
comparable  to that  existing at the time the Premises was  delivered to Tenant,
reasonable wear and tear, damage by storm, fire, lightning,  earthquake or other
casualty  excepted.  Upon  Landlord's  request,  Tenant  agrees  to  remove  any
modifications,  alterations or  improvements  made by Tenant without  Landlord's
consent  (if  Landlord's  consent  was  required  hereunder)  or  which  are not
typically  found in  industrial  distribution  facilities in the vicinity of the
Premises. Within ten (10) days of written request by Tenant, which request shall
include  plans  and  specifications   for  the  modifications,   alterations  or
improvements  at issue.  Landlord  shall  inform  Tenant  whether  the  proposed
modifications, alterations or improvements will be required to be removed at the
expiration or earlier  termination of the Lease,  and Landlord shall be bound by
such  decision.  Tenant shall remove its personal  property from the Premises at
the  expiration  or prior  termination  of this Lease.  Tenant  shall repair any
damage  caused by such removal.  Notwithstanding  the  foregoing,  at Landlord's
option,  Tenant shall remove, upon the expiration or earlier termination of this
Lease,  the items which are part of Tenant's  initial  build-out  and which are
listed on Exhibit "D" hereto;  provided,  however, Tenant shall not be obligated
to remove any of the "Group  Removal  Items" (as defined on Exhibit  "D") unless
Landlord  requires Tenant to remove all items within the Group Removal Items. If
Tenant  fails to remove any item which it is required to remove  pursuant to the
terms hereof within five (5) days of the  expiration or earlier  termination  of
this Lease,  Landlord may remove such items and Tenant shall reimburse  Landlord
on demand for all costs with such removal.

Destruction of or Damage to Premises

10. If the  Premises  are  totally  destroyed  by storm,  fire,  lightning,
earthquake or other casualty,  this Lease shall terminate as of the date of such
destruction  and rental  shall be abated as of such date.  If the  Premises  are
damaged, but not wholly destroyed by any of such casualties,  rental shall abate
in such  proportion as use of Premises has been  destroyed,  and Landlord  shall
restore (i) the Building as modified by the Landlord's  Work and as expanded (if
at all) onto the  Adjacent  Land and (ii) any portion of the  Tenant's  Work for
which  Landlord pays Tenant  pursuant to the terms of paragraph 3 of Exhibit "C"
to substantially  the same condition as existed before such casualty as speedily
as practicable; provided, however, that if the damage shall be so extensive that
the same cannot be reasonably  repaired and restored within nine (9) months from
the date of the casualty, then Tenant may terminate this Lease by giving written
notice to  Landlord  within  thirty  (30) days from the date that  either  party
notifies  the  other  that  such  party  has  determined  that  the  repair  and
restoration  work  cannot  reasonably  be  completed  within such nine (9) month
period. In the event of such termination,  rental shall be abated as of the date
of such casualty.  In no event shall  Landlord be  responsible  for repairing or
restoring the Tenant's Work, any personal  property of Tenant or any alterations
or  improvements  made by Tenant (other than portions of Tenant's Work for which
Landlord has paid Tenant  pursuant to the terms of Exhibit "C").  Tenant's right
of rental  abatement  provided above shall expire on the earlier to occur of (i)
the date on which  Tenant  reopens for  business  in the damaged  portion of the
Premises;  or (ii) the  date on  which  the work  required  to be  performed  by
Landlord pursuant to this paragraph 10 is substantially complete. Subject to all
of the terms and  conditions  of this Lease (but  subject to the rent  abatement
provided  for  in  this   paragraph   10),  so  long  as  Tenant,   its  agents,
representatives,  employees,  contractors  and  invitees do not  interfere  with
Landlord's performance of the work required to be performed by Landlord pursuant
to the  terms  of this  paragraph.  Tenant  shall  have the  right to enter  the
Premises  prior  to the  date  of  substantial  completion  of  such  work to be
performed by Landlord for the purpose of  performing  any work which is Tenant's
responsibility pursuant to the terms of this paragraph.

Indemnity

11. Except for damage caused by Landlord's negligence or that of Landlord's
agents, representatives, employees or contractors, or the failure of Landlord to
discharge  its  obligations  under this Lease and subject to the  provisions  of
paragraph  27(c) below,  Tenant  agrees to  indemnify,  defend and save harmless
Landlord against all claims, losses, liabilities,  costs and expenses (including
attorney's  fees and costs of litigation)  suffered by Landlord by reason of the
use or  occupancy  of the  Premises  by  Tenant.  Unless  caused  by  Landlord's
negligence  or  that  of  Landlord's  agents,   representatives,   employees  or
contractors or the failure of Landlord to discharge its  obligations  under this
Lease, Landlord shall not be liable to Tenant's employees,  agents,  contractors
or  invitees  for any injury to a person or damage to  property  on or about the
Premises,  or any damage caused by the improvements  becoming out of repair, the
failure or  cessation  of any  utility or by any leakage of gas,  oil,  water or
steam or electricity  emanating from the Premises.  Subject to the provisions of
paragraph 27(c) below,  Landlord  agrees to indemnify,  defend and save harmless
Tenant against all claims,  losses,  liabilities,  costs and expenses (including
attorney's  fees and costs of  litigation)  suffered  by Tenant by reason of the
negligent or willful acts or omissions of Landlord, its agents, representatives,
employees  and   contractors  or  the  failure  of  Landlord  to  discharge  its
obligations under this Lease.

Governmental Orders

12.  Reference  is made  herein to  paragraphs  2(b) and 3(b) of the Rider,
which provide for the  allocation of  responsibility  with respect to compliance
with laws for the  initial  construction.  Thereafter,  subject  to the terms of
paragraph 15, Tenant  agrees,  at its own expense,  to promptly  comply with all
requirements of any applicable law, ordinance,  statute or regulation applicable
to the Premises or Tenant's  operations  in the Premises  other than  applicable
laws, ordinances,  statutes or regulations which apply to the structural aspects
of the Premises for any reason other than Tenant's specific use or manner of use
of the Premises.

Condemnation

13.  If the  entire  Premises  or such  portion  thereof  as will  make the
Premises unusable (in Tenant's reasonable opinion) for the purpose herein leased
shall be condemned by any legally  constituted  authority  for any public use or
purpose,  or sold under threat of condemnation,  then this Lease shall terminate
as of the date of such  condemnation  or sale and rental shall be accounted  for
between  Landlord  and  Tenant as of such date.  In the event of a  condemnation
which does not result in the  termination of this Lease,  rental shall be abated
in a fair and  equitable  manner  and  Landlord,  shall  restore  to the  extent
practicable  (i) the Building as modified by the Landlord's Work and as expanded
(if at all) onto the Adjacent Land and (ii) any portion of the Tenant's Work for
which Landlord pays Tenant pursuant to the terms of paragraph 3 of Exhibit "C".
All  condemnation  awards or sales  proceeds  in lieu  thereof  shall  belong to
Landlord;  provided,  however, Tenant shall be entitled to file a separate claim
for its loss,  provided  the filing of such  claim  does not affect or  diminish
Landlord's claim as to such awards or proceeds.  Notwithstanding  the foregoing,
Tenant shall be entitled to any condemnation award,  whether made to Landlord or
Tenant,  which is made for the taking of furniture,  fixtures,  improvements  or
property  placed  on the  Premises  by  Tenant at  Tenant's  expense;  provided,
however,  Tenant shall not be entitled to (and expressly assigns to Landlord all
Tenant's right,  title and interest in and to) any condemnation award based upon
the present or future estate or interest of Tenant in the unexpired Lease term.

Assignment

14.  Tenant may not assign this Lease or any interest  thereunder or sublet
the Premises in whole or in part or allow all or a portion of the Premises to be
used by a third  party  without the prior  written  consent of  Landlord,  which
consent shall not be unreasonably withheld, conditioned or delayed. If Tenant is
a corporation, partnership, limited liability company or other entity other than
a  corporation  the  shares of which are  publicly  traded on a  national  stock
exchange,  the transfer of more than thirty-five  percent (35%) of the ownership
interests  of  Tenant,  whether  in  one  transaction  or a  series  of  related
transactions,  shall  constitute an assignment  for purposes of this Lease.  Any
assignee (and if Landlord so elects, any subtenant) shall become liable directly
to Landlord for all  obligations  of Tenant  hereunder.  No such  assignment  or
sublease nor any  subsequent  amendment of the Lease shall release Tenant or any
guarantor of Tenant's obligations hereunder.  If such subtenant or assignee pays
rental in excess of the rental due  hereunder  or if Tenant  receives  any other
consideration  on account of any such  assignment or sublease,  Tenant shall pay
Landlord,   as  additional  rent,  one-half  of  such  excess  rental  or  other
consideration upon the receipt thereof;  provided,  however, this sentence shall
not apply to any Permitted Transfer (as defined in paragraph 8 of the Rider).

Hazardous Substances

15.  Landlord  represents  and warrants that upon  delivery to Tenant,  the
Building and the Premises  shall be free of Hazardous  Materials at levels which
violate  any  applicable  laws,   ordinances  or  regulations.   Landlord  shall
indemnify,  defend and hold Tenant harmless from and against any and all claims,
judgments,  damages,  penalties,  fines,  costs (including  without  limitation,
consultants' fees, experts' fees,  attorney's fees and court costs and all costs
of repair of any portion of the Premises or its contents), liabilities or losses
(other than  consequential  damages  such as lost  profits or loss of  business)
resulting  from any breach of the foregoing  representation  or warranty or from
the  presence  upon the  Premises  of any  Hazardous  Materials  which  were not
introduced by Tenant,  its agents,  representatives,  employees,  contractors or
invitees.  In the event that Landlord breaches the  representation  and warranty
set forth in the first  sentence of this  paragraph 15 and Tenant is deprived of
the use of all or a portion of the  Premises,  Tenant's  obligation  to pay base
rental  pursuant to the terms hereof shall abate in  proportion  to the affected
portion of the Premises  until such time as Tenant is no longer  deprived of the
use of the Premises.

Tenant covenants that, without first obtaining  Landlord's written consent,
that neither Tenant, nor any of its agents,  employees,  contractors or invitees
shall cause any Hazardous Materials to be stored, handled,  treated, released or
brought upon or disposed of on the Premises  other than  Hazardous  Materials of
the type  commonly  utilized  by the  operators  of  businesses  in first  class
industrial  or  warehouse  facilities.  Tenant  shall  comply  with  any and all
applicable laws, ordinances,  rules, regulations and requirements respecting the
storage, handling,  treatment,  release, disposal,  presence or use of permitted
Hazardous  Materials in, on or about the  Premises.  "Hazardous  Materials"  for
purposes  of this Lease  shall be  interpreted  broadly to mean any  material or
substance  that is defined,  regulated or classified  under federal,  state,  or
local laws as:  (a) a  "hazardous  substance"  pursuant  to  section  101 of the
Comprehensive Environmental Response,  Compensation and Liability Act, 42 U.S.C.
ss.9601(14),  section 311 of the Federal Water Pollution  Control Act, 33 U.S.C.
ss.1321,  as now or hereafter  amended (or any state or local counterpart of the
foregoing statutes); (b) a "hazardous waste" pursuant to section 1004 or section
3001 of the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss.6903,  6921,
as now or hereafter  amended;  (c) a toxic pollutant under section  307(a)(1) of
the Federal Water Pollution Control Act, 33 U.S.C.ss.1317(a)(1) (or any state or
local  counterpart  of the foregoing  states);  (d) a "hazardous  air pollutant"
under section 112 of the Clean Air Act, 42 U.S.C.  ss.7412,  as now or hereafter
amended (or any state or local  counterpart  of the foregoing  statutes);  (e) a
"hazardous material" under the Hazardous Materials Transportation Uniform Safety
Act of 1990,  49 U.S.C.  App.  ss.1802(4),  as now or hereafter  amended (or any
state or local counterpart of the foregoing statutes); (f) determined to present
the unreasonable risk of injury to health or the  environmental  under the Toxic
Substances Control Act, as amended,  15 U.S.C.  ss.2601 et seq. (or any state or
local counterpart of the foregoing statutes); (g) toxic or hazardous pursuant to
regulations  promulgated now or hereafter under the  aforementioned  laws or any
state or local counterpart to any of the aforementioned  laws; or (h) presenting
a risk to human health or the environment under other applicable federal,  state
or  local  laws,  ordinances,  or  regulations,  as now or as may be  passed  or
promulgated  in the future.  Tenant shall  indemnify,  defend and hold  Landlord
harmless  from and against any and all claims,  judgments,  damages,  penalties,
fines, costs (including without  limitation,  consultants' fees,  experts' fees,
attorney's   fees  and  court   costs),   liabilities   or  losses  (other  than
consequential  damages such as lost  profits,  diminution in the market value of
the Premises,  and lost  opportunities to lease or sell the Premises)  resulting
from  any  breach  of any  promise,  covenant  or  agreement  set  forth in this
paragraph.  Without limiting the generality of the foregoing  indemnity,  in the
event  Landlord  has  reason  to  believe  that the  covenant  set forth in this
paragraph has been violated by Tenant,  Landlord  shall be entitled to take such
actions as  Landlord  deems  necessary  in order to assess,  contain,  delineate
and/or remediate any contamination by such Hazardous  Materials.  If it shall be
determined  that Tenant violated any of the covenants or agreements set forth in
this  paragraph,  any such sums  expended by  Landlord  shall be  reimbursed  by
Tenant,  as  additional  rent,  within  thirty  (30) days of demand  therefor by
Landlord. Upon the expiration or earlier termination of this Lease, Landlord may
cause to be performed environmental studies of the Premises to determine whether
any Hazardous Materials have been stored, handled,  treated,  released,  brought
upon or disposed of on the  Premises  during the term of this Lease in violation
of the terms  hereof.  If any such  study  reveals  any  breach of any  Tenant's
representations,  warranties or covenants  under this paragraph 15, Tenant shall
pay all  costs of such  studies.  The  obligations  of this  Paragraph  15 shall
survive the expiration or earlier termination of this Lease.

Removal of Fixtures

16. Provided Tenant is not then in default  hereunder beyond any applicable
notice and cure  period,  Tenant may remove all  fixtures  and  equipment  which
Tenant has placed in the Premises,  provided  Tenant  repairs all damages to the
Premises  caused by such removal,  but in on event shall Tenant remove  heating,
ventilating,  air  conditioning,  plumbing,  electrical and lighting systems and
fixtures or dock levelers. In the event this Lease is terminated for any reason,
any property  remaining in or upon the Premises,  at the option of the Landlord,
may either be deemed to become  property of Landlord or Landlord  may dispose of
such property as Landlord deems proper with no obligation to Tenant.

Default; Remedies

17. In the event (i) any  payment of rental or other sum due  hereunder  is
not paid as and when due and Tenant fails to cure such  failure  within ten (10)
days after notice of such  delinquency by Landlord to Tenant;  (ii) Tenant shall
fail to comply with any term, provision,  condition,  or covenant of this Lease,
other than an obligation  requiring the payment of rent or other sums  hereunder
and shall not cure such failure  within thirty (30) days after written notice to
the Tenant of such failure to comply (or if such failure cannot by its nature be
cured within such thirty (30) day period.  Tenant shall have reasonable time not
to exceed  ninety  (90) days to cure such  failure,  so long as Tenant  promptly
commences such cure within such thirty (30) day period and thereafter diligently
prosecutes such cure to completion); or (iii) Tenant or any guarantor shall file
a petition under any applicable federal or state bankruptcy or insolvency law or
have any involuntary position filed thereunder against it and the same shall not
be  dismissed or otherwise  terminated  within  ninety (90) days of such filing,
then Landlord shall have the option to do nay one or more of the following:

(a)  Terminate  this Lease,  in which event Tenant  shall  immediately
surrender the Premises to Landlord. Upon such termination,  Landlord may recover
from Tenant and Tenant agrees to pay to Landlord,  as compensation for all loss,
damage and expense which Landlord may suffer by reason of such termination,  the
following:  (i) the worth at the time of award of the unpaid rent which had been
earned  at the time of  termination;  (ii) the worth at the time of award of the
amount by which the unpaid rent which would have been earned  after  termination
until the time of award  exceeds  the amount of such rental loss that the Tenant
proves could have been  reasonably  avoided;  (iii) subject to clause (ii),  the
worth at the time of ward of the amount by which the unpaid rent for the balance
of the term after the time of award  exceeds the amount of such rental loss that
the  Tenant  proves  could be  reasonably  avoided;  and (iv) any  other  amount
necessary to compensate the Landlord for all the detriment proximately caused by
the Tenant's failure to perform his obligations  under the Lease or which in the
ordinary  course of things  would be likely to result  therefrom.  For  purposes
hereof,  the "worth at the time of award" of the amounts  referred to in clauses
(i) and (ii) above is computed by allowing  interest at a rate equal to the rate
announced by the Wall Street  Journal (or if the Wall Street Journal shall cease
publication of the "prime rate",  such other  publication of comparable  quality
which  shall be  reasonably  acceptable  to  Landlord)  from time to time as the
"prime  rate"  plus 2% per  annum.  The worth at the time of award of the amount
referred to in  paragraph  (iii) is computed by  discounting  such amount by six
percent (6%).

(b)  Without  terminating  this  Lease,  terminate  Tenant's  right of
possession,  whereupon  rental  shall  continue  to accrue and be owed by Tenant
hereunder.  Thereafter,  at Landlord's option, Landlord may enter upon and relet
all or a  portion  of the  Premises  (or relet the  Premises  together  with any
additional space) for a term longer or shorter than the remaining term hereunder
and  otherwise  on terms  satisfactory  to  Landlord.  Tenant shall be liable to
Landlord for the deficiency, if any, between Tenant's rent hereunder and all net
sums  received by Landlord on account of such  reletting  (after  deducting  all
costs  incurred by Landlord in  connection  with any such  reletting,  including
without  limitation,   tenant  improvement  costs,   brokerage  commissions  and
attorney's fees).

(c) Pursue a  dispossessory  action  against  Tenant,  in which  event
Tenant shall remain liable for all amounts computed  pursuant to paragraph 17(a)
above.

(d) Perform any unperformed obligation of Tenant. Any sums expensed by
Landlord shall be repaid by Tenant,  as additional rent, within thirty (30) days
of demand therefor by Landlord.

Landlord  agrees to use  reasonable  efforts to relet the  Premises  and to
otherwise  mitigate any damages  arising out of a default on the part of Tenant;
provided,  however,  that  (i)  Landlord  shall  have  no  obligation  to  treat
preferentially  the Premises  compared to other premises  Landlord has available
for leasing in properties owned or managed by Landlord;  (ii) Landlord shall not
be obligated to expend any efforts or any monies  beyond  those  Landlord  would
expend in the ordinary course of leasing properties similar to the Premises; and
(iii) in evaluating a prospective  reletting of the Premises,  the term, rental,
use and the reputation, experience and financial standing of prospective tenants
are factors which Landlord may properly consider.

Pursuit of any of the foregoing  remedies shall not preclude pursuit of any
other remedies herein provided or any other remedies  provided by law. If either
party  institutes a lawsuit to enforce any of the provisions of this Lease,  the
prevailing parties' reasonable  attorney's fees and court costs shall be paid by
the non-prevailing party.

Entry by Landlord

18.  Landlord  may post a sign stating that the Premises are "For Lease" or
"For Sale" six (6) months prior to the  termination of this Lease.  Landlord may
enter the  Premises at  reasonable  hours  during the term of this  Lease,  upon
reasonable  advance notice to Tenant, to exhibit same to prospective  purchasers
or tenants and to make repairs  required of Landlord under the terms hereof,  or
to make repairs to Landlord's adjoining property, if any.

Estoppel Certificates

19. Tenant agrees to furnish  within twenty (20) days of receipt of request
from Landlord or Landlord's  mortgagee a written statement  certifying as to the
then-current status of the Lease; provided,  however, if Tenant fails to respond
to such request  within such twenty (20) day period,  Landlord  shall deliver to
Tenant a second written request for such estoppel certificate,  and Tenant shall
provide such estoppel certificate to Landlord within ten (10) days of receipt of
such second request.  Such estoppel  certificate  shall be in substantially  the
form attached  hereto as Exhibit "B" hereto.  The notice and cure  provisions of
paragraph 17 shall not apply to Tenant's obligations under this paragraph 19.

No Estate in Land

20. This Lease shall create the relationship of landlord and tenant between
Landlord and Tenant.

Holding Over

21. If Tenant remains in possession of the Premises after expiration of the term
hereof,  with Landlord's  acquiescence and without any express written agreement
of parties,  Tenant shall be a month-to-month tenant upon all the same terms and
conditions as contained in this Lease,  except that the rental rate shall become
one and  one-half  times  the  amount  in  effect at the end of the term of this
Lease,  and there shall be no renewal of this Lease by  operation  of law.  Such
month-to-month  tenancy be  terminable  upon  thirty  (30) days notice by either
party to the  other.  Tenant  waives  any right  that it may have to  additional
notice  pursuant to  applicable  law.  If Tenant  remains in  possession  of the
Premises   after  the   expiration  of  the  term  hereof   without   Landlord's
acquiescence,  Tenant  shall be a tenant  as  sufferance  subject  to  immediate
eviction.  In such event, in addition to paying  Landlord any damages  resulting
from such holdover,  Tenant shall pay rental at the rate of two times the amount
in effect at the end of the term of the Lease. Notwithstanding the foregoing, if
Tenant  vacates the Premises but fails to remove all of its property  therefrom,
Tenant  shall not be deemed to be holding  over  pursuant  to the terms  hereof,
provided, however, Landlord shall have the right to remove all such property and
to store the same at Tenant's expense and risk.

Miscellaneous

22. All rights,  powers and  privileges  conferred  hereunder  upon parties
hereto shall be cumulative but not restrictive to those given by law. No failure
of Landlord to exercise any power given  Landlord  hereunder,  or to insist upon
strict  compliance by Tenant with its  obligations  hereunder,  and no custom or
practice of the parties at variance  with the terms  hereof  shall  constitute a
waiver of  Landlord's  right to demand exact  compliance  with the terms hereof.
Time is of the  essence  of this  Lease.  Subject to the terms of  paragraph  14
above,  this Lease  shall be binding  upon and shall inure to the benefit of the
respective  successors and assigns of Landlord and Tenant.  Tenant shall pay and
be liable for all rental,  sales and use taxes, and other similar taxes, if any,
levied or imposed by any city, state,  county or other  governmental  authority.
Such payments shall be paid concurrently with the payment of rental or other sum
due  hereunder  upon  which the tax is based.  This  Lease  contains  the entire
agreement  to the parties  hereto as to the  Premises,  and no  representations,
inducements, promises or agreements, oral or otherwise, between the parties, not
embodied  herein,  shall be of any force or  effect.  If any term,  covenant  or
condition  of this Lease or the  application  thereof to any  person,  entity or
circumstance shall, to any extent, be invalid or unenforceable, the remainder of
this Lease, or the  application of such term,  covenant or condition to persons,
entities  or  circumstances  other than those which or to which used may be held
invalid or unenforceable, shall not be affected thereby, and each term, covenant
or condition of this Lease shall be valid and  enforceable to the fullest extent
permitted by law. The  circulation of one or more drafts of this Lease shall not
constitute  a  reservation  of the Premises or an offer to lease the Premises to
Tenant.  Neither party shall be bound  hereunder until such time as both parties
have signed this Lease.

Notices

23. Any notice  given  pursuant  to this Lease  shall be in writing and
sent by certified mail, return receipt requested, by hand delivery, by facsimile
transmission or by reputable overnight courier to:

(a) Landlord:  Robert Pattillo Properties,  Inc. 2987 Clairmont Road, Suite
550, Atlanta, Georgia; Facsimile Number: 404-235-3541,  or at such other address
or to such  other  facsimile  number as  Landlord  may  designate  in writing to
Tenant.

(b) Tenant:  Guess?,  Inc.,  1444 South Alameda  Street,  Los Angeles,
California 90021; Facsimile number: 213-765-0911, or at such other address or to
such other facsimile number as Tenant may designate in writing to Landlord.

Any notice sent in the manner set forth above shall be deemed sufficiently given
for all  purposes  hereunder  on the day said notice is deposited in the mail if
sent by  certified  mail,  upon  receipt if sent by hand  delivery or  reputable
overnight  courier,  or if  sent  by  facsimile,  on the  date  such  notice  is
transmitted, provided a copy of such notice is sent within two (2) business days
by regular mail to the recipient's address set forth above.

Brokerage

24. CB Richard Ellis/Nicklies ("Tenant's Broker") has represented Tenant in
connection  with this Lease.  Landlord  shall pay  Tenant's  Broker a commission
pursuant to the terms of a separate  agreement.  Tenant  covenants and agrees to
indemnify and hold the other harmless from any and all loss, liability,  damage,
claim, judgment,  cost and expense (including without limitation attorney's fees
and litigation  costs) that may be incurred or suffered by the other because of
any claim for any fee,  commission or similar  compensation with respect to this
Lease,  made by any broker,  agent or finder other than Tenant's Broker claiming
by, through or under Tenant, whether or not such claim is meritorious.  Landlord
covenants and agrees to indemnify  and hold the other  harmless from any and all
loss, liability,  damage, claim,  judgment,  cost and expense (including without
limitation  attorney's  fees  and  litigation  costs)  that may be  incurred  or
suffered by the other  because of any claim for any fee,  commission  or similar
compensation  with respect to the Lease, made by Tenant's Broker or any broker,
agent or finder  claiming  by,  through or under  Landlord,  whether or not such
claim is meritorious.

Signs

25. Subject to any applicable laws, ordinances,  codes,  regulations or any
of the matters set forth on Exhibit  "A-2"  hereto,  Tenant may erect a building
sign on or  about  the  Premises.  Prior to the  expiration  of the term of this
Lease,  Tenant  shall remove any such sign and repair any damage to the building
occasioned by the removal of such sign.

Use of Premises

26. The Premises  shall be used for any legal purpose,  including,  but not
limited, to use for general offices,  general  merchandising and distribution of
apparel  and  accessories.  The  Premises  shall  not be used  for  any  illegal
purposes,  nor in any  manner  to  create  any  nuisance  or  trespass,  vitiate
Landlord's  insurance  or violate  any  restrictive  covenants  encumbering  the
Premises as of the Commencement Date.

Insurance

27. (a) Tenant will carry, at Tenant's expense, all-risk insurance coverage
on or self insure all equipment,  inventory, fixtures, furniture, appliances and
other personal property on the Premises. Tenant shall procure, maintain and keep
in full force and effect at all times  during the term of this Lease  commercial
general  liability  insurance  with  respect to the Premises and the conduct and
operation of Tenant's  business  therein,  naming Landlord and its mortgagees as
additional insured parties, with limits of not less than $2,000,000.00 for death
or bodily  injury to one or more  persons in  a single  occurrence  and not less
than $2,000,000 for property  damage.  Such general  liability  insurance policy
shall  contain  broad form  contractual  liability  coverage  covering  Tenant's
indemnities in favor of Landlord provided hereunder.

(b)  Landlord  will carry,  at Tenant's  expense,  all risk  insurance
coverage on the  Premises  in an amount  equal to 100% of the  replacement  cost
thereof with commercially reasonable  deductibles.  Such insurance shall include
coverage for damage due to earthquake or flood. Landlord shall procure, maintain
and keep in full  force and  effect at all times  during  the term of this Lease
commercial  general  liability  insurance  with respect to the Premises,  naming
Tenant  as  an  additional   insured  party,   with  limits  of  not  less  than
$2,000,000.00  for death or bodily  injury  to one or more  persons  in a single
occurrence  and not less than  $2,000,000  for  property  damage.  Such  general
liability  insurance  policy  shall  contain  broad form  contractual  liability
coverage covering Landlord's  indemnities in favor of Tenant provided hereunder.
Tenant shall pay to  Landlord,  as  additional  rent,  the amount of  Landlord's
premium as to coverages  required by this subparagraph  27(b) within thirty (30)
days after  Landlord  bills  Tenant for the annual  premium for such  insurance.
Tenant's  obligation  as to the  payment  of such  insurance  premiums  shall be
apportioned  on a per diem basis for the years in which the Lease term commences
and terminates.

(c) To the fullest  extent  permitted by law,  Landlord and Tenant and
their respective insurance carries waive all right of recovery against the other
and its  officers,  employees and agents and agrees to release the other and its
officers,  employees and agents from  liability for loss or damage  arising from
risks  generally  insurable  by  insurance  carried  (and  issued  by  insurance
companies  of  recognized  standing  and  financial  strength) or required to be
carried by the waiving party pursuant to the terms hereof.

(d) All  insurance  required to be carried by Tenant shall be effected
under  enforceable  policies  issued by insurers  licensed to do business in the
Commonwealth  of Kentucky.  At least  fifteen (15) days prior to the  expiration
date of any policy procured by Tenant, the certificates for such insurance shall
be delivered by Tenant to Landlord.  Certificates for all insurance  required to
be carried by Tenant pursuant to the terms hereof shall be delivered to Landlord
prior to the  commencement  of the term of this Lease.  All such policies  shall
contain an agreement by the insurers that such policies shall not be canceled or
materially  modified  without at least thirty (30) days prior written  notice to
the  Landlord and to the holder of any  mortgage to whom loss  hereunder  may be
payable.  If Tenant provides any insurance required by this Lease in the form of
a blanket  policy,  Tenant shall furnish proof that such blanket policy complies
in all  respects  with the  provisions  of this  Lease  and  that  the  coverage
thereunder  is at least equal to the  coverage  which would be provided  under a
separate  policy  covering only the Premises.  Landlord agrees to provide Tenant
certificates  evidencing  the  insurance  required to be  maintained by Landlord
pursuant to the terms hereof as promptly as reasonably practicable.

Ad Valorem Taxes

28.  Tenant shall pay, as addition  rent,  all ad valorem real estate taxes
and  assessments  assessed or levied against the Premises for full taxable years
within the Lease  term and shall pay a per diem  apportionment  thereof  for the
years in which the Lease  commences  and  terminates.  Tenant  shall  remit such
amounts to Landlord  within  thirty  (30) days of notice  from  Landlord of such
amount;  provided,  however, Tenant shall be allowed to take the maximum benefit
of any law allowing real estate taxes or assessments to be paid in installments.
As promptly as reasonably  practicable,  Landlord shall cause the Premises to be
comprised  of one or more tax  parcels  which are  separately  assessed  for tax
purposes.  Until  such  time as the  Premises  is  comprised  of one or more tax
parcels which are  separately  assessed for tax  purposes,  ad valorem taxes and
assessments  as to parcels  covering  other property in addition to the Premises
shall be equitably allocated to the Premises.

Exhibits

29. The following  exhibits  attached  hereto  constitute a portion of this
Lease:

Exhibit A         Legal Description
Exhibit A-1       Description of Expansion Property
Exhibit A-2       List of Title Matters
Exhibit B         Estoppel Certificate
Exhibit C         Rider
Exhibit C-1       General Specifications
Exhibit C-2       Tenant's Work General Specifications
Exhibit D         Items to be Removed
Exhibit E         Example of Renewal and Expansion Provisions

IN WITNESS  WHEREOF,  the parties have  hereunto set their hands and seals,
effective the day and year first above written.

LANDLORD:

ROBERT PATTILLO PROPERTIES, INC.,
a Georgia Corporation

_________________________           By:______________________________
Witness                                Title:________________________

(Corp. Seal)

TENANT:

GUESS?, INC., a Delaware corporation

_________________________           By:______________________________
Witness                                Title:________________________

(Corp. Seal)

EXHIBIT "A"
Proposed Lot 214 Revised
Riverport Phase 3

Being Lot 214, Revised as shown on the Minor Subdivision Plat approved by the
Louisville and Jefferson County Planning Commission on July 22, 1998, as
Docket No. 191-98, and attached to Deed dated July 28, 1998, of record in Deed
Book 7078, Page 695, in the Office of the Clerk of Jefferson County, Kentucky.

-7-

EXHIBIT "A-1"

-8-

EXHIBIT "A-2"
[List of Title Matters]

1.   State,  County  and  School  District  Taxes  due and  payable  in 1999 and
thereafter, a lien not yet due and payable.

2.   Conditions,  stipulations,  restrictions,  building  lines  and  easements,
together with  incidental  rights,  as provided for on the recorded plat of
Riverport  Phase 3 of record in Plat and  Subdivision  Book 43, Page 93, in
the Office of the Clerk of Jefferson County, Kentucky.

3.   Declaration of  Restrictions  for Riverport  Complex of record in Deed Book
6561,  Page 89,  and as  amended  by Fourth  Amendment  to  Declaration  of
Restrictions of record in Deed Book 7079, Page 548, aforesaid records.

4.   Public Utility,  Sewer,  Drainage and Access  Easement,  100 feet in width,
granted and shown on the  Minor  Subdivision  Plat  attached to the Deed of
record in Deed Book 7078, Page 695, aforesaid records.

5.   30' Sanitary Sewer and Drainage Easement centered on southern property line
as shown on Minor  Subdivision  Plat attached to the Deed of record in Deed
Book 7078, Page 695, aforesaid records.

-9-

EXHIBIT "B"

ESTOPPEL CERTIFICATE
Date: __________

TO:   [Insert Name of Recipient]

LEASE AGREEMENT dated May __, 1999 ("Lease") by and between ROBERT PATTILLO
PROPERTIES,  a Georgia  corporation  ("Landlord")  and GUESS ?, INC., a Delaware
corporation  ("Tenant")  for the  premises  more fully  described  on Exhibit  A
attached hereto.

The  undersigned,  as  Tenant,  under the above  referenced  Lease,  hereby
certifies  to the  best  of its  actual  knowledge  as of the  date  hereof  the
following:

(1) The undersigned has entered into occupancy of the premises described in
said Lease;

(2) The  Lease is in full  force  and  effect  and has not  been  assigned,
modified, supplemented or amended in any way, except as follows:

________________________________________________________________________________

________________________________________________________________________________

(3) The commencement date of the Lease is _______________, 19___;

(4) The expiration date of the Lease is ______________,  provided, however,
Tenant  has  additional  options  to extend  the term of the  Lease as  provided
therein;

(5) Current annual Base Rent is $__________; ($__________ monthly;

(6) All  conditions  of the Lease to be performed by Landlord and necessary
to the enforceability of the Lease have been satisfied;

(7) There are no defaults by either Landlord or Tenant thereunder;

(8)  No  rents  have  been  paid  in  advance  of  one  (1)  month   except
_______________; and

(9) There are no existing  defenses or offsets  which the  undersigned  has
against the Landlord.

(1) There have been no  assignments  of the Lease,  in whole or in part, or
subleases of all or part of the Premises except as follows _____________________
_______________________________________________________________________________.

Executed the day and date above written.

TENANT:                                 GUESS ?, INC., a Delaware corporation

By:_________________________
Name:_______________________
Title:______________________

-10-

EXHIBIT "C"

RIDER TO STANDARD  INDUSTRIAL  LEASE  AGREEMENT DATED MAY ___, 1999, BY AND
BETWEEN ROBERT PATTILLO  PROPERTIES,  INC., A GEORGIA  CORPORATION,  HEREINAFTER
COLLECTIVELY  REFERRED  TO  AS  "LANDLORD";   AND  GUESS  ?,  INC.,  A  DELAWARE
CORPORATION, HEREINAFTER REFERRED TO AS "TENANT";

This  Rider  is  attached  to and  made  part  of the  referenced  Standard
Industrial Lease Agreement.  In the event of an inconsistency  between the terms
of this Rider and the terms of the  Standard  Industrial  Lease  Agreement,  the
terms of this Rider shall control.

1. Renewal  Options.  Tenant shall have the right to renew the term of the Lease
for two (2)  additional  periods of five (5) years each or if Tenant  shall have
previously  exercised a renewal  option in  connection  with the  exercise of an
expansion  option pursuant to paragraph 5 below,  either of such periods of five
(5) years  less the Stub Term as to the  Expansion  in  question,  as defined in
subparagraph 5(c) below  (individually,  a "Renewal Term" and collectively,  the
"Renewal Terms") by giving Landlord prior written notice six (6) months prior to
the  expiration of the then existing term that Tenant has exercised such renewal
right, subject to the following conditions:

(a) There shall not be a default or breach beyond any applicable notice and
cure period under any of the terms or  provisions  of the Lease at the time
such  notice  is given or at the time of the  commencement  of the  Renewal
Term.

(b) Tenant shall occupy the Premises during the Renewal Term under the same
terms and  conditions as specified in the Lease,  except Tenant shall lease
the  Premises in their then "as-is"  condition,  the rental for any Renewal
Term shall be then Market Rate (as defined in Paragraph  1(d)  below),  but
not less  than the  rental  for the  original  Premises  or  Expansion,  if
different  and  as  applicable,   in  effect   immediately   prior  to  the
commencement of such Renewal Term.

(c) As used herein, the term "CPI Ceiling" shall be an amount determined by
multiplying  the  monthly  rental  for the first  month of the term of this
Lease by a  fraction,  the  numerator  of which  shall  be the  Index  most
recently  published  prior  to the  commencement  of the  Renewal  Term  in
question (whether such Renewal Term be a 5-year or shorter period of time),
and the  denominator  of which shall be the Index most  recently  published
prior to the commencement date of the term of this Lease. In no event shall
the CPI Ceiling be less than the monthly  rental for the first month of the
term. As used herein, the term "Index" shall mean the United States, Bureau
of Labor  Statistics  Consumer Price Index for All Items - All Wage Earners
and  Clerical  Workers  (base  year  1982-84=100)  applicable  to the  SMSA
including  Louisville,  Kentucky ("CPI").  If the Index has changed so that
the base year differs   from that used in this Section,  the Index shall be
converted in accordance with the conversion  factor published by the United
States  Department  of Labor,  Bureau of Labor  Statistics,  to the 1982-84
base. If the Index is  discontinued  or revised during the Lease term, such
other  governmental index or computation with which it is replaced shall be
used in order to obtain  substantially the same result as would be obtained
if the Index had not been discontinued or revised.

(d) As used herein, the term "Market Rate" shall be initially determined by
Landlord as (i) the amount of initial  base annual  rental per square  foot
then being charged in comparable  warehouse/distribution facilities located
in the  Louisville,  Kentucky  market  (the  "Comparable  Buildings")  (ii)
together with the annual  escalation  rate, if any, for space comparable to
the  Premises  and taking into  consideration  all other  relevant  factors
establishing  similarity or dissimilarity  between the comparable lease and
the  leasing of the  Premises  to Tenant for the  Renewal  Term, including,
without  limitation,  escalations  (including  type,  base year and  stop),
concessions,  length of lease  term,  size and  location  of the  Premises,
building standard work letter and/or tenant improvement allowances, quality
and   quantity   of  any   existing   tenant   improvements,   quality  and
creditworthiness of Tenant,  amenities offered,  location of building,  and
other generally applicable concessions, allowances, terms and conditions of
tenancy.  The reference to the foregoing  factors is illustrative  only and
the  presence  or absence of such  factors  shall be taken into  account in
determining Market Rate.  Notwithstanding the foregoing,  as to any portion
of any Renewal  Term falling  between the tenth  (10th) and fifteen  (15th)
anniversaries  of the  Commencement  Date, the Market Rate shall not exceed
the CPI Ceiling  with  respect to such period of time;  provided,  however,
this  limitation  to the amount of the CPI  Ceiling  shall not apply to any
portion of the Expansion  Term as any Expansion  (i.e.,  the rental payable
during the  Expansion  Term as to any  Expansion  shall be the Market  Rate
computed without  reference to the CPI Ceiling).  The  determination of the
Market  Rate  shall  not  take  into   account  any   permanent   leasehold
improvements  installed  by  Tenant  the cost of which  shall not have been
reimbursed by Landlord ("Tenant Owned Improvements")  pursuant to the terms
of paragraph  3(c)(iv)  below.  If the Market Rate shall be  determined  by
arbitration  pursuant to subparagraph (e) below, then the arbitrators shall
be expressly  directed to make such  determination  as if such Tenant Owned
Improvements did not exist.

-11-

(e) Within thirty (30) days after Landlord  receives the notice of Tenant's
exercise  of the  renewal  option,  Landlord  shall  notify  Tenant  of the
proposed  Market Rate;  provided,  however,  in no event shall  Landlord be
obligated to notify  Tenant of the proposed  Market Rate prior to the ninth
(9th) month before the expiration of the then existing term.  Consequently,
as to any renewal of the term effected in connection  with  Expansion so as
to meet the  requirements  set forth in paragraph 5(c) below that ten years
remain in the term as of the Expansion  Rent  Commencement  Date,  Landlord
shall not be required to notify Tenant as to the Market Rate as to the Stub
Term as to the Premises  existing  prior to such  Expansion  until nine (9)
months  prior to  the  commencement  of such  Stub Term.  In the event that
Landlord  and  Tenant are not able to agree as to the  Market  Rate  within
sixty (60) days from Landlord's  receipt of notice of Tenant's  exercise of
the Renewal Option, the Market Rate shall be determined as follows:

(i)  Each of the Landlord and Tenant shall within ten (10) days of the
expiration of the aforementioned sixty (60) day period, select an
independent  appraiser  who is a  member  of MAI  experienced  in
appraising real property similar to the land in question.

(ii) In the event that either Landlord or Tenant fails to appoint such
an appraiser within such ten (10) day period, the party which has
appointed such an appraiser  shall notify the party which has not
appointed an  appraiser.  If the party which failed to appoint an
appraiser  continues to fail to appoint an appraiser  within five
(5) days after such notice,  then the appraiser  appointed by the
party making an appointment shall determine the Market Rate which
shall be binding on parties hereto.

(iii)In the event that  Landlord  and Tenant each  appoint a qualified
appraiser  within  such  ten  (10)  day  period,   then  the  two
appraisers so appointed shall meet in good faith in an attempt to
agree  on the  Market  Rate  within  thirty  (30)  days  of  such
appointment.

(iv) In the event that the  appraiser  appointed  by Landlord  and the
appraiser  appointed  by Tenant  cannot  agree on the Market Rate
within  thirty  (30)  days of the  last  appointment  of such two
appraisers,  the two appraisers  shall agree on the identity of a
similarly qualified independent appraiser who is a member of MAI,
or if the two appraisers  have not agreed on the identity of such
third  appraiser  within   forty-five  (45)  days  of  such  last
appointment,  then  a  third  similarly  qualified,   independent
appraiser  who is a  member  of MAI  shall  be  appointed  by the
American   Arbitration   Association   in  accordance   with  the
Commercial   Arbitration   Rules  of  the  American   Arbitration
Association,  and the decision of such third  appraiser  shall be
binding.  Such  third  appraiser   shall  make  its  decision  in
accordance  with the Commercial Arbitration Rules of the American
Arbitration  Association.  Each  party  shall  pay the  fees  and
expenses  of the  appraiser  that  such party  appoints,  and the
parties shall split the fees and expenses of the third appraiser,
if any.

(v)  Notwithstanding   any  provision  to  the  contrary,   if  Tenant
disapproves  of  the  amount  of the  Market  Rate,  in its  sole
discretion,  Tenant  shall be entitled to rescind the exercise of
its renewal  option by notice  given to Landlord  within ten (10)
days  of  the  date  on  which  Tenant  receives  notice  of  the
determination  of the Market Rate, but only if Tenant  reimburses
Landlord for all out of pocket  expenses  incurred by Landlord in
connection   with  such  renewal   process   (including   without
limitation,  the   cost  of  Landlord's  appraiser   which  would
otherwise be  Landlord's  cost).  If Tenant fails to provide such
written  notice within such ten (10) day period,  Tenant shall be
deemed conclusively to have waived such right of rescission.

(f)  In the event that Tenant effects two Expansions  pursuant to the terms
of  paragraph  5 below,  then  the  Renewal  Terms as to the  original
Premises and the two Expansions may not be coterminous. In such event,
the Renewal Terms shall be effected in  connection  with the Expansion
as required by the terms of  paragraph  5(c) below and Tenant shall be
required to exercise any renewal  options as to any remaining  Renewal
Terms  such  that  the  term of  this  Lease  shall  at all  times  be
coterminous as to the entire  Premises  including the  Expansions.  If
Tenant fails to do so, then the renewal and the  computation of rental
with respect  thereto may be effected by Landlord by written notice to
Tenant.  In such  event,  the  amount  of  rental  shall  be  computed
independently as to each Renewal Term as to the original  Premises and
each  Expansion.  The example set forth on Exhibit "E" illustrates the
application of this provision.

(g)  The failure by Tenant to exercise  any renewal  option shall result in
the termination of all further options.

-12-

(h)  In the event  Tenant  fails to timely  notify  Landlord  in the manner
herein specified,  Tenant shall be conclusively  deemed to have waived
its right to enter into any Renewal Term.

(i)  The renewal options  described in this paragraph 1 shall be assignable
to an assignee of Tenant's  right,  title and  interest in and to this
Lease if such assignee is a permitted  assignee  pursuant to the terms
of this Lease.

2. Landlord's Work. (a) Landlord shall expeditiously  perform the following work
(collectively,  the "Landlord's  Work") in accordance with  the Landlord's Final
Plans  (as  hereinafter  defined)  after  the date on which  both  parties  have
executed this Lease:

(i)  Landlord shall expand the Existing Shell (as defined in Paragraph
1 of the Lease) by approximately 135,000 square feet; and

(ii) Landlord  shall  improve and modify the  Building  (as defined in
Paragraph 1 of the Lease) in accordance  with the  specifications
attached hereto as Exhibit C-1.

(b) Landlord  warrants to Tenant that all building  systems in the Existing
Shell shall be in good working  order as of the date of delivery to Tenant,
subject to any  damage  arising  out of any  negligent  or  willful  act of
Tenant,  its agents,  representatives,  employees or contractors.  Landlord
further  warrants to Tenant that as of the date of delivery to Tenant,  the
Building,  as improved by the Landlord's Work (but  specifically  excluding
the Tenant's  Work),  shall  (subject to paragraph 15 of the Lease)  comply
with all laws, ordinances, codes and regulations including any provision of
the Americans  with  Disabilities  Act ("ADA") which apply to any structure
which is a  "commercial  facility,"  Landlord  not  being  responsible  for
compliance  with ADA  requirements  applicable  any portion of the Premises
which by virtue  of  Tenant's  use  constitutes  a "public  accommodation."
Landlord also warrants the Building,  as improved by the  Landlord's  Work,
against any defects for a period of one (1) year from and after the date of
delivery  to  Tenant.  Landlord  shall  assign  to  Tenant  any  assignable
warranties on building systems within the Premises.  If any such warranties
are not  assignable,  Landlord shall cooperate with Tenant to permit Tenant
to benefit from any  warranties  held by Landlord on any  building  systems
within the Premises.

(c) The Landlord's Final Plans shall be prepared as follows:

(i)  Landlord  shall  deliver  to  Tenant no later  than May 7,  1999,
proposed final plans and specifications (the "Proposed Landlord's
Final   Plans")   for  the   Landlord's   Work.   The  Plans  and
Specifications  shall be  consistent  with the  pre-architectural
specifications (the "General  Specifications") of Landlord's Work
attached  hereto as Exhibit "C-1".  Within five (5) business days
after  receipt of the  Proposed  Landlord's  Final  Plans  Tenant
shall,  in writing,  inform  Landlord of  required  revisions  or
corrections  thereto.  Tenant's  revisions and corrections to the
Proposed  Landlord's  Final  Plans shall be limited to any aspect
thereof  which  is  materially   inconsistent  with  the  General
Specifications.  Any other  requested  change shall  constitute a
Change  Order (as defined  below).  In the event Tenant shall not
inform Landlord of such desired  revisions or corrections  within
such five (5) business day period, the Proposed  Landlord's Final
Plans shall be deemed  approved  and  accepted  for the  purposes
hereof.

(ii) In the event Tenant shall inform  Landlord of required  revisions
or corrections to the Proposed  Landlord's Final Plans,  Landlord
shall revise the Proposed Landlord's Final Plans and shall submit
the  revised  Proposed  Landlord's  Final  Plans  to  Tenant  for
Tenant's  approval  within three (3) business days of the receipt
of Tenant's comments.  Tenant shall have three  (3) business days
after the receipt of such revised Proposed Landlord's Final Plans
to  review,  approve or comment  on the  required  provisions  or
corrections  thereto.  Tenant's  revisions and corrections to any
revision to the Proposed  Landlord's Final Plans shall be limited
to any aspect thereof which is materially  inconsistent  with the
revision(s) requested by Tenant pursuant to the terms hereof. Any
other  requested  change  shall  constitute  a Change  Order  (as
defined below).  In the event Tenant shall not inform Landlord of
such desired  revisions or  corrections  to the revised  Proposed
Landlord's Final Plans within said three (3) business day period,
the  revised  Proposed  Landlord's  Final  Plans  shall be deemed
approved or accepted for the purposes hereof.  This process shall
continue  until the Proposed  Landlord's  Final Plans are finally
approved by Landlord and Tenant.

-13-

(iii) The  Proposed  Landlord's  Final Plans,  as finally  approved by
Landlord and Tenant,  shall  collectively  be referred to as the
"Landlord's Final Plans."

(iv)  Tenant  shall not be entitled to make any Change  Order  without
Landlord's  approval,  which approval shall not be  unreasonably
withheld or delayed.  For purposes hereof,  "Change Order" shall
mean any alteration,  substitution,  addition or change to or in
the Landlord's  Final Plans requested by Tenant or any requested
change to the Proposed Landlord's Final Plans which is deemed to
be a Change Order pursuant to this  subparagraph (c).  If at any
time after the Landlord's  Final Plans are approved by Landlord,
Tenant  desires to make a Change  Order,  Tenant shall submit to
Landlord a written description of such desired Change Order. Any
such  Change  Order  shall  be  subject  to   Landlord's   prior
reasonable  approval.   Landlord  shall  respond  to  Tenant  as
promptly  as  practicable  with an  estimate of the cost of such
Change Order (the "Change  Order Effect  Notice").  Within three
(3) days  after  receipt of such  Change  Order  Effect  Notice,
Tenant  shall  respond to such Change Order  Effect  Notice,  by
either  withdrawing such Change Order or authorizing such Change
Order.  Notwithstanding  the  preceding  sentence,  if  Landlord
notifies Tenant that such Change Order affects the critical path
of  construction,  Tenant  shall  respond to such  Change  Order
Effect  Notice  within 24 hours of receipt of such critical path
notification,   by  either  withdrawing  such  Change  Order  or
authorizing  such Change  Order  pursuant to  subparagraph  (iv)
hereof.  No Change  Order shall be  approved  by Landlord  until
approved   in   writing   by   Jim   Topple    (the    "Landlord
Representative").  No Change  Order  shall be approved by Tenant
until  approved in writing by Tenant's Vice President of Finance
(the  "Tenant  Representative").  Any Change  Order  approved in
writing by the Landlord Representative and Tenant Representative
shall be binding.  A failure by Tenant to so respond to any such
Change Order Effect  Notice  within three (3) days after receipt
of such Change Order Effect  Notice shall be deemed a withdrawal
of such Change Order.  Once the cost and the schedule change, if
any,  for such Change  Order has been  approved  by Tenant,  all
references  herein to the  "Landlord's  Final Plans" shall be to
the Landlord's Final Plans, as changed and modified  pursuant to
such Change  Order.  Tenant shall pay  Landlord,  as  additional
rent,  within thirty (30) days of demand the cost of such Change
Order as disclosed in the Change Order Effect Notice.

(v)  The target date for the Substantial Completion Date is October 1,
1999; provided, however, Landlord shall not be liable for failure
to meet such target date.

3.  Tenant's  Work.  (a) Tenant,  at its sole cost and expense,  shall  complete
Tenant's  build  out of the  Premises  (collectively,  the  "Tenant's  Work") in
accordance with the Tenant's Final Plans (as hereinafter defined).

(b)  Subject to  paragraph  15 of the Lease,  Tenant  warrants  to Landlord
Tenant shall  complete  Tenant's Work in accordance  with all laws,  ordinances,
codes  and  regulations,   including  without   limitation  the  Americans  with
Disabilities  Act (the "ADA").  Tenant shall also be responsible for causing the
Premises  to comply  with any  provision  of the ADA which  applies  to  "public
accommodations", if Tenant desires to operate all or any portion of the Premises
so as to render the  Premises or any portion  thereof a "public  accommodation."
Unless caused by the negligent or  intentional  acts or omissions of Landlord or
its agents, representatives, employees or contractors or the failure of Landlord
to discharge  its  obligations  under this Lease,  Tenant  agrees to  indemnify,
defend and hold Landlord and Landlord's agents harmless from and against any and
all loss, liability, cost and expense (including without limitation,  attorney's
fees and court costs)  incurred by Landlord or its agents relating in any way to
the performance of Tenant's Work,  including without limitation,  the imposition
of any lien against the Premises or the Building in connection therewith.  In no
event shall  Landlord be deemed to have  consented to the imposition of any lien
against any interest of Landlord on the Building or the Premises.

(c) The Tenant's Final Plans shall be prepared as follows:

(i)  Tenant shall prepare proposed final plans and specifications (the
"Proposed  Tenant's  Final  Plans") for the  Tenant's  Work.  The
Plans   and   Specifications   shall  be   consistent   with  the
pre-architectural  specifications  (the  "Tenant's  Work  General
Specifications")  of  Tenant's  Work  attached  hereto as Exhibit
"C-2".  Within  five  (5)  business  days  after  receipt  of the
Proposed Tenant's Final Plans Landlord shall, in writing,  inform
Tenant of required revisions or corrections  thereto.  Landlord's
revisions and  corrections  to the Proposed  Tenant's Final Plans
shall be  limited  to any  aspect  thereof  which  is  materially
inconsistent  with the Tenant's Work General  Specifications.  In
the event  Landlord  shall  not  inform  Tenant  of such  desired
revisions  or  corrections  within  such  five (5)  business  day
period,  the  Proposed  Tenant's  Final  Plans  shall  be  deemed
approved and accepted for the purposes hereof.

-14-

(ii)  In the event Landlord shall inform Tenant of required  revisions
or  corrections  to the Proposed  Tenant's  Final Plans,  Tenant
shall revise the Proposed  Tenant's Final Plans and shall submit
the revised Proposed Tenant's Final Plans to Tenant for Tenant's
approval  within  three  (3)  business  days of the  receipt  of
Tenant's  comments.  Landlord shall have three (3) business days
after the receipt of such revised Proposed  Tenant's Final Plans
to review,  approve or comment  on the  required  provisions  or
corrections thereto. Landlord's revisions and corrections to any
revision to the Proposed  Tenant's  Final Plans shall be limited
to any aspect thereof which is materially  inconsistent with the
revision(s) requested by Tenant pursuant to the terms hereof. In
the event  Landlord  shall  not  inform  Tenant of such  desired
revisions or corrections to the revised Proposed  Tenant's Final
Plans  within said three (3)  business  day period,  the revised
Proposed  Tenant's  Final  Plans  shall be  deemed  approved  or
accepted for the purposes  hereof.  This process shall  continue
until the Proposed  Tenant's Final Plans are finally approved by
Landlord and Tenant.

(iii) The Proposed  Tenant's  Final  Plans,  as  finally  approved  by
Landlord and Tenant,  shall  collectively  be referred to as the
"Tenant's  Final Plans."  Without the prior  written  consent of
Landlord,  Tenant  shall not make any  changes  to the  Tenant's
Final Plans.  Subject to all of the terms and conditions of this
Lease  (other  than the  obligation  to pay rent) and so long as
Tenant  its  agents, representatives, employees, contractors and
invitees do not interfere  with  Landlord's  performance  of the
Landlord's  Work,  Tenant  shall  have the  right  to enter  the
Premises  prior  to the  Commencement  Date for the  purpose  of
performing the Tenant's  Work.  Tenant's Work shall be performed
by  contractors  reasonably  approved by Landlord (such approved
contractors   are   hereinafter   referred   to   as   "Tenant's
Contractors"). If Landlord fails to disapprove any such proposed
contractor  within two (2) business  days of demand from Tenant,
such  contract   shall  be  deemed   approved  for  purposes  of
completing the Tenant's Work.

(iv) Landlord shall not be entitled to any construction management fee
or any other  similar fee in connection  with  Tenant's  Work. By
sending  Tenant  written   notice  designating  which elements of
Tenant's  Work  Landlord is electing to purchase,  Landlord  will
have the option  from time to time to pay the Tenant for the cost
of some or all of the  Tenant's  Work,  whereupon  the  amount of
monthly  rental  due  hereunder  shall  increase  by  the  amount
computed  by  multiplying  the amount  paid by Landlord by eleven
percent  (11%) and  dividing   such  product by twelve  (12).  If
Landlord   exercises  the  option   described  in  the  preceding
sentence,  Landlord  and Tenant  shall enter into an amendment to
this Lease to memorialize  any such payments made by Landlord and
the resulting return due Landlord.

4.  Commencement  Date.  The term of this lease shall  commence on the date (the
"Commencement  Date")  which is  ninety  (90)  days from and after the date (the
"Substantial Completion Date") on which Landlord obtains a temporary certificate
of occupancy for the Building, as improved by the Landlord's Work (but excluding
any work  performed by Tenant).  The parties shall  execute a written  statement
setting  forth the  Commencement  Date and the date of  expiration of this Lease
promptly after the same shall have been ascertained,  but the  enforceability of
this  Lease  shall  not be  affected  if  either  party  fails to  execute  such
statement.

-15-

5.  Expansion as to Adjacent Land.

(a)   Landlord   has  an  option  (the   "Purchase   Option")  to  purchase
approximately twenty-five (25) acres of real property described as "Lot 215
Revised"  on the site plan attached  hereto as Exhibit "A-1" (the "Adjacent
Land") which  includes the Expansion Land (as defined in Paragraph 1 of the
Lease).  As  part  of its  acquisition  of  the  Expansion  Land,  Landlord
anticipates  that the  Purchase  Option shall be modified so as to apply to
the  Adjacent  Land  less  and  except  the  Expansion  Land   (hereinafter
referred  to  as  the  "Option  Land").  Landlord  agrees  to  perform  its
obligations  under  the  Purchase  Option so as to keep its  option  rights
thereunder in full force and effect.  Landlord shall invoice Tenant for the
cost of keeping the  Purchase  Option in full force and effect,  and Tenant
shall pay such amounts to Landlord,  as additional rent  hereunder,  within
thirty (30) days of receipt of any such invoice.  At the request of Tenant,
Landlord  shall use good faith  efforts  to cause the term of the  Purchase
Option to be extended so as to be  exercisable  during the entire  original
ten (10) year term of the  Lease.  Tenant,  within  thirty  (30) days after
being invoiced  therefor by Landlord,  shall pay all amounts required to be
paid by Landlord in order  initially  to so extend the term of the Purchase
Option and thereafter to keep the Purchase Option in full force and effect;
provided,  however,  Landlord  shall notify Tenant of the terms of any such
extension of the Purchase  Option in advance of its commitment to so extend
the Purchase Option,  and Tenant may withdraw its request that the Purchase
Option be so extended by giving written notice to Landlord  within ten (10)
days of the receipt of Landlord's  notice,  in which event Tenant shall not
be  required  to pay to  Landlord  any costs or other  amounts  incurred by
Landlord in seeking the extension of the Purchase Option or to maintain the
Purchase  Option beyond the original  term thereof.  At any time during the
term of this lease,  Tenant may notify  Landlord that it no longer requires
Landlord to maintain the Purchase  Option in full force and effect,  and in
such  event,  effective  one  hundred  eighty  (180) days after  Landlord's
receipt of such notice (or sooner if Landlord causes the Purchase Option to
terminate),  (i) Tenant's  rights under this paragraph 5 shall  irrevocably
cease and be of no  further  force and  effect,  and (ii)  Tenant  shall no
longer be  required to pay to  Landlord  the cost of keeping  the  Purchase
Option in full  force and  effect,  nor shall  Tenant  thereafter  have any
rights to the Option Land.

(b)  Provided  that  there  does not  exist a default  by  Tenant  with all
applicable  notice and cure  periods  having  expired  without such default
having been  cured,  Tenant  shall have the option,  at any time during the
original 10-year term (but no more than two (2) times) by written notice to
Landlord  ("Tenant's  Election Notice"),  to cause Landlord to exercise its
option to  purchase  the Option  Land or a portion  thereof  sufficient  to
effect the  expansion of the Building as  hereinafter  described and expand
the Building  thereon  (such  expansion is  hereinafter  referred to as the
"Expansion"),  at  Landlord's  sole cost and  expense,  by a minimum of one
hundred  fifty-seven  thousand  five  hundred  (157,500)  square feet and a
maximum of three  hundred  fifteen  thousand  (315,000)  square feet in the
aggregate,  which  Expansion  shall be  located  on the  north  side of the
Building  on Lot 215,  as set forth on the Site  Plan.  In any such  event,
Landlord shall provide a shell building in quality and design comparable to
the Existing  Shell,  except that  Landlord  shall install no office pod or
vehicle  parking areas.  The design and build out of the Expansion shall be
constructed  in the same manner as the design and build out of the Existing
Shell pursuant to Exhibit  "C-1".  An amendment  documenting  the Expansion
shall  include  provisions  similar to paragraph 2 of this Rider.  Tenant's
right to exercise the Expansion two times is subject to the following:  (i)
Landlord  shall  have  the  reasonable  right  to  approve  the size of any
Expansion  if it is other than 157,500  square feet or 315,000 square feet;
and  (ii) if the first Expansion is 315,000 square feet,  there shall be no
second Expansion.

(c) Tenant's exercise of the expansion option shall not be effective unless
Tenant contemporaneously therewith shall exercise an option as to a portion
of a Renewal Term, an entire Renewal Term or a combination of Renewal Terms
or portions thereof remaining  unexercised  pursuant to paragraph 1 of this
Rider so there remains  exactly ten (10) years in the Lease term  effective
as of Expansion Rent  Commencement Date as to the original Premises and any
prior Expansion, as well as the current Expansion. If Tenant exercises only
a portion of a Renewal Term in order to meet the requirement  that ten (10)
years  remains in the term,  the   remainder  of such  Renewal  Term may be
exercised  independently  pursuant  to the  terms  of  Paragraph  1  above.
Tenant's  obligation  to  pay  monthly  rental  as to the  Expansion  shall
commence  on the  date on  which  temporary  or  permanent  certificate  of
occupancy  has  been  issued  as to such  Expansion  (the  "Expansion  Rent
Commencement  Date").  The time period  commencing  on the  Expansion  Rent
Commencement Date and ending on the last day of the term hereof,  including
the renewal  options  exercised  in  connection  with the  exercise of such
expansion option,  is hereinafter  referred to as the "Expansion Term". The
Expansion Term shall consist of two components:  the "Remaining Term" which
shall  consist of the remainder of the term hereof prior to the exercise of
such expansion and renewal options, and the "Stub Term" which shall consist
of that portion of the Expansion Term remaining  after the Remaining  Term.
For example,  if Tenant's  obligation to pay  Expansion  Rent occurred when
there were 7 years  remaining in the original term, then such original term
would be extended by 3 years so that the term remaining as of such date was
10 years,  the Remaining Term would be 7 years and the Stub Term would be 3
years. In such event, as provided in paragraph 1 above,  the first Renewal
Term remaining to be exercised  pursuant to paragraph 1 would be reduced to
2 years (5 years  less  Stub  Term of 3 years).  If  Tenant  exercises  its
expansion right two (2) times,  then the Remaining Term and Stub Term shall
be determined separately as to each Expansion.

-16-

(d) The Expansion  shall be governed by all of the terms and  conditions of
this  Lease  except  that  amount of  monthly  rental  as to the  Expansion
("Expansion  Rent") for the  Expansion  Term  shall be the  Market  Rate as
determined  pursuant to this  subparagraph (d).  Within thirty (30) days of
the receipt of Tenant's  Election  Notice,  Landlord shall notify Tenant of
Landlord's good faith  determination  ("Landlord's  Determination")  of the
Market  Rate.  Within  thirty  (30)  days  of  the  receipt  of  Landlord's
Determination, Tenant shall provide Landlord written notice of the approval
of  Landlord's   Determination.   If  Tenant  disapproves  such  Landlord's
Determination  and wishes to withdraw  Tenant's  exercise of the  expansion
option,  Tenant's  written  response  shall so provide,  and in such event,
Tenant's  exercise of this  expansion  option shall be rescinded  and of no
effect.  However,  the  provisions of this  Paragraph 5 of this Rider shall
remain in full force and effect and Tenant shall  thereafter again have the
right  pursuant to the  provisions  of said  Paragraph  5 to  exercise  the
expansion  option.  If  Tenant  provides  such  notice  of  disapproval  of
Landlord's  Determination  and  does  not  withdraw  the  exercise  of such
expansion option,  then Landlord and Tenant shall determine the Market Rate
pursuant to the  procedure  described  in  paragraphs  1(d) and (e) of this
Rider.  In such  event,  the  Market  Rate as to the Stub Term shall not be
determined at the time of the exercise of the expansion option, but instead
shall  be  determined   within  the  time  period  specified  in  paragraph
5(c)(ii)(B)  below.  If Tenant  provides  notice of approval of  Landlord's
Determination,  then Landlord and Tenant shall execute an amendment to this
Lease  effecting such  Expansion.  If Tenant fails to respond to Landlord's
notice of Landlord's Determination within such thirty (30) day period, then
Tenant  shall  be  conclusively  deemed  to  have  disapproved   Landlord's
Determination and withdrawn the exercise of its expansion option.

(e) Monthly rental due during the Expansion Term shall be as follows:

(i) Monthly  rental  payable as to the Expansion  during the Expansion
Term shall be the  Expansion  Rent as  provided  in  subparagraph  (d)
above. If there are two  Expansions,  monthly rental shall be computed
separately as to each Expansion.

(ii)  Monthly  rental  payable as to  original  Premises  or the first
Expansion in the event of a second Expansion shall be as follows:

(A) Monthly  rental as to the Remaining  Term shall be the amount
of monthly rental which shall  otherwise be payable  hereunder as
to the Premises or first  Expansion,  as  applicable,  absent any
such expansion and renewal.

(B)  Monthly  rental as to the Stub Term shall be the Market Rate
as determined pursuant to paragraph 1 hereof except that (i) such
process  shall be  initiated  by notice  from  Landlord  given to
Tenant no later than 6 months nor sooner  than 9 months  prior to
the  commencement of the Stub Term and (ii) Tenant shall not have
the  right  to  vitiate  the  exercise  of  the  renewal   option
regardless  of whether  Tenant  approves the Market  Rate,  as so
determined.

(f) Landlord's  obligations under this paragraph 5 shall be contingent upon
(i)  Landlord's  ability to finance the  Expansion on terms and  conditions
which are then commercially reasonable (which terms shall include a loan to
value  ratio of not less than 75%,  a debt  service  ratio of not more than
1.25 based on loan which fully amortizes over a term of not greater than 25
years);  (ii) the  receipt  of such  approval  and  entitlements  as may be
necessary for the  development  of the  Expansion;  (iii) Tenant having net
worth of not less than $100,000,000 and the ratio of Tenant's total debt to
the  aggregate  balance of Tenant's  total debt plus  equity not  exceeding
seventy five percent (75%).  The  satisfaction of the financial  conditions
set forth in  subparagraph  5(f)  shall be evidenced  by audited  financial
statements or Form 10-Q or other periodic filings with the SEC.

(g) This  expansion  option  shall  terminate  on first to occur of (i) the
foreclosure of any mortgage  encumbering  the Premises or the conveyance of
the Premises in lieu of  foreclosure;  (ii) the  expiration of the original
ten (10) year term of this Lease;  (iii) the  consummation by Guess ? Inc.,
the named  tenant,  of a sublease  or  assignment  other  than a  Permitted
Transfer as defined in paragraph 8 of this Rider.

6.  Declaration.  Tenant shall pay to Landlord,  as additional rental under this
Lease,  within thirty (30) days after receipt of an invoice from  Landlord,  any
sums which  relate to the  Premises  and which,  by virtue of  Tenant's  acts or
omissions,  shall be due and payable from Landlord pursuant to the terms of that
certain  Declaration  of  Restrictions  for Riverport  Complex of record in Deed
Book 6561, Page 89, as amended.

7.  Contingencies.  The Lease is in full force and effect as of the date hereof,
but Tenant shall have the right to terminate the Lease as follows:

(a) On or  before  June 15,  1999  Landlord  shall  notify  Tenant  whether
Landlord has acquired the Expansion  Land. If Landlord shall have failed to
acquire the Expansion Land on or before June 15, 1999,  Tenant and Landlord
shall  each have the right to  terminate  this Lease by notice to the other
party given on or before June 18, 1999,  in which event this Lease shall be
of no  further  force or effect and  neither  party  hereto  shall have any
further  liability  to the other party.  If Tenant fails to terminate  this
Lease pursuant to this  paragraph on or before June 18, 1999,  Tenant shall
be deemed to have waived its right to terminate this Lease pursuant to this
subparagraph.

-17-

(b) Landlord  shall  deliver to Tenant a  copy of any  recorded  covenants,
conditions and  restrictions  affecting the Expansion Land on or before May
10, 1999.  Tenant shall have the right to terminate this Lease by notice to
Landlord  given on or before May 18,  1999,  if Tenant fails to approve any
matter which adversely  affects title to the Expansion Land, in which event
this Lease shall be of no further  force or effect and neither party hereto
shall have any further  liability  to the other  party.  If Tenant fails to
terminate  this Lease pursuant to this paragraph on or before May 18, 1999,
Tenant  shall be deemed to have  waived its right to  terminate  this Lease
pursuant to this subparagraph.

(c) If the Riverport Board shall not have approved  Landlord's  request for
an  extension  of its  Purchase  Option  through  June 30, 2003 (as defined
below) on or before May 15, 1999,  Tenant shall have the right to terminate
this Lease by notice to Landlord  given on or before May 18, 1999, in which
event this Lease shall be of no further  force or effect and neither  party
hereto shall have any further liability to the other party. If Tenant fails
to  terminate  this Lease  pursuant to this  paragraph on or before May 18,
1999,  Tenant  shall be deemed to have waived its right to  terminate  this
Lease pursuant to this subparagraph.

(d) If Tenant determines that the Existing Shell,  including the structure,
all systems  therein,  and all  appurtenances  thereto are not suitable for
Tenant's  proposed use,  Tenant shall notify  Landlord on or before May 18,
1999,  of the defects  that render the  foregoing  unsuitable  for Tenant's
proposed  use.  If Tenant  fails to provide  such  notice to Landlord on or
before May 18,  1999,  Tenant  shall be deemed to have  waived its right to
terminate  this Lease pursuant to this  subparagraph.  If Tenant gives such
notice and  Landlord  fails to agree to cure such defects or agrees to cure
such  defects  but fails to complete  such cure within  thirty (30) days of
such notice from Tenant,  this Lease shall  terminate  and be of no further
force and effect and neither party hereto shall have any further  liability
to the other party.

(e) Tenant fails to obtain approval from the appropriate local governmental
authorities  for economic  assistance  under the Kentucky Jobs  Development
Act, Tenant fails to obtain such approval on or before May 15, 1999, Tenant
shall be entitled to terminate this Lease by notice given to Landlord on or
before May 18, 1999, in which event this Lease shall be of no further force
or effect and neither party hereto shall have any further  liability to the
other  party.  If Tenant  fails to  terminate  this Lease  pursuant to this
paragraph on or before May 18, 1999,  Tenant shall be deemed to have waived
its right to terminate this lease pursuant to this subparagraph.

8. Assignment. Notwithstanding anything to the contrary contained in this Lease,
Tenant shall have the right, without the consent of the Landlord, to assign this
Lease or sublet the Premises to a corporation or other entity which:

(a) is Tenant's parent  corporation,  so long as such assignee or sublessee
remains Tenant's parent corporation; or

(b) is a  wholly-owned  subsidiary  of Tenant,  so long as such assignee or
sublessee remains a wholly-owned subsidiary of Tenant; or

(c) is a corporation  of which Tenant or Tenant's parent  corporation  owns
or the shareholders of Tenant or Tenant's parent  corporation own in excess
of fifty percent (50%) of the outstanding  capital stock, so long as Tenant
or Tenant's  parent  corporation  continues to own or the  shareholders  of
Tenant or Tenant's parent  corporation  continues to own in excess of fifty
percent  (50%)  of the  outstanding  capital  stock  of  such  assignee  or
sublessee; or

(d) as a result of a  consolidation,  merger or other  reorganization  with
Tenant and/or Tenant's parent  corporation,  shall own all or substantially
all  of  the  capital  stock  or  assets  of  Tenant  or  Tenant's   parent
corporation,  but only if such  assignee or  sublessee  has a tangible  net
worth of not less than $75,000,000.00 immediately before such assignment or
subletting and such consolidation,  merger or other reorganization does not
involve any distribution of cash or other assets which would result in such
assignee or  sublessee  having a net worth less than  $75,000,000.00  after
such  assignment  or  subletting;  or (e) Acquires or is  acquiring  all or
substantially  all of the  outstanding  capital  stock of  Tenant or all or
substantially  all of the assets of Tenant,  but only if such  assignee  or
sublessee  has a  tangible  net  worth  of  not  less  than  $75,000,000.00
immediately  before such assignment or subletting and such acquisition does
not

-18-

not involve any distribution of cash or other assets which would result in
such assignee or  sublessee  having a net worth less than  $75,000,000.00 
after such assignment or subletting; or

(f)  as  a  result  of  a  change  of  the   domicile   of  Tenant  or  the
reincorporation  of  Tenant  in  another  jurisdiction  shall  own  all  or
substantially  all of the assets of Tenant,  but only if such  assignee  or
sublessee  has a  tangible  net  worth  of  not  less  than  $75,000,000.00
immediately  before  such  assignment  or  subletting  and such  change  of
domicile  does not involve any  distribution  of cash or other assets which
would  result in such  assignee or  sublessee  having a net worth less than
$75,000,000.00 after such assignment or subletting.

Any  assignment or subletting  pursuant to a-f above,  inclusive,  shall be
subject to the following conditions: (a) Tenant shall remain fully liable during
the unexpired term of this Lease, unless Tenant shall cease to exist as a result
of any transaction  described in  subparagraphs  (d) or (f) above;  (b) any such
assignment or subletting shall be subject to all of the terms of this Lease; and
(c)  such  assignee  (other  than  a  person  or  entity  that  acquires  all or
substantially  all of the capital stock of Tenant) shall assume all  obligations
of "Tenant" under this Lease from and after the date of such assignment.  Tenant
shall  notify  Landlord  within  thirty  (30)  days of any  such  assignment  or
subletting,  and Tenant shall deliver to Landlord within thirty (30) days of any
such  assignment  a fully  executed,  recordable  form  agreement  from any such
assignee to Landlord  whereby such assignee  (other than a person or entity that
acquires  all or  substantially  all of the capital  stock of Tenant)  agrees to
assume all  obligations  of Tenant  under this  Lease from and after the date of
such assignment.

FAMILY TRANSFERS

The  transfer of shares of stock of Tenant among the  immediate  members of
the family of a shareholder,  to a living trust for estate planning  purposes or
by will or intestacy,  or to existing  shareholders of Tenant or to Tenant shall
not be deemed an assignment of this Lease or the subletting of the Premises.

PUBLIC OFFERING/TRADING

In no event  shall a sale,  issuance  or transfer of the stock of Tenant to
the public or public trading of the stock of Tenant  constitute an assignment of
this Lease or a subletting of the Premises.

HYPOTHECATION

An  hypothecation  of  shares  of stock of  Tenant  shall not  be deemed an
assignment of this Lease or a subletting of the Premises unless and until either
the person to whom said  shares  have been so  hypothecated  obtain the right to
vote said  shares  for  directors  of  Tenant  prior to any  foreclosure  of any
security  interest in said shares or acquires  all right,  title and interest of
the hypothecator in said shares.

Any assignment or subletting which is permitted without  Landlord's consent
pursuant to this paragraph 8 is referred to herein as a "Permitted Transfer."

-19-

EXHIBIT "D"

Guess?
Distribution Center
Preliminary Pre-Architectural Specifications
Dated: April 7, 1999

Items to be removed at end of lease by Guess? (at the discretion of RPP):

1.      All conveyors (product, trash, etc.)
2.      Personnel catwalks
3.      Personnel lockers (at peak a total of 560 lockers)
4.      All racking
5.      Air compressor lines (terminate at the source and remove)
6.      Electrical lines for equipment (terminate at the source and remove
conduit)
7.      Specialized computer room features (including: raised flooring,
special fire protection system)
8.      Cafeteria (4,000 square feet without patio)
9.      Training room (1,000 square feet)
10.     Exercise room (1,000 square feet)
11.     Employee entrance area (9,600 square feet)
12.     Service room area (8,400 square feet)

Items 7 through  12  (inclusive  of items 7 and 12) are referred to in this
Lease as the "Group Removal Items."

-22-

EXHIBIT "E"

Assume  that  during the second  Lease  Year   Tenant  elects to expand the
Building by 157,500 square feet by exercising its first Expansion right pursuant
to paragraph 5 of this Rider and that the Expansion Rent  Commencement  Date for
such  Expansion  is the first day of the third Lease Year.  Assume  further that
during  the eighth  Lease  Year  Tenant  elects to expand  the  Building   by an
additional 157,500 square feet by exercising its second Expansion right pursuant
to paragraph 5 of this Rider and that the Expansion Rent  Commencement  Date for
such  Expansion  is  the  first  day  of  the  ninth  Lease  Year.  Given  these
assumptions, the following would apply:

(A)   As to the first Expansion:

(1) Tenant would be required to renew the Lease  pursuant to this paragraph
1 of the Rider in order to extend the term by two years. After such renewal, the
term would expire at the end of the twelfth Lease Year.

(2) The Remaining Term would begin on the first day of the third Lease Year
and end  on the last day of the  initial  term.  The Stub Term  would be the two
year period of time which is the subject of the renewal option described in item
(1) above (i.e., Lease Years 11-12).  This would result in the next Renewal Term
consisting of Lease Years 13-15, inclusive.

(3) The rent would be the Market  Rate  during the  Remaining  Term and the
Stub Term.

(4) As a consequence of the second  Expansion,  Tenant would be required to
exercise  two  Renewal  Terms -- as to Lease  Years  13-15  remaining  after the
renewal referred to Paragraph (A)(1) above and as to the Lease Years 16-18 -- so
as to meet the requirement of paragraph 5(c) of this Rider that the term of this
Lease be extended for ten years as of the Expansion Rent Commencement Date as to
the second  Expansion.  In such  event,  the rent for Lease  Years 13-15 for the
first  Expansion  shall the lesser of the CPI  Ceiling or the  Market  Rate,  as
determined as of the beginning of such three year period  (subject always to the
provisions of paragraph 1(b) of this Rider,  which provide that rent shall never
be less than the rent  applicable  immediately  prior to any  adjustment  in the
rent).  The rent for Lease  Years  16-18 for the  first  Expansion  shall be the
Market Rate,  as  determined  as of the first day of such three year period.  If
Tenant exercises its option to renew as to the last remaining Renewal Term as to
Lease Years 19-20 (i.e.,  renew after the  expiration of the Expansion  Term for
the second  Expansion),  the rent as to the first  Expansion shall be the Market
Rate, as determined as of the first day of such two year period.

(B)  As to the second Expansion:

(1) Tenant would be required to renew the Lease pursuant to this  paragraph
1  of the Rider in order to extend the term by an  additional  six years so that
it would expire at the end of Lease Year 18. Thus, the ten year period after the
Expansion  Rent  Commencement  Date which Tenant is required to have pursuant to
the terms of  paragraph  5 of this  Rider  shall be  comprised  of the two years
remaining  in the initial ten year term,  the two years of the Stub Term for the
first  Expansion,  three years until the end of the first five year renewal term
and the first three years of the second five year renewal term.

(2) The Remaining Term would begin on the first day of the ninth Lease Year
and would end on the last day of the Stub Term for the first Expansion. The Stub
Term for the second Expansion would be Lease Years 13-18.

(3) The rent would be the Market  Rate  during the  Remaining  Term and the
Stub Term.  If Tenant  exercises  its  option to renew as to the last  remaining
Renewal Term as to Lease Years 19-20 (i.e.,  renew after the  expiration  of the
Expansion Term for the second  Expansion),  the rent as to the second  Expansion
shall be the Market  Rate,  as  determined  as of the first day of such two year
period.

(C)  As to the Building (exclusive of the Expansions):

(1) Rent  increases  pursuant to paragraph 3 of the Lease at the end of the
fifth  Lease  Year.  The term will be renewed as to Lease  Years 11-12 as to the
First Expansion and Lease Years 13-18 as to the Second  Expansion.  During Lease
Years 11-15, the rent shall the lesser of the CPI Ceiling or the Market Rate, as
determined  as of  the  beginning  of  Lease  Year  11  (subject  always  to the
provisions of paragraph 1(b) of this Rider,  which provide that rent shall never
be less than the rent  applicable  immediately  prior to any  adjustment  in the
rent).  During Lease Years 16-18,  if Tenant  exercises it option to renew as to
the last remaining  Renewal Term as to Lease Years 19-20 (i.e.,  renew after the
expiration of the Expansion Term for the second  Expansion),  the rent as to the
first  Expansion  shall be the Market Rate, as determined as of the first day of
such two year  period.  The rent is the Market  Rate,  as  determined  as of the
beginning of Lease Year 16.

-23-

The following chart further clarifies Exhibit "E":

Rent Applicable to Exhibit "E"

Lease Year   1-2       3-5       6-8       8-10       11-12       13-15       16-18       18-20

Original     $2.70/    $2.70     $3.05     $3.05      lesser of   lesser of   Market      Market
Premises     sft.      /sft.     /sft.     /sft.      Market      Market      Rate        Rate
Rate or     Rate or
CPI         CPI
Ceiling     Ceiling

First        N/A       Market    Market    Market     Market      lesser of   Market      Market
Expansion              Rate      Rate      Rate       Rate        Market      Rate        Rate
Rate or
CPI
Ceiling

Second       N/A       N/A       N/A       Market     Market      Market      Market      Market
Expansion                                  Rate       Rate        Rate        Rate        Rate

-24-

________________________________________

SUBSCRIPTION AGREEMENT
________________________________________

BY AND AMONG

STRANDEL INC.

GUESS?, INC.

AND

FREEMARK ENTERTAINMENT CORPORATION

July 31, 1999

SUBSCRIPTION AGREEMENT
----------------------

MEMORANDUM OF AGREEMENT made at Montreal on the 31st day of July, 1999

BY AND AMONG:                   STRANDEL INC., a corporation  incorporated under
the laws of Canada, with its registered office
at 7077 Park Avenue, Suite 5031, Montreal,
Quebec, H3N 1X7,

the "Corporation");

AND:                            GUESS?, INC., a corporation incorporated under
the laws of Delaware, with its registered office
at 1444 South Alameda Street, Los Angeles,
California, 90021, U.S.A.,

(the "Purchaser");

AND:                            FREEMARK ENTERTAINMENT CORPORATION, a
corporation incorporated under the laws of
Canada, with its registered office at 7077
Park Avenue, Suite 503, Montreal, Quebec, H3N
1X7,

("Freemark").

WHEREAS the  Purchaser  desires to subscribe for thirty  thousand  (30,000)
Class A Common Shares from the treasury of the Corporation,  in consideration of
an  aggregate  amount  of  three  million  dollars   ($3,000,000)  (the  "Equity
Investment"),  which would  increase its equity  position in the  Corporation to
60%,  at  such  price  and  on  such  terms  as   hereinafter   set  forth  (the
"Subscription"); and

WHEREAS the Equity  Investment will be used by the Corporation for purposes
of working capital and to become current with trade creditors;

THIS AGREEMENT  WITNESSETH  THAT, in  consideration of the mutual covenants
herein contained, it is agreed by and between the Parties as follows:

ARTICLE I
INTERPRETATION

1.1  Definitions.  Where used herein or in any amendments  hereto or in any
communication  required or permitted to be given hereunder,  the following terms
shall have the following  meanings,  respectively,  unless the context otherwise
requires:

(a)  "Agreement"  shall mean this  Subscription  Agreement  and all  instruments
supplemental  hereto or in  amendment  of  confirmation  hereof;  "herein",
"hereof",  "hereto",  "hereunder" and similar expressions mean and refer to
this Agreement and not to any particular  Article,  Section,  Subsection or
other subdivision;  "Article", "Section", "Subsection" or other subdivision
of this  Agreement  means and  refers to the  specified  Article,  Section,
Subsection or other subdivision of this Agreement.

-2-

(b)  "Closing"   shall  mean  the  delivery  to  the   Purchaser  of  the  share
certificates  for the Subscribed  Shares and the payment to the Corporation
of the Subscription Price for the Subscribed Shares at the place of closing
on the Closing Date.

(c)  "Closing Date" shall have the meaning ascribed thereto at Section 8.1.

(d)  "Financial  Statements"  shall  mean the  Corporation's  audited  financial
statements  as at  March  31,  1999  and  the  combined  audited  financial
statements  as at January 30, 1999 of 176995  Canada Inc.,  3032116  Canada
Inc.,  2996197  Canada  Inc.,  3032507  Canada Inc.,  3098605  Canada Inc.,
3133320 Canada Inc.,  3133338 Canada Inc., 3138925 Canada Inc. and Spinardi
Inc.,  copies of which financial  statements are annexed hereto as Schedule
1.1(d).

(e)  "Indemnified Party" shall have the meaning ascribed thereto at Section 7.3.

(f)  "Indemnifying  Party"  shall have the meaning  ascribed  thereto at Section
7.3.

(g)  "Intellectual  Property  Rights"  shall mean (i) all  domestic  and foreign
patents,  trade  marks,  trade  names,  service  marks,  copyrights,  trade
secrets, inventions,  know-how,  technology,  software, licenses, and other
intellectual  property,  and (ii) all  registrations  and  applications for
registration of intellectual  property;  and "Intellectual  Property Right"
shall mean any one of them.

(h)  "Laws" shall mean:

(i)  all  constitutions,   treaties,  laws,  statutes,  codes,  ordinances,
orders, decrees, rule, regulations, and municipal by-laws; and

(ii) all  judgments,  orders,  writs,  injunctions,   decisions,   rulings,
decrees, and awards of any governmental authority or body,

in each case binding on or affecting the Party or Person referred to in the
context in which such word is used; and "Law" shall mean any one of them.

(i)  "License"  and  "Licenses"  shall  have the  respective  meanings  ascribed
thereto at Section 3.1(z).

(j)  "Lien"  and  "Liens"  shall mean  any  pledge,  hypothec,   charge,  claim,
restriction on transfer,  mortgage, security interest or encumbrance of any
sort.

(k)  "Losses" shall have the meaning ascribed thereto at Section 7.1.

(l)  "Parties" shall mean the Purchaser, Freemark and Strandel; and "Party" 
shall mean any one of them.

(m)  "Person"  shall  mean an  individual,  corporation,  company,  cooperative,
partnership,  limited liability company, trust, unincorporated association,
entity with juridicial  personality or governmental  authority or body, and
pronouns which refer to a Person shall have a similarly extended meaning.

-3-

(n)  "Reorganization"  shall mean the transfer by the  Purchaser and Freemark of
all of the issued and  outstanding  shares of the capital of 3535762 Canada
Inc. to the Corporation according to the terms disclosed in Schedule 1.1(n)
annexed hereto.

(o)  "Subscribed  Shares"  shall  mean  30,000  Class A Common  Shares  from the
treasury of the Corporation representing, after giving effect to said share
subscription, 40% of the issued and outstanding shares of the share capital
of the Corporation, delivered to the Purchaser.

(p)  "Subscription  Price"  shall have the meaning  ascribed  thereto at Section
2.1.

(q)  "Subsidiaries"  shall  mean  3535762  Canada  Inc.,  3106021  Canada  Inc.,
Spinardi  Inc.,  176995 Canada Inc.,  3562786  Canada Inc.,  3138925 Canada
Inc.,  3032507  Canada  Inc.,  3032116  Canada Inc.,  2996197  Canada Inc.,
3098605 Canada Inc., 3133320 Canada Inc. and 3133338 Canada Inc.

(r)  "Tax" and "Taxes" shall have the respective  meanings  ascribed  thereto at
Section 3.1(w).

1.2  Schedules.  The  following is a list of the Schedules  attached  hereto and
incorporated herein by reference:

Schedule 1.1(d)   -    Financial Statements
Schedule 1.1(n)   -    Reorganization
Schedule 3.1(d)   -    No Conflict
Schedule 3.1(e)   -    Corporate Chart
Schedule 3.1(f)   -    Subsidiary
Schedule 3.1(g)   -    No Options
Schedule 3.1(j)   -    Liabilities
Schedule 3.1(l)   -    No Changes; No Unusual Transactions
Schedule 3.1(m)   -    Permitted Liens
Schedule 3.1(o)   -    Condition and Sufficiency of Assets; Inventory
Schedule 3.1(p)   -    Place of Business
Schedule 3.1(q)   -    Intellectual Property Rights
Schedule 3.1(r)   -    Contracts
Schedule 3.1(t)   -    Insurance
Schedule 3.1(u)   -    Bank Accounts
Schedule 3.1(v)   -    Outstanding Litigation
Schedule 3.1(w)   -    Tax Matters
Schedule 3.1(z)   -    Licenses
Schedule 3.1(bb)  -    Benefit Plans
Schedule 3.1(cc)  -    Environmental Matters
Schedule 4.1(c)   -    Form of Unanimous Shareholders Agreement
Schedule 4.1(d)   -    Form of Employment Agreements
Schedule 4.1(f)   -    Form of Loan Agreement
SChedule 4.1(g)   -    Form of Opinion of Counsel for the Corporation

-4-

ARTICLE II
SUBSCRIPTIONS

2.1  Subscription.  Upon and  subject to the terms and  conditions  hereof,  the
Purchaser  hereby   subscribes  for  the  Subscribed  Shares  for  an  aggregate
subscription   price  equal  to  three   million   dollars   ($3,000,000)   (the
"Subscription Price") all of which shall be allocated to the Subscribed Shares.

2.2  Acceptance.  The  Corporation  hereby   accepts  the  subscription  of  the
Purchaser for the  Subscribed  Shares  indicated in Section 2.1,  subject to the
terms and conditions contained herein.

2.3 Payment of the Subscription Price.  Purchaser hereby acknowledges receipt of
the Subscribed  Shares and the Corporation  hereby  acknowledges  receipt of the
Subscription  Price, by way of certified  cheque or bank draft. It is understood
that the entire  Subscription Price shall be added to the stated capital account
of the Class A Common Shares.

ARTICLE III
REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of the Corporation and Freemark.  Each of the
Corporation and Freemark,  on a solidary (joint and several) basis, each waiving
the  benefits  of  division  and  discussion,  represents  and  warrants  to the
Purchaser as follows and  acknowledges  that the  Purchaser is relying upon such
representations  and  warranties  in  connection  with the  subscription  by the
Purchaser of the Subscribed Shares and that the Purchaser would not have entered
into this Agreement without such representations and warranties:

(a)  Due Incorporation. Each of the Corporation, the Subsidiaries and Freemark:

(i)  is duly incorporated,  validly existing and in good standing under the
Laws of its jurisdiction of incorporation; and

(ii) has all  necessary corporate  power and  authority  to own,  lease and
operate  its  properties  and to conduct  its  business  as and in the
places where such properties are now owned, leased or operated or such
business is now conducted.

(b)  Due  Authorization.  Each of the Corporation and Freemark has the necessary
corporate  power and authority to execute this Agreement and to perform its
obligations  hereunder.  The  execution  of this  Agreement  by each of the
Corporation and Freemark and the performance by each of the Corporation and
Freemark  of its  obligations  hereunder  has been duly  authorized  by all
necessary  action on their part.  Such  execution and  performance  by the
Corporation  and  Freemark  does not  require any action or consent of, any
registration with, or notification to, any Person, or any action or consent
under any Laws to which each of the  Corporation  and  Freemark is subject,
except for any such  disclosure  as each of the  Corporation  and  Freemark
shall  determine to be necessary or appropriate  to comply with  securities
laws, stock exchange rules and/or covenants in loan agreements.

-5-

(c)  Enforceability.  This  Agreement  constitutes  a legal,  valid and  binding
obligation of the Corporation and of Freemark  enforceable  against them in
accordance  with its terms,  except to the extent that  enforcement  may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws  affecting  creditors'  rights  generally and by general
principles of equity.

(d)  No Conflict.  The  execution of this  Agreement,  the  consummation  of the
transactions   contemplated   herein,   the  performance  by  each  of  the
Corporation and Freemark of its obligations hereunder and the compliance by
each of the Corporation and Freemark with this Agreement do not:

(i)  violate,  contravene or breach,  or  constitute a default  under,  the
constating instruments or by-laws of the Corporation or of Freemark;

(ii) violate,  contravene  or breach,  or  constitute  a default  under any
contract, agreement, indenture, instrument, or commitment to which the
Corporation or the  Subsidiaries  may be a party, or their  properties
may be  subject,  or by which  either  of them is  bound or  affected,
except for those agreements listed in Schedule 3.1(d);

(iii)result in, or give any  Person the right to seek,  or to cause (a) the
termination,  cancellation,   modification,  amendment,  variation  or
renegotiation  of any contract,  agreement,  indenture,  instrument or
commitment  to which the  Corporation  or the  Subsidiaries  or any of
their  properties may be a party or subject or by which either of them
is bound or affected,  or (b) the  acceleration  or  forfeiture of any
term of  payment,  or (c) the loss in whole or in part of any  benefit
which  would         otherwise   accrue  to  the  Corporation  or  the
Subsidiaries, except for these agreements listed in Schedule 3.1(d);

(iv) result in, or  require  the  creation  of any lien, hypothec,  pledge,
charge,  prior  claim,  security  interest,  adverse  claim  or  other
encumbrance or right of others of any nature,  whatsoever or howsoever
arising (individually,  a "Lien" and collectively,  "Liens"), upon any
of the  Subscribed  Shares  or any of  the  Subscribed  Shares  or any
property of the Corporation of the Subsidiaries; or

(v)  violate, contravene or breach any Laws.

(e)  Authorized and Issued  Capital.  The authorized  capital of the Corporation
consists of an unlimited  number of Class A Common  Shares,  Class B Common
shares,  Class A  Preferred  shares,   Class B  Preferred  Shares,  Class C
Preferred  shares and Class D Preferred  shares,  of which thirty  thousand
(30,000)  Class A Common  Shares  (and no more) have been  (without  giving
effect  to  the  Subscription)   validly  subscribed  and  issued  and  are
outstanding as fully paid and non-assessable, free and clear of all Liens.

Immediately  following  the  issuance  pursuant  hereto  of the  Subscribed
Shares,  the  Subscribed  Shares  represent  40% of all of the  issued  and
outstanding shares in the capital of the Corporation.

All of  the  issued  outstanding  shares  in the  capital  of  each  of the
Subsidiaries have been validly  subscribed and issued,  and are outstanding
as  fully  paid  non-assessable,  free  and  clear  of all  Liens  and  are
beneficially  owned by the Corporation or any of the  Subsidiaries,  as the
case may be, as the corporate chart sets out in Schedule 3.1(e).

-6-

(f)  No Subsidiary.  Except as disclosed in Schedule 3.1(f) annexed hereto,  the
Corporation does not own, directly or indirectly, any shares in the capital
of any Person and has never had any property interest in any Person.

(g)  No Options.  Except as disclosed in Schedule 3.1(g).  There is no:

(i)  outstanding  security of the  Corporation  or any of the  Subsidiaries
convertible or exchangeable or exercisable into any share or shares in
the capital of the Corporation or any Subsidiary;

(ii) outstanding   subscription,   option,  warrant,  call,  commitment  or
agreement obligating the Corporation or the Subsidiaries, presently or
in the  future,  to issue any share or  shares of its  capital  or any
security or securities of any class or kind which in any way relate to
the authorized or issued capital of the Corporation or any Subsidiary;

(iii)agreement  (other than this Agreement)  which grants to any Person the
right to purchase or otherwise  acquire any share or shares issued and
outstanding in the capital of the Corporation or any Subsidiary; or

(iv) voting trust or voting  agreement  or pooling  agreement or proxy with
respect  to any  shares  of the  capital  of  the  Corporation  or any
Subsidiary.

(h)  Books and Records. The minute books of the Corporation and the Subsidiaries
are complete and accurate and contain copies of all by-laws and resolutions
passed by the  shareholders  and directors (and any  committees)  since the
respective  dates  of  their  incorporation;   all  of  which  by-laws  and
resolutions have been duly passed.

The share  certificate  books,  registers  of  shareholders,  registers  of
transfers   and  registers  of  directors  of  the   Corporation   and  the
Subsidiaries are complete and accurate.

The financial  books and records of the  Corporation  and the  Subsidiaries
have been  maintained  in  accordance  with sound  business  practices  and
fairly,  accurately and completely  present and disclose in accordance with
generally  accepted  accounting  principles  consistently  applied  (i) the
financial  position of the Corporation and the  Subsidiaries,  and (ii) all
material transactions of the Corporation and the Subsidiaries.

(i)  Financial  Statements.  The Financial  Statements  fairly,  accurately  and
completely present and disclose in all material respects in accordance with
GAAP (i) the financial position of the Corporation and of the Subsidiaries,
(ii) the results of operations of the Corporation and the Subsidiaries, and
(iii) the  changes in the  financial  position of the  Corporation  and the
Subsidiaries,  all as at the dates and for the  periods  therein  specified
(except  that in the case of  unaudited  statements,  such  statements  are
subject to audit and year-end adjustments, and do not have any notes).

-7-

(j)  Liabilities.   Each  of  the  Corporation  and  the   Subsidiaries  has  no
liabilities  or  obligations  of any  nature  whatsoever,  whether  direct,
indirect,  absolute,  contingent or otherwise, except for those liabilities
or  obligations  (i)  reflected in or reserved  against in their  Financial
Statements, (ii) incurred after their respective year ends in the usual and
ordinary  course of business  consistent  with past practice,  or (iii) set
forth in Schedule 3.1(j) annexed hereto.

(k)  Accounts  Receivable.  All accounts  receivable of the  Corporation and the
Subsidiaries  are bona fide,  result from the ordinary  course of business,
have been properly recorded in the ordinary course of business.

(l)  No Changes; No Unusual Transactions. Except as disclosed in Schedule 3.1(l)
since the last audited  balance sheet date, the Corporation and each of the
Subsidiaries  has conducted  its business in the ordinary  course and there
has not been any  material  change  in  either  the  business,  operations,
properties, or condition of the Corporation and the Subsidiaries taken as a
whole,  nor any event,  condition on contingency  that could  reasonably be
expected to result in any such material change.

(m)  Title to Property. The Corporation and each of the Subsidiaries is the sole
and  unconditional  owner of, and has a good and valid  title to all of its
assets reflected on the Financial  Statements,  or which have been acquired
on or after  January 30, 1999 (other than such assets  consumed or disposed
of on or after January 30, 1999 in the ordinary course of business and in a
manner  consistent with past practice),  in each case free and clear of all
Liens, except for the Permitted Liens described in Schedule 3.1(m).

(n)  Immovable.  The Corporation  and the  Subsidiaries do not own any immovable
property.

(o)  Condition  and  Sufficiency  of Assets;  Inventory.  Except as disclosed in
Schedule   3.1(o)annexed   hereto,  all  of  the  tangible  assets  of  the
Corporation and the  Subsidiaries  are (i) in good operating  condition and
repair, ordinary wear and tear excepted, (ii) not in need of maintenance or
repairs  (except  ordinary or routine  maintenance  or repairs that are not
material  in nature  or costs,  individually  or  collectively),  and (iii)
adequate and sufficient  for the continuing  conduct of the business of the
Corporation and the Subsidiaries as now conducted.

All  inventory  of each of the  Corporation  and the  Subsidiaries  is of a
quality and quantity usable and salable in the ordinary course of business.

(p)  Location;  Place of Business.  Other than inventory in transit and vehicles
used in the  transportation of such inventory,  each of the Corporation and
the Subsidiaries does not hold, directly or indirectly, any of its moveable
or personal  property  anywhere  other than in the  locations  set forth in
Schedule 3.1(p) annexed hereto.

(q)  Intellectual Property Rights. Other than the license agreement entered into
with the  Purchaser  or  licenses  related  to the use of  software  in the
ordinary course of business,  the only Intellectual Property Rights used by
the  Corporation  and the  Subsidiaries  are related to the use of the name
Strandel.  The operations of the business do not infringe the  Intellectual
Property  Rights of any  Person.  No  proceeding  for  infringement  of the
Intellectual Property Rights of any Person is pending or threatened against
the Corporation or the  Subsidiaries in connection with the business of any
of its  affiliates (as defined under the Canada  Business  Corporations
Act).

-8-

(r)  Contracts; Leases. Schedule 3.1(r) annexed hereto contains a description of
all  written  or  oral  contracts,  agreements,  indentures,   instruments,
commitments  and all the  leases  to which  the  Corporation  or any of the
Subsidiaries  is a party or by which it is bound other than (i)  involving
receipts or expenditures of the Corporation of less than $100,000 per annum
or (ii) verbal  contracts  of  employment  which are  terminable  on notice
required  by law,  or (iii)  purchase  orders  issued  or  received  in the
ordinary course of business.

Except as disclosed in Schedule 3.1(d),  all leases to which the Company or
any Subsidiary is a party are in good standing and in full force and effect
without   amendment   thereto,   and  each  of  the   Corporation  and  the
Subsidiaries,  as the case may be, is entitled to all  benefits  under such
leases.

(s)  Guarantees. Neither the Corporation nor any Subsidiary is party to or bound
either  absolutely  or  on  a  contingent  basis  by  any  comfort  letter,
understanding  or agreement of  guarantee,  indemnification,  assumption or
endorsement  or any like  commitment  with  respect to the  liabilities  or
obligations  of  any  Person  (whether   accrued,   absolute  or  otherwise
contingent), except in the ordinary course of business.

(t)  Insurance.  Schedule  3.1(t) is a true and complete  list of all  insurance
policies  currently  maintained by or for each of the  Corporation  and the
Subsidiaries.  The  coverage  under  each such  policy is in full force and
effect and each of the  Corporation and the  Subsidiaries,  as the case may
be, is in good standing under such policies.

The Corporation  and the  Subsidiaries  have not received  notice  of, and
each  of  Freemark  and  the  Corporation  has no  knowledge  of any  fact,
condition  or  circumstance  which might  reasonably  form the basis of any
claim against the Corporation or any of the  Subsidiaries  which (i) is not
fully covered by insurance  (subject to  deductibles)  maintained by or for
the  Corporation or any of the  Subsidiaries,  or (ii) could  reasonably be
expected to result in any  increase in  insurance  premiums  payable by the
Corporation or any of the Subsidiaries.

(u)  Bank Accounts.  Schedule  3.1(u) annexed hereto sets forth the name of each
Person with whom each of the Corporation and the Subsidiaries  maintains an
account or safety  deposit box and the names of all Persons  authorized  to
draw thereon or to have access thereto.

(v)  Litigation.  Except as disclosed in Schedule 3.1(v) annexed  hereto,  there
are  (i)  no  actions,  claims,  investigations,   arbitrations,  or  other
proceedings  pending or, to the  knowledge of Freemark or the  Corporation,
threatened   against,   any  of  the   Corporation's  or  any  Subsidiary's
properties,  which if adversely  determined  would have a material  adverse
effect on the  Corporation  or the  Subsidiaries;  and (ii) no  outstanding
judgments,  orders,  decrees,  writs,  injunctions,  decisions,  rulings or
awards against, with respect to, or in any manner affecting the Corporation
or any of the Subsidiaries or their respective properties.

-9-

(w)  Tax  Matters.  For the  purposes  of this  Agreement,  the term  "Tax"  or,
collectively,   "Taxes"  shall  mean  (i)  any  and  all  federal,   state,
provincial,  municipal,  local and  foreign  taxes,  assessments  and other
governmental charges, duties,  impositions and liabilities including Canada
Pension Plan and Provincial  Pension Plan  contributions  and  unemployment
insurance  contributions and employment insurance  contributions  including
taxes based upon or measured by gross  receipts,  income,  profits,  sales,
capital  use and  occupation,  goods  and  services,  and value  added,  ad
valorem, transfer, franchise,  withholding, payroll, recapture, employment,
excise and  property  taxes,  together  with all  interest,  penalties  and
additions  imposed with respect to such amounts and (ii) any  liability for
the  payment  of any  amounts of the type  described  in clause (i) of this
Section  3.1(w)  as a  result  of any  express  or  implied  obligation  to
indemnify  any other  person or as a result  of any  obligations  under any
agreements  or  arrangements  with any other  person  with  respect to such
amounts and including any liability for taxes of a predecessor entity.

(i)  Tax Returns and Audits

1.   The Corporation and the Subsidiaries have correctly  computed all
Taxes prepared and duly and timely filed all federal, provincial,
local and foreign returns, estimates,  information statements and
reports  ("Tax  Returns"),  required  to be filed  by them,  have
timely  paid all Taxes  which are due and  payable  and have made
adequate provision in the Financial Statements for the payment of
all Taxes that are or may become  payable for any  taxation  year
ending on or prior to March 31,  1999.  The  Corporation  and the
Subsidiaries have made adequate and timely  installments of Taxes
required to be made.

2.   With respect to any periods for which Tax Returns the Corporation
and the  Subsidiaries  have not yet been  required to be filed or
for  which  Taxes  are not yet due and  payable,  they  have only
incurred  liabilities  for  Taxes in the  ordinary  course of its
business and in a manner consistent with prior periods.

3.   All Tax Returns of the Corporation and the Subsidiaries have been
assessed  through  and  including  each of the dates set forth in
Schedule 3.1(w), and there are no outstanding waivers,  except as
set  forth in  Schedule  3.1(w),  of any  limitation  periods  or
agreements  providing  for an extension of time for the filing of
any Tax Return or the payment of any Tax by the  Corporation  and
the Subsidiaries or any outstanding  objections to any assessment
or reassessment of Taxes. Any  deficiencies  proposed as a result
of such  assessments or  reassessments of the Tax Returns through
and  including  the dates set forth in Schedule  3.1(w) have been
paid  and  settled  with  the  exception  of  the  GST/PST  Taxes
assessments as set forth in Schedule 3.1(j).

-10-

4.   There are no contingent Tax liabilities or any grounds that could
prompt an assessment  or  reasssessment,  including,  but without
limitation, aggressive treatment of income, expenses, deductions,
credits or other  amounts in the filing of earlier or current Tax
Returns,  nor have the Corporation and the Subsidiaries  received
any indication from any taxation  authorities  that an assessment
or reassessment of Tax is proposed.

5.   The  Corporation  and the  Subsidiaries  have  withheld form each
payment  made to any of  their  past  and  present  shareholders,
directors, officers, employees and agents the amount of all Taxes
and other  deductions  required to be withheld and have paid such
amounts  when due,  in the form  required  under the  appropriate
legislation,  or made adequate  provision for the payment of such
amounts to the proper receiving authorities.

6.   The  Corporation  and the  Subsidiaries  have collected from each
receipt  from any of the past and  present  customers  (or  other
persons  paying   amounts to the  Corporation)  the amount of all
Taxes  (including  goods and  services tax and  provincial  sales
taxes) required to be collected and have remitted such Taxes when
due, in the form required  under the  appropriate  legislation or
made  adequate  provision  for the  payment of such amount to the
proper receiving authorities.

7.   The  Corporation  and the  Subsidiaries  are not  subject  to any
assessments,  levies, penalties or interest with respect to Taxes
which will result in any  liability  on  their part in respect of
any period  ending on or prior to the date hereof,  in  excess of
the amount to be provided for in the Financial Statement.

8.   The  Corporation and the  Subsidiaries  have not been and are not
currently  required  to file  any  returns,  reports,  elections,
designations or other filings with any taxation authority located
in any  jurisdiction  outside  Canada or outside the  province of
Quebec.

9.   Except as disclosed in Schedule  3.1(w), the Ccorporation and the
Subsidiaries  have  not  filed  or  been  party  to any  election
pursuant to Section 83 or 85 of the Income Tax Act (Canada)  (the
"ITA") or the corresponding provisions of any provincial statute.

10.  The  Corporation  and  the  Subsidiaries  have  not at  any  time
benefited  from a  forgiveness  of debt,  except  pursuant to the
transaction  with  Pantorama   Industries  Inc.  referred  to  in
Schedule 3.1(l),  or entered into any transaction or  arrangement
(including  conversion of debt into shares of its share  capital)
which could have  resulted in the  application  of Section 80 and
following of the ITA or the relevant provisions of any provincial
statute.

11.  Since its data of incorporation,  the Corporation and each of the
Subsidiaries has been a "Canadian controlled private corporation"
within  the  meaning  of the  ITA  and  the  relevant  provincial
legislation.

-11-

12.  Except as disclosed in Schedule  3.1(w),  the Corporation and the
Subsidiaries are not, nor have they been at any time,  associated
(within  the  meaning  of the  ITA and  the  relevant  provincial
legislation) with any other corporation.

13.  The  Corporation  and the  Subsidiaries  have made  available  to
Purchaser or its legal counsel,  copies of all available foreign,
federal,  state,  provincial  and local  income and all state and
local  sales  and use Tax  Returns  for the  Corporation  and the
Subsidiary filed for all periods since its inception.

14.  There  are no  Liens  on the  assets  of the  Corporation  or any
Subsidiaries  relating  to or  attributable  to Taxes  other than
Liens for Taxes not yet due and payable.

15.  As of the  Closing,  there will not be any  contract,  agreement,
plan or arrangement,  including but not limited to the provisions
of this  Agreement,  covering  any employee or former employee of
the Corporation  that,  individually or collectively,  could give
rise to the payment of any amount that would not be deductible by
the   Corporation  or  the   Subsidiaries  as  an  expense  under
applicable Law other than  reimbursements  of a reasonable amount
of  travel,   entertainment   expenses  and  other  nondeductible
expenses that are commonly paid by similarly situated  businesses
in reasonable amounts.

16.  The  Corporation and the  Subsidiaries  tax basis in their assets
(and the undepreciated  capital cost of such assets) for purposes
of determining their future amortization,  depreciation and other
Federal  and  provincial  income  tax  deductions  is  accurately
reflected on the Corporation's Tax Returns and records.

17.  The Corporation and the Subsidiaries  have not acquired  property
or services from, or disposed of property,  or provided  services
to a person  with whom they do not deal at arm's  length  (within
the meaning of the ITA and the relevant  provincial  legislation)
for an amount  that is other than the fair  market  value of such
property  or  services,  or have been  deemed to have done so for
purposes of the ITA and the relevant provincial legislation.

(x)  Reorganization.   All  the  steps  and  transactions  contemplated  by  the
Reorganization  have  been  fully  implemented  and have been  effected  in
compliance with all Laws and have not caused or resulted, nor shall they as
at the Closing Date cause or resulted, in any (i) adverse  financial or Tax
consequences to the Corporation or any of its Subsidiaries, (ii) current or
deferred  liability to the Corporation or any of its  Subsidiaries or (iii)
any liability for Taxes,  interest or penalties  under any Tax Laws for the
Corporation.  All of the assets of the  Corporation  are sufficient for the
continuing conduct of the business as currently  conducted and as conducted
in the past. The assets of Corporation include all of the assets and rights
necessary  for the conduct of the business on a going  forward  basis.  The
Corporation  shall be  responsible  for the costs and expenses  incurred in
connection with the preparation of the documents for the  implementation of
the Reorganization.

-12-

(y)  Paid-up  Capital.  The  paid-up  capital  for tax  purposes  of each of the
Subscribed  Shares  is no  less  than  its  stated  capital  for  corporate
purposes.

(z)  Licenses,  Permits. To the knowledge of the Corporation and Freemark,  each
of the Corporation and the Subsidiaries has, and is in full compliance with
and  entitled  to  all  of  the  benefits  under,  all  permits,  licenses,
certificates of compliance,  consents,  approvals and authorizations of, or
registrations  with,  any  governmental,  judicial or public  authority  or
regulatory  body   (collectively,   the  "Licenses",   and  individually  a
"License")  necessary  or  required to conduct  its  business as  presently
conducted,  and each License has been  validly  issued and is in full force
and effect.  Other than as set forth in  Schedule  3.1(z)  annexed  hereto,
there are no Licenses  required to conduct the business of the  Corporation
or any of the Subsidiaries as presently conducted.

(aa) Employee Matters. Each of the Corporation and the Subsidiaries has complied
in all material  respects,  with all applicable Laws relating to employment
matters, including,  without limitation, any provisions thereof relating to
wages and hours.

(bb) Benefit  Plans.  Except as set forth in Schedule  3.1(bb)  annexed  hereto,
neither  the  Corporation  nor any of the  Subsidiaries  is a party  to any
pension, retirement, bonus, profit sharing, compensation,  incentive, stock
purchase, stock option, stock appreciation,  severance,  change-of-control,
savings, thrift, insurance, medical, hospitalization,  disability, death or
other  similar  program,   or  practice  providing   directors,   officers,
shareholders or employee benefits (the "Benefit Plans").

(cc) Environmental  Matters.  Except as set forth at  Schedule  3.1(cc)  annexed
hereto, the Corporation and the Subsidiaries   have at all times conducted,
held and used, and are continuing to conduct,  hold and use, their affairs,
business and properties in accordance  with all applicable Laws relating in
whole or in part to the environment or its protection.

Except as disclosed at Schedule 3.1(cc) annexed hereto, at no time have nay
contaminants  been  released,  emitted,   discharged,   deposited,  issued,
sprayed,  injected,  abandoned,  buried,  spilled,  incinerated,  disposed,
leaked, poured, emptied,  dumped, or placed on, in under or adjacent to any
immovable or real property  owned or used by the  Corporation or any of the
Subsidiaries.

(dd) Compliance  with  Laws.  Except  as may be  specifically  provided  in this
Section 3.1, each of the Corporation and the  Subsidiaries has complied and
continues to comply with all Laws in all material respects.

(ee) Full  Disclosure.  The  Corporation  and Freemark have made or caused to be
made due inquiry with respect to (i) each covenant, agreement,  obligation,
representation and warranty contained in this Agreement, (ii) the Schedules
annexed hereto,  and (iii) any certificates or other documents  referred to
herein or  furnished  to the  Purchaser  pursuant  hereto or in  connection
herewith,  and none of the aforesaid  covenants,  agreements,  obligations,
representations,  warranties, Schedules, certificates or documents contains
any untrue  statement of a material  fact or omits to state a material fact
necessary to make such representation,  warranty, Schedule,  certificate or
other document not misleading.

-13-

(ff) Resident.  The  Corporation  is not a  non-resident  of Canada  within  the
meaning of the ITA).

3.2  Representations and Warranties of the Purchaser.  The Purchaser  represents
and warrants to the  Corporation and Freemark as follows and  acknowledges  that
the  Corporation  and  Freemark  are  relying  upon  such   representations  and
warranties  in connection  with the sale by the  Corporation  of the  Subscribed
Shares and that the  Corporation  and Freemark  would not have entered into this
Agreement without such representations and warranties:

(a)  Due Incorporation. The Purchaser is duly incorporated, validly existing and
in good standing under the laws of its  jurisdiction of  incorporation  and
has the necessary  corporate  power to own or lease its  properties  and to
carry on its business as such business is presently conducted.

(b)  Due  Authorization.  The Purchase  has the  necessary  corporate  power and
authority  to  execute  this  Agreement  and  to  perform  its  obligations
hereunder.  The  execution  of  this  Agreement  by the  Purchaser  and the
performance  by the Purchaser of its  obligations  hereunder have been duly
authorized by all necessary  corporate  action on its part.  Such execution
and performance by the Purchaser does not require any action or consent of,
any  registration  with, or notification  to, any Person,  or any action or
consent  under any Laws to which the  Purchaser is subject,  except for any
such  disclosure  as the  Purchaser  shall  determine  to be  necessary  or
appropriate  to comply with  securities  laws,  stock exchange rules and/or
covenants in loan agreements.

(c)  Enforceability.  This  Agreement  constitutes  a legal,  valid and  binding
obligation of the Purchaser,  enforceable against it in accordance with its
terms,  except to the extent that  enforcement may be limited by applicable
bankruptcy,  insolvency,  reorganization,  moratorium or other similar laws
affecting creditors' rights generally and by general principles of equity.

(d)  No Conflict.  The  execution of this  Agreement,  the  consummation  of the
transactions  contemplated  herein, the performance by the Purchaser of its
obligations  hereunder  and  the  compliance  by the  Purchaser  with  this
Agreement do not violate,  contravene  or breach,  or  constitute a default
under,  the  constating  instruments or by-laws of the Purchaser or any Law
applicable to the Purchaser.

(e)  Resident.  The Purchaser is a non-resident  of Canada within the meaning of
the ITA.

ARTICLE IV
COVENANTS OF THE CORPORATION

4.1 Closing.  The  Corporation  hereby  acknowledges  having taken the following
actions on the date hereof at the place of Closing:

(a)  delivered to the  Purchaser  and/or its nominee share  certificates  in its
name representing the Subscribed Shares;

-14-

(b)  delivered to the Purchaser  copies of resolutions of the  shareholders  and
directors of the Corporation (in form and substance reasonably satisfactory
to the  Purchaser's  legal counsel) (i) authorizing and approving the issue
of the Subscribed  Shares by the  Corporation  to the Purchaser  and/or its
nominee  and their  registration  in the name of the  Purchaser  and/or its
nominee and (ii)  appointing  such new directors,  officers and auditors of
the Corporation as may be nominated by the Purchaser;

(c)  executed a Unanimous Shareholders Agreement with the Purchaser and Freemark
substantially in the form of Schedule 4.1(c) annexed hereto;

(d)  executed   employment   agreements  with  Michael   Routtenberg,   Lawrence
Routtenberg,  Mark Routtenberg and Ginette Godbout in the forms of Schedule
4.1(d) hereto;

(e)  executed a loan agreement  between the Purchaser and the Corporation in the
form of Schedule 4.1(f) hereto;

(f)  delivered  to the  Purchaser  a  favourable  opinion of Goodman  Phillips &
Vineberg substantially in the form of Schedule 4.1(f) annexed hereto.

(g)  delivered  all  such  documentation  to  evidence  the  completion  of  the
Reorganization as shall be reasonably requested by Purchaser.

ARTICLE V
SURVIVAL OF REPRESENTATIONS AND WARRANTIES

5.1 Survival of Representations  and Warranties of the Corporation and Freemark.
The  representations  and  warranties  of each of the  Corporation  and Freemark
contained  in  this  Agreement,  in  the  Schedules  annexed  hereto  or in  any
certificate  of other  document  delivered or given  pursuant to this  Agreement
shall survive the completion of the transactions contemplated by this Agreement,
and notwithstanding such completion or any investigation made by or on behalf of
the  Purchaser or any  knowledge by the  Purchaser of any  incorrectness  in, or
breach of, such representations or warranties,  shall continue in full force and
effect for the benefit of the Purchaser for a period of three (3) years from the
Closing Date;  (i) except for any  representation  and warranty  relating to Tax
matters  which shall survive until ninety (90) days after the last date on which
the relevant tax authority is entitled to assess or reassess the  Corporation or
the  Purchaser   with  respect  to  such  Tax  matters,   (ii)  except  for  any
representation  and warranty in respect of which a claim based on fraud is made,
and (iii) except for the  representations  and warranties  contained in sections
3.1(a),  (b), (c), (e), (g) and (p),  which in each such case shall be unlimited
as to duration.

5.2 Survival of Representations and Warranties of Purchaser. The representations
and  warranties  of  the  Purchaser  contained  in  this  Agreement  or  in  any
certificate  or other  document  delivered or given  pursuant to this  Agreement
shall survive the completion of the transactions contemplated by this Agreement,
and notwithstanding such completion or any investigation made by or on behalf of
the Corporation or any knowledge by the Corporation of any  incorrectness in, or
breach of, such representations or warranties,  shall continue in full force and
effect for the benefit of, such representations or warranties, shall continue in
full force and effect for the benefit of the  Corporation  for a period of three
(3) years from the Closing Date; except for any  representation  and warranty in
respect  of  which  a  claim   based  on  fraud  is  made  and  except  for  the
representations and warranties  contained in sections 3.2(a), (b) and (c), which
in each such case shall be unlimited as to duration.

-15-

ARTICLE VI
CONDITIONS OF CLOSING

6.1  Conditions for  the  Benefit  of the  Purchaser.  The  subscription  of the
Subscribed  Shares in accordance  with the terms of this Amendment is subject to
the following  conditions,  each of which is hereby declared to be the exclusive
benefit of the Purchaser.  The Corporation and Freemark hereby  acknowledge that
each  condition has been  performed or complied with in all respects at or prior
to the date hereof.

(a)  Truth of  Representations  and Warranties of the  Corporation and Freemark.
The   representations  and  warranties  of  the  Corporation  and  Freemark
contained in this  Agreement or in any  Schedule  annexed  hereto or in any
certificate or other document delivered or given pursuant to this Agreement
(considered  individually and collectively)  shall have been accurate as of
the date of this  Agreement,  and shall be true and  correct as of the date
hereof.

(b)  Performance  of  Covenants  by the  Corporation  and  Freemark.  All of the
covenants,  obligations  and agreements  that each of the  Corporation  and
Freemark  is  required  to  perform  or to  comply  with  pursuant  to this
Agreement  at or prior  to the date  hereof  (considered  individually  and
collectively)  shall have been  performed or complied  with in all material
respects at or prior to the date hereof.

(c)  Third  Party  Approvals.  There  shall have been  obtained  all  approvals,
consents and assurances,  in form and substance reasonably  satisfactory to
the   Purchaser's   legal  counsel,   necessary  in  order  to  permit  the
transactions  contemplated  herein to be  completed  without  affecting  or
resulting  in  the  termination,  cancellation,   modification,  amendment,
variation or renegotiation of this Agreement including, without limitation,
all  consents  required  (with  the  exception  of the items  disclosed  in
Schedule  3.1(d))  in order to  consummate  the  transactions  contemplated
herein which, if not obtained,  could have a material adverse effect on the
ability of the Corporation and its Subsidiaries to carry on their affairs.

(d)  Litigation. There shall be no actions, claims, investigations, arbitrations
or other proceedings (whether or not on behalf of the Corporation or any of
the Subsidiaries)  pending or threatened to restrain,  enjoin or invalidate
any transaction contemplated by this Agreement.

ARTICLE VII
INDEMNIFICATION

7.1  Indemnification  by the  Corporation  and  Freemark.  The  Corporation  and
Freemark,  on a solidary basis,  without right of contribution  each waiving the
benefits of division and discussion,  shall indemnify and hold the Purchaser and
each  of  its  officers,  directors,   employees,  agents,  representatives  and
affiliates (the "Purchaser  Indemnified  Parties") harmless from and against any
and all claims, demands, actions, causes of action,  judgments,  damages, losses
(which  shall  include  any  diminution  in  value  of the  Subscribed  Shares),
liabilities,  costs  or  expenses  (including,  without  limitation,   interest,
penalties  and  reasonable  attorneys'  and  experts'  fees and  disbursements),
including  Tax  liabilities,   suffered  or  incurred  in  connection  with  the
transactions contemplated herein, (collectively, the "Losses") which may be made
against the  Purchaser  Indemnified  Parties or any of the  Corporation  and the
Subsidiaries,  or which any of them may suffer or incur as a result of,  arising
out of or relating to:

-16-

(a)  any  violation,  contravention  or breach  of any  covenant,  agreement  or
obligation  of the  Corporation  or  Freemark  under  or  pursuant  to this
Agreement; or

(b)  any incorrectness in, or breach of, any  representation or warranty made by
the Corporation or Freemark in Section 3.1, the Schedules annexed hereto or
in any  certificate or other  document  delivered or given pursuant to this
Agreement; or

(c)  any liabilities or obligations of the  Corporation,  the Subsidiaries or of
Freemark of any nature whatsoever arising after the Closing Date in respect
of any fact, condition or circumstance existing or occurring on or prior to
the  Closing  Date  (including,  without  limitation,  any  liabilities  or
obligations of the  Corporation  or any Subsidiary for Taxes due,  together
with any penalties or interest,  in connection with any period ending on or
prior  to the  Closing  Date),  save  and  except  for any  liabilities  or
obligations  arising  after  the  Closing  Date  in  respect  of any  fact,
condition  or  circumstance  existing on or prior to the Closing Date which
has been  disclosed  in  writing  to the  Purchaser  prior  to the  Closing
(including,  without limitation,  by way of disclosure in this Agreement or
any of the Schedules hereto).

In connection with the foregoing, Freemark hereby waives its right to claim from
the Corporation any amount paid to the Purchaser pursuant to this Article 7.

7.2  Indemnification  by Purchaser.  The Purchaser  shall indemnify and hold the
Corporation  harmless  from and against any Losses which may be made against the
Corporation or which the Corporation may suffer or incur as a result of, arising
out of or relating to:

(a)  any  violation,  contravention  or breach of any  covenant,  agreement,  or
obligation of the Purchaser under or pursuant to this Agreement; or

(b)  any incorrectness in, breach of, any representation or warranty made by the
Purchaser  in  Section  3.2,  the  Schedules   annexed  hereto  or  in  any
certificate  or  other  document   delivered  or  given  pursuant  to  this
Agreement.

7.3 Obligation to Reimburse. The Party providing indemnification, hereunder (the
"Indemnifying  Party") shall reimbuse, on demand, to the Party being indemnified
hereunder  (the  "Indemnified  Party")  the  amount of any  Losses  suffered  or
incurred by the Indemnified Party, the whole as of the date that the Indemnified
Party incurs any such Losses,  together with interest thereon from the aforesaid
date until payment in full at the rate per annum equal to 8%.

7.4 Notification.  Promptly upon obtaining  knowledge  thereof,  the Indemnified
Party shall  notify the  Indemnifying  Party of any cause which the  Indemnified
Party has determined has given or could give rise to indemnification  under this
Article VII. The omission so to notify the Indemnifying  Party shall not relieve
the  Indemnifying  Party  from any duty to  indemnify  and hold  harmless  which
otherwise  might  exist  with  respect to such  cause  unless  (and only to that
extent)  the  omission  to  notify  materially  prejudices  the  ability  of the
Indemnifying Party to exercise its right to defend provided in this Article VII.

7.5 Defense of Third Party Claim. If any legal proceeding shall be instituted or
any claim or demand shall be asserted by a third party  against the  Indemnified
Party (each a "Third Party Claim"),  then the Indemnifying  Party shall have the
right,  after receipt of the  Indemnified  Party's  notice under Section 7.4 and
upon giving  notice to the  Indemnified  Party  within 30 calendar  days of such
receipt,  to  defend  the Third  Party  Claim at its own cost and  expense  with
counsel of its own selection, provided that:

-17-

(a)  the  Indemnified  Party  shall  at  all  times  have  the  right  to  fully
participate in the defense at its own expense; and

(b)  the Third  Party Claim  seeks only  monetary  damages and does not seek any
injunctive or other relief against the Indemnified Party.

Amounts payable by the  Indemnifying  Party pursuant to a Third Party claim
shall be paid in accordance  with the terms of the  settlement or, the judgment,
as applicable,  but in any event prior to the expiry of any delay for a judgment
to become executory.

7.6 No Compromise.  The Indemnifying  Party shall not be permitted to compromise
and settle or to cause a  compromise  and  settlement  of any Third Party Claim,
without the prior written consent of the Indemnified Party, unless:

(a)  the terms of the  compromise  and  settlement  require  only the payment of
money and do not require the Indemnified  Party,  the Corporation or any of
the  Subsidiaries to admit any of the  Subsidiaries to admit any wrongdoing
or take or refrain from taking any action; and

(b)  the Indemnified Party receives, as part of the compromise and settlement, a
legally  binding and  enforceable  unconditional  satisfaction  or release,
which is in form  and  substance  satisfactory  to the  Indemnified  Party,
acting reasonably,  from any and all obligations or liabilities it may have
with respect to the Third Party Claim.

7.7 Failure to Defend.  If the Indemnifying  Party fails within 30 calendar days
from  receipt  of the  notice  of a Third  Party  Claim  to give  notice  of its
intention  to defend the Third Party  Claim in  accordance  with  Section 7.5 or
fails to  promptly  assume  such  defense at any time after such notice has been
given,  then the Indemnifying  Party shall be deemed to have waived its right to
defend the Third Party Claim and the Indemnified Party shall have the right (but
not the obligation) to undertake or to cause the Corporation, Freemark or any of
the  Subsidiaries  to  undertake  the  defense  of the  Third  Party  Claim  and
compromise  and settle the Third Party  Claim on behalf,  for the account and at
the risk and expense of the Indemnifying Party.

-18-

7.8 Expiration of Indemnification.  The obligation of indemnification set out in
Sections 7.1 and 7.2 shall survive the Closing Date for the period prescribed by
law. The obligation of indemnification  arising from any material  incorrectness
in,  or  material  breach  of,  any  representation  for  warranty  made  by the
Corporation,  Freemark or the Purchaser,  as the case may be, in each case shall
be  subject  to  the  limitations  regarding  survival  of  representations  and
warranties  set  forth in  Section  5.1 or 5.2,  as the  case may be;  provided,
however,  that the obligation of indemnification shall not expire if a claim for
indemnity  is made on or before the  expiration  dates set forth in Sections 5.1
and 5.2.

ARTICLE VIII
CLOSING

8.1 Date, Time and Place of Closing. The Closing shall take place at the offices
of Stikeman,  Elliott,  1155  Rene-Levesque  Blvd.  West, 40th Floor,  Montreal,
Quebec on July 31, 1999 (the "Closing Date") at the hour of 10:00 a.m. (Montreal
time) or at such other  place,  on such other date  and/or at such other time as
may be agreed between the parties.

ARTICLE IX
MISCELLANEOUS

9.1  Announcements.  Any press release,  public  announcement  or publicity with
respect to the  transaction  contemplated  in this Agreement  shall be made only
with the prior written consent of the Parties unless such release,  announcement
or  publicity  is  required  by Law  or the  rules  of any  relevant  securities
exchange, in which case the Party required to make such release, announcement of
publicity shall use it best efforts to obtain approval of the other Party to the
form,   nature  and  extent  of  such  disclosure,   which  approval  shall  not
unreasonably withheld.

9.2 Further Assurances.  Each Party upon the request of the other, whether at or
after the Closing Date,  shall do, execute,  acknowledge and deliver or cause to
be done,  executed,  acknowledged  or delivered  all such further  acts,  deeds,
documents,   assignments,   transfers,   conveyances,  powers  of  attorney  and
assurances  as may be  reasonably  necessary  or  desirable  to effect  complete
consummation of the transactions contemplated by this Agreement.

9.3 Successors in Interest. This Agreement and the provisions hereof shall enure
to the  benefit  of  and be  binding  upon  the  Parties  and  their  respective
successors  and assigns.  Neither the  Corporation  nor Freemark may assign this
Agreement  or any of its  rights and  obligations  hereunder  without  the prior
written consent of the Purchaser.  Notwithstanding the foregoing,  the Purchaser
may assign or transfer  this  Agreement  and all of the  Purchaser's  rights and
obligations  hereunder to an  affiliate  (as defined  under the Canada  Business
Corporations Act).

-19-

9.4   Notices.   Any  notice,   consent,   authorization,   direction  or  other
communication  required or permitted to be given  hereunder  shall be in writing
and shall be delivered  either by personal  delivery or by telex,  telecopier or
similar telecommunications device and addressed as follows:

(a)   in the case of the Corporation, to it at:

7077 Park Avenue, Suite 503
Montreal, Quebec
H3N 1X7

Attention:  Mark Routtenberg

Telecopier:       (514) 270-8028

and 

Attention:        Brian L. Fleming

Telecopier:       (213) 744-7817

and 

Attention:        Glenn A. Weinman

Telecopier:       (213) 765-0911

(b)   in the case of the Purchaser, to it at:

Guess?,  Inc.
1444 South Almeda Street
Los Angeles, CA
USA 90021

Attention:        Brian L. Fleming

Telecopier:       (213) 744-7817

and

Attention:  Glen A. Weinman

Telecopier:  (213) 765-0911

-20-

With a copy to:

STIKEMAN, ELLIOTT
1155 Rene-Levesque Blvd. West
40th Floor
Montreal, Quebec H3B 3V2

Attention:        William B. Rosenberg

Telecopier:       (514) 397-3222

(c)   in the case of Freemark, to it at:

7077 Park Avenue, Suite 503
Montreal, Quebec
H3N 1X7

Attention:        Mark Routtenberg

Telecopier:       (514) 270-8028

With a copy to:

GOODMAN, PHILLIPS & VINEBERG
1501, avenue McGill College
26th Floor
Montreal, Quebec
H3A 3N9

Attention:        Sidney Horn

Telecopier:       (514) 841-6499

Any  notice, consent,  authorization,  direction  or  other  communication
delivered as aforesaid  shall be deemed to have been  effectively  delivered and
received, if sent by telex, telecopier or similar  telecommunications  device on
the calendar day next following  receipt of such  transmission or, if delivered,
to have been  delivered  and  received  on the date of such  delivery  provided,
however, that if such date is not a business day then it shall be deemed to have
been  delivered and received on the business day next  following  such deemed to
have been  delivered  and  received  on the  business  day next  following  such
delivery. Either Party may change its address for service by notice delivered as
aforesaid.

9.5  Counterparts.  This Agreement may be executed in one or more  counterparts,
each  of  which  when  so  executed  shall  be  deemed  an  original,  and  such
counterparts together shall constitute one and the same instrument.

9.6  Severability.  Any term of  provision of this  Agreement  that is held by a
court of  competent  jurisdiction  or other  authority  to be  invalid,  void or
unenforceable in any situation in any jurisdiction shall not affect the validity
or  enforceability  of the remaining terms and provisions hereof or the validity
or  enforceability  of the offending term or provision in any other situation or
in any  other  jurisdiction.  If the  final  judgment  of a court  of  competent
jurisdiction  or other authority  declares that any term or provision  hereof is
invalid,  void or  unenforceable,  the parties  agree that the court making such
determination  shall  have the  power to reduce  the  scope,  duration,  area or
applicability of the term of provision,  to delete specific words or phrases, or
to replace any invalid,  void or unenforceable  term of provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term of provision.

-21-

9.7  Governing  Law. This  Agreement  shall be governed by and  interpreted  and
construed in accordance  with the laws of the Province of Quebec and the laws of
Canada applicable therein.

9.8 Entire Agreement. This Agreement,  including the Schedules and the Unanimous
Shareholders'  Agreement executed concurrently  herewith,  constitute the entire
agreement  between the Parties  pertaining  to the subject  matter  hereof,  and
supersedes all prior agreements, understandings, negotiations and discussions of
the Parties.

9.9 Inconsistency. This Agreement shall override the Schedules annexed hereto to
the extent of any inconsistency.

9.10 Gender.  Any  reference in this  Agreement to any gender shall include both
genders and the neuter,  and words herein  importing  the  singular  number only
shall include the plural and vice-versa.

9.11 Currency.  All of the dollar amounts  mentioned in this Agreement or in the
Schedules annexed hereto shall be in Canadian Funds.

9.12 Headings.  The headings in this  Agreement are inserted for  convenience of
reference only and shall not affect the interpretation hereof.

9.13 Amendment.  No amendment shall be binding unless expressly  provided in any
instrument duly executed by the Parties.

9.14  Waiver.  No  waiver,  whether  by  conduct  or  otherwise,  of  any of the
provisions of this Agreement shall be deemed to constitute a waiver of any other
provisions  (whether  or  not  similar)  nor  shall  such  waiver  constitute  a
continuing  waiver unless  otherwise  expressly  provided in an instrument  duly
executed by the Parties to be bound thereby.

-22-

IN WITNESS WHEREOF,  the Parties have executed this Agreement on the date and at
the place first above mentioned.

STRANDEL INC.

Per:  /s/ Mark Routtenberg                  
---------------------------------------
Mark Routtenberg                    

GUESS ?, INC.                                

Per:  ---------------------------------------
Maurice Marciano                    

FREEMARK ENTERTAINMENT CORPORATION           

Per:  /s/ Mark Routtenberg                  
---------------------------------------
Mark Routtenberg                    

-22-

IN WITNESS WHEREOF,  the Parties have executed this Agreement on the date and at
the place first above mentioned.

STRANDEL INC.

Per:  /s/ Maurice Marciano        
---------------------------------------
Mark Routtenberg                   

GUESS ?, INC.                                

Per:  -------------------------------------- 
Maurice Marciano                    

FREEMARK ENTERTAINMENT CORPORATION           

Per:  ---------------------------------------
Mark Routtenberg                    

EXHIBIT 21.1 LIST OF SUBSIDIARIES

LIST OF SUBIDIARIES

INVESTMENT IN                 LOCATION               OWNED BY            PERCENT OF OWNERSHIP
---------------               --------           ------------------      --------------------

GUESS? Retail, Inc.          United States         Guess ?, Inc.                 100%
GUESS? Licensing, Inc.       United States         Guess ?, Inc.                 100%
GUESS? Europe, BV             Netherlands          Guess ?, Inc.                 100%
Ranche Ltd.                    Hong Kong         GUESS? Europe, BV               100%
Guess.com, Inc.              United States         Guess ?, Inc.                 100%
Baby GUESS? Inc.             United States         Guess ?, Inc.                 100%
Guess Italia,S.r.l.              Italy           GUESS? Europe, BV               100%
GUESS? Canada Corporation    United States         Guess ?, Inc.                 60%

EXHIBIT 23

INDEPENDENT ACCOUNTANTS' CONSENT

The Board of Directors
Guess?, Inc.:

We consent to incorporation by reference in the registration statement
(Nos. 333-10069) on Form S-8 of Guess?, Inc. of our report dated February 9,
2000, except for note 15, which is as of March 3, 2000, relating to the
consolidated balance sheets of Guess?, Inc. and subsidiaries as of December 31,
1998, and 1999, and the related consolidated statements of earnings,
stockholders' equity and comprehensive income (loss), and cash flows for each of
the years in the three-year period ended December 31, 1999, and the related
financial statement schedule, which report appears in the December 31, 1999
annual report on Form 10-K of Guess?, Inc.

KPMG LLP
Los Angeles, California
March 27, 2000

<ARTICLE> 5
<MULTIPLIER> 1,000

<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JAN-01-1999
<PERIOD-END>                               DEC-31-1999
<CASH>                                           6,139
<SECURITIES>                                    27,059
<RECEIVABLES>                                   35,592
<ALLOWANCES>                                     8,863
<INVENTORY>                                    106,624
<CURRENT-ASSETS>                               200,979
<PP                                         230,597
<DEPRECIATION>                                 104,909
<TOTAL-ASSETS>                                 369,036
<CURRENT-LIABILITIES>                          103,035
<BONDS>                                         83,363
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           141
<OTHER-SE>                                     167,214
<TOTAL-LIABILITY-AND-EQUITY>                   369,036
<SALES>                                        560,012
<TOTAL-REVENUES>                               599,650<F1>
<CGS>                                          331,660
<TOTAL-COSTS>                                  503,165
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                               9,385
<INCOME-PRETAX>                                 87,100
<INCOME-TAX>                                    35,200
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    51,900
<EPS-BASIC>                                      $1.21<F3>
<EPS-DILUTED>                                    $1.20<F3>
<FN>
<F1>INCLUDES NET ROYALTIES OF $3.96 MILLION.
<F3>
</FN>