MISSOURI FUTURE ADVANCE DEED OF TRUST
                             AND SECURITY AGREEMENT

                          SECURING FUTURE ADVANCES AND
                            FUTURE OBLIGATIONS NOT TO
                          EXCEED $5,000,000.00 PURSUANT
                            TO SECTION 443.055 RSMo.

         This  Missouri  Future  Advance  Deed of Trust and  Security  Agreement
(hereinafter  referred  to as "Deed of  Trust")  entered  into  this 16th day of
October,   1997,  by  K-V  Pharmaceutical   Company,   a  Delaware   corporation
(hereinafter  referred to as "Grantor,"  whether one or more), whose address for
notice  hereunder  is 2503 South  Hanley  Road,  St.  Louis,  Missouri  63144 to
Franklin  D.  Weihe,  Hillsboro  Title  Company,  Highway  21  and  3rd  Street,
Hillsboro, MO 63050 ("Trustee"),  as trustee for the benefit of LaSalle National
Bank, a national  banking  association,  having a principal  office at 135 South
LaSalle Street, Chicago, Illinois 60603 ("Beneficiary").

                              W I T N E S S E T H:

            THIS DEED OF TRUST SECURES FUTURE ADVANCES OR OBLIGATIONS
                      PURSUANT TO R.S. MO. SECTION 443.055

         WHEREAS,   Grantor  has  executed  and   delivered  to   Beneficiary  a
Reimbursement  Agreement  effective  as of even date  herewith  (hereinafter  as
originally executed and as amended,  modified or supplemented from time to time,
the "Reimbursement Agreement").  Capitalized terms used herein and not otherwise
defined shall have the meaning given thereto in the Reimbursement Agreement.

                                    ARTICLE I

                                   DEFINITIONS

         I.1 As used  herein,  the  following  terms  shall  have the  following
meanings:

                  (a)  Affiliate:  As to any  Person,  any  other  Person  which
         directly or indirectly controls, or is under common control with, or is
         controlled  by, such Person and, if such Person is an  individual,  any
         member of the immediate family (including parents, spouse and children)
         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 of trust.  As used in this
         definition,    "control"   (including,   with   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 interest, by contract or otherwise).

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                  (b)  Beneficiary:  LaSalle  National  Bank, and the subsequent
         party or parties, from time to time, to the Reimbursement Agreement.

                  (c) Debtor Relief Laws: The term Debtor Relief Laws shall mean
         any applicable liquidation,  conservatorship,  bankruptcy,  moratorium,
         rearrangement,  insolvency,  reorganization,  or similar laws affecting
         the rights or remedies of creditors  generally,  as in effect from time
         to time.

                  (d) Event of Default: Any happening or occurrence described in
         Article VI herein.

                  (e) Escrowed  Sums: The amounts paid by Grantor to Beneficiary
         pursuant to paragraph  11.14 hereof to be held by Beneficiary in a fund
         for the payment of Impositions and insurance premiums.

                  (f) Financial Statements:  The balance sheets, profit and loss
         statements,  reconciliations  of capital and  surplus,  changes in cash
         flow,  schedules  of  sources  and  applications  of  funds,  and other
         financial information of Grantor or the Guarantors heretofore furnished
         to  Beneficiary  or required to be furnished to  Beneficiary  under the
         terms of this Deed of Trust or any other of the Security Documents from
         time to time,  which  statements  shall be prepared in accordance  with
         generally accepted accounting  principles  consistently applied or such
         other form as shall be reasonably  acceptable to Beneficiary  and shall
         be certified by Grantor or the Guarantors, as appropriate.

                  (g) Fixtures: All materials,  supplies,  equipment,  apparatus
         and other items now or hereafter  attached  to,  installed on or in the
         Land or the  Improvements,  or which in some  fashion  are deemed to be
         fixtures  to the Land or  Improvements  under  the laws of the State of
         Missouri,  other than those owned by tenants under any lease.  The term
         "Fixture" shall include, without limitation, all items of Personalty to
         the extent that the same may be deemed fixtures under applicable law.

                  (h)  Governmental  Authority:  Any  and  all  courts,  boards,
         agencies, commissions,  offices or authorities of any nature whatsoever
         for any governmental unit (federal, state, county, district, municipal,
         city or otherwise) whether now or hereafter in existence.

                  (i)   Governmental   Requirements:   The   term   Governmental
         Requirements shall mean all statutes, laws, ordinances,  orders, writs,
         injunctions,   decrees,  rules  and  regulations  of  any  Governmental
         Authority   applicable  to  Grantor,  the  Mortgaged  Property  or  the
         Improvements.

                  (j)  Grantor:  The  above  defined  Grantor  and  any  and all
         subsequent record or equitable owners of the Mortgaged Property.


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                  (k) Impositions:  All real estate and personal property taxes;
         water,  gas,  sewer,  electricity  and other utility rates and charges;
         charges imposed pursuant to any  subdivision,  planned unit development
         or condominium  declaration or restrictions;  charges for any easement,
         license  or  agreement  maintained  for the  benefit  of the  Mortgaged
         Property,  and  all  other  taxes,  charges  and  assessments  and  any
         interest,  costs or  penalties  with  respect  thereto  of any kind and
         nature  whatsoever  which at any time  prior to or after the  execution
         hereof may be assessed,  levied or imposed upon the Mortgaged  Property
         or the ownership,  use, occupancy or enjoyment thereof by entities with
         the legal right or authority to so assess, levy or impose.

                  (l)  Improvements:  Any and all  buildings,  structures,  open
         parking  areas  and  other  improvements,  and any and all  accessions,
         additions,  replacements,   substitutions  or  alterations  thereof  or
         appurtenances thereto, now or at any time hereafter situated, placed or
         constructed upon the Land or any part thereof.

                  (m) Indebtedness:  The principal of, including future advances
         of said  principal  amount,  interest  on and  all  other  amounts  and
         payments due under or secured by the  Reimbursement  Agreement  and the
         other Security Documents, together with all funds hereafter advanced by
         Beneficiary  to or for  the  benefit  of  Grantor  (including,  without
         limiting  the  generality  of the  foregoing,  advances  to protect the
         security of and costs of enforcement under the Reimbursement Agreement,
         this  Deed of Trust or the  other  Security  Documents),  and all other
         indebtedness  of  whatever  kind  or  character,  direct  or  indirect,
         absolute or  contingent,  owing or which may hereafter  become owing by
         Grantor to Beneficiary, whether such indebtedness is evidenced by note,
         open account,  overdraft,  endorsement,  surety agreement,  guaranty or
         otherwise,  it being  contemplated  that Grantor may  hereafter  become
         indebted  to  Beneficiary  in further  sum or sums  including,  without
         limitation,  the obligation of the Grantor to reimburse the Beneficiary
         with interest for all amounts paid by the Beneficiary on account of the
         Beneficiary's letter of credit (the "Letter of Credit") in the original
         principal  amount  of Two  Million  Six  Hundred  Thousand  and  00/100
         ($2,600,000.00)  for the account of Grantor and for the benefit of Mark
         Twain Bank, a bank with its principal office in St. Louis Missouri,  as
         trustee  under an  Indenture of Trust (the "Trust  Indenture")  between
         such trustee and the Industrial  Development Authority of the County of
         St.  Louis,  Missouri  (the  "Issuer")  dated as of  November  1, 1989,
         pursuant to which were issued the Issuer's Private  Activity  Refunding
         and Revenue Bonds Series 1989(F) (K-V Pharmaceutical  Company Project).
         The total  principal  amount of  Indebtedness  secured  by this Deed of
         Trust,  excluding  accrued interest (whether or not added to principal)
         and costs, fees and charges and further excluding advances described in
         subsection  3 of Section  443.055  R.S.Mo.  (as the same may be amended
         from time to time)  and  advances  by  Beneficiary  for other  purposes
         authorized  by this Deed of Trust  shall not exceed  Five  Million  and
         00/100 Dollars ($5,000,000.00).


<PAGE>

                  (n) Land: The real estate or any interest therein described on
         Exhibit "A" attached  hereto and made a part hereof,  together with all
         Improvements  and  fixtures  and  all  rights,   titles  and  interests
         appurtenant thereto.

                  (o) Leases: All of the right, title and interest of Grantor in
         and to any and all  Real  Estate  Leases  and  all  leases,  subleases,
         licenses,  concessions or other agreements  (written or verbal,  now or
         hereafter in effect) which grant Grantor an interest in the Personalty.

                  (p) Legal  Requirements:  (i) Any and all  present  and future
         judicial decisions,  statutes,  rulings, rules,  regulations,  permits,
         certificates  or  ordinances of any  Governmental  Authority in any way
         applicable  to Grantor or the  Mortgaged  Property,  including  but not
         limited to those respecting the ownership, use, occupancy,  possession,
         operation,  maintenance,  alteration, repair or reconstruction thereof,
         (ii) Grantor's presently or subsequently effective by-laws and articles
         of  incorporation,  or any instruments  establishing  any  partnership,
         limited  partnership,  joint  venture,  trust or other form of business
         association (if either,  both or all by any of same), (iii) any and all
         Leases  and other  contracts  (written  or oral) of any nature to which
         Grantor may be bound and (iv) any and all  restrictions,  reservations,
         conditions,  easements  or other  covenants  or  agreements  of  record
         affecting the Mortgaged Property.

                  (q)      Mortgaged Property: The Land, Improvements, Fixtures,
         Personalty, Leases and Rents, together with:

                           (i) all rights, privileges, tenements, hereditaments,
                  rights-of-way,  easements,  appendages  and  appurtenances  in
                  anywise  appertaining   thereto,  and  all  right,  title  and
                  interest  of  Grantor  in and to any  streets,  ways,  alleys,
                  strips or gores of land adjoining the Land or any part therein
                  or thereof;

                           (ii)   all   betterments,    accessions,   additions,
                  appurtenances,   substitutions,   replacements  and  revisions
                  thereof and thereto and all reversions and remainders therein;


<PAGE>

                           (iii) all other  interest of every kind and character
                  which Grantor now has or at anytime hereafter  acquires in and
                  to the  above-described  real and  personal  property  and all
                  property  which  is used in  connection  therewith,  including
                  rights of ingress and  egress,  easements,  licenses,  and all
                  reversionary  rights or  interests  of Grantor with respect to
                  such  property.  In the event the  estate of Grantor in and to
                  any of the Land and Improvements is a leasehold  estate,  this
                  conveyance shall include and the lien,  security  interest and
                  assignment  created  hereby  shall  encumber and extend to all
                  other,  further or  additional  title,  estates,  interest  or
                  rights  which  may  exist  now or at any time be  acquired  by
                  Grantor in or to the property demised under the lease creating
                  such leasehold estate and including  Grantor's rights, if any,
                  to purchase the property  demised under such lease and, if fee
                  simple title to any of such property  shall ever become vested
                  in Grantor,  such fee simple  interest  shall be encumbered by
                  this  Mortgage in the same manner as if Grantor had fee simple
                  title to such property as of the date of execution hereof; and

                           (iv) any and all other security and collateral of any
                  nature whatsoever, now or hereafter given for the repayment of
                  the  Indebtedness  or the  performance  and  discharge  of the
                  Obligations.

         As  used in this  Deed of  Trust,  the  term  "Mortgaged  Property"  is
         expressly  defined  as meaning  all or,  where the  context  permits or
         requires,  any  portion  of the  above and all or,  where  the  context
         permits or requires, any interest therein.

                  (r)  Obligations:  Any and all of the  covenants,  warranties,
         representations   and  other  obligations  (other  than  to  repay  the
         Indebtedness) made or undertaken by Grantor to Beneficiary,  Trustee or
         others  as set  forth  in the  Security  Documents,  and/or  any  other
         documents or instruments executed in connection with the Indebtedness.

                  (s) Permitted Encumbrances:  The outstanding liens, easements,
         building lines, restrictions,  security interests and other matters (if
         any) as set  forth  on  Exhibit  "B"  attached  hereto  and made a part
         hereof, if any, existing financing statements,  if any, not required to
         be  released by  Beneficiary  of even date  herewith  and to the extent
         permitted pursuant to Section 5.4 of this Deed of Trust, (i) the rights
         of the lessors under any Leases other than Real Estate  Leases  wherein
         Grantor is the  lessee,  (ii)  purchase  money  security  interests  in
         Personalty,   and  (iii)  any  financing   statements   evidencing  the
         foregoing.

                  (t) Person:  An individual,  corporation,  partnership,  joint
         venture,  association,   joint  stock  company,  trust,  unincorporated
         organization,   government  or  any  agency  or  political  subdivision
         thereof, or any other form of entity.

                  (u)  Personalty:  All of the  right,  title  and  interest  of
         Grantor in and to all tangible and intangible  personal  property which
         is now or becomes  attached to, installed on or placed on or used on or
         in  connection   with  or  which  is  acquired  for  such   attachment,
         installation, placement or use, or which arises out of the development,
         improvement,  financing,  leasing,  sale, operation or use of the Land,
         Improvements,   Fixtures  or  other  goods   located  on  the  Land  or
         Improvements,  and with  respect to all of the  foregoing,  whether now
         owned or at any time hereafter acquired, including, but not limited to:

<PAGE>

                           (i) all furnishings,  building  materials,  supplies,
                  machines,  engines,  boilers,  stokers,  pumps,  fans,  vents,
                  blowers, dynamos, furnaces,  elevators,  ducts, shafts, pipes,
                  furniture,   cabinets,   shades,  blinds,  screens;  plumbing,
                  heating,  air conditioning,  lighting,  lifting,  ventilating,
                  refrigerating,  cooking,  medical,  laundry  and  incinerating
                  equipment;  partitions,  drapes, carpets, rugs and other floor
                  coverings,   awnings;   call  and  sprinkler   systems,   fire
                  prevention and  extinguishing  apparatus and equipment,  water
                  tanks, swimming pools,  compressors,  vacuum cleaning systems;
                  disposals,  dishwashers,  ranges,  ovens,  kitchen  equipment,
                  cafeteria equipment and recreational  equipment, to the extent
                  the same  constitutes  real property in the state in which the
                  Mortgaged Property is located;

                           (ii) all items  relating to the design,  development,
                  operation,  management and use of the Land,  the  Improvements
                  and the Fixtures, including, but not limited to: (w) all names
                  under  which or by which the Land,  the  Improvements  and the
                  Fixtures,  may at any time be owned and  operated  under,  any
                  such names or any variant thereof, and all goodwill in any way
                  relating to the Land, the Improvements  and the Fixtures;  (x)
                  all permits, licenses, authorizations,  variances, trademarks,
                  service marks,  trade names,  symbols,  land use entitlements,
                  approvals,  consents,  clearances,  and rights  obtained  from
                  governmental  agencies  issued or obtained in connection  with
                  the Land, the  Improvements  and the Fixtures;  and (y) to the
                  extent allowed or permitted, all permits, licenses, approvals,
                  consents, authorizations,  franchises and agreements issued or
                  obtained in connection  with the use,  occupation or operation
                  of the Land, the Improvements and the Fixtures; and

                           (iii) all  evidence of  ownership  of any part of the
                  Land,  the  Improvements,  and the  Fixtures  that is owned by
                  Grantor  in common  with  others,  including  all water  stock
                  relating to the Land,  if any, and all  documents or rights of
                  membership in any owners' or members'  association  or similar
                  group having responsibility for managing or operating any part
                  of the Land;

                           (iv)   any   and   all   construction,   development,
                  financing,  guaranty,  indemnity,   maintenance,   management,
                  service,   supply  and   warranty   agreements,   commitments,
                  contracts,  subcontracts,  insurance policies and the proceeds
                  therefrom, licenses and bonds now or anytime hereafter arising
                  from  construction  on the Land or the use or enjoyment of the
                  Land  and  the  Improvements  including,  without  limitation,
                  maintenance  agreements,  service  contracts and all contracts
                  and agreements  for the  operation,  management and leasing of
                  the Land and/or the Improvements;

                           (v) all water,  water stock,  water capacity or other
                  water  rights,  licenses,  permits,   warranties,   irrigation
                  rights,  oil and gas rights,  minerals,  crops and timber, and
                  wastewater and storm drainage discharge capacity  attributable
                  or  allowable  to  all  or  any  portion  of  the  Land,   the
                  Improvements;


<PAGE>

                           (vi) all rights,  titles and  interests in and to all
                  of the  plans,  specifications,  drawings,  surveys,  maps and
                  plats,  including,  but not limited to, plot plans, foundation
                  plans, floor plans, elevations,  framing plans, cross-sections
                  of walls, mechanical plans, electrical plans and architectural
                  and engineering  studies and analyses  heretofore or hereafter
                  prepared by any  architect or engineer in respect to the Land,
                  Improvements or Fixtures;

                           (vii) all of Grantor's  right,  title and interest in
                  and to any award,  remuneration,  settlement  of  compensation
                  heretofore  made or hereafter  to be made by any  Governmental
                  Authority  to Grantor,  including  those for any  vacation of,
                  change  of grade in,  any  streets  affecting  the Land or the
                  Improvements;

                           (viii) all of Grantor's right,  title and interest in
                  and to all  proceeds  arising  from or by  virtue of the sale,
                  lease or other  disposal  of all or any part of the  Mortgaged
                  Property  (consent  to  same  not  granted  or to  be  implied
                  hereby); and, all proceeds (including premium refunds) payable
                  or to be payable  under each policy of  insurance  relating to
                  the Mortgaged Property; and

                           (ix)   all   additions,   accessions,    accessories,
                  amendments,    modifications,    extensions,    renewals   and
                  enlargements, and additions to, substitutions for the products
                  thereof,  and all  proceeds,  whether cash proceeds or noncash
                  proceeds,  and including insurance and condemnation  proceeds,
                  received when any of the foregoing  property  described in (i)
                  through  (ix)  above  (or  the  proceeds   thereof)  is  sold,
                  exchanged, leased, licensed, or otherwise disposed of, whether
                  voluntarily or involuntarily or when earlier received.

                  Notwithstanding any of the foregoing to the contrary, accounts
         receivables  for  medical  services  rendered  in  connection  with the
         operation of a hospital on the Land are specifically excluded from, and
         not covered by the term "Personalty."

                  (v) Real Estate Leases:  All of the lessor's right,  title and
         interest in and to any and all leases, subleases, licenses, concessions
         or other  agreements  (written or verbal,  now or  hereafter in effect)
         which grant a  possessory  interest in and to, or the right to extract,
         mine, reside in, sell or use the Land, Improvements or Fixtures.

                  (w)  Rents:  All of the  rents,  revenues,  income,  proceeds,
         royalties,  profits  and other  benefits  paid or  payable  for  using,
         leasing,  licensing,  possessing,  operating  from or in,  residing in,
         selling,  mining,   extracting  or  otherwise  enjoying  or  using  the
         Mortgaged Property.


<PAGE>

                  (x)  Security  Documents:  The  Reimbursement  Agreement,  the
         Security  Agreement,  this Deed of Trust,  the  Letter of  Credit,  the
         Assignment  of Rents and Leases and any and all other  documents now or
         hereafter  executed by Grantor or any other person or party to evidence
         or secure  the  payment  of the  Indebtedness  or the  performance  and
         discharge of the Obligations, as same may be amended.

                  (y)  Trustee:  Franklin D.  Weihe,  Hillsboro  Title  Company,
         Highway 21 and 3rd Street,  Hillsboro, MO 63050 and any other successor
         trustee hereunder.

                                   ARTICLE II

                                      GRANT

         II.1 For and in  consideration  of ten dollars  ($10.00) and other good
and  valuable  consideration,  the  receipt and  sufficiency  of which is hereby
acknowledged, and for the further consideration of the uses, purposes and trusts
hereinafter set forth,  and to secure the punctual  payment by Grantor when due,
whether at stated maturity, by acceleration or otherwise of the Indebtedness and
the performance and observance of the  Obligations,  Grantor has and does hereby
grant,  bargain,  sell, mortgage,  warrant,  convey,  remise,  release,  assign,
transfer,  grant a security  interest  in, set over,  deliver and  confirm  unto
Trustee (and, where the nature of any of the following property requires a grant
directly to Beneficiary  to create a valid and  enforceable  security  interest,
unto Beneficiary) and his (or its) substitutes,  successors and assigns upon the
terms  and  conditions  of this Deed of Trust,  with  power of sale as  provided
herein, all of the estate, right, title and interest of Grantor in, to and under
or derived from the Mortgaged Property whether now owned or hereafter  acquired,
including  the  products  and  proceeds  thereof and  additions  and  accessions
thereto.

                                   ARTICLE III

                         WARRANTIES AND REPRESENTATIONS

         Grantor hereby  unconditionally  warrants and represents to Beneficiary
as of the date hereof as follows:

         III.1  Organization and Power: (a) That Grantor is duly organized,  and
validly existing under the laws of the State of Delaware, all in accordance with
applicable Legal Requirements,  and the articles of incorporation and by-laws of
Grantor are in full force and effect and have not been amended or changed except
as previously disclosed to Beneficiary in writing; (b) no proceeding is pending,
planned or  threatened  for the  dissolution  or annulment  of Grantor;  (c) all
licenses,  filing  fees,  income and other taxes due and payable by Grantor have
been paid in full; (d) all conditions  prerequisite to Grantor doing business in
Missouri  have been  done;  (e)  Grantor is in good  standing  in  Delaware  and
Missouri;  and (f) Grantor has all requisite  power and authority to own, lease,
operate and encumber the Mortgaged Property.


<PAGE>


         III.2 Validity of Documents: The execution, delivery and performance by
Grantor  of  the  Security   Documents  and  the  borrowing   evidenced  by  the
Reimbursement   Agreement  are  within  Grantor's  powers  and  have  been  duly
authorized  by  Grantors  and all other  requisite  corporate  action;  (b) have
received  all (if any)  requisite  prior  governmental  approval  in order to be
legally binding and  enforceable in accordance  with the terms thereof;  and (c)
will not violate, be in conflict with, result in a breach of or constitute (with
due notice or lapse of time, or both) a default under, any Legal  Requirement or
result in the creation or imposition of any lien,  charge or  encumbrance of any
nature whatsoever upon Grantor's  property or assets,  except as contemplated by
the  provisions of the Security  Documents.  The Security  Documents  constitute
legal, valid and binding obligations of Grantor obligated under the terms of the
Security  Documents in accordance with their  respective  terms, and Grantor has
full and lawful authority to bargain,  grant, sell, mortgage,  assign,  transfer
and convey all of the Mortgaged Property as set forth herein.

         III.3 Information:  All information,  reports, papers and data given to
Beneficiary  with respect to Grantor or the Mortgaged  Property  (excluding  any
projections  or forecasts)  are  accurate,  complete and correct in all material
respects as of the date hereof and to the best knowledge of Grantor, do not omit
any fact the  inclusion  of which is  necessary  to prevent the facts  contained
therein from being materially misleading.

         III.4 Title to Mortgaged Property and Lien of this Instrument:  Grantor
has good and  indefeasible  title in fee simple to the Land described on Exhibit
"A" attached hereto,  and good and indefeasible  title to the Improvements,  the
Fixtures and Personalty, Leases and Rents, free and clear of any liens, charges,
encumbrances,  security  interests  and  adverse  claims  whatsoever  except the
Permitted  Encumbrances.  This Deed of Trust  constitutes  a valid,  subsisting,
first  lien deed of trust on the Land,  the  Improvements,  the  Fixtures  and a
valid,  subsisting  first  security  interest in and to the  Personalty,  all in
accordance with the terms hereof.

         III.5 Taxes and Other Payments:  Grantor has filed all federal,  state,
county,  municipal  and city income and other tax returns  required to have been
filed by it and has paid all  taxes  which  have  become  due  pursuant  to such
returns or pursuant to any assessments received by Grantor, and Grantor does not
know of any basis for any  additional  assessment  in respect of any such taxes.
Grantor  has  paid or will  pay in full in a  commercially  reasonable  time and
manner  all sums  owing or  claimed  for  labor,  material,  supplies,  personal
property (whether or not constituting a Fixture hereunder) and services of every
kind and character used,  furnished or installed in the Mortgaged Property which
Grantor is obligated to pay.


<PAGE>

         III.6 Litigation:  There are no actions,  suits or proceedings  pending
or, to the knowledge of Grantor,  threatened  against or affecting the Mortgaged
Property or involving  the validity or  enforceability  of this Deed of Trust or
the priority of the lien and security interest hereof, and no event has occurred
(including  specifically  Grantor's  execution of the Security Documents and its
consummation of the loan represented thereby) which will violate, be in conflict
with,  result in the breach of or constitute  (with due notice or lapse of time,
or both) a default  under,  any Legal  Requirement  or result in the creation or
imposition of any lien,  charge or encumbrance of any nature whatsoever upon any
of Grantor's  property other than the lien and security  interest created by the
Security Documents.

         III.7 The Financial Statements:  To the best of Grantor's knowledge the
Financial  Statements are true, correct,  and complete as of the dates specified
therein and fully and accurately  present in all material respects the financial
condition  of Grantor as of the date  thereof.  No material  adverse  change has
occurred in the financial condition of Grantor since the date of the most recent
Financial Statements delivered to Beneficiary.

         III.8  Utilities:  All  utility  services  in  such  capacities  as are
necessary  for the  Mortgaged  Property  and the  operation  thereof  for  their
intended  purpose are  available to the  Mortgaged  Property  and the  operation
thereof for their intended purpose,  including water supply,  storm and sanitary
sewer facilities, gas, electric and telephone facilities.

         III.9 Streets and Parking:  All parking areas,  streets,  roads, and/or
highways  necessary  for the full  utilization  of the  Improvements  for  their
intended  purposes have been completed or the necessary  rights-of-way  therefor
have either been acquired by the appropriate Governmental Authority or have been
dedicated to the public use and accepted by such Governmental Authority.

         III.10 Permits:  All zoning,  utility,  building,  health and operating
permits  (if any)  required  for the  operation  of the  Improvements  have been
obtained and copies of same shall be delivered to Beneficiary.

                                   ARTICLE IV

                              AFFIRMATIVE COVENANTS

         Grantor hereby unconditionally covenants and agrees with Beneficiary as
follows:

         IV.1 Payment and Performance:  Grantor will pay the Indebtedness as and
when  called  for  in  the  Security  Documents  and  will  perform  all  of the
Obligations in full and on or before the dates they are to be performed.

         IV.2 Existence: Grantor will preserve and keep in full force and effect
its existence, rights, franchises and trade names.

         IV.3  Compliance  with Legal  Requirements:  Grantor will  promptly and
faithfully  comply  with,  conform  to and obey all  present  and  future  Legal
Requirements  whether  or not same  shall  necessitate  structural  changes  in,
improvements  to, or  interfere  with the use or  enjoyment  of,  the  Mortgaged
Property.

<PAGE>

         IV.4 Payment of  Impositions:  Subject to the  provisions  of paragraph
11.14  herein,  Grantor  will  pay  and  discharge,  or  cause  to be  paid  and
discharged,  the Impositions not later than the earlier of the date same becomes
delinquent,  or the day any fine, penalty, interest or cost may be added thereto
or imposed or the day any lien may be filed for the nonpayment  thereof (if such
day is used  to  determine  the due  date  of the  respective  item);  provided,
however, that Grantor may, if permitted by law and pursuant to an agreement with
the taxing entity,  pay the Impositions in installments  whether or not interest
shall  accrue on the unpaid  balance of such  Impositions.  Grantor  may in good
faith,  in lieu of paying such  Impositions  as they become due and payable,  by
appropriate  proceedings,  contest the  validity  thereof.  During such  contest
Grantor shall not be deemed in default  hereunder because of such nonpayment if,
in the case of a contest  involving  an amount in excess of  $100,000,  prior to
delinquency of the asserted tax or assessment,  Grantor furnishes Beneficiary an
indemnity bond, conditioned that such tax or assessment with interest,  cost and
penalties be paid as herein stipulated, secured by a deposit in cash or security
acceptable  to  Beneficiary  or with surety  acceptable to  Beneficiary,  in the
amount of the tax or  assessment  being  contested  by Grantor and a  reasonable
additional  sum to pay all possible  costs,  interest and  penalties  imposed or
incurred in connection therewith.  Upon conclusion of such contest Grantor shall
promptly pay any amount adjudged by a court of competent jurisdiction to be due,
with all costs,  penalties and interest  thereon prior to the date such judgment
becomes final or any writ or order is issued under which the Mortgaged  Property
may be sold pursuant to such judgment.

         IV.5 Repair:  Grantor will keep or cause the  Mortgaged  Property to be
kept in good  order  and  condition  consistent  with  its  existing  condition,
reasonable  wear and tear excepted,  and  presenting a good  appearance and will
make  or  cause  tenants  of  the  Mortgaged   Property  to  make  all  repairs,
replacements,  renewals,  additions,  betterments,  improvements and alterations
thereof and  thereto,  interior  and  exterior,  structural  and  nonstructural,
ordinary and  extraordinary,  foreseen and  unforeseen,  which are  necessary or
reasonably appropriate to keep same in such order and condition, reasonable wear
and tear excepted.  Grantor will also use its reasonable  efforts to prevent any
act or  occurrence  which might impair the value or  usefulness of the Mortgaged
Property  for its intended  usages as set forth in any plans and  specifications
for the Improvements  submitted to Beneficiary or in the Security Documents.  In
instances  where  repairs,  replacements,   renewals,  additions,   betterments,
improvements or alterations are required in and to the Mortgaged  Property on an
emergency basis to prevent loss, damage, waste or destruction  thereof,  Grantor
shall   proceed  to   construct   same,   or  cause  same  to  be   constructed,
notwithstanding anything to the contrary contained in paragraph 5.2 hereinbelow;
provided,  however,  that in instances  where such emergency  measures are to be
taken,  Grantor will promptly notify  Beneficiary in writing of the commencement
of such emergency measures and, when same are completed, the completion date and
the measures actually taken.

         IV.6  Insurance:  Grantor shall obtain and maintain  insurance upon and
relating to the Mortgaged Property providing the following  described  insurance
coverage:


<PAGE>

                  (a) Casualty.  Fire and casualty  insurance  insuring  against
         personal  injury  and  death,  loss by fire  and  such  other  hazards,
         casualties  and  contingencies  (including  but not  limited  to  fire,
         lightning, hail, windstorm,  explosion,  malicious mischief,  vandalism
         and rent  loss or  business  interruption  insurance  covering  loss of
         Rents) as are covered by extended coverage policies in effect where the
         Land is located and such other risks as may be specified by Beneficiary
         from  time to time,  all in such  amounts  and with  such  insurers  of
         recognized  responsibility as are acceptable to Beneficiary;  provided,
         however, that absent written direction from Beneficiary, such insurance
         shall be in an  amount  not less  than the full  insurable  replacement
         value of the Mortgaged Property with no co-insurance liability.

                  (b) Flood.  If, and to the extent that the Mortgaged  Property
         is located  within an area that has been or is hereafter  designated or
         identified as an area having  special flood hazards by the Secretary of
         Housing and Urban  Development  or by such other official as shall from
         time to  time be  authorized  by  federal  or  state  law to make  such
         designation  pursuant to the National  Flood  Insurance Act of 1968, as
         such act may from time to time be amended and in effect, or pursuant to
         any other national or state program of flood  insurance,  Grantor shall
         carry flood insurance with respect to the Mortgaged Property in amounts
         not less than the maximum limit of coverage then available with respect
         to the  Mortgaged  Property  pursuant to any and all national and state
         flood insurance  programs with respect to the Mortgaged Property or the
         amount of the Indebtedness, whichever is less.

                  (c)  Boiler and  Machinery.  Boiler  and  machinery  insurance
         covering  loss or  damage to all  portions  of the  Mortgaged  Property
         comprised  of air  conditioning  and heating  systems,  other  pressure
         vessels,  machinery,  boilers or high pressure  piping in an amount and
         containing terms acceptable to Beneficiary.

                  (d)  Liability   Insurance.   Commercial   general  liability,
         automobile  liability,  worker's  compensation,  employer liability and
         broad form  umbrella or excess  liability  insurance  policies  against
         claims for bodily  injury,  death or  property  damage in an amount and
         containing terms acceptable to Beneficiary.


<PAGE>

         Each insurance policy issued in connection with the Mortgaged  Property
shall provide, by way of endorsements,  riders or otherwise,  that proceeds will
be payable to Beneficiary as its interest may appear. All renewal and substitute
policies of  insurance  or certified  copies  thereof  shall be delivered at the
office  of  Beneficiary,  premiums  paid,  at  least  thirty  (30)  days  before
termination  of  policies  theretofore  delivered  to  Beneficiary.  If proof of
renewal or re-issuance of any insurance  policy required  hereunder has not been
received by  Beneficiary at least thirty (30) days prior to the expiration of an
existing policy,  and Beneficiary gives at least ten (10) days written notice to
Grantor or, if such policy  will  expire  within said ten (10) day period,  then
such lesser  notice prior to the  expiration  of the policy as  Beneficiary  may
reasonably give,  Beneficiary  shall have the right, but not the obligation,  to
make  premium  payments,  at  Grantor's  expense,  to prevent any  cancellation,
endorsement,  alteration or  reissuance,  and such payments shall be accepted by
the insurer to prevent same. All such payments by  Beneficiary  shall be part of
the Indebtedness secured hereby and payable on demand.

         IV.7 Restoration  Following  Casualty:  If any act or occurrence of any
kind or nature  (including any casualty for which  insurance was not obtained or
obtainable)  shall result in damage to or loss or  destruction  of the Mortgaged
Property,  Grantor will give notice thereof to  Beneficiary.  In case of loss in
which the cost of the restoration,  repair or replacement  (hereinafter referred
to as the "Work") of the Mortgaged  Property  estimated by Beneficiary shall not
exceed  $1,000,000.00  then such proceeds may be used for the prosecution of the
Work in the manner  hereinafter  provided.  If the cost of the Work estimated by
Beneficiary shall exceed  $1,000,000.00,  Beneficiary,  at its option,  shall be
entitled to receive and retain the proceeds of the insurance policies,  applying
the same upon the  Indebtedness;  however,  if such  repairs  are  essential  to
Grantor's  ongoing business and the repayment of the  Indebtedness,  Beneficiary
shall be reasonable in determining  whether or not to make such funds  available
to pay the cost of the Work.  Notwithstanding anything herein to the contrary if
any loss  shall  occur at  anytime  when  Grantor  shall  be in  default  in the
performance  of this covenant,  Beneficiary  shall be entitled to the benefit of
all insurance policies held by or for any Grantor,  to the extent as if same had
been made payable to Beneficiary;  and upon foreclosure  hereunder,  Beneficiary
shall become the owner of any  insurance  proceeds paid or to be paid under said
policies and shall promptly apply such proceeds to reduce the  Indebtedness.  In
the event  Beneficiary  elects  to make such  insurance  proceeds  available  to
Grantor for such purpose,  Grantor will promptly and at Grantor's  sole cost and
expense and  regardless  of whether  the  insurance  proceeds  (if any) shall be
sufficient  for the purpose,  commence and continue  diligently to completion to
restore,  repair,  replace  and  rebuild  the  Mortgaged  Property  as nearly as
possible to its value, condition and character immediately prior to such damage,
loss or destruction.  In the event insurance  proceeds are not made available to
Grantor to  restore,  repair,  replace  or rebuild  the  Mortgaged  Property  as
aforesaid,  Grantor  shall not be obligated to perform such work but shall clean
up any damaged areas in a commercially  reasonable manner at Grantor's sole cost
and expense.


<PAGE>

         If the proceeds of the insurance described in Paragraph 4.6 hereinabove
are to be used for the  prosecution of the Work, such proceeds shall be paid out
by Beneficiary  from time to time to Grantor (or, at the option of  Beneficiary,
jointly to Grantor and the persons  furnishing labor and/or material incident to
such restoration, repair or replacement or directly to such persons) as the Work
progresses,  subject to the following conditions if the cost of the Work exceeds
$100,000.00:  (a) an architect or engineer,  approved by  Beneficiary,  shall be
retained by Grantor (at Grantor's  expense) and charged with the  supervision of
the Work and Grantor shall have prepared,  submitted to Beneficiary  and secured
Beneficiary's  written  approval of the plans and  specifications  for such Work
which  shall not be  unreasonably  withheld  or  delayed;  (b) each  request for
payment  by  Grantor  shall be made on ten (10)  days  prior  written  notice to
Beneficiary and shall be accompanied by a certificate  executed by the architect
or engineer  supervising  the Work  stating,  among such other matters as may be
reasonably  required by Beneficiary that: (i) all of the Work completed has been
done in  compliance  with the approved  plans and  specifications;  (ii) the sum
requested is justly required to reimburse Grantor for payments by Grantor to, or
is  justly  due  to,  the  contractor,  subcontractors,  materialmen,  laborers,
engineers,  architects or other persons rendering  services or materials for the
Work (giving a brief  description  of such services and  materials);  (iii) when
added to all sums  previously  paid out by Grantor,  the sum requested  does not
exceed the value of the Work done to the date of such certificate:  and (iv) the
amount of  insurance  proceeds  remaining in the hands of  Beneficiary  plus any
funds  deposited  with  Beneficiary  or  demonstrated  to be available  for such
purpose in  accordance  with  subparagraph  (f)  below,  will be  sufficient  on
completion  of the Work to pay for the same in full  (giving in such  reasonable
detail  as the  Beneficiary  may  require  an  estimate  of  the  cost  of  such
completion);   (c)  each  request  shall  be  accompanied  by  waivers  of  lien
satisfactory in form and substance to Beneficiary covering that part of the Work
completed prior to that part of the Work for which payment or  reimbursement  is
being  requested  and by a  search  prepared  by a  title  company  or  licensed
abstracter or by other evidence  satisfactory to Beneficiary  that there has not
been filed with respect to the Mortgaged  Property any mechanic's  lien or other
lien, affidavit or instrument asserting any lien or any lien rights with respect
to the Mortgaged  Property;  (d) there has not occurred any Event of Default (as
herein defined) since the hazard, casualty or contingency giving rise to payment
of the insurance proceeds occurred; (e) in the case of the request for the final
disbursement,  such  request  is  accompanied  by a copy of any  Certificate  of
Occupancy  or other  certificate  required  by any Legal  Requirement  to render
occupancy of the damaged portion of the Mortgaged  Property lawful;  and (f) if,
in Beneficiary's reasonable judgment, the amount of such insurance proceeds will
not be sufficient to complete the Work (which determination may be made prior to
or during the performance of the Work),  Grantor shall deposit with Beneficiary,
immediately upon a request therefor, or, demonstrate to Beneficiary's reasonable
satisfaction  that  Grantor has funds  available  for such  purpose in Grantor's
possession  (in which event such funds will be the first  funds  expended to pay
for the Work) an amount of money  which  when added to such  insurance  proceeds
will be sufficient,  in Beneficiary's reasonable judgment, to complete the Work.
If, upon  completion of the Work, any portion of the insurance  proceeds has not
been  disbursed  to  Grantor  (or one or more of the  other  aforesaid  persons)
incident thereto,  Beneficiary  shall disburse such balance to Grantor.  Nothing
herein shall be interpreted to prohibit  Beneficiary  from (y) withholding  from
each such  disbursement ten percent (10%) (or such greater amount,  if permitted
or required by any Legal Requirement) of the amount otherwise herein provided to
be disbursed,  and then continuing to withhold such sum until the time permitted
for perfecting liens against the Mortgaged  Property has expired,  at which time
the amount  withheld  shall be  disbursed  to Grantor (or to Grantor  and/or any
person or persons  furnishing  labor and/or material for the Work or directly to
such  persons),  or (z)  applying  at any  time  the  whole  or any part of such
insurance proceeds to the curing of any Event of Default.


<PAGE>

         IV.8  Leases  and Rents:  Except in the  ordinary  course of  Grantor's
business  (which shall  generally  include  current  market  conditions  at such
location when such events occur), Grantor shall (a) with respect to any proposed
Real Estate  Lease,  not execute any Real Estate Lease without the prior written
consent  of  Beneficiary  (and  which Real  Estate  Lease  shall be only for the
occupancy by the tenant thereunder); (b) not discount any rent payable under any
Real Estate Lease or modify or vary, surrender or terminate, either orally or in
writing, any Real Estate Lease resulting in terms less favorable to Grantor than
those  existing  as of the date  hereof;  (c) not cancel any Real  Estate  Lease
affecting  the  Mortgaged  Property  or any part  thereof;  (d) not  voluntarily
terminate,  cancel,  waive, modify or amend its rights or the obligations of any
party under any of the Real Estate Leases or (e) use all  reasonable  efforts to
maintain each of the Real Estate Leases in full force and effect during the full
term  hereof.  With  respect to the Real Estate  Leases,  Grantor  shall (i) not
collect  any rent  payable  for a period of more  than one (1) month in  advance
(except that Grantor may collect the first month's rent at one time prior to the
lease  commencement  date); (ii) not further assign its interest in, to or under
any Real Estate Lease or the rents  payable under any Real Estate Lease and from
the  Mortgaged  Property  to any  person or entity;  (iii)  duly and  punctually
perform and comply with any and all representations,  warranties,  covenants and
agreements  expressed as binding  upon it under each of the Real Estate  Leases;
and (iv) appear and/or defend any action or proceeding involving Grantor arising
under or in any manner connected with any of the Real Estate Leases. Grantor has
executed and delivered to  Beneficiary an Assignment of Leases and Rents of even
date herewith granting  Beneficiary certain rights with respect to the Mortgaged
Property including,  without limiting the generality of the foregoing, the right
to collect Rents directly from the tenants under the Real Estate Leases.

         IV.9 Inspection:  Grantor will permit Trustee and Beneficiary and their
agents,  representatives  and employees to inspect the Mortgaged Property during
reasonable  business  hours,  provided  such  inspection  does not  unreasonably
interfere  with the  conduct of  business  by tenants  occupying  the  Mortgaged
Property. Trustee and Beneficiary will notify Grantor prior to any inspection.

         IV.10 Defense of Title:  If the title of Trustee to, or the interest of
Beneficiary  in, the Mortgaged  Property hereby  conveyed,  or any part thereof,
shall be endangered  or shall be attached,  directly or  indirectly,  and in the
event the title insurance  company issuing  Beneficiary a title insurance policy
is either  not  defending  against  such claim or, in  Beneficiary's  reasonable
opinion,  not  adequately  defending  against  such  claim,  Grantor  shall,  at
Grantor's  expense,  take all necessary and proper steps for the defense of such
title or interest,  including the  employment  of counsel,  the  prosecution  or
defense of  litigation  and the  compromise  or discharge of claims made against
such title or interest in the  Mortgaged  Property.  Grantor will  indemnify and
hold  Beneficiary  harmless  from and  against any and all loss,  cost,  damage,
liability or expense (including all court costs and attorneys' fees) incurred by
Beneficiary in protecting its interests hereunder in such an event. In the event
Beneficiary,  in Beneficiary's sole discretion,  is not satisfied with Grantor's
actions in such regard,  Grantor  hereby  authorizes  Beneficiary,  at Grantor's
expense, to take all necessary and proper steps for the defense of such title or
interest,  including the  employment of counsel,  the  prosecution or defense of
litigation  and the compromise or discharge of claims made against such title or
interest in the Mortgaged  Property.  All such payments by Beneficiary  shall be
part of the Indebtedness secured hereby and be payable on demand.


<PAGE>

         IV.11 Future Impositions: At any time any law shall be enacted imposing
or  authorizing  the  imposition  of any tax upon this Deed of Trust or upon any
rights, titles, liens or security interests created hereby or upon the Letter of
Credit, or any part thereof, upon Beneficiary's  written request,  Grantor shall
immediately  pay  all  such  taxes;  provided  that,  in the  alternative,  upon
Beneficiary's  written  request,  Grantor may, in the event of the  enactment of
such a law, and must if it is unlawful for Grantor to pay such taxes, prepay the
amounts due under the  Reimbursement  Agreement  in full within  sixty (60) days
after demand therefor by Beneficiary.

         IV.12  Estoppel  Certificates.  Grantor shall,  upon request,  promptly
furnish, at any time and from time to time a written statement or affidavit,  in
such form as may be reasonably  required by  Beneficiary,  stating the amount of
the unpaid balance of funds advanced pursuant to the Letter of Credit.

         IV.13 Financial Statements and Reports:  Grantor will maintain full and
accurate  books of  account  and other  records  reflecting  the  results of its
operations  and will  furnish  or cause to be  furnished  to  Beneficiary  those
Financial Statements required pursuant to the Reimbursement Agreement.

                                    ARTICLE V

                               NEGATIVE COVENANTS

         Grantor hereby  covenants and agrees with  Beneficiary  that, until the
entire  Indebtedness  shall  have been  paid in full and all of the  Obligations
which are then  subject  to  performance  and  discharge  shall  have been fully
performed and discharged:

         V.1 Use Violations:  Grantor will not use, maintain, operate or occupy,
or allow the use, maintenance,  operation or occupancy of the Mortgaged Property
in any manner  which (a)  violates  any Legal  Requirement,  including,  without
limitation,  Legal  Requirements  with respect to the disposal of medical  waste
products,  (b) may be dangerous  unless  safeguarded  as required by law, or (c)
constitutes a public or private nuisance.

         V.2  Alterations:  Grantor  (i) will not commit or permit any waste (as
such term is defined at common law) of the Mortgaged  Property and (ii) will not
(subject to the  provisions of paragraph 4.5 and 4.7 herein),  without the prior
written  consent of  Beneficiary,  make or permit to be made any  alterations or
additions to the Mortgaged  Property which  materially and adversely  affect the
structural  portions of any  Improvements,  the exterior side or common areas of
any Improvements,  or any areas visible from the exterior or common areas of the
Improvements.


<PAGE>

         V.3 Replacement of Fixtures and Personalty:  Grantor will not,  without
the  prior  written  consent  of  Beneficiary,  permit  any of the  Fixtures  or
Personalty to be removed at any time from the Land or Improvements (i) except in
the ordinary  course of Grantor's  business in a manner that does not materially
adversely affect Grantor's  business  operations or (ii) unless the removed item
is  obsolete,  removed  temporarily  for  maintenance  and repair or, if removed
permanently,  is replaced by an article of equal suitability and value, owned by
Grantor,  free and clear of any lien or security  interest except such as may be
first approved in writing by Beneficiary.

         V.4 No  Further  Encumbrances:  Grantor  will  not,  without  the prior
written consent of Beneficiary, create, place, suffer or permit to be created or
placed or,  through  any act or failure to act,  acquiesce  in the placing of or
allow to remain,  any  mortgage,  pledge,  lien  (statutory,  constitutional  or
contractual),  security interest,  encumbrance or charge on, or conditional sale
or other title  retention  agreement,  regardless  of whether same are expressly
subordinate  to the  liens  of  the  Security  Documents,  with  respect  to the
Mortgaged Property,  other than (i) the Permitted Encumbrances,  and (ii) leases
of  Personalty or Fixtures used on the  Mortgaged  Property  which  according to
generally accepted accounting principles consistently applied are capital leases
("Capital Leases"), purchase money security interests in Personalty and Fixtures
used on the  Mortgaged  Property and leases,  which are not Capital  Leases,  of
Personalty  and  Fixtures  used on the  Mortgaged  Property,  provided  that the
liability for the  Personalty  and Fixtures so leased and so subject to security
interests does not exceed  $1,500,000.00,  or such greater amount as Beneficiary
may agree to in  writing.  The  foregoing  shall not limit the right of  tenants
under Real  Estate  Leases to install  removable  fixtures  subject to  security
interests on the Mortgaged  Property which can be removed  without damage to the
Mortgaged  Property and which pursuant to the Real Estate Leases and the written
consent of Grantor  obtained prior to installation  shall remain the property of
such tenants and shall not be considered part of the Mortgaged Property.

         V.5 Zoning;  Title  Matters:  Grantor will not,  without  Beneficiary's
express   prior   written   consent,   (A)   initiate   or  support  any  zoning
reclassification  of the Mortgaged  Property or seek any variance under existing
zoning  ordinances  applicable  thereto;  (B) modify,  amend or  supplement  any
Permitted  Encumbrances;  (C)  impose  any  restrictive  covenants  or any other
encumbrance  upon the Mortgaged  Property,  execute or file any subdivision plat
affecting the Mortgaged  Property or consent to the  annexation of the Mortgaged
Property to any municipality;  or (D) permit or offer the Mortgaged  Property to
be used by the  public or any  person in such  manner as might  make  possible a
claim of adverse usage or possession or of any implied dedication or easement by
prescription.

                                   ARTICLE VI

                                EVENTS OF DEFAULT

         VI.1 Default:  Any one or more of the following events shall constitute
an "Event of Default" hereunder and under the Security Documents:


<PAGE>

                  (a) A failure to pay when and as the same shall become due and
         payable, whether by maturity or otherwise,  any interest,  principal or
         other  amounts  required  to be  paid  hereunder  or  under  any of the
         Security  Documents;  which default  continues for a period of ten (10)
         days  after  Beneficiary  delivers  written  notice of such  failure to
         Grantor;  provided,  however,  Beneficiary  shall only be  obligated to
         deliver two such notices  within any calendar  year and if  Beneficiary
         has delivered two written notices of prior failures to Grantor within a
         calendar  year,  Beneficiary  shall not be  obligated  to  deliver  any
         additional  written notices of subsequent  failures within the calendar
         year after the two written  notices of the prior  failures and an Event
         of Default shall be deemed to occur  automatically  upon the subsequent
         failure  within the  calendar  year to pay any such sum within ten (10)
         days of the date same is due and payable without any notice to Grantor;

                  (b) Default in the due observance or performance of any of the
         terms,  covenants or conditions  contained in this Deed of Trust or the
         Reimbursement  Agreement or any of the Security Documents (except for a
         default  described in subparagraph  (a) above) which default  continues
         for a period of thirty  (30) days after  Beneficiary  delivers  written
         notice of such default to Grantor;

                  (c)  Any  representation  or  warranty  made by  Grantor  or a
         Guarantor  to  Beneficiary  in  any of the  Security  Documents  or any
         certificate or document furnished to Beneficiary in connection with the
         funds  advanced  pursuant to the Letter of Credit or in  furtherance of
         the  requirements  of  this  Deed of  Trust  or of any  other  Security
         Document  shall be incorrect  in any material  respect at the time when
         made or at the time when  reaffirmed or deemed  reaffirmed by the terms
         of any Security Document;

                  (d) Subject to  Grantor's  rights to contest,  as set forth in
         Section  4.4  hereof,  a failure by Grantor to pay or cause to be paid,
         before any fine,  penalty,  interest or cost may be added thereto,  all
         franchise taxes and charges,  and other governmental  charges,  general
         and  special,  ordinary  and  extraordinary,   unforeseen  as  well  as
         foreseen, of any kind and nature whatsoever,  in an amount in excess of
         $100,000,   including  but  not  limited  to,  assessments  for  public
         improvements or benefits which are assessed, levied, confirmed, imposed
         or become a lien upon the  Mortgaged  Property  or any part  thereof or
         become payable during the term of the  Reimbursement  Agreement,  which
         default  continues  for a period of thirty (30) days after  Beneficiary
         delivers written notice thereof to Grantor;

                  (e) Grantor  sells,  leases  (other  than  leases  approved in
         writing by  Beneficiary),  exchanges,  assigns,  conveys  or  otherwise
         disposes  of the  Land,  Improvements,  or Real  Estate  Leases  or any
         interest  therein,  or  enters  into a written  agreement  to do so, or
         grants or permits to exist any other  mortgage,  deed of trust or other
         lien,  charge or encumbrance  against the Land,  Improvements,  or Real
         Estate Leases, whether superior or inferior to this Deed of Trust;


<PAGE>

                  (f) Except as  permitted  in  accordance  with  Section 5.3 or
         Section 5.4 above, Grantor sells, leases,  exchanges,  assigns, conveys
         or otherwise disposes of any portion of the Mortgaged  Property,  other
         than the Land,  Improvements  or Real  Estate  Leases  or any  interest
         thereon  covered by Section  6.1(e)  hereof,  or enters  into a written
         agreement  to do so,  or  grants or  permits  to exist any other  lien,
         charge or  encumbrance  against  such  property,  whether  superior  or
         inferior to the liens and security interests in this Deed of Trust, and
         such default  continues  for a period of thirty (30) days after written
         notice thereof to Grantor;

                  (h) Grantor shall  be in Default  (as that term  is defined in
         the Reimbursement Agreement);

                  (i) A receiver,  liquidator or trustee of Grantor, a Guarantor
         or of the  Mortgaged  Property  or of any  substantial  portion  of the
         properties of any of them,  shall be appointed and shall not be removed
         within thirty (30) days;

                  (j) A petition  in  bankruptcy  or for  reorganization  or for
         protection  under any Debtor  Relief Laws shall have been filed against
         Grantor,  or a  Guarantor  and the  same is not  withdrawn,  dismissed,
         canceled or terminated within sixty (60) days;

                  (k) Grantor or a Guarantor makes an assignment for the benefit
         of  creditors  or files or  consents  to the  filing of a  petition  in
         bankruptcy or for protection  under any Debtor Relief Laws or commences
         or consents to the  commencement  of any  proceeding  under the Federal
         Bankruptcy  Code or any other federal or state law, now or hereafter in
         effect,  relating to the  reorganization of Grantor,  or a Guarantor or
         the  arrangement  or  rearrangement  or  readjustment  of the  debts of
         Grantor or a Guarantor or having the effect of enjoining or staying the
         exercise of rights or remedies by creditors,  it being  understood that
         the filing  against  any such entity of such a petition by a partner of
         such  entity,  shall be deemed to be a filing  with the consent of such
         entity;

                  (l) There is an attachment or  sequestration of or relating to
         a portion of the Mortgaged  Property with a value of more than $500,000
         and the same is not promptly discharged within thirty (30) days;

                  (m) Grantor  ceases to do business or terminates  its business
         of owning and operating a warehouse and general offices on the Land for
         any reason whatsoever;

                  (n) A material  default occurs under any other  agreement that
         Grantor  or any  Guarantor  has  with  Beneficiary,  and  such  default
         continues beyond any applicable grace period and for a period of thirty
         (30) days after Beneficiary  delivers written notice of such default to
         Grantor;

<PAGE>

                  (o) Any suit is filed  against  Grantor  which,  if  adversely
         determined,  could  substantially  impair  the  ability  of  Grantor to
         perform  each and every one of its  obligations  under and by virtue of
         the  Security  Documents,  and  Grantor  fails to answer  such suit and
         diligently prosecute the defense of such suit;

                  (p) Grantor shall default or breach any material  Governmental
         Requirements  pertaining  to the Mortgaged  Property,  and such default
         continues for a period of thirty (30) days after  Beneficiary  delivers
         written notice of such default to Grantor;

                  (q)  Grantor  shall  be in  default  under  the  terms  of any
         document evidencing or securing payment of a debt in excess of $100,000
         secured by any lien or security  interest on the Mortgaged  Property or
         Improvements (without implying  Beneficiary's consent to the existence,
         placing,  creating or permitting of any lien or security  interest) and
         such default  continues for a period of thirty (30) days after delivery
         of written notice thereof from Beneficiary to Grantor;

                  (r)  The   dissolution   of  Grantor   without  the  immediate
         reconstitution  of  Grantor  in a manner so that  Beneficiary's  rights
         hereunder,  and  Grantor's  operations  are  not  materially  adversely
         affected; and

                  (s)  Any   substantial   damage  to  or   destruction  of  the
         Improvements  shall occur and insurance  proceeds  (together with other
         funds  available for such purpose,  including  funds of Grantor)  shall
         not, in the reasonable opinion of Beneficiary, be sufficient to restore
         or repair the  Improvements  and pay all extra cost to be incurred such
         as  additional  interest,  or if insurance  proceeds  shall not be paid
         within one hundred  twenty (120) days after the date of such  casualty,
         or if Grantor shall fail to promptly  commence repair or restoration of
         the Improvements  and/or thereafter not diligently complete such repair
         and  restoration  within a reasonable  time any of which continue for a
         period of thirty (30) days after  written  notice of such  default from
         Beneficiary to Grantor.

         As used in this  Section  6.1, the term control as used with respect to
any  person or  entity  shall  mean the  possession  of the power to direct  the
management and policies of such entity.

                                   ARTICLE VII

                             DEFAULT AND FORECLOSURE

         VII.1 Remedies:  If an Event of Default shall occur and shall continue,
Beneficiary  may,  at  Beneficiary's  election  and by and  through  Trustee  or
otherwise, exercise any or all of the following rights, remedies and recourses:


<PAGE>

                  (a)  Acceleration  and  Future  Advances:  Declare  the entire
         Indebtedness,  Principal  Balance  (defined  hereby as meaning the then
         unpaid  principal  balance  on the funds  advanced  under the Letter of
         Credit), the accrued interest and any other accrued but unpaid interest
         thereon, court costs, and attorney's fees hereunder immediately due and
         payable,  without  (except as  specifically  set forth herein)  notice,
         presentment,  protest,  notice  of  intent  to  accelerate,  notice  of
         acceleration,  demand or action of any nature whatsoever (each of which
         hereby is expressly waived by Grantor), whereupon the same shall become
         immediately  due and payable.  Additionally,  Beneficiary  shall not be
         required  to make any  further  advances  under the Letter of Credit or
         other Security  Documents upon the occurrence of an Event of Default or
         an event  which,  with the giving of notice or  passing of time,  would
         constitute an Event of Default.

                  (b) Entry on Mortgaged  Property:  To the extent  permitted by
         law, with prior notice to Grantor,  enter upon the  Mortgaged  Property
         and take  exclusive  possession  thereof and of all books,  records and
         accounts relating thereto without being guilty of trespass.  If Grantor
         remains  in  possession  of all or any part of the  Mortgaged  Property
         after an Event of  Default  and  without  Beneficiary's  prior  written
         consent thereto, Beneficiary may, without notice to Grantor, invoke any
         and all legal remedies to dispossess  Grantor,  including  specifically
         one or more actions for forcible  entry and  detainer,  trespass to try
         title  and writ of  restitution.  Nothing  contained  in the  foregoing
         sentence shall,  however, be construed to impose any greater obligation
         or any prerequisites to acquiring  possession of the Mortgaged Property
         after an Event of Default  than would  have  existed in the  absence of
         such sentence.

                  (c)  Operation of Mortgaged  Property:  Hold,  lease,  manage,
         operate or otherwise use or permit the use of the  Mortgaged  Property,
         either itself or by other persons,  firms or entities,  in such manner,
         for such time and upon such other terms as  Beneficiary  may deem to be
         prudent and reasonable  under the  circumstances  (making such repairs,
         alterations,  additions and improvements thereto and taking any and all
         other action with reference thereto,  from time to time, as Beneficiary
         shall  deem  necessary  or  desirable)  and  apply  all Rents and other
         amounts collected by Trustee in connection therewith in accordance with
         the provisions of paragraph 7.4 herein.


<PAGE>

                  (d)  Foreclosure  and  Sale:  Upon  the  acceleration  of  the
         Indebtedness,  or at any time thereafter, the Trustee, or his successor
         or substitute as hereinafter  provided,  at the request of Beneficiary,
         may enforce this trust and execute the power of sale herein  granted in
         accordance with applicable law. After  advertising the time,  place and
         terms of the sale of the Mortgaged Property and mailing notices to such
         parties and in such form as may then be required by law, and  otherwise
         complying with applicable laws affecting foreclosure by exercise of the
         power of sale  granted  herein,  the Trustee  shall sell the  Mortgaged
         Property at public auction in accordance  with such  advertisement  and
         notices at the time and place specified therein,  to the highest bidder
         for cash,  selling all of the  Mortgaged  Property as an entirety or in
         such parcels as the Trustee may elect,  and make due  conveyance to the
         purchaser  or  purchasers.  The  recitals  in  the  conveyance  to  the
         purchaser or purchasers  shall be full and  conclusive  evidence of the
         truth of the matters therein  stated,  all  prerequisites  to said sale
         shall be presumed to have been  performed in  accordance  with law, and
         such sale and  conveyance  shall be  conclusive  against  Grantor,  its
         heirs, successors and assigns.

                  (e)  Trustee  or  Receiver:   Upon,  or  at  any  time  after,
         commencement of foreclosure of the lien and security  interest provided
         for herein or any legal  proceedings  hereunder,  make application to a
         court of  competent  jurisdiction,  as a matter  of  strict  right  and
         without  notice to Grantor or regard to the  adequacy of the  Mortgaged
         Property for the repayment of the  Indebtedness,  for  appointment of a
         receiver of the Mortgaged Property, and Grantor does hereby irrevocably
         consent to such appointment. Any such receiver shall have all the usual
         powers and duties of receivers  in similar  cases,  including  the full
         power to rent,  maintain and otherwise  operate the Mortgaged  Property
         upon such terms as may be approved  by the court,  and shall apply such
         Rents in accordance with the provisions of paragraph 7.4 herein.

                  (f) Other:  Exercise  any and all other  rights,  remedies and
         recourses  granted  under the  Security  Documents  or now or hereafter
         existing  in  equity,  at law,  by  virtue  of  statute  or  otherwise,
         including, without limiting the generality of the foregoing:

                           (i) to the  extent  permitted  by  law,  institute  a
                  proceeding  or  proceedings,  judicial or  otherwise,  for the
                  complete  foreclosure  of this Deed of Trust as a mortgage  or
                  otherwise  under any applicable  provision of law, in addition
                  to the  statutory  power  of sale  and all  other  rights  and
                  remedies hereunder;

                           (ii)  institute a proceeding or  proceedings  for the
                  partial foreclosure of this Deed of Trust under any applicable
                  provision of law for the portion of the Indebtedness  then due
                  and  payable,  subject  to the  lien  of this  Deed  of  Trust
                  continuing  unimpaired  and without loss of priority to secure
                  the balance of the Indebtedness not then due and payable;

                           (iii) to the extent permitted by applicable law, sell
                  the Mortgaged Property, and all estate, right, title interest,
                  claim  and  demand  of  Grantor  therein,  and  all  right  of
                  redemption thereof, at one or more sales, as an entirety or in
                  parcels,  with such elements of real and/or personal  property
                  (and, to the extent  permitted by applicable law,  Beneficiary
                  may  elect to deem all of the  Mortgaged  Property  to be real
                  property for the purposes thereof), and at such time and place
                  and upon  such  terms as it may deem  expedient,  or as may be
                  required by  applicable  law,  and in the event of a sale,  by
                  foreclosure  or  otherwise,  of less than all of the Mortgaged
                  Property,  this  Deed of Trust  shall  continue  as a lien and
                  security  interest on the  remaining  portion of the Mortgaged
                  Property;


<PAGE>

                           (iv)  institute  an  action,  suit or  proceeding  in
                  equity for the specific  performance  of any of the provisions
                  contained in the Reimbursement  Agreement,  this Deed of Trust
                  or any other of the Security Documents;

                           (v) sue and recover a judgment on the Indebtedness as
                  the same become due and payable,  or on account of any default
                  or defaults by Grantor under the Reimbursement Agreement, this
                  Deed of Trust or any other of the Security Documents;

                           (vi)  release any portion of the  Mortgaged  Property
                  for such consideration as Beneficiary may reasonably  require,
                  without, as to the remainder of the Mortgaged Property, in any
                  way  impairing or affecting  the lien or priority of this Deed
                  of  Trust,  or  improving  the  position  of  any  subordinate
                  lienholder with respect thereto, except to the extent that the
                  Indebtedness  shall have been  reduced by the actual  monetary
                  consideration,  if  any,  received  by  Beneficiary  for  such
                  release, and may accept by assignment, pledge or otherwise any
                  other  property in place  thereof as  Beneficiary  may require
                  without  being  accountable  for so doing to any other lienor;
                  and/or

                           (vii) take all  actions  permitted  under the Uniform
                  Commercial  Code of the state in which the Mortgaged  Property
                  is located.

         If  Beneficiary  exercises  any of the  rights  or  remedies  set forth
herein, Beneficiary shall not be deemed to have entered upon or taken possession
of the  Mortgaged  Property  except  upon the  exercise  of its option to do so,
evidenced by its demand and overt act for such purposes,  nor shall  Beneficiary
be  deemed  a  mortgagee  in  possession  by  reason  of such  entry  or  taking
possession.  Beneficiary  will not be liable to  account  for any  action  taken
pursuant to any such exercise  other than for rents  actually  received,  nor be
liable for any loss  sustained by Grantor  resulting from any failure to let the
Mortgaged Property, nor from any other act or omission of Beneficiary, except to
the extent such loss is caused by the willful  misconduct or gross negligence of
Beneficiary.  Grantor hereby  consents to, ratifies and confirms the exercise by
Beneficiary  of said rights and remedies and appoints  Beneficiary  as Grantor's
attorney-in-fact,  which  appointment  shall be  deemed  to be  coupled  with an
interest and is irrevocable for such purposes.

         VII.2 Expenses: In any proceeding,  judicial or otherwise, to foreclose
this  Deed of Trust or  enforce  any  other  remedy  of  Beneficiary  under  the
Reimbursement  Agreement,  this Deed of Trust or any other  Security  Documents,
there  shall  be  allowed  and  included  as an  addition  to and a part  of the
Indebtedness  in the decree for sale or other  judgment or decree all reasonable
expenditures and expenses,  including attorneys' fees and court costs, which may
be paid or incurred in connection with the exercise by Beneficiary of any of its
rights and remedies and the same shall be secured by this Deed of Trust.


<PAGE>

         VII.3 Rights  Pertaining to Sales: The following  provisions  shall, to
the extent permitted by law, apply to any sale or sales of all or any portion of
the Mortgaged  Property under or by virtue of this Deed of Trust,  whether under
the power of sale herein  granted or by virtue of judicial  proceedings  or of a
judgment or decree of foreclosure and sale:

         (A)  Trustee  may  conduct  any number of sales from time to time.  The
power of sale shall not be  exhausted by any one or more of such sales as to any
part of the  Mortgaged  Property that have not been sold, or by any sale that is
not  completed or is defective  until the  Indebtedness  shall have been paid in
full.

         (B) Any sale may be postponed or  adjourned by public  announcement  at
the time and place  appointed  for such sale or for such  postponed or adjourned
sale,  and sale may be  completed  at the time and  place so  announced  without
further notice.

         (C) After each sale, Trustee,  his successors and assigns or an officer
of any court empowered to do so, shall, as required by law,  execute and deliver
to the purchaser or purchasers at such sale a good and sufficient  instrument or
instruments granting,  conveying, and assigning the property and rights sold and
shall  receive  the  proceeds of such sale or sales and apply the same as herein
provided.  Beneficiary is hereby appointed the true and lawful  attorney-in-fact
of Grantor,  which  appointment is irrevocable and shall be deemed to be coupled
with  an  interest,   in  Grantor's  name  and  stead,  to  make  all  necessary
conveyances, assignments, transfers and deliveries of the property and rights so
sold, and for that purpose Beneficiary may execute all necessary  instruments to
accomplish the same, and may substitute one or more persons with like power, and
Grantor hereby  ratifies and confirms all that said attorney or such  substitute
or substitutes shall lawfully do by virtue thereof.  Nevertheless,  Grantor,  if
requested  by  Beneficiary,  shall  ratify and confirm any such sale or sales by
executing and delivering to  Beneficiary  or such  purchaser or  purchasers,  as
applicable, all such instruments as may be advisable, in Beneficiary's judgment,
for the purposes designated in such request.

         (D) Any and all statements of fact or other recitals made in any of the
instruments  referred to in Subsection  (C) of this Section given by Beneficiary
concerning  nonpayment of the Indebtedness,  occurrence of any Event of Default,
any  declaration by Beneficiary  that all or any of the  Indebtedness is due and
payable,  any request to sell, any representation that notice of time, place and
terms of sale and  property  or  rights to be sold was duly  given,  or that any
other act or thing was duly done by  Beneficiary,  shall be taken as prima facie
evidence of the truth of the facts so stated and recited.


<PAGE>

         (E) The  receipt of  Trustee  for the  purchase  money paid at any such
sale, or the receipt of any other person  authorized to give the same,  shall be
sufficient discharge therefor to any purchaser of any property or rights sold as
aforesaid, and no purchaser, or its representatives,  grantees or assigns, after
paying such purchase price and receiving such receipt,  shall be bound to see to
the application of such purchase price or any part thereof upon or for any trust
or purchase of this Deed of Trust or, in any manner  whatsoever,  be  answerable
for any loss,  misapplication  or  nonapplication of any such purchase money, or
part  thereof,  or be  bound  to  inquire  as to the  authorization,  necessity,
expediency or regularity of any such sale.

         (F) Any such sale or sales  shall  operate to divest all of the estate,
right,  title,  interest,  claim and  demand  whatsoever,  whether  at law or in
equity,  of Grantor in and to the  properties and rights so sold, and shall be a
perpetual bar both at law and in equity against  Grantor and any and all persons
claiming or who may claim the same,  or any part thereof,  by,  through or under
Grantor to the fullest extent permitted by applicable law.

         (G) Upon any such sale or sales,  Beneficiary  may bid for and  acquire
the Mortgaged Property and, in lieu of paying cash therefor, may make settlement
for the purchase price by crediting  against the  Indebtedness the amount of the
bid made therefor,  after deducting therefrom the expenses of the sale, the cost
of any enforcement  proceeding  hereunder and any other sum which Beneficiary is
authorized  to charge to Grantor  under the terms of this Deed of Trust,  to the
extent necessary to satisfy such bid.

         (H) In the event that Grantor,  or any person  claiming by,  through or
under Grantor,  shall transfer or refuse or fail to surrender  possession of the
Mortgaged Property after any sale thereof,  then Grantor or such person shall be
deemed a tenant at sufferance of the purchaser at such sale, subject to eviction
by means of unlawful detainer proceedings or other appropriate proceedings,  and
to any other right or remedy available hereunder or under applicable law.

         (I)  Upon  any  such  sale,  it shall  not be  necessary  for  Trustee,
Beneficiary or any public  officer  acting under  execution or order of court to
have present or  constructively  in its  possession  any or all of the Mortgaged
Property.

         (J) In the event of any sale  referred to in this  Section,  all of the
Indebtedness,  if not previously due and payable,  immediately  thereupon shall,
notwithstanding  anything to the contrary in the Reimbursement  Agreement,  this
Deed of Trust or any other Security Documents, become due and payable.

         (K) This instrument shall be effective as a mortgage.  If a foreclosure
hereunder shall be commenced by Trustee, Beneficiary may, at any time before the
sale of the Mortgaged Property,  direct the Trustee to abandon the sale, and may
institute suit for the collection of the Indebtedness and for the foreclosure of
this Deed of Trust.  If Beneficiary  shall  institute suit for the collection of
the Indebtedness, and for the foreclosure of this Deed of Trust, Beneficiary may
at any time before the entry of final judgment in said suit dismiss the same and
direct  the  Trustee  to sell the  Mortgaged  Property  in  accordance  with the
provisions of this Deed of Trust. Beneficiary may pursue its rights and remedies
against any guarantor or other party liable for any of the  Indebtedness in such
a suit for  foreclosure or by separate suit,  whether or not the Trustee is also
pursuing a sale under the terms hereof.


<PAGE>

         VII.4 Application of Proceeds:  The purchase money,  proceeds or avails
of any sale,  together  with any  other  sums  which may be held by  Beneficiary
hereunder,  whether under the  provisions  of this Article or otherwise,  shall,
except as herein expressly provided to the contrary, be applied as follows:

         FIRST:  To the  payment  of the costs and  expenses  of any such  sale,
including the  commission or statutory fee payable to Trustee,  compensation  to
Beneficiary, its agents and counsel, and all other liabilities and advances made
or incurred by Beneficiary or Trustee hereunder,  together with interest thereon
as provided  herein,  and all taxes,  assessments and other charges,  except any
taxes,  assessments  or other charges  subject to which the  Mortgaged  Property
shall have been sold.

         SECOND:  Ratably, to the payment in full of the Indebtedness (including
principal,  interest,  and  other sums  owed in  such order  as Beneficiary  may
elect).

         THIRD:  To the extent  permitted by applicable  law, to be set aside by
Beneficiary  as adequate  security in its judgment for the payment of sums which
would have been paid by  application  under  clauses  First and Second  above to
Beneficiary,  arising out of an  obligation  or liability  with respect to which
Grantor has agreed to  indemnify  it, but which sums are not yet due and payable
or liquidated;

         FOURTH:   The surplus,  if any, to  whomsoever may be lawfully entitled
thereto.

         VII.5  Additional  Remedial  Provisions:  (A) No right or remedy herein
conferred  upon or reserved to  Beneficiary  is intended to be  exclusive of any
other  right or  remedy,  and each  and  every  such  right or  remedy  shall be
cumulative and  continuing,  shall be in addition to every other right or remedy
given under the Reimbursement Agreement,  this Deed of Trust or any other of the
Security  Documents or now or hereafter existing at law or in equity, and may be
exercised  from  time  to  time  and as  often  as may be  deemed  expedient  by
Beneficiary.

         (B) No delay or omission by Beneficiary to exercise any right or remedy
hereunder upon an Event of Default shall impair such  exercise,  or be construed
to be a waiver of any such Event of Default or an acquiescence therein.

         (C) The  failure,  refusal  or  waiver by  Beneficiary  of its right to
assert  any  right or  remedy  hereunder  upon any  Event  of  Default  or other
occurrence shall not be construed as waiving such right or remedy upon any other
or subsequent Event of Default or other occurrence.

         (D)  Beneficiary  shall not have any obligation to pursue any rights or
remedies it may have under any other agreement,  the Reimbursement  Agreement or
any other of the  Security  Documents  prior to pursuing  its rights or remedies
under  the  Reimbursement  Agreement,  this  Deed of Trust  or any  other of the
Security Documents.

<PAGE>

         (E) No  recovery  of any  judgment  by  Beneficiary  and no  levy of an
execution  upon the  Mortgaged  Property or any other  property of Grantor shall
affect,  in any manner or to any extent,  the lien and security interest of this
Deed of Trust upon the Mortgaged  Property,  and any liens,  rights,  powers and
remedies shall continue unimpaired as before.

         (F)  Beneficiary may resort to any security given by this Deed of Trust
or  any  other   security  now  given  or  hereafter   existing  to  secure  the
Indebtedness, in whole or in part, in such portions and in such order as it may,
in its discretion, elect, and no such election shall be construed as a waiver of
any of the liens, rights or benefits granted hereunder.

         (G) Nothing in the Reimbursement  Agreement,  this Deed of Trust or any
other of the Security Documents shall be deemed a waiver or a cure of such Event
of Default, and acceptance of any payment less than any amount then due shall be
deemed an acceptance on account only.

         (H) In the event that  Beneficiary  shall have proceeded to enforce any
right or remedy  hereunder by foreclosure,  sale,  entry or otherwise,  and such
proceeding shall be discontinued,  abandoned, defectively performed or completed
or  determined  adversely  to  Beneficiary  for any  reason,  then  Grantor  and
Beneficiary  shall be restored to their former  positions  and rights  hereunder
with respect to the Mortgaged Property, subject to the lien hereof.

         VII.6 Waiver of Rights and Defenses:  To the full extent Grantor may do
so, Grantor agrees with Beneficiary as follows:

         (A) Grantor  hereby  waives and will not at any time insist on,  plead,
claim or take the  benefit  or  advantage  of any  statute or rule of law now or
hereafter in force providing for any appraisement,  valuation,  stay, extension,
moratorium or redemption,  or of any statute of  limitations,  and Grantor,  for
itself and its successors and assigns, and for any and all persons ever claiming
an interest in the Mortgaged Property,  hereby waives and releases all rights of
redemption,  valuation,  appraisement,  notice of intention to mature or declare
due the whole of the Indebtedness,  and all rights to a marshaling of the assets
of Grantor,  including the Mortgaged Property,  or to a sale in inverse order of
alienation,  in the event of  foreclosure  of the liens and  security  interests
created hereunder.

         (B) Grantor  hereby waives and shall not have or assert the matters set
forth in subsection (A) of this Section,  or to any other matters  whatsoever to
defeat, reduce or affect any of the rights or remedies of Beneficiary hereunder,
including sale of the Mortgaged  Property for the collection of the Indebtedness
and the payment of the Indebtedness out of the proceeds of sale of the Mortgaged
Property in preference to any other person.


<PAGE>

         (C) If any statute or rule of law  referred to in this  Section and now
in force,  of which  Grantor or any of its  successors of assigns and such other
persons  claiming any interest in the Mortgaged  Property  might take  advantage
despite this Section,  shall hereafter be repealed or cease to be in force, such
statute  or  rule  of law  shall  not  thereafter  be  deemed  to  preclude  the
application of this Section.

         (D)  Grantor  shall  not be  relieved  of  its  obligation  to pay  the
Indebtedness  or perform the  Obligations at the time and in the manner provided
in the Reimbursement Agreement,  this Deed of Trust or any other of the Security
Documents,  nor shall the lien,  security  interest  or priority of this Deed of
Trust or any other of the Security Documents be impaired by any of the following
actions, nonactions or indulgences by Beneficiary:

                  (i) any failure or refusal by  Beneficiary  to comply with any
         request by Grantor,  or to consent to any action by Grantor, or to take
         any action to foreclose this Deed of Trust or otherwise  enforce any of
         the  provisions  of this  Deed of  Trust or any  other of the  Security
         Documents;

                  (ii) any release, regardless of consideration, of the whole or
         any  part of the  Mortgaged  Property  or any  other  security  for the
         Indebtedness, or any person liable for payment of the Indebtedness;

                  (iii) any waiver by  Beneficiary of compliance by Grantor with
         any provision of the Reimbursement Agreement, this Deed of Trust or any
         other of the  Security  Documents,  or  consent by  Beneficiary  to the
         performance  by  Grantor  of  any  action  which  would   otherwise  be
         prohibited  hereunder  or  thereunder,  or to the failure by Grantor to
         take  any  action  which  would  otherwise  be  required  hereunder  or
         thereunder; and

                  (iv) any agreement or stipulation,  with or without  Grantor's
         consent,  between Beneficiary and any subsequent owner or owners of the
         Mortgaged   Property  or  any  other  security  for  the  Indebtedness,
         renewing,  extending or  modifying  the time of payment or the terms of
         the  Reimbursement  Agreement,  this  Deed of Trust or any other of the
         Security Documents (including a modification of any interest rate), and
         in any such event  Grantor  shall  continue to be  obligated to pay the
         Indebtedness   at  the  time  and  in  the  manner   provided   in  the
         Reimbursement  Agreement,  this  Deed of  Trust  and the  other  of the
         Security  Documents  as  so  renewed,   extended  or  modified,  unless
         expressly released and discharged by Beneficiary.


<PAGE>
                                  ARTICLE VIII

                                  CONDEMNATION


         VIII.1  Application of Proceeds:  If the Mortgaged Property or any part
thereof,  shall be condemned or otherwise taken for public or  quasi-public  use
under the power of  eminent  domain,  or be  transferred  in lieu  thereof,  all
damages or other  amounts  awarded for the taking,  or injury to, the  Mortgaged
Property  (the  "Award")  shall be paid to  Beneficiary.  To enforce  its rights
hereunder,  Beneficiary  shall be entitled to  participate  in any  condemnation
proceedings  and to be  represented  therein by counsel of its own  choice,  and
Grantor will deliver, or cause to be delivered,  to Beneficiary such instruments
as may be requested by it from time to time to permit such participation.

         In case of a taking  in which  the cost of the  restoration,  repair or
replacement  (hereinafter  referred to as the  "Restoration")  of the  Mortgaged
Property  estimated by Beneficiary  shall not exceed  $1,000,000 then such Award
may be used for the  prosecution of the  Restoration  in the manner  hereinafter
provided.  If the cost of the Restoration  estimated by Beneficiary shall exceed
$1,000,000,  Beneficiary, at its option, shall be entitled to receive and retain
the Award,  applying the same upon the  Indebtedness.  In the event  Beneficiary
elects to make such Award  available to Grantor for such  purpose,  Grantor will
(if such work is necessary to the continued  operation of the Mortgaged Property
as determined  by  Beneficiary  in its  reasonable  discretion)  promptly and at
Grantor's  sole cost and  expense and  regardless  of whether the Award (if any)
shall be  sufficient  for the  purpose,  commence  and  continue  diligently  to
completion to restore,  repair,  replace and rebuild the  Mortgaged  Property as
nearly as possible to its value,  condition and character  immediately  prior to
such taking subject to the conditions and  restrictions  applicable to Grantor's
use of  insurance  proceeds  contained  in the second  paragraph  of Section 4.7
above.

         In the event the Award exceeds the cost of any work to restore, repair,
replace and rebuild the Mortgaged  Property,  following  completion of such work
Beneficiary  shall apply such excess to the  Indebtedness or, pay such excess to
Grantor  if  Grantor  furnishes  Beneficiary  with an  appraisal  acceptable  to
Beneficiary  concluding  that  the  appraised  value of the  Mortgaged  Property
following  such  taking  and  work  is at  least  two  times  the sum of (i) the
outstanding  balance of the funds advanced  pursuant to the Letter of Credit and
(ii) the remaining  amount which  Beneficiary  may be obligated to advance under
the Letter of Credit pursuant to the Reimbursement Agreement.


<PAGE>
                                   ARTICLE IX

                               SECURITY AGREEMENT

         IX.1 Security Interest: This Deed of Trust shall be construed as a Deed
of Trust on real property,  and it shall also constitute and serve as a security
agreement on personal property within the meaning of, and shall constitute until
the grant of this Deed of Trust  shall  terminate  as  provided  in  Article  II
hereof,  a first and prior pledge and  assignment and a first and prior security
interest under the Missouri  Uniform  Commercial  Code as to the property within
the scope  thereof and  situated in the State of  Missouri  with  respect to the
Personalty,  Fixtures,  Leases and Rents subject to the Permitted  Encumbrances.
Grantor has granted, bargained,  conveyed,  assigned,  transferred and set over,
and by these presents does grant, bargain, convey, assign, transfer and set over
unto Beneficiary a first and prior security  interest in and to all of Grantor's
right, title and interest in, to and under the Personalty,  Leases and Rents, to
secure the full and timely payment of the  Indebtedness  and the full and timely
performance and discharge of the Obligations.  Upon an Event of Default, Grantor
shall gather all of the  Mortgaged  Property  which is  Personalty at a location
designated by Beneficiary for sale pursuant to the terms hereof.

         IX.2  Financing  Statements:  Grantor  shall  execute  and  deliver  to
Beneficiary,  in form and substance satisfactory to Beneficiary,  such financing
statements and such further  assurances as  Beneficiary  may, from time to time,
consider  reasonably  necessary to create,  perfect and  preserve  Beneficiary's
security interest herein granted,  and Beneficiary may cause such statements and
assurances  to be recorded and filed at such times and places as may be required
or permitted by law to so create,  perfect and preserve such security  interest.
Pursuant to the  Missouri  Uniform  Commercial  Code this Deed of Trust shall be
effective as a Financing  Statement  filed as a fixture  filing from the date of
its filing for record  covering the Fixtures and  Personalty.  The  addresses of
Grantor, as Debtor, and Beneficiary,  as Secured Party, are as set forth herein.
The above described goods are or are to become fixtures  related to the Land and
Improvements of which Grantor is record title owner.

         IX.3 Uniform  Commercial Code Remedies:  Trustee and Beneficiary  shall
have all the rights,  remedies and  recourses  with  respect to the  Personalty,
Fixtures,  Leases and Rents  afforded a secured party by the aforesaid  Missouri
Uniform  Commercial  Code in addition  to, and not in  limitation  of, the other
rights, remedies and recourses afforded by the Security Documents and at law.

         IX.4 No  Obligation  of  Trustee or  Beneficiary:  The  assignment  and
security  interest herein granted shall not be deemed or construed to constitute
Trustee or Beneficiary as a trustee in possession of the Mortgaged Property,  to
obligate Trustee or Beneficiary to operate the Mortgaged  Property or attempt to
do the same,  or take any action,  incur  expenses or perform or  discharge  any
obligation, duty or liability whatsoever under any of the Leases or otherwise.

                                    ARTICLE X

                             CONCERNING THE TRUSTEE

         X.1 No Liability: Trustee shall not be liable for any error or judgment
or act done by Trustee or be otherwise  responsible  or  accountable  except for
Trustee's  gross  negligence  or  willful  misconduct.   Trustee  shall  not  be
personally  liable  in case of entry by him or  anyone  acting  by virtue of the
powers herein  granted him upon the Mortgaged  Property for debts  contracted or
liability or damages  incurred in the  management  or operation of the Mortgaged
Property.  Trustee shall have the right to rely on any  instrument,  document or
signature  authorizing or supporting any action taken or proposed to be taken by
him  hereunder or believed by him in good faith to be genuine.  Trustee shall be
entitled to reimbursement for expenses incurred by him in the performance of his
duties hereunder.


<PAGE>

         X.2 Retention of Monies:  All monies  received by Trustee shall,  until
used or applied as herein provided,  be held in trust for the purposes for which
they were  received,  but need not be  segregated  in any manner  from any other
monies  (except to the extent  required by law),  and Trustee  shall be under no
liability for interest on any monies received by him hereunder.

         X.3  Successor  Trustee:  Trustee may resign by the giving of notice of
such  resignation  in writing to  Beneficiary.  If trustee shall die,  resign or
become  disqualified from acting in the execution of this Trust or shall fail or
refuse to exercise the same when requested by Beneficiary so to do or if for any
reason and  without  cause  Beneficiary  shall  prefer to  appoint a  substitute
trustee to act  instead  of the  original  Trustee  named  herein,  or any prior
successor or substitute trustee,  Beneficiary shall have full power to appoint a
substitute trustee and, if preferred,  several substitute trustees in succession
who shall succeed to all the estate, rights, powers and duties of the aforenamed
Trustee.  If any  notice  of a  foreclosure  sale  hereunder  has  been  sent or
published,  or is being  published,  when such  appointment  of a  successor  or
substitute  Trustee is made,  the successor or  substitute  Trustee may complete
said sale at the time and place  designated in such notice without the necessity
of sending or publishing further notice.

         X.4 Succession  Instruments:  Any new Trustee appointed pursuant to any
of the  provisions  hereof shall,  without any further act, deed or  conveyance,
become vested with all the estates, properties, rights, powers and trusts of its
or his  predecessor  in the rights  hereunder  with like effect as if originally
named as  Trustee  herein;  but,  nevertheless,  upon  the  written  request  of
Beneficiary or his successor  trustee,  Trustee ceasing to act shall execute and
deliver an instrument  transferring  to such successor  trustee,  upon the trust
herein  expressed,  all the estates,  properties,  rights,  powers and trusts of
Trustee so ceasing to act,  and shall duly  assign,  transfer and deliver any of
the property and monies held by Trustee to the successor trustee so appointed in
its or his place.

         X.5 Performance of Duties by Agents:  Trustee may authorize one or more
parties to act on his behalf to perform the  ministerial  functions  required of
him hereunder, including, without limitation, the transmittal and posting of any
notices.

                                   ARTICLE XI

                                  MISCELLANEOUS

         XI.1 Survival of  Obligations:  Each and all of the  Obligations  shall
survive  the  execution   and  delivery  of  the  Security   Documents  and  the
consummation of the loan called for therein and shall continue in full force and
effect until the Indebtedness shall have been paid in full.

<PAGE>

         XI.2  Further  Assurances:  Grantor,  upon the  request  of  Trustee or
Beneficiary,  will  execute,  acknowledge,  deliver and record  and/or file such
further  instruments  and do such further acts as may  reasonably  be necessary,
desirable or proper to carry out more  effectively  the purposes of the Security
Documents,  to subject to the liens and security  interests thereof any property
intended by the terms thereof to be covered  thereby,  including,  specifically,
without  limitation,  any renewals,  additions,  substitutions,  replacements or
appurtenances to the Mortgaged Property,  and to complete,  execute,  record and
file any document or  instrument  necessary to place third  parties on notice of
the liens and security interests granted under the Security  Documents.  Grantor
hereby irrevocably appoints Trustee and Beneficiary as its agents to execute and
deliver all such instruments and additionally to record and file any of the same
as may be necessary.

         XI.3  Recording and Filing:  Grantor will cause the Security  Documents
and all  amendments and  supplements  thereto and  substitutions  therefor to be
recorded,  filed,  re-recorded  and refiled in such manner and in such places as
Trustee or Beneficiary shall reasonably request and will pay all such recording,
filing, re-recording and refiling taxes, fees and other charges.

         XI.4 Notices:  Any notice,  request or other communication  required or
permitted to be given  hereunder may be given and shall  conclusively  be deemed
and  considered  to have been given and received  upon the deposit  thereof,  in
writing,  in the U.S. Mails,  certified mail, return receipt requested,  postage
prepaid,  and  addressed  to the party to receive such notice at the address set
forth  below or such  address  elected in  writing by the party to receive  such
notice; but actual notice however given or received,  shall always be effective.
The last  preceding  sentence  shall not be  construed  in  anywise to effect or
impair the waiver of notice or demand to or upon Grantor in any situation or for
any reason (except as otherwise specifically provided).


         If to Grantor:                       K-V Pharmaceutical Company
                                              2503 South Hanley Road
                                              St. Louis, Missouri 63144
                                              Attn: Gerald R. Mitchell

         with copy to:                        Gallop, Johnson & Neuman, L.C.
                                              Interco Corporate Tower
                                              101 South Hanley
                                              St. Louis, Missouri 63105
                                              Attn: John P. Walsh, Esq.

         If to Beneficiary:                   LaSalle National Bank
                                              135 South LaSalle Street
                                              Chicago, Illinois 60603

         Attn:  Chip Schroederwith            Vedder, Price, Kaufman & Kammholz
         copy to:                             222 North LaSalle Street
                                              Suite 2300
                                              Chicago, Illinois 60601
                                              Attn: Michael A. Nemeroff, Esq.

<PAGE>

         XI.5 No Waiver: Any failure by Trustee or Beneficiary to insist, or any
election by Trustee or  Beneficiary  not to insist,  upon strict  performance by
Grantor of any of the terms,  provisions or conditions of the Security Documents
shall not be deemed to be a waiver of the same or of any other  term,  provision
or condition  thereof,  and Trustee or  Beneficiary  shall have the right at any
time or times thereafter to insist upon strict performance by Grantor of any and
all of such terms, provisions and conditions.

         XI.6 Beneficiary's Right to Pay Indebtedness and Pay Obligations: If an
Event of  Default  shall  occur  and be  continuing  under  any of the  Security
Documents,  then at any time  thereafter and without further notice to or demand
upon Grantor or any other party,  without  waiving or releasing any other right,
remedy or recourse  Beneficiary  may have because of the same,  Beneficiary  may
(but shall not be  obligated  to) make such  payment or perform such act for the
account of and at the  expense of Grantor and shall have the right to enter upon
the Mortgaged Property for such purpose and to take all such action thereon with
respect to the  Mortgaged  Property  as it may deem  necessary  or  appropriate.
Grantor  shall be obligated  to repay  Beneficiary  for all sums  advanced by it
pursuant  to this  Paragraph  11.6 and  shall  indemnify  and  hold  Beneficiary
harmless from and against any and all loss, cost, expense, liability, damage and
claims and causes of action,  including reasonable  attorney's fees, incurred or
accruing by any acts performed by Beneficiary pursuant to the provisions of this
Paragraph  11.6 or by reason of any other  provision of the Security  Documents.
All sums paid by Beneficiary  pursuant to this Paragraph 11.6 and all other sums
expended  by  Beneficiary  to  which it shall  be  entitled  to be  indemnified,
together  with  interest  thereon  at  the  "Default  Rate"  as  defined  in the
Reimbursement  Agreement  from the date of such  payment or  expenditure,  shall
constitute  additions to the Indebtedness  and Obligations,  shall be secured by
the Security Documents and shall be paid by Grantor to Beneficiary upon demand.

         XI.7 Covenants Running with the Land: All obligations  contained in the
Security  Documents  are intended by the parties to be and shall be construed as
covenants running with the Mortgaged Property.

         XI.8 Successors and Assigns: All of the terms of the Security Documents
shall apply to, be binding upon and inure to the benefit of the parties thereto,
their respective  successors,  assigns,  heirs and legal representatives and all
other persons claiming by, through or under them.


<PAGE>

         XI.9 Severability:  The Security Documents are intended to be performed
in accordance  with, and only to the extent  permitted by, all applicable  Legal
Requirements.  If  any  provision  of  any  of  the  Security  Documents  or the
application  thereof to any person or circumstance  shall, for any reason and to
any extent, be invalid or unenforceable, neither the remainder of the instrument
in which such  provision is contained nor the  application  of such provision to
other persons or  circumstances  or other  instruments  referred to  hereinabove
shall be affected thereby, but rather the same shall be enforced to the greatest
extent permitted by law.

         XI.10 Usury:  All  agreements  in the  Reimbursement  Agreement and all
other  Security  Documents are expressly  limited so that in no  contingency  or
event  whatsoever,  whether  by  reason  of  acceleration  of  maturity  of  the
Indebtedness or otherwise,  shall the amount agreed to be paid hereunder for the
use,  forbearance or detention of money exceed the highest lawful rate permitted
under applicable usury laws. If, from any circumstances whatsoever,  fulfillment
of any provision of the Reimbursement Agreement, this Deed of Trust or any other
of the Security  Documents at the time  performance of such  provision  shall be
due, shall involve  exceeding any usury limit prescribed by law which a court of
competent  jurisdiction  may deem  applicable  hereto,  then,  ipso  facto,  the
obligations  to be  fulfilled  shall be  reduced to allow  compliance  with such
limit, and if, from any circumstance whatsoever,  Beneficiary shall ever receive
as interest an amount which would exceed the highest lawful rate, the receipt of
such excess shall be deemed a mistake and shall be canceled automatically or, if
theretofore  paid, such excess shall be credited against the principal amount of
the Indebtedness to which the same may lawfully be credited,  and any portion of
such excess not capable of being so credited  shall be refunded  immediately  to
Grantor.  Grantor hereby  affirms that the  Indebtedness  was obtained,  and the
proceeds thereof have been and shall be used, solely for business purposes.

         XI.11 Entire Agreement and Modification: The Security Documents contain
the entire agreements  between the parties relating to the subject matter hereof
and thereof,  and all prior agreements  relative thereto which are not contained
herein or  therein  are  terminated.  The  Security  Documents  may be  amended,
revised, waived, discharged, released or terminated only by a written instrument
or instruments executed by the party against which enforcement of the amendment,
revision,  waiver,  discharge,  release or termination is asserted.  Any alleged
amendment,  revision, waiver, discharge,  release or termination which is not so
documented shall not be effective as to any party.

         XI.12 Counterparts: This Deed of Trust may be executed in any number of
counterparts,  each of which  shall be an  original,  but all of which  together
shall constitute but one instrument.

         XI.13  Headings and General  Application:  The article,  paragraph  and
subparagraph  entitlements hereof are inserted for convenience or reference only
and shall in no way affect, modify or define, or be used in construing, the text
of such article, paragraph or subparagraph.  If the context requires, words used
in the  singular  shall be read as  including  the plural,  and  pronouns of any
gender shall include all genders.


<PAGE>

         XI.14  Impositions and Insurance Escrow: To implement the provisions of
Paragraphs  4.4 and 4.6  hereof,  upon the  occurrence  of an Event of  Default,
Grantor, at Beneficiary's  request,  shall pay to Beneficiary in advance, as and
when directed by  Beneficiary  and as escrowed sums, an amount equal to the sums
of: (a) monthly,  an amount reasonably  determined by Beneficiary to be equal to
the amount which,  when added to the other monthly  payments to be made prior to
the due date of the annual  Impositions,  shall be  sufficient to pay the annual
Impositions (estimated wherever necessary) to become due for the tax year during
which  such  payment  is so  directed;  and (b)  monthly,  an amount  reasonably
determined by  Beneficiary  to be equal to the amount  which,  when added to the
other  monthly  payments  to be  made  prior  to the due  date of the  insurance
premiums,  shall be sufficient  to pay the insurance  premiums for the same year
for  those  insurance  policies  as  are  required  hereunder.   If  Beneficiary
determines that any amounts theretofore paid by Grantor are insufficient for the
payment in full of such Impositions and insurance  premiums,  Beneficiary  shall
notify Grantor of the increased  amounts  required to provide a sufficient fund,
whereupon  Grantor shall pay to Beneficiary  within thirty (30) days  thereafter
the additional amount so stated in Beneficiary's  notice.  The escrowed sums may
be held by Beneficiary in  non-interest  bearing  accounts and may be commingled
with  Beneficiary's  other  funds.  Upon  assignment  of  this  Deed  of  Trust,
Beneficiary  shall have the right to pay over the balance of the  escrowed  sums
then in its possession to its assignee,  whereupon  Beneficiary  and its Trustee
shall then become  completely  released from all liability with respect thereto.
Upon payment of the Indebtedness  and Obligations,  or at such earlier time that
Beneficiary may elect, the balance of the escrowed sums in its possession may be
paid over to Grantor,  and no other party shall have any right or claim thereto.
If the Event of Default  shall be cured by Grantor,  the  escrowed  sums must be
repaid to  Grantor in  sufficient  time to allow  Grantor  to satisfy  Grantor's
obligations under the Security Documents to pay the Impositions and the required
insurance  premiums or may be paid by Beneficiary  directly to the  Governmental
Authority and the insurance  company  entitled  thereto.  If an Event of Default
shall have occurred or be continuing hereunder,  and Beneficiary has accelerated
the  termination  date of the  Reimbursement  Agreement  as provided for herein,
Beneficiary shall have the additional option of crediting the full amount of the
escrowed sums against the Indebtedness. Notwithstanding anything to the contrary
contained  in  this  Paragraph  11.14  or  elsewhere  in  this  Deed  of  Trust,
Beneficiary  hereby  reserves  the  right to waive the  payment  by  Grantor  to
Beneficiary  of the escrowed  sums and, in the event  Beneficiary  does so waive
such payment, it shall be without prejudice to Beneficiary's right to insist, at
any subsequent time or times, that such payments be made in accordance herewith.

         XI.15 Sole Benefit:  This  instrument and the other Security  Documents
have been  executed  for the sole  benefit of Grantor  and  Beneficiary  and the
heirs,  successors,  assigns and legal representatives of Beneficiary.  No other
party  shall have rights  thereunder  nor be entitled to assume that the parties
thereto  will  insist  upon  strict  performance  of  their  mutual  obligations
hereunder,  any of which may be waived from time to time.  Grantor shall have no
right to assign any of their rights  under the  Security  Documents to any party
whatsoever,  including the right to receive  advances under the Letter of Credit
or otherwise.

<PAGE>

         XI.16 Subrogation: If any or all of the proceeds of the Indebtedness or
the Obligations  have been used to extinguish,  extend or renew any indebtedness
heretofore   existing   against  the  Mortgaged   Property  or  to  satisfy  any
indebtedness  or  obligation  secured  by a lien  or  encumbrance  of  any  kind
(including  liens securing the payment of any  Impositions),  such proceeds have
been advanced by  Beneficiary at Grantor's  request,  and, to the extent of such
funds so used, the  Indebtedness  and Obligations in this Deed of Trust shall be
subrogated  to and  extend to all of the liens and  titles  heretofore  existing
against the  Mortgaged  Property to secure the  indebtedness  or  obligation  so
extinguished,  paid,  extended or renewed,  and the former liens and titles,  if
any, shall not be waived, but rather shall be continued in full force and effect
and in favor of  Beneficiary  and shall be merged with the lien and security for
the repayment of the Indebtedness and satisfaction of the Obligations.

         XI.17  Business  or  Commercial  Purpose:  Grantor  warrants  that  the
extension of credit  evidenced by the Letter of Credit  secured hereby is solely
for business or commercial purposes,  other than agricultural purposes.  Grantor
further  warrants  that the credit  transaction  evidenced by the  Reimbursement
Agreement is  specifically  exempted  under  Regulation Z issued by the Board of
Governors  of the  Federal  Reserve  System and Title I  (Consumer  Credit  Cost
Disclosure) of the Consumer  Credit  Protection Act and that no disclosures  are
required to be given under such  regulations and federal laws in connection with
the above transaction.


<PAGE>

         XI.18 JURISDICTION AND VENUE: GRANTOR HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS  INITIATED BY GRANTOR AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
DEED OF TRUST OR THE OTHER SECURITY DOCUMENTS SHALL BE LITIGATED IN THE SUPERIOR
COURT OF MISSOURI,  ST. LOUIS COUNTY  DIVISION,  OR THE UNITED  STATES  DISTRICT
COURT FOR THE DISTRICT OF MISSOURI OR, IF BENEFICIARY  INITIATES SUCH ACTION, IN
ADDITION TO THE FOREGOING COURTS ANY COURT IN WHICH  BENEFICIARY  SHALL INITIATE
SUCH ACTION, TO THE EXTENT SUCH COURT HAS JURISDICTION. GRANTOR HEREBY EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED  BY  BENEFICIARY  IN ANY OF SUCH  COURTS  AND HEREBY  WAIVES  PERSONAL
SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN,
AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS
MAY BE MADE BY ACTUAL DELIVERY OR REGISTERED OR CERTIFIED  MAIL,  RETURN RECEIPT
REQUESTED,  ADDRESSED TO GRANTOR AT THE ADDRESS TO WHICH  NOTICES ARE TO BE SENT
HEREIN.  GRANTOR  WAIVES ANY CLAIM THAT ST.  LOUIS,  MISSOURI OR THE DISTRICT OF
MISSOURI IS AN  INCONVENIENT  FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE.
SHOULD GRANTOR,  AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT,  PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS  PRESCRIBED BY
LAW AFTER THE MAILING  THEREOF,  GRANTOR SHALL BE DEEMED IN DEFAULT AND AN ORDER
AND/OR  JUDGMENT MAY BE ENTERED BY  BENEFICIARY  AGAINST  GRANTOR AS DEMANDED OR
PRAYED FOR IN SUCH SUMMONS,  COMPLAINT,  PROCESS OR PAPERS,  PROVIDED,  HOWEVER,
BENEFICIARY MAY NOT SEEK A DEFAULT  JUDGMENT FOR AT LEAST THIRTY (30) DAYS AFTER
THE DATE OF PROOF OF  SERVICE.  THE  EXCLUSIVE  CHOICE OF FORUM FOR  GRANTOR SET
FORTH HEREIN SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY BENEFICIARY, OF
ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING,  BY BENEFICIARY,  OF ANY
ACTION TO ENFORCE THE SAME IN ANY OTHER  APPROPRIATE  JURISDICTION,  AND GRANTOR
HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.

         XI.19  WAIVER  OF  RIGHT  TO  JURY  TRIAL:   BENEFICIARY   AND  GRANTOR
ACKNOWLEDGE  AND AGREE THAT ANY  CONTROVERSY  WHICH MAY ARISE UNDER THIS DEED OF
TRUST OR ANY OF THE OTHER SECURITY  DOCUMENTS OR WITH RESPECT TO THE TRANSACTION
CONTEMPLATED  THEREBY  WOULD BE BASED UPON  DIFFICULT  AND  COMPLEX  ISSUES AND,
THEREFORE,  THE  PARTIES  AGREE  THAT  ANY  LAWSUIT  ARISING  OUT  OF  ANY  SUCH
CONTROVERSY  SHALL  BE TRIED IN A COURT  OF  COMPETENT  JURISDICTION  BY A JUDGE
SITTING WITHOUT A JURY.

         XI.20  APPLICABLE  LAW:  THIS  DEED OF  TRUST  AND THE  OTHER  SECURITY
DOCUMENTS SHALL BE DEEMED TO HAVE BEEN, DELIVERED AND ACCEPTED IN, AND THIS DEED
OF TRUST, AND THE OTHER SECURITY DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH
AND  GOVERNED  BY THE  INTERNAL  LAWS AND  DECISIONS  OF, THE STATE OF  MISSOURI
(WITHOUT  REGARD  FOR ITS  CONFLICTS  OF LAW  PRINCIPLES),  THE  STATE  IN WHICH
BENEFICIARY'S  PRINCIPAL PLACE OF BUSINESS IS LOCATED,  AND BY EXECUTION  HEREOF
GRANTOR AND BY  ACCEPTANCE  HEREOF,  BENEFICIARY,  EACH AGREE THAT SUCH LAWS AND
DECISIONS OF THE STATE OF MISSOURI SHALL GOVERN THIS DEED OF TRUST AND THE OTHER
SECURITY   DOCUMENTS,   NOTWITHSTANDING   THE  FACT  THAT  THERE  MAY  BE  OTHER
JURISDICTIONS  WHICH  MAY BEAR A  REASONABLE  RELATIONSHIP  TO THE  TRANSACTIONS
CONTEMPLATED HEREBY; PROVIDED,  HOWEVER, THAT WITH RESPECT TO THE PROCEDURAL AND
SUBSTANTIVE  MATTERS  RELATING ONLY TO THE CREATION,  VALIDITY,  PERFECTION  AND
ENFORCEMENT  BY  BENEFICIARY  OF ITS RIGHTS  AND  REMEDIES  AGAINST  ANY REAL OR
PERSONAL  PROPERTY  COLLATERAL  LOCATED IN ANY STATE OTHER THAN  MISSOURI,  SUCH
MATTERS  SHALL BE  GOVERNED  BY THE LAWS OF THE STATE IN WHICH SUCH  PROPERTY IS
LOCATED.

         XI.21 TENANCY OF GRANTOR:  GRANTOR  HEREBY  RESERVES  POSSESSION OF THE
LAND,  IMPROVEMENTS  AND  FIXTURES AND AGREES TO LEASE THE SAME AS TENANT OF THE
TRUSTEE AT A RENTAL OF ONE CENT PER MONTH,  PAYABLE ON DEMAND, UNTIL AN EVENT OF
DEFAULT SHALL OCCUR HEREUNDER, WHEREUPON GRANTOR SHALL DELIVER POSSESSION OF THE
LAND,  IMPROVEMENTS  AND  FIXTURES  TO  THE  TRUSTEE  OR  THE  PURCHASER  AT ANY
FORECLOSURE OR TRUSTEE'S SALE HEREUNDER.

<PAGE>


         Executed as of the date first above written.

                                        K-V Pharmaceutical Company, a Delaware 
                                        corporation

                               

                                        By:
                                        Name:
                                        Title:




THE STATE OF                        )
                                    )
COUNTY OF                           )

         On  this   ______   day  of   October,   1997,   before   me   appeared
_________________________,  to me personally  known, who being by me duly sworn,
did say that he is the _______________ of K-V Pharmaceutical Company, a Delaware
corporation  and that said  instrument  was signed in behalf of said  company by
authority of its Board of Directors and said  _______________  acknowledged said
instrument to be the free act and deed of said company.

         IN WITNESS WHEREOF,  I have hereunto  subscribed my name and affixed my
official seal the day and year last above written.



                                       ----------------------------------------
                                       Notary Public
My Commission Expires:

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

<PAGE>

                                   Exhibit "A"

                              PROPERTY DESCRIPTION

         Lot 2 of WESTPORT INDUSTRIAL  SUBDIVISION FIRST ADDITION,  according to
the  plat  thereof,  recorded  in Book  106,  page 12 in the  St.  Louis  County
Recorder's Office.


<PAGE>


                                   Exhibit "B"

                             PERMITTED ENCUMBRANCES

         1. All assessments and taxes for the year 1997 and all subsequent years
for the County of St. Louis and City of Maryland Heights.

         2.  Building  lines and easements  established  by the plat recorded in
Plat Book 106 page 12, and covenants and restrictions, including a provision for
Subdivision Assessments,  contained in the instrument recorded in Book 4997 page
13.

         3. Terms, conditions, covenants and provisions contained in Declaration
creating West Port Industrial  Community  Association recorded in Book 4997 page
13.

         4. Terms,  conditions,  restrictions and assessments contained in sewer
contract recorded in Book 4885 page 463.

         5.  Easement  granted  to Fee Fee  Trunk  Sewer,  Inc.,  by  instrument
recorded in Book 4981 page 379.

         6. Easement granted to The St. Louis County Water Company by instrument
recorded in Book 5955 page 271.

         7.  Easement  granted  to  Southwestern   Bell  Telephone   Company  by
instrument recorded in Book 6011 page 252.

         8. Easement granted to Union Electric  Company  according to instrument
recorded in Book 6091 page 240, as partially  released  according to  instrument
recorded in Book 7299 page 2494 of the St. Louis County Records.

         9. Easement granted to Union Electric Company by instrument recorded in
Book 8881 page 1786.