
<PAGE>

                                                                     Exhibit 4.5
 
                                                                [Conformed Copy]
                                                           File No.: 30641-00200

         ************************************************************


                              POLYMER GROUP, INC.

                                      and

                                 SUBSIDIARIES

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


                   SECOND AMENDED, RESTATED AND CONSOLIDATED
                               CREDIT AGREEMENT


                               U.S. $325,000,000


                           Dated as of July 3, 1997

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


                           THE CHASE MANHATTAN BANK,
                            as Administrative Agent

                                      and

                           THE BANK OF NOVA SCOTIA,
                                   BHF BANK,
                           CORESTATES BANK, N.A. and
                           FIRST UNION NATIONAL BANK

                                 as Co-Agents

         ************************************************************

       [Exhibits G and H are photocopies of the opinions as delivered.]
<PAGE>
 
                               TABLE OF CONTENTS

          This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only.
<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>        <C>                                                              <C>
Section 1.  Definitions and Accounting Matters.............................   2

     1.01  Certain Defined Terms...........................................   2
     1.02  Accounting Terms and Determinations.............................  35
     1.03  Classes, Types and Currencies of Loans..........................  36
     1.04  Subsidiaries; Designation of Unrestricted Subsidiaries..........  36
     1.05  Interest Act (Canada)...........................................  37

Section 2.  Commitments, Loans, Notes and Prepayments......................  38

     2.01  Loans...........................................................  38
     2.02  Borrowings......................................................  41
     2.03  Letters of Credit...............................................  41
     2.04  Changes of Commitments..........................................  46
     2.05  Commitment Fees.................................................  46
     2.06  Lending Offices.................................................  47
     2.07  Several Obligations; Remedies Independent.......................  47
     2.08  Notes...........................................................  47
     2.09  Optional Prepayments and Conversions or Continuations of Loans..  48
     2.10  Mandatory Prepayments and Reductions of Commitments.............  48

Section 3.  Payments of Principal and Interest.............................  53

     3.01  Repayment of Loans..............................................  53
     3.02  Interest........................................................  53

Section 4.  Payments; Pro Rata Treatment; Computations; Etc................  54

     4.01  Payments........................................................  54
     4.02  Pro Rata Treatment..............................................  55
     4.03  Computations....................................................  56
     4.04  Minimum Amounts.................................................  56
     4.05  Certain Notices.................................................  56
     4.06  Non-Receipt of Funds by the Administrative Agent................  58
     4.07  Sharing of Payments, Etc........................................  59

Section 5.  Yield Protection, Etc..........................................  60

     5.01  Additional Costs................................................  60
     5.02  Limitation on Eurodollar Loans..................................  62

</TABLE>
                                      (i)
<PAGE>
 
<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>        <C>                                                              <C>
     5.03  Limitation on Euroguilder Loans.................................  63
     5.04  Treatment of Affected Loans.....................................  65
     5.05  Compensation....................................................  65
     5.06  Additional Costs in Respect of Letters of Credit................  66
     5.07  U.S. Taxes......................................................  67
     5.08  Foreign Taxes...................................................  68

Section 6.  Guarantee......................................................  69

     6.01  The Guarantee...................................................  69
     6.02  Obligations Unconditional.......................................  70
     6.03  Reinstatement...................................................  70
     6.04  Subrogation.....................................................  71
     6.05  Remedies........................................................  71
     6.06  Instrument for the Payment of Money.............................  71
     6.07  Continuing Guarantee............................................  71
     6.08  Contribution among Certain Obligors.............................  72
     6.09  General Limitation on Guarantee Obligations.....................  72

Section 7.  Conditions Precedent...........................................  73

     7.01  Initial Extension of Credit.....................................  73
     7.02  Initial and Subsequent Extensions of Credit.....................  78

Section 8.  Representations and Warranties.................................  79

     8.01  Corporate Existence.............................................  79
     8.02  Financial Condition.............................................  79
     8.03  Litigation......................................................  79
     8.04  No Breach.......................................................  80
     8.05  Action..........................................................  80
     8.06  Approvals.......................................................  80
     8.07  Use of Credit...................................................  81
     8.08  ERISA...........................................................  81
     8.09  Taxes...........................................................  81
     8.10  Investment Company Act..........................................  81
     8.11  Public Utility Holding Company Act..............................  81
     8.12  Material Agreements and Liens...................................  81
     8.13  Environmental Matters...........................................  82
     8.14  Capitalization..................................................  84
     8.15  Subsidiaries, Etc...............................................  84
     8.16  Title to Assets.................................................  85
     8.17  True and Complete Disclosure....................................  85
     8.18  Legal Form......................................................  86
     8.19  Ranking.........................................................  86
     8.20  Commercial Activity; Absence of Immunity........................  86

</TABLE>
                                     (ii)
<PAGE>
 
<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>  <C>                                                                    <C>
     8.21  Real Property...................................................  87
     8.22  Intercompany Notes..............................................  87

Section 9.  Covenants of the Borrowers.....................................  87

     9.01  Financial Statements Etc........................................  87
     9.02  Litigation......................................................  90
     9.03  Existence, Etc..................................................  90
     9.04  Insurance.......................................................  91
     9.05  Prohibition of Fundamental Changes..............................  94
     9.06  Limitation on Liens.............................................  96
     9.07  Indebtedness....................................................  98
     9.08  Investments..................................................... 100
     9.09  Restricted Payments............................................. 102
     9.10  Certain Financial Covenants..................................... 103
     9.11  Lines of Business............................................... 105
     9.12  Transactions with Affiliates.................................... 105
     9.13  Use of Proceeds................................................. 106
     9.14  Modifications of Certain Documents.............................. 106
     9.15  Governmental Approvals.......................................... 107
     9.16  Certain Obligations Respecting Subsidiaries..................... 107
     9.17  Gainesville Georgia Property.................................... 109
     9.18  Subordinated Indebtedness....................................... 109

Section 10.  Events of Default............................................. 109

Section 11.  The Administrative Agent and the Co-Agents.................... 114

     11.01  Appointment, Powers and Immunities............................. 114
     11.02  Reliance by the Administrative Agent........................... 115
     11.03  Defaults....................................................... 115
     11.04  Rights as a Lender............................................. 115
     11.05  Indemnification................................................ 116
     11.06  Non-Reliance by Lenders........................................ 116
     11.07  Failure to Act................................................. 117
     11.08  Resignation or Removal of Administrative Agent................. 117
     11.09  Consents under Basic Documents................................. 117
     11.10  Collateral Sub-Agents.......................................... 118
     11.11  Co-Agents...................................................... 118

Section 12.  Miscellaneous................................................. 118

     12.01  Waiver......................................................... 118
     12.02  Notices........................................................ 119
     12.03  Expenses, Etc.................................................. 119
</TABLE>
                                     (iii)
<PAGE>
 
<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>         <C>                                                             <C>
     12.04  Amendments, Etc................................................. 120
     12.05  Successors and Assigns.......................................... 121
     12.06  Assignments and Participations.................................. 121
     12.07  Survival........................................................ 124
     12.08  Captions........................................................ 124
     12.09  Counterparts.................................................... 124
     12.10  Governing Law................................................... 124
     12.11  Jurisdiction, Service of Process and Venue...................... 124
     12.12  Waiver of Jury Trial............................................ 125
     12.13  No Immunity..................................................... 125
     12.14  Judgment Currency............................................... 126
     12.15  Use of English Language......................................... 126
     12.16  Treatment of Certain Information................................ 127
     12.17  Replacement of Lenders.......................................... 127
     12.18  Margin Regulations.............................................. 128
</TABLE> 
<TABLE> 
<CAPTION> 
<S>              <C> 
ANNEX I       -  Certain Provisions relating to Bankers' Acceptances

SCHEDULE I    -  Certain Litigation
SCHEDULE II   -  Material Agreements and Liens
SCHEDULE III  -  Hazardous Materials
SCHEDULE IV   -  Capital Structure
SCHEDULE V    -  Existing Equity Rights
SCHEDULE VI   -  Subsidiaries and Investments
SCHEDULE VII  -  Real Property
SCHEDULE VIII -  Insurance Deductibles

EXHIBIT A-1   -  Form of Facility A Revolving Credit Note
EXHIBIT A-2   -  Form of Facility B Revolving Credit Note
EXHIBIT B     -  Form of Security Agreement
EXHIBIT C     -  Copy of Bonlam Intercompany Notes Agreement
EXHIBIT D     -  Copy of Fabrene Intercompany Notes Agreement
EXHIBIT E     -  Form of Domestic Non-Borrower Guaranty Agreement
EXHIBIT F     -  Form of Foreign Non-Borrower Guaranty Agreement
EXHIBIT G     -  Form of Legal Opinion of Special New York Counsel to the
                 Group Members (Kirkland & Ellis)
EXHIBIT H     -  Form of Opinion of Special New York Counsel to Chase
                 (Milbank, Tweed, Hadley & McCloy)
EXHIBIT I     -  Form of Process Agent Acceptance
EXHIBIT J     -  Form of Assignment and Acceptance
EXHIBIT K     -  Form of Confidentiality Agreement
</TABLE>
                                     (iv)
<PAGE>
 

          SECOND AMENDED, RESTATED AND CONSOLIDATED CREDIT AGREEMENT dated as of
July 3, 1997, between:

          POLYMER GROUP, INC., a corporation duly organized and validly existing
     under the laws of the State of Delaware ("PGI");

          CHICOPEE HOLDINGS B.V., a limited liability company duly organized and
     validly existing under the laws of the Netherlands and domesticated under
     Section 388 of the Delaware Corporation Law under the name Chicopee
     Holdings (Netherlands) B.V. Corporation ("Dutch Holding");

          PGI NONWOVENS B.V., a limited liability company duly organized and
     validly existing under the laws of the Netherlands ("Dutch Operating" and
     together with Dutch Holding, the "Dutch Borrowers");

          FABRENE INC., a corporation duly organized and validly existing under
     the laws of Ontario, Canada ("Fabrene" and together with the Dutch
     Borrowers, the "Foreign Borrowers"; the Foreign Borrowers together with PGI
     being herein called the "Borrowers");

          each of the entities identified under the caption "DOMESTIC NON-
     BORROWER GUARANTORS" on the signature pages hereto (individually, together
     with any entity that shall become a Domestic Non-Borrower Guarantor
     hereunder pursuant to Section 9.16(b) hereof, a "Domestic Non-Borrower
     Guarantor", collectively the "Domestic Non-Borrower Guarantors", and
     together with the Borrowers, the "Obligors");

          each of the lenders that is a signatory hereto identified under the
     caption "LENDERS" on the signature pages hereto or which, pursuant to
     Section 12.06(b) hereof, shall become a "Lender" hereunder (individually, a
     "Lender" and, collectively, the "Lenders"); and

          THE CHASE MANHATTAN BANK, a New York State banking association, as
     administrative agent for the Lenders (in such capacity, together with its
     successors in such capacity, the "Administrative Agent").

          PGI, the Foreign Borrowers, the other "Borrowers" named therein,
certain lenders (the "Existing Lenders"), The Chase Manhattan Bank (as successor
by merger to the Chase Manhattan Bank (National Association)), as the
administrative agent named therein, The Chase Manhattan Bank (as successor by
merger to Chemical Bank), as the operations agent named therein, and the co-
agents named therein, are party to an Amended, Restated and Consolidated Credit
Agreement dated as of May 15, 1996 (as heretofore modified and


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -2-


supplemented and in effect on the date of this Agreement, the "Existing Credit
Agreement") providing, subject to the terms and conditions thereof, for the
extensions of credit to PGI, the Foreign Borrowers and the other Borrowers named
therein.

          The parties hereto now wish to further amend and restate the Existing
Credit Agreement in its entirety into a Second Amended, Restated and
Consolidated Credit Agreement, it being the intention of the parties hereto that
any loans and letters of credit outstanding under the Existing Credit Agreement
on the Effective Date (as hereinafter defined), after giving effect to the
application on the Effective Date of the proceeds of the Senior Subordinated
Notes (as so defined), shall not be repaid or canceled on the Effective Date,
but shall be deemed to be continued as loans and letters of credit hereunder as
hereinafter provided.

          The Borrowers have in addition requested the Lenders to extend credit
to the Borrowers in U.S. Dollars (as hereinafter defined) and in certain
Alternative Currencies (as hereinafter defined) in an aggregate principal or
face amount that will not exceed U.S. $325,000,000 in the aggregate, the
proceeds of which will be used to provide financing for permitted acquisitions,
to finance ongoing working capital requirements (including loans and letters of
credit of PGI and its Subsidiaries), to pay fees and expenses incurred in
connection with the Refinancing (as hereinafter defined), and to provide funds
for general corporate purposes (including capital expenditures).

          Accordingly, the parties hereto hereby agree that the Existing Credit
Agreement shall, as of the Effective Date (the occurrence of which is subject to
satisfaction of the conditions precedent specified in Section 7.01 hereof), be
amended and restated in its entirety as follows:


          Section 1.  Definitions and Accounting Matters.

          1.01  Certain Defined Terms.  As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and vice versa):

          "Acceptance Fee" shall mean, in respect of a Bankers' Acceptance, a
fee calculated on the face amount of such Bankers' Acceptance at a rate per
annum equal to the Applicable Margin that would be payable with respect to a
Eurodollar Loan drawn on the date of acceptance of such Bankers' Acceptance.

          "Acquisition" shall mean an acquisition by PGI or any of its
Restricted Subsidiaries of a business and the related assets of any Person
(whether by way of purchase of


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -3-

assets or stock, including any tender for outstanding shares of stock, by merger
or consolidation, by acceptance of a contribution of capital from another
Person, or otherwise).

          "Affiliate" shall mean any Person that directly or indirectly
controls, or is under common control with, or is controlled by, the Group
Members and, if such Person is an individual, any member of the immediate family
(including parents, spouse, children and siblings) of such individual and any
trust whose principal beneficiary is such individual or one or more members of
such immediate family and any Person who is controlled by any such member or
trust.  As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), provided that, in any
event, any Person that owns directly or indirectly securities having 10% or more
of the voting power for the election of directors or other governing body of a
corporation or 10% or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person.  Notwithstanding the
foregoing, (a) no individual shall be an Affiliate solely by reason of his or
her being a director, officer or employee of the Group Members, (b) none of the
Group Members (excluding Group Members which are Unrestricted Subsidiaries)
shall be Affiliates and (c) none of the Lenders shall be Affiliates.

          "Agreed Takeover" shall mean any tender for shares of stock of a
corporation that has been approved by a majority of the board of directors of
such corporation.

          "Alternative Currency" shall mean, at any time, Dutch Guilders or
Canadian Dollars, so long as at such time, (i) such Currency is freely
transferable and convertible into U.S. Dollars in the London foreign exchange
market, (ii) no central bank or other governmental authorization in the country
of issue of such Currency is required to permit use of such Currency by any
Lender for making any Loan hereunder and/or to permit the relevant Borrower to
borrow and repay the principal thereof and to pay the interest thereon, unless
such authorization has been obtained, and (iii) in the case of Dutch Guilders,
also so long as at such time such Currency is dealt with in the London interbank
deposit market.

          "Ancillary Agreements" shall mean, collectively, the License
Agreement, the Technology Agreement, the Supply Agreement and the Shared
Facilities Agreement, in each case as the same shall be modified and
supplemented and in effect from time to time.

          "Annex I" shall mean "Annex I" attached hereto and made a part hereof,
which Annex I sets forth certain terms and conditions relating to Bankers'
Acceptances.

          "Applicable Lending Office" shall mean, for each Lender and for each
Type and Currency of Loan, the "Lending Office" of such Lender (or of an
affiliate of such


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -4-

Lender) designated for such Type and Currency of Loan on the signature pages
hereof or such other office of such Lender (or of an affiliate of such Lender)
as such Lender may from time to time specify to the Administrative Agent and the
Borrowers as the office by which Loans of such Type and Currency are to be made
and maintained.

          "Applicable Margin" shall mean with respect to Eurocurrency Loans,
Base Rate Loans, Canadian Base Rate Loans, letter of credit fees (as such term
is used in Section 2.03(g) hereof) and commitment fees (as such term is used in
Section 2.05 hereof) during any Accrual Period (as defined below), the
respective rates set forth below for such Loans and such fees for such Accrual
Period, which rates shall be based upon the Leverage Ratio for such Accrual
Period:

<TABLE>
<CAPTION>

                                  Base Rate
                                  Loans and
 Leverage        Eurocurrency   Canadian Base   Letter of Credit   Commitment
  Ratio             Loans        Rate Loans           Fees            Fees
---------------  ------------   -------------   ----------------   ----------
<S>              <C>            <C>             <C>                <C>
Greater than
or equal to
4.50                2.25%          1.00%              2.25%         .50%

Greater than
or equal to
4.25 but less
than 4.50           1.75%           .50%              1.75%        .375%

Greater than
or equal to
3.75 but less
than 4.25           1.50%           .25%              1.50%        .375%

Greater than
or equal to
3.00 but less
than 3.75           1.25%             0%              1.25%         .30%

Greater than
or equal to
2.50 but less
than 3.00           1.00%             0%              1.00%         .25%

Less than
2.50                 .75%             0%               .75%         .20%
</TABLE>

For purposes hereof, an "Accrual Period" shall mean each of the following
successive periods, as applicable:

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -5-

          (i)  the period commencing during any fiscal quarter on the date (the
     "Change Date") that is the second Business Day following the receipt by the
     Administrative Agent of the certificate referred to in clause (a) of the
     next following paragraph or

          (ii)  in the event that PGI or any of its Restricted Subsidiaries
     makes an Acquisition and borrows hereunder in an amount equal to or greater
     than U.S. $25,000,000 (or the Foreign Currency Equivalent thereof) in
     connection with such Acquisition, the period commencing during any fiscal
     quarter on the second Business Day (the "Acquisition Change Date")
     following the date of such Acquisition,

in each case to but not including the earlier of (x) the Change Date in the
immediately following fiscal quarter and (y) the next Acquisition Change Date,
provided, that the initial Accrual Period shall commence on the Effective Date
and continue until the earlier of (x) the Change Date during the fiscal quarter
ending on December 27, 1997 and (y) an Acquisition Change Date, and provided
further, that the Leverage Ratio for any Accrual Period commencing with an
Acquisition Change Date shall be calculated on a pro forma basis, as at the end
of and for the period of four fiscal quarters most recently ended prior to the
date of the related Acquisition for which financial statements of PGI are
available, under the assumption that such Acquisition and the incurrence of any
Indebtedness in connection with such Acquisition, shall have occurred at the
beginning of the applicable period.

          The Leverage Ratio for the initial Accrual Period shall be determined
on the basis of the certificate of a senior officer delivered pursuant to
Section 7.01(p) hereof (together with the financial statements for the fiscal
quarter on which such calculation is based).  The Leverage Ratio for any Accrual
Period after the initial Accrual Period shall be determined (a) if such Accrual
Period commences with a Change Date, on the basis of a certificate of a senior
officer setting forth a calculation of the Leverage Ratio as at the last day of
the fiscal quarter immediately prior to the first day of such Accrual Period
(together with the financial statements for the fiscal quarter on which such
calculation is based) and (b) if such Accrual Period commences with an
Acquisition Change Date, on the basis of the certificate of a senior officer
delivered pursuant to Section 9.05(d)(iv)(z) hereof in connection with the
related Acquisition.

          Anything in this Agreement to the contrary notwithstanding, the
Applicable Margin shall be the highest applicable rate provided for above (i.e.,
2.25% for Eurocurrency Loans, 1.00% for Base Rate Loans and Canadian Base Rate
Loans, 2.25% for letter of credit fees, and .50% for commitment fees) (i) during
any period when an Event of Default shall have occurred and be continuing or
(ii) if the Obligors shall default in the delivery of any financial statements
pursuant to Section 9.01(a) or 9.01(b) hereof, or in the delivery of the
certificate of a senior financial officer pursuant to Section 9.05(d)(iv)(z).



                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -6-

          "BA Discount Proceeds" shall mean, in respect of any Bankers'
Acceptance to be purchased by a Facility B Revolving Credit Lender on any date
under Section 2.01(b) hereof and Annex I hereto, an amount (rounded to the
nearest whole Canadian cent, and with one-half of one Canadian cent being
rounded up) calculated on such day by dividing:

          (a) the face amount of such Bankers' Acceptance; by

          (b) the sum of one plus the product of:

               (i) the BA Discount Rate (expressed as a decimal) applicable to
                    such Bankers' Acceptance; and

               (ii) a fraction, the numerator of which is the number of days in
                    the term of such Bankers' Acceptance and the denominator of
                    which is 365;

               with such product being rounded up or down to the fifth decimal
               place and .000005 being rounded up.

          "BA Discount Rate" shall mean, in respect of a Bankers' Acceptance,
the rate determined by the Administrative Agent at or about 10:00 a.m. (Toronto
time) on the date of acceptance of such Bankers' Acceptance as the average of
the discount rates (rounded to the nearest one-one hundredth of one percent
(.01%)) based on a year of 365 days quoted by the Reference Lenders as the
discount rate at which they would purchase on such date their own bankers'
acceptances having terms equivalent to the terms of such Bankers' Acceptance.

          "Bankers' Acceptance" shall mean a non-interest bearing bill of
exchange drawn by Fabrene and accepted by a Facility B Revolving Credit Lender
at Fabrene's request as a Facility B Revolving Credit Loan.

          "Bankers' Acceptance Loans" shall mean the creation and discount of
Bankers' Acceptances as contemplated in Section 2.01(b) hereof and Annex I
hereto.

          "Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978, as
amended from time to time.

          "Base Rate" shall mean, for any day, a rate per annum equal to the
higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the
Prime Rate for such day.  Each change in any interest rate provided for herein
based upon the Base Rate resulting from a change in the Base Rate shall take
effect at the time of such change in the Base Rate.



                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -7-

          "Base Rate Loans" shall mean Loans that bear interest at rates based
upon the Base Rate.

          "Basic Documents" shall mean, collectively, this Agreement, the Notes,
the Letter of Credit Documents, the Intercompany Notes Agreements, the
Intercompany Notes, the Security Documents, the Senior Subordinated Debt
Documents and the Ancillary Agreements.

          "Bonlam" shall mean Bonlam, S.A. de C.V., a corporation duly organized
and validly existing under the laws of Mexico.

          "Bonlam Intercompany Notes" shall mean, collectively, the promissory
note or notes, each substantially in the form of Exhibit A to the Bonlam
Intercompany Notes Agreement, from time to time executed and delivered by Bonlam
pursuant to the Bonlam Intercompany Notes Agreement to the order of PGI Polymer
to evidence advances made from time to time by PGI Polymer to Bonlam pursuant to
Section 9.08(e) hereof, in each case as the same shall, subject to Section 9.14
hereof, be modified and supplemented and in effect from time to time.

          "Bonlam Intercompany Notes Agreement" shall mean the Amended and
Restated Intercompany Notes Agreement dated as of  May 15, 1996 (a copy of which
is attached as Exhibit C hereto) and amended as of the date hereof between
Bonlam and PGI Polymer, and guaranteed by each Subsidiary of Bonlam, as the same
shall, subject to Section 9.14 hereof, be modified and supplemented and in
effect from time to time.

          "Business Day" shall mean (a) any day on which commercial banks are
not authorized or required to close in New York City and (b) if such day relates
to a borrowing of, a payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, any Eurocurrency Loan or a
notice by the Borrowers with respect to any such borrowing, payment, prepayment,
Conversion or Interest Period, then also any day on which dealings in deposits
are carried out in the London interbank market and (c) if any such Eurocurrency
Loan is denominated in Dutch Guilders, then also any day on which foreign
exchange trading is carried out in the London interbank market and any day on
which banks are open in the Netherlands and (d) if such day relates to a
Facility B Revolving Credit Loan, then also any day on which commercial banks
are not authorized or required to close in Toronto, Ontario.

          "Canadian Base Rate" shall mean the greater of (i) the per annum
floating rate of interest established from time to time by Chase Canada as the
base rate it will use to determine rates of interest on Canadian Dollar loans to
its customers in Canada and (ii) the sum of (x) the BA Discount Rate for 30 day
Bankers' Acceptances plus (y) 1%.  The Canadian Base Rate is not intended to be
the lowest rate of interest charged by Chase Canada in connection with
extensions of credit in Canadian dollars to debtors.



                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -8-

     "Canadian Base Rate Loans" shall mean Loans that bear interest at rates
based upon the Canadian Base Rate.

     "Canadian Dollars" and "Cdn $" shall mean lawful money of Her Majesty in
Right of Canada.

     "Canadian Security Documents" shall mean, collectively, the mortgages,
assignments, security agreements and other instruments from time to time
executed by Fabrene and its Subsidiaries to provide collateral security for the
obligations of Fabrene and its Subsidiaries hereunder and under the Fabrene
Intercompany Notes Agreement and the Fabrene Intercompany Notes, in each case as
the same shall be modified and supplemented and in effect from time to time.

     "Capital Expenditures" shall mean, for any period, expenditures (including,
without limitation, the aggregate amount of Capital Lease Obligations incurred
during such period) made by PGI or any of its Restricted Subsidiaries to acquire
or construct fixed assets, plant and equipment (including renewals, improvements
and replacements, but excluding normal replacements and maintenance which are
properly charged to current operations) during such period computed in
accordance with GAAP. For purposes hereof, the acquisition of any capital asset
by PGI or any of its Restricted Subsidiaries, in the case of a reinvestment of
Net Available Proceeds of any Casualty Event, shall constitute a "Capital
Expenditure" hereunder only to the extent of any consideration paid by PGI and
its Restricted Subsidiaries in excess of such Net Available Proceeds so
reinvested.

     "Capital Lease Obligations" shall mean, for any Person, all obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP (including Statement of Financial Accounting Standards No. 13
of the Financial Accounting Standards Board), and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP (including such Statement No. 13).

     "Casualty Event" shall mean, with respect to any Property of any Person,
any loss of or damage to, or any condemnation or other taking of, such Property
for which such Person or any of its Subsidiaries receives insurance proceeds, or
proceeds of a condemnation award or other compensation; provided, that for
purposes of Section 2.10(a) hereof, "Casualty Event" shall not include any such
loss, damage, condemnation or other taking for which proceeds or other
compensation received does not exceed U.S. $2,500,000 (in the aggregate) in any
fiscal year of the Borrowers.

     "Chase" shall mean The Chase Manhattan Bank.


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -9-

     "Chase Canada" shall mean The Chase Manhattan Bank of Canada.

     "Chicopee" shall mean Chicopee, Inc., a corporation duly organized and
validly existing under the laws of the State of Delaware.

     "Class" shall have the meaning assigned to such term in Section 1.03
hereof.

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

     "Collateral Account" shall have the meaning assigned to such term in
Section 4.01 of the Security Agreement.

     "Commitments" shall mean the Facility A Revolving Credit Commitments and
the Facility B Revolving Credit Commitments.

     "Consolidated Net Income" shall mean, for any period, the consolidated net
income (or loss) for PGI and its Restricted Subsidiaries (determined on a
consolidated basis without duplication in accordance with GAAP) for such period,
adjusted, to the extent included in calculating such net income (loss), by
excluding, without duplication, (i) all extraordinary gains or losses (including
all fees and expenses relating thereto), (ii) the portion of net income (or
loss) of PGI and its Restricted Subsidiaries allocable to minority interests in
unconsolidated Persons owned by PGI and its Restricted Subsidiaries, to the
extent that cash dividends or distributions have not actually been received by
PGI or its Restricted Subsidiaries, (iii) net income (or loss) of any Person
combined with PGI or any of its Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(iv) net gains (but not losses), including all fees and expenses relating
thereto, in respect of dispositions of assets other than in the ordinary course
of business, (v) the net income of any Restricted Subsidiary to the extent that
the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulations applicable to that
Restricted Subsidiary or its stockholders, (vi) the cumulative effect of a
change in accounting principles or (vii) income of Unrestricted Subsidiaries,
except to the extent that cash dividends are received by PGI or any Restricted
Subsidiary from such Unrestricted Subsidiary.

     "Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.09 hereof of a Eurocurrency Loan from one
Interest Period to the next Interest Period, or of a Bankers' Acceptance Loan as
contemplated by paragraph (f) of Annex I hereto.


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -10-

     "Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.09 hereof (or, in the case of a Bankers' Acceptance Loan,
as contemplated by Annex I hereto) of one Type of Loans into another Type of
Loans, which may be accompanied by the transfer by a Lender (at its sole
discretion) of a Loan from one Applicable Lending Office to another.

          "Currency" shall mean U.S. Dollars or any Alternative Currency.

     "Debt Issuance" shall mean any issuance or sale of Indebtedness, other than
(i) Indebtedness expressly permitted to be incurred pursuant to Section 9.07
hereof as in effect on the date hereof, (ii) any other Indebtedness to which the
Majority Lenders shall have consented to the extent that each of the Lenders
shall have agreed such Indebtedness shall not constitute a "Debt Issuance" for
purposes hereof and (iii) Future Refinancing Debt to the extent the proceeds
thereof are applied to the payment of the principal of (and accrued interest and
redemption premium, if any, on) the Senior Subordinated Notes.

     "Debt Service" shall mean, for any period, the sum, for PGI and its
Restricted Subsidiaries (determined on a consolidated basis without duplication
in accordance with GAAP) of the following:  (a) all payments of principal of
Indebtedness scheduled to be made during such period plus (b) to the extent not
already included in clause (a) hereof, all Interest Expense for such period.

          "Default" shall mean an Event of Default or an event that with notice
or lapse of time or both would become an Event of Default.

     "Default Interest Period" shall mean, during any period while any
principal of or interest on any Loan denominated in Dutch Guilders is not paid
when due, each successive period as the Administrative Agent shall from time to
time (with the approval of the Majority Lenders) choose; provided that (a) no
such period shall exceed three months, (b) the first such period shall commence
as of the date on which such principal or interest became due and each
succeeding such period shall commence upon the expiry of the immediately
preceding such period and (c) in the absence of or pending such consent from the
relevant Majority Lenders, each Default Interest Period shall have a duration of
one week.

     "Disclosure Materials" shall mean, collectively, the Information
Memorandum and the Offering Memorandum.

     "Disposition" shall mean any sale, assignment, transfer or other
disposition of any Property (whether now owned or hereafter acquired) by PGI or
any of its Restricted Subsidiaries to any Person, including, without limitation,
any sale of an equity interest in any Restricted Subsidiary, but excluding any
sale, assignment, transfer or other disposition of any Property sold or disposed
of (i) in the ordinary course of business and on ordinary business


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -11-

terms, (ii) not in the ordinary course of business in an aggregate amount not
exceeding U.S. $2,500,000 in any fiscal year of the Borrowers or (iii) transfers
of Property between Wholly Owned Restricted Subsidiaries of PGI.

     "Dividend Payment" shall mean, with respect to any Person, dividends
(in cash, Property or obligations) on, or other payments or distributions on
account of, or the setting apart of money for a sinking or other analogous fund
for, or the purchase, redemption, retirement or other acquisition of, any shares
of any class of stock of such Person or of any warrants, options or other rights
to acquire the same (or to make any payments, such as "phantom stock" payments,
where the amount thereof is calculated with reference to the fair market or
equity value of such Person or any of its Subsidiaries), but excluding dividends
payable solely in shares of common stock of such Person.

     "Domestic Non-Borrower Guaranty Agreement" shall mean a Domestic Non-
Borrower Guaranty Agreement substantially in the form of Exhibit E hereto
executed by a Domestic Subsidiary (as defined in Section 9.16(b) hereof) of PGI
in favor of the Administrative Agent, as the same shall be modified and
supplemented and in effect from time to time.

     "Dutch Guilders" and "GL" shall mean lawful money of the Netherlands.
     
     "Dutch Security Documents" shall mean the guarantees, mortgages and
other security agreements and documents required to be executed and delivered by
Chicopee, Dutch Holding and Dutch Operating pursuant to Section 7.01(j) hereof,
in each case as the same shall be modified and supplemented and in effect from
time to time.

     "EBITDA" shall mean, for any period, the sum, for PGI and its
Restricted Subsidiaries (determined on a consolidated basis without duplication
in accordance with GAAP), of the following:  (a) operating income (or loss) for
such period, plus (b) depreciation, amortization and other non-cash charges (to
the extent deducted in determining operating income) for such period minus (c)
non-cash income or gains (to the extent included in determining operating
income) for such period minus (d) non-recurring gains (to the extent included in
determining operating income) for such period plus (e) non-recurring losses (to
the extent deducted in determining operating income) for such period plus (f)
expenses relating to employee profit sharing arising in connection with
applicable Mexican statutory requirements.  Notwithstanding the foregoing:

          (w)  except with respect to the entities referred to in clause (y)
     below, in determining the components set forth in clauses (a) through (e)
     above with respect to any entity that is a Restricted Subsidiary but which
     is not a Wholly Owned Restricted Subsidiary, each of such components (to
     the extent the net effect thereof shall result in a positive contribution
     to EBITDA) shall be calculated to the extent of the percentage


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -12-

     of the ownership interest of PGI and its Wholly Owned Restricted
     Subsidiaries in such entity, provided that if the net effect of such
     components shall result in a negative contribution to EBITDA, then 100% of
     each of such components shall be taken into account in determining EBITDA;

          (x)  if during any period for which EBITDA is being determined PGI or
     any of its Restricted Subsidiaries shall have consummated any Acquisition
     or Disposition then, for all purposes of this Agreement, EBITDA shall be
     determined on a pro forma basis as if such Acquisition or Disposition had
     been made or consummated on the first day of such period (and, in
     determining pro forma EBITDA pursuant to this clause (x) following any
     Acquisition, pro forma effect shall be given to any net cost savings that
     PGI reasonably believes in good faith could have been achieved during the
     related calculation period as a result of such Acquisition and which cost
     savings could then be reflected in pro forma financial statements under
     GAAP, provided that (i) such cost savings are identified and quantified in
     a certificate of a senior officer of PGI delivered to the Administrative
     Agent on or prior to the date of such Acquisition and (ii) actions are
     commenced or initiated by PGI within 90 days of such Acquisition to effect
     such cost savings identified in such officers' certificate);

          (y)  in calculating EBITDA following the Acquisition of any entity
     pursuant to Section 9.05(d)(iv)(t)(B) during the nine-month period when
     such entity is permitted not to be a Wholly Owned Subsidiary of PGI, no
     adjustment shall be made for any minority interest in such Subsidiary; and

          (z)  in calculating EBITDA, there shall be excluded (i) any operating
     income (loss) of any Person that is not a Restricted Subsidiary (including
     any Person that is an Unrestricted Subsidiary), except (A) to the extent of
     cash actually distributed by such Person to PGI and its Restricted
     Subsidiaries during the relevant period as a dividend or distribution and
     (B) PGI's equity in any operating loss of such Person (other than an
     Unrestricted Subsidiary) for such period and (ii) any operating income (but
     not loss) of any Restricted Subsidiary if such Restricted Subsidiary is
     subject to restrictions, directly or indirectly, on the payment of
     dividends or the making of distributions by such Restricted Subsidiary,
     directly or indirectly, to PGI to the extent of such restrictions.

     "Effective Date" shall mean the date upon which the conditions to
effectiveness set forth in Section 7.01 hereof shall have been satisfied or
waived.

     "Environmental Claim" shall mean, with respect to any Person, any
written notice, claim, demand or other written communication (collectively, a
"claim") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries,


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -13-

fines or penalties arising out of, based on or resulting from (i) the presence,
or Release into the environment, of any Hazardous Material at any location,
whether or not owned by such Person, or (ii) circumstances forming the basis of
any violation, or alleged violation, of any Environmental Law.  The term
"Environmental Claim" shall include, without limitation, any claim by any
governmental authority for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and any
claim by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence of
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.

          "Environmental Laws" shall mean any and all present and future
Federal, state, local and foreign laws, rules or regulations (including, without
limitation, the laws, rules or regulations of the Netherlands, Canada, Mexico
and the Federal Republic of Germany), and any orders or decrees, in each case as
now or hereafter in effect, relating to the regulation or protection of human
health, safety or the environment or to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or toxic or hazardous
substances or wastes into the indoor or outdoor environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants or toxic or hazardous substances or wastes.

          "Equity Rights" shall mean, with respect to any Person, any
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including, without limitation, any stockholders' or
voting trust agreements) for the issuance, sale, registration or voting of, or
outstanding securities convertible into, any additional shares of capital stock
of any class, or partnership or other ownership interests of any type in, such
Person.

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

          "ERISA Affiliate" shall mean any corporation or trade or business that
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which PGI is a member and (ii) solely for purposes of potential
liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code
and the lien created under Section 302(f) of ERISA and Section 412(n) of the
Code, described in Section 414(m) or (o) of the Code of which PGI is a member.

          "Eurocurrency Base Rate" shall mean, with respect to any Eurocurrency
Loan in any Currency for any Interest Period (or Default Interest Period)
therefor:

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -14-

          (a)  the rate per annum (rounded upwards, if necessary, to the nearest
     1/16 of 1%) appearing on the Reuters Screen LIBO Page for such Currency (or
     such other page as may replace that page in that service) at approximately
     11:00 a.m. London time (or as soon thereafter as practicable) on the date
     two Business Days prior to the first day of such Interest Period (or
     Default Interest Period) as the London Interbank Offered Rate for such
     Currency having a term comparable to such Interest Period (or Default
     Interest Period) and in an amount of U.S. $1,000,000 or more; or

          (b)  if such rate does not appear on the Reuters Screen LIBO Page, or
     if said page shall cease to be publicly available, or if the information
     contained on said page, in the reasonable judgment of the Majority Facility
     A Revolving Credit Lenders, shall cease accurately to reflect the rate
     offered by leading banks in the London interbank market for deposits in the
     applicable Currency as reported by any publicly available source of similar
     market data selected by such Majority Lenders, the Eurocurrency Base Rate
     shall mean, with respect to any Eurocurrency Loan for any Interest Period
     (or Default Interest Period) therefor, the rate per annum (rounded upwards,
     if necessary, to the nearest 1/16 of 1%) quoted by Chase at approximately
     11:00 a.m. London time (or as soon thereafter as practicable) two Business
     Days prior to the first day of such Interest Period (or Default Interest
     Period) for the offering by Chase to leading banks in the London interbank
     market of deposits in such Currency having a term comparable to such
     Interest Period (or Default Interest Period) and in an amount comparable to
     the principal amount of the Eurocurrency Loan to be made by Chase for such
     Interest Period (or in an amount comparable to the principal or interest to
     be outstanding for such Default Interest Period).  If Chase is not
     participating in any Eurocurrency Loan during any Interest Period (or
     Default Interest Period) therefor, the Eurocurrency Base Rate for such Loan
     for such Interest Period (or Default Interest Period) shall be determined
     by reference to the amount of the Loan that Chase would have made or had
     outstanding had it been participating in such Loan during such Interest
     Period (or such principal or interest for such Default Interest Period).

          "Eurocurrency Loans" shall mean Loans denominated in either U.S.
Dollars or Dutch Guilders, the interest rates on which are determined on the
basis of rates referred to in the definition of "Eurocurrency Base Rate" in this
Section 1.01.

          "Eurocurrency Rate" shall mean, for any Eurocurrency Loan for any
Interest Period therefor (or for any principal or interest for any Default
Interest Period therefor), a rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Administrative Agent to be equal to
the Eurocurrency Base Rate for such Loan for such Interest Period (or the
Eurocurrency Base Rate for such principal or interest for such Default Interest
Period) divided by 1 minus the Reserve Requirement for such Loan for such
Interest Period (or for such principal or interest for such Default Interest
Period).

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -15-

          "Eurodollar Loans" shall mean Eurocurrency Loans that are denominated
in U.S. Dollars.

          "Euroguilder Loans" shall mean Eurocurrency Loans that are denominated
in Dutch Guilders.

          "Event of Default" shall have the meaning assigned to such term in
Section 10 hereof.

          "Existing Credit Agreement" shall have the meaning assigned to such
term in the preamble of this Agreement.

          "Existing Senior Notes" shall mean the 12-1/4% Senior Notes Due 2002
issued by PGI pursuant to the Existing Senior Notes Indenture.

          "Existing Senior Notes Indenture" shall mean the Indenture dated as of
June 24, 1994 between PGI and Harris Trust & Savings Bank, as trustee, providing
for the issuance of the Existing Senior Notes, as the same has heretofore been
amended by a First Supplemental Indenture dated as of March 15, 1995, a Second
Supplemental Indenture dated as of September 14, 1995, a Third Supplemental
Indenture dated as of April 9, 1996 and a Fourth Supplemental Indenture dated as
of August 14, 1996.

          "Fabrene Acquisition Intercompany Note" shall mean the promissory note
referred to as the "Acquisition Intercompany Note" in the Fabrene Intercompany
Notes Agreement in the amount of Cdn $27,040,752.00 issued by Fabrene to Fabrene
Holdings, a copy of which Note is attached as Exhibit A to the Fabrene
Intercompany Notes Agreement, as the same shall, subject to Section 9.14 hereof,
be modified and supplemented and in effect from time to time.

          "Fabrene Holdings" shall mean Fabrene Group, Inc., a corporation duly
organized and validly existing under the laws of Prince Edward Island, Canada.

          "Fabrene Intercompany Notes" shall mean, collectively, the Fabrene
Acquisition Intercompany Note and the Fabrene Operations Intercompany Note.

          "Fabrene Intercompany Notes Agreement" shall mean the Amended and
Restated Intercompany Notes Agreement dated as of May 15, 1996 (a copy of which
is attached as Exhibit D hereto) and amended as of the date hereof between
Fabrene, Fabrene Holdings and PGI Polymer, and guaranteed by each Subsidiary of
Fabrene, as the same shall, subject to Section 9.14 hereof, be modified and
supplemented and in effect from time to time.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -16-

          "Fabrene Operations Intercompany Note" shall mean the promissory note
dated as of May 15, 1996, executed and delivered by Fabrene pursuant to the
Fabrene Intercompany Notes Agreement to the order of PGI Polymer to evidence
advances made from time to time by PGI Polymer to Fabrene pursuant to Section
9.08(e) hereof, as the same shall, subject to Section 9.14 hereof, be modified
and supplemented and in effect from time to time.

          "Facility A Reserved Commitment Amount" shall have the meaning
assigned to such term in Section 2.01(a) hereof.

          "Facility A Revolving Credit Borrowers" shall mean, collectively, PGI
and each Dutch Borrower.

          "Facility A Revolving Credit Commitment" shall mean, for each Facility
A Revolving Credit Lender, the obligation of such Lender to make Facility A
Revolving Credit Loans to the Facility A Revolving Credit Borrowers in U.S.
Dollars (in the case of PGI) and Dutch Guilders (in the case of the Dutch
Borrowers) in an aggregate amount at any one time outstanding up to but not
exceeding the amount set opposite the name of such Lender on the signature pages
hereof under the caption "Facility A Revolving Credit Commitment" (as the same
may be reduced from time to time pursuant to Section 2.04 hereof) or, in the
case of any Person that becomes a Facility A Revolving Credit Lender pursuant to
an assignment permitted under Section 12.06(b) hereof, as specified in the
respective instrument of assignment pursuant to which such assignment is
effected (as the same may be reduced from time to time pursuant to Section 2.04
hereof).  The original aggregate principal amount of the Facility A Revolving
Credit Commitments on the Effective Date is U.S. $295,000,000; provided that, on
any Test Date (after giving effect to the calculations required to be performed
on such Test Date in accordance with Section 2.10(g) hereof) the aggregate
Revolving Credit Exposure shall not exceed U.S. $325,000,000.

          "Facility A Revolving Credit Commitment Percentage" shall mean, with
respect to any Facility A Revolving Credit Lender, the ratio of (a) the amount
of the Facility A Revolving Credit Commitment of such Lender to (b) the
aggregate amount of the Facility A Revolving Credit Commitments of all of the
Facility A Revolving Credit Lenders.

          "Facility A Revolving Credit Lenders" shall mean (a) on the date
hereof, the Lenders having Facility A Revolving Credit Commitments on the
signature pages hereof and (b) thereafter, the Lenders from time to time holding
Facility A Revolving Credit Loans and Facility A Revolving Credit Commitments
after giving effect to any assignments thereof permitted by Section 12.06
hereof.

          "Facility A Revolving Credit Loans" shall mean the loans provided for
by Section 2.01(a) hereof, which (in the case of Loans to PGI) may be Base Rate
Loans and/or
                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -17-

Eurodollar Loans and which (in the case of Loans to the Dutch Borrowers) shall
be Euroguilder Loans.

          "Facility A Revolving Credit Notes" shall mean the promissory notes
provided for by Section 2.08(a) hereof and all promissory notes delivered in
substitution or exchange therefor, in each case as the same shall be modified
and supplemented and in effect from time to time.

          "Facility B Reserved Commitment Amount" shall have the meaning
assigned to such term in Section 2.01(b) hereof.

          "Facility B Revolving Credit Commitment" shall mean, for each Facility
B Revolving Credit Lender, the obligation of such Lender to make Facility B
Revolving Credit Loans to Fabrene in Canadian Dollars in an aggregate amount at
any one time outstanding up to but not exceeding the amount set opposite the
name of such Lender on the signature pages hereof under the caption "Facility B
Revolving Credit Commitment" (as the same may be reduced from time to time
pursuant to Section 2.04 hereof) or, in the case of any Person that becomes a
Facility B Revolving Credit Lender pursuant to an assignment permitted under
Section 12.06(b) hereof, as specified in the respective instrument of assignment
pursuant to which such assignment is effected (as the same may be reduced from
time to time pursuant to Section 2.04 hereof).  The original aggregate principal
amount of the Facility B Revolving Credit Commitments is the Foreign Currency
Equivalent in Canadian Dollars on the Effective Date of U.S. $30,000,000;
provided that, on any Test Date (after giving effect to the calculations
required to be performed on such Test Date in accordance with Section 2.10(g)
hereof) the aggregate Revolving Credit Exposure shall not exceed U.S.
$325,000,000.

          "Facility B Revolving Credit Commitment Percentage" shall mean, with
respect to any Facility B Revolving Credit Lender, the ratio of (a) the amount
of the Facility B Revolving Credit Commitment of such Lender to (b) the
aggregate amount of the Facility B Revolving Credit Commitments of all of the
Facility B Revolving Credit Lenders.

          "Facility B Revolving Credit Lenders" shall mean (a) on the date
hereof, the Lenders having Facility B Revolving Credit Commitments on the
signature pages hereof and (b) thereafter, the Lenders from time to time holding
Facility B Revolving Credit Loans and Facility B Revolving Credit Commitments
after giving effect to any assignments thereof permitted by Section 12.06
hereof.

          "Facility B Revolving Credit Loans" shall mean the loans provided for
by Section 2.01(b) hereof and Annex I hereto, which shall be Canadian Base Rate
Loans and/or Bankers' Acceptance Loans.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -18-

          "Facility B Revolving Credit Notes" shall mean the promissory notes
provided for by Section 2.08(b) hereof and all promissory notes delivered in
substitution or exchange therefor, in each case as the same shall be modified
and supplemented and in effect from time to time.

          "Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Chase on such Business Day on such
transactions as determined by the Administrative Agent.

          "FiberTech" shall mean FiberTech Group, Inc., a corporation duly
organized and validly existing under the laws of the State of Delaware.

          "Fixed Charges Ratio" shall mean, as at any date, the ratio of (a)
EBITDA for the period of four fiscal quarters ending on or most recently ended
prior to such date minus Capital Expenditures for such period (except that for
any period ending on or before the fiscal quarter ending on or nearest to
September 30, 1998, only the portion of Capital Expenditures for the relevant
period in excess of U.S. $20,000,000 shall be so subtracted) to (b) Debt Service
for such period.

          "Foreign Currency Equivalent" shall mean, with respect to any amount
in U.S. Dollars, the amount of an Alternative Currency that could be purchased
with such amount of U.S. Dollars using the foreign exchange rate(s) specified in
the definition of the term "U.S. Dollar Equivalent", as determined by the
Administrative Agent.

          "Foreign Non-Borrower Guaranty Agreement" shall mean a Foreign Non-
Borrower Guaranty Agreement executed pursuant to Section 9.16(c) hereof by a
Subsidiary of a Foreign Borrower in favor of the Administrative Agent, as the
same shall be modified and supplemented and in effect from time to time.

          "Foreign Taxes" shall mean, with respect to any Foreign Borrower, all
present and future income, stamp, registration and other taxes and levies,
imposts, deductions, charges, compulsory loans and withholdings whatsoever, and
all interest, penalties or similar amounts with respect thereto, now or
hereafter imposed, assessed, levied or collected by the Netherlands (in respect
of the Dutch Borrowers) or Canada (in respect of Fabrene), or any political
subdivision or taxing authority thereof or therein, or by any federal or other

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -19-

association of or with which the Netherlands or Canada, as applicable, may be a
member or associated, on or in respect of this Agreement, the Loans made to such
Foreign Borrower, the Notes of such Foreign Borrower, any Hedging Transaction
entered into with any Lender by such Foreign Borrower, the recording,
registration, notarization or other formalization of any thereof, the
enforcement thereof or the introduction thereof in any judicial proceedings, or
on or in respect of any payments of principal, interest, premiums, charges, fees
or other amounts made on, under or in respect of any thereof, excluding, however
(in the case of the Dutch Borrowers) income taxes imposed upon the overall net
income of any Lender organized under the laws of the Netherlands and having an
Applicable Lending Office in the Netherlands and (in the case of Fabrene) income
taxes imposed upon the overall net income of any Lender organized under the laws
of Canada and having an Applicable Lending Office in Canada.

          "Future Refinancing Debt" shall mean the Indebtedness and Guarantees
permitted under Section 9.07(h) hereof.

          "Future Refinancing Debt Documents" shall mean the agreements and
other instruments relating to the Indebtedness and Guarantees permitted under
Section 9.07(h) hereof, in each case as the same shall, subject to Section 9.14
hereof, be modified and supplemented and in effect from time to time.

          "GAAP" shall mean generally accepted accounting principles applied on
a basis consistent with those which, in accordance with the last sentence of
Section 1.02(a) hereof, are to be used in making the calculations for purposes
of determining compliance with this Agreement.

          "German Security Documents" shall mean, collectively, the mortgages,
assignments, security agreements and other instruments from time to time
executed by FiberTech to provide collateral security for the obligations of
FiberTech hereunder and required to be executed and delivered by FiberTech
pursuant to Section 7.01(k) hereof, in each case as the same shall be modified
and supplemented and in effect from time to time.

          "Golder Thoma" shall mean Golder, Thoma, Cressey Fund III Limited
Partnership, an Illinois limited partnership.

          "Group Members" shall mean, collectively, PGI and its Subsidiaries.

          "Guarantee" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock or equity interests of any Person, or an agreement to purchase, sell
or lease (as lessee or lessor) Property, products, materials, supplies or
services

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -20-

primarily for the purpose of enabling a debtor to make payment of such debtor's
obligations or an agreement to assure a creditor against loss, and including,
without limitation, causing a bank or other financial institution to issue a
letter of credit or other similar instrument for the benefit of another Person,
but excluding endorsements for collection or deposit in the ordinary course of
business.  The terms "Guarantee" and "Guaranteed" used as a verb shall have a
correlative meaning.

          "Guaranteed Obligations" shall mean with respect to each of the
Obligors listed below:

               (i)  in the case of PGI, the Domestic Non-Borrower Guarantors
     (other than Fabrene Holdings) and Dutch Holding, the prompt payment in full
     when due (whether at stated maturity, by acceleration or otherwise) of the
     principal of and interest on the Loans made to each of the Borrowers
     hereunder on a joint and several basis, and all other amounts (including,
     without limitation, all Reimbursement Obligations) from time to time owing
     to the Lenders and the Administrative Agent by each of the other Borrowers
     under this Agreement, the Notes evidencing such Loans or under the Security
     Documents, or owing to the Lenders (or any of their affiliates) or the
     Administrative Agent in respect of Hedging Indebtedness, in each case
     strictly in accordance with the terms thereof, and

               (ii) in the case of Fabrene Holdings, the prompt payment in full
     when due (whether at stated maturity, by acceleration or otherwise) of the
     Guaranteed Obligations of PGI Polymer referred to in clause (i) above, in
     each case strictly in accordance with the terms thereof.

          "Guarantors" shall mean, collectively, PGI, Dutch Holding and the
Domestic Non-Borrower Guarantors.

          "Hazardous Material" shall mean, collectively, (a) any petroleum or
petroleum products, flammable explosives, radioactive materials, asbestos in any
form that is or could become friable, urea formaldehyde foam insulation, and
transformers or other equipment that contain dielectric fluid containing
polychlorinated biphenyls (PCB's), (b) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous materials",
"extremely hazardous wastes", "restricted hazardous wastes", "toxic substances",
"toxic pollutants", "contaminants", "pollutants" or words of similar import
under any Environmental Law and (c) any other chemical or other material or
substance, exposure to which is now or hereafter prohibited, limited or
regulated under any Environmental Law.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -21-

          "Hedging Indebtedness" shall mean the obligations of any Borrower in
respect of Hedging Transactions between such Borrower and a Lender permitted
under Section 9.08(j) hereof.

          "Hedging Transaction" shall mean, for any Person, any transaction
entered into by such Person that is designed to protect such Person against
fluctuations in interest rates, or currency or raw materials values, including,
without limitation, an interest rate swap, cap or collar agreement or similar
arrangement between such Person and one or more counterparties providing for the
transfer or mitigation of interest risks either generally or under specific
contingencies.  The term "Hedging Transaction" shall include, without
limitation, any "swap agreement" as such term is defined in Section 101(53B) of
the Bankruptcy Code.

          "Indebtedness" shall mean, for any Person:  (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business so long as such trade accounts
payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
Indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for account of such Person; (e)
Capital Lease Obligations of such Person; and (f) Indebtedness of others
Guaranteed by such Person.  For purposes of this Agreement, obligations created
pursuant to any Hedging Transaction shall not be Indebtedness hereunder.

          "Information Memorandum" shall mean the single volume Confidential
Information Memorandum dated June 1997 and prepared on the basis of information
furnished and approved by the Borrowers, copies of which have been supplied by
Chase on behalf of the Borrowers to the Lenders prior to the date hereof.

          "Initial Stockholders" shall mean, collectively, (a) Golder Thoma, (b)
Jerry Zucker, (c) James Boyd, (d) The InterTech Group, Inc. and FTG, Inc., so
long as Jerry Zucker and James Boyd continue to hold (directly, or indirectly
through one or more Wholly Owned Subsidiaries) 100% of the issued and
outstanding shares of capital stock of The InterTech Group, Inc. or FTG, Inc.,
as the case may be, (e) The Chase Manhattan Corporation (or any Subsidiary or
affiliate thereof), (f) Leeway & Co. and (g) California Public Employees
Retirement System.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -22-

          "Intercompany Notes" shall mean, collectively, the Bonlam Intercompany
Notes and the Fabrene Intercompany Notes.

          "Intercompany Notes Agreements" shall mean, collectively, the Bonlam
Intercompany Notes Agreement and the Fabrene Intercompany Notes Agreement.

          "Interest Expense" shall mean, for any period, the sum, for PGI and
its Restricted Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following:  (a) all interest in
respect of Indebtedness accrued or capitalized during such period (whether or
not actually paid during such period) plus (b) the net amounts payable (or minus
the net amounts receivable) under interest rate protection agreements
constituting Hedging Transactions accrued during such period (whether or not
actually paid or received during such period).

          Notwithstanding the foregoing, (i) if during any period for which
Interest Expense is being determined PGI or any of its Restricted Subsidiaries
shall have consummated any Acquisition or Disposition then, for all purposes of
this Agreement, Interest Expense shall be determined on a pro forma basis as if
such Acquisition or Disposition (and any Indebtedness incurred by PGI or any of
its Subsidiaries in connection with such Acquisition or repaid as a result of
such Disposition) had been made or consummated (and such Indebtedness incurred
or repaid) on the first day of such period (such pro forma determination to take
into account, inter alia, any increases or decreases in the Applicable Margin
that would have occurred had such Acquisition or Disposition, and related
incurrence or repayment of Indebtedness, occurred on the first day of such
period) and (ii) if, as at any date (a "calculation date"), fewer than four
complete consecutive fiscal quarters have elapsed subsequent to the Effective
Date, Interest Expense shall be calculated (after giving effect to the
adjustments contemplated in the foregoing clause (i)) only for the portion of
such period commencing on the Effective Date and ending on the calculation date
and shall then be annualized by multiplying the amount of such Interest Expense
by a fraction, the numerator of which is 365 and the denominator of which is the
number of days during the period commencing on the day immediately following the
Effective Date through and including the calculation date.

          "Interest Period" shall mean, with respect to any Eurocurrency Loan,
each period commencing on the date such Eurocurrency Loan is made or Converted
from a Base Rate Loan or the last day of the next preceding Interest Period for
such Loan and ending on the numerically corresponding day in the first, third or
sixth (or, subject to the agreement of each Lender participating in such Loan in
its sole discretion, twelfth) calendar month thereafter, as the Borrowers may
select as provided in Section 4.05 hereof, except that each Interest Period that
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -23-

month) shall end on the last Business Day of the appropriate subsequent calendar
month.  Notwithstanding the foregoing:

               (i)  if any Interest Period for any Loan would otherwise end
     after the Revolving Credit Termination Date, such Interest Period shall end
     on the Revolving Credit Termination Date;

               (ii)  each Interest Period that would otherwise end on a day
     which is not a Business Day shall end on the next succeeding Business Day
     (or, if such next succeeding Business Day falls in the next succeeding
     calendar month, on the next preceding Business Day); and

               (iii)  notwithstanding clause (i) above, no Interest Period shall
     have a duration of less than one month and, if the Interest Period for any
     Loan would otherwise be a shorter period, such Loan shall not be available
     hereunder for such period.

          "Investment" shall mean, for any Person:  (a) the acquisition (whether
for cash, Property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of any other Person or any agreement to make any such acquisition
(including, without limitation, any "short sale" or any sale of any securities
at a time when such securities are not owned by the Person entering into such
short sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person, but excluding any such
advance, loan or extension of credit having a term not exceeding 90 days
representing the purchase price of inventory or supplies sold by such Person in
the ordinary course of business); (c) the entering into of any Guarantee of, or
other contingent obligation with respect to, Indebtedness or other liability of
any other Person and (without duplication) any amount committed to be advanced,
lent or extended to such Person; or (d) the entering into of any Hedging
Transaction.

          "Issuing Lender" shall mean Chase, as the issuer of Letters of Credit
under Section 2.03 hereof, together with its successors and assigns in such
capacity.

          "J&J" shall mean Johnson & Johnson, a New Jersey corporation.

          "Letter of Credit" shall have the meaning assigned to such term in
Section 2.03 hereof.

          "Letter of Credit Documents" shall mean, with respect to any Letter of
Credit, collectively, any application therefor and any other agreements,
instruments, guarantees or
                               
                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -24-


other documents (whether general in application or applicable only to such
Letter of Credit) governing or providing for (a) the rights and obligations of
the parties concerned or at risk with respect to such Letter of Credit or (b)
any collateral security for any of such obligations, each as the same shall be
modified and supplemented and in effect from time to time.

          "Letter of Credit Interest" shall mean, for each Facility A Revolving
Credit Lender, such Lender's participation interest (or, in the case of the
Issuing Lender, the Issuing Lender's retained interest) in the Issuing Lender's
liability under Letters of Credit and such Lender's rights and interests in
Reimbursement Obligations and fees, interest and other amounts payable in
connection with Letters of Credit and Reimbursement Obligations and any and all
collateral and guarantees therefor.

          "Letter of Credit Liability" shall mean, without duplication, at any
time and in respect of any Letter of Credit, the sum of (a) the undrawn face
amount of such Letter of Credit plus (b) the aggregate unpaid principal amount
of all Reimbursement Obligations of PGI at such time due and payable in respect
of all drawings made under such Letter of Credit.  For purposes of this
Agreement, a Facility A Revolving Credit Lender (other than the Issuing Lender)
shall be deemed to hold a Letter of Credit Liability in an amount equal to its
participation interest in the related Letter of Credit under Section 2.03
hereof, and the Issuing Lender shall be deemed to hold a Letter of Credit
Liability in an amount equal to its retained interest in the related Letter of
Credit after giving effect to the acquisition by the Facility A Revolving Credit
Lenders other than the Issuing Lender of their participation interests under
said Section 2.03.

          "Lenders" shall mean, collectively, the Facility A Revolving Credit
Lenders and the Facility B Revolving Credit Lenders.

          "Leverage Ratio" shall mean, as at any date, the ratio of Indebtedness
of PGI and its Restricted Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP) on such date to EBITDA for the
period of four fiscal quarters ending on or most recently ended prior to such
date.

          "License Agreement" shall mean the license agreement dated as of March
15, 1995 between Chicopee and McNeil-PPC, Inc., as the same shall be modified
and supplemented and in effect from time to time.

          "Lien" shall mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property.  For purposes of this Agreement and the other Basic Documents, a
Person shall be deemed to own subject to a Lien any Property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such Property.


                               Credit Agreement
                               ----------------       
<PAGE>
 
                                      -25-

          "Loans" shall mean, collectively, the Facility A Revolving Credit
Loans and the Facility B Revolving Credit Loans.

          "Majority Facility A Revolving Credit Lenders" shall mean Facility A
Revolving Credit Lenders having at least 51% of the aggregate amount of the
Facility A Revolving Credit Commitments or, if the Facility A Revolving Credit
Commitments shall have terminated, Facility A Revolving Credit Lenders holding
at least 51% of the sum of (a) the aggregate unpaid principal amount of the
Facility A Revolving Credit Loans plus (b) the aggregate amount of all Letter of
Credit Liabilities.

          "Majority Facility B Revolving Credit Lenders" shall mean Facility B
Revolving Credit Lenders having at least 51% of the aggregate amount of the
Facility B Revolving Credit Commitments or, if the Facility B Revolving Credit
Commitments shall have terminated, Facility B Revolving Credit Lenders holding
at least 51% of the aggregate unpaid principal amount of the Facility B
Revolving Credit Loans (including, without limitation, Bankers' Acceptance
Loans).

          "Majority Lenders" shall mean, subject to the last paragraph of
Section 12.04 hereof, Lenders having at least 51% of the sum of (i) the
aggregate unused amount, if any, of the Commitments at such time plus (ii) the
aggregate outstanding principal amount of the Loans at such time (including,
without limitation, in the case of the Facility B Revolving Credit Lenders,
Bankers' Acceptance Loans).

          "Margin Stock" shall mean "margin stock" within the meaning of
Regulations G, U and X.

          "Margin Stock Collateral" shall mean, at any time, the Margin Stock
then held in pledge under the Security Agreement and any proceeds then held in
pledge thereunder of the sale or other disposition of Margin Stock theretofore
held in pledge thereunder.

          "Material Adverse Effect" shall mean a material adverse effect on (a)
the Property, business, operations, financial condition, prospects, liabilities
or capitalization of the Group Members (excluding Group Members which are
Unrestricted Subsidiaries) taken as a whole, (b) the ability of any Group Member
to perform its obligations under any of the Basic Documents to which it is a
party, (c) the validity or enforceability of any of the Basic Documents, (d) the
rights and remedies of the Lenders and the Administrative Agent under any of the
Basic Documents or (e) the timely payment of the principal of or interest on the
Loans or the Reimbursement Obligations or other amounts payable in connection
therewith.

          "Maximum Loan Value" shall mean, at any time, the "maximum loan value"
(as such term is defined in Regulations G and U which value, as of the date of
this Agreement, is 50%) of all Margin Stock owned by the Obligors.  All
determinations of


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -26-

Maximum Loan Value pursuant to this Agreement shall be made in accordance with
Regulations G and U.

          "Mexican Finco" shall mean a corporation, organized after the
Effective Date under the laws of the Republic of Mexico as a direct Wholly Owned
Subsidiary of PGI Polymer, the sole assets of which will consist of Investments
in Bonlam permitted under Section 9.08(h) hereof.

          "Mexican Security Documents" shall mean, collectively, the mortgages,
assignments, security agreements and other instruments from time to time
executed by Bonlam and its respective Subsidiaries, to provide collateral
security for the obligations of Bonlam and its respective Subsidiaries under the
Bonlam Intercompany Notes Agreement and the Bonlam Intercompany Notes, in each
case as the same shall, subject to Section 9.14 hereof, be modified and
supplemented and in effect from time to time.

          "Mortgages" shall mean, collectively, the respective Deeds of Trust
and Mortgages executed and delivered by the Borrowers and their Subsidiaries
pursuant to the Existing Credit Agreement, covering the properties of the
respective Mortgagors identified therein, in each case as such Deeds of Trust
and Mortgages have been heretofore modified, as such Deeds of Trust and
Mortgages shall be modified pursuant to instruments of Modification and
Confirmation executed and delivered pursuant to Section 7.01(h) hereof, and as
such Deeds of Trust and Mortgages shall be further modified and supplemented and
in effect from time to time.

          "Multiemployer Plan" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been made by PGI or any
ERISA Affiliate and which is covered by Title IV of ERISA.

          "Net Available Proceeds" shall mean:

               (i)  in the case of any Disposition, the amount of Net Cash
     Payments received in connection with such Disposition;

               (ii)  in the case of any Casualty Event, the aggregate amount of
     proceeds of insurance, condemnation awards and other compensation received
     by the Group Members in respect of such Casualty Event net of (A)
     reasonable expenses incurred by the Group Members in connection with the
     collection of such insurance, condemnation awards and other compensation
     and (B) contractually required repayments of Indebtedness to the extent
     secured by a Lien on such Property and any income and transfer taxes
     payable by the Group Members in respect of such Casualty Event; and



                               Credit Agreement
                               -----------------
<PAGE>
 
                                      -27-

               (iii)  in the case of any Debt Issuance, the aggregate amount of
     all cash received by Group Members in respect of such Debt Issuance (as the
     case may be) net of reasonable expenses incurred by the Group Members in
     connection with the issuance thereof.

          "Net Cash Payments" shall mean, with respect to any Disposition, the
aggregate amount of all cash payments, and the fair market value of any non-cash
consideration, received by the Group Members directly or indirectly in
connection with such Disposition; provided that (a) Net Cash Payments shall be
net of (i) the amount of any legal, title and recording tax expenses,
commissions and other fees and expenses paid by the Group Members in connection
with such Disposition and (ii) any Federal, state, local and foreign income or
other taxes estimated to be payable by the Group Members as a result of such
Disposition (but only to the extent that such estimated taxes are in fact paid
to the relevant Federal, state, local or foreign governmental authority within
three months of the date of such Disposition) and (b) Net Cash Payments shall be
net of any repayments by the Group Members of Indebtedness to the extent that
(i) such Indebtedness is secured by a Lien on the Property that is the subject
of such Disposition and (ii) the transferee of (or holder of a Lien on) such
Property requires that such Indebtedness be repaid as a condition to the
purchase of such Property.

          "Net Worth" shall mean, as at any date, the sum for PGI and its
Restricted Subsidiaries (determined on a consolidated basis without duplication
in accordance with GAAP) of the following:

          (a)  the amount of capital stock (including Qualified Preferred
     Stock), plus

          (b)  the amount of surplus and retained earnings (or, in the case of a
     surplus or retained earnings deficit, minus the amount of such deficit),
     minus

          (c)  the sum of the following:  cost of treasury shares and any write-
     up in the book value of assets resulting from a revaluation thereof
     subsequent to December 28, 1996.

Notwithstanding the foregoing, Net Worth shall not include any unrealized
foreign currency transaction gains and losses, including the cumulative
translation adjustment account in the equity portion of the consolidated balance
sheet of PGI and its Restricted Subsidiaries.

          "Non-Margin Stock Collateral" shall mean, at any time, all Collateral
under and as defined in the Security Agreement other than Margin Stock
Collateral.

          "Notes" shall mean, collectively, the Facility A Revolving Credit
Notes and the Facility B Revolving Credit Notes.



                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -28-

          "Offering" shall mean the offering on or before the Effective Date by
PGI of its 9% Senior Subordinated Notes due July 1, 2007, in a private placement
and resale made pursuant to Rule 144A of the Securities and Exchange Commission,
as described in the Offering Memorandum.

          "Offering Memorandum" shall mean the Offering Memorandum dated June
30, 1997, pursuant to which the Senior Subordinated Notes are being offered for
issuance by PGI.

          "Payment Office" shall mean (a) in respect of (i) U.S. Dollars, the
Principal Office, (ii) Dutch Guilders, the office of ABN AMRO Bank, in
Amsterdam, the Netherlands (for account of Chase Manhattan Investment Bank,
Limited) and (iii) Canadian Dollars, the office of Chase Canada, or (b) any
other office in respect of any Currency as the Administrative Agent shall
designate in a notice to the Borrowers and the Lenders.

          "PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

          "Permitted Investments" shall mean:  (a) direct obligations of the
United States of America, or of any agency thereof, or obligations guaranteed as
to principal and interest by the United States of America, or of any agency or
instrumentality thereof, in either case maturing not more than 90 days from the
date of acquisition thereof; (b) bankers' acceptances created by, certificates
of deposit issued by and time deposits made with, any bank or trust company
organized under the laws of the United States of America or any state thereof,
or the Netherlands, Canada or the Federal Republic of Germany and having
capital, surplus and undivided profits of at least U.S. $250,000,000, maturing
not more than 90 days from the date of acquisition thereof; (c) repurchase
obligations with respect to obligations of the type (but not necessarily the
maturity) described in clause (a) above issued by any bank or trust company
described in clause (b) above and maturing not more than 90 days from the date
of acquisition thereof by any Person; (d) commercial paper rated A-1 or better
or P-1 by Standard & Poor's Ratings Group, a division of McGraw Hill, Inc. or
Moody's Investors Services, Inc., respectively, maturing not more than 90 days
from the date of acquisition thereof; and (e) interests in any money market
mutual fund registered under the Investment Company Act of 1940, as amended, at
least 90% of the portfolio of which is limited to obligations of the type and
maturity described in the foregoing clauses (a) through (d), so long as such
fund has total assets of at least U.S. $500,000,000 and is rated AAAm-G or
better or AAA or better by Standard & Poor's Rating Group or Moody's Investors
Services, Inc., respectively.

          "Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -29-

          "PGI Polymer" shall mean PGI Polymer, Inc., a Delaware corporation.

          "Plan" shall mean an employee benefit or other plan established or
maintained by PGI or any ERISA Affiliate and that is covered by Title IV of
ERISA, other than a Multiemployer Plan.

          "Post-Default Rate" shall mean, in respect of any principal of any
Loan, any Reimbursement Obligation or any other amount under this Agreement, any
Note or any other Basic Document that is not paid when due (whether at stated
maturity, by acceleration, by optional or mandatory prepayment or otherwise),

          (a)  if the default arises in respect of U.S. Dollar-denominated
     obligations or Canadian Dollar-denominated obligations, a rate per annum
     (the "Prime-Based Post-Default Rate") during the period from and including
     the due date to but excluding the date on which such amount is paid in full
     equal to 2% plus the Base Rate (in the case of U.S. Dollar-denominated
     obligations) or Canadian Base Rate (in the case of Canadian Dollar-
     denominated obligations) as in effect from time to time plus the Applicable
     Margin for Base Rate Loans or Canadian Base Rate Loans, as applicable,
     provided that, if the amount so in default is principal of a Eurocurrency
     Loan and the due date thereof is a day other than the last day of the
     Interest Period therefor, the "Post-Default Rate" for such principal shall
     be, for the period from and including such due date to but excluding the
     last day of such Interest Period, a rate per annum (the "Market-Based Post-
     Default Rate") equal to 2% plus the interest rate for such Loan as provided
     in Section 3.02(b) hereof and, thereafter, the higher of (i) the Prime-
     Based Post-Default Rate and (ii) the Market-Based Post-Default Rate, and

          (b)  if the default arises in respect of Dutch Guilder- denominated
     obligations, a rate per annum, with respect to any Default Interest Period,
     equal to the higher of (i) 2% above the interest rate at the time (or most
     recently) applicable to the principal of the Loans in such Currency
     hereunder and (ii) 2% plus the Applicable Margin plus the Eurocurrency Rate
     for such Default Interest Period.

          "Prime Rate" shall mean the rate of interest from time to time
announced by Chase at its principal office in New York City as its prime
commercial lending rate.

          "Principal Office" shall mean the principal office of Chase, located
on the date hereof at 270 Park Avenue, New York, New York 10017.

          "Process Agent" shall have the meaning assigned to such term in
Section 12.11(b) hereof.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -30-

          "Process Agent Acceptance" shall mean a letter from the Process Agent
to the Administrative Agent, in substantially the form of Exhibit I hereto.

          "Property" shall mean any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.

          "Qualified Preferred Stock" shall mean shares of preferred stock (a)
that is not subject to mandatory redemption prior to the date which is one year
after the maturity of all Loans and other obligations (including Reimbursement
Obligations) hereunder and (b) that does not require PGI or any of its
Restricted Subsidiaries to make mandatory payments of cash dividends unless such
entities may, at their option, elect to make such payments by issuing additional
shares of such preferred stock (or by having the amount of such payments be
added to the stated liquidation value of such preferred stock and not be paid in
cash).

          "Quarterly Dates" shall mean the 20th day of March, June, September
and December in each year, the first of which shall be the first such day after
the date hereof, provided, that if any such day is not a Business Day, then such
Quarterly Date shall be the next preceding Business Day.

          "Refinancing" shall mean, collectively, the following transactions,
each of which shall take place prior to or substantially simultaneously on the
Effective Date:  (i) the Offering and (ii) the redemption or repurchase of
Existing Senior Notes in an aggregate principal amount of U.S. $100,000,000 for
aggregate consideration (including principal and accrued but unpaid interest and
redemption or repurchase premium) not exceeding U.S. $118,000,000 (and, to the
extent that any such Existing Senior Notes shall not be redeemed, the
modifications of the covenants thereunder so as to substantially relieve PGI and
its Subsidiaries of the restrictions contained therein), as each of such
transactions are more particularly described in the Disclosure Materials.

          "Reference Lenders" shall mean Chase Canada and The Bank of Nova
Scotia.

          "Regulations A, D, G, U and X" shall mean, respectively, Regulations
A, D, G, U and X of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be modified and supplemented and in effect from time
to time.

          "Regulatory Change" shall mean, with respect to any Lender, any change
after the date of this Agreement in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Lender of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -31-

          "Reimbursement Obligations" shall mean, at any time, the obligations
of PGI then outstanding, or which may thereafter arise in respect of all Letters
of Credit then outstanding, to reimburse amounts paid by the Issuing Lender in
respect of any drawings under a Letter of Credit.

          "Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Materials through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata.

          "Relevant Obligor" shall have the meaning assigned to such term in
Section 6.08 hereof.

          "Reserve Requirement" shall mean, for any Interest Period for any
Eurocurrency Loan (or for any Default Interest Period for any principal of or
interest on any Loan), the average maximum rate at which reserves (including,
without limitation, any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period (or Default Interest
Period) under Regulation D by member banks of the Federal Reserve System in New
York City with deposits exceeding one billion U.S. Dollars against "Eurocurrency
liabilities" (as such term is used in Regulation D).  Without limiting the
effect of the foregoing, the Reserve Requirement shall include any other
reserves required to be maintained by such member banks by reason of any
Regulatory Change with respect to (i) any category of liabilities that includes
deposits by reference to which the Eurocurrency Base Rate is to be determined as
provided in the definition of "Eurocurrency Base Rate" in this Section 1.01 or
(ii) any category of extensions of credit or other assets that includes
Eurocurrency Loans.

          "Reserved Amount" shall mean, with respect to any Disposition, any
appropriate amount provided by PGI or any of its Restricted Subsidiaries, as the
case may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Disposition and retained by PGI or such Restricted
Subsidiary, as the case may be, after such Disposition, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Disposition, all as reflected in a certificate
of a senior financial officer of PGI or such Restricted Subsidiary delivered to
the Lenders at the time of such Disposition.

          "Reserved Commitment Amount" shall mean, collectively, the Facility A
Reserved Commitment Amount and Facility B Reserved Commitment Amount.

          "Restricted Payment" shall mean, collectively, (i) any Dividend
Payment, (ii) any purchase, redemption, retirement or other acquisition for
value of, or the setting apart of

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -32-

any money for a sinking, defeasance or other analogous fund for the purchase,
redemption, retirement or other acquisition of, or the voluntary payment or
prepayment of the principal of or interest on, or any other amount owing in
respect of, any Subordinated Indebtedness, but excluding (x) the refinancing of
the Senior Subordinated Notes to the extent permitted by Section 9.07(h) hereof
and (y) regularly scheduled payments or prepayments of principal and interest in
respect thereof required pursuant to the Senior Subordinated Debt Documents, the
Future Refinancing Debt Documents or the Subordinated Acquisition Debt
Documents, as the case may be, (iii) any Investment by PGI or any of its
Restricted Subsidiaries in any Person (including in any Affiliate), other than
an Investment expressly permitted by the provisions of clauses (a) through (k)
of Section 9.08 hereof and (iv) the amount of any Investment referred to in
clause (ii) of Section 1.04(c) hereof outstanding on the date on which a
Restricted Subsidiary is designated as an Unrestricted Subsidiary hereunder.

          "Restricted Subsidiary" shall mean any Subsidiary of PGI other than an
Unrestricted Subsidiary.

          "Revolving Credit Exposure" shall mean, on any date, the sum of (a)
the aggregate principal amount of all Loans denominated in U.S. Dollars
outstanding on such date plus (b) the aggregate U.S. Dollar Equivalent of the
principal amount of all Loans denominated in Alternative Currencies outstanding
on such date plus (c) the aggregate amount of Letter of Credit Liabilities
outstanding on such date.

          "Revolving Credit Termination Date" shall mean the Quarterly Date
falling on or nearest to June 20, 2003.

          "Security Agreement" shall mean the Second Amended, Restated and
Consolidated Security Agreement substantially in the form of Exhibit B hereto
between each Securing Party (as defined therein) and the Administrative Agent,
as the same shall be modified and supplemented and in effect from time to time.

          "Security Documents" shall mean, collectively, the Dutch Security
Documents, the Canadian Security Documents, the German Security Documents, the
Mexican Security Documents, the Security Agreement, the Mortgages, the Domestic
Non-Borrower Guaranty Agreements and all Uniform Commercial Code financing
statements (and similar registration instruments in other jurisdictions)
required by this Agreement, the Security Agreement or the Mortgages to be filed
with respect to the security interests in personal Property and fixtures created
pursuant to the Security Agreement or the Mortgages.

          "Senior Indebtedness" shall mean all Indebtedness of PGI and its
Restricted Subsidiaries (determined on a consolidated basis without duplication
in accordance with GAAP), other than Subordinated Indebtedness.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -33-

          "Senior Leverage Ratio" shall mean, as at any date, the ratio of
Senior Indebtedness on such date to EBITDA for the period of four fiscal
quarters ending on or most recently ended prior to such date.

          "Senior Subordinated Debt Documents" shall mean, collectively, the
Senior Subordinated Notes and the Senior Subordinated Notes Indenture.

          "Senior Subordinated Notes" shall mean, collectively, (a) the 9%
Senior Subordinated Notes Due July 1, 2007 issued by PGI on or before the
Effective Date pursuant to the Senior Notes Indenture, and (b) any additional
Senior Subordinated Notes issued by PGI after the Effective Date in accordance
with the provisions of Section 9.07(f) hereof.

          "Senior Subordinated Notes Indenture" shall mean, collectively, (i)
the Indenture dated as of July 1, 1997 between PGI and Harris Trust & Savings
Bank, as trustee, providing for the issuance on or before the Effective Date of
the Senior Subordinated Notes and (ii) any indenture pursuant to which
additional Senior Subordinated Notes are to be issued by PGI after the Effective
Date in accordance with the provisions of Section 9.07(f) hereof, in each case
as the same shall, subject to Section 9.14 hereof, be modified and supplemented
and in effect from time to time.

          "Shared Facilities Agreement" shall mean the Shared Facilities
Agreement dated as of October 23, 1992 between Scott Paper Company and FiberTech
with respect to the Rogers, Arkansas, facility of FiberTech, as the same shall,
subject to Section 9.14 hereof, be modified and supplemented and in effect from
time to time.

          "Subordinated Acquisition Debt Documents" shall mean, collectively,
the instruments evidencing or governing any Subordinated Acquisition
Indebtedness.

          "Subordinated Acquisition Indebtedness" shall mean Indebtedness
incurred in accordance with the provisions of Section 9.07(i) hereof in
connection with any Acquisition permitted hereunder.

          "Subordinated Indebtedness" shall mean, collectively, the Senior
Subordinated Notes, any Future Refinancing Debt and any Subordinated Acquisition
Indebtedness.

          "Subsidiary" shall mean, for any Person, any corporation, partnership
or other entity of which at least a majority of the securities or other
ownership interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
of such corporation, partnership or other entity (irrespective of whether or not
at the time securities or other ownership interests of any other class or
classes of such corporation, partnership or other entity shall have or might
have voting power by reason of the happening of any contingency) is at the time
directly or
                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -34-

indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.

          "Supply Agreement" shall mean the Supply Agreement dated as of March
15, 1995 between Chicopee and J&J, as the same shall, subject to Section 9.14
hereof, be modified and supplemented and in effect from time to time.

          "Tax Sharing Agreement" shall mean the Tax Sharing Agreement dated as
of May 15, 1996 between PGI, PGI Polymer, Inc., FiberTech, Technetics Group,
Inc., Fibergol Corporation, Chicopee Holdings, Inc., Chicopee and Fabrene Corp.,
as the same may be modified and supplemented and in effect from time to time.

          "Technology Agreement" shall mean the Technology Agreement dated as of
March 15, 1995 between Chicopee and J&J, as the same shall be modified and
supplemented and in effect from time to time.

          "Test Date" shall have the meaning assigned to such term in Section
2.10(g) hereof.

          "Type" shall have the meaning assigned to such term in Section 1.03
hereof.

          "Unrestricted Subsidiary" shall mean any Subsidiary of PGI that (a)
shall have been designated as an "Unrestricted Subsidiary" in accordance with
the provisions of Section 1.04 hereof and (b) any Subsidiary of an Unrestricted
Subsidiary.

          "U.S. Dollar Equivalent" shall mean, on any day, with respect to any
Loan denominated in an Alternative Currency, the amount of U.S. Dollars that
would be required to purchase the amount of the Alternative Currency of such
Loan on such day, assuming a rate of exchange equal to the New York foreign
exchange selling rate quoted for such Alternative Currency in the Wall Street
Journal for such day (or, for the most recent day on which the Wall Street
Journal shall have been published), provided that if for any reason the Wall
Street Journal shall cease to be published for three or more consecutive
Business Days, "U.S. Dollar Equivalent" shall mean the amount of U.S. Dollars
that would be required to purchase the amount of the Alternative Currency of
such Loan on such day, based upon the spot selling rate at which the
Administrative Agent offers to sell such Alternative Currency for U.S. Dollars
in the London foreign exchange market at approximately 11:00 a.m. London time
for delivery two Business Days later.

          "U.S. Dollars" and "U.S. $" shall mean lawful money of the United
States of America.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -35-

          "U.S. Person" shall mean a citizen or resident of the United States of
America, a corporation, partnership or other entity created or organized in or
under any laws of the United States of America or any State thereof, or any
estate or trust that is subject to United States Federal income taxation
regardless of the source of its income.

          "U.S. Taxes" shall mean any present or future tax, assessment or other
charge or levy imposed by or on behalf of the United States of America or any
taxing authority thereof.

          "Wholly Owned Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which all of the equity securities
or other ownership interests (other than, in the case of a corporation,
directors' qualifying shares) are directly or indirectly owned or controlled by
such Person or one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.  The term
"Wholly Owned Restricted Subsidiary" shall mean a Wholly Owned Subsidiary of PGI
that is a Restricted Subsidiary.

          1.02  Accounting Terms and Determinations.

          (a)  Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at
the time of delivery thereof in the manner described in subsection (b) below) be
prepared, in accordance with generally accepted accounting principles applied on
a basis consistent with those used in the preparation of the latest financial
statements furnished to the Lenders hereunder (which, prior to the delivery of
the first financial statements under Section 9.01 hereof, shall mean the
consolidated financial statements referred to in Section 8.02(a) hereof).  All
calculations made for purposes of determining compliance with this Agreement
shall (except as otherwise expressly provided herein) be made by application of
generally accepted accounting principles applied on a basis consistent with
those used in the preparation of the latest annual or quarterly financial
statements furnished to the Lenders pursuant to Section 9.01 hereof (or, prior
to the delivery of the first financial statements under Section 9.01 hereof,
used in the preparation of the consolidated financial statements referred to in
Section 8.02(a) hereof) unless

               (i)  the Borrowers shall have objected to determining such
     compliance on such basis at the time of delivery of such financial
     statements or

               (ii)  the Majority Lenders shall so object in writing within 30
     days after delivery of such financial statements,

                               Credit Agreement
                               ----------------
                                
<PAGE>
 
                                      -36-

in either of which events such calculations shall be made on a basis consistent
with those used in the preparation of the latest financial statements as to
which such objection shall not have been made (which, if objection is made in
respect of the first financial statements delivered under Section 9.01 hereof,
shall mean the consolidated financial statements referred to in Section 8.02(a)
hereof).

          (b)  The Borrowers shall deliver to the Lenders at the same time as
the delivery of any annual or quarterly financial statement under Section 9.01
hereof (i) a description in reasonable detail of any material variation between
the application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements as to
which no objection has been made in accordance with the last sentence of
subsection (a) above and (ii) reasonable estimates of the difference between
such statements arising as a consequence thereof.

          (c)  To enable the ready and consistent determination of compliance
with the covenants set forth in Section 9 hereof, the Borrowers and their
Subsidiaries will not change the last day of their fiscal year from the Saturday
closest to December 31 of each year (whether or not such last day occurs in the
same calendar year or the next following calendar year), or the last days of the
first three fiscal quarters in each of their fiscal years from the Saturday
closest to March 31, June 30 and September 30 of each year, respectively;
provided that the foregoing shall not apply to Bonlam to the extent that Bonlam
is not permitted under Mexican law to conform its fiscal dates in such manner.

          1.03  Classes, Types and Currencies of Loans.  Loans hereunder are
distinguished by "Class", "Type" and "Currency".  The "Class" of a Loan (or of a
Commitment to make a Loan) refers to whether such Loan is a Facility A Revolving
Credit Loan or a Facility B Revolving Credit Loan, each of which constitutes a
Class.  The "Type" of a Loan as used in connection with U.S. Dollar-denominated
Loans refers to whether such Loan is a Base Rate Loan or a Eurocurrency Loan,
each of which constitutes a Type, and, as used in connection with Canadian
Dollar-denominated Loans refers to whether such Loan is a Canadian Base Rate
Loan or a Bankers' Acceptance Loan, each of which constitutes a Type.  The
"Currency" of a Loan refers to whether such Loan is to be made in U.S. Dollars,
Dutch Guilders or Canadian Dollars, each of which constitutes a "Currency".
Loans may be identified by Class, Type and Currency.

          1.04  Subsidiaries; Designation of Unrestricted Subsidiaries.  PGI may
at any time designate any of its Subsidiaries (including any newly acquired or
newly formed Subsidiary, but excluding any Obligor or Bonlam or any Subsidiary
of Bonlam or Fabrene obligated in respect of the Intercompany Notes of Bonlam or
Fabrene) to be an "Unrestricted Subsidiary" for purposes of this Agreement, by
delivering to the Administrative Agent a certificate of a senior financial
officer of PGI (and the Administrative Agent shall promptly

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -37-

forward a copy of such certificate to each Lender) attaching a copy of a
resolution of its Board of Directors setting forth such designation and stating
that the conditions set forth in this Section 1.04 have been satisfied with
respect to such designation, provided that no such designation shall be
effective unless (x) at the time of such designation and after giving effect
thereto, no Default or Event of Default shall have occurred and be continuing
and (y) at the time of such designation and at all times thereafter:

          (a)  neither PGI nor any Restricted Subsidiary is directly or
     indirectly liable for any Indebtedness of such Subsidiary;

          (b)  no default with respect to any Indebtedness of such Subsidiary
     would permit (upon notice, lapse of time or otherwise) any holder of any
     other Indebtedness of PGI or any Restricted Subsidiary to declare a default
     on such other Indebtedness or cause the payment thereof to be accelerated
     or payable prior to its stated maturity;

          (c)  neither PGI nor any Restricted Subsidiary has made an Investment
     in such Subsidiary unless either (i) such Investment was permitted under,
     and made in accordance with, Section 9.08(l) hereof or (ii) if made on such
     date of designation would be permitted under Section 9.08(l) hereof, and
     for purposes of this clause (ii), the amount of any such Investment on the
     date of any such designation shall be deemed to be equal to the greater of
     (x) the amount of the Investments by PGI and its Restricted Subsidiaries in
     such Subsidiary (determined in accordance with the last sentence of Section
     9.08 hereof) on the date of such designation, and (y) the fair market value
     of all Property of such Subsidiary on such date of designation;

          (d)  neither PGI nor any Restricted Subsidiary has a contract,
     agreement, arrangement, understanding or obligation of any kind, whether
     written or oral, with such Subsidiary other than those that might be
     obtained at the time from Persons who are not Affiliates of the Obligors;
     and

          (e)  neither PGI nor any Restricted Subsidiary has any obligation (i)
     to subscribe for additional shares of capital stock or other equity
     interest in such Subsidiary or (ii) to maintain or preserve such
     Subsidiary's financial condition or to cause such Subsidiary to achieve
     certain levels of operating results.

          1.05  Interest Act (Canada).  For the purposes of this Agreement,
whenever interest to be paid hereunder is to be calculated on the basis of a
year of 365 days, the yearly rate of interest to which the rate determined
pursuant to such calculation is equivalent is the rate so determined multiplied
by the actual number of days in the calendar year in which the same is to be
ascertained and divided by 365.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -38-

          Section 2.  Commitments, Loans, Notes and Prepayments.

          2.01  Loans.
 
          (a)  Facility A Revolving Credit Loans.  Each Facility A Revolving
Credit Lender severally agrees, on the terms and conditions of this Agreement
(including, without limitation, compliance with the limitations set forth in
Section 2.10(g) hereof), to make loans to PGI in U.S. Dollars, and to the Dutch
Borrowers in Dutch Guilders, in an aggregate principal amount at any one time
outstanding up to but not exceeding such Lender's Facility A Revolving Credit
Commitment as in effect from time to time, in each case during the period from
and including the Effective Date to but not including the Revolving Credit
Termination Date.  During such period, and subject to the terms and conditions
of this Agreement (including, without limitation, paragraph (c) below),

          (x)  PGI may borrow, repay and reborrow the amount of the Facility A
     Revolving Credit Commitments by means of Base Rate Loans and Eurodollar
     Loans, and may Convert Facility A Revolving Credit Loans of one Type into
     Facility A Revolving Credit Loans of another Type (as provided in Section
     2.09 hereof) and may Continue Facility A Revolving Credit Loans of one Type
     as Facility A Revolving Credit Loans of the same Type (as provided in
     Section 2.09 hereof), and

          (y)  the Dutch Borrowers may borrow, repay and reborrow the amount of
     the Facility A Revolving Credit Commitments by means of Euroguilder Loans
     and may Continue Euroguilder Loans from one Interest Period to the next (as
     provided in Section 2.09 hereof).

          Proceeds of Facility A Revolving Credit Loans shall be available for
any use permitted under Section 9.13 hereof, provided that a portion of the
Facility A Revolving Credit Commitments (such portion being herein called the
"Facility A Reserved Commitment Amount") may be reserved and shall not be
available for borrowings hereunder as follows:

               (i)  in the event that as contemplated by Section 2.10(c) hereof,
     PGI shall prepay Facility A Revolving Credit Loans from the proceeds of a
     Disposition, an amount of the Facility A Revolving Credit Commitments equal
     to the amount of such prepayment shall be reserved and shall not be
     available for borrowings of Facility A Revolving Credit Loans hereunder
     except and to the extent that the proceeds of such borrowings are to be
     applied to investments in replacement assets as contemplated by Section
     2.10(c) hereof; and

               (ii)  in the event that PGI shall fail to redeem all of the
     Existing Senior Notes in connection with the Refinancing, then, for each
     whole multiple of U.S. 


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -39-

     $5,000,000 aggregate principal amount of Existing Senior Notes not so
     redeemed on the Effective Date, an amount of the Facility A Revolving
     Credit Commitments equal to U.S. $5,000,000 shall be reserved and shall not
     be available for borrowings of Facility A Revolving Credit Loans hereunder
     except and to the extent that the proceeds of such borrowings are to be
     applied to make redemptions, or repurchases in the open market, of
     outstanding Existing Senior Notes at a price not in excess of 115% of par
     plus accrued and unpaid interest.

PGI agrees, upon the occasion of any borrowing of Facility A Revolving Credit
Loans hereunder that is to constitute a utilization of any Facility A Reserved
Commitment Amount, to advise the Administrative Agent in writing of such fact at
the time of such borrowing, identifying the amount of such borrowing that is to
constitute such utilization, the replacement assets or redemption or repurchase
of Existing Senior Notes in respect of which the proceeds of such borrowing are
to be applied and the reduced Facility A Reserved Commitment Amount to be in
effect after giving effect to such borrowing.  Any Facility A Reserved
Commitment Amount shall be deemed to reserve first the U.S. Dollar portion of
the Facility A Revolving Credit Commitments and second the Dutch Guilder portion
of the Facility A Revolving Credit Commitments.

          (b)  Facility B Revolving Credit Loans.  Each Facility B Revolving
Credit Lender severally agrees, on the terms and conditions of this Agreement
(including, without limitation, compliance with the limitations set forth in
Section 2.10(g) hereof), to make loans to Fabrene in Canadian Dollars, during
the period from and including the Effective Date to but not including the
Revolving Credit Termination Date in an aggregate principal amount up to but not
exceeding such Lender's Facility B Revolving Credit Commitment, such loans to be
made by each Facility B Revolving Credit Lender either by means of (x) Canadian
Base Rate Loans in Canadian Dollars or (y) the creation and discount of Bankers'
Acceptances in Canadian Dollars on the terms and conditions provided for herein
and in Annex I hereto.  After the Effective Date, and subject to the terms and
conditions of this Agreement (including, without limitation, paragraph (c)
below), during such period Fabrene may borrow, repay and reborrow the amount of
the Facility B Revolving Credit Commitments by means of Canadian Base Rate Loans
and Bankers' Acceptances, and may Convert Facility B Revolving Credit Loans of
one Type into Facility B Revolving Credit Loans of another Type (as provided in
Section 2.09 hereof and Annex I hereto) and may Continue Facility B Revolving
Credit Loans of one Type as Facility B Revolving Credit Loans of the same Type
(as provided in Section 2.09 hereof and Annex I hereto).

          Proceeds of Facility B Revolving Credit Loans shall be available for
any use permitted under Section 9.13 hereof, provided that, in the event that as
contemplated by Section 2.10(c) hereof, Fabrene shall prepay Facility B
Revolving Credit Loans from the proceeds of a Disposition hereunder, then an
amount of Facility B Revolving Credit Commitments equal to the amount of such
prepayment (herein the "Facility B Reserved 


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -40-

Commitment Amount") shall be reserved and shall not be available for borrowings
of Facility B Revolving Credit Loans hereunder except and to the extent that the
proceeds of such borrowings are to be applied to investments in replacement
assets as contemplated by Section 2.10(c) hereof. Fabrene agrees, upon the
occasion of any borrowing of Facility B Revolving Credit Loans hereunder that is
to constitute a utilization of any Facility B Reserved Commitment Amount, to
advise the Administrative Agent in writing of such fact at the time of such
borrowing, identifying the amount of such borrowing that is to constitute such
utilization and the replacement assets in respect of which the proceeds of such
borrowing are to be applied and the reduced Facility B Reserved Commitment
Amount to be in effect after giving effect to such borrowing.

          (c)  Limit on Eurocurrency Loans and Bankers' Acceptance Loans.
Notwithstanding the foregoing provisions of this Section 2.01, in no event shall
(A) the Revolving Credit Exposure after giving effect to any borrowing on any
date of Loans hereunder exceed U.S. $325,000,000, (B) the Revolving Credit
Exposure attributable to Facility A Revolving Credit Loans and Letters of
Credit, after giving effect to any borrowing on any date of Facility A Revolving
Credit Loans hereunder, exceed the aggregate outstanding principal amount of the
Facility A Revolving Credit Commitments on such date, (C) the aggregate U.S.
Dollar Equivalent of the principal amount of all Facility A Revolving Credit
Loans denominated in Dutch Guilders and made to Dutch Holding after giving
effect to any borrowing exceed U.S. $40,000,000, (D) the aggregate U.S. Dollar
Equivalent of the principal amount of all Facility A Revolving Credit Loans
denominated in Dutch Guilders and made to Dutch Operating after giving effect to
any borrowing exceed U.S. $15,000,000, (E) the Revolving Credit Exposure
attributable to Facility B Revolving Credit Loans, after giving effect to any
borrowing on any date of Facility B Revolving Credit Loans hereunder, exceed the
aggregate outstanding principal amount of the Facility B Revolving Credit
Commitments on such date, (F) more than twelve separate Interest Periods in
respect of Eurocurrency Loans from each Lender be outstanding at any one time
and (G) more than six different maturity dates for all Bankers' Acceptance Loans
be outstanding at any one time.

          Facility A Revolving Credit Loans made to PGI shall be either Base
Rate Loans or Eurodollar Loans.  Facility A Revolving Credit Loans made to
either Dutch Borrower shall be Euroguilder Loans and may not be of any other
Type or Currency.  Facility B Revolving Credit Loans shall be either Canadian
Base Rate Loans or Bankers' Acceptances.

          (d)  Treatment of Loans Outstanding under Existing Credit Agreement.
In the event that any loans under the Existing Credit Agreement shall remain
outstanding on the Effective Date after giving effect to the application on the
Effective Date of the proceeds of the Senior Subordinated Notes, then such loans
shall be continued as Facility A Revolving Credit or Facility B Revolving Credit
Loans hereunder, as applicable, in the corresponding currency in which
outstanding under the Existing Credit Agreement and the Lenders hereunder shall,
on the Effective Date, take such actions, and make such adjustments among


                               Credit Agreement
                               ---------------- 
<PAGE>
 
                                      -41-

themselves, as shall be necessary so that such loans are held hereunder pro rata
in accordance with their respective Facility A Revolving Credit Commitments and
Facility B Revolving Credit Commitments, as applicable. On the Effective Date,
PGI shall cause to be paid to each Lender party to the Existing Credit
Agreement, all amounts that would be owing to such Lender under Section 5.06 of
the Existing Credit Agreement as if the "Loans" of such Lender under the
Existing Credit Agreement were being repaid on the Effective Date, whether or
not any such loans are actually repaid on the Effective Date.

          2.02  Borrowings.  Each Borrower shall give the Administrative Agent
(which shall promptly notify the respective Lenders) notice of each borrowing to
be made to such Borrower hereunder as provided in Section 4.05 hereof.  Not
later than 2:00 p.m. New York time (in the case of Loans denominated in U.S.
Dollars) or 10:00 a.m. local time in the location of the relevant Payment Office
(in the case of Loans denominated in an Alternative Currency) on the date
specified for each borrowing hereunder, each Facility A or Facility B Revolving
Credit Lender, as applicable, shall make available the amount of the Loan or
Loans to be made by it on such date to the Administrative Agent, at the Payment
Office for the Currency of such Loans in immediately available funds, for
account of the respective Borrower that requested such borrowing.  The amount so
received by the Administrative Agent shall, subject to the terms and conditions
of this Agreement, be made available to the respective Borrower by depositing
the same, in immediately available funds, in an account of such Borrower
designated by such Borrower.

          2.03  Letters of Credit.  Subject to the terms and conditions of this
Agreement, the Facility A Revolving Credit Commitments may be utilized, upon the
request of PGI, in addition to the Facility A Revolving Credit Loans provided
for by Section 2.01(a) hereof, by the issuance by the Issuing Lender of letters
of credit (collectively, "Letters of Credit") for account of PGI or any of its
Subsidiaries (as specified by PGI), provided that in no event shall (i) the
Revolving Credit Exposure after giving effect to any issuance on any date of a
Letter of Credit hereunder exceed the aggregate outstanding principal amount of
the Commitments on such date, (ii) the Revolving Credit Exposure attributable to
Facility A Revolving Credit Loans and Letters of Credit, after giving effect to
any issuance of a Letter of Credit on any date hereunder, exceed the aggregate
outstanding principal amount of the Facility A Revolving Credit Commitments on
such date, (iii) the outstanding aggregate amount of all Letter of Credit
Liabilities exceed U.S. $20,000,000 or (iv) the expiration date of any Letter of
Credit extend beyond the earlier of the Revolving Credit Termination Date and
the date one year following the issuance of such Letter of Credit.  The
following additional provisions shall apply to Letters of Credit:

          (a)  PGI shall give the Administrative Agent at least five Business
     Days' irrevocable prior notice (effective upon receipt) specifying the
     Business Day (which shall be no later than thirty days preceding the
     Revolving Credit Termination Date) each Letter of Credit is to be issued on
     behalf of PGI and the account party or parties 


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -42-

     therefor and describing in reasonable detail the proposed terms of such
     Letter of Credit (including the beneficiary thereof) and the nature of the
     transactions or obligations proposed to be supported thereby. Upon receipt
     of any such notice, the Administrative Agent shall advise the Issuing
     Lender of the contents thereof.

          (b)  On each day during the period commencing with the issuance by the
     Issuing Lender of any Letter of Credit and until such Letter of Credit
     shall have expired or been terminated, the Facility A Revolving Credit
     Commitment of each Facility A Revolving Credit Lender shall be deemed to be
     utilized for all purposes of this Agreement in an amount equal to such
     Lender's Facility A Revolving Credit Commitment Percentage of the then
     undrawn face amount of such Letter of Credit.  Each Facility A Revolving
     Credit Lender (other than the Issuing Lender) agrees that, upon the
     issuance of any Letter of Credit hereunder, it shall automatically acquire
     its Letter of Credit Interest with respect to such Letter of Credit in an
     amount equal to such Lender's Facility A Revolving Credit Commitment
     Percentage of such liability, and each Facility A Revolving Credit Lender
     (other than the Issuing Lender) thereby shall absolutely, unconditionally
     and irrevocably assume, as primary obligor and not as surety, and shall be
     unconditionally obligated to the Issuing Lender to pay and discharge when
     due, its Facility A Revolving Credit Commitment Percentage of the Issuing
     Lender's liability under such Letter of Credit.

          (c)  Upon receipt from the beneficiary of any Letter of Credit of any
     demand for payment under such Letter of Credit, the Issuing Lender shall
     promptly notify PGI (through the Administrative Agent) of the amount to be
     paid by the Issuing Lender as a result of such demand and the date on which
     payment is to be made by the Issuing Lender to such beneficiary in respect
     of such demand.  Notwithstanding the identity of the account party of any
     Letter of Credit, PGI hereby unconditionally agrees to pay and reimburse
     the Administrative Agent for account of the Issuing Lender for the amount
     of each demand for payment under the Letter of Credit at or prior to the
     date on which payment is to be made by the Issuing Lender to the
     beneficiary thereunder, without presentment, demand, protest or other
     formalities of any kind.

          (d)  Forthwith upon its receipt of a notice referred to in paragraph
     (c) of this Section 2.03, PGI shall advise the Administrative Agent whether
     or not PGI intends to borrow hereunder to finance its obligation to
     reimburse the Issuing Lender for the amount of the related demand for
     payment and, if it does, submit a notice of such borrowing as provided in
     Section 4.05 hereof.  In the event that PGI fails to so advise the
     Administrative Agent, or if PGI fails to reimburse the Issuing Lender for a
     demand for payment under a Letter of Credit by the date of such payment,
     the Administrative Agent shall give each Facility A Revolving Credit Lender
     prompt notice of the amount of the demand for payment, specifying such
     Lender's Facility A Revolving Credit Commitment Percentage of the amount of
     the related demand for payment.


                               Credit Agreement
                               ---------------- 
 
<PAGE>
 
                                      -43-

          (e)  Each Facility A Revolving Credit Lender (other than the Issuing
     Lender) shall pay to the Administrative Agent for account of the Issuing
     Lender at the Principal Office in U.S. Dollars and in immediately available
     funds, the amount of such Lender's Facility A Revolving Credit Commitment
     Percentage of any payment under a Letter of Credit upon notice by the
     Issuing Lender (through the Administrative Agent) to such Revolving Credit
     Lender requesting such payment and specifying such amount.  Each such
     Facility A Revolving Credit Lender's obligation to make such payments to
     the Administrative Agent for account of the Issuing Lender under this
     paragraph (e), and the Issuing Lender's right to receive the same, shall be
     absolute and unconditional and shall not be affected by any circumstance
     whatsoever (except as provided in the proviso at the end of this sentence),
     including, without limitation, (i) the failure of any other Facility A
     Revolving Credit Lender to make its payment under this paragraph (e), (ii)
     the financial condition of PGI (or any other account party), (iii) the
     existence of any Default or (iv) the termination of the Commitments;
     provided that, no Facility A Revolving Credit Lender shall be obligated to
     make any payment to the Administrative Agent for the account of the Issuing
     Lender under any Letter of Credit to the extent that PGI shall not be
     required to indemnify any Lender or the Administrative Agent in the
     circumstances provided in clause (x) of the penultimate sentence of the
     last paragraph of this Section 2.03.  Each such payment to the Issuing
     Lender shall be made without any offset, abatement, withholding or
     reduction whatsoever.

          (f)  Subject to the making of each payment by a Facility A Revolving
     Credit Lender to the Issuing Lender pursuant to paragraph (e) above in
     respect of any Letter of Credit, upon receipt by the Issuing Lender from or
     for account of PGI of any payment in respect of any Reimbursement
     Obligation or any such interest or other amount (including by way of setoff
     or application of proceeds of any collateral security) the Issuing Lender
     shall promptly pay to the Administrative Agent for account of each Facility
     A Revolving Credit Lender entitled thereto, such Facility A Revolving
     Credit Lender's Facility A Revolving Credit Commitment Percentage of such
     payment, each such payment by the Issuing Lender to be made in the same
     money and funds in which received by the Issuing Lender.  In the event any
     payment received by the Issuing Lender and so paid to the Facility A
     Revolving Credit Lenders hereunder is rescinded or must otherwise be
     returned by the Issuing Lender, each Facility A Revolving Credit Lender
     shall, upon the request of the Issuing Lender (through the Administrative
     Agent), repay to the Issuing Lender (through the Administrative Agent) the
     amount of such payment paid to such Lender, with interest, if any, at the
     rate required to be paid by the Issuing Lender upon any return of such
     funds.

          (g)  PGI shall pay to the Administrative Agent for account of each
     Facility A Revolving Credit Lender (ratably in accordance with their
     respective Facility A


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -44-

     Revolving Credit Commitment Percentages) a letter of credit fee in respect
     of each Letter of Credit issued on behalf of PGI at a rate per annum equal
     to the product of the relevant Applicable Margin and the daily average
     undrawn face amount of such Letter of Credit for the period from and
     including the date of issuance of such Letter of Credit (i) in the case of
     a Letter of Credit that expires in accordance with its terms, to and
     including such expiration date and (ii) in the case of a Letter of Credit
     that is drawn in full or is otherwise terminated other than on the stated
     expiration date of such Letter of Credit, to but excluding the date such
     Letter of Credit is drawn in full or is terminated (such fee to be non-
     refundable, to be paid in arrears on each Quarterly Date and on the
     Revolving Credit Commitment Termination Date and to be calculated for any
     day after giving effect to any payments made under such Letter of Credit on
     such day).

          In addition, PGI shall pay to the Administrative Agent for account of
     the Issuing Lender a fronting fee in respect of each Letter of Credit
     issued on behalf of PGI in an amount equal to .25% per annum of the daily
     average undrawn face amount of such Letter of Credit for the period from
     and including the date of issuance of such Letter of Credit (i) in the case
     of a Letter of Credit that expires in accordance with its terms, to and
     including such expiration date and (ii) in the case of a Letter of Credit
     that is drawn in full or is otherwise terminated other than on the stated
     expiration date of such Letter of Credit, to but excluding the date such
     Letter of Credit is drawn in full or is terminated (such fee to be non-
     refundable, to be paid in arrears on each Quarterly Date and on the
     Revolving Credit Commitment Termination Date and to be calculated for any
     day after giving effect to any payments made under such Letter of Credit on
     such day) plus all commissions, charges, costs and expenses in the amounts
     customarily charged by the Issuing Lender from time to time in like
     circumstances with respect to the issuance of each Letter of Credit and
     drawings and other transactions relating thereto.

          (h)  Promptly following the end of each calendar month, the Issuing
     Lender shall deliver (through the Administrative Agent) to each Facility A
     Revolving Credit Lender and to PGI a notice describing the aggregate stated
     amount of all Letters of Credit issued on behalf of PGI outstanding at the
     end of such month.  Upon the request of any Facility A Revolving Credit
     Lender from time to time, the Issuing Lender shall deliver any other
     information reasonably requested by such Lender with respect to each Letter
     of Credit then outstanding.

          (i)  The issuance by the Issuing Lender of each Letter of Credit
     shall, in addition to the conditions precedent set forth in Section 7
     hereof, be subject to the conditions precedent that (i) such Letter of
     Credit shall be in such form, contain such terms and support such
     transactions as shall be satisfactory to the Issuing Lender consistent with
     its then current practices and procedures with respect to Letters of

                               Credit Agreement
                               ---------------- 
<PAGE>
 
                                      -45-

     Credit of the same type and (ii) PGI shall have executed and delivered such
     applications, agreements and other instruments relating to such Letter of
     Credit as the Issuing Lender shall have reasonably requested consistent
     with its then current practices and procedures with respect to Letters of
     Credit of the same type, provided that in the event of any conflict between
     any such application, agreement or other instrument and the provisions of
     this Agreement or any Security Document, the provisions of this Agreement
     and the Security Documents shall control.

          (j)  To the extent that any Facility A Revolving Credit Lender fails
     to pay any amount required to be paid pursuant to paragraph (e) or (f) of
     this Section 2.03 on the due date therefor, such Lender shall pay interest
     to the Issuing Lender (through the Administrative Agent) on such amount
     from and including such due date to but excluding the date such payment is
     made (i) during the period from and including such due date to but
     excluding the date three Business Days thereafter, at a rate per annum
     equal to the Federal Funds Rate (as in effect from time to time) and (ii)
     thereafter, at a rate per annum equal to the Base Rate (as in effect from
     time to time) plus 2%.

          (k)  The issuance by the Issuing Lender of any modification or
     supplement to any Letter of Credit hereunder shall be subject to the same
     conditions applicable under this Section 2.03 to the issuance of new
     Letters of Credit, and no such modification or supplement shall be issued
     hereunder unless either (x) the respective Letter of Credit affected
     thereby would have complied with such conditions had it originally been
     issued hereunder in such modified or supplemented form or (y) each Facility
     A Revolving Credit Lender shall have consented thereto.

          (l)  On the Effective Date, the Letters of Credit outstanding under
     the Existing Credit Agreements for the account of PGI or any of its
     Subsidiaries that is a "Letter of Credit Borrower" under the Existing
     Credit Agreement shall automatically, and without any action on the part of
     any Person, become Letters of Credit hereunder.

PGI hereby indemnifies and holds harmless each Facility A Revolving Credit
Lender and the Administrative Agent from and against any and all claims and
damages, losses, liabilities, costs or expenses which such Lender or the
Administrative Agent may incur (or which may be claimed against such Lender or
the Administrative Agent by any Person whatsoever) by reason of or in connection
with the execution and delivery or transfer of or payment or refusal to pay by
the Issuing Lender under any Letter of Credit issued on behalf of PGI; provided
that PGI shall not be required to indemnify any Lender or the Administrative
Agent for any claims, damages, losses, liabilities, costs or expenses to the
extent, but only to the extent, caused by (x) the willful misconduct or gross
negligence of the Issuing Lender in determining whether a request presented
under any Letter of Credit issued on behalf of PGI complied with the terms of
the Letter of Credit or (y) in the case of the Issuing Lender, such Lender's
failure to pay under any Letter of Credit issued on behalf of PGI after the
presentation to it of

                               Credit Agreement
                               ---------------- 
<PAGE>
 
                                     -46-

a request strictly complying with the terms and conditions of such Letter of
Credit.  Nothing in this Section 2.03 is intended to limit the other obligations
of PGI, any Lender or the Administrative Agent under this Agreement.

          2.04 Changes of Commitments.

          (a)  The aggregate amount of the Commitments shall be automatically
reduced to zero on the Revolving Credit Termination Date.

          (b)  The Facility A Revolving Credit Borrowers shall have the right at
any time and from time to time (x) to terminate the Facility A Revolving Credit
Commitments (but only so long as no Facility A Revolving Credit Loans or Letter
of Credit Liabilities are outstanding at such time) and (y) to reduce the
aggregate unused amount of the Facility A Revolving Credit Commitments (for
which purpose use of the Facility A Revolving Credit Commitments shall be deemed
to include the aggregate amount of Letter of Credit Liabilities).

          Fabrene shall have the right at any time and from time to time (x) to
terminate the Facility B Revolving Credit Commitments (but only so long as no
Facility B Revolving Credit Loans are outstanding at such time) and (y) to
reduce the aggregate unused amount of the Facility B Revolving Credit
Commitments.

          In connection with any such termination, (i) the Facility A Revolving
Credit Borrowers and Fabrene, as applicable, shall give notice of each such
termination or reduction as provided in Section 4.05 hereof, (ii) each partial
reduction shall be in an aggregate amount at least equal to U.S. $2,000,000 or
in multiples of U.S. $1,000,000 in excess thereof and (iii) upon any termination
of the Facility A Revolving Credit Commitments, the Facility B Revolving Credit
Commitments shall automatically terminate.

          (c)  The Commitments once terminated or reduced may not be reinstated.

          2.05 Commitment Fees.  The Borrowers shall pay to the Administrative
Agent for account of each Lender, a commitment fee on the daily average unused
amount of such Lender's Facility A and Facility B Revolving Credit Commitments
(for which purpose, outstanding Letters of Credit shall be deemed to constitute
a use of Commitment but Reserved Commitment Amounts shall not be deemed to
constitute a use of Commitment) for the period from and including the Effective
Date to but not including the earlier of the date such Commitments are
terminated and the Revolving Credit Termination Date, at a rate per annum equal
to the relevant Applicable Margin.  Accrued commitment fees shall be payable on
each Quarterly Date and on the earlier of the date the relevant Commitments are
terminated and the Revolving Credit Termination Date.  Accrued commitment fees
in respect of the Facility A Revolving Credit Commitments shall be payable in
U.S. Dollars; accrued commitment fees in respect of the Facility B Revolving
Credit Commitments shall be payable in Canadian Dollars.

                               Credit Agreement
                               ---------------- 
<PAGE>
 
                                     -47-

          2.06 Lending Offices.  The Loans of each Type and Currency made by
each Lender shall be made and maintained at such Lender's Applicable Lending
Office for Loans of such Type and Currency.

          2.07 Several Obligations; Remedies Independent.  The failure of any
Lender to make any Loan to be made by it on the date specified therefor shall
not relieve any other Lender of its obligation to make its Loan on such date,
but neither any Lender nor the Administrative Agent shall be responsible for the
failure of any other Lender to make a Loan to be made by such other Lender, and
no Lender shall have any obligation to the Administrative Agent or any other
Lender for the failure by such Lender to make any Loan required to be made by
such Lender.  The amounts payable by the Borrowers at any time hereunder and
under the Notes to each Lender shall be a separate and independent debt and each
Lender shall be entitled to protect and enforce its rights arising out of this
Agreement and the Notes, and it shall not be necessary for any other Lender or
the Administrative Agent to consent to, or be joined as an additional party in,
any proceedings for such purposes.

          2.08 Notes.

          (a)  The Facility A Revolving Credit Loans made by each Facility A
Revolving Credit Lender to each Facility A Revolving Credit Borrower shall be
evidenced by a single promissory note of each Facility A Revolving Credit
Borrower substantially in the form of Exhibit A-1 hereto, dated the date hereof,
payable to such Lender in a principal amount equal to the amount of its Facility
A Revolving Credit Commitment as originally in effect (or, in the case of either
Dutch Borrower, in the amount of the Facility A Revolving Credit Loans made to
it) and otherwise duly completed.

          (b)  The Facility B Revolving Credit Loans made by each Facility B
Revolving Credit Lender to Fabrene shall be evidenced by a single promissory
note of Fabrene substantially in the form of Exhibit A-2 hereto, dated the date
hereof, payable to such Lender in a principal amount equal to the amount of the
Facility B Revolving Credit Loans made to it and otherwise duly completed.

          (c)  The date, amount, Type, interest rate and duration of Interest
Period (if applicable) and maturity (in the case of a Bankers' Acceptance Loan)
of each Loan of each Class made by each Lender to the Borrowers, and each
payment made on account of the principal thereof, shall be recorded by such
Lender on its books and, prior to any transfer of any Note evidencing the Loans
of such Class held by it, endorsed by such Lender on the schedule attached to
such Note or any continuation thereof; provided that the failure of such Lender
to make any such recordation or endorsement shall not affect the obligations of
the Borrowers to make a payment when due of any amount owing hereunder or under
such Note in respect of the Loans to be evidenced by such Note.

                               Credit Agreement
                               ---------------- 
<PAGE>
 
                                     -48-

          (d)  No Lender shall be entitled to have its Notes subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except in
connection with a permitted assignment of all or any portion of such Lender's
relevant Commitment, Loans and Notes pursuant to Section 12.06(b) hereof.

          2.09 Optional Prepayments and Conversions or Continuations of Loans.
Subject to Section 4.04 hereof and paragraph (h) of Annex I hereto, each
Borrower shall have the right, with respect to the Loans made to it, to prepay
Loans, or (in the case of Loans denominated in U.S. Dollars or Canadian Dollars)
to Convert Loans of one Type into Loans of another Type or (in the case of all
Loans) to Continue Loans of one Type as Loans of the same Type, at any time or
from time to time, provided that:  (a) such Borrower shall give the
Administrative Agent notice of each such prepayment, Conversion or Continuation
as provided in Section 4.05 hereof (and, upon the date specified in any such
notice of prepayment, the amount to be prepaid shall become due and payable
hereunder) and (b) upon any prepayment or Conversion of Eurocurrency Loans or
Bankers' Acceptance Loans other than on the last day of an Interest Period for
such Loans (or, in the case of Bankers' Acceptance Loans, the maturity dates for
the underlying Bankers' Acceptances), such Borrower shall pay any amounts owing
under Section 5.05 hereof as a result of such prepayment or Conversion.

          Notwithstanding the foregoing, and without limiting the rights and
remedies of the Lenders under Section 10 hereof, in the event that any Event of
Default shall have occurred and be continuing, the Administrative Agent may (and
at the request of the Majority Lenders shall) (x) with respect to Loans
denominated in U.S. Dollars, suspend the right of the Borrowers to Convert any
Loan into a Eurodollar Loan, or to Continue any Loan as a Eurodollar Loan, in
which event all such Loans shall be Converted (on the last day(s) of the
respective Interest Periods therefor) or Continued, as the case may be, as Base
Rate Loans and (y) with respect to Loans denominated in Canadian Dollars,
suspend the right of the Borrowers to Convert any Loan into a Bankers'
Acceptance Loan, or to Continue any Loan as a Bankers' Acceptance Loan, in which
event all such Loans shall be Converted (on the maturity date therefor) or
Continued, as the case may be, as Canadian Base Rate Loans and (z) with respect
to Loans denominated in Dutch Guilders, require that any such Loans be Continued
only as Euroguilder Loans with Interest Periods of one-month's duration.

          2.10 Mandatory Prepayments and Reductions of Commitments.

          (a)  Casualty Events.  On the date 45 days following the receipt by
the Group Members of the proceeds of any insurance, condemnation award or other
compensation in respect of any Casualty Event affecting any Property of any
Group Member (excluding any Group Member which is an Unrestricted Subsidiary)
(or upon such earlier date as the respective Group Member shall have determined
not to repair or replace (with either identical or substantially similar
Property) the Property affected by such Casualty Event), PGI shall,

                               Credit Agreement
                               ---------------- 
<PAGE>
 
                                     -49-

and shall cause the other Borrowers to, prepay the Loans (and/or provide cover
for Letter of Credit Liabilities as specified in paragraph (f) below), and the
Commitments shall be subject to automatic reduction, in an aggregate amount, if
any, equal to 100% of the Net Available Proceeds of such Casualty Event not
theretofore promptly applied to the repair or replacement of such Property, such
prepayment and reduction to be effected in each case in the manner and to the
extent specified in paragraph (e) below.  Notwithstanding the foregoing, in the
event that a Casualty Event shall occur with respect to Property covered by the
Mortgages, PGI (or the respective Mortgagor) shall prepay the Loans (and/or
provide cover for Letter of Credit Liabilities as specified in paragraph (f)
below), and the Commitments shall be subject to automatic reduction, on the
dates, and in the amounts of the required prepayments, specified in the
Mortgages.  Nothing in this paragraph (a) shall be deemed to limit any
obligation of the Group Members pursuant to any of the Security Documents to
remit to a collateral or similar account (including, without limitation, the
Collateral Account) maintained by the Administrative Agent pursuant to any of
the Security Documents the proceeds of insurance, condemnation award or other
compensation received in respect of any Casualty Event.

          (b)  Debt Issuance.  Without limiting the obligation of the Obligors
to obtain the consent of the Majority Lenders pursuant to Section 12.04 hereof
to any Debt Issuance not otherwise permitted hereunder, upon any Debt Issuance,
PGI shall, and shall cause the other Borrowers to, prepay the Loans (and/or
provide cover for Letter of Credit Liabilities as specified in paragraph (f)
below), in an aggregate amount equal to 100% of the Net Available Proceeds
thereof, such prepayment and reduction to be effected in each case in the manner
and to the extent specified in paragraph (e) below, provided that no prepayment
need be made pursuant to this Section 2.10(b) on the occasion of any Debt
Issuance to the extent that (i) the proceeds of such Debt Issuance are applied
to the prepayment of the Fabrene Acquisition Intercompany Note (and PGI complies
with the requirements of paragraph (d) below in respect of such prepayment) and
(ii) the proceeds of such Debt Issuance in excess of the amount so applied to
the Fabrene Acquisition Intercompany Note is applied to make the prepayments
required by this paragraph (b).

          (c)  Sale of Assets.  Without limiting the obligation of the Obligors
to obtain the consent of the Majority Lenders pursuant to Section 12.04 hereof
to any Disposition not otherwise permitted hereunder, no later than five
Business Days prior to the occurrence of any such Disposition, PGI will deliver
to the Lenders a statement, certified by its chief financial officer, in form
and detail satisfactory to the Administrative Agent, of the amount of the Net
Available Proceeds of such Disposition and, to the extent such Net Available
Proceeds (when taken together with the Net Available Proceeds of all prior
Dispositions as to which a prepayment has not yet been made under this paragraph
(c)) shall exceed U.S. $10,000,000, PGI shall, and shall cause the other
Borrowers to, prepay the Loans (and/or provide cover for Letter of Credit
Liabilities as specified in paragraph (f) below), and the Commitments shall be
subject to automatic reduction, in an aggregate amount equal to 100% of the Net
Available

                               Credit Agreement
                               ----------------  
<PAGE>
 
                                     -50-

Proceeds of such Disposition (together with 100% of the Net Available Proceeds
of all prior Dispositions as to which a prepayment has not yet been made under
this paragraph (c)), such prepayment and reduction to be effected in each case
in the manner and to the extent specified in paragraph (e) below.

          Notwithstanding the foregoing, PGI (and the other Borrowers) shall not
be required to make a prepayment pursuant to this paragraph (c) with respect to
the Net Available Proceeds from any Disposition in the event that PGI advises
the Administrative Agent at the time the Net Available Proceeds from such
Disposition are received that PGI or one or more of its Subsidiaries intends to
reinvest such Net Available Proceeds into replacement assets (and for these
purposes the payment of Reserved Amounts arising in connection with any
Disposition shall be deemed to be a reinvestment in replacement assets), so long
as:

               (i)  such Net Available Proceeds are either (x) held by the
     Administrative Agent in the Collateral Account pending such reinvestment
     (and in that connection, the Administrative Agent need not release such Net
     Available Proceeds except upon presentation of evidence satisfactory to it
     that such Net Available Proceeds are to be so reinvested in compliance with
     the provisions of this Agreement) or (y) applied to the prepayment of
     Facility A or Facility B Revolving Credit Loans hereunder (in which event
     PGI agrees to advise the Administrative Agent in writing at the time of
     such prepayment that such prepayment is being made from the proceeds of a
     Disposition and that, as contemplated by Section 2.01(a) or 2.01(b) hereof,
     as applicable, a portion of the Facility A or Facility B Revolving Credit
     Commitments hereunder equal to the amount of such prepayment gives rise to
     a Facility A or Facility B Reserved Commitment Amount that shall be
     available hereunder only for purposes of making investments in replacement
     assets as contemplated hereby),

               (ii)  the Net Available Proceeds from any Disposition are in fact
     so reinvested within 265 days of such Disposition, it being understood
     that, in the event Net Available Proceeds from more than one Disposition
     are paid into the Collateral Account or applied to the prepayment of Loans
     as provided in clause (i) above, such Net Available Proceeds shall be
     deemed to be released (or, as the case may be, Loans utilizing the related
     Reserved Commitment Amount shall be deemed to be made) in the same order in
     which such Dispositions occurred and, accordingly, (A) any such Net
     Available Proceeds so held for more than 265 days shall be forthwith
     applied to the prepayment of Loans and reductions of Commitments as
     provided above and (B) any Reserved Commitment Amount that remains so
     unutilized for more than 265 days shall result in an automatic reduction of
     Facility A or Facility B Revolving Credit Commitments, as applicable, in an
     amount equal to such Reserved Commitment Amount not so utilized (and, upon
     any such reduction, PGI agrees to advise the Administrative Agent in
     writing of such fact at the time of such reduction, identifying

                               Credit Agreement
                               ----------------  
<PAGE>
 
                                     -51-

     the reduced Reserved Commitment Amount to be in effect after giving effect
     to such reduction), and

               (iii)  the aggregate amount of Net Available Proceeds (together
     with investment earnings thereon) so held at any time by the Administrative
     Agent pending reinvestment as contemplated by this sentence, together with
     the aggregate amount of the Reserved Commitment Amounts, shall not at any
     time exceed U.S. $30,000,000 or such greater amount as the Majority Lenders
     may otherwise agree.

As contemplated by Section 4.01 of the Security Agreement, nothing in this
paragraph (c) shall be deemed to obligate the Administrative Agent to release
any of such proceeds from the Collateral Account to PGI for purposes of
reinvestment as aforesaid upon the occurrence and during the continuance of any
Event of Default.

          (d)  Fabrene Intercompany Note.  Concurrently with the receipt by
Fabrene Holdings or PGI Polymer (including, without limitation, amounts
deposited with Chase pursuant to the applicable provisions of the Fabrene
Intercompany Notes Agreement, but excluding amounts paid pursuant to the Fabrene
Intercompany Notes Agreement in respect of a Casualty Event or Disposition that
give rise to a prepayment pursuant to paragraphs (a) or (c) above) of any
payment or prepayment of principal in respect of the Fabrene Acquisition
Intercompany Notes, PGI shall prepay the Loans (and/or provide cover for Letter
of Credit Liabilities as specified in paragraph (f) below), and the Commitments
shall be subject to automatic reduction, in an aggregate amount equal to the
amount of such payment or prepayment, such prepayment and reduction to be
effected in each case in the manner and to the extent specified in paragraph (e)
below.

          (e)  Application.  Prepayments and reductions of Commitments described
in the above paragraphs of this Section 2.10 shall be effected as follows:

               (i)  in the case of paragraphs (a), (c) and (d) above, the amount
     of the prepayment specified in such paragraphs shall be applied, to the
     Loans (or to provide cover for Letter of Credit Liabilities) and to the
     reduction of the Commitments (such prepayments to be applied first to
     Facility A Revolving Credit Loans denominated in U.S. Dollars and to the
     reduction of Facility A Revolving Credit Commitments in the amount of each
     such prepayment, second, to Facility A Revolving Credit Loans denominated
     in Dutch Guilders and to the reduction of Facility A Revolving Credit
     Commitments in the U.S. Dollar Equivalent of the amount of each such
     prepayment, and third, after all outstanding Facility A Revolving Credit
     Loans have been paid in full, to the Facility B Revolving Credit Loans and
     to the simultaneous reduction of first the Facility A Revolving Credit
     Commitments and second the Facility B Revolving Credit Commitments in the
     amount of each such prepayment of Facility B Revolving Credit Loans), and

                               Credit Agreement
                               ----------------  
<PAGE>
 
                                      -52-

          (ii)  in the case of paragraph (b) above, the amount of the prepayment
     specified in such paragraph shall be applied to the Loans (or to provide
     cover for Letter of Credit Liabilities), but not to the reduction of the
     Commitments (such prepayments to be applied first to Facility A Revolving
     Credit Loans denominated in U.S. Dollars, second to Facility A Revolving
     Credit Loans denominated in Dutch Guilders and third to Facility B
     Revolving Credit Loans).

          (f)  Cover for Letter of Credit Liabilities.  In the event that PGI
(or any other Borrower) shall be required pursuant to this Section 2.10
(including, without limitation, pursuant to Section 2.10(g) below) to provide
cover for Letter of Credit Liabilities, PGI (or such other Borrower) shall
effect the same by paying to the Administrative Agent immediately available
funds in an amount equal to the required amount, which funds shall be retained
by the Administrative Agent in the Collateral Account (as provided in the
Security Agreement as collateral security in the first instance for the Letter
of Credit Liabilities) until such time as the Letters of Credit shall have been
terminated and all of the Letter of Credit Liabilities paid in full.

          (g)  Applicable Incurrence Limitation.  Anything herein to the
contrary notwithstanding, if after giving effect to the making of any Loan (or
the issuance of any Letter of Credit pursuant to Section 2.03 hereof), or after
giving effect to any Conversion or Continuation of any Loan pursuant to Section
2.09 hereof, the Revolving Credit Exposure would otherwise exceed the Applicable
Incurrence Limitation (as defined below), the Borrowers will make such
prepayments of Loans (and/or provide cover for Letters of Credit) in such
amounts as shall be necessary so that such sum does not exceed the Applicable
Incurrence Limitation (such prepayments to be applied to the Loans hereunder, as
the Borrowers shall elect, in the manner specified for optional prepayments
pursuant to Section 2.09 hereof).

          For purposes hereof, the "Applicable Incurrence Limitation" shall
mean, on any date on which a Loan is made or a Letter of Credit is issued or on
which a Loan is Converted or Continued in accordance with Section 2.09 hereof
(the "Test Date"), (x) U.S. $325,000,000 minus (y) the amount by which the
Commitments of the Lenders hereunder shall have been permanently reduced during
the period commencing on the Effective Date through and including the Test Date
pursuant to paragraph (c) above.

          (h)  Change of Control.  In the event that any "Change of Control" or
similar event shall occur under the Senior Subordinated Notes Indenture or any
Future Refinancing Debt Documents and, as a result thereof, PGI shall be
required to offer to repurchase any portion of the Senior Subordinated Notes or
Future Refinancing Debt, then, prior to making any such offer, PGI shall prepay
the Loans in full (and/or provide full cover for Letter of Credit Liabilities as
specified in paragraph (f) above), and the Commitments shall be automatically
reduced to zero.


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -53-


          Section 3.  Payments of Principal and Interest.

          3.01  Repayment of Loans.

          (a)  Each Facility A Revolving Credit Borrower hereby promises to pay
to the Administrative Agent in U.S. Dollars (or, in the case of each Dutch
Borrower, in Dutch Guilders) for account of each Facility A Revolving Credit
Lender the entire outstanding principal amount of the Facility A Revolving
Credit Loans made by such Lender to such Borrower, and each such Facility A
Revolving Credit Loan shall mature on the Revolving Credit Termination Date.

          (b)  Fabrene hereby promises to pay to the Administrative Agent in
Canadian Dollars for account of each Facility B Revolving Credit Lender the
entire outstanding principal amount of the Facility B Revolving Credit Loans
made by such Lender to such Borrower, and each such Facility B Revolving Credit
Loan shall mature (i) in the case of Canadian Base Rate Loans, on the Revolving
Credit Termination Date and (ii) in the case of Bankers' Acceptance Loans, on
the maturity date(s) of the corresponding Bankers' Acceptance(s) which shall in
any event be no later than the Revolving Credit Termination Date.

          3.02  Interest.  Each Borrower hereby promises to pay to the
Administrative Agent for account of each Lender interest on the unpaid principal
amount of each Loan made by such Lender to such Borrower for the period from and
including the date of such Loan to but excluding the date such Loan shall be
paid in full, at the following rates per annum:

          (a)  during such periods as such Loan is a Base Rate Loan or a
     Canadian Base Rate Loan, the Base Rate (in the case of Base Rate Loans) or
     the Canadian Base Rate (in the case of Canadian Base Rate Loans) as such
     Rates are in effect from time to time plus the Applicable Margin for such
     Loan and

          (b)  during such periods as such Loan is a Eurocurrency Loan, for each
     Interest Period relating thereto, the Eurocurrency Rate for such Loan for
     such Interest Period plus the Applicable Margin for such Loan.

Notwithstanding the foregoing, each Borrower hereby promises to pay to the
Administrative Agent for account of each Lender interest at the applicable Post-
Default Rate on any principal of any Loan made by such Lender to such Borrower,
on any Reimbursement Obligation of such Borrower held by such Lender and (to the
fullest extent permitted under applicable law) on any other amount payable by
such Borrower hereunder or under the Notes of such Borrower held by such Lender,
which shall not be paid in full when due (whether at stated maturity, by
acceleration, by mandatory prepayment or otherwise), for the period from and
including the due


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -54-

date thereof to but excluding the date the same is paid in full.  Accrued
interest on each Loan shall be payable (i) in the case of a Base Rate Loan or a
Canadian Base Rate Loan, quarterly on the Quarterly Dates, (ii) in the case of a
Eurocurrency Loan, on the last day of each Interest Period therefor and, if such
Interest Period is longer than three months, at three-month intervals following
the first day of such Interest Period, and (iii) in the case of any Loan, upon
the payment or prepayment thereof or the Conversion of such Loan to a Loan of
another Type (but only on the principal amount so paid, prepaid or Converted),
except that interest payable at the Post-Default Rate shall be payable from time
to time on demand.  Promptly after the determination of any interest rate
provided for herein or any change therein, the Administrative Agent shall give
notice thereof to the Lenders to which such interest is payable and to the
Borrowers.

          Section 4.  Payments; Pro Rata Treatment; Computations; Etc.

          4.01  Payments.

          (a)  Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts (other than the
principal of and interest on Loans made in an Alternative Currency) to be made
by the Borrowers under this Agreement and the Notes, and, except to the extent
otherwise provided therein, all payments to be made by the Obligors under any
other Basic Document, shall be made in U.S. Dollars, and all payments of
principal and interest on Loans made in an Alternative Currency shall be made in
such Alternative Currency, in each case in immediately available funds, without
deduction, set-off or counterclaim, to the Payment Office for the applicable
Currency, not later than 1:00 p.m. New York time (in the case of such payments
to be made in U.S. Dollars) or 10:00 a.m. local time in the location of the
relevant Payment Office (in the case of payments to be made in an Alternative
Currency) on the date on which such payment shall become due (each such payment
made after such time on such due date to be deemed to have been made on the next
succeeding Business Day and interest shall be payable in respect of any
principal so extended for the period of such extension).

          If, as a result of the implementation of European monetary union, (i)
Dutch Guilders cease to be lawful currency of the Netherlands and are replaced
by a European common currency, or (ii) Dutch Guilders and a European common
currency are at the same time recognized by the central bank or comparable
authority of the Netherlands as lawful currency of the Netherlands, and the
Administrative Agent or the Majority Facility A Revolving Credit Lenders shall
so request in a notice delivered to PGI, then any amount payable hereunder by
any party hereto in Dutch Guilders shall instead be payable in the European
common currency and the amount so payable shall be determined by translating the
amount payable in Dutch Guilders to such European common currency at the
exchange rate recognized by the European Central Bank for the purpose of
implementing the European monetary union.  Prior to the occurrence of


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -55-

the event or events described in clause (i) or (ii) of the preceding sentence,
each amount payable hereunder in Dutch Guilders will continue to be payable only
in Dutch Guilders.  The Dutch Borrowers agree, at the request of the Majority
Facility A Revolving Credit Lenders, at the time of or at any time following the
implementation of European monetary union, to enter into an agreement amending
this Agreement in such manner as the Majority Facility A Revolving Credit
Lenders shall specify in order to reflect the implementation of such monetary
union and to place the parties hereto in the position they would have been in
had such monetary union not be implemented.

          (b)  Any Lender for whose account any such payment by any Borrower is
to be made may (but shall not be obligated to) debit the amount of any such
payment that is not made by the time referred to in paragraph (a) above to any
ordinary deposit account of such Borrower with such Lender (with prompt notice
to such Borrower and the Administrative Agent).

          (c)  The Borrowers shall, at the time of making each payment under
this Agreement or any Note for account of any Lender, specify to the
Administrative Agent (which shall so notify the intended recipient(s) thereof)
the Loans, Reimbursement Obligations or other amounts payable by the Borrowers
hereunder to which such payment is to be applied (and in the event that the
Borrowers fail to so specify, or if an Event of Default has occurred and is
continuing, the Administrative Agent may distribute such payment to the Lenders
for application in such manner as it or the Majority Lenders, subject to Section
4.02 hereof, may determine to be appropriate).

          (d)  Each payment received by the Administrative Agent under this
Agreement or any Note for account of any Lender shall be paid by the
Administrative Agent promptly to such Lender, in immediately available funds,
for account of such Lender's Applicable Lending Office for the Loan or other
obligation in respect of which such payment is made.

          (e)  If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.

          4.02  Pro Rata Treatment.  Except to the extent otherwise provided
herein:  (a) each borrowing of Loans of a particular Class from the Lenders
under Section 2.01 hereof shall be made from the relevant Lenders, each payment
of commitment fees under Section 2.05 hereof in respect of Commitments of a
particular Class shall be made for account of the relevant Lenders, and each
termination or reduction of the amount of the Commitments of a particular Class
under Section 2.04 hereof shall be applied to the respective Commitments of such
Class of the relevant Lenders, pro rata according to the amounts of their
respective Commitments of such Class; (b) the making, Conversion and
Continuation of Loans of a particular Type and Currency (other than Conversions
provided for by Section 5.04 hereof) shall be made pro rata among the


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -56-


relevant Lenders according to the amounts of their respective Commitments (in
the case of the making of Loans) or their respective Loans (in the case of
Conversions and Continuations of Loans) and the then current Interest Period for
each Eurocurrency Loan, as applicable, shall be coterminous; (c) each payment or
prepayment of principal of Loans of a particular Class by the Borrowers shall be
made for account of the relevant Lenders pro rata in accordance with the
respective unpaid principal amounts of the Loans of such Class held by them; and
(d) each payment of interest on Loans of a particular Class by the Borrowers
shall be made for account of the relevant Lenders pro rata in accordance with
the amounts of interest on such Loans then due and payable to the respective
Lenders.

          4.03  Computations.  Interest on Eurocurrency Loans and Reimbursement
Obligations and commitment fees and letter of credit fees shall be computed on
the basis of a year of 360 days and actual days elapsed (including the first day
but excluding the last day) occurring in the period for which payable and
interest on Base Rate Loans, Canadian Base Rate Loans and Acceptance Fees shall
be computed on the basis of a year of 365 or 366, as the case may be, days and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable.  Notwithstanding the foregoing, for
each day that the Base Rate is calculated by reference to the Federal Funds
Rate, interest on Base Rate Loans shall be computed on the basis of a year of
360 days and actual days elapsed.

          4.04  Minimum Amounts.  Except for Conversions made pursuant to
Section 5.04 hereof and Bankers' Acceptances issued at the request of Fabrene in
accordance with this Agreement and Annex I hereto, each borrowing or Conversion
of (i) Base Rate Loans shall be in an aggregate amount at least equal to U.S.
$500,000 or in multiples of U.S. $100,000 in excess thereof, (ii) Canadian Base
Rate Loans shall be in an aggregate amount at least equal to Cdn. $300,000 and
(iii) Eurocurrency Loans shall be in an aggregate amount at least equal to U.S.
$1,000,000 (or, in the case of Euroguilder Loans, the Foreign Currency
Equivalent thereof) or in multiples of U.S. $500,000 (or, in the case of
Euroguilder Loans, the Foreign Currency Equivalent thereof) in excess thereof;
borrowings or Conversions of or into Loans of different Types or, in the case of
Eurocurrency Loans, having different Interest Periods at the same time hereunder
shall be deemed separate borrowings and Conversions for purposes of the
foregoing, one for each Type or Interest Period.

          Except for mandatory prepayments made pursuant to Section 2.10 hereof,
each partial prepayment of principal of Loans shall be in an aggregate amount at
least equal to U.S. $500,000 or in multiples of U.S. $500,000 in excess thereof
(prepayments of Loans of different Types or, in the case of Eurocurrency Loans,
having different Interest Periods at the same time hereunder to be deemed
separate prepayments for purposes of the foregoing, one for each Type or
Interest Period).

          4.05  Certain Notices.  Notices by the Borrowers to the Administrative
Agent of terminations or reductions of the Commitments, of borrowings,
Conversions, Continuations

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -57-


and optional and mandatory prepayments of Loans and of Classes of Loans, of
Types and Currencies of Loans and of the duration of Interest Periods shall be
irrevocable (except that notices of a mandatory prepayment pursuant to Section
2.10 hereof may be revoked if the respective event giving rise to such
prepayment does not occur, subject, however, to the obligation of the Borrowers
to compensate the Lenders for any loss, cost or expense incurred in connection
with such revoked notice pursuant to Section 5.05 hereof) and shall be effective
only if received by the Administrative Agent not later than 12:00 noon New York
time on the number of Business Days prior to the date of the relevant
termination, reduction, borrowing, Conversion, Continuation or prepayment or the
first day of such Interest Period specified below:

<TABLE> 
<CAPTION> 
                                                        Number of
                                                        Business
      Notice                                            Days Prior
      ------                                            ----------
     <S>                                                <C> 
     Termination or reduction
       of Commitments                                      3

     Borrowings of, or
       Conversions into,
       Base Rate Loans                                  same day
 
     Borrowings of, or
       Conversions into,
       Canadian Base Rate Loans                            1
 
     Borrowings of, Conversions
       into, Continuations
       as, or duration of Interest
       Period for, Eurocurrency Loans
       or Bankers' Acceptances Loans                       3
 
     Optional Prepayments of Loans                         3
 
     Mandatory Prepayments of Loans                        1

</TABLE>

Each such notice of termination or reduction shall specify the amount and the
Class of the Commitments to be terminated or reduced.  Each such notice of
borrowing, Conversion, Continuation or optional prepayment shall specify the
Borrower to which such Loan is to be made, the Class of Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 4.04 hereof)
and Type and Currency (and, in the case of a request for a Bankers' Acceptance
Loan, the maturity date of the respective Bankers' Acceptance) of each


                               Credit Agreement
                               ----------------

<PAGE>
 
                                      -58-


Loan to be borrowed, Converted, Continued or prepaid and the date of borrowing,
Conversion, Continuation or optional prepayment (which shall be a Business Day).
Each such notice of the duration of an Interest Period shall specify the Loans
to which such Interest Period is to relate.  The Administrative Agent shall
promptly notify the relevant Lenders of the contents of each such notice.  In
the event that the Borrowers fail to select the Type of Loan, or the duration of
any Interest Period for any Eurocurrency Loan or the maturity date of any
Bankers' Acceptance, within the time period and otherwise as provided in this
Section 4.05, such Loan (if outstanding as a Eurodollar Loan or Bankers'
Acceptance Loan) will be automatically Converted into a Base Rate Loan (if such
Loan is denominated in U.S. Dollars) or a Canadian Base Rate Loan (if such Loan
is denominated in Canadian Dollars) on the last day of the then current Interest
Period for such Loan or the maturity date of such Bankers' Acceptance, as the
case may be, or (if outstanding as a Eurocurrency Loan denominated in Dutch
Guilders) will be automatically Continued as a Euroguilder Loan having an
Interest Period of one month denominated in such Currency on the last day of the
then current Interest Period for such Loan or (if outstanding as a Base Rate
Loan or a Canadian Base Rate Loan) will remain as, or (if not then outstanding)
will be made as, a Base Rate Loan or a Canadian Base Rate Loan (as the case may
be).

      4.06  Non-Receipt of Funds by the Administrative Agent.  Unless the
Administrative Agent shall have been notified by a Lender or a Borrower (the
"Payor") prior to the date on which the Payor is to make payment to the
Administrative Agent of (in the case of a Lender) the proceeds of a Loan to be
made by such Lender, or a participation in a Letter of Credit drawing acquired
by such Lender hereunder or (in the case of a Borrower) a payment to the
Administrative Agent for account of one or more of the Lenders hereunder (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Administrative Agent, the Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date; and, if the Payor has not in fact made the
Required Payment to the Administrative Agent, the recipient(s) of such payment
shall, on demand, repay to the Administrative Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date (the "Advance Date") such amount was so made available by
the Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such day and, if
such recipient(s) shall fail promptly to make such payment, the Administrative
Agent shall be entitled to recover such amount, on demand, from the Payor,
together with interest as aforesaid, provided that if neither the recipient(s)
nor the Payor shall return the Required Payment to the Administrative Agent
within three Business Days of the Advance Date, then, retroactively to the
Advance Date, the Payor and the recipient(s) shall each be obligated to pay
interest on the Required Payment as follows:

                               Credit Agreement
                               ----------------
 
<PAGE>
 
                                     -59-


               (i)  if the Required Payment shall represent a payment to be made
     by a Borrower to the Lenders, such Borrower and the recipient(s) shall each
     be obligated retroactively to the Advance Date to pay interest in respect
     of the Required Payment at the Post-Default Rate (without duplication of
     the obligation of such Borrower under Section 3.02 hereof to pay interest
     on the Required Payment at the Post-Default Rate), it being understood that
     the return by the recipient(s) of the Required Payment to the
     Administrative Agent shall not limit such obligation of such Borrower under
     said Section 3.02 to pay interest at the Post-Default Rate in respect of
     the Required Payment and

               (ii)  if the Required Payment shall represent proceeds of a Loan
     to be made by the Lenders to a Borrower, the Payor and such Borrower shall
     each be obligated retroactively to the Advance Date to pay interest in
     respect of the Required Payment pursuant to Section 3.02 hereof, it being
     understood that the return by such Borrower of the Required Payment to the
     Administrative Agent shall not limit any claim such Borrower may have
     against the Payor in respect of such Required Payment.

          4.07  Sharing of Payments, Etc.
                -------------------------

          (a)  Each Borrower agrees that, in addition to (and without limitation
of) any right of set-off, banker's lien or counterclaim a Lender may otherwise
have, each Lender shall be entitled, at its option, to offset balances held by
it for account of such Borrower at any of its offices, in U.S. Dollars or in any
other Currency or currency, against any principal of or interest on any of the
Loans, Reimbursement Obligations or other amounts payable by such Borrower to
such Lender hereunder, that is not paid when due (regardless of whether such
balances are then due to such Borrower), in which case it shall promptly notify
such Borrower and the Administrative Agent thereof, provided that such Lender's
failure to give such notice shall not affect the validity thereof.

          (b)  If any Lender shall obtain from any Borrower payment of any
principal of or interest on any Loan of any Class or Letter of Credit Liability
owing to it or payment of any other amount under this Agreement or any other
Basic Document through the exercise of any right of set-off, banker's lien or
counterclaim or similar right or otherwise (other than from the Administrative
Agent as provided herein), and, as a result of such payment, such Lender shall
have received a greater percentage of the principal of or interest on the Loans
of such Class or Letter of Credit Liabilities or such other amounts then due
hereunder or thereunder by such Borrower to such Lender than the percentage
received by any other Lender, it shall promptly purchase from such other Lenders
participations in (or, if and to the extent specified by such Lender, direct
interests in) the Loans of such Class of such Borrower or Letter of Credit
Liabilities or such other amounts, respectively, owing to such other Lenders (or
in interest due thereon, as the case may be) in such amounts, and make such
other adjustments from time to time as shall be equitable, to the end that all
the Lenders shall share

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -60-


the benefit of such excess payment (net of any expenses that may be incurred by
such Lender in obtaining or preserving such excess payment) pro rata in
accordance with the unpaid principal of and/or interest on the Loans of such
Class of such Borrower or Letter of Credit Liabilities or such other amounts,
respectively, owing to each of the Lenders.  To such end all the Lenders shall
make appropriate adjustments among themselves (by the resale of participations
sold or otherwise, together with interest, if any, required to be paid by the
Lender returning such funds) if such payment is rescinded or must otherwise be
restored.

          (c)  The Borrowers agree that any Lender so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Lender were a direct holder of Loans or other amounts (as the case
may be) owing to such Lender in the amount of such participation.

          (d)  Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of any Borrower.  If, under any applicable bankruptcy, insolvency or
other similar law, any Lender receives a secured claim in lieu of a set-off to
which this Section 4.07 applies, such Lender shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Lenders entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.


          Section 5.  Yield Protection, Etc.
                      ----------------------

          5.01  Additional Costs.
                ---------------- 

          (a)  Each Borrower shall pay to the Administrative Agent (to the
fullest extent permitted by applicable law) for the account of each Lender from
time to time such amounts as such Lender may determine to be necessary to
compensate such Lender for any costs that such Lender determines are
attributable to its making or maintaining of any Eurocurrency Loans to such
Borrower or its obligation to make any Eurocurrency Loans to such Borrower
hereunder, or any reduction in any amount receivable by such Lender hereunder in
respect of any of such Loans or such obligation (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"),
resulting from any Regulatory Change that:

               (i)  shall subject any Lender (or its Applicable Lending Office
     for any of such Loans) to any tax, duty or other charge in respect of such
     Loans or its Notes or changes the basis of taxation of any amounts payable
     to such Lender under this Agreement or its Notes in respect of any of such
     Loans (excluding changes in the rate of tax on the overall net income of
     such Lender or of such Applicable Lending Office


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -61-


     by the jurisdiction in which such Lender has its principal office or such
     Applicable Lending Office); or

               (ii)  imposes or modifies any reserve, special deposit or similar
     requirements (other than the Reserve Requirement utilized in the
     determination of the Eurocurrency Rate for such Loan) relating to any
     extensions of credit or other assets of, or any deposits with or other
     liabilities of, such Lender (including, without limitation, any of such
     Loans or any deposits referred to in the definition of "Eurocurrency Base
     Rate" in Section 1.01 hereof), or any commitment of such Lender (including,
     without limitation, the Commitments of such Lender hereunder); or

               (iii)  imposes any other condition affecting this Agreement or
     its Notes (or any of such extensions of credit or liabilities) or its
     Commitments.

With respect to any Loans denominated in U.S. Dollars, if any Lender requests
compensation from any Borrower under this Section 5.01(a), the Borrowers may, by
notice to such Lender (with a copy to the Administrative Agent), suspend the
obligation of such Lender thereafter to make or Continue Eurodollar Loans, or to
Convert Base Rate Loans into Eurodollar Loans, until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the provisions
of Section 5.04 hereof shall be applicable), provided that such suspension shall
not affect the right of such Lender to receive the compensation so requested.

          (b)  Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), each Borrower (to the extent allocable
to it) shall pay to the Administrative Agent for the account of each Lender from
time to time on request such amounts as such Lender may determine to be
necessary to compensate such Lender (or, without duplication, the bank holding
company of which such Lender is a subsidiary) for any costs that it determines
are attributable to the maintenance by such Lender (or any Applicable Lending
Office or such bank holding company), pursuant to any law or regulation or any
interpretation, directive or request (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) of any court or
governmental or monetary authority (i) following any Regulatory Change or (ii)
implementing any risk-based capital guideline or other requirement (whether or
not having the force of law and whether or not the failure to comply therewith
would be unlawful) heretofore or hereafter issued by any government or
governmental or supervisory authority implementing at the national level the
Basel Accord (including, without limitation, the Final Risk-Based Capital
Guidelines of the Board of Governors of the Federal Reserve System (12 C.F.R.
Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the Final Risk-Based
Capital Guidelines of the Office of the Comptroller of the Currency (12 C.F.R.
Part 3, Appendix A)), of capital in respect of its Commitments or Loans (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of such Lender (or any Applicable Lending
Office or such bank holding company) to a level below that which such Lender (or


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -62-


any Applicable Lending Office or such bank holding company) could have achieved
but for such law, regulation, interpretation, directive or request).  For
purposes of this Section 5.01(b) and Section 5.06 hereof, "Basel Accord" shall
mean the proposals for risk-based capital framework described by the Basel
Committee on Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July 1988, as amended, modified and supplemented and in effect from time to time
or any replacement thereof.

          (c)  The Dutch Borrowers agree, at the request of any Facility A
Revolving Credit Lender, to compensate such Lender for any loss, cost, expense
or reduction in return that shall be incurred or sustained by such Lender as a
result of the implementation of European monetary union and that would not have
been incurred or sustained but for the transactions provided for herein.

          (d)  Each Lender shall notify the Borrowers of any event occurring
after the date of this Agreement entitling such Lender to compensation under
paragraph (a) or (b) of this Section 5.01 as promptly as practicable, but in any
event within 45 days, after such Lender obtains actual knowledge thereof;
provided that (i) if any Lender fails to give such notice within 45 days after
it obtains actual knowledge of such an event, such Lender shall, with respect to
compensation payable pursuant to this Section 5.01 in respect of any costs
resulting from such event, only be entitled to payment under this Section 5.01
for costs incurred from and after the date 45 days prior to the date that such
Lender does give such notice and (ii) each Lender will designate a different
Applicable Lending Office for the Loans of such Lender affected by such event if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender, except that such Lender shall have no obligation
to designate an Applicable Lending Office located in the United States of
America.  Each Lender will furnish to the Borrowers a certificate setting forth
the basis and amount of each request by such Lender for compensation under
paragraph (a) or (b) of this Section 5.01.  Determinations and allocations by
any Lender for purposes of this Section 5.01 of the effect of any Regulatory
Change pursuant to paragraph (a) of this Section 5.01, of the effect of capital
maintained pursuant to paragraph (b) of this Section 5.01, or of the amounts
necessary to compensate such Lender under paragraph (c) of this Section 5.01, on
its costs or rate of return of maintaining Loans or its obligation to make
Loans, or on amounts receivable by it in respect of Loans, and of the amounts
required to compensate such Lender under this Section 5.01, shall be conclusive,
provided that such determinations and allocations are made on a reasonable
basis.

          5.02  Limitation on Eurodollar Loans.  Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any Eurocurrency Base
Rate for any Eurodollar Loans for any Interest Period:


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -63-


          (a)  the Administrative Agent determines, which determination shall be
     conclusive, that quotations of interest rates for the relevant deposits
     referred to in paragraph (b) of the definition of "Eurocurrency Base Rate"
     in Section 1.01 hereof are not being provided in the relevant amounts or
     for the relevant maturities for purposes of determining rates of interest
     for Eurodollar Loans as provided herein; or

          (b)  the Majority Facility A Revolving Credit Lenders determine (which
     determination shall be conclusive), and notify the Administrative Agent
     that the relevant rates of interest referred to in the definition of
     "Eurocurrency Base Rate" in Section 1.01 hereof upon the basis of which the
     rate of interest for Eurodollar Loans for such Interest Period is to be
     determined are not likely to adequately cover the cost to such Lenders of
     making or maintaining Eurodollar Loans for such Interest Period;

then the Administrative Agent shall give the Borrowers and each Lender prompt
notice thereof and, so long as such condition remains in effect, the Lenders
shall be under no obligation to make additional Eurodollar Loans, to Continue
Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans, and the
Borrowers shall, on the last day(s) of the then current Interest Period(s) for
the outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans
into Base Rate Loans in accordance with Section 2.09 hereof.

          5.03  Limitation on Euroguilder Loans.  Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any
Eurocurrency Base Rate for any Loan denominated in Dutch Guilders for any
Interest Period (or Default Interest Period):

          (a)  the Administrative Agent determines, which determination shall be
     conclusive, that quotations of interest rates for the relevant deposits
     referred to in paragraph (b) of the definition of "Eurocurrency Base Rate"
     in Section 1.01 hereof are not being provided in the relevant amounts or
     for the relevant maturities for purposes of determining rates of interest
     for such Loans as provided herein; or

          (b)  the Majority Facility A Revolving Credit Lenders determine (which
     determination shall be conclusive), and notify the Administrative Agent
     that the relevant rates of interest referred to in the definition of
     "Eurocurrency Base Rate" in Section 1.01 hereof upon the basis of which the
     rate of interest for such Loans for such Interest Period (or Default
     Interest Period) is to be determined are not likely to adequately cover the
     cost to such Lenders of making or maintaining Eurocurrency Loans for such
     Interest Period (or Default Interest Period); or

          (c)  any Lender shall determine (which determination shall be
     conclusive) and notify the Administrative Agent that Dutch Guilders are not
     available in the relevant amounts or for the relevant periods, or that a
     change in national or international financial, political or economic
     conditions or exchange controls has occurred which


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -64-


     would, in the opinion of such Lender, make it impracticable or illegal for
     such Lender to make, fund or maintain its Loans to be made in such Currency
     or for the relevant Borrower to pay the principal of or interest on such
     Loans as provided in this Agreement;

then the Administrative Agent shall give the Borrowers and each Lender prompt
notice thereof and:

               (i)  during the twenty-one-Business Day period next succeeding
     the date of any such notice (the "Negotiation Period"), the Administrative
     Agent (in consultation with the affected Lender(s)) and the Borrowers will
     negotiate in good faith for the purpose of agreeing upon an alternative,
     mutually acceptable basis (the "Substitute Basis") for determining the rate
     of interest to be applicable to such Loans for such Interest Period (or
     Default Interest Period);

               (ii)  if at the expiry of the Negotiation Period, the Majority
     Facility A Revolving Credit Lenders (in the case of clauses (a) and (b)
     above), or the affected Lender(s) (in the case of clause (c) above), and
     the Borrowers have agreed upon a Substitute Basis, the Substitute Basis
     shall be retroactive to, and take effect from, the beginning of such
     Interest Period (or Default Interest Period, as the case may be);

               (iii)  if at the expiry of the Negotiation Period, a Substitute
     Basis shall not have been agreed upon as aforesaid, the Administrative
     Agent shall forthwith notify the affected Lender(s) of such failure to
     agree and, within five Business Days after receipt of such notice (or as
     soon thereafter as practicable), each affected Lender shall notify the
     Borrowers through the Administrative Agent of the cost to such Lender (as
     determined by it in good faith) of funding and maintaining such Loan for
     such Interest Period (or Default Interest Period); and the interest payable
     to such Lender on such Loan for such Interest Period (or Default Interest
     Period) shall be a rate per annum equal to the Applicable Margin above the
     cost to such Lender of funding and maintaining such Loan for such Interest
     Period (or Default Interest Period) as so notified by such Lender (or, as
     to any principal of such Loan or, to the extent permitted by applicable
     law, other amount payable to such Lender on or in respect of such Loan that
     is then past due, 2% plus the Applicable Margin above such cost); and

               (iv)  the procedures specified in clauses (i), (ii) and (iii)
     above shall apply to each Interest Period (or Default Interest Period)
     succeeding the first Interest Period (or Default Interest Period) to which
     they were applied unless and until the Administrative Agent shall determine
     in consultation with the Majority Facility A Revolving Credit Lenders (in
     the case of clauses (a) and (b) above), or the affected Lender(s) (in the
     case of clause (c) above), that the conditions referred to in clause (a),
     (b) or (c) above no longer exist and so notifies the Borrowers and the
     affected


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -65-


     Lender(s), whereupon interest on such Loans shall again be determined in
     accordance with the provisions of Section 3.02 hereof commencing on the
     first day of the Interest Period (or Default Interest Period) next
     succeeding the date of such notice.

          5.04  Treatment of Affected Loans.  If the obligation of any Lender to
make Eurocurrency Loans or to Continue, or to Convert Base Rate Loans into,
Eurocurrency Loans shall be suspended pursuant to Section 5.01 hereof, such
Lender's Eurocurrency Loans shall be automatically Converted into Base Rate
Loans on the last day(s) of the then current Interest Period(s) ((or Default
Interest Period(s)) for Eurocurrency Loans and, unless and until such Lender
gives notice as provided below that the circumstances specified in Section 5.01
hereof that gave rise to such Conversion no longer exist:

          (a)  to the extent that such Lender's Eurocurrency Loans have been so
     Converted, all payments and prepayments of principal that would otherwise
     be applied to such Lender's Eurocurrency Loans shall be applied instead to
     its Base Rate Loans; and

          (b)  all Loans that would otherwise be made or Continued by such
     Lender as Eurocurrency Loans shall be made or Continued instead as Base
     Rate Loans, and all Base Rate Loans of such Lender that would otherwise be
     Converted into Eurocurrency Loans shall remain as Base Rate Loans.

If such Lender gives notice to the Borrowers with a copy to the Administrative
Agent that the circumstances specified in Section 5.01 hereof that gave rise to
the Conversion of such Lender's Eurocurrency Loans pursuant to this Section 5.04
no longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurocurrency Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) (or Default Interest
Period(s)) for such outstanding Eurocurrency Loans, to the extent necessary so
that, after giving effect thereto, all Loans held by the Lenders holding
Eurocurrency Loans and by such Lender are held pro rata (as to principal
amounts, Types, Interest Periods and Default Interest Periods, as applicable) in
accordance with their respective Commitments.

          5.05  Compensation.  Each Borrower shall pay to the Administrative
Agent for account of each Lender, upon the request of such Lender through the
Administrative Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost or
expense that such Lender determines is attributable to:

          (a)  any payment, mandatory or optional prepayment or Conversion of a
     Eurocurrency Loan, as applicable, made by such Lender to such Borrower for
     any reason (including, without limitation, the acceleration of the Loans
     pursuant to


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -66-


     Section 10 hereof) on a date other than the last day of the Interest Period
     for such Loan; or

          (b)  any failure by such Borrower for any reason (including, without
     limitation, the failure of any of the conditions precedent specified in
     Section 7 hereof to be satisfied) to borrow a Eurocurrency Loan, as
     applicable, from such Lender on the date for such borrowing specified in
     the relevant notice of borrowing given pursuant to Section 2.02 hereof.

Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid or
Converted or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of the then current
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan that would have commenced on the date specified
for such borrowing) at the applicable rate of interest for such Loan provided
for herein over (ii) the amount of interest that otherwise would have accrued on
such principal amount at a rate per annum equal to the interest component of the
amount such Lender would have bid in the London interbank market for U.S. Dollar
or the applicable Alternative Currency deposits of leading banks.

          5.06  Additional Costs in Respect of Letters of Credit.  Without
limiting the obligations of Borrowers under Section 5.01 hereof (but without
duplication), if as a result of any Regulatory Change or any risk-based capital
guideline or other requirement heretofore or hereafter issued by any government
or governmental or supervisory authority implementing at the national level the
Basel Accord there shall be imposed, modified or deemed applicable any tax,
reserve, special deposit, capital adequacy or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder and the result shall be to increase the cost to any Lender or
Lenders of issuing (or purchasing participations in) or maintaining its
obligation hereunder to issue (or purchase participations in) any Letter of
Credit hereunder or reduce any amount receivable by any Lender hereunder in
respect of any Letter of Credit (which increases in cost, or reductions in
amount receivable, shall be the result of such Lender's or Lenders' reasonable
allocation of the aggregate of such increases or reductions resulting from such
event), then, upon demand by such Lender or Lenders (through the Administrative
Agent), PGI shall pay immediately to the Administrative Agent for account of
such Lender or Lenders, from time to time as specified by such Lender or Lenders
(through the Administrative Agent), such additional amounts as shall be
sufficient to compensate such Lender or Lenders (through the Administrative
Agent) for such increased costs or reductions in amount.  A statement as to such
increased costs or reductions in amount incurred by any such Lender or Lenders,
submitted by such Lender or Lenders to the Borrowers shall be conclusive in the
absence of manifest error as to the amount thereof.



                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -67-


          5.07  U.S. Taxes.

          (a)  Each Borrower agrees to pay to each Lender that is not a U.S.
Person such additional amounts as are necessary in order that the net payment of
any amount due by such Borrower to such non-U.S. Person hereunder after
deduction for or withholding in respect of any U.S. Tax imposed with respect to
such payment (or in lieu thereof, payment of such U.S. Tax by such non-U.S.
Person), will not be less than the amount stated herein to be then due and
payable, provided that the foregoing obligation to pay such additional amounts
shall not apply:

               (i)  to any payment to a Lender hereunder unless such Lender is,
     on the date hereof (or on the date it becomes a Lender as provided in
     Section 12.06(b) hereof) and on the date of any change in the Applicable
     Lending Office of such Lender, entitled to submit and does submit pursuant
     to Section 5.07(c) either a Form 1001 (relating to such Lender and
     entitling it to a complete exemption from withholding on all interest to be
     received by it hereunder in respect of the Loans) or a Form 4224 (relating
     to all interest to be received by such Lender hereunder in respect of the
     Loans), or

               (ii)  to any U.S. Tax imposed solely by reason of the failure by
     such non-U.S. Person (or, if such non-U.S. Person is not the beneficial
     owner of the relevant Loan, such beneficial owner) to comply with
     applicable certification, information, documentation or other reporting
     requirements concerning the nationality, residence, identity or connections
     with the United States of America of such non-U.S. Person (or beneficial
     owner, as the case may be) to the extent it is legally entitled to do so if
     such compliance is required by statute or regulation of the United States
     of America as a precondition to relief or exemption from such U.S. Tax.

For the purposes of this Section 5.07(a), (x) "Form 1001" shall mean Form 1001
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States of America, and (y) "Form 4224" shall mean Form
4224 (Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America (or in relation to either such Form
such successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
to which such Form relates).

          (b)  Within 30 days after any Borrower shall pay any amount to the
Administrative Agent or any Lender from which it is required by law to make any
deduction or withholding, and within 30 days after it is required by law to
remit such deduction or withholding to any relevant taxing or other authority,
such Borrower shall deliver to the


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -68-


Administrative Agent for delivery to such non-U.S. Person evidence satisfactory
to such Person of such deduction, withholding or payment (as the case may be).

          (c)  Each Lender that is not a U.S. Person agrees, to the extent it is
entitled to an exemption from (or reduction of) the amount of withholding of
U.S. Taxes from interest payments hereunder, to furnish to the Borrowers on or
prior to the date hereof (or the date on which it becomes a Lender as provided
in Section 12.06(b) hereof) and when a lapse in time or change in circumstance
renders the previous certification obsolete or inaccurate two original signed
copies of Form 1001 or Form 4224 (as applicable), and any other form reasonably
requested by the Borrowers which such Lender may lawfully deliver that is
necessary or required to establish such exemption (or reduction).

          (d)  If U.S. Taxes withheld from or imposed upon any payment hereunder
are incorrectly or illegally paid or assessed, and if any Lender contests the
payment or assessment of such U.S. Taxes, such Lender shall refund, to the
extent of any refund made to such Lender, any amount paid by any Borrower under
this Section 5.07 in respect of such U.S. Taxes.  Amounts payable pursuant to
this Section 5.07(d) shall be paid within 30 days from the date of receipt of
the refund by such Lender.

          5.08  Foreign Taxes.
                ------------- 

          (a)  All payments on account of the principal of and interest on the
Loans, fees and all other amounts payable hereunder by a Foreign Borrower to or
for the account of the Administrative Agent or any Lender, including, without
limitation, amounts payable under paragraph (b) of this Section 5.08, shall be
made free and clear of and without reduction or liability for Foreign Taxes.
Each Foreign Borrower will pay all Foreign Taxes applicable to it, without
charge to or offset against any amount due to the Administrative Agent or any
Lender, prior to the date on which penalties attach thereto, except for any such
Foreign Taxes (other than Foreign Taxes imposed on or in respect of any amount
payable by such Foreign Borrower hereunder or under the Notes) the payment of
which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained, so long as no claim for such
Foreign Taxes is made on the Administrative Agent or any Lender.

          (b)  Each Foreign Borrower shall indemnify the Administrative Agent
and each Lender against, and reimburse the Administrative Agent and each Lender
on demand for, any Foreign Taxes applicable to it and any loss, liability, claim
or expense, including interest, penalties and legal fees, that the
Administrative Agent or such Lender may incur at any time arising out of or in
connection with any failure of such Foreign Borrower to make any payment of
Foreign Taxes when due.

          (c)  In the event that a Foreign Borrower is required by applicable
law, decree or regulation to deduct or withhold Foreign Taxes from any amounts
payable on, under or in


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -69-

respect of this Agreement or the Loans made to such Foreign Borrower, such
Foreign Borrower shall (to the fullest extent permitted by applicable law)
promptly pay the Person entitled to such amount such additional amounts as may
be required, after the deduction or withholding of Foreign Taxes, to enable such
Person to receive from such Foreign Borrower on the due date thereof, an amount
equal to the full amount stated to be payable to such Person under this
Agreement.  Each Lender shall provide to a Foreign Borrower such forms or
certificates as the Foreign Borrower may reasonably request to establish such
Lender's entitlement to an exemption from or reduction of Foreign Taxes, but no
Lender shall be required to provide any form or certificate if it determines in
its discretion that the provision of such form or certificate could adversely
affect it or it is not legally entitled to provide such form or certificate.

          (d)  Each Foreign Borrower shall furnish to the Administrative Agent,
upon the request of any Lender (through the Administrative Agent), together with
sufficient certified copies for distribution to each Lender requesting the same
(identifying the Lenders that have so requested), original official tax receipts
(or certified copies thereof) in respect of each payment of Foreign Taxes
required under this Section 5.08 made by such Foreign Borrower or such other
information, documents and receipts that the Administrative Agent or such Lender
may reasonably require to establish to its satisfaction that full and timely
payment has been made of all Foreign Taxes required to be paid under this
Section 5.08 within 30 days after the date such payment is made.

          (e)  Each Foreign Borrower represents and warrants to the
Administrative Agent and each Lender that, on and as of the date hereof, neither
this Agreement nor the execution or delivery by such Foreign Borrower of this
Agreement, is subject to any Foreign Taxes, and no payment to be made by such
Foreign Borrower under this Agreement is subject to any Foreign Taxes.

          Section 6.  Guarantee.

          6.01  The Guarantee. Each Guarantor hereby guarantees to each Lender
(and its affiliates, as the case may be), the Administrative Agent and their
respective successors and assigns the Guaranteed Obligations of such Guarantor,
which guarantee, in the case of Guaranteed Obligations common to more than one
of the Guarantors, is joint and several. Each Guarantor hereby further agrees
that if any Borrower shall fail to pay in full when due (whether at stated
maturity, by acceleration or otherwise) any of the Guaranteed Obligations in
respect of which such Guarantor is obligated, such Guarantor will promptly pay
the same, without any demand or notice whatsoever, and that in the case of any
extension of time of payment or renewal of any of such Guaranteed Obligations,
the same will be promptly paid in full when due (whether at extended maturity,
by acceleration or otherwise) in accordance with the terms of such extension or
renewal.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -70-

          6.02  Obligations Unconditional.  The obligations of the Guarantors
under Section 6.01 hereof are absolute and unconditional, joint and several (to
the extent of common Guaranteed Obligations), irrespective of the value,
genuineness, validity, regularity or enforceability of the obligations of the
Borrowers under this Agreement, the Notes or any other agreement or instrument
referred to herein or therein, or any substitution, release or exchange of any
other guarantee of or security for any of the Guaranteed Obligations, and, to
the fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever that might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor, it being the intent of this
Section 6.02 that the obligations of the Guarantors hereunder shall be absolute
and unconditional, joint and several (to the extent of common Guaranteed
Obligations), under any and all circumstances.  Without limiting the generality
of the foregoing, it is agreed that the occurrence of any one or more of the
following shall not alter or impair the liability of the Guarantors hereunder
which shall remain absolute and unconditional as described above:

               (i)  at any time or from time to time, without notice to the
     Guarantors, the time for any performance of or compliance with any of the
     Guaranteed Obligations shall be extended, or such performance or compliance
     shall be waived;

               (ii)  any of the acts mentioned in any of the provisions of this
     Agreement or the Notes or any other agreement or instrument referred to
     herein or therein shall be done or omitted;

               (iii) the maturity of any of the Guaranteed Obligations shall be
     accelerated, or any of the Guaranteed Obligations shall be modified,
     supplemented or amended in any respect, or any right under this Agreement
     or the Notes or any other agreement or instrument referred to herein or
     therein shall be waived or any other guarantee of any of the Guaranteed
     Obligations or any security therefor shall be released or exchanged in
     whole or in part or otherwise dealt with; or

               (iv)  any lien or security interest granted to, or in favor of,
     the Administrative Agent or any Lender or Lenders as security for any of
     the Guaranteed Obligations shall fail to be perfected.

The Guarantors hereby expressly waive diligence, presentment, demand of payment,
protest and all notices whatsoever, and any requirement that either Agent or any
Lender exhaust any right, power or remedy or proceed against any Borrower under
this Agreement or the Notes or any other agreement or instrument referred to
herein or therein, or against any other Person under any other guarantee of, or
security for, any of the Guaranteed Obligations.

          6.03  Reinstatement.  The obligations of the Guarantors under this
Section 6 shall be automatically reinstated if and to the extent that for any
reason any payment by or on

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -71-

behalf of any Borrower in respect of the Guaranteed Obligations is rescinded or
must be otherwise restored by any holder of any of the Guaranteed Obligations,
whether as a result of any proceedings in bankruptcy or reorganization or
otherwise and the Guarantors jointly and severally (to the extent of common
Guaranteed Obligations) agree that they will indemnify the Administrative Agent
and each Lender on demand for all reasonable costs and expenses (including,
without limitation, fees of counsel) incurred by the Administrative Agent or
such Lender in connection with such rescission or restoration, including any
such costs and expenses incurred in defending against any claim alleging that
such payment constituted a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law.

          6.04  Subrogation.  Each Guarantor hereby waives all rights of
subrogation or contribution, whether arising by contract or operation of law
(including, without limitation, any such right arising under the Bankruptcy
Code) or otherwise by reason of any payment by it pursuant to the provisions of
this Section 6 and further agrees with each Borrower for the benefit of each of
its creditors (including, without limitation, each Lender and the Administrative
Agent) that any such payment by such Guarantor shall constitute a contribution
of capital by such Guarantor to such Borrower (or an investment in the equity
capital of such Borrower by such Guarantor).

          6.05  Remedies.  The Guarantors jointly and severally (to the extent
of common Guaranteed Obligations) agree that, as between the Guarantors and the
Lenders, the obligations of the Borrowers under this Agreement and the Notes may
be declared to be forthwith due and payable as provided in Section 10 hereof
(and shall be deemed to have become automatically due and payable in the
circumstances provided in said Section 10) for purposes of Section 6.01 hereof
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or such obligations from becoming automatically due and payable) as
against the Borrowers and that, in the event of such declaration (or such
obligations being deemed to have become automatically due and payable), such
obligations (whether or not due and payable by the Borrowers) shall forthwith
become due and payable by the Guarantors for purposes of said Section 6.01.

          6.06  Instrument for the Payment of Money.  Each Guarantor hereby
acknowledges that the guarantee in this Section 6 constitutes an instrument for
the payment of money, and consents and agrees that any Lender or the
Administrative Agent, at its sole option, in the event of a dispute by such
Guarantor in the payment of any moneys due hereunder, shall have the right to
bring motion-action under New York CPLR Section 3213.

          6.07  Continuing Guarantee.  The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising until such time as all Guaranteed Obligations (including, without
limitation, all Letter of Credit Liabilities) shall have been paid in full and
the Commitments terminated.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -72-

          6.08  Contribution among Certain Obligors.  The Obligors other than
Dutch Operating and Fabrene (such Obligors, i.e. excluding Dutch Operating and
Fabrene, being herein called the "Relevant Obligors") hereby agree, as between
themselves, that if any Relevant Obligor shall become an Excess Funding Obligor
(as defined below) by reason of the payment by such Relevant Obligor of any
Guaranteed Obligations, each other Relevant Obligor shall, on demand of such
Excess Funding Obligor (but subject to the next sentence), pay to such Excess
Funding Obligor an amount equal to such Relevant Obligor's Pro Rata Share (as
defined below and determined, for this purpose, without reference to the
Properties, debts and liabilities of such Excess Funding Obligor) of the Excess
Payment (as defined below) in respect of such Guaranteed Obligations.  The
payment obligation of a Relevant Obligor to any Excess Funding Obligor under
this Section 6.08 shall be subordinate and subject in right of payment to the
prior payment in full of the obligations of such Relevant Obligor under the
other provisions of this Section 6 and such Excess Funding Obligor shall not
exercise any right or remedy with respect to such excess until payment and
satisfaction in full of all of such obligations.

          For purposes of this Section 6.08, (i) "Excess Funding Obligor" shall
mean, in respect of any Guaranteed Obligations, a Relevant Obligor that has paid
an amount in excess of its Pro Rata Share of such Guaranteed Obligations, (ii)
"Excess Payment" shall mean, in respect of any Guaranteed Obligations, the
amount paid by an Excess Funding Obligor in excess of its Pro Rata Share of such
Guaranteed Obligations and (iii) "Pro Rata Share" shall mean, for any Relevant
Obligor, the ratio (expressed as a percentage) of (x) the amount by which the
aggregate present fair saleable value of all Properties of such Relevant Obligor
(excluding any shares of stock of any other Relevant Obligor) exceeds the amount
of all the debts and liabilities of such Relevant Obligor (including contingent,
subordinated, unmatured and unliquidated liabilities, but excluding the
obligations of such Relevant Obligor hereunder and any obligations of any other
Relevant Obligor that have been Guaranteed by such Relevant Obligor) to (y) the
amount by which the aggregate fair saleable value of all Properties of all of
the Relevant Obligors exceeds the amount of all the debts and liabilities
(including contingent, subordinated, unmatured and unliquidated liabilities, but
excluding the obligations of the Relevant Obligors hereunder) of all of the
Relevant Obligors, all as of the Effective Date.  If any entity becomes a
Domestic Non-Borrower Guarantor pursuant to Section 9.16(b) hereof (and thus a
Relevant Obligor hereunder) subsequent to the Effective Date, then for purposes
of this Section 6.08 such subsequent Relevant Obligor shall be deemed to have
been a Guarantor as of the Effective Date and the aggregate present fair
saleable value of the Properties, and the amount of the debts and liabilities,
of such Relevant Obligor as of the Effective Date shall be deemed to be equal to
such value and amount on the date such Relevant Obligor becomes a Relevant
Obligor hereunder.

          6.09  General Limitation on Guarantee Obligations.  In any action or
proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law (including the law of any
foreign jurisdiction) affecting the rights

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -73-

of creditors generally, if the obligations of any Guarantor under Section 6.01
hereof would otherwise, taking into account the provisions of Section 6.08
hereof, be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors, on account of the amount of
its liability under said Section 6.01, then, notwithstanding any other provision
hereof to the contrary, the amount of such liability shall, without any further
action by such Guarantor, any Lender, the Administrative Agent or any other
Person, be automatically limited and reduced to the highest amount that is valid
and enforceable and not subordinated to the claims of other creditors as
determined in such action or proceeding.

          Section 7.  Conditions Precedent.

          7.01  Initial Extension of Credit.  The effectiveness of this
Agreement (and the amendment and restatement of the Existing Credit Agreement to
be effected hereby), and the obligation of any Lender to make its initial
extension of credit hereunder (whether by making a Loan, creating and
discounting Bankers' Acceptance, or issuing a Letter of Credit) is subject to
(i) the condition that such effectiveness shall have occurred on or before July
11, 1997, and (ii) the receipt by the Administrative Agent of the following
documents, each of which shall be satisfactory to the Administrative Agent (and
to the extent specified below, to each Lender) in form and substance:

          (a)  Corporate Documents.  Certified copies of the charter and by-laws
     (or equivalent documents) of each Group Member and of all corporate
     authority for each Group Member (including, without limitation, board of
     director resolutions and evidence of the incumbency of officers) with
     respect to the execution, delivery and performance of such Basic Documents
     to which such Group Member is or is intended to be a party and each other
     document to be delivered by such Group Member from time to time in
     connection herewith and the Loans hereunder (and the Administrative Agent
     and each Lender may conclusively rely on such certificate until it receives
     notice in writing from such Group Member).

          (b)  Officer's Certificate.  A certificate of a senior financial
     officer of PGI, dated the Effective Date, to the effect set forth in
     paragraphs (a) and (b) of the first sentence of Section 7.02 hereof.

          (c)  Opinions of Counsel to the Group Members.  Opinions, dated the
     Effective Date, of (i) Kirkland & Ellis, special New York counsel to the
     Group Members, in substantially the form of Exhibit G hereto and (ii)
     special Canadian, Dutch, German and Mexican counsel covering such matters
     with respect to the Canadian, Dutch, German and Mexican Security Documents,
     respectively, and the other Basic Documents being executed and delivered by
     the respective Group Members in such countries, and in each case covering
     such other matters as the Administrative Agent or

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -74-

     any Lender may reasonably request (and each Obligor hereby instructs such
     counsel to deliver each such opinion to the Lenders and to the
     Administrative Agent).

          (d)  Opinions of Local Counsel.  Opinions, dated the Effective Date,
     of special local counsel in the respective states in which the properties
     covered by the Mortgages are located covering such matters with respect to
     such Mortgages and covering such other matters as the Administrative Agent
     or any Lender may reasonably request.

          (e)  Opinion of Special New York Counsel to Chase.  An opinion, dated
     the Effective Date, of Milbank, Tweed, Hadley & McCloy, special New York
     counsel to Chase, substantially in the form of Exhibit H hereto (and Chase
     hereby instructs such counsel to deliver such opinion to the Lenders and
     the Administrative Agent).

          (f)  Notes.  The Notes, duly completed and executed.

          (g)  Security Agreement; Collateral Account.  The Security Agreement,
     duly executed and delivered by each Securing Party and the Administrative
     Agent.  In addition, (i) each Securing Party shall have taken such other
     action (including, without limitation, delivering to the Administrative
     Agent (w) for filing, appropriately completed and duly executed copies of
     Uniform Commercial Code financing statements, (x) instruments and other
     documents in connection with the foreign patents and trademarks, (y) the
     Intercompany Notes outstanding on the date hereof, to the extent not
     previously delivered to the Administrative Agent, and (z) certificates
     representing all shares of stock pledged by the Obligors hereunder, in each
     case together with undated stock powers or other instruments of assignment)
     as the Administrative Agent shall have requested in order to perfect the
     security interests created pursuant to the Security Agreement and (ii) the
     Collateral Account contemplated by Section 4.01 of the Security Agreement
     and the Intercompany Notes Account contemplated by Section 5.04(d)(1) of
     the Security Agreement shall have been established and there shall have
     been executed and delivered to the Administrative Agent such lock-box or
     similar agreements (and there shall have been taken such other action,
     including establishment of accounts in the name of the Administrative
     Agent, in connection therewith) with respect to Accounts (as such term is
     defined in the Security Agreement) to be remitted to banks other than the
     Administrative Agent as contemplated by Section 4.02 of the Security
     Agreement.

          (h)  Mortgages and Title Insurance.  The following documents each of
     which shall be executed (and, where appropriate, acknowledged) by Persons
     satisfactory to the Administrative Agent:

                    (i)  with respect to each Mortgage, an instrument of
          Modification and Confirmation pursuant to which such Mortgage shall
          have been amended in

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -75-

          form and substance satisfactory to the Administrative Agent to spread
          the Lien thereof to secure the obligations under this Agreement, in
          each case duly executed, acknowledged and delivered by the respective
          parties thereto, in recordable form (in such number of copies as the
          Administrative Agent shall have requested);

                    (ii)  mortgagee down-date continuation reports for, and
          modification/date-down endorsements to, existing title policies issued
          pursuant to the Existing Credit Agreement (or any predecessor Credit
          Agreement), subject only to such exceptions as shall be satisfactory
          to the Majority Lenders;

                    (iii) for filing in the appropriate county land offices,
          Uniform Commercial Code financing statements covering fixtures, in
          each case appropriately completed and duly executed; and

                    (iv)  such other documents as may be reasonably requested by
          the title companies to record the instruments of Modification and
          Confirmation and to issue the modification/date-down endorsements.

     In addition, the respective Mortgagors shall have paid to the title
     companies all expenses of such title companies in connection with the
     issuance of the down-date continuation reports and modification date-down
     endorsements and the recording of the instruments of Modification and
     Confirmation and in addition shall have paid to such title companies an
     amount equal to the recording and stamp taxes payable in connection with
     recording the respective instruments of Modification and Confirmation in
     the appropriate county land offices.

          (i)  Consummation of the Refinancing.  Evidence that the Refinancing
     shall have been (or concurrently with the satisfaction of the other
     conditions precedent set forth in this Section 7 and the making of the
     initial extensions of credit hereunder, will be) consummated in a manner
     satisfactory to the Majority Lenders (including the form, terms and
     conditions of the Senior Subordinated Notes Indenture, and the modification
     of the covenants with respect to the Existing Senior Notes), that the
     Administrative Agent shall have received copies of all documents in
     connection therewith, and that PGI shall have received gross proceeds from
     the Offering of not less than U.S. $350,000,000.

          (j)  Dutch Security Documents.  Such documents, each in form and
     substance satisfactory to each Lender, duly executed and delivered by
     Chicopee, Dutch Holding and Dutch Operating, as the case may be, as any
     Lender shall have requested in order to create the equivalent under Dutch
     law of first priority Liens (or to confirm the Liens created or confirmed
     pursuant to the Existing Credit Agreement) in favor of the

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -76-

     Administrative Agent and the Lenders (i) in the case of Chicopee, on all of
     the issued and outstanding shares of Dutch Holding, (ii) in the case of
     Dutch Holding, on such number of shares of Dutch Operating as represent 65%
     of the aggregate voting stock of Dutch Operating and on substantially all
     of its other assets, and (iii) in the case of Dutch Operating, on
     substantially all of its assets located, or arising out of its operations
     conducted, in Cuijk, Netherlands, in each case as collateral security for
     the respective obligations of Chicopee, Dutch Holding and Dutch Operating,
     as the case may be, hereunder.

          (k)  German Security Documents.  Such documents, each in form and
     substance satisfactory to each Lender, duly executed and delivered by
     FiberTech, as any Lender shall have requested in order to create first
     priority Liens (or to confirm the Liens created or confirmed pursuant to
     the Existing Credit Agreement) in favor of the Administrative Agent and the
     Lenders in all of the assets of FiberTech located, or arising out of its
     operations conducted, in Neunkirchen, Germany.

          (l)  Mexican Security Documents.  Such documents, each in form and
     substance satisfactory to each Lender, duly executed and delivered by
     Bonlam and its Subsidiaries, as any Lender shall have requested in order to
     create first priority Liens (or to confirm the Liens created or confirmed
     pursuant to the Existing Credit Agreement) in favor of PGI Polymer in all
     of the assets of Bonlam located, or arising out of its operations
     conducted, in Mexico, as collateral security for the obligations of Bonlam
     and its Subsidiaries to PGI Polymer arising from time to time under the
     Bonlam Intercompany Notes Agreement and the Bonlam Intercompany Notes,
     together with evidence that such action as shall be necessary to perfect or
     record such Liens under applicable law shall have been taken.

          (m)  Canadian Security Documents.  Such documents, each in form and
     substance satisfactory to each Lender, duly executed and delivered by
     Fabrene and its Subsidiaries, as any Lender shall have requested in order
     to create first priority Liens (or to confirm the Liens created or
     confirmed pursuant to the Existing Credit Agreement) in all of the assets
     of Fabrene and its Subsidiaries located, or arising out of its operations
     conducted, in Canada, in favor of (i) the Administrative Agent and the
     Lenders, as collateral security for the obligations of Fabrene and its
     Subsidiaries hereunder and (ii) Fabrene Holdings as collateral security for
     the obligations of Fabrene and its Subsidiaries to Fabrene Holdings arising
     from time to time under the Fabrene Intercompany Notes Agreement and the
     Fabrene Intercompany Notes, together with evidence that such action as
     shall be necessary to perfect or record such Liens under applicable law
     shall have been taken.

          (n)  Insurance.  Certificates of insurance evidencing the existence of
     all insurance required to be maintained by the Obligors and their
     Subsidiaries pursuant to

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -77-

     Section 9.04 hereof and the designation of the Administrative Agent as the
     loss payee thereunder to the extent required by said Section 9.04 in
     respect of all insurance covering tangible Property, such certificates to
     be in such form and contain such information as is specified in said
     Section 9.04.  In addition, the Obligors shall have delivered (i) a
     certificate of the chief financial officer of PGI setting forth the
     insurance obtained by it in accordance with the requirements of Section
     9.04 and stating that such insurance is in full force and effect and that
     all premiums then due and payable thereon have been paid and (ii) a written
     report, dated reasonably near the Effective Date, of Reliable Insurance
     Group, Inc., or any other firm of independent insurance brokers of
     nationally recognized standing, as to such insurance and stating that, in
     their opinion, such insurance adequately protects the interests of the
     Administrative Agent and the Lenders, is in compliance with the provisions
     of said Section 9.04, and is comparable in all respects with insurance
     carried by responsible owners and operators of Properties similar to those
     covered by the Mortgages.

          (o)  Environmental Reviews.  The Group Members shall have completed
     (and delivered to the Administrative Agent) environmental risk
     questionnaires with respect to all facilities owned, operated or leased by
     the Group Members and covered by environmental surveys and assessments
     delivered pursuant to the Existing Credit Agreement (or any predecessor
     Credit Agreement), and the responses to such questionnaires (and the
     underlying facts and circumstances shown thereby) shall be in form and
     substance satisfactory to the Majority Lenders.

          (p)  Leverage Ratio.  A certificate of the chief financial officer of
     PGI setting forth the Leverage Ratio as at the Effective Date (determined
     so as to give effect to the aggregate amount of Loans and Letters of Credit
     outstanding on the Effective Date, after giving effect to the transactions
     contemplated hereunder to occur on the Effective Date).

          (q)  Process Agent Acceptances.  A Process Agent Acceptance (in
     respect of the Dutch Borrowers, Fabrene and Fabrene Holdings), duly
     executed and delivered by the Process Agent in substantially the form of
     Exhibit I attached hereto, and process agent acceptances (in respect of
     Bonlam and Fabrene), duly executed and delivered by process agents in
     substantially the form attached as an Exhibit to the Intercompany Notes
     Agreements (to the extent not previously delivered pursuant to the Existing
     Credit Agreement).

          (r)  Capitalization Statement.  A balance sheet setting forth an
     estimate of the capitalization of PGI and its Subsidiaries (determined on a
     consolidated basis, without duplication, in accordance with GAAP) as of the
     Effective Date after giving effect to the Refinancing (including an
     estimate of all Indebtedness of PGI and its consolidated

                               Credit Agreement
                               ---------------- 
<PAGE>
 
                                      -78-

     Subsidiaries expected to be in existence on the Effective Date after giving
     effect to the Refinancing).

          (s)  Other Documents. Such other documents as the Administrative
     Agent, any Lender or special New York counsel to Chase may reasonably
     request.

The effectiveness of this Agreement (and the amendment and restatement of the
Existing Credit Agreement contemplated hereby), and the obligation of any Lender
to make its initial extension of credit hereunder (whether by making a Loan,
creating and discounting Bankers' Acceptances, or issuing a Letter of Credit),
is also subject to the payment by the Borrowers of such fees as the Borrowers
shall have agreed to pay or deliver to any Lender or the Administrative Agent in
connection herewith, including, without limitation, the reasonable fees and
expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase
in connection with the negotiation, preparation, execution and delivery of this
Agreement and the Notes and the other Basic Documents and the extensions of
credit hereunder (to the extent that statements for such fees and expenses have
been delivered to the Borrowers).

          7.02  Initial and Subsequent Extensions of Credit.  The obligation of
the Lenders to make any Loan, including, without limitation, the obligation to
create and discount any Bankers' Acceptance, or otherwise extend any credit to
the Borrowers upon the occasion of each borrowing or other extension of credit
hereunder (including the initial borrowing) is subject to the further conditions
precedent that, both immediately prior to the making of such Loan or creation
and discount of such Bankers' Acceptance or other extension of credit and also
after giving effect thereto and to the intended use thereof:

          (a)  no Default shall have occurred and be continuing;

          (b)  the representations and warranties made by the Obligors in
     Section 8 hereof, and by each of the Group Members in each of the other
     Basic Documents to which it is a party, shall be true and complete on and
     as of the date of the making of such Loan or other extension of credit with
     the same force and effect as if made on and as of such date (or, if any
     such representation or warranty is expressly stated to have been made as of
     a specific date, as of such specific date); and

          (c)  PGI shall not have requested a release of any Collateral as
     contemplated in the German Security Documents.

Each notice of borrowing or request for the issuance of a Letter of Credit by
the Borrowers hereunder shall constitute a certification by the Borrowers to the
effect set forth in the preceding sentence (both as of the date of such notice
or request and, unless the Borrowers otherwise notify the Administrative Agent
prior to the date of such borrowing or issuance, as of the date of such
borrowing or issuance).

                               Credit Agreement
                               ----------------
                               
<PAGE>
 
                                      -79-


          Section 8.  Representations and Warranties.  Each Obligor hereby
represents and warrants to the Lenders that:

          8.01  Corporate Existence.  Each Group Member: (a) is a corporation,
partnership, limited liability company, or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all requisite corporate or other power, and has all
material governmental licenses, authorizations, consents and approvals necessary
to own its assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify could have a Material
Adverse Effect.

          8.02  Financial Condition.  PGI has heretofore furnished to each of
the Lenders the following financial statements:

          (a)  the audited consolidated balance sheets of PGI and its
     consolidated Subsidiaries and the related audited consolidated statements
     of operations, shareholders' equity (deficit) and cash flows of PGI and its
     consolidated Subsidiaries for the fiscal year ended December 28, 1996,
     reported on by Ernst & Young LLP; and

          (b)  the unaudited consolidated balance sheets of PGI and its
     consolidated Subsidiaries and the related unaudited consolidated statements
     of operations, shareholders' equity (deficit) and cash flows of PGI and its
     consolidated Subsidiaries for the three-month period ended March 29, 1997.

All such financial statements fairly present the respective financial condition
of PGI and its consolidated Subsidiaries as at the respective dates, and the
respective results of operations for the respective periods ended on said
respective dates, all in accordance with generally accepted accounting
principles and practices applied on a consistent basis. None of PGI or any of
its Subsidiaries has on the date hereof any material contingent liabilities,
material liabilities for taxes, material unusual forward or long-term
commitments or material unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said
respective balance sheets as at said respective dates. Since December 28, 1996,
there has been no material adverse change in the financial condition, operation,
business or prospects of PGI and its consolidated Subsidiaries taken as a whole
from that set forth in the respective financial statements as at such date.

          8.03  Litigation.  Except as set forth in Schedule I hereto, there are
no legal or arbitral proceedings, or any proceedings by or before any
governmental or regulatory authority or agency, now pending or (to the knowledge
of any Obligor) threatened against any

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -80-

Group Member which, if adversely determined could reasonably be expected to have
a Material Adverse Effect.

          8.04  No Breach.  None of the execution and delivery of this Agreement
and the Notes and the other Basic Documents, the consummation of the
transactions herein and therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the organizational documents of any Group Member, or
any applicable law or regulation (including, without limitation, regulations of
the Central Bank of the Netherlands and comparable regulations in Mexico, Canada
and Germany), or any order, writ, injunction or decree of any court or
governmental authority or agency, or any agreement or instrument to which any
Group Member is a party or by which any of them or any of their Property is
bound or to which any of them is subject, or constitute a default under any such
agreement or instrument, or (except for the Liens created pursuant to the
Security Documents) result in the creation or imposition of any Lien upon any
Property of any Group Member pursuant to the terms of any such agreement or
instrument.

          8.05  Action.  Each Obligor has all necessary corporate or other
power, authority and legal right to execute, deliver and perform its obligations
under each of the Basic Documents to which it is a party; the execution,
delivery and performance by each Obligor of each of the Basic Documents to which
it is a party have been duly authorized by all necessary corporate or other
action on its part (including, without limitation, any required shareholder
approvals); and this Agreement has been duly and validly executed and delivered
by each Obligor and constitutes, and each of the Notes and the other Basic
Documents to which any Obligor is a party when executed and delivered by such
Obligor (in the case of the Notes, for value), will constitute, its legal, valid
and binding obligation, enforceable against such Obligor in accordance with its
terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditors' rights and (b) the application of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

          8.06  Approvals.  No authorizations, approvals or consents of
(including any exchange control approval), and no filings or registrations with,
any governmental or regulatory authority or agency, or any securities exchange
(including, without limitation, the Central Bank of the Netherlands and any
comparable institutions in Mexico, Canada and Germany), are necessary for the
execution, delivery or performance by any Obligor of the Basic Documents to
which it is a party or for the legality, validity or enforceability hereof or
thereof, except for filings and recordings in respect of the Liens created
pursuant to the Security Documents.

                               Credit Agreement
                               ----------------

<PAGE>
 
                                      -81-

          8.07  Use of Credit.  None of the Group Members is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose, whether immediate, incidental or ultimate, of buying or
carrying Margin Stock, and no part of the proceeds of any extension of credit
hereunder will be used to buy or carry any Margin Stock in violation of the
applicable provisions of Regulations G, U and X.

          8.08  ERISA.  Each Plan, and, to the knowledge of each Obligor, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, and no event
or condition has occurred and is continuing as to which any Obligor would be
under an obligation to furnish a report to the Lenders under Section 9.01(e)
hereof.

          8.09  Taxes.  The Group Members (other than Bonlam, Fabrene, Dutch
Operating and their respective Subsidiaries) are members of an affiliated group
of corporations filing consolidated returns for Federal income tax purposes, of
which PGI is the "common parent" (within the meaning of Section 1504 of the
Code) of such group. There is no tax sharing, tax allocation or similar
agreement (other than the Tax Sharing Agreement) currently in effect providing
for the manner in which tax payments owing by the members of such affiliated
group (whether in respect of Federal, state or foreign income or other taxes)
are allocated among the members of the group. The Group Members have filed
(either directly, or indirectly through PGI or PGI Polymer) all United States
Federal, and all foreign, income tax returns and all other material tax returns
that are required to be filed by them and have paid (either directly, or
indirectly through PGI or PGI Polymer) all taxes due pursuant to such returns or
pursuant to any assessment received by any Group Member. The charges, accruals
and reserves on the books of the Group Members in respect of taxes and other
governmental charges are, in the opinion of the Obligors, adequate.

          8.10  Investment Company Act.  None of the Group Members is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.

          8.11  Public Utility Holding Company Act. None of the Group Members is
a "holding company", or an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.

          8.12  Material Agreements and Liens.

          (a)  Part A of Schedule II hereto is a complete and correct list, as
of the date of this Agreement (and after giving effect to the transactions
contemplated to occur on the Effective Date), of each credit agreement, loan
agreement, indenture, purchase agreement,

                               Credit Agreement
                               ----------------

<PAGE>
 
                                      -82-

lease, guarantee, letter of credit or other arrangement (excluding this
Agreement) providing for or otherwise relating to any Indebtedness or any
extension of credit (or commitment for any extension of credit) to, or guarantee
by, any Group Member, the aggregate principal or face amount of which equals or
exceeds (or may equal or exceed) U.S. $100,000, and the aggregate principal or
face amount outstanding or that may become outstanding under each such
arrangement is correctly described in Part A of said Schedule II.

          (b)  Part B of Schedule II hereto is a complete and correct list, as
of the date of this Agreement (and after giving effect to the transactions
contemplated to occur on the Effective Date), of each Lien securing Indebtedness
of any Person (excluding the Security Documents) the aggregate principal or face
amount of which equals or exceeds (or may equal or exceed) U.S. $100,000 and
covering any Property of any Group Member, and the aggregate Indebtedness
secured (or which may be secured) by each such Lien and the Property covered by
each such Lien is correctly described in Part B of said Schedule II.

          8.13  Environmental Matters. Each Group Member has obtained all
environmental, health and safety permits, licenses and other authorizations
required under all Environmental Laws to carry on its business as now being or
as proposed to be conducted, except to the extent failure to have any such
permit, license or authorization would not have a Material Adverse Effect. Each
of such permits, licenses and authorizations is in full force and effect and
each Group Member is in compliance with the terms and conditions thereof, and is
also in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Environmental Law or in any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply
therewith would not have a Material Adverse Effect.

          In addition, except as set forth in Schedule III hereto:

          (a)  No notice, notification, demand, request for information,
     citation, summons or order has been issued, no complaint has been filed, no
     penalty has been assessed and no investigation or review is pending or
     threatened by any governmental or other entity with respect to any alleged
     failure by any Group Member to have any environmental, health or safety
     permit, license or other authorization required under any Environmental Law
     in connection with the conduct of the business of any Group Member or with
     respect to any generation, treatment, storage, recycling, transportation,
     discharge or disposal, or any Release of any Hazardous Materials generated
     by any Group Member which alleged failure, generation, treatment, storage,
     recycling, transportation, discharge or disposal or Release would have a
     Material Adverse Effect.

          (b)  Except to the extent the same could not reasonably be expected to
     have a Material Adverse Effect:

                               Credit Agreement
                               ----------------

<PAGE>
 
                                      -83-

                    (i)    no Group Member owns, operates or leases a treatment,
          storage or disposal facility requiring a permit under the Resource
          Conservation and Recovery Act of 1976, as amended, or under any
          comparable state or local statute;

                    (ii)   no polychlorinated biphenyls (PCB's) is or has been
          present at any site or facility now or previously owned, operated or
          leased by any Group Member;

                    (iii)  no asbestos or asbestos-containing materials is or
          has been present at any site or facility now or previously owned,
          operated or leased by any Group Member;

                    (iv)   there are no underground storage tanks or surface
          impoundments for Hazardous Materials, active or abandoned, at any site
          or facility now or previously owned, operated or leased by any Group
          Member;

                    (v)    no Hazardous Materials have been Released at, on or
          under any site or facility now or previously owned, operated or leased
          by any Group Member in a reportable quantity established by statute,
          ordinance, rule, regulation or order; and

                    (vi)   no Hazardous Materials have been otherwise Released
          at, on or under any site or facility now or previously owned, operated
          or leased by any Group Member.

          (c)  No Group Member has transported or arranged for the
     transportation of any Hazardous Material to any location that is listed on
     the National Priorities List ("NPL") under the Comprehensive Environmental
     Response, Compensation and Liability Act of 1980, as amended ("CERCLA"),
     listed for possible inclusion on the NPL by the Environmental Protection
     Agency in the Comprehensive Environmental Response and Liability
     Information System, as provided for by 40 C.F.R. (S) 300.5 ("CERCLIS"), or
     on any similar state, local or foreign list or that is the subject of
     Federal, state, local or foreign enforcement actions or other
     investigations that may lead to Environmental Claims against any Group
     Member, in each case to the extent such Environmental Claims could
     reasonably be expected to have a Material Adverse Effect.

          (d)  No oral or written notification of a Release of a Hazardous
     Material has been filed by or on behalf of any Group Member and no site or
     facility now or previously owned, operated or leased by any Group Member is
     listed or proposed for

                               Credit Agreement
                               ----------------
 
<PAGE>
 
                                      -84-

     listing on the NPL, CERCLIS or any similar state or foreign list of sites
     requiring investigation or clean-up.

          (e)  No Liens have arisen under or pursuant to any Environmental Laws
     on any site or facility owned, operated or leased by any Group Member, and
     none of the Group Members has received any notification (or otherwise has
     any knowledge) of any government action that has been taken or is in
     process that could subject any such site or facility to such Liens, and no
     Group Member would be required to place any notice or restriction relating
     to the presence of Hazardous Materials at any site or facility owned by it
     in any deed to the real property on which such site or facility is located.

          (f)  There have been no so-called "Phase I" or "Phase II"
     environmental investigations or other analyses conducted by or that are in
     the possession of any Group Member in relation to any site or facility now
     or previously owned, operated or leased by any Group Member which have not
     been made available to the Lenders.

          8.14  Capitalization.
          
          (a)  The authorized capital stock of each of the Subsidiaries of PGI
will consist as of the Effective Date, after giving effect to the transactions
contemplated to occur on or before such Date, of the aggregate number of shares
of common and preferred stock, having the respective par values and series, in
each case as listed in Schedule IV hereto. On the Effective Date, after giving
effect to the transactions contemplated to occur on or before the Effective
Date, the number of shares of common stock and each series of preferred stock of
each of the Subsidiaries of PGI will be duly and validly issued and outstanding
as listed in said Schedule IV and will be owned beneficially and of record by
the Persons as listed in said Schedule IV.

          (b)  As of the Effective Date, after giving effect to the transactions
contemplated to occur on or before such Date, except as set forth in Schedule V
hereto, (i) there will be no outstanding Equity Rights with respect to any Group
Member and (ii) there will be no outstanding obligations of any Group Member to
repurchase, redeem, or otherwise acquire any shares of capital stock of PGI or
any other Group Member nor will there be any outstanding obligations of any
Group Member to make payments to any Person, such as "phantom stock" payments,
where the amount thereof is calculated with reference to the fair market value
or equity value of any Group Member.

          8.15  Subsidiaries, Etc.
 
          (a)  Set forth in Part A of Schedule VI hereto is a complete and
correct list of all of the Subsidiaries of PGI as of the Effective Date,
together with, for each such Subsidiary, (i) the jurisdiction of organization of
such Subsidiary, (ii) each Person holding

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -85-

ownership interests in such Subsidiary and (iii) the nature of the ownership
interests held by each such Person and the percentage of ownership of such
Subsidiary represented by such ownership interests. Except as disclosed in Part
A of Schedule VI hereto, (x) PGI and its Subsidiaries owns, or will own on the
Effective Date, free and clear of Liens (other than Liens created pursuant to
the Security Documents), and has the unencumbered right to vote, all outstanding
ownership interests in each Person shown to be held by it in Part A of Schedule
VI hereto, (y) all of the issued and outstanding capital stock of each such
Person organized as a corporation is validly issued, fully paid and
nonassessable and (z) (except as disclosed in Schedule V) there are no
outstanding Equity Rights with respect to such Person.

          (b)  Set forth in Part B of Schedule VI hereto is a complete and
correct list of all Investments (other than Investments disclosed in Part A of
said Schedule VI hereto and other than Investments referred to in clause (b)
through (j), inclusive, of Section 9.08 hereof) held by any Group Member in any
Person on the date hereof, or that will be held on the Effective Date, and, for
each such Investment, (x) the identity of the Person or Persons holding such
Investment and (y) the nature of such Investment. Except as disclosed in Part B
of Schedule VI hereto, each Group Member owns, or will own, free and clear of
all Liens (other than Liens created pursuant to the Security Documents), all
such Investments.

          (c)  Except as provided for in the Intercompany Notes Agreements, no
Group Member is, on the date hereof, subject to any indenture, agreement,
instrument or other arrangement of the type described in Section 9.16(e) hereof.

          8.16  Title to Assets.  Each Group Member on the Effective Date will
own and have good and marketable title (subject only to Liens permitted by
Section 9.06 hereof) to the material Properties shown to be owned in the most
recent financial statements referred to in Section 8.02(c) hereof (other than
Properties disposed of in the ordinary course of business or otherwise permitted
to be disposed of pursuant to Section 9.05 hereof). Each Group Member on the
Effective Date will own (or have available for use under lease, license or other
arrangements entered into with any other Person) good and marketable title to,
and enjoy on the date hereof, and will enjoy on the Effective Date, peaceful and
undisturbed possession of, all Properties (subject only to Liens permitted by
Section 9.06 hereof) that are necessary for the operation and conduct of their
businesses.

          8.17  True and Complete Disclosure.  The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Obligors to the Administrative Agent or any Lender in connection
with the negotiation, preparation or delivery of this Agreement and the other
Basic Documents or included herein or therein or delivered pursuant hereto or
thereto, when taken as a whole (together with the Disclosure Materials) do not
contain any untrue statement of material fact or omit to state any material fact
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading, provided that, as to
projections, the Obligors represent

                               Credit Agreement
                               ----------------

<PAGE>
 
                                      -86-

only that such projections have been prepared in good faith based on estimates
and assumptions believed by the Obligors to be reasonable as of the date such
projections were prepared. All written information furnished after the date
hereof by the Obligors to the Administrative Agent and the Lenders in connection
with this Agreement and the other Basic Documents and the transactions
contemplated hereby and thereby will be true, complete and accurate in every
material respect, or (in the case of projections) based on reasonable estimates,
on the date as of which such information is stated or certified. There is no
fact known to the Obligors that could have a Material Adverse Effect that has
not been disclosed herein, in the other Basic Documents or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to the Lenders for use in connection with the transactions
contemplated hereby or thereby.

          8.18  Legal Form.  This Agreement, the Notes, the Security Documents
and any other instruments or documents referred to herein or therein are in
proper legal form under the law of the Netherlands and the law of Canada for the
enforcement thereof against the Obligors under such law, and if this Agreement,
the Notes, the Security Documents and such other documents or instruments were
stated to be governed by such law, they would constitute legal, valid and
binding obligations of the Obligors under such law, enforceable in accordance
with their respective terms. All formalities required in the Netherlands or
Canada for the validity and enforceability of this Agreement, the Notes, the
Security Documents and any other instruments or documents referred to herein or
therein (including, without limitation, any necessary registration, recording or
filing with any court or other authority in the Netherlands) have been
accomplished, and no Foreign Taxes are required to be paid for the validity and
enforceability thereof.

          8.19  Ranking.  This Agreement and the Notes and the obligations
evidenced hereby are and will at all times be direct and unconditional general
obligations of the Obligors, and rank and will at all times rank in right of
payment and otherwise at least pari passu with any unsecured Indebtedness of the
Obligors, whether now existing or hereafter outstanding. There exists no Lien
(including any Lien arising out of any attachment, judgment or execution), nor
any segregation or other preferential arrangement of any kind, on, in or with
respect to any of the Property or revenues of the Obligors or any of their
Subsidiaries, except as expressly permitted by Section 9.06 hereof.

          8.20  Commercial Activity; Absence of Immunity.  The Foreign Borrowers
are subject to civil and commercial law with respect to their obligations under
this Agreement, the Notes, the Security Documents and any other instrument or
document referred to herein or therein. The execution, delivery and performance
by the Foreign Borrowers of this Agreement, the Notes and such other instruments
and documents constitute private and commercial acts rather than public or
governmental acts. Neither the Foreign Borrowers nor any of their Properties or
revenues is entitled to any right of immunity in any jurisdiction from suit,
court jurisdiction, judgment, attachment (whether before or after judgment),
set-off

                               Credit Agreement
                               ----------------
 
<PAGE>
 
                                      -87-

or execution of a judgment or from any other legal process or remedy relating to
the obligations of the Foreign Borrowers under this Agreement, the Notes, the
Security Documents or any other instrument or document referred to herein or
therein.

          8.21  Real Property.  Set forth on Schedule VII attached hereto is a
list of all of the real property interests of the Group Members on the Effective
Date, indicating in each case whether the respective Property is owned or
leased, the identity of the owner or lessee and the location of the respective
Property. All such leases necessary for the conduct of the business of the Group
Members are valid and subsisting and are in full force and effect, except for
such failures to be valid, subsisting and in full force and effect as would not,
individually or in the aggregate, have a Material Adverse Effect. Each of the
Group Members enjoys peaceful and undisturbed possession under all such leases,
and each of the Group Members has complied with all material obligations under
all leases to which it is a party, except where the failure to so comply could
not reasonably be expected to have a Material Adverse Effect.

          8.22  Intercompany Notes.  On the date hereof, the only "Intercompany
Notes" under and as defined in the Existing Credit Agreement that have been
executed and delivered by either Bonlam or Fabrene are the Fabrene Acquisition
Intercompany Note, the Fabrene Operations Intercompany Note and the Bonlam
Intercompany Notes.

          Section 9.  Covenants of the Borrowers.  Each Obligor hereby covenants
and agrees with the Lenders and the Administrative Agent that, so long as any
Commitment, Loan or Letter of Credit Liability is outstanding and until payment
in full of all amounts payable by the Borrowers hereunder:

          9.01  Financial Statements Etc.  The Obligors shall deliver to the
Administrative Agent (and the Administrative Agent will promptly forward copies
of the same to each Lender):

          (a)  as soon as available and in any event within 45 days after the
     end of each quarterly fiscal period of each fiscal year of the Borrowers
     (unless such quarterly fiscal period ends on the end of a fiscal year, in
     which case the financial statements required to be delivered pursuant to
     this clause (a) may be delivered within 90 days), consolidated statements
     of income, retained earnings and cash flows of PGI and its Subsidiaries
     (and, separately stated, of PGI and its Restricted Subsidiaries) for such
     period and for the period from the beginning of the respective fiscal year
     to the end of such period, and the related consolidated balance sheets of
     PGI and its Subsidiaries as at the end of such period (and, separately
     stated, of PGI and its Restricted Subsidiaries), setting forth in each case
     in comparative form the corresponding consolidated figures for the
     corresponding period in the preceding fiscal year,

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -88-

     accompanied by a certificate of a senior financial officer of PGI, which
     certificate shall state that said consolidated financial statements fairly
     present the consolidated financial condition and results of operations of
     PGI and its Subsidiaries (or of PGI and its Restricted Subsidiaries, as the
     case may be), in each case in accordance with generally accepted accounting
     principles, consistently applied, as at the end of, and for, such period
     (subject to the absence of footnote disclosures and to normal year-end
     audit adjustments);

          (b)  as soon as available and in any event within 90 days after the
     end of each fiscal year of the Borrowers, consolidated statements of
     income, retained earnings and cash flows of PGI and its Subsidiaries (and,
     separately stated, of PGI and its Restricted Subsidiaries) for such fiscal
     year and the related consolidated balance sheets of PGI and its
     Subsidiaries (and, separately stated, of PGI and its Restricted
     Subsidiaries) as at the end of such fiscal year, setting forth in each case
     in comparative form the corresponding consolidated figures for the
     preceding fiscal year, and accompanied by an opinion thereon of independent
     certified public accountants of recognized national standing, which opinion
     shall state that said consolidated financial statements fairly present the
     consolidated financial condition and results of operations of PGI and its
     Subsidiaries (or of PGI and its Restricted Subsidiaries, as the case may
     be) as at the end of, and for, such fiscal year in accordance with
     generally accepted accounting principles, and a certificate of such
     accountants stating that, in making the examination necessary for their
     opinion, they obtained no knowledge, except as specifically stated, of any
     Default;

          (c)  promptly upon their becoming available, copies of all
     registration statements and regular periodic reports, if any, which any of
     the Group Members shall have filed with the Securities and Exchange
     Commission (or any governmental agency substituted therefor) or any
     national securities exchange;

          (d)  promptly upon the mailing thereof to the holders of any publicly-
     traded debt or equity securities of any of the Group Members, copies of all
     financial statements, certificates, reports, proxy statements and other
     notices or information so mailed;

          (e)  as soon as possible, and in any event within ten days after any
     Obligor knows or has reason to believe that any of the events or conditions
     specified below with respect to any Plan or Multiemployer Plan has occurred
     or exists, a statement signed by a senior financial officer of such Obligor
     setting forth details respecting such event or condition and the action, if
     any, that the Obligors and their ERISA Affiliates propose to take with
     respect thereto (and a copy of any report or notice required to be filed
     with or given to PBGC by PGI or an ERISA Affiliate with respect to such
     event or condition):

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -89-

                    (i)  any reportable event, as defined in Section 4043(b) of
          ERISA and the regulations issued thereunder, with respect to a Plan,
          as to which the PBGC has not by regulation waived the requirement of
          Section 4043(a) of ERISA that it be notified within 30 days of the
          occurrence of such event (provided that a failure to meet the minimum
          funding standard of Section 412 of the Code or Section 302 of ERISA,
          including, without limitation, the failure to make on or before its
          due date a required installment under Section 412(m) of the Code or
          Section 302(e) of ERISA, shall be a reportable event regardless of the
          issuance of any waivers in accordance with Section 412(d) of the
          Code); and any request for a waiver under Section 412(d) of the Code
          for any Plan;

                    (ii)  the distribution under Section 4041 of ERISA of a
          notice of intent to terminate any Plan or any action taken by PGI or
          an ERISA Affiliate to terminate any Plan;

                    (iii)  the institution by the PBGC of proceedings under
          Section 4042 of ERISA for the termination of, or the appointment of a
          trustee to administer, any Plan, or the receipt by PGI or any ERISA
          Affiliate of a notice from a Multiemployer Plan that such action has
          been taken by the PBGC with respect to such Multiemployer Plan;

                    (iv)  the complete or partial withdrawal from a
          Multiemployer Plan by PGI or any ERISA Affiliate that results in
          liability under Section 4201 or 4204 of ERISA (including the
          obligation to satisfy secondary liability as a result of a purchaser
          default) or the receipt by PGI or any ERISA Affiliate of notice from a
          Multiemployer Plan that it is in reorganization or insolvency pursuant
          to Section 4241 or 4245 of ERISA or that it intends to terminate or
          has terminated under Section 4041A of ERISA;

                    (v)  the institution of a proceeding by a fiduciary of any
          Multiemployer Plan against PGI or any ERISA Affiliate to enforce
          Section 515 of ERISA, which proceeding is not dismissed within 30
          days;and

                    (vi)  the adoption of an amendment to any Plan that,
          pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA,
          would result in the loss of tax-exempt status of the trust of which
          such Plan is a part if PGI or an ERISA Affiliate fails to timely
          provide security to the Plan in accordance with the provisions of said
          Sections;

          (f)  as soon as available and in any event within 30 days after the
     end of the third fiscal quarter of each fiscal year of the Borrowers, (i) a
     projection (setting forth an itemization of the principal assumptions
     relating thereto) for the next fiscal year of

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -90-

     the Borrowers of the anticipated income statement, cash flow statement and
     changes in financial position of the Borrowers, and the related balance
     sheets and (ii) promptly after any material change in such projections
     (either positive or negative) becomes known, notice of such change;

          (g)  promptly after any Obligor has reason to believe that any Default
     has occurred, a notice of such Default describing the same in reasonable
     detail and, together with such notice or as soon thereafter as possible, a
     description of the action that such Obligor has taken or propose to take
     with respect thereto; and

          (h)  from time to time such other information regarding the financial
     condition, operations, business or prospects of any Group Member
     (including, without limitation, any Plan or Multiemployer Plan and any
     reports or other information required to be filed under ERISA) as any
     Lender or either Agent may reasonably request.

PGI will furnish to the Administrative Agent (and the Administrative Agent will
promptly forward copies of the same to each Lender), at the time it furnishes
each set of financial statements pursuant to clause (a) or (b) above, a
certificate of a senior financial officer of PGI (i) to the effect that no
Default has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail and describing the action
that PGI has taken or proposes to take with respect thereto) and (ii) setting
forth in reasonable detail the computations necessary to determine whether the
Obligors are in compliance with Sections 9.07 through 9.10 hereof, inclusive, as
of the end of the respective quarterly fiscal period or fiscal year.

          9.02  Litigation.  The Obligors will promptly give to each Lender
notice of all legal or arbitral proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, and any material development
in respect of such legal or other proceedings, affecting any Group Member,
except proceedings which, if adversely determined, would not have a Material
Adverse Effect.  Without limiting the generality of the foregoing, the Obligors
will give to each Lender notice of the assertion of any Environmental Claim by
any Person against, or with respect to the activities of, any Group Member and
notice of any alleged violation of or non-compliance with any Environmental Laws
or any permits, licenses or authorizations, other than any Environmental Claim
or alleged violation which, if adversely determined, would not have a Material
Adverse Effect.

          9.03  Existence, Etc.  Each Obligor will, and will cause each of its
Subsidiaries to:

          (a)  preserve and maintain its legal existence and all of its material
     rights, privileges, licenses and franchises (provided that nothing in this
     Section 9.03 shall prohibit any transaction expressly permitted under
     Section 9.05 hereof);

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -91-

          (b)  comply with the requirements of all applicable laws (including,
     without limitation, all Environmental Laws), rules, regulations and orders
     of governmental or regulatory authorities if failure to comply with such
     requirements could reasonably be expected to have a Material Adverse
     Effect;

          (c)  pay and discharge all taxes, assessments and governmental charges
     or levies in excess of U.S. $250,000 imposed on it or on its income or
     profits or on any of its Property prior to the date on which penalties
     attach thereto, except for any such tax, assessment, charge or levy the
     payment of which is being contested in good faith and by proper proceedings
     and against which adequate reserves are being maintained in accordance with
     GAAP;

          (d)  maintain all of its Properties used or useful in its business in
     good working order and condition, ordinary wear and tear excepted, except
     to the extent the failure to maintain the same would have a Material
     Adverse Effect;

          (e)  keep adequate records and books of account, in which complete
     entries will be made in accordance with generally accepted accounting
     principles consistently applied; and

          (f)  permit representatives of any Lender or the Administrative Agent
     during normal business hours, to examine, copy and make extracts from its
     books and records, to visit any of its Properties, and to discuss its
     business and affairs with its officers, all to the extent reasonably
     requested by such Lender or the Administrative Agent (as the case may be).

          9.04  Insurance.  Each Obligor will, and will cause each of its
Subsidiaries to, keep insured by financially sound and reputable insurers all
Property of a character usually insured by corporations engaged in the same or
similar business similarly situated against loss or damage of the kinds and in
the amounts customarily insured against by such corporations and carry such
other insurance as is usually carried by such corporations, provided that in any
event each Obligor will maintain (with respect to itself and its Restricted
Subsidiaries):

          (1)  Casualty Insurance -- insurance against loss or damage covering
     all of the tangible real and personal Property and improvements of the
     Obligors and each of their Restricted Subsidiaries by reason of any Peril
     (as defined below) in such amounts (subject to the respective deductibles
     for insurance indicated in Schedule VII hereto) as shall be reasonable and
     customary and sufficient to avoid the insured named therein from becoming a
     co-insurer of any loss under such policy but in any event in an amount (i)
     in the case of fixed assets and equipment (including, without limitation,
     vehicles), at least equal to 100% of the actual replacement cost of such
     assets (including, without limitation, foundation, footings and excavation
     costs), subject to

                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -92-

     deductibles as aforesaid and (ii) in the case of inventory, not less than
     the fair market value thereof, subject to deductibles as aforesaid.

          (2)  Automobile Liability Insurance for Bodily Injury and Property
     Damage -- insurance against liability for bodily injury and property damage
     in respect of all vehicles (whether owned, hired or rented by any Obligor
     or any of its Restricted Subsidiaries) at any time located at, or used in
     connection with, its Properties or operations in such amounts as are then
     customary for vehicles used in connection with similar Properties and
     businesses, but in any event to the extent required by applicable law.

          (3)  Comprehensive General Liability Insurance -- insurance against
     claims for bodily injury, death or Property damage occurring on, in or
     about the Properties (and adjoining streets, sidewalks and waterways) of
     any Obligor and its Restricted Subsidiaries, in such amounts as are then
     customary for Property similar in use in the jurisdictions where such
     Properties are located.

          (4)  Workers' Compensation Insurance -- workers' compensation
     insurance (including, without limitation, employers' liability insurance)
     to the extent required by applicable law.

          (5)  Product Liability Insurance -- insurance against claims for
     bodily injury, death or Property damage resulting from the use of products
     sold by any Obligor or any of its Restricted Subsidiaries in such amounts
     as are then customarily maintained by responsible persons engaged in
     businesses similar to that of such Obligor and its Restricted Subsidiaries.

          (6)  Business Interruption Insurance -- insurance against loss of
     operating income (up to an aggregate amount equal to U.S. $80,000,000 and
     subject to a deductible, or self-insured amount, not in excess of U.S.
     $500,000) by reason of any Peril.

          (7)  Other Insurance -- such other insurance, including, without
     limitation, War-Risk Insurance when and to the extent obtainable from the
     United States Government, in each case as generally carried by owners of
     similar Properties in the jurisdictions where such Properties are located,
     in such amounts and against such risks as are then customary for Property
     similar in use.

Such insurance shall be written by financially responsible companies selected by
the Obligors and having an A. M. Best rating of "A" or better and being in a
financial size category of XIV or larger, or by other companies acceptable to
the Majority Lenders, and (other than workers' compensation) shall name the
Administrative Agent as additional insured, or loss


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -93-

payee, as its interests may appear.  Each policy referred to in this Section
9.04 shall provide that it will not be canceled or reduced, or allowed to lapse
without renewal, except after not less than 30 days' notice to the
Administrative Agent and shall also provide that the interests of the
Administrative Agent and the Lenders shall not be invalidated by any act or
negligence of the Obligors or any Person having an interest in any Property
covered by the Mortgages nor by occupancy or use of any such Property for
purposes more hazardous than permitted by such policy nor by any foreclosure or
other proceedings relating to such Property.  The Obligors will advise the
Administrative Agent promptly of any policy cancellation, reduction or
amendment.

          On or before the Effective Date, the Obligors will deliver to the
Administrative Agent certificates of insurance satisfactory to the
Administrative Agent evidencing the existence of all insurance required to be
maintained by the Obligors hereunder setting forth the respective coverages,
limits of liability, carrier, policy number and period of coverage and showing
that such insurance will remain in effect through December 31, 1997 subject only
to the payment of premiums as they become due (and attaching original copies of
any policies with respect to casualty insurance).  Thereafter, on each November
15 in each year (commencing with November 15, 1997), the Obligors will deliver
to the Administrative Agent certificates of insurance evidencing that all
insurance required to be maintained by the Obligors hereunder will be in effect
through December 31 of the calendar year following the calendar year of the
current November 15, subject only to the payment of premiums as they become due.
In addition, the Obligors will not modify any of the provisions of any policy
with respect to casualty insurance without delivering the original copy of the
endorsement reflecting such modification to the Administrative Agent accompanied
by a written report of Reliable Insurance Group, Inc. or any other firm of
independent insurance brokers of nationally recognized standing, stating that,
in their opinion, such policy (as so modified) adequately protects the interests
of the Lenders and the Administrative Agent, is in compliance with the
provisions of this Section 9.04, and is comparable in all respects with
insurance carried by responsible owners and operators of Properties similar to
those covered by the Mortgages.  The Obligors will not obtain or carry separate
insurance concurrent in form or contributing in the event of loss with that
required by this Section 9.04 unless the Administrative Agent is the named
insured thereunder, with loss payable as provided herein.  The Obligors will
immediately notify the Administrative Agent whenever any such separate insurance
is obtained and shall deliver to the Administrative Agent the certificates
evidencing the same.

          Without limiting the obligations of the Obligors under the foregoing
provisions of this Section 9.04, in the event the Obligors shall fail to
maintain in full force and effect insurance as required by the foregoing
provisions of this Section 9.04, then the Administrative Agent may, but shall
have no obligation so to do, procure insurance covering the interests of the
Lenders and the Administrative Agent in such amounts and against such risks as
the


                               Credit Agreement
                               ----------------
<PAGE>
 
                                      -94-

Majority Lenders shall deem appropriate, and the Obligors shall reimburse the
Administrative Agent in respect of any premiums paid by the Administrative Agent
in respect thereof.

          For purposes hereof, the term "Peril" shall mean, collectively, fire,
lightning, flood, windstorm, hail, earthquake, explosion, riot and civil
commotion, vandalism and malicious mischief, damage from aircraft, vehicles and
smoke and all other perils covered by the "all-risk" endorsement then in use in
the jurisdictions where the Properties of the Borrowers and their Restricted
Subsidiaries are located.

          9.05  Prohibition of Fundamental Changes.

          (a)  Mergers, etc.  No Obligor will, nor will any Obligor permit any
of its Restricted Subsidiaries to, enter into any transaction of merger or
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution).

          (b)  Dispositions.  No Obligor will, nor will it permit any of its
Restricted Subsidiaries to, convey, sell, lease, transfer or otherwise dispose
of, in one transaction or a series of transactions, any part of its business or
Property, whether now owned or hereafter acquired, including, without
limitation, receivables and leasehold interests, but excluding (i) any inventory
or other Property sold or disposed of in the ordinary course of business and on
ordinary business terms, (ii) the use or lease of certain facilities of Chicopee
located in Quebec, Canada, Little Rock, Arkansas and Dayton, New Jersey, (iii)
direct or indirect sales by Bonlam of non-Mexican accounts receivable to Banco
de National de Comercio Exterior, S.N.C. pursuant to the Export Sales Program
(as described in Section 9.07(j) hereof) and (iv) other sales of Property
(including sales of obsolete or worn-out Property, tools or equipment no longer
used or useful), so long as the aggregate amount thereof sold by the Obligors
and their Restricted Subsidiaries during the term of this Agreement shall not
exceed U.S. $30,000,000.

          (c)  Acquisitions.  No Obligor will, nor will it permit any of its
Restricted Subsidiaries to, acquire any business or Property from, or capital
stock of, or be a party to any acquisition of, any Person except for purchases
of inventory and other Property to be sold or used in the ordinary course of
business and Investments permitted under Section 9.08 hereof.

          (d)  Certain Exceptions.  Notwithstanding the foregoing provisions of
this Section 9.05,

               (i)  any of PGI's Restricted Subsidiaries may merge into PGI or
     any of its Restricted Subsidiaries, so long as in any such merger to which
     a Borrower is a party, such Borrower shall be the continuing or surviving
     entity and in any such


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -95-

     merger to which a Wholly Owned Subsidiary of PGI is a party, a Wholly Owned
     Subsidiary of PGI shall be the continuing or surviving entity, provided
     that in no event shall more than one Borrower be a party to any such
     merger;

               (ii)  any of PGI's Restricted Subsidiaries may transfer any of
     its Property to any other Restricted Subsidiary of PGI, so long as any such
     transfer by a Wholly Owned Subsidiary of PGI shall be to a Wholly Owned
     Subsidiary of PGI;

               (iii) PGI or any of its Restricted Subsidiaries may make the
     Investments permitted under Section 9.08(k) hereof; and

               (iv)  PGI or any of its Restricted Subsidiaries may make any
     Acquisition, so long as

               (s)  at the time of such Acquisition and after giving effect
          thereto, no Default shall have occurred and be continuing,

               (t)  the entity to be acquired will be either (A) a Wholly Owned
          Restricted Subsidiary of PGI, or the assets to be acquired will be
          acquired through a Wholly Owned Restricted Subsidiary of PGI, and the
          provisions of Section 9.16 will have been (or concurrently with any
          such Acquisition will be) complied with or (B) a Subsidiary as to
          which PGI and its other Subsidiaries own a sufficient percentage of
          each class of outstanding capital stock to enable PGI and its
          Subsidiaries to effect, without the approval of any other holders of
          capital stock, a merger or consolidation of such Subsidiary with a
          Wholly Owned Restricted Subsidiary of PGI within nine months of the
          date of such Acquisition (and such merger is in fact effected, and the
          provisions of Section 9.16 hereof complied with, within nine months of
          the date of such Acquisition),

               (u)  after giving effect to such Acquisition (A) the Leverage
          Ratio shall not exceed the then-applicable requirement under Section
          9.10(a) hereof, (B) the Fixed Charges Ratio shall not be less than the
          then-applicable requirement under Section 9.10(c) hereof and (C) Net
          Worth shall not be less than the then-applicable requirement under
          Section 9.10(d), the determination of such compliance (in the case of
          each of the foregoing clauses (A), (B) and (C)) to be calculated on a
          pro forma basis, as at the end of and for the period of four fiscal
          quarters most recently ended prior to the date of such Acquisition for
          which financial statements of PGI are available, under the assumption
          that such Acquisition and the incurrence of any Indebtedness in
          connection with such Acquisition, shall have occurred at the beginning
          of the applicable period,

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -96-

               (v)  after giving effect to any such Acquisition the Senior
          Leverage Ratio shall not exceed the then-applicable requirement under
          Section 9.10(b) hereof, calculated on a pro forma basis, as at the end
          of and for the period of four fiscal quarters most recently ended
          prior to the date of such Acquisition for which financial statements
          of PGI are available, under the assumption that such Acquisition and
          the incurrence of any Indebtedness in connection with such
          Acquisition, shall have occurred at the beginning of the applicable
          period,

               (w)  after giving effect to any such Acquisition there shall be
          unutilized Commitments aggregating at least U.S. $25,000,000,

               (x)  the entity or assets acquired in such Acquisition is in a
          similar or related line of business as the Obligors,

               (y)  in the event that such Acquisition consists in whole or in
          part of a tender for shares of stock in a transaction that does not
          constitute an Agreed Takeover, and any portion of the financing for
          such Acquisition will be provided by Loans to be made under this
          Agreement, each of the Facility A Revolving Credit Lenders (if such
          Acquisition is to be financed in whole or in part by Loans made
          hereunder in U.S. Dollars or Dutch Guilders), or Facility B Revolving
          Credit Lenders (if such Acquisition is to be financed in whole or in
          party by Loans made hereunder in Canadian Dollars), shall have
          consented thereto prior to the date upon which any such Loans are to
          be made; provided, that PGI shall, pursuant to Section 12.17 hereof,
          have the right to replace any Lender that does not so consent, and

               (z)  at least three Business Days (but not more than ten Business
          Days) prior to the date of any such Acquisition, PGI shall have
          delivered to the Lenders a certificate of a senior financial officer
          of PGI setting forth calculations in form and detail satisfactory to
          the Administrative Agent demonstrating compliance with the
          requirements of the foregoing clauses (u), (v) and (w) after giving
          effect to such Acquisition, and setting forth a calculation on a pro
          forma basis of the Leverage Ratio in accordance with the requirements
          of the definition of "Applicable Margin" in Section 1.01 hereof (i.e.,
          under the assumption that such Acquisition and the incurrence of any
          Indebtedness in connection with such Acquisition, shall have occurred
          at the beginning of the period of four fiscal quarters most recently
          ended prior to the date of such Acquisition for which financial
          statements of PGI are available).

          9.06 Limitation on Liens.  No Obligor will, nor will it permit any of
its Restricted Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon any of its Property, whether now owned or hereafter acquired, except:

                               Credit Agreement
                               ---------------- 
<PAGE>
 
                                     -97-

          (a)  Liens created pursuant to the Security Documents;

          (b)  Liens in existence on the date hereof and listed in Part B of
     Schedule II hereto;

          (c)  Liens on Non-Mexican accounts receivable sold by Bonlam directly
     (or indirectly through other institutions) to Banco de National de Comercio
     Exterior, S.N.C. pursuant to its export sales program as described in
     Section 9.07(j) hereof;

          (d)  Liens imposed by any governmental authority for taxes,
     assessments or charges not yet due or which are being contested in good
     faith and by appropriate proceedings if adequate reserves with respect
     thereto are maintained on the books of such Obligor or the affected
     Restricted Subsidiary, as the case may be, in accordance with GAAP;

          (e)  carriers', warehousemen's, mechanics', materialmen's, repairmen's
     or other like Liens arising in the ordinary course of business which are
     not overdue for a period of more than 30 days or which are being contested
     in good faith and by appropriate proceedings if adequate reserves with
     respect thereto are maintained on the books of such Obligor or the affected
     Restricted Subsidiary, as the case may be, in accordance with GAAP, and
     Liens securing judgments but only to the extent for an amount and for a
     period not resulting in an Event of Default under Section 10(h) hereof;

          (f)  pledges or deposits under worker's compensation, unemployment
     insurance and other social security legislation;

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

          (h)  easements, rights-of-way, restrictions and other similar
     encumbrances incurred in the ordinary course of business and encumbrances
     consisting of zoning restrictions, easements, licenses, restrictions on the
     use of Property or minor imperfections in title thereto which, in the
     aggregate, are not material in amount, and which do not in any case
     materially detract from the value of the Property subject thereto or
     interfere with the ordinary conduct of the business of the Obligors or any
     of their Restricted Subsidiaries;

          (i)  Liens upon real and/or tangible personal Property acquired after
     the date hereof (by purchase, construction or otherwise) by any Obligor or
     any of its

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -98-

     Subsidiaries, each of which Liens either (A) existed on such Property
     before the time of its acquisition and was not created in anticipation
     thereof, or (B) was created within 90 days of such acquisition solely for
     the purpose of securing Indebtedness representing, or incurred to finance,
     refinance or refund, the cost (including the cost of construction) of such
     Property; provided that no such Lien shall extend to or cover any Property
     of any Obligor or any such Subsidiary other than the Property so acquired
     and improvements thereon;

          (j)  additional Liens (including, without limitation, any extensions,
     renewals or replacements thereof permitted under the following clause (k)),
     so long as the aggregate principal amount of Indebtedness secured thereby
     shall not exceed U.S. $10,000,000 at any one time outstanding; and

          (k)  any extension, renewal or replacement of the foregoing, provided
     (A) that the Liens permitted hereunder shall not be spread to cover any
     additional Indebtedness or Property (other than a substitution of like
     Property) and (B) the aggregate amount of the obligations secured by such
     extension, renewal or replacement does not exceed the amount then being
     secured by the Lien being extended, renewed or replaced.

          9.07 Indebtedness.  No Obligor will, nor will it permit any of its
Restricted Subsidiaries to, create, incur or suffer to exist any Indebtedness
except:

          (a)  Indebtedness to the Lenders hereunder;

          (b)  Indebtedness outstanding on the date hereof and listed in Part A
     of Schedule II hereto, excluding, however, any Indebtedness in respect of
     the Intercompany Notes (which shall be governed by clause (d) below) and
     any Indebtedness in respect of the Existing Senior Notes (which shall be
     governed by clause (g) below);

          (c)  Indebtedness of any Restricted Subsidiary to PGI or any other
     Restricted Subsidiary, except for any such Indebtedness of Bonlam or
     Fabrene as to which clause (d) and (e) below shall apply;

          (d)  Indebtedness (x) of Bonlam and its Subsidiaries under the Bonlam
     Intercompany Notes Agreement in an aggregate amount of up to U.S.
     $10,000,000 and (y) of Fabrene and its Subsidiaries under the Fabrene
     Intercompany Notes Agreement in an aggregate amount of up to the Foreign
     Currency Equivalent in Canadian Dollars of U.S. $19,001,367 (in respect of
     the Fabrene Acquisition Intercompany Note) and U.S. $10,000,000 (in respect
     of the Fabrene Operations Intercompany Note), as the case may be;

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -99-

          (e)  Indebtedness of Bonlam to the Mexican Finco;

          (f)  Indebtedness of PGI in respect of the Senior Subordinated Notes
     (and of any other Group Member, other than a Group Member that does not
     Guarantee the obligations of PGI hereunder, in respect of a Guarantee of
     the Senior Subordinated Notes, so long as any such Guarantee is
     subordinated to the Guarantee hereunder), either (i) issued on or before
     the Effective Date in an aggregate principal amount up to but not exceeding
     U.S. $400,000,000 or (ii) issued after the Effective Date so long as, in
     the case of any additional Senior Subordinated Notes issued after the
     Effective Date:

               (w)  the respective indenture pursuant to which such additional
          Senior Subordinated Notes are to be issued does not (except in respect
          of rate of interest) materially vary from the Senior Subordinated
          Notes Indenture as in effect on the Effective Date (or as most
          recently modified pursuant to a supplement consented to by the
          Majority Lenders pursuant to Section 9.14 hereof), whether in respect
          of prepayments, covenants, events of default or otherwise, provided
          that in any event the terms of subordination set forth in such
          indenture shall not vary in any respect from the terms of
          subordination set forth in the Senior Subordinated Notes Indenture as
          in effect on the Effective Date (or as most recently modified pursuant
          to a supplement consented to by the Majority Lenders pursuant to
          Section 9.14 hereof),

               (x)  after giving effect to such issuance, no Default or Event of
          Default shall have occurred and be continuing, and PGI shall be in
          compliance with the provisions of Section 9.10(a) and 9.10(b) hereof
          (determined on a pro forma basis as if such additional Senior
          Subordinated Notes had been issued on the first day of the period of
          four fiscal quarters most recently ended prior to the date of such
          issuance for which financial statements of PGI are available),

               (y)  the maturity of such additional Senior Subordinated Notes
          shall not be earlier than the maturity date of the Senior Subordinated
          Notes issued on or before the Effective Date (and such additional
          Senior Subordinated Notes shall not be subject to amortization or
          sinking fund requirements) and

               (z)  the rate of interest on such additional Senior Subordinated
          Notes shall not exceed 18% per annum;

          (g)  Indebtedness of PGI in respect of the Existing Senior Notes and
     of any other Group Member (other than a Group Member that does not
     Guarantee the obligations of PGI hereunder) in respect of a Guarantee of
     the Existing Senior Notes;

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -100-

          (h)  unsecured subordinated Indebtedness incurred by PGI (and by any
     other Group Member (other than a Group Member that does not Guarantee the
     obligations of PGI hereunder) in respect of a Guarantee in respect of such
     unsecured subordinated Indebtedness), so long as (i) the proceeds of such
     Indebtedness are either applied to the prepayment of the principal of (and
     accrued interest and redemption premium, if any, on) the Senior
     Subordinated Notes, or the prepayment of Indebtedness hereunder pursuant to
     Section 2.10(b) hereof, (ii) such Indebtedness is incurred pursuant to
     instruments and agreements which contain terms (including, without
     limitation, interest, amortization, covenants and events of default and
     terms of subordination) which are in each case in form and substance
     reasonably satisfactory to the Majority Lenders and (iii) after giving
     effect to such incurrence, no Default or Event of Default shall have
     occurred and be continuing, and PGI shall be in compliance with the
     provisions of Section 9.10(a) and 9.10(b) hereof (determined on a pro forma
     basis as if such additional Indebtedness had been incurred on the first day
     of the period of four fiscal quarters most recently ended prior to the date
     of such incurrence for which financial statements of PGI are available);

          (i)  unsecured subordinated Indebtedness incurred by PGI in connection
     with an Acquisition permitted under Section 9.05(d)(iv) hereof (and in
     respect of which no other Group Member is directly or indirectly
     obligated), so long as (i) such Indebtedness is payable to the respective
     seller (or an affiliate thereof) from whom the respective Property is being
     acquired in such Acquisition, (ii) such Indebtedness is incurred pursuant
     to instruments and agreements which contain terms (including, without
     limitation, interest, amortization, covenants and events of default and
     terms of subordination) which are in each case in form and substance
     reasonably satisfactory to the Majority Lenders and (iii) after giving
     effect to such incurrence, no Default or Event of Default shall have
     occurred and be continuing, and PGI shall be in compliance with the
     provisions of Section 9.10(a) and 9.10(b) hereof (determined on a pro forma
     basis as if such additional Indebtedness had been incurred on the first day
     of the period of four fiscal quarters most recently ended prior to the date
     of such incurrence for which financial statements of PGI are available);

          (j)  Indebtedness of Bonlam arising in respect of the sale of non-
     Mexican accounts receivable by Bonlam directly (or indirectly through other
     institutions) to Banco de National de Comercio Exterior, S.N.C. pursuant to
     its export sales program, so long as the aggregate outstanding principal
     amount thereof shall not exceed U.S. $2,000,000 at any one time; and

          (k)  additional Indebtedness of the Borrowers (including Indebtedness
     secured by Liens permitted under Section 9.06(i) hereof and, to the extent
     relating to Liens described in Section 9.06(i), under 9.06(j) hereof) so
     long as the aggregate principal amount thereof does not exceed U.S.
     $25,000,000 at any one time outstanding.


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -101-

          9.08 Investments.  No Obligor will, nor will it permit any of its
Restricted Subsidiaries to, make or permit to remain outstanding any Investments
except:

          (a)  Investments outstanding on the date hereof and identified in
     Schedule VI hereto;

          (b)  operating deposit accounts with banks located in any country
     where operations are conducted by the Borrowers and their Subsidiaries;

          (c)  Permitted Investments;

          (d)  Investments by any Group Member in any Wholly Owned Restricted
     Subsidiary (other than in Bonlam, Fabrene or their respective Subsidiaries,
     as to which clauses (e), (f), (g) and (h) below shall apply);

          (e)  Investments (x) in the case of Fabrene Holdings and PGI Polymer,
     evidenced by the Fabrene Intercompany Notes and constituting Indebtedness
     of Fabrene to Fabrene Holdings and PGI Polymer permitted under Section
     9.07(d) hereof and (y) in the case of PGI Polymer, evidenced by the Bonlam
     Intercompany Notes and constituting Indebtedness of Bonlam to PGI Polymer
     permitted under Section 9.07(d) hereof, so long as in the case of both of
     the foregoing clauses (x) and (y) such Intercompany Notes shall have been
     delivered in pledge to the Administrative Agent pursuant to the Security
     Agreement on the Effective Date (or, in the case of any such Intercompany
     Notes executed and delivered after the Effective Date, promptly following
     such execution and delivery);

          (f)  Investments (in each case as additional equity capital) by PGI in
     PGI Polymer and by PGI Polymer in Fabrene, from the proceeds of a Debt
     Issuance permitted to be applied to the prepayment of the Fabrene
     Acquisition Intercompany Note pursuant to Section 2.10(b) hereof, so long
     as each such Investment occurs immediately following receipt by PGI of the
     proceeds of such Debt Issuance and such proceeds are in fact applied to the
     prepayment of the Fabrene Acquisition Intercompany Note (and to the
     prepayment of Loans hereunder) as contemplated by Section 2.10(d) hereof;

          (g)  Investments by Bonlam in one or more Restricted Subsidiaries of
     Bonlam;

          (h)  Investments by the Mexican Finco in Bonlam consisting of an
     unsecured receivable, so long as the Mexican Finco shall be a Restricted
     Subsidiary;

          (i)  Investments permitted under Section 9.05(d)(iv) hereof;


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -102-

          (j)  Hedging Transactions entered into in the ordinary course of
     business and not for speculative purposes;

          (k)  Investments by PGI (which may include transfers of cash or other
     Property, determined in each case at the fair market value thereof), either
     directly or through one or more Restricted Subsidiaries, in one or more
     non-Wholly Owned Subsidiaries of PGI, so long as the aggregate amount of
     such Investments made after the date hereof (i.e. excluding those permitted
     under clause (a) above) outstanding at any one time shall not exceed U.S.
     $50,000,000; and

          (l)  additional Investments (which may include transfers of cash or
     other Property, determined in each case at the fair market value thereof)
     by PGI or any Restricted Subsidiary in any other Person (including any such
     Investment in any Affiliate) constituting a Restricted Payment permitted
     under Section 9.09 hereof.

The aggregate amount of an Investment at any one time outstanding for purposes
of clause (k) above, shall be deemed to be equal to (A) the aggregate amount of
cash, together with the aggregate fair market value of Property, loaned,
advanced, contributed, transferred or otherwise invested that gives rise to such
Investment minus (B) the aggregate amount of dividends, distributions or other
payments received in cash in respect of such Investment; the amount of an
Investment shall not in any event be reduced by reason of any write-off of such
Investment.

          9.09  Restricted Payments.  No Obligor will, nor will it permit any of
its Restricted Subsidiaries to, make any Restricted Payments at any time during
any fiscal year, provided that PGI may make Restricted Payments in cash so long
as:

               (i)  no Default shall have occurred and be continuing, and after
     giving effect to such Restricted Payment no Default shall have occurred and
     be continuing; and

               (ii) the aggregate amount of such Restricted Payments made by PGI
     during the period (the "Determination Period") from and including December
     31, 1996 to and including the date of such Restricted Payment shall not
     exceed an amount equal to the sum of (x) U.S. $25,000,000 plus 50% of
     Consolidated Net Income (to the extent positive) for each full fiscal year
     included in the Determination Period minus (y) 100% of Consolidated Net
     Income (to the extent negative) for each full fiscal year included in the
     Determination Period.

Notwithstanding the foregoing, (x) PGI may make cash payments to officers and
employees in respect of shares of stock (or options therefor) granted to such
officers and employees upon the termination of employment of such officer or
employee (so long as the aggregate amount

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -103-

thereof paid in any single fiscal year shall not exceed U.S. $750,000) (and such
cash payments shall not be included in determining the amount of Restricted
Payments permitted above) and (y) so long as at the time thereof and after
giving effect thereto no Event of Default shall have occurred or be continuing,
Restricted Subsidiaries of the Obligors may make Dividend Payments in respect of
their shares of stock to the Obligors and other Restricted Subsidiaries of the
Obligors (and such payments shall not be included in determining the amount of
Restricted Payments permitted above).

          9.10  Certain Financial Covenants.

          (a)  Leverage Ratio.  PGI will not permit the Leverage Ratio to exceed
the following respective ratios at any time during the following respective
periods:
<TABLE>
<CAPTION>
            Period                                                Ratio
            ------                                                -----
<S>                                                              <C>
     From the Effective
      Date through but excluding the
      last day of fiscal year 1998                               5.50 to 1

     From the last day of fiscal year
      1998 through but excluding the
      last day of fiscal year 1999                               5.25 to 1

     From the last day of fiscal year
      1999 through but excluding the
      last day of fiscal year 2000                               5.00 to 1

     From the last day of fiscal year
      2000 through but excluding the
      last day of fiscal year 2001                               4.75 to 1

     From the last day of fiscal year
      2001 through but excluding the
      last day of fiscal year 2002                               4.50 to 1

     From the last day of fiscal year
      2002 and at all times thereafter                           4.25 to 1
</TABLE>
          (b)  Senior Leverage Ratio.  PGI will not, immediately after giving
effect to any Acquisition permitted under Section 9.05(d)(iv) hereof, permit the
Senior Leverage Ratio to exceed the respective ratio set forth below opposite
the period in which such Acquisition shall occur:

                               Credit Agreement
                               ---------------- 
<PAGE>
 
                                     -104-

<TABLE>
<CAPTION>
                 Period                                          Ratio
                 ------                                          -----
<S>  <C>                                                        <C>
     From the Effective
      Date through but excluding the
      last day of fiscal year 1998                              3.50 to 1

     From the last day of fiscal year
      1998 through but excluding the
      last day of fiscal year 2000                              3.25 to 1

     From the last day of fiscal year
      2000 and at all times thereafter                          3.00 to 1
</TABLE>

          (c)  Fixed Charges Ratio.  PGI will not permit the Fixed Charges Ratio
to be less than the following respective ratios at the end of any fiscal quarter
which falls within the following respective periods:
<TABLE>
<CAPTION>
                 Period                                          Ratio
                 ------                                          -----
<S>                                                             <C>

     From the Effective
      Date through but excluding the
      last day of fiscal year 1998                              1.15 to 1

     From the last day of fiscal year
      1998 through but excluding the
      last day of fiscal year 1999                              1.30 to 1

     From the last day of fiscal year
      1999 and at all times thereafter                          1.40 to 1
</TABLE>

          (d)  Net Worth.  PGI will not permit Net Worth to be less than the
following respective amounts at any time during the following respective
periods:

<TABLE>
<CAPTION>
                 Period                                          Amount
                 ------                                          ------
<S>                                                          <C>
     From the Effective Date
      through but excluding the
      last day of fiscal year 1997                           U.S. $156,000,000
</TABLE>
                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -105-

<TABLE>
<CAPTION>
<S>                                                           <C>
     From the last day of fiscal year
      1997 through but excluding the
      last day of fiscal year 1998                            U.S. $170,500,000

     From the last day of fiscal year
      1998 through but excluding the
      last day of fiscal year 1999                            U.S. $186,500,000

     From the last day of fiscal year
      1999 through but excluding the
      last day of fiscal year 2000                            U.S. $203,500,000

     From the last day of fiscal year
      2000 through but excluding the
      last day of fiscal year 2001                            U.S. $222,500,000

     From the last day of fiscal year
      2001 through but excluding the
      last day of the first fiscal
      quarter in 2002                                         U.S. $243,000,000

     From the last day of the first
      fiscal quarter in 2002 and at all
      times thereafter                                        U.S. $251,000,000
</TABLE>
Notwithstanding the foregoing, in the event that PGI shall take any write-off in
connection with any one or more Acquisitions, the amounts set forth above shall
be adjusted downward by the cumulative amount of such charge-offs, provided,
that in no event shall the aggregate amount of such downward adjustments after
the Effective Date exceed U.S. $50,000,000.

          9.11  Lines of Business.  No Obligor will, nor will it permit any of
its Subsidiaries to, engage to any substantial extent in any line or lines of
business activity other than the business of manufacturing and marketing of
woven and nonwoven materials, polymers and polyolefins, and related businesses
and activities.

          9.12  Transactions with Affiliates.  Except as expressly permitted by
this Agreement, no Obligor will, nor will it permit any of its Restricted
Subsidiaries to, directly or indirectly:  (a) transfer, sell, lease, assign or
otherwise dispose of any Property to an Affiliate; (b) merge into or consolidate
with or purchase or acquire Property from an Affiliate; or (c) enter into any
other transaction directly or indirectly with or for the benefit of an Affiliate
(including, without limitation, guarantees and assumptions of obligations of an
Affiliate); provided that

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -106-

          (x)  any Affiliate who is an individual may serve as a director,
     officer or employee of any Obligor or any of its Restricted Subsidiaries
     and receive reasonable compensation for his or her services in such
     capacity,

          (y)  an Obligor and its Restricted Subsidiaries may enter into
     transactions (other than extensions of credit by such Obligor or any of its
     Restricted Subsidiaries to an Affiliate) providing for the leasing of
     Property, the rendering or receipt of services or the purchase or sale of
     inventory and other Property in the ordinary course of business if the
     monetary or business consideration arising therefrom would be substantially
     as advantageous to such Obligor or its Restricted Subsidiaries as the
     monetary or business consideration which it would obtain in a comparable
     transaction with a Person not an Affiliate and

          (z)  nothing herein shall be deemed to prohibit an Investment by PGI
     or any of its Restricted Subsidiaries in any entity pursuant to a
     transaction permitted under Section 9.05(d)(iv) hereof, or Section 9.08(k)
     or 9.08(l) hereof, even though an Affiliate may hold, or concurrently be
     making, an Investment in such entity.

          9.13  Use of Proceeds.  The Borrowers will use the proceeds of the
Loans hereunder:  (i) to provide financing for permitted acquisitions, (ii) to
finance ongoing working capital requirements (including loans and letters of
credit of PGI and its Subsidiaries), (iii) to pay fees and expenses in
connection with the Refinancing and (iv) to provide funds for general corporate
purposes; provided that (x) any borrowing of Facility A Revolving Credit Loans
hereunder that would constitute a utilization of any Facility A Reserved
Commitment Amount shall be applied solely to investments in replacement assets,
or to redemptions or repurchases of Existing Senior Notes, in accordance with
the provisions of the second paragraph of Section 2.01(a) hereof, (y) any
borrowing of Facility B Revolving Credit Loans hereunder that would constitute a
utilization of any Facility B Reserved Commitment Amount shall be applied solely
to investments in replacement assets in accordance with the provisions of the
second paragraph of Section 2.01(b) hereof and (z) neither the Administrative
Agent nor any Lender shall have any responsibility as to the use of any of the
proceeds of any Loans hereunder.

          9.14  Modifications of Certain Documents.  The Obligors will not, and
will not permit their Subsidiaries to, consent to any modification, supplement
or waiver of any of the provisions of any of the Basic Documents (excluding the
License Agreement and the Technology Agreement), the charter documents of any of
the Obligors or their Restricted Subsidiaries, the Future Refinancing Debt
Documents or the Subordinated Acquisition Debt Documents, without in each case
the prior consent of the Administrative Agent (with the approval of the Majority
Lenders), provided that no such consent shall be necessary

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -107-

               (i)  to modify the charter of Dutch Operating, in the manner
     contemplated by the penultimate paragraph of Section 3 of the Security
     Agreement, to provide for it to have two classes of common stock in a
     manner similar to the capital structure of Dutch Holding,

               (ii)  to modify the charter documents of any Obligor (other than
     Dutch Operating, Bonlam or Fabrene) in a manner that, in the judgment of
     the Administrative Agent, shall not be materially adverse to the interests
     of the Lenders hereunder, or

               (iii) for any modification, supplement or waiver under the Supply
     Agreement unless the same would either (x) affect adversely the
     "Contribution Margin" (as defined therein) or otherwise materially
     adversely affect the economic value of the Supply Agreement to the
     Borrowers or (y) alter Section 26 thereof (or otherwise modify the Supply
     Agreement so as to adversely affect the ability of the Administrative Agent
     or the Lenders to exercise, or result in a breach of the Supply Agreement
     if the Administrative Agent or the Lenders were to exercise, any of their
     rights or remedies under any of the Security Documents).

          9.15  Governmental Approvals.  Each Foreign Borrower agrees that it
will promptly obtain from time to time at its own expense all such governmental
licenses, authorizations, consents, permits and approvals as may be required for
such Borrower to comply with its obligations under this Agreement, the Notes,
the Security Documents and each other instrument or agreement referred to herein
or therein.

          9.16  Certain Obligations Respecting Subsidiaries.

          (a)  Ownership of Subsidiaries.  PGI will take such action from time
to time as shall be necessary to ensure that, except as otherwise contemplated
by Section 9.08(k) hereof, each Restricted Subsidiary of PGI is a Wholly Owned
Subsidiary.  In the event that, as contemplated by Section 9.05(d)(iv)(t)
hereof, PGI or any of its Restricted Subsidiaries shall acquire a Subsidiary
that is not a Wholly Owned Subsidiary of PGI, then (as provided in said Section
9.05(d)(iv)(t)) PGI shall cause such Subsidiary to become a Wholly Owned
Subsidiary of PGI and to become a Guarantor hereunder within nine months
following the date upon which the respective Acquisition of such Subsidiary
shall have occurred.

          (b)  Domestic Non-Borrower Guarantors.  In the event that PGI or any
of its Restricted Subsidiaries shall form or acquire after the Effective Date
any new Restricted Subsidiary that is (x) the Mexican Finco, (y) organized under
the laws of a State of the United States of America or (z) that the Majority
Lenders reasonably determine (in consultation with PGI) may Guarantee the
obligations hereunder without adverse tax consequences under Section 956 of the
Code (any such Restricted Subsidiary described in the foregoing clauses (x)
through (z) being herein called a "Domestic Subsidiary"), PGI shall

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -108-

cause such new Restricted Subsidiary to execute and deliver to the
Administrative Agent a Domestic Non-Borrower Guaranty Agreement, substantially
in the form attached as Exhibit E hereto, and to thereby become a "Domestic Non-
Borrower Guarantor" hereunder and a "Securing Party" under the Security
Agreement and to deliver such proof of corporate action, incumbency of officers,
opinions of counsel and other documents as is consistent with those delivered by
each Obligor pursuant to Section 7.01 hereof upon the Effective Date or as the
Administrative Agent shall have reasonably requested, provided that, if such
Domestic Subsidiary is the Mexican Finco, PGI shall cause the Mexican Finco to
execute and deliver such other documents as the Administrative Agent shall deem
appropriate in order to create and perfect a Lien on all of the Property of the
Mexican Finco under the laws of the Republic of Mexico.

          (c)  Foreign Non-Borrower Guarantors. In the event that PGI or any of
its Restricted Subsidiaries shall form or acquire after the Effective Date any
new Restricted Subsidiary (other than a Domestic Subsidiary as defined in
paragraph (b) above), PGI shall cause such new Restricted Subsidiary to execute
and deliver to the Administrative Agent on the Effective Date a Foreign Non-
Borrower Guaranty Agreement, either (x) if such new Restricted Subsidiary is a
Subsidiary of Fabrene or Dutch Operating, substantially in the form of Exhibit F
hereto or (y) if such new Restricted Subsidiary is not a Subsidiary of Fabrene
or Dutch Operating, in such other form (and Guaranteeing such other Obligations)
as the Majority Lenders reasonably determine (in consultation with PGI) will not
result in adverse tax consequences under Section 956 of the Code or any
violation of law, and any such Subsidiary shall deliver such proof of corporate
action, incumbency of officers, opinions of counsel and other documents as is
consistent with those delivered by each Obligor pursuant to Section 7.01 hereof
upon the Effective Date or as the Administrative Agent shall have reasonably
requested.

          (d)  Bonlam Subsidiaries. PGI will take such action from time to time
as shall be necessary to ensure that all Subsidiaries of Bonlam Guarantee the
obligations of Bonlam under the Bonlam Intercompany Notes Agreement and Bonlam
Intercompany Notes. In that connection, in the event that Bonlam shall form or
acquire any such new Subsidiary, PGI will cause such new Subsidiary to Guarantee
the obligations of Bonlam under the Bonlam Intercompany Notes Agreement pursuant
to a written instrument in form and substance satisfactory to the Administrative
Agent and to deliver such proof of corporate action, incumbency of officers,
opinions of counsel and other documents as is consistent with those delivered by
Bonlam pursuant to Section 7.01 hereof upon the Effective Date or as the
Administrative Agent shall have reasonably requested.

          (e)  Certain Restrictions. PGI will not permit any of its Restricted
Subsidiaries to enter into, after the date of this Agreement, any indenture,
agreement, instrument or other arrangement that, directly or indirectly,
prohibits or restrains, or has the effect of prohibiting or restraining, or
imposes materially adverse conditions upon, the incurrence or payment of

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -109-

Indebtedness, the granting of Liens, the declaration or payment of dividends,
the making of loans, advances or Investments or the sale, assignment, transfer
or other disposition of Property, other than any such prohibition or restraint
arising pursuant to an indenture, agreement, instrument or other arrangement
providing for Liens permitted by Section 9.06(i) hereof, so long as such
prohibition or restraint shall only cover the Property that is subject to such
Lien and no other Property.

          9.17  Gainesville Georgia Property.  Although it is contemplated that
the leasehold interest of Chicopee in Gainesville, Georgia will not be subjected
to the Lien of a Mortgage on the Effective Date, in the event that the Majority
Lenders shall at any time so request, Chicopee agrees to enter into an
arrangement whereby such leasehold interest is assigned to the Administrative
Agent and then subleased by the Administrative Agent to Chicopee, with such
sublease being terminable upon the occurrence of an Event of Default.  Any such
assignment and sublease shall be effected pursuant to documentation in form and
substance satisfactory to the Majority Lenders and the Administrative Agent.

          9.18  Subordinated Indebtedness.  PGI will not, nor will it permit any
of its Subsidiaries to, purchase, redeem, retire or otherwise acquire for value,
or set apart any money for a sinking, defeasance or other analogous fund for the
purchase, redemption, retirement or other acquisition of, or make any voluntary
payment or prepayment of the principal of or interest on, or any other amount
owing in respect of, any of the Subordinated Indebtedness, except (i) for
regularly scheduled payments or prepayments of principal and interest in respect
thereof required pursuant to the Senior Subordinated Debt Documents, Future
Refinancing Debt Documents or the Subordinated Acquisition Debt Documents, (ii)
to the extent permitted by Section 9.09 hereof and (iii) from the proceeds of a
"Public Equity Offering" under and as defined in the Senior Subordinated Notes
Indenture to the extent permitted by Paragraph 6 of the form of the Senior
Subordinated Notes attached to the Senior Subordinated Notes Indenture.

          Section 10.  Events of Default.  If one or more of the following
events (herein called "Events of Default") shall occur and be continuing:

          (a)  Any Borrower shall default in the payment when due (whether at
     stated maturity or upon mandatory or optional prepayment) of any principal
     of or interest on any Loan or any Reimbursement Obligation, any fee or any
     other amount payable by it hereunder or under any other Basic Document; or

          (b)  The Obligors or any of their Restricted Subsidiaries shall
     default in the payment when due of any principal of or interest on any of
     its other Indebtedness aggregating U.S. $5,000,000 (or its equivalent in
     any other currency) or more (excluding, however, Indebtedness under the
     Intercompany Notes), or in the payment

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -110-

     when due of any amount under any Hedging Transaction; or any event
     specified in any note, agreement, indenture or other document evidencing or
     relating to any such Indebtedness or any event specified in any Hedging
     Transaction shall occur if the effect of such event is to cause, or (with
     the giving of any notice or the lapse of time or both) to permit the holder
     or holders of such Indebtedness (or a trustee or agent on behalf of such
     holder or holders) to cause, such Indebtedness to become due, or to be
     prepaid in full (whether by redemption, purchase, offer to purchase or
     otherwise), prior to its stated maturity or, in the case of any Hedging
     Transaction, to permit the payments owing under such Hedging Transaction to
     be liquidated; or

          (c)  Any representation, warranty or certification made or deemed made
     herein or in any other Basic Document (or in any modification or supplement
     hereto or thereto) by any Group Member, or any certificate furnished to any
     Lender or either Agent pursuant to the provisions hereof or thereof, shall
     prove to have been false or misleading as of the time made, deemed made or
     furnished in any material respect; or

          (d)  Any Obligor shall default in the performance of any of its
     obligations under any of Sections 9.01(g), 9.05, 9.06, 9.07, 9.08, 9.09,
     9.10, 9.14, 9.16 or 9.18 hereof; any Obligor which is a Securing Party
     under the Security Agreement shall default in the performance of any of its
     obligations under Sections 4.02, 5.02 or 5.04(d) of the Security Agreement;
     or any Obligor shall default in the performance of any of its other
     obligations in this Agreement or any other Basic Document and such default
     shall continue unremedied for a period of thirty days after the earlier of
     (x) the date notice thereof shall be given to such Obligor by the
     Administrative Agent or any Lender (through the Administrative Agent) or
     (y) such default shall first become known to any officer of PGI; or

          (e)  Any Group Member shall admit in writing its inability to, or be
     generally unable to, pay its debts as such debts become due; or

          (f)  Any Group Member shall (i) apply for or consent to the
     appointment of, or the taking of possession by, a receiver, custodian,
     trustee, examiner or liquidator of itself or of all or a substantial part
     of its Property, (ii) make a general assignment for the benefit of its
     creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv)
     file a petition seeking to take advantage of any other law relating to
     bankruptcy, insolvency, reorganization, liquidation, dissolution,
     arrangement or winding-up, or composition or readjustment of debts, (v)
     fail to controvert in a timely and appropriate manner, or acquiesce in
     writing to, any petition filed against it in an involuntary case under the
     Bankruptcy Code, (vi) take any corporate action for the purpose of
     effecting any of the foregoing or (vii) do the equivalent of any of the
     foregoing under the laws of the Netherlands or any other non-U.S.
     jurisdiction

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -111-

     (including, in the case of Canada, the Bankruptcy and Insolvency Act
     (Canada), the Companies Creditors Arrangement Act (Canada) or the Winding
     Up Act (Canada)); or

          (g)  A proceeding or case shall be commenced, without the application
     or consent of the affected Group Member, in any court of competent
     jurisdiction, seeking (i) its reorganization, liquidation, dissolution,
     arrangement or winding-up, or the composition or readjustment of its debts,
     (ii) the appointment of a receiver, custodian, trustee, examiner,
     liquidator or the like of such Group Member or of all or any substantial
     part of its Property, (iii) similar relief in respect of such Group Member
     under any law relating to bankruptcy, insolvency, reorganization, winding-
     up, or composition or adjustment of debts, and such proceeding or case
     shall continue undismissed, or an order, judgment or decree approving or
     ordering any of the foregoing shall be entered and continue unstayed and in
     effect, for a period of 60 or more days; or an order for relief against any
     Group Member shall be entered in an involuntary case under the Bankruptcy
     Code or (iv) the equivalent of any of the foregoing under the laws of the
     Netherlands or any other non-U.S. jurisdiction (including, in the case of
     Canada, the Bankruptcy and Insolvency Act (Canada), the Companies Creditors
     Arrangement Act (Canada) or the Winding Up Act (Canada)); or

          (h)  A final judgment or judgments for the payment of money in excess
     of U.S. $2,000,000 in the aggregate (exclusive of judgment amounts fully
     covered by insurance where the insurer has admitted liability in respect of
     such judgment) or in excess of U.S. $10,000,000 in the aggregate
     (regardless of insurance coverage) shall be rendered by one or more courts,
     administrative tribunals or other bodies having jurisdiction against any
     Group Member and the same shall not be discharged (or provision shall not
     be made for such discharge), or a stay of execution thereof shall not be
     procured, within 30 days from the date of entry thereof and such Group
     Member shall not, within said period of 30 days, or such longer period
     during which execution of the same shall have been stayed, appeal therefrom
     and cause the execution thereof to be stayed during such appeal; or

          (i)  An event or condition specified in Section 9.01(e) hereof shall
     occur or exist with respect to any Plan or Multiemployer Plan and, as a
     result of such event or condition, together with all other such events or
     conditions, PGI or any ERISA Affiliate shall incur or in the opinion of the
     Majority Lenders shall be reasonably likely to incur a liability to a Plan,
     a Multiemployer Plan or the PBGC (or any combination of the foregoing)
     which would constitute, in the determination of the Majority Lenders, a
     Material Adverse Effect; or

          (j)  A reasonable basis shall exist for the assertion against any
     Group Member (or there shall have been asserted against any Group Member)
     claims or liabilities, whether accrued, absolute or contingent, based on or
     arising from the generation,

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -112-

     storage, transport, handling or disposal of Hazardous Materials by any
     Group Member or any of their Affiliates, or any predecessor in interest of
     any Group Member or any of their Affiliates, or relating to any site or
     facility owned, operated or leased by any Group Member or any of its
     Affiliates, which claims or liabilities (insofar as they are payable by the
     Group Member but after deducting any portion thereof which is reasonably
     expected to be paid by other creditworthy Persons jointly and severally
     liable therefor), in the judgment of the Majority Lenders are reasonably
     likely to be determined adversely to the affected Group Members, and the
     amount thereof is, singly or in the aggregate, reasonably likely to have a
     Material Adverse Effect; or

          (k)  Any license, consent, authorization, registration or approval at
     any time necessary to enable the Foreign Borrowers to comply with any of
     their obligations under this Agreement shall be revoked, withdrawn or
     withheld or shall be modified or amended in a manner that, in the opinion
     of the Majority Lenders, is reasonably likely to result in a Material
     Adverse Effect; or the Government of the Netherlands or Canada, or any
     agency or political subdivision thereof, shall promulgate or declare
     effective any law, rule or regulation that, in the opinion of the Majority
     Lenders, could have a Material Adverse Effect; or

          (l)  Any governmental authority shall take any action to condemn,
     seize, nationalize or appropriate any substantial portion of the Property
     of any Group Member (either with or without payment of compensation) or
     shall take any action that, in the opinion of the Majority Lenders, is
     reasonably likely to result in a Material Adverse Effect; or the Group
     Members shall be prevented from exercising normal control over all or a
     substantial part of their Property (and the same shall continue for 30 or
     more days); or

          (m)  Any one or more of the following events shall occur and be
     continuing:

                    (i)  Any Person (other than the Initial Stockholders) shall
          own, collectively, on a fully-diluted basis (in other words, giving
          effect to the exercise of any warrants, options and conversion and
          other rights), capital stock representing more than 25% of the
          aggregate fair market value (or, if greater, the aggregate liquidation
          value) of the capital stock of all classes of PGI, or more than 25% of
          the aggregate shares of voting capital stock of PGI (representing at
          least 25% of the votes that may be cast in an election of directors of
          PGI); and

                    (ii)  during any period of 12 consecutive calendar months, a
          majority of the Board of Directors of PGI shall no longer be composed
          of individuals (x) who were members of said Board on the first day of
          such period, (y) whose election or nomination to said Board was
          approved by

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -113-

          individuals referred to in clause (x) above constituting at the time
          of such election or nomination at least a majority of said Board or
          (z) whose election or nomination to said Board was approved by
          individuals referred to in clauses (x) and (y) above constituting at
          the time of such election or nomination at least a majority of said
          Board; or

          (n)  Except for expiration pursuant to its terms, any of the Security
     Documents shall be terminated or shall cease to be in full force and
     effect, for whatever reason; or

          (o)  Any of the Ancillary Agreements (except for the Shared Facilities
     Agreement) shall for any reason be terminated or cease to be in full force
     and effect; or J&J or any of its Subsidiaries shall send a notice to
     Chicopee pursuant to Section 13(d) of the Supply Agreement and the breach
     or other default described in such notice shall not have been cured within
     30 days thereof,

THEREUPON:

          (1)  in the case of an Event of Default other than one referred to in
     clause (f) or (g) of this Section 10 with respect to any Obligor, the
     Administrative Agent shall upon request of the Majority Lenders, by notice
     to the Borrowers, terminate the Commitments and/or declare the principal
     amount then outstanding of, and the accrued interest on, the Loans, the
     Reimbursement Obligations and all other amounts payable by the Borrowers
     hereunder and under the Notes (including, without limitation, any amounts
     payable under Section 5.05 or 5.06 hereof) to be forthwith due and payable,
     whereupon such amounts shall be immediately due and payable without
     presentment, demand, protest or other formalities of any kind, all of which
     are hereby expressly waived by the Borrowers; and

          (2)  in the case of the occurrence of an Event of Default referred to
     in clause (f) or (g) of this Section 10 with respect to any Obligor, the
     Commitments shall automatically be terminated and the principal amount then
     outstanding of, and the accrued interest on, the Loans, the Reimbursement
     Obligations and all other amounts payable by the Borrowers hereunder and
     under the Notes (including, without limitation, any amounts payable under
     Section 5.05 or 5.06 hereof) shall automatically become immediately due and
     payable without presentment, demand, protest or other formalities of any
     kind, all of which are hereby expressly waived by the Borrowers.

          In addition, upon the occurrence and during the continuance of any
Event of Default (if the Administrative Agent has declared the principal amount
then outstanding of, and accrued interest on, the Loans and all other amounts
payable by the Borrowers hereunder and under the Notes to be due and payable),
PGI agrees that it shall, if requested by the Administrative Agent or the
Majority Facility A Revolving Credit Lenders through the Administrative Agent
(and, in the case of any Event of Default referred to in clause (f) or (g)


                               Credit Agreement
                               ---------------- 
<PAGE>
 
                                     -114-

of this Section 10 with respect to any Obligor, forthwith, without any demand or
the taking of any other action by the Administrative Agent or such Lenders)
provide cover for the Letter of Credit Liabilities by paying to the
Administrative Agent immediately available funds in an amount equal to the then
aggregate undrawn face amount of all Letters of Credit, which funds shall be
held by the Administrative Agent in the Collateral Account as collateral
security in the first instance for the Letter of Credit Liabilities, and be
subject to withdrawal only as therein provided.


          Section 11.  The Administrative Agent and the Co-Agents.

          11.01  Appointment, Powers and Immunities.  Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder and under the Security Documents with such powers as are specifically
delegated to the Administrative Agent by the terms of this Agreement and of the
other Basic Documents, together with such other powers as are reasonably
incidental thereto. The Administrative Agent (which term as used in this
sentence and in Section 11.05 and the first sentence of Section 11.06 hereof
shall include references to its affiliates and its own and its affiliates'
officers, directors, employees and agents):

          (a)  shall have no duties or responsibilities except those expressly
     set forth in this Agreement and in the other Basic Documents, and shall not
     by reason of this Agreement or any other Basic Document be a trustee for
     any Lender;

          (b)  shall not be responsible to the Lenders for any recitals,
     statements, representations or warranties contained in this Agreement or in
     any other Basic Document, or in any certificate or other document referred
     to or provided for in, or received by any of them under, this Agreement or
     any other Basic Document, or for the value, validity, effectiveness,
     genuineness, enforceability or sufficiency of this Agreement, any Note or
     any other Basic Document or any other document referred to or provided for
     herein or therein or for any failure by any Obligor or any other Person to
     perform any of its obligations hereunder or thereunder;

          (c)  shall not be required to initiate or conduct any litigation or
     collection proceedings hereunder or under any other Basic Document (except
     for the exercise of remedies under the Security Documents, as expressly
     provided therein); and

          (d)  shall not be responsible for any action taken or omitted to be
     taken by it hereunder or under any other Basic Document or under any other
     document or instrument referred to or provided for herein or therein or in
     connection herewith or therewith, except for its own gross negligence or
     willful misconduct.

                               Credit Agreement
                               ---------------- 
<PAGE>
 
                                     -115-

The Administrative Agent may employ agents and attorneys-in-fact and shall not
be responsible for the negligence or misconduct of any such agents or attorneys-
in-fact selected by it in good faith. The Administrative Agent may deem and
treat the payee of any Note as the holder thereof for all purposes hereof unless
and until a notice of the assignment or transfer thereof shall have been filed
with the Administrative Agent, together with the consent of the Borrowers to
such assignment or transfer (to the extent provided in Section 12.06(b) hereof).

          11.02  Reliance by the Administrative Agent.  The Administrative Agent
shall be entitled to rely upon any certification, notice or other communication
(including, without limitation, any thereof by telephone, telecopy, telex,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Administrative Agent. As to any matters not expressly provided
for by this Agreement or any other Basic Document, the Administrative Agent
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder or thereunder in accordance with instructions given by the Majority
Lenders or, if provided herein, in accordance with the instructions given by the
Majority Facility A Revolving Credit Lenders or the Majority Facility B
Revolving Credit Lenders or all of the Lenders as is required in such
circumstance and such instructions of such Lenders and any action taken or
failure to act pursuant thereto shall be binding on all of the Lenders.

          11.03  Defaults.  The Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default unless the Administrative
Agent has received notice from a Lender or the Borrowers specifying such Default
and stating that such notice is a "Notice of Default". In the event that the
Administrative Agent receives such a notice of the occurrence of a Default, the
Administrative Agent shall give prompt notice thereof to the Lenders. The
Administrative Agent shall (subject to Section 11.07 hereof) take such action
with respect to such Default as shall be directed by the Majority Lenders or, if
provided herein, the Majority Facility A Revolving Credit Lenders or the
Majority Facility B Revolving Credit 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 as it shall deem advisable in
the best interest of the Lenders except to the extent that this Agreement
expressly requires that such action be taken, or not be taken, only with the
consent or upon the authorization of the Majority Lenders, the Majority Facility
A Revolving Credit Lenders or the Majority Facility B Revolving Credit Lenders
or all of the Lenders.

          11.04  Rights as a Lender.  With respect to its Commitments and the
Loans made by it, Chase (and any successor acting as Administrative Agent) in
its capacity as a Lender hereunder shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
acting as the Administrative Agent and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Administrative

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -116-

Agent in its individual capacity.  Chase (and any successor acting as
Administrative Agent) and its affiliates may (without having to account therefor
to any Lender) accept deposits from, lend money to, make investments in and
generally engage in any kind of banking, trust or other business with the Group
Members (and any of their Affiliates) as if it were not acting as the
Administrative Agent, and Chase (or any successor) and its affiliates may accept
fees and other consideration from the Obligors for services in connection with
this Agreement or otherwise without having to account for the same to the
Lenders.

          11.05  Indemnification.  The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed under Section 12.03 hereof,
but without limiting the obligations of the Borrowers under said Section 12.03,
and including in any event any payments under any indemnity that the
Administrative Agent is required to issue to any bank referred to in Section
4.02 of the Security Agreement to which remittances in respect of Accounts, as
defined therein, are to be made) ratably in accordance with the aggregate
principal amount of the Loans and Reimbursement Obligations held by the Lenders
(or, if no Loans or Reimbursement Obligations are at the time outstanding,
ratably in accordance with their respective Commitments), for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Administrative Agent (including
by any Lender), arising out of or by reason of any investigation in or in any
way relating to or arising out of this Agreement or any other Basic Document or
any other documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby (including, without limitation, the
costs and expenses that the Borrowers are obligated to pay under Section 12.03
hereof, and including also any payments under any indemnity that the
Administrative Agent is required to issue to any bank referred to in Section
4.02 of the Security Agreement to which remittances in respect of Accounts, as
defined therein, are to be made, but excluding, unless a Default has occurred
and is continuing, normal administrative costs and expenses incident to the
performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents, provided that no Lender
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.

          11.06  Non-Reliance by Lenders.  Each Lender agrees that it has,
independently and without reliance on the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Group Members and decision to
enter into this Agreement and that it will, independently and without reliance
upon the Administrative 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 analysis and decisions in taking or not taking action under this Agreement.
The Administrative Agent shall not be required to keep itself informed as to the
performance or observance by any Group Member of this Agreement or any of the
other Basic Documents or any other document referred to or provided for herein
or therein or to inspect the Properties or books of the Group Members.  Except
for notices, reports and other documents and

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -117-

information expressly required to be furnished to the Lenders by the
Administrative Agent hereunder or under any of the Basic Documents, the
Administrative Agent shall have no duty or responsibility to provide any Lender
with any credit or other information concerning the affairs, financial condition
or business of the Group Members (or any of their Affiliates) that may come into
the possession of the Administrative Agent or any of its affiliates.

          11.07  Failure to Act.  Except for action expressly required of the
Administrative Agent hereunder and under the other Basic Documents, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction from the Lenders of their indemnification
obligations under Section 11.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.

          11.08  Resignation or Removal of Administrative Agent.  Subject to the
appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving notice thereof
to the Lenders and the Borrowers, and the Administrative Agent may be removed at
any time with or without cause by the Majority Lenders.  Upon any such
resignation or removal, the Majority Lenders shall, after consultation with the
Borrowers, have the right to appoint a successor Administrative Agent.  If no
successor Administrative Agent shall have been so appointed by the Majority
Lenders and shall have accepted such appointment within 30 days after the
retiring Administrative Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Administrative Agent, then the retiring Agent
may, on behalf of the Lenders after consultation with the Borrowers, appoint a
successor Administrative Agent, that shall be a bank which has an office in New
York, New York with a combined capital and surplus of at least U.S.
$500,000,000.  Upon the acceptance of any appointment as Administrative Agent
hereunder and under the Security Documents by a successor Administrative Agent,
such successor Administrative Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations hereunder and under the other Basic Documents
and each of the Borrowers will, and will cause each of their Subsidiaries to,
take such action and execute and deliver such instruments, as shall be requested
by the successor Administrative Agent to confirm in favor of such successor
Administrative Agent the Liens created pursuant to the Security Documents in
favor of such retiring Administrative Agent.  After any retiring Administrative
Agent's resignation or removal hereunder or under any of the Basic Documents,
the provisions of this Section 11 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Administrative Agent.

          11.09  Consents under Basic Documents.  Except as otherwise provided
in Section 12.04 hereof with respect to this Agreement, the Administrative Agent
may, with the prior consent of the Majority Lenders (but not otherwise), consent
to any modification, supplement or waiver under any of the Basic Documents,
provided that, without the prior

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -118-

consent of each Lender, the Administrative Agent shall not (except as provided
herein or in the Security Documents) release any collateral or otherwise
terminate any Lien under any Basic Document providing for collateral security,
agree to additional obligations being secured by such collateral security
(unless the Lien for such additional obligations shall be junior to the Lien in
favor of the other obligations secured by such Basic Document in which event the
Administrative Agent may consent to such junior Lien provided that it obtains
the consent of the Majority Lenders thereto), release any "Subsidiary Guarantor"
under the Intercompany Notes Agreements from its obligations under Section 6
thereof, alter the relative priorities of the obligations entitled to the
benefits of the Liens created under the Security Documents or release any
Domestic or Foreign Non-Borrower Guarantor, except that no such consent shall be
required, and the Administrative Agent is hereby authorized, to release any Lien
covering Property (and to release any such Domestic or Foreign Non-Borrower
Guarantor from such guarantee obligations) which is the subject of either a
disposition of Property permitted hereunder or a disposition to which the
Majority Lenders have consented.

          Notwithstanding the foregoing, the Administrative Agent is hereby
authorized to release from the Liens of the Global Assignment Agreement
(constituting one of the German Security Documents) any collateral security
specified by FiberTech to the extent that, pursuant to (S) 9(3) of said
Agreement, the Administrative Agent is required to release such collateral
security.

          11.10  Collateral Sub-Agents.  Each Lender by its execution and
delivery of this Agreement agrees, as contemplated by Section 4.03 of the
Security Agreement, that, in the event it shall hold any Permitted Investments
referred to therein, such Permitted Investments shall be held in the name and
under the control of such Lender, and such Lender shall hold such Permitted
Investments as a collateral sub-agent for the Administrative Agent thereunder.
Each Borrower by its execution and delivery of this Agreement hereby consents to
the foregoing.

          11.11  Co-Agents.  None of the Co-Agents shall have any rights or
obligations under this Agreement except in its capacity as a "Lender" hereunder.


          Section 12.  Miscellaneous.

          12.01  Waiver.  No failure on the part of the Administrative Agent or
any Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under this Agreement or any Note shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement or any Note preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -119-

          12.02  Notices.  All notices, requests and other communications
provided for herein and under the Security Documents (including, without
limitation, any modifications of, or waivers or consents under, this Agreement)
shall be given or made in writing (including, without limitation, by telecopy)
delivered to the intended recipient at the "Address for Notices" specified below
its name on the signature pages hereof; or, as to any party, at such other
address as shall be designated by such party in a notice to each other party,
provided that notwithstanding the foregoing, all notices to any Obligor by the
Administrative Agent or any Lender may be given to PGI, and the Administrative
Agent and each Lender is authorized to rely on any notice (including notices of
borrowing) given by PGI with respect to matters relating to any Obligor (and
shall not be required to receive a notice from the respective Obligor to which
such matter relates).  Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopier or personally delivered or, in the case of a notice sent by mail or
courier, upon receipt, in each case given or addressed as aforesaid.

          12.03  Expenses, Etc.  The Obligors (excluding Fabrene and Dutch
Operating) jointly and severally agree to pay or reimburse each of the Lenders
and the Administrative Agent for paying:  (a) all reasonable out-of-pocket costs
and expenses of the Administrative Agent (including, without limitation, the
reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New
York counsel to Chase and of special Dutch, Canadian, Mexican or German counsel
to Chase), in connection with (i) the negotiation, preparation, execution and
delivery of this Agreement and the other Basic Documents and the extension of
credit hereunder (but subject in any event to such separate arrangements as have
been entered into between Chase and PGI regarding the aggregate amount thereof),
and (ii) any modification, supplement or waiver of any of the terms of this
Agreement or any of the other Basic Documents; (b) all reasonable costs and
expenses of the Lenders and the Administrative Agent (including, without
limitation, reasonable counsels' fees) in connection with (i) any Default and
any enforcement or collection proceedings resulting therefrom or in connection
with the negotiation of any restructuring or "work-out" (whether or not
consummated) of the obligations of the Borrowers hereunder and (ii) the
enforcement of this Section 12.03; (c) all transfer, stamp, documentary or other
similar taxes, assessments or charges levied by any governmental or revenue
authority in respect of this Agreement or any of the other Basic Documents or
any other document referred to herein or therein and all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated by
any Basic Document or any other document referred to therein (including, without
limitation, all such costs, expenses, taxes, assessments and other charges
relating to the Dutch or Canadian Security Documents (as applicable), it being
understood that neither Dutch Operating nor Fabrene shall be obligated to pay
for any such items); and (d) all costs, expenses and other charges in respect of
title insurance procured with respect to the Liens created pursuant to the
Mortgages.

          The Obligors (excluding Fabrene and Dutch Operating) hereby jointly
and severally agree to indemnify the Administrative Agent and each Lender and
their respective

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -120-

affiliates, directors, officers, employees, attorneys and agents from, and hold
each of them harmless against, any and all losses, liabilities, claims, damages
or expenses incurred by any of them (including, without limitation, any and all
losses, liabilities, claims, damages or expenses incurred by the Administrative
Agent to any Lender, whether or not the Administrative Agent or any Lender is a
party thereto) arising out of or by reason of any investigation or litigation or
other proceedings (including any threatened investigation or litigation or other
proceedings) relating to the extensions of credit hereunder or any actual or
proposed use by the Group Members of the proceeds of any of the extensions of
credit hereunder, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation or
litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified).  Without limiting the
generality of the foregoing, the Obligors (excluding Fabrene and Dutch
Operating) will (x) indemnify the Administrative Agent for any payments that the
Administrative Agent is required to make under any indemnity issued to any bank
referred to in Section 4.02 of the Security Agreement to which remittances in
respect to Accounts, as defined therein, are to be made and (y) indemnify the
Administrative Agent and each Lender from, and hold the Administrative Agent and
each Lender harmless against, any losses, liabilities, claims, damages or
expenses described in the preceding sentence (but excluding, as provided in the
preceding sentence, any loss, liability, claim, damage or expense incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified) arising under any Environmental Law as a result of the past,
present or future operations of the Group Members (or any predecessor in
interest to the Group Members), or the past, present or future condition of any
site or facility owned, operated or leased by the Group Members (or any such
predecessor in interest), or any Release or threatened Release of any Hazardous
Materials from any such site or facility, including any such Release or
threatened Release which shall occur during any period when the Administrative
Agent or any Lender shall be in possession of any such site or facility
following the exercise by the Administrative Agent or any Lender of any of its
rights and remedies hereunder or under any of the Security Documents.

          Each of Dutch Operating and Fabrene hereby agrees to make all of the
payments, reimbursements and indemnifications referred to in the preceding two
paragraphs of this Section 12.03 to the extent resulting from occurrences that
are attributable to itself.

          12.04  Amendments, Etc.  Except as otherwise expressly provided in
this Agreement, any provision of this Agreement may be modified or supplemented
only by an instrument in writing signed by each Obligor, the Administrative
Agent and the Majority Lenders, or by each Obligor and the Administrative Agent
acting with the consent of the Majority Lenders, and any provision of this
Agreement may be waived by the Majority Lenders or by the Administrative Agent
acting with the consent of the Majority Lenders; provided that:  (a) no
modification, supplement or waiver shall, unless by an instrument signed by all
of the Lenders or by the Administrative Agent acting with the consent of all of
the Lenders:  (i) increase, or extend the term of any of the Commitments, or
extend the time

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -121-

or waive any requirement for the reduction or termination of any of the
Commitments, (ii) extend any date fixed for the payment of principal of or
interest on any Loan, the Reimbursement Obligations or any fee hereunder, (iii)
reduce the amount of any such payment of principal, (iv) reduce the rate at
which interest is payable thereon or any fee is payable hereunder, (v) alter the
manner of application to the Loans hereunder of any prepayment, (vi) alter the
terms of this Section 12.04, (vii) modify the definition of the term "Majority
Lenders", "Majority Facility A Revolving Credit Lenders" or "Majority Facility B
Revolving Credit Lenders" or modify in any other manner the number or percentage
of the Lenders required to make any determinations or waive any rights hereunder
or to modify any provision hereof, (viii) waive any of the conditions precedent
set forth in Section 7.01 or 7.02 hereof or (ix) release any of the Guarantors
from any of their guarantee obligations under Section 6 hereof; and (b) any
modification or supplement of Section 11 hereof, or any of the rights or duties
of the Administrative Agent hereunder, shall require the consent of the
Administrative Agent.

          Anything in this Agreement to the contrary notwithstanding, (A) no
waiver or modification of any provision of this Agreement that has the effect
(either immediately or at some later time) of enabling PGI to satisfy a
condition precedent to the making of a Facility A Revolving Credit Loan or the
issuance of a Letter of Credit shall be effective against the Facility A
Revolving Credit Lenders for the purposes of the Facility A Revolving Credit
Commitments unless the Majority Facility A Revolving Credit Lenders shall have
concurred with such waiver or modification and (B) no waiver or modification of
any provision of this Agreement that has the effect (either immediately or at
some later time) of enabling Fabrene to satisfy a condition precedent to the
making of a Facility B Revolving Credit Loan shall be effective against the
Facility B Revolving Credit Lenders for the purposes of the Facility B Revolving
Credit Commitments unless the Majority Facility B Revolving Credit Lenders shall
have concurred with such waiver or modification.

          12.05  Successors and Assigns.  This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns but no Person other than the parties hereto and, subject
to the terms and provisions hereof, their successors and permitted assigns shall
have any rights hereunder or shall be entitled to enforce any of the terms
hereof, whether as a third party beneficiary or otherwise.

          12.06  Assignments and Participations.

          (a)  None of the Obligors may assign any of its rights or obligations
hereunder or under the Notes without the prior consent of all of the Lenders and
the Administrative Agent.

          (b)  Each Lender may assign any of its Loans, its Notes, its
Commitments, and, if such Lender is a Facility A Revolving Credit Lender, its
Letter of Credit Interest, but only with the consent of, in the case of its
outstanding Commitments, PGI and the Administrative

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -122-

Agent (neither of which consents shall be unreasonably withheld) and, in the
case of a Facility A Revolving Credit Commitment and Letter of Credit Interest,
the Issuing Lender; provided that

               (i)  no such consent by the Administrative Agent or PGI shall be
     required in the case of any assignment to another Lender, and no such
     consent by PGI shall be required if an Event of Default under Section
     10((f) or 10(g) hereof shall have occurred and be continuing;

               (ii)  except to the extent the Administrative Agent shall
     otherwise consent, any partial assignment (other than to another Lender)
     shall be in an amount at least equal to U.S. $5,000,000;

               (iii)  each such assignment by a Lender of its Loans, Note or
     Commitment of any Class, or Letter of Credit Interest (in the case of the
     Facility A Revolving Credit Lenders) shall be made in such manner so that
     the same portion of its Loans, Note, and Commitment of such Class (and, if
     applicable) Letter of Credit Interest and Currency is assigned to the
     respective assignee;

               (iv)  each such assignment by a Lender of the Loans of any Class
     having more than one Borrower, shall be made in such manner so that the
     same portion of the Loans made to each such Borrower is assigned to the
     respective assignee; and

               (v)  each such assignment shall be effected pursuant to an
     Assignment and Acceptance in substantially the form of Exhibit J hereto and
     the assignor and assignee shall deliver to PGI, the Administrative Agent
     and (if the assignment is of Facility A Revolving Credit Commitments and
     Letter of Credit Interest) the Issuing Lender a fully executed copy
     thereof.

Upon execution and delivery by the assignor and the assignee to PGI, the
Administrative Agent and (if applicable) the Issuing Lender of such Assignment
and Acceptance, and upon consent thereto by the Administrative Agent, the
Issuing Lender and PGI to the extent required above, the assignee shall have, to
the extent of such assignment (unless otherwise consented to by the
Administrative Agent and the Issuing Lender), the obligations, rights and
benefits of a Lender hereunder holding the Commitment(s), Loans and, if
applicable, Letter of Credit Interest (or portions thereof) assigned to it and
specified in such Assignment and Acceptance (in addition to the Commitment(s),
Loans and Letter of Credit Interest, if any, theretofore held by such assignee)
and the assigning Lender shall, to the extent of such assignment, be released
from the Commitment(s) (or portion(s) thereof) so assigned.  Upon each such
assignment the assigning Lender shall pay (or cause to be paid to) the
Administrative Agent an assignment fee of U.S. $3,000.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -123-

          (c)  A Lender may sell or agree to sell to one or more other Persons a
participation in all or any part of any Loans or Letter of Credit Interest held
by it, or in its Commitments, in which event each purchaser of a participation
(a "Participant") shall not, except as otherwise provided in Section 4.07(c)
hereof, have any rights or benefits under this Agreement or any Note or any
other Basic Document (the Participant's rights against such Lender in respect of
such participation to be those set forth in the agreements executed by such
Lender in favor of the Participant).  All amounts payable by a Borrower to any
Lender under Section 5 hereof in respect of Loans, Letter of Credit Interest
held by it, and its Commitments, shall be determined as if such Lender had not
sold or agreed to sell any participations in such Loans, Letter of Credit
Interest and Commitments, and as if such Lender were funding each of such Loan,
Letter of Credit Interest and Commitments in the same way that it is funding the
portion of such Loan, Letter of Credit Interest and Commitments in which no
participations have been sold.  In no event shall a Lender that sells a
participation agree with the Participant to take or refrain from taking any
action hereunder or under any other Basic Document except that such Lender may
agree with the Participant that it will not, without the consent of the
Participant, agree to (i) extend the term, or extend the time or waive any
requirement for the reduction or termination, of such Lender's related
Commitment, (ii) extend any date fixed for the payment of principal of or
interest on the related Loan or Loans, Reimbursement Obligations or any portion
of any fee hereunder payable to the Participant, (iii) reduce the amount of any
such payment of principal, (iv) reduce the rate at which interest is payable
thereon, or any fee hereunder payable to the Participant, to a level below the
rate at which the Participant is entitled to receive such interest or fee or (v)
consent to any modification, supplement or waiver hereof or of any of the other
Basic Documents to the extent that the same, under Section 11.09 or 12.04
hereof, requires the consent of each Lender.

          (d)  In addition to the assignments and participations permitted under
the foregoing provisions of this Section 12.06, any Lender may (without notice
to the Borrowers, the Administrative Agent or any other Lender and without
payment of any fee) (i) assign and pledge all or any portion of its Loans and
its Notes to any Federal Reserve Bank as collateral security pursuant to
Regulation A and any Operating Circular issued by such Federal Reserve Bank and
(ii) assign all or any portion of its rights under this Agreement and its Loans
and its Notes to an affiliate.  No such assignment shall release the assigning
Lender from its obligations hereunder (except that such assignment shall release
the assigning Lender to the extent the same is effected in accordance with the
provisions of paragraph (b) above).

          (e)  A Lender may furnish any information concerning any Group Member
in the possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants), subject, however, to the
provisions of Section 12.16(b) hereof.

          (f)  Anything in this Section 12.06 to the contrary notwithstanding,
no Lender may assign or participate any interest in any Loan or Reimbursement
Obligation held by it

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -124-

hereunder to any Group Member or any of their Affiliates or Subsidiaries without
the prior written consent of each Lender.

          12.07 Survival.  The obligations of each Borrower under Sections
5.01, 5.05, 5.06, 5.07, 5.08 and 12.03 hereof, the obligations of the Guarantors
under Section 6.03 hereof, and the obligations of the Lenders under Section
11.05 hereof shall survive the repayment of the Loans and Reimbursement
Obligations and the termination of the Commitments and, in the case of any
Lender that may assign any interest in its Commitments, Loans or Letter of
Credit Interest hereunder, shall survive the making of such assignment,
notwithstanding that such assigning Lender may cease to be a "Lender" hereunder.
In addition, each representation and warranty made, or deemed to be made by a
notice of any extension of credit (whether by means of a Loan or a Letter of
Credit), herein or pursuant hereto shall survive the making of such
representation and warranty, and no Lender shall be deemed to have waived, by
reason of making any extension of credit hereunder (whether by means of a Loan
or a Letter of Credit), any Default which may arise by reason of such
representation or warranty proving to have been false or misleading,
notwithstanding that such Lender or Agent may have had notice or knowledge or
reason to believe that such representation or warranty was false or misleading
at the time such extension of credit was made.

          12.08 Captions.  The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.

          12.09 Counterparts.  This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.

          12.10 Governing Law.  This Agreement and the Notes shall be governed
by, and construed in accordance with, the law of the State of New York.

          12.11 Jurisdiction, Service of Process and Venue.

          (a)  Each party hereto hereby agrees that any suit, action or
proceeding with respect to this Agreement, any Note or any judgment entered by
any court in respect thereof may be brought in the United States District Court
for the Southern District of New York, in the Supreme Court of the State of New
York sitting in New York County (including its Appellate Division), or in any
other appellate court in the State of New York, as the party commencing such
suit, action or proceeding may elect in its sole discretion; and each party
hereto hereby irrevocably submits to the non-exclusive jurisdiction of such
court for the purpose of any such suit, action, proceeding or judgment.  Each
party hereto further submits, for the purpose of any such suit, action,
proceeding or judgment brought or rendered against it, to the appropriate courts
of the jurisdiction of its domicile.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -125-

          (b)  Each of the Foreign Borrowers and Fabrene Holdings hereby agrees
that service of all writs, process and summonses in any such suit, action or
proceeding brought hereunder may be made upon Prentice Hall Legal and Financial
Services, Inc., presently located at 15 Columbus Circle, New York, New York
10023, U.S.A. (the "Process Agent"), and each of the Foreign Borrowers and
Fabrene Holdings hereby confirms and agrees that the Process Agent has been duly
and irrevocably appointed as its agent and true and lawful attorney-in-fact in
its name, place and stead to accept such service of any and all such writs,
process and summonses, and agrees that the failure of the Process Agent to give
any notice of any such service of process to such Borrower shall not impair or
affect the validity of such service or of any judgment based thereon.  Each of
the Foreign Borrowers and Fabrene Holdings hereby further irrevocably consents
to the service of process in any suit, action or proceeding in said courts by
the mailing thereof by the Administrative Agent or any Lender by registered or
certified mail, postage prepaid, at its address set forth beneath its signature
hereto.

          (c)  Nothing herein shall in any way be deemed to limit the ability of
the Administrative Agent or any Lender to serve any such writs, process or
summonses in any other manner permitted by applicable law or to obtain
jurisdiction over the Borrowers in such other jurisdictions, and in such manner,
as may be permitted by applicable law.

          (d)  Each Obligor hereby irrevocably waives any objection that it may
now or hereafter have to the laying of the venue of any suit, action or
proceeding arising out of or relating to this Agreement or the Notes brought in
the Supreme Court of the State of New York, County of New York, in the United
States District Court for the Southern District of New York and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
such court has been brought in an inconvenient forum.

          12.12 Waiver of Jury Trial.  EACH OF THE OBLIGORS, THE ADMINISTRATIVE
AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

          12.13 No Immunity.  To the extent that any Foreign Borrower may be or
become entitled, in any jurisdiction in which judicial proceedings may at any
time be commenced with respect to this Agreement or the Notes, to claim for
itself or its Properties or revenues any immunity from suit, court jurisdiction,
attachment prior to judgment, attachment in aid of execution of a judgment,
execution of a judgment or from any other legal process or remedy relating to
its obligations under this Agreement, the Notes or any of the other Basic
Documents, and to the extent that in any such jurisdiction there may be
attributed such an immunity (whether or not claimed), such Borrower hereby
irrevocably agrees not to claim and

                               Credit Agreement
                               ----------------  
<PAGE>
 
                                     -126-

hereby irrevocably waives such immunity to the fullest extent permitted by the
laws of such jurisdiction.

          12.14 Judgment Currency.  This is an international loan transaction
in which the specification of U.S. Dollars, Canadian Dollars and Dutch Guilders,
as the case may be (herein, the "Relevant Currency") and payment in New York
City, Toronto or Amsterdam, as the case may be (herein, the "Relevant City") is
of the essence, and the obligations of each Obligor under this Agreement to make
payment to (or for the account of) a Lender in U.S. Dollars shall not be
discharged or satisfied by any tender or recovery pursuant to any judgment
expressed in or converted into any other currency or in another place except to
the extent that such tender or recovery results in the effective receipt by such
Lender in the Relevant City of the full amount of the Relevant Currency payable
to such Lender under this Agreement.  If for the purpose of obtaining judgment
in any court it is necessary to convert a sum due hereunder in a Relevant
Currency into another currency (in this Section 12.14 called the "judgment
currency"), the rate of exchange that shall be applied shall be that at which in
accordance with normal banking procedures the Administrative Agent could
purchase such Relevant Currency at the Principal Office with the judgment
currency on the Business Day next preceding the day on which such judgment is
rendered.  The obligation of each Obligor in respect of any such sum due from it
to the Administrative Agent or any Lender hereunder (in this Section 12.14
called an "Entitled Person") shall, notwithstanding the rate of exchange
actually applied in rendering such judgment, be discharged only to the extent
that on the Business Day following receipt by such Entitled Person of any sum
adjudged to be due hereunder in the judgment currency such Entitled Person may
in accordance with normal banking procedures purchase and transfer the Relevant
Currency to the Relevant City with the amount of the judgment currency so
adjudged to be due; and each Obligor hereby, as a joint and several obligation
and notwithstanding any such judgment, agrees to indemnify such Entitled Person
against, and to pay such Entitled Person on demand, in the Relevant Currency,
the amount (if any) by which the sum originally due to such Entitled Person in
the Relevant Currency hereunder exceeds the amount of the Relevant Currency so
purchased and transferred.

          12.15 Use of English Language.  This Agreement has been negotiated
and executed in the English language.  All certificates, reports, notices and
other documents and communications given or delivered pursuant to this Agreement
(including, without limitation, any modifications or supplements hereto) shall
be in the English language, or accompanied by a certified English translation
thereof.  Except in the case of laws or official communications of the
Netherlands, in the case of any document originally issued in a language other
than English, the English language version of any such document shall for
purposes of this Agreement, and absent manifest error, control the meaning of
the matters set forth therein.

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -127-

          12.16 Treatment of Certain Information; Confidentiality.

          (a)  The Obligors acknowledge that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Group Members (in connection with this Agreement or otherwise) by any Lender
or by one or more subsidiaries or affiliates of such Lender and the Obligors
hereby authorize each Lender to share any information delivered to such Lender
by the Obligors and their Subsidiaries pursuant to this Agreement, or in
connection with the decision of such Lender to enter into this Agreement, to any
such subsidiary or affiliate, it being understood that any such subsidiary or
affiliate receiving such information shall be bound by the provisions of
paragraph (b) below as if it were a Lender hereunder.

          (b)  Each Lender and the Administrative Agent agrees (on behalf of
itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of this nature and (with respect to those Lenders which are banks) in accordance
with safe and sound banking practices, any non-public information supplied to it
by the Obligors pursuant to this Agreement which is identified by such Person as
being confidential at the time the same is delivered to the Lenders or the
Administrative Agent, provided that nothing herein shall limit the disclosure of
any such information (i) to the extent required by statute, rule, regulation or
judicial process, (ii) to counsel for any of the Lenders or the Administrative
Agent, (iii) to bank examiners, auditors, accountants, the National Association
of Insurance Commissioners or any regulatory authority, (iv) to the
Administrative Agent or any other Lender, (v) in connection with any litigation
to which any one or more of the Lenders or the Administrative Agent is a party,
(vi) to a subsidiary or affiliate of such Lender as provided in paragraph (a)
above or (vii) to any assignee or participant (or prospective assignee or
participant) so long as such assignee or participant (or prospective assignee or
participant) first executes and delivers to the respective Lender a
Confidentiality Agreement substantially in the form of Exhibit K hereto
provided, further, that in no event shall any Lender or the Administrative Agent
be obligated or required to return any materials furnished by the Obligors.  The
obligations of each Lender under this Section 12.16 shall supersede and replace
the obligations of such Lender under any confidentiality letter in respect of
this financing signed and delivered by such Lender to any Group Member.

          12.17 Replacement of Lenders.  In the event that any Lender shall
decline to consent to an acquisition that requires the consent of each Lender
under Section 9.05(y) hereof (any such Lender being herein called a "Declining
Lender"), PGI, upon three Business Days notice, may require that such Declining
Lender transfer all of its right, title and interest under this Agreement and
such Declining Lender's Notes to any bank or other financial institution (a
"Proposed Lender") identified by PGI that is satisfactory to the Administrative
Agent and the Issuing Lender if such Proposed Lender agrees to assume all of the
obligations of such Declining Lender hereunder, and to purchase all of such
Declining Lender's Loans

                               Credit Agreement
                               ---------------- 

<PAGE>
 
                                     -128-

hereunder for consideration equal to the aggregate outstanding principal amount
of such Declining Lender's Loans, together with accrued and unpaid interest
thereon to the date of such purchase, and satisfactory arrangements are made for
payment to such Declining Lender of all other amounts payable hereunder to such
Declining Lender on or prior to the date of such transfer (including any fees
accrued hereunder and any amounts that would be payable under Section 5.04
hereof as if all of such Declining Lender's Loans were being prepaid in full on
such date).  Subject to the provisions of Section 12.06(b) hereof, such Proposed
Lender shall be a "Lender" for all purposes hereunder.

          Without prejudice to the survival of any other agreement of PGI
hereunder the agreements of PGI contained in Sections 5.01, 5.05, 5.06 and 12.03
hereof (without duplication of any payments made to such Declining Lender by PGI
or the Proposed Lender) shall survive for the benefit of such Declining Lender
under this Section 12.17 with respect to the time prior to such replacement.

          12.18 Margin Regulations.

          (a)  Any Loans made hereunder the proceeds of which have been applied
to the buying or carrying (within the meaning of Regulations G or U) of any
Margin Stock (any such Loans being herein called "Purpose Loans") shall be
treated for purposes of Regulations G, U and X as two separate extensions of
credit (the "A Credit" and the "B Credit"), as follows:

               (i)   The amount of the A Credit shall be equal to the Maximum
     Loan Value of the Margin Stock Collateral (as so defined) determined at the
     time of the making of Purpose Loans hereunder.  Notwithstanding the
     foregoing, the Maximum Loan Value of the Margin Stock Collateral in pledge
     at any time under the Security Agreement shall be redetermined at the time
     of each withdrawal or substitution (as such terms are used in Regulations G
     and U).

               (ii)  The amount of the B Credit shall be equal to the excess of
     the aggregate principal amount of Purpose Loans over the amount of the A
     Credit.

For purposes hereof, any payments or prepayments of principal of Purpose Loans
(other than any such payments or prepayments derived from the proceeds of the
sale or other disposition of Margin Stock Collateral) shall be deemed to be
applied first to the B Credit and second to the A Credit.

          (b)  The benefits of the pledge of the Margin Stock Collateral
provided for by the Security Documents shall be allocated first to secure the
obligations of the Obligors in respect of the A Credit (the "A Credit
Obligations") and second to secure the obligations of the Obligors in respect of
the B Credit (the "B Credit Obligations") and all other obligations of the
Obligors to the Lenders hereunder.  The benefits of the pledge of the Non-Margin

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -129-

Stock Collateral provided for by the Security Documents shall be allocated first
to secure the obligations of the Obligors in respect of the B Credit Obligations
(and all other obligations of the Obligors hereunder other than the A Credit
Obligations) and second to secure the A Credit Obligations and all other
obligations of the Obligors to the Lenders hereunder.

          (c)  Except as otherwise specifically provided in this Agreement (but
in any event subject to the requirements of Regulations G and U), (i) all
payments and prepayments by the Obligors (or by the application of proceeds of
Collateral pursuant to the Security Documents) of the Purpose Loans derived from
the proceeds of the sale or other disposition of Margin Stock Collateral (or
made by the application of cash included in the Margin Stock Collateral) shall
be applied first to the payment or prepayment of the A Credit Obligations and
second, after the payment or prepayment in full of the A Credit Obligations, to
the payment or prepayment of the B Credit Obligations (and all other obligations
of the Obligors hereunder) and (ii) all payments and prepayments by the Obligors
(or by the application of proceeds of Collateral pursuant to the Security
Documents) of the Purpose Loans derived from the proceeds of the sale or other
disposition of Non-Margin Stock Collateral (or made by the application of cash
other than cash included in the Margin Stock Collateral) shall be applied first
to the payment or prepayment of the B Credit Obligations (and all other
obligations of the Obligors hereunder other than the A Credit Obligations) and
second, after payment in full of the B Credit Obligations (and such other
obligations), to the payment or prepayment of the A Credit Obligations.

          (d)  Each Lender represents for itself that, as of the date hereof,
and based upon its current assessment of the value of the Non-Margin Stock
Collateral, it (i) has required or, with respect to any unrelated extensions of
credit made by it to the Obligors, will require as much direct and indirect
security (within the meaning of Regulations G and U) for its B Credit and such
unrelated extensions of credit as such Lender would have required in good faith
and in the exercise of sound judgment in the absence of the pledge of the Margin
Stock Collateral provided for by the Security Documents and (ii) is not relying
(within the meaning of Regulations G and U) on any of the Margin Stock
Collateral securing its A Credit in extending its B Credit.

          (e)  Anything in this Agreement or the Security Documents to the
contrary notwithstanding, no withdrawal or substitution (as such terms are used
in Regulations G and U) of Margin Stock Collateral or cash pledged under the
Security Documents may be effected if such withdrawal or substitution would be
in violation of Regulation G or U.

          (f)  Each Lender will maintain records separately identifying its A
Credit and its B Credit and, solely for the purposes of complying with
Regulations G and U, the A and B Credits shall be treated as separate extensions
of credit.

          (g)  The Obligors will furnish to the Lenders at the time of each
making of any Purpose Loan, each sale or other disposition or any withdrawal or
substitution of Margin

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -130-

Stock Collateral or cash pledged under the Security Documents (whether or not
such withdrawal or substitution involves a sale or other disposition) by any of
the Obligors of either Margin Stock Collateral or Non-Margin Stock Collateral
and of each payment or prepayment of the Purpose Loans hereunder such
information and documents as the Lenders may require to determine the respective
amounts of the A Credit and the B Credit after giving effect to such disposition
or payment or prepayment, and at any time or from time to time such other
information and documents as the Lenders may require to determine compliance
with Regulations G and U.

                               Credit Agreement
                               ---------------- 
<PAGE>
 
                                     -131-


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

                                       THE BORROWERS
                                       -------------

                                       POLYMER GROUP, INC.


                                       By /s/ Jerry Zucker
                                         -----------------------------------
                                        Title: Chairman, President and CEO

                                       Address for Notices:

                                       4838 Jenkins Avenue
                                       North Charleston,
                                       South Carolina 29406

                                       Attention:  Jerry Zucker/
                                                     James G. Boyd

                                       Telecopier No.:  (803) 747-4092

                                       Telephone No.:  (803) 744-5174


CHICOPEE HOLDINGS B.V.                 PGI NONWOVENS B.V.
 (incorporated in the
 State of Delaware under               By /s/ James G. Boyd
 the name Chicopee                       --------------------------------------
 Holdings (Netherlands)                 Title: Executive VP, Treasurer and CFO
 B.V. Corporation)



By /s/ James G. Boyd
  --------------------------------------
 Title: Executive VP, Treasurer and CFO

                                       FABRENE INC.


                                       By  /s/ James G. Boyd
                                         --------------------------------------
                                        Title: Executive VP, Treasurer and CFO


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -132-

                        DOMESTIC NON-BORROWER GUARANTORS
                        --------------------------------
                                    
FIBERTECH GROUP, INC.                  CHICOPEE, INC.


By /s/ James G. Boyd                   By /s/ James G. Boyd
  ------------------------------       --------------------------------
 Title: Ex. VP, Treasurer & CFO         Title: Ex. VP, Treasurer & CFO

PGI POLYMER, INC.                      CHICOPEE HOLDINGS, INC.


By /s/ James G. Boyd                   By /s/ James G. Boyd
  ------------------------------       --------------------------------
 Title: Ex. VP, Treasurer & CFO         Title: Ex. VP, Treasurer & CFO

TECHNETICS GROUP, INC.                 FABRENE GROUP, L.L.C.


By /s/ James G. Boyd                   By /s/ James G. Boyd
  ------------------------------       --------------------------------
 Title: Ex. VP, Treasurer & CFO         Title: Ex. VP, Treasurer & CFO

FABRENE CORP.                          FIBERGOL CORPORATION



By /s/ James G. Boyd                   By /s/ James G. Boyd
  ------------------------------       --------------------------------
 Title: Ex. VP, Treasurer & CFO         Title: Ex. VP, Treasurer & CFO

FABRENE GROUP, INC.

By /s/ James G. Boyd
  ------------------------------
 Title: Ex. VP, Treasurer & CFO

PNA CORP.                              FNA POLYMER CORP.

By /s/ James G. Boyd                   By /s/ James G. Boyd
  ------------------------------       --------------------------------
 Title: Ex. VP, Treasurer & CFO         Title: Ex. VP, Treasurer & CFO


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -133-


                                    LENDERS
                                    -------


Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $14,500,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $14,500,000


THE CHASE MANHATTAN BANK


By  /s/ Robert T. Sacks
  -------------------------------------
 Title: Vice President


Lending Office for all Loans
 Denominated in U.S. Dollars:

The Chase Manhattan Bank
270 Park Avenue
New York, New York   10017

Lending Office for all Loans
 Denominated in Dutch Guilders:

Chase Manhattan Investment Bank,
 Limited
9 Thomas Moore Street
London, England
E1 9YT

Address for Notices:

Chase Manhattan Investment Bank,
 Limited
9 Thomas Moore Street
London, England
E1 9YT

Attention:  Annabel Pincus
Telecopier No.:  011-44-171-777-2360
Telephone No.:  011-44-171-777-2024



                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -134-


Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $0

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $7,500,000

Total Commitment
----------------
 U.S. $7,500,000


THE CHASE MANHATTAN BANK OF CANADA


By  /s/ Arun K. Bery
  -----------------------------
 Title: Vice President


Lending Office for all Loans
 Denominated in Canadian Dollars:

The Chase Manhattan Bank of Canada
1 First Canadian Place
100 King Street West
Suite 6900, P.O. Box 106
Toronto, Ontario M5X 1A4

Address for Notices:

The Chase Manhattan Bank of Canada
1 First Canadian Place
100 King Street West
Suite 6900, P.O. Box 106
Toronto, Ontario M5X 1A4

Attention:  Arun Bery

Telecopier No.:  416-216-4161

Telephone No.:  416-216-4134


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -135-

Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $13,250,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $13,250,000


THE BANK OF NOVA SCOTIA


By  /s/ W. J. Brown
  --------------------------------------------
 Title: Vice President

Lending Office for all Loans
 Denominated in U.S. Dollars:

The Bank of Nova Scotia
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308

Lending Office for all Loans
 Denominated in Dutch Guilders:

The Bank of Nova Scotia
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308

Address for Notices:

The Bank of Nova Scotia
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308

Attention:  William Zarrett
Telecopier No.:  404-888-8998
Telephone No.:  404-877-1504





                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -136-


Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $0

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $7,500,000

Total Commitment
----------------
 U.S. $7,500,000


THE BANK OF NOVA SCOTIA, AS CANADIAN DOLLAR LENDER


By  /s/ Sharon McIntyre
  ---------------------------------
 Title: Relationship Manager

Lending Office for all Loans
 Denominated in Canadian Dollars:

The Bank of Nova Scotia
44 King Street West
Toronto, Ontario M5H 1H1

Address for Notices:

The Bank of Nova Scotia
44 King Street West
Toronto, Ontario M5H 1H1

Attention:  Sharron McIntyre

Telecopier No.:  416-933-7399

Telephone No.:  416-866-3632


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -137-

Facility A Revolving Credit Commitment
----------------------------------------
  U.S. $20,750,000
 
Facility B Revolving Credit Commitment
----------------------------------------
  U.S. $0
 
Total Commitment
----------------------------------------
  U.S. $20,750,000


BHF-BANK AKTIENGESELLSCHAFT
 
By  /s/ Thomas J. Scifo
  -------------------------------------
 Title:  Assistant Vice President

By  /s/ Linda Pace
  -------------------------------------
 Title: Vice President

Lending Office for all Base Rate
 Loans Denominated in U.S.
 Dollars:

BHF-Bank AG, New York Branch
590 Madison Avenue
New York, New York 10022

Lending Office for all Eurodollar
 Loans Denominated in U.S.
 Dollars:

BHF-Bank, Grand Cayman Branch
c/o New York Branch
590 Madison Avenue
New York, New York 10022

Lending Office for all Loans
 Denominated in Dutch Guilders:

BHF-Bank, Grand Cayman Branch
c/o New York Branch
590 Madison Avenue
New York, New York 10022

Address for Notices:

BHF-Bank
590 Madison Avenue
New York, New York 10022

Attention:  Paul Travers
Telecopier No.:  212-756-5536
Telephone No.:  212-756-5570


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -138-


Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $20,750,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $20,750,000


CORESTATES BANK, N.A.


By  /s/ Karen R. Leaf
  -----------------------------
 Title: Vice President


Lending Office for all Loans
 Denominated in U.S. Dollars:

Corestates Bank, N.A.
1345 Chestnut Street
Philadelphia, PA  19107

Lending Office for all Loans
 Denominated in Dutch Guilders:

Corestates Bank, N.A.
24 Monument Street
London, England  EC3 R8AJ

Address for Notices:

Corestates Bank, N.A.
1345 Chestnut Street
Philadelphia, PA  19107

Attention:  Karen Leaf
Telecopier No.:  215-973-6745
Telephone No.:  215-973-6540


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -139-

Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $20,750,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $20,750,000


FIRST UNION NATIONAL BANK
 (formerly FIRST UNION NATIONAL
 BANK OF NORTH CAROLINA)


By  /s/ Frederick W. Price
  -------------------------------------
 Title: Managing Director

Lending Office for all Loans
 Denominated in U.S. Dollars:

First Union National Bank (formerly
 First Union National Bank of
 North Carolina)
301 S. College Street - DC-5
Charlotte, North Carolina 28288-
 0737

Lending Office for all Loans
 Denominated in Dutch Guilders:

First Union National Bank (formerly
 First Union National Bank of
 North Carolina)
301 S. College Street - DC-5
Charlotte, North Carolina 28288-
 0737

Address for Notices:

First Union National Bank (formerly
 First Union National Bank of
 North Carolina)
301 S. College Street - DC-5
Charlotte, North Carolina 28288-0737

Attention:  Tom Molitor
Telecopier No.:  704-374-3300
Telephone No.:  704-383-0018

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -140-

Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $13,750,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $13,750,000

CIBC INC.

By  /s/ Roger Colden
  ---------------------------------------------
 Title: Director, CIBC Wood Gundy Securities
         Corp. as Agent


Lending Office for all Loans
 Denominated in U.S. Dollars:

CIBC Inc.
Two Paces West
2727 Paces Ferry Road
Atlanta, Georgia  30339

Lending Office for all Loans
 Denominated in Dutch Guilders:

CIBC Inc.
Two Paces West
2727 Paces Ferry Road
Atlanta, Georgia  30339

Address for Notices:

CIBC Inc.
Two Paces West
2727 Paces Ferry Road
Atlanta, Georgia  30339

Attention:  Chris Hiott
Telecopier No.: 770-319-4950
Telephone No.:  770-319-4831

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -141-


Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $0

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $ 5,000,000

Total Commitment
----------------
 U.S. $ 5,000,000

CANADIAN IMPERIAL BANK OF COMMERCE

By  /s/ Mauro Spagnolo
  ------------------------------------ 
 Title:  Director


Lending Office for all Loans
 Denominated in Canadian Dollars:

Canadian Imperial Bank of Commerce
Commerce Court West
7th Floor
Toronto, Ontario M5L 1A2

Address for Notices:

Canadian Imperial Bank of Commerce
Commerce Court West
50th Floor
Toronto, Ontario M5L 1A2

Attention:  Mary-Anne Tate
Telecopier No.: 416-980-5855
Telephone No.:  416-214-8417


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -142-


Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $18,750,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $18,750,000

COMPAGNIE FINANCIERE DE CIC ET DE
 L'UNION EUROPEENNE

By  /s/ Brian O'Leary
  --------------------------
 Title: Vice President

By  /s/ Sean Mounier
  ------------------------
 Title: First Vice President

Lending Office for all Loans
 Denominated in U.S. Dollars:

Compagnie Financiere de CIC et de
 l'Union Europeenne
520 Madison Avenue
37th Floor
New York, New York 10022

Lending Office for all Loans
 Denominated in Dutch Guilders:

Compagnie Financiere de CIC et de
 l'Union Europeenne
520 Madison Avenue
37th Floor
New York, New York 10022

Address for Notices:

Compagnie Financiere de CIC et de
 l'Union Europeenne
520 Madison Avenue
37th Floor
New York, New York 10022

Attention:  Brian O'Leary
Telecopier No.: 212-715-4535
Telephone No.:  212-715-4422


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -143-

Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $13,750,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $13,750,000

CREDIT LYONNAIS ATLANTA AGENCY


By  /s/ David M. Cawrse
  ------------------------------------------------
 Title: First Vice President and Manager


Lending Office for all Loans
 Denominated in U.S. Dollars:

Credit Lyonnais Atlanta Agency
303 Peachtree NE, Suite 4400
Atlanta, Georgia 30308

Lending Office for all Loans
 Denominated in Dutch Guilders:

Credit Lyonnais Atlanta Agency
303 Peachtree NE, Suite 4400
Atlanta, Georgia 30308

Address for Notices:

Credit Lyonnais Atlanta Agency
303 Peachtree NE, Suite 4400
Atlanta, Georgia 30308

Attention:  Christina Ernshaw
Telecopier No.: 404-584-5249
Telephone No.:  404-524-3700

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -144-


Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $0

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $ 5,000,000

Total Commitment
----------------
 U.S. $ 5,000,000

CREDIT LYONNAIS CANADA


By  /s/ Helen A. Thomas
  -------------------------------------
 Title: Vice President, Corporate Banking

By  /s/ David J. Farmer
  ------------------------------------------------
 Title: First Vice President and Manager, Central
            Region

Lending Office for all Loans
 Denominated in Canadian Dollars:

Credit Lyonnais Canada
1 Adelaide Street East, Suite 2505
Toronto, Ontario M5C 2V9

Address for Notices:

Credit Lyonnais Canada
1 Adelaide Street East
Toronto, Ontario M5C 2V9

Attention:  Helen Thomas
            Vice President
Telecopier No.: 416-202-6525
Telephone No.:  416-947-9355



                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -145-


Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $13,750,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $13,750,000

MELLON BANK, N.A.


By  /s/ John K. Walsh
  ----------------------------------------------
 Title: Vice President


Lending Office for all Loans
 Denominated in U.S. Dollars:

Mellon Bank, N.A.
Room 2304
Three Mellon Bank Center
Pittsburgh, Pennsylvania 15259

Lending Office for all Loans
 Denominated in Dutch Guilders:

Mellon Bank, Grand Cayman
Room 2304
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001

Address for Notices:

Mellon Bank, N.A.
Room 2304
Three Mellon Bank Center
Pittsburgh, Pennsylvania 15259

Attention:  Patricia L. Martin
Telecopier No.: 412-234-5049
Telephone No.:  412-234-4710


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -146-


Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $0

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $ 5,000,000

Total Commitment
----------------
 U.S. $ 5,000,000

MELLON BANK CANADA


By  /s/ J. L. Cavanaugh
  ------------------------------------------------
 Title: Vice President


Lending Office for all Loans
 Denominated in Canadian Dollars:

Mellon Bank Canada
77 King Street West, Suite 3200
Royal Trust Tower
Toronto, Ontario M5K 1K2

Address for Notices:

Mellon Bank Canada
77 King Street West, Suite 3200
Royal Trust Tower
Toronto, Ontario M5K 1K2

Attention:  John Rehob/
               Judy Ellis
Telecopier No.: 416-860-2439
Telephone No.:  416-860-2430/
                       2436


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -147-


Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $18,750,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $18,750,000

COOPERATIEVE CENTRALE
 RAIFFEISEN-BOERENLEENBANK
 B.A., "RABOBANK NEDERLAND",
 NEW YORK BRANCH


By  /s/ Johannes F. Breukhoven
  -------------------------------------
 Title: Vice President

By  /s/ W. Pieter C. Kodde
  -------------------------------------
 Title: Vice President

Lending Office for all Loans
 Denominated in U.S. Dollars and Dutch Guilders
 and Address for Notices:

Rabobank Nederland
245 Park Avenue
New York, New York 10167

Attention:  Corp. Services Dept.
Telecopier No.: 212-818-0233
Telephone No.:  212-916-7800

with a copy to:

Rabobank Nederland
One Atlantic Center
1201 West Peachtree Street
Suite 3450
Atlanta, Georgia 30309-3400

Attention:  Thomas Dawe
Telecopier No.: 404-877-9150
Telephone No.:  404-877-9100


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -148-

Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $18,750,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $18,750,000


THE ROYAL BANK OF SCOTLAND PLC


By  /s/ Grant F. Stoddart
  --------------------------------------------------
 Title: Senior Vice President & Manager


Lending Office for all Loans
 Denominated in U.S. Dollars:

The Royal Bank of Scotland PLC
Wall Street Plaza
88 Pine Street
26th Floor
New York, New York 10005

Lending Office for all Loans
 Denominated in Dutch Guilders:

The Royal Bank of Scotland PLC
Wall Street Plaza
88 Pine Street
26th Floor
New York, New York 10005

Address for Notices:

The Royal Bank of Scotland PLC
Wall Street Plaza
88 Pine Street
26th Floor
New York, New York 10005

Attention: Russell M. Gibson
Telecopier No.: 212-480-0791
Telephone No.: 212-269-1706



                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -149-

Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $18,750,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $18,750,000


WACHOVIA BANK, N.A.


By  /s/ Gina Wurthmann Lesslie
  -------------------------------------------------  -
 Title: Vice President



Lending Office for all Loans
 Denominated in U.S. Dollars:

Wachovia Bank, N.A.
1401 Main Street
Columbia, SC 29226

Lending Office for all Loans
 Denominated in Dutch Guilders:

Wachovia Bank, N.A.
1401 Main Street
Columbia, SC 29226

Address for Notices:

Wachovia Bank, N.A.
1401 Main Street
Columbia, SC 29226

Attention: Gina Wurthmann Lesslie
           Vice President
Telecopier No.: (803) 765-3232
Telephone No.: (803) 765-3130


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -150-

Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $13,750,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $13,750,000


BANK OF SCOTLAND


By  /s/ Annie Chin Tat
  -----------------------------
 Title: Vice President


Lending Office for all Loans
 Denominated in U.S. Dollars:

Bank of Scotland
565 Fifth Avenue
New York, New York 10017

Lending Office for all Loans
 Denominated in Dutch Guilders:

Bank of Scotland
565 Fifth Avenue
New York, New York 10017

Address for Notices:

Bank of Scotland
565 Fifth Avenue
New York, New York 10017

Attention: Janet Taffe
Telecopier No.: 212-557-9460
Telephone No.: 212-450-0872



                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -151-

Facility A Revolving Credit Commitment
--------------------------------------
 U.S. $13,750,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0

Total Commitment
----------------
 U.S. $13,750,000


CREDITANSTALT-BANKVEREIN


By  /s/ Gregory F. Mathis
  ------------------------------------
 Title: Vice President

By  /s/ Fiona McKone
  -------------------------------------
 Title: Senior Associate


Lending Office for all Loans
 Denominated in U.S. Dollars:

Creditanstalt-Bankverein
2 Greenwich Plaza
Greenwich, Connecticut 06830

Lending Office for all Loans
 Denominated in Dutch Guilders:

Creditanstalt-Bankverein
2 Greenwich Plaza
Greenwich, Connecticut 06830

Address for Notices:

Creditanstalt-Bankverein
2 Greenwich Plaza
Greenwich, Connecticut 06830

Attention: Jennifer Poccia/
           Kim Newsome
Telecopier No.: 203-861-6594
Telephone No.: 203-861-6423


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -152-

<TABLE> 
<CAPTION> 

<S>                                                           <C> 
Facility A Revolving Credit Commitment                        DG BANK, NEW YORK BRANCH
--------------------------------------
 U.S. $13,750,000

Facility B Revolving Credit Commitment                        By  /s/ Norah McCann
--------------------------------------                          -----------------------------------
 U.S. $0                                                       Title:  Senior Vice President

Total Commitment                                              By  /s/ Sabine Wendt
----------------                                                -----------------------------------
 U.S. $13,750,000                                              Title:  Assistant Vice President

                                                              Lending Office for all Loans
                                                               Denominated in U.S. Dollars:

                                                              DG Bank, New York Branch
                                                              609 Fifth Avenue
                                                              New York, New York  10017

                                                              Lending Office for all Loans
                                                               Denominated in Dutch Guilders:

                                                              DG Bank, Cayman Islands Branch
                                                              609 Fifth Avenue
                                                              New York, New York  10017

                                                              Address for Notices:

                                                              DG Bank, New York Branch
                                                              609 Fifth Avenue
                                                              New York, New York  10017

                                                              Attention:  Ed Thome
                                                              Telecopier No.:  212-745-1422
                                                              Telephone No.:   212-745-1464

</TABLE> 
                               Credit Agreement
                               ----------------
 
<PAGE>
 
                                     -153-


<TABLE>
<CAPTION> 

<S>                                             <C>
Facility A Revolving Credit Commitment          MERITA BANK LTD, NEW YORK BRANCH
--------------------------------------
 U.S. $13,750,000

Facility B Revolving Credit Commitment          By  /s/ Frank Maffei
--------------------------------------            ------------------------------------
 U.S. $0                                         Title: Vice President

Total Commitment                                By  /s/ Clifford Abramsky
----------------                                  ------------------------------------
 U.S. $13,750,000                                Title: Vice President


                                                Lending Office for all Loans
                                                 Denominated in U.S. Dollars:

                                                Merita Bank LTD
                                                437 Madison Avenue
                                                21st Floor
                                                New York, New York  10022

                                                Lending Office for all Loans
                                                 Denominated in Dutch Guilders:

                                                Merita Bank LTD, Grand Cayman
                                                 Branch
                                                437 Madison Avenue
                                                21st Floor
                                                New York, New York  10022

                                                Address for Notices:

                                                Merita Bank LTD
                                                437 Madison Avenue
                                                21st Floor
                                                New York, New York  10022

                                                Attention:  Frank Maffei
                                                Telecopier No.:  212-318-9318
                                                Telephone No.:   212-318-9561

</TABLE>

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -154-
<TABLE> 
<CAPTION> 


<S>                                               <C>   
Facility A Revolving Credit Commitment            NATIONAL CITY BANK
--------------------------------------
 U.S. $13,750,000

Facility B Revolving Credit Commitment            By  /s/ Joseph D. Robison
--------------------------------------              ------------------------------------
 U.S. $0                                           Title: Vice President

Total Commitment
----------------                                  Lending Office for all Loans
 U.S. $13,750,000                                  Denominated in U.S. Dollars:

                                                  National City Bank
                                                  1900 E. Ninth Street
                                                  Cleveland, Ohio  44114

                                                  Lending Office for all Loans
                                                   Denominated in Dutch Guilders:

                                                  National City Bank
                                                  1900 E. Ninth Street
                                                  Cleveland, Ohio  44114

                                                  Address for Notices:

                                                  National City Bank
                                                  1900 E. Ninth Street
                                                  Cleveland, Ohio  44114

                                                  Attention:  Lisa B. Lisi
                                                  Telecopier No.:  216-222-0003
                                                  Telephone No.:   216-575-9166

</TABLE> 

                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -155-


<TABLE> 
<CAPTION> 

<S>                                            <C>   
Facility A Revolving Credit Commitment         GIROCREDIT BANK AKTIENGESELLSCHAFT
--------------------------------------          DER SPARKASSEN, GRAND CAYMAN
 U.S. $10,000,000                               ISLAND BRANCH

Facility B Revolving Credit Commitment         By  /s/ Anca Trifan
--------------------------------------           ---------------------------------
 U.S. $0                                        Title: Vice President

Total Commitment                               By  /s/ John Redding
----------------                                 ---------------------------------
 U.S. $10,000,000                               Title: Vice President

                                               Lending Office for all Loans
                                                Denominated in U.S. Dollars:

                                               GiroCredit Bank AG der Sparkassen
                                               280 Park Avenue
                                               32nd Floor
                                               New York, New York  10017

                                               Lending Office for all Loans
                                                Denominated in Dutch Guilders:

                                               GiroCredit Bank AG der Sparkassen
                                               280 Park Avenue
                                               32nd Floor
                                               New York, New York  10017

                                               Address for Notices:

                                               GiroCredit Bank AG der Sparkassen
                                               280 Park Avenue
                                               32nd Floor
                                               New York, New York  10017

                                               Attention:  Anca Trifan
                                               Telecopier No.:  212-984-5627
                                               Telephone No.:   212-984-5631 

</TABLE> 


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -156-


<TABLE>
<CAPTION>


<S>                                        <C>
Facility A Revolving Credit Commitment      THE DAI-ICHI KANGYO BANK, LIMITED,
--------------------------------------       ATLANTA AGENCY
 U.S. $10,000,000

Facility B Revolving Credit Commitment
--------------------------------------
 U.S. $0                                    By  /s/ Tatsuji Noguchi
                                              ---------------------------------
Total Commitment                             Title: Joint General Manager
----------------
 U.S. $10,000,000
                                            Lending Office for all Loans
                                             Denominated in U.S. Dollars:

                                            The Dai-Ichi Kangyo Bank, Limited,
                                             Atlanta Agency
                                            Marquis Two Tower, Suite 2400
                                            285 Peachtree Center Avenue, N.E.
                                            Atlanta, Georgia 30303

                                            Lending Office for all Loans
                                             Denominated in Dutch Guilders:

                                            The Dai-Ichi Kangyo Bank, Limited,
                                             London Branch
                                            DKB House
                                            24 King William Street
                                            London EC4R 9DB

                                            Address for Notices:

                                            The Dai-Ichi Kangyo Bank, Limited,
                                             Atlanta Agency
                                            Marquis Two Tower, Suite 2400
                                            285 Peachtree Center Avenue, N.E.
                                            Atlanta, Georgia 30303

                                            Attention:  Percy Lee/
                                                         Mary Kay Manion
                                            Telecopier No.:  404-222-9556
                                            Telephone No.:   404-581-0200

</TABLE>


                               Credit Agreement
                               ----------------
<PAGE>
 
                                     -157-



                                           THE CHASE MANHATTAN BANK,
                                             as Administrative Agent


                                           By  /s/ Robert T. Sacks
                                             --------------------------------
                                             Title: Vice President

                                           Address for Notices to
                                             Chase as Administrative Agent:

                                           The Chase Manhattan Bank
                                           1 Chase Manhattan Plaza, 8th Floor
                                           New York, New York  10081

                                           Attention:  Daniel N. Fischer
                                           Telecopier No.: 212-552-5777
                                           Telephone No.:  212-552-7906



                               Credit Agreement
                               ----------------
<PAGE>
 
                                                                         ANNEX I

              Certain Provisions Relating to Bankers' Acceptances
              ---------------------------------------------------

          This Annex I sets forth certain terms and conditions relating to the
obligation of the Facility B Revolving Credit Lenders to make loans to Fabrene
pursuant to Section 2.01(a) of the Credit Agreement by way of Banker's
Acceptances. Capitalized terms used herein shall have the meanings assigned to
such terms in the Credit Agreement.

          (a)  Availability. All notices of borrowings, Conversions or
Continuations for Bankers' Acceptances shall be in a minimum aggregate face
amount of Cdn $3,000,000 or a multiple of Cdn. $100,000 in excess thereof, and a
Facility B Revolving Credit Lender shall not be obliged to accept any bill of
exchange which:

               (i)   is drawn on or which matures on a day which is not a
     Business Day;

               (ii)  matures on a day subsequent to the Revolving Credit
     Termination Date;

               (iii) has a term other than approximately 30, 60, 90 or 180
     days;

               (iv)  is denominated in any currency other than Canadian Dollars;

               (v)   is not in a form satisfactory to such Canadian Lender or
     the Administrative Agent;

               (vi)  has a face amount of less than Cdn. $100,000;  or

               (vii) in respect of which Fabrene has not then paid the
     applicable Acceptance Fee.

          (b)  Grace. Fabrene hereby renounces, and shall not claim or request
or require any Facility B Revolving Credit Lender to claim, any days of grace
for the payment of any Bankers' Acceptance.

          (c)  Bankers' Acceptances in Blank. To facilitate the acceptance by
the Facility B Revolving Credit Lenders of bills of exchange as contemplated by
the Credit Agreement and this Annex I, Fabrene shall, on the Effective Date and
from time to time as required, supply the Administrative Agent with such numbers
of bills as it may request, each executed and endorsed in blank by Fabrene. The
Administrative Agent and each Facility B Revolving Credit Lender shall exercise
such care in the custody and safekeeping of such bills as they give to similar
property owned by them. Each Facility B Revolving Credit Lender is hereby
authorized to issue such Bankers' Acceptances endorsed in blank in such face
amounts as may be determined by such Facility B Revolving Credit Lender,
provided that the aggregate amount thereof is equal to the aggregate amount of
Bankers' Acceptances required to be accepted by such Facility B Revolving Credit
Lender. No Facility B Revolving Credit Lender shall be responsible or liable for
its failure to accept a Bankers' Acceptance if the cause of


                        Annex I to the Credit Agreement
                        -------------------------------
<PAGE>
                                      -2-
 
such failure is, in whole or in part, due to the failure of Fabrene to provide
duly executed and endorsed drafts to the Administrative Agent on a timely basis,
nor shall any Facility B Revolving Credit Lender be liable for any damage, loss
or other claim arising by reason of any loss or improper use of any such
instrument except loss or improper use arising by reason of the negligence or
wilful misconduct of such Facility B Revolving Credit Lender, its officers,
employees, agents or representatives.  Each Facility B Revolving Credit Lender
shall maintain a record with respect to Bankers' Acceptances (i) received by it
from the Administrative Agent in blank hereunder, (ii) voided by it for any
reason, (iii) accepted by it hereunder, (iv) purchased by it hereunder, and (v)
canceled at their respective maturity dates.  Each Facility B Revolving Credit
Lender further agrees to retain such records in the manner and for the statutory
period provided in the various Canadian provincial or federal statutes and
regulations which apply to such Facility B Revolving Credit Lender.

          (d)  Execution of Bankers' Acceptances.  Drafts of Fabrene to be
accepted as Bankers' Acceptances hereunder shall be duly executed on behalf of
Fabrene.  Notwithstanding that any one or more of the individuals whose manual
or facsimile signature appears on any bill as a signatory on behalf of Fabrene
may no longer hold office at the date of such bill or at the date of its
acceptance by any Facility B Revolving Credit Lender hereunder, or at any time
thereafter, any Bankers' Acceptance signed as aforesaid on behalf of Fabrene
shall be valid and binding upon Fabrene.

          (e)  Issuance of Bankers' Acceptances. Promptly following receipt of a
notice of borrowing, Conversion or Continuation by way of Bankers' Acceptances,
the Administrative Agent shall so advise the Facility B Revolving Credit Lenders
and shall advise each Facility B Revolving Credit Lender of the face amount of
each Bankers' Acceptance to be accepted by it and the term thereof. The
aggregate face amount of Bankers' Acceptances to be accepted by a Facility B
Revolving Credit Lender shall be determined by the Administrative Agent by
reference to the respective Facility B Revolving Credit Commitment Percentages
of the Facility B Revolving Credit Lenders, except that, if the face amount of
the Bankers' Acceptance, that would otherwise be accepted by a Facility B
Revolving Credit Lender, would not be Cdn. $100,000 or a multiple thereof, such
face amount shall be increased or reduced by the Administrative Agent in its
sole discretion to the nearest multiple of Cdn. $100,000.

          Notwithstanding the foregoing, if by reason of any increase or
reduction described in the immediately preceding sentence, any Facility B
Revolving Credit Lender shall have aggregate Bankers' Acceptances and Loans in
excess of its respective Facility B Revolving Credit Commitment Percentage (any
such Lender being herein called an "Over-Allotted Lender"), then at any time
following the occurrence and during the continuance of an Event of Default, each
other Facility B Revolving Credit Lender agrees, upon request of the Over-
Allotted Lender, to promptly purchase from such Over-Allotted Lender
participations in (or, if and to the extent specified by any such purchasing
Lender, direct interests in) the Bankers' Acceptances and Loans owing to the
Over-Allotted Lender (and in interest due

                        Annex I to the Credit Agreement
                        -------------------------------
<PAGE>

                                      -3-
 
thereon, as the case may be) in such amounts, and to make such other adjustments
from time to time as shall be equitable, to the end that all the Facility B
Revolving Credit Lenders shall hold the Bankers' Acceptances and Loans ratably
according to their respective Facility B Revolving Credit Commitment
Percentages.

          (f)  Purchase of Bankers' Acceptances; Continuations as and
Conversions into Bankers' Acceptance Loans.  Subject to subsection (k) below,
upon the acceptance of a Bankers' Acceptance by a Facility B Revolving Credit
Lender, such Facility B Revolving Credit Lender shall purchase, or arrange the
purchase of, each Bankers' Acceptance from Fabrene at a price determined by the
BA Discount Rate of such Bankers' Acceptance and provide to the Administrative
Agent the BA Discount Proceeds for the account of Fabrene.  The BA Discount
Proceeds so received by the Administrative Agent from the Facility B Revolving
Credit Lenders shall be retained by the Administrative Agent and applied as
follows: (i) remitted to Fabrene (in the case of the making of a Loan), (ii) to
the prepayment of Canadian Base Rate Loans (which shall constitute a Conversion
of the Loans of such Class from Canadian Base Rate Loans to Bankers' Acceptance
Loans) or (iii) to the payment of Bankers' Acceptances maturing on such date
(which shall constitute a Continuation of Bankers' Acceptance Loans to new
Bankers' Acceptance Loans of such Class), provided that in the case of any such
Conversion or Continuation of Loans, Fabrene shall pay to the Administrative
Agent for account of the respective Facility B Revolving Credit Lenders such
additional amounts, if any, as shall be necessary to effect the prepayment in
full of the respective Canadian Base Rate Loans being prepaid, or the Bankers'
Acceptances maturing, on such date.

          On any date on which a Conversion or Continuation described in the
preceding paragraph shall occur, the Administrative Agent shall be entitled to
net all amounts payable on such date by the Administrative Agent to a Facility B
Revolving Credit Lender against all amounts payable on such date by such
Facility B Revolving Credit Lender to the Administrative Agent.  Similarly, on
any such date, Fabrene hereby authorizes each Facility B Revolving Credit Lender
to net all amounts payable on such date by such Facility B Revolving Credit
Lender to the Administrative Agent for the account of Fabrene, against all
amounts payable on such date by Fabrene to such Facility B Revolving Credit
Lender in accordance with the Administrative Agent's calculations.

          (g)  Acceptance Fees.  Fabrene shall pay to the Administrative Agent,
in advance, on behalf of each Facility B Revolving Credit Lender which accepts a
Bankers' Acceptance, an Acceptance Fee in respect of the face amount of such
Bankers' Acceptance, which shall be payable on or before the date of acceptance
of such Bankers' Acceptance.

          (h)  Prepayments.  Subject to paragraph (j) of this Annex I, no
prepayment of any Bankers' Acceptances shall be made by Fabrene prior to the
maturity date of such Bankers' Acceptance.


                        Annex I to the Credit Agreement
                        -------------------------------
<PAGE>

                                      -4-
 
          (i)  Conversion to Canadian Base Rate Loans upon Maturity.  Unless a
Bankers' Acceptance is paid in full at the maturity thereof, or Continued as
another Loan by way of Bankers' Acceptances, the obligation of Fabrene to any
Facility B Revolving Credit Lender in respect of a maturing Bankers' Acceptance
accepted by such Lender shall be deemed to be Converted automatically into a
Canadian Base Rate Loan in an amount equal to the full face amount of the
maturing Bankers' Acceptance.  Such Canadian Base Rate Loan shall be subject to
all of the provisions of the Credit Agreement applicable to a Canadian Base Rate
Loan made as a Facility B Revolving Credit Loan, including in particular the
obligation to pay interest, from and after the maturity date of such Bankers'
Acceptance.

          (j)  Default.  Upon the acceleration of the Loans to be due and
payable pursuant to Section 10 of the Credit Agreement (whether by action of the
Administrative Agent or the Majority Lenders, or automatically by reason of the
occurrence of an Event of Default referred to in clause (f) or (g) of said
Section 10), Fabrene shall pay to the Administrative Agent, as cover in respect
of the obligations of Fabrene to the Facility B Revolving Credit Lenders in
respect of then-outstanding Bankers' Acceptances, an amount equivalent to the
amount or amounts that will be sufficient to pay:

          (i)  all outstanding Bankers' Acceptances on the maturity thereof; and

          (ii)  all unpaid Acceptance Fees, if any,

and, except for any amount payable in respect of unpaid Acceptance Fees, such
amount shall be held by the Administrative Agent from the date of payment to the
Administrative Agent until the maturity of such Bankers' Acceptances, as
additional security for payment of the face amount of such outstanding Bankers'
Acceptances upon maturity.

          (k)  Circumstances Making Bankers' Acceptances Unavailable.  If the
Administrative Agent shall have reasonably determined (which determination shall
be conclusive and binding upon all parties hereto) and notified Fabrene and each
of the Facility B Revolving Credit Lenders that, by reason of circumstances
arising after the Effective Date and affecting the Canadian money market (i)
there is no market for Bankers' Acceptances or (ii) the demand for Bankers'
Acceptances is insufficient to allow the sale or trading of the Bankers'
Acceptances created and purchased hereunder, then the right of Fabrene to
request that any Facility B Revolving Credit Lender accept a Bankers' Acceptance
shall be suspended until the Administrative Agent determines that the
circumstances giving rise to such suspension no longer exist and the
Administrative Agent so notifies Fabrene.

          (l)  Indemnification in Respect of Bankers' Acceptances.  In addition
to any liability of Fabrene to any Lender or the Administrative Agent under any
other provision hereof, Fabrene shall indemnify each Lender and the
Administrative Agent and hold each of them harmless against any reasonable loss
or expense incurred by such Lender or the Administrative Agent as a result of
(x) any failure by Fabrene to fulfill any of its obligations

                        Annex I to the Credit Agreement
                        -------------------------------
<PAGE>

                                      -5-
 
hereunder including, without limitation, any cost or expense incurred by reason
of the liquidation or re-employment in whole or in part of deposits or other
funds required by any Lender to fund any Bankers' Acceptance as a result of the
failure of Fabrene to make any payment, repayment or prepayment on the date
required hereunder or specified by it in any notice given hereunder; (y)
Fabrene's failure to provide for the payment to the Administrative Agent, for
the account of each of the Lenders, or the full principal amount of each
Bankers' Acceptance on its maturity date; or (z) the provision of funds for any
outstanding Bankers' Acceptance, before the maturity date of such Bankers'
Acceptance.

                        Annex I to the Credit Agreement
                        -------------------------------
<PAGE>
 
                                                                      SCHEDULE I

                               Certain Litigation
                               ------------------

                                 [Section 8.03]


                        Schedule I to Credit Agreement
                        ------------------------------
<PAGE>
 
                                                                     SCHEDULE II

                         Material Agreements and Liens
                         -----------------------------

                         [Sections 8.12, 9.06 and 9.07]


                        Schedule II to Credit Agreement
                        -------------------------------
<PAGE>
                                                                    SCHEDULE III

                              Hazardous Materials
                              -------------------

                                 [Section 8.13]


                       Schedule III to Credit Agreement
                       --------------------------------
<PAGE>
 
                                                                     SCHEDULE IV

                               Capital Structure
                               -----------------

                               [Section 8.14(a)]
 


                        Schedule IV to Credit Agreement
                        -------------------------------
<PAGE>
                                                                      SCHEDULE V


                             Existing Equity Rights
                             ----------------------

                               [Section 8.14(b)]


                        Schedule V to Credit Agreement
                        ------------------------------
<PAGE>

                                                                     SCHEDULE VI


                          Subsidiaries and Investments
                          ----------------------------

                            [Sections 8.15 and 9.08]
 

                        Schedule VI to Credit Agreement
                        -------------------------------
<PAGE>

                                                                    SCHEDULE VII


                                 Real Property
                                 -------------

                                 [Section 8.21]
 


                       Schedule VII to Credit Agreement
                       --------------------------------
<PAGE>
 
                                                                     SCHEDULE II

                         Material Agreements and Liens
                         -----------------------------

                         [Sections 8.12, 9.06 and 9.07]



Part A - Material Agreements
         -------------------



Part B - Liens
         -----
 

                        Schedule II to Credit Agreement
                        -------------------------------
<PAGE>

                                                                   SCHEDULE VIII


                             Insurance Deductibles
                             ---------------------

                               [Section 9.04(1)]


                       Schedule VIII to Credit Agreement
                       ---------------------------------
